annual report 2012 - AnnualReports.com

annual report 2012 - AnnualReports.com

annual report 2012 APN News & Media Limited ABN 95 008 637 643 apn at a glance Contents Key Results 2 Chairman’s Report 4 Australian Regional Media...

3MB Sizes 0 Downloads 35 Views

Recommend Documents

2012 BluesPAC Annual Report
Shirley Glazier. Antoine Glenn. Glynis Glover. Lisa Glynn. Adam Gnesin. 15 ..... John Tudball. Mary Tully. Kathy Tungate

2012 Annual Report - Benevilla
Gerald L. & Margaret M. Schuld‡. James L. & Annella ... Pat & Kathleen Crowley‡. Gerald L. Dancy ..... Marcia B. Fog

2012 Annual Report
Douglas W. Shorenstein. Mailing Address P. O. Box 410715, San Francisco, CA 94141. Street Address 2030 Harrison St., 3rd

2012 Annual Report - NISD
Bernita Helberg and Lillian Yeh,. DBO USA, LLP. Financial Advisor. Michael Clark ..... Sandy Morander. Patricia Moreno.

2012 Annual Report - DAREarts
Michael Nowlan, President and CEO of Marketwire, as Treasurer and Paul Semple ..... David Wallace, Michael Wekerle, Jame

2012 ANNUAL REPoRT
Nov 1, 2012 - photograph by Werner Stegemeyer (1968). Wood, paint ... Death of a Giant, 2011. Silkscreen ..... Ted Sergi

ANNUAL REPORT 2012
Oct 3, 2012 - Betfair revolutionised the sports betting industry in 2000, offering customers better value and more choic

MusicACT ANNUAL REPORT 2012
Gould (Regurgitator, Midnight Oil, Kate Miller-. Heidke). We will be kicking off 2013 with a song-writing workshop featu

Annual Report 2012 - Oerlikon
Mar 4, 2013 - Signing of technology ..... The Oerlikon Group provides leading technology solutions that ..... The McLare

2012 Annual Report - Brookings
The Global Cities. Initiative—a joint initiative with JPMorgan Chase—is helping metropolitan areas leverage their po

annual report 2012 APN News & Media Limited ABN 95 008 637 643

apn at a glance Contents

Key Results 2 Chairman’s Report 4 Australian Regional Media 6 New Zealand Media 8 Radio 10 Outdoor 12 Digital 14 Corporate Social Responsibility 16 People and Culture 18 Corporate Governance 20 Director’s Report 27 Remuneration Report 34 Auditor’s Independence Declaration 44 Financial Statements 45 Directors’ Declaration 95 Independent Auditor’s Report 96 Shareholder Information 98 Five Year Financial History 100 Corporate Directory IBC

APN annual report 2012

New Zealand Media

Australian Regional Media

APN is New Zealand’s leading publisher with a portfolio of newspaper, digital and magazine titles that engage with 2.7m people every week.

Read by

53,000

people

each week

ail NewsM 22°C Bundaberg

– 31°C

y 31, 2013

ay, Januar

Thursd

Conn

ty Communi ecting Our

il.com.au news-ma

PRICE:

The New Zealand Herald is the country’s best selling newspaper, with a brand audience across print and online that has shown double digit growth over the past five years.

$1.20

L LONG HAU L TO POL IN ELECTION BER: P12 SEPTEM

E RY FORC RECOVE OF HOP INSIDE SONGS FLOOD COVERAGE S OF 12 PAGE

: The ARRIVES cy CONVOY Emergen in Army’s arrives Force with Support rg to help Bundaberecovery effort. the

MIKE KNOTT

RGMC

PHOTO:

CMM14504

ts to drop water star weeks d for as for two ccounte closed concert e still una Tallon Bridge G: Som d cuees with MISSIN : Damage cheer eva ACTION icians OUT OF E: Mus

Digital APN’s digital portfolio has three key ventures. GrabOne, the number one group buying business in New Zealand, online shopping club brandsExclusive and digital retail advertising network CC Media. Digital is also an integral component of APN’s publishing, radio and outdoor brands, including digital billboards and the nzherald.co.nz website and iPad app.

APN publishes seven daily regional newspapers and their companion websites and more than 35 community newspapers. The magazine stable includes the New Zealand Woman’s Weekly and the New Zealand Listener among its eight titles.

Outdoor APN is a key publisher in regional Queensland and northern NSW.

APN’s Australian Regional Media (ARM) portfolio includes 12 daily newspapers, more than 56 non-daily newspapers and over 30 websites.

With a publishing footprint from Coffs Harbour to Airlie Beach, ARM connects with over 1.1m consumers every week, providing advertisers with a highly targeted media platform to engage with large regional audiences.

Radio APN operates two successful radio businesses in a joint venture with clear channel.

Australian Radio Network operates the Mix and Classic Hits networks across Sydney, Melbourne, Adelaide and Brisbane. It also broadcasts The Edge 96.One in Sydney and owns a 50% interest in both 93.7 FM in Perth and Canberra FM Radio. The Radio Network in New Zealand operates the #1 national network, Newstalk ZB and has three of the top five national networks, Newstalk ZB, Classic Hits and Coast. Its other networks are ZM, Hauraki, Flava and Radio Sport.

APN’s outdoor group consists of APN Outdoor, Adshel and Hong Kong Outdoor.

APN Outdoor offers extensive billboard, transit and airport advertising across Australia and billboard advertising in New Zealand. APN Outdoor is a joint venture with Quadrant Private Equity.

the use of digital technologies to enable consumers to interact with brands. In Hong Kong Outdoor, Cody provides premium billboard advertising, and Buspak offers exterior and multimedia bus advertising. Both Adshel and Hong Kong Outdoor are joint ventures with Clear Channel.

Adshel specialises in street furniture advertising and infrastructure in Australia and New Zealand, delivering high impact campaigns including

1

key results Australian Radio Network, Adshel and GrabOne all achieved record results and won market share in 2012. Australian Regional Media and New Zealand Media made extensive changes to rejuvenate products and reduce costs, however weak advertising markets meant that results for publishing were down overall.

Revenue

EBITDA1

$929m down 13%

$156m

2

down 25%

The formation of the APN Outdoor joint venture had a major impact on results. Continuing operations delivered revenue of $857m, up 2% and EBITDA of $149m, down 14%.

Adjusted net profit after tax

Statutory net loss after tax

$54m

($456m)

2

in line with guidance

Statutory net loss after tax includes non-cash impairments of $638m associated with publishing assets.

Net debt reduced by

$180m –N  et debt was reduced by $180m primarily via the formation of the APN Outdoor joint venture –A  PN did not pay a final dividend for 2012 – Reducing APN’s debt level is an onging objective 1 Earnings before interest, taxes, depreciation and amortisation. 2 Before exceptional items based on segment reporting.

2

divisional highlights

Publishing

Radio

$25m + $25m

Cost out

20

ARN outperforms the market for 20 consecutive months3

– Cost initiatives deliver $25m with another $25m expected in 2013

– Australian Radio Network (ARN) revenue up 5% while market down 1%. ARN EBITDA up 7%

– Relaunch of the weekday New Zealand Herald as a compact

– ARN achieves highest ratings in target audience in 5 years

– Transformation of sales and editorial approach in Australia

– Newstalk ZB remains #1 national station in New Zealand and Coast moves to #1 national music station

– Digital first sites deliver $2m EBITDA improvement

– New CEO of The Radio Network driving a program of change with early wins

Outdoor

Digital

2%

Aus Market

+93%

17%

AdShel

grabone revenue

– Australian market up 2%, Adshel revenue up 17% and EBITDA up 29%

– APN increases equity in GrabOne to 100% and acquires 82% of brandsExclusive

– Strategic wins and renewals drive results for Adshel and APN Outdoor

– GrabOne revenue up 93% and EBITDA up 7 times

– APN Outdoor at the forefront of rolling out premium digital billboards

–G  rabOne leads New Zealand with approximately 75% market share

2012 Segment result Revenue FY 2012

Local currency

As reported

EBITDA FY 2012

Local currency

As reported

248.8

(10%)

(10%)

38.7

(30%)

(30%)

New Zealand Media

287.4

(7%)

(5%)

47.8

(24%)

(23%)

Australian Radio Network

140.0

5%

5%

50.8

7%

7%

The Radio Network (NZ)

86.7

(2%)

(0%)

15.1

(12%)

(11%)

Outdoor group

110.5

(58%)

(58%)

19.6

(57%)

(57%)

Digital group4

55.3

367%

374%

(0.8)

82%

82%

AUD million (year on year growth %)

Australian Regional Media

Corporate Total







(15.2)

(7%)

(7%)

928.6

(14%)

(13%)

156.0

(26%)

(25%)

3 At February 2013. 4 Includes businesses acquired during the year.

3

chairman’s report

Dear Shareholder It is my pleasure to write to you as the Chairman of APN News & Media. I was appointed Chairman on 19 February 2013 and have served on the Board of APN since 2003. Although it has been an eventful year at APN, particularly over the last couple of months, I wish to assure you that despite the changes in the Board, your Company, supported by a suite of strong media assets with capable executive teams working across the businesses, remains confident of its future. Despite a difficult and disappointing trading environment in 2012 created by weak advertising markets, our strategy remains to reposition APN for growth. Worldwide the media industry continues to confront the challenges to newspaper publications. APN is facing similar challenges to its publishing assets in both New Zealand and Australia. The publishing divisions are pushing through extensive change agendas to re-engineer their business models, revitalise products and drive efficiencies. Cost reduction programs delivered $25m of savings in 2012 with another $25m reduction expected in 2013. Initiatives in the year ahead include the consolidation of print operations and outsourcing. To some extent the decline in publishing revenue is being offset by strong performances by Australian Radio Network, Adshel and GrabOne. These operations all outperformed the market with gains in revenue, EBITDA and market share. The formation of APN Outdoor as a joint venture leveraged APN’s expertise into a well capitalised vehicle. It also improved the balance sheet and created some flexibility to pursue our strategy. APN strengthened its digital capabilities through the acquisition of 82% of online shopping club brandsExclusive and increasing equity in GrabOne to 100%. The focus now is to drive the performance of the ventures and link them to each other and to APN’s publishing, radio and outdoor assets.

1 Before exceptional items.

4

The Company reduced net debt by $180m in 2012. Our intention is to reduce debt again this year by $40-$50m through organic cash generation, active management of the cost base and some asset sales. As part of the debt reduction program the Board decided not to pay a final dividend for 2012. Revenue for the year was $929m and EBITDA1 was $156m. Net profit after tax and before exceptional items was $54m. Impairment charges of $638m against publishing assets in Australia and New Zealand were recognised during the year. After taking these into account, together with the gain arising on the disposal of APN Outdoor and other exceptional items, the statutory net loss for the year was $456m. Board renewal There have been a number of changes to the Board over the past year. Gavin O’Reilly resigned as Chairman in April 2012 when he stepped down as CEO and Managing Director of Independent News & Media plc (INM). Peter Hunt was appointed Chairman in July 2012. Paul Connolly was appointed as a Non-Executive Director in October 2012. On 18 February 2013, the Company announced the resignation of Peter Hunt along with that of CEO and Managing Director, Brett Chenoweth and three independent directors, Melinda Conrad, John Harvey and John Maasland. The recent Board resignations were triggered by a difference of opinion on how APN should reduce its debt levels. On behalf of the Board I would like to thank Peter Hunt, Melinda Conrad, John Harvey and John Maasland for their contribution to APN. I would also like to acknowledge the contribution of CEO Brett Chenoweth, who was at the helm of APN during two of the most challenging years the Company has experienced. Brett approached his role with determination and clarity, providing leadership when it was most needed. We thank Brett for his service and wish him well for the future.

APN annual report 2012

It is important to emphasise the strength and diversity of APN’s businesses. We have valuable brands that generate significant cash flows and profits for shareholders.

APN has commenced a search for a new CEO and additional Board members. We are committed to increasing the number of independent Directors. Pending these appointments the Company is currently being overseen by a leadership team comprised of myself, Deputy Chairman Ted Harris and Chief Financial Officer Jeff Howard. It is important to emphasise the strength and diversity of APN’s businesses. We have valuable brands that generate significant cash flows and profits for shareholders. While there is much discussion about the structural changes to newspapers, it is worth reminding shareholders of the strong market positions of our regional newspapers and the critical role they play in providing local relevant news and information for their communities. The New Zealand Herald continues to be New Zealand’s leading publication.

I would like to thank all APN employees for their dedication and commitment to their roles. It is a difficult but exciting time to be involved in the media industry, and many have chosen a career in media because of the unique challenges it presents. I would also like to thank you, our shareholders, for your ongoing support and belief in the Company. I look forward to updating you at the Annual General Meeting on 2 May 2013.

Peter Cosgrove Chairman 14 March 2013

While the challenges the Company faces are ongoing, they are in no way insurmountable. You have the assurance of the Board and senior management that every effort will be made to maximise performance.

5

australian regional media Essential, Local, Evolving

INSIDE: Evidence suggests ‘man flu’ is

real

$1.20 Wednesday, January 30, 2013

or:

tion:

1

e:

13

15:4

6-20

e:

tuar

r: Use

t

Tim

02-2

l.S Pau

IFE

YL MIL

FA

Pub

Zon

All

eir

25-0

Pro

6

13

N

SC

pty

t em

s g lo

EG

Edi

2-20

e:

Dat

: duct

e: Pag

ust

dj rs a

h to t

Col

new

te

nes

facebook.com/thenorthernsta

r

K Y M C

tus sta

P10

the Northern Rivers

y tor

–s

on

0428 264 948

[email protected]

e Pag

20

13

20 25, ARY

ONLY WAY TO TRAVEL: Nick and Isaac Fuad, 8, of North Lismore, arrive in a boat to pick up Isaac's mother after she was stranded in Lismore overnight.

❚ 250-bert h ❚ 750 res marina ort villas ❚ 300 ap artment s ❚ Hotel ❚ 18-hole golf cours e ❚ 1500 job s Reaction, pla and storie ns s P4-5

2013, 7pmn session

ld.edu.au/

N

MO

PHOTO

: FILE

New class early as rooms, more boar 2014) and ding Secondar facilities and increased y students reso (Year 7, from 2015 urces will be deve ). We’re loped to receiving accommo applicatio date appr ns now oximately and will 250 addi interview tional Prim families later in the year. ary (Prep to Year more inform Please g by ema 6, from Talk to join us ation please us about iling to learn as an unforge visit www. ttable educat more. rgs.q 13

2014/2 this Tu 015 Enrol

at the Sch esday, 12 ment inform ool’ March atio

s auditori Register um mdonahuyour inter [email protected] est in atte For ld.edu.au ndin

Rockha mpton Gra

Counting the cost U

EBR

,F DAY

SURVIVO Terry AgneR: Tower Hold ings CEO Yesterday w on Great Keppel Island. the local he thanked the Revitalis community as support of ation Plan his GKI More than was support 7500 people approved. “possibly show other priva unrivalled ed te proje ct in Aust by any ralia”.

PHOTO: MARC STAPELBERG

$1 Would ce Pri you like your ch ild to at tend Th e

pin Hel

IN

(Most of th Holdings e) region celebr at ge approval ts green light to es as Tower comes w build – bu ith 96 co nditions t : P4-5

www.northernstar.com.au

N_0

n

Mai

GKI’S $6 BOAT CO 00M MES

Fire guts Lennox home

P8

Connecting communities across

2015 -chan

mmar Sc hool?

ion 00 GR AMMA www.rgs.q R ld.edu.au

ges

Ever y opp ortunity . Ever y

student. Ever

y day.

■ Disaster relief available ■ Major roads still closed ■ Power cuts may last for days ■ Some school s stay shut Stories P2-7, Pics 12-13 iTed Lim

ffer eO Tim

w orro Tom world y the Dimit for

less stress

more relax

refinance with us and pay no establishm ent fee*

Terms & conditions, fees & charges apply. *No establishment fee applies to home loans only. See us for details.Australian Credit Licence 239238

ask us now

1300 802 222 • summerland.com.au

: OTO

ASP

S D EN F E D ES Y RC MAT A ’ D AM TE PH

on r e is toyl ur afte er. yS re imit ld To r ca r in er D 14 Wor of he ilove ’s en bo in surf IM the 20 est w ed a s Wom r us de DER rt BU se fo e biggold ca r Po she ip n cour ing th-year- Hunte whe onsh RT scor e 21 of the castle hampi s. SPO Th nal C bbon RY IN New orld fi the ssic in 12 W Fitzgi STO Cla ed 20 p Sally FULL feat er-u runn

has E rcy AN D’A team -O’K ick ming a con RTY nN pia swim ed in e Lon lym his roil at th st O s of emb iour oa e on E2 B E C acti om ehav PAG HIN the e becbad b ON NS ED SU ended ho havtheir NU def es w over NTI CO mat ersy pics. trov Olym don CCA

M NE

XAN

O yR

g’

ndin

y

‘The

e wer

D EN

! ES!! PRIC DE TRA AT PS HTS BLIC U M OP PU L LIG GT O CO LIN SEL • E . PO ip)

ON AS E S OF g

doin

S

h S CTS ER L.E.D dealers DU RO AN • W LP LE RS BM OO L C TO YP t to LIT ex OO RINA UA P i (n 793 Q d O O M un 1 4 UT CHL im 9 MIU urr 54 •A PRE

S LIE PP E SU OUS OL EH PO AR W

6

ir the

ntr cou eir h t r E! t fo bes AL

RS

E ILT

•F



ay nW

kli

ic 2N

78

bo y by

C

l Te

a

095a

5137

APN annual report 2012

APN is a key publisher in regional Queensland and northern nsw with a portfolio of 12 daily newspapers, more than 56 non-daily newspapers and over 30 websites.

Australian Regional Media (ARM) titles represent over half of all regional daily newspapers sold in Queensland. Every week ARM engages with almost 1.1m people via print, online and mobile with 21% engaging with two or more platforms. Its newspaper brands have played an integral role in regional communities, some for more than 150 years. ARM’s vision is to be an essential part of people’s daily lives. ARM also operates five commercial printing sites and APN Educational Media. ARM is pursuing a strong change agenda to ensure success in a digital era and in response to the challenging trading environment. The aim is to develop a simpler, more profitable business. In late 2012, ARM overhauled the management structure of 20 geographically distinct sites and now manages them as five key regional areas. This removes duplication, creates headroom for investment and improves overall capabilities. ARM’s ongoing sales transformation program continued to increase effectiveness and better serve its clients. Investments in technology, mobility solutions and self-service solutions are being introduced to drive greater efficiencies. Digital capabilities were improved with the relaunch of 30 websites, transforming them from basic news sites to vibrant community hubs brimming with local news, information and conversation. The design reflects extensive research to ensure the sites meet the needs of local audiences and businesses.

ARM restructured its editorial teams with an emphasis on publishing news as it happens on the digital sites and then developing it for use on different platforms. The team also created new content verticals such as business, mining and food. The result is a more streamlined operation producing more relevant content for each platform and audience segment. The digital first sites in Coffs Harbour and Tweed Heads delivered an EBITDA improvement of $2m on a lower revenue base. Deteriorating advertising markets had a substantial effect on ARM’s revenue. 2012 revenue was $249m, down 10% and EBITDA was $39m, down 30%. The greatest impacts were the slowdown in Queensland’s mining sector which reduced employment advertising and the decline in Federal and State government advertising. Excluding these factors, the decrease in advertising revenue was 4%. ARM reduced its cost base and delivered a range of product initiatives, but it was not able to offset the advertising decline. The cost reduction program is ongoing. In the year ahead, ARM will continue to streamline its operations and further centralise and outsource back office services. Opportunities to consolidate the commercial print operations will also be pursued. Investments will be made in select products including local digital solutions as well as technology and training to improve performance. The floods in January and February 2013 have caused significant disruption across much of the region. The full financial impact for ARM is still being assessed.

7

new zealand media The more you know, the better

8

APN annual report 2012

APN is new zealand’s leading publisher with a portfolio of newspaper, digital and magazine titles that engage with almost 2.7m people every week. It has the country’s most influential and engaging brands including The New Zealand Herald, nzherald.co.nz, the New Zealand Woman’s Weekly and the New Zealand Listener.

A total 1.4m New Zealanders connect with The New Zealand Herald brand across print and online every week and this audience has shown double digit growth over the last five years. Recognised for its comprehensive, in-depth coverage of international, national and local events, readership of the Herald print product is more than double any other daily newspaper in New Zealand. New Zealand Media (NZM) titles have won Newspaper of the Year at the Canon Media Awards for the last five years and the Herald’s website continues to win numerous awards in New Zealand and internationally. In the last 12 months, NZM has successfully delivered a major rejuvenation program to help counter the structural changes occurring in media and the prolonged, weak advertising markets. At the heart of the program was the relaunch of the weekday New Zealand Herald as a compact, with a new design and approach to content and deeper digital integration. Representing one of the most significant changes in the Herald’s 150 years, the compact Herald has been embraced by readers and advertisers. nzherald.co.nz was also refreshed which has driven increased revenues. Regional titles have been progressively converted to compact format and morning delivery which has increased readership. NZM has restructured the sales team with a multimedia approach which has strengthened advertising relationships with key clients. It has also launched Food Hub, a digital vertical with content from across APN’s portfolio.

NZM continued to deliver substantial cost savings during 2012. This included restructures to drive efficiencies in senior management, editorial, online and marketing. Further cost reductions will be made in the year ahead. NZM has made a strategic decision to focus on its publishing business in the North Island, where more than 80% of New Zealand’s population growth will occur over the next decade. A process to sell regional publishing assets in Christchurch and Oamaru is well underway, and the sale of a small chain of Wellington community titles was announced in February 2013. There is a proposal to outsource most print requirements and retain only one print centre under APN ownership at Ellerslie in Auckland. Other initiatives include consolidating circulation and logistics management, streamlining IT infrastructure and outsourcing the majority of advertising production. There will also be further product rejuvenation in the year ahead. A refreshed Herald on Sunday was launched in February 2013. Conversion of the regional titles in Hawke’s Bay, Bay of Plenty and Rotoura occurred in March 2013. All of APN’s daily newspapers in New Zealand are now compact in format and morning delivery. The team is accelerating its integrated advertising solutions across print, radio and outdoor and is already achieving good wins from this approach. It is enhancing digital capabilities and building digital transaction revenue. Data analytics capability is being extended to deliver best in class consumer insights to maximise advertiser campaigns.

However, these positive initiatives have not been enough on their own. NZM felt the full force of the advertising downturn during the year. Advertising revenues declined 8% with the majority of the shortfall in the display and employment categories. Total revenue was $287m, down 7% and EBITDA was $48m, down 24% on a local currency basis.

9

radio

Talent, Successful, Growing

APN operates two successful radio businesses in a joint venture with Clear Channel. Australian Radio Network (ARN) and The Radio Network (TRN) in New Zealand delivered total revenues of $227m, up 2% and EBITDA of $65.9m, up 2% on a local currency basis.

10

APN annual report 2012

Australian Radio Network ARN is one of the leading broadcasters in the commercially important 25-54 demographic reaching over 4.8m listeners. It operates the Mix and Classic Hits networks across Sydney, Melbourne, Adelaide and Brisbane. ARN also broadcasts The Edge 96.One in Sydney and owns a 50% interest in 93.7FM in Perth as well as a 50% interest in Canberra FM Radio.

The Radio Network TRN operates the #1 national network, Newstalk ZB, and has three of the top five national networks, Newstalk ZB, Classic Hits and Coast. TRN’s other networks are ZM, Hauraki, Flava and Radio Sport. 1.34m New Zealanders tune in to TRN’s stations each week, with a steadily increasing audience engaging with the brands online.

ARN performed strongly in 2012, increasing market share by 7%. While the Australian radio market was down 1%, ARN revenue was up 5% to $140m and EBITDA up 7% to $51m. As at February 2013, ARN has exceeded market revenue growth for 20 consecutive months.

In 2012, the New Zealand radio market was flat. TRN’s revenue was $87m, down 2% and EBITDA was $15m, down 12% on a local currency basis. The results reflect, in part, costs associated with restructuring the management team, a weaker direct sales performance plus investment in content, marketing and digital capabilities.

During 2012, ARN achieved the highest ratings for its target audience, aged 25-54, in five years. Mix 102.3 in Adelaide remained #1 for every survey and 97.3 in Brisbane regained #1. Melbourne’s Mix 101.1 breakfast show, with new hosts Chrissie Swan & Jane Hall, achieved its best ratings since 2004. Sydney’s WSFM breakfast duo Jonesy & Amanda achieved the highest ratings in their seven year partnership1. Jonesy & Amanda also won the Australian Commercial Radio Award for Best On Air Team. ARN continued its success in digital broadcasting. It launched ‘Be Active’ radio, a dedicated DAB+ station for SA Health, pop up iHeartRadio 2 Festival station and DAB+ station Mix 90’s. Chemist Warehouse Remix, created by ARN and Quattro Group, won the Australian Commercial Radio Award for Best Sales Promotion. ARN won the Australian Commercial Radio Award for Best Digital Radio Format – Short Term for Christmas pop up station Elf Radio. In October, ARN and TRN announced they will launch iHeartRadio in Australia and New Zealand. iHeartRadio is the fastest growing digital radio platform in the United States with 48m users since launch in 20082. It delivers instant access to over 1,000 FM, AM and digital only radio stations, plus user created custom stations inspired by favourite songs and artists. In January 2013, Mix launched Sydney’s only all female breakfast show with Sami Lukis & Yumi Stynes as well as new drive show Rosso on Mix in Sydney and Melbourne.

New CEO Jane Hastings started in September and is driving a program of change to rebuild TRN. A business review has resulted in a restructure of the management team, including a number of new senior appointments. The sales team has been reorganised and new strategies are driving improvements in performance. Increasing TRN’s digital capabilities was a strong focus for the year. This included further developing mobile, video and social products, hosting exclusive video content from the radio brands and creating apps to monetise social media. Digital revenue grew 26% and a record 50% of the sales force sold digital campaigns. TRN invested in proven talent during the year with Martin Devlin joining the Hauraki rock network and Jason Gunn joining the Classic Hits drive show. Newstalk ZB also refreshed its weekend line up. Newstalk ZB won a gold medal for its coverage of the Christchurch earthquake at the New York Festivals International Radio Program and Promotion Awards, and Newstalk ZB breakfast host Mike Hosking was named Best Talk and Current Affairs Host at the 2012 New Zealand Radio Awards. In terms of ratings, Newstalk ZB remains #1 station nationally and Newstalk ZB host Mike Hosking continued to lead the breakfast ratings. Coast moved to #1 music station nationally with a record audience share. However, TRN’s share of 10+ listeners dropped from 44.9% to 43.3%3. The focus for 2013 is to rebuild TRN into a leading media business with enhanced content, sales and iHeartRadio as high priorities to deliver an improved profit performance. In January 2013, TRN relaunched Radio Hauraki with a new brand, music and talent line up. High profile talent Jack Tame has joined Newstalk ZB and Andrew Mulligan will join Radio Sport mid-year.

1 Nielsen Radio Ratings 2012. 2 http://mashable.com/2013/02/13/music-services-compared-2/ 3 Research International Radio Audience Measurement Surveys 2-2012, October 2012.

11

outdoor Digital, Strategic wins, Interactive

APN’s outdoor group consists of apn outdoor, adshel and hong kong outdoor which are all joint ventures. In 2012, these businesses generated total revenues of $389m, up 5% and EBITDA of $69m which is consistent with last year.

12

APN annual report 2012

In Australia, the outdoor market was up 2% demonstrating its resilience in challenging economic conditions. However, in New Zealand, the outdoor market was down 19% accentuated by Rugby World Cup comparisons for billboards in particular. APN Outdoor APN Outdoor offers creative outdoor advertising on an extensive network of large format billboard, transit (bus, tram, rail) and airport assets. APN Outdoor was established as a joint venture with Quadrant Private Equity in May. Full year revenue was $208m, down 3% and EBITDA was $30m, down 19%. During 2012, APN Outdoor reinforced its position as the leader in transit advertising in Australia, renewing exclusive advertising contracts for bus fleets with the NSW State Transit Authority, the South Australian Government and the Brisbane City Council. Marking a new milestone in its relationship with CityRail, APN Outdoor sold ‘on train’ advertising for the first time on CityRail trains. It also secured advertising rights to Virgin Australia’s Brisbane terminal, becoming APN’s fifth airport contract in addition to Sydney, Perth, Canberra and Christchurch airports. APN Outdoor remains at the forefront of rolling out large format digital billboards in Australia with billboards already at a number of landmark sites. During the year it established Brisbane’s first premium digital billboard and received approval for another two. APN Outdoor has recently created a specialist digital team and will continue to expand its portfolio in the new year. APN Outdoor also strengthened its senior management team during the year and refreshed its brand.

2012 was a record year for Adshel with revenue of $143m, up 17% and EBITDA of $35m, up 29%. It also made strong gains in market share. This success was driven by a number of factors including strategic contract wins in 2011, improved sales strategy and a stronger market proposition. It also offered greater flexibility in its advertising cycles which created opportunities for tactical campaigns and increased its success in a short market. A video ethnography on ‘a day in the life’ of nine consumers across key audience segments gave Adshel the opportunity to showcase its insights on consumer behaviour with agencies. Other research allowed Adshel to capture the uplift in sales created by one of its advertising campaigns. Highlights during the year included winning Media Sales Team of the Year at the Mumbrella Awards and the Adshel Creative Challenge, which saw the best creative talents in Melbourne gather to come up with an effective outdoor advertising campaign to help not for profit organisation, Step Back Think. In February 2013, Adshel reignited its brand ‘look and feel’ to better reflect its culture and products. Hong Kong Outdoor In APN’s Hong Kong Outdoor division, Cody offers premium billboard advertising and Buspak provides exterior and multimedia bus advertising. Revenue for Hong Kong Outdoor was A$39m, up 17% and EBITDA was A$4m, down 16%. The billboard business performed well with revenue up 20% year on year. Hong Kong’s tunnels remain the key focus while also diversifying the billboard portfolio downtown.

Adshel Adshel specialises in advertiser funded street furniture solutions and has over 16,000 advertising panels across bus and tram shelters and railway networks in Australia and New Zealand.

Exterior bus advertising improved throughout the year after a slow start. Webus (wifi on buses), was expanded to 300 buses during the year. Usage increased 64% and members increased 45%. The focus is now monetising the product via advertising and transaction platforms.

Adshel works with agencies and advertisers to deliver high impact campaigns. These range from successive or synchronised panels that dominate an area, to digital panels using technology like touch screens or QR codes that enable consumers to interact with brands.

In July 2012, Buspak won a contract to provide Buzplay (onboard TV), for buses in Hong Kong. This has delivered incremental revenues but negatively impacted EBITDA due to product development. Integrated campaigns across wifi, onboard TV and bus exterior are a key priority for the coming year.

13

digital Agile, Entrepreneurial, Focused

APN strengthened its digital ventures portfolio during 2012 increasing equity in GrabOne from 75% to 100% and acquiring 82% of brandsExclusive.

14

APN annual report 2012

The key digital ventures, GrabOne, brandsExclusive and CC Media, provide APN with the core transactional platforms and capabilities it needs in Australia and New Zealand. The focus now is to create value by driving organic growth in the key ventures and linking them with each other and with APN’s other media assets. The digital ventures generated strong revenue growth in 2012 and are expected to make a material contribution to APN’s revenue and earnings in 2013. GrabOne GrabOne continues to lead the group buying market in New Zealand with approximately 75% market share. GrabOne achieved excellent results with revenue of $14.8m, up 93% and EBITDA of $4.4m, up 7 times. Membership grew 40% over the last year to more than 1m members. GrabOne sold 3.1m coupons, an increase of 46%, and featured more than 15,000 merchants. Gross coupon sales exceeded $74m. GrabOne has now become an integral part of everyday life for a significant number of New Zealanders, with one purchase taking place every 15 seconds, 24 hours a day, 7 days a week. GrabOne has saved its members more than $300m to date and counting. It has also responded to the changing habits of consumers with up to a third of all purchases now taking place on a mobile device, making it one of the leading mobile commerce businesses in New Zealand. In the 2.5 years since launch, GrabOne has transitioned from start up to a successful profitable business with a strong management team and strategy. In February 2013, Vaughan Magnusson was appointed CEO following a decision by founding CEO Shane Bradley to step down. Vaughan had been CFO and a key member of GrabOne’s leadership team since launch. Initiatives for 2013 include launching new product verticals and new platform features. brandsExclusive brandsExclusive is an online shopping club which partners directly with premium brands to offer exclusive sales to members with heavy discounts off recommended retail prices. It is one of the leading eCommerce businesses in Australasia. Full year revenue was $57.0m, up 13%, and EBITDA was a $4.2m loss, which includes $3m investment in growth initiatives.

Growth initiatives since acquisition by APN in June include acquiring 500,000 new members below target cost, bringing total membership to 2.4m, and launching in New Zealand with significant membership growth from GrabOne. In addition, brandsExclusive introduced the operational capability for customers to buy from multiple sales in a single transaction. This was a first in Australia and has increased average spend by 15%. APN’s radio, outdoor, print and digital assets have contributed to building brand and driving sales conversion. brandsExclusive has been recognised as one of the fastest growing businesses in Australia, ranking number five in the BRW Fast Starters list for 2012 and receiving the Online Retail Industry Award for Best Mobile Commerce 2012. It also won the 2012 Deloitte Technology Fast 50 Award for the fastest annual revenue growth of a private or public company in Australia over the last three years. In recent months, there has been a focus on increasing the conversion of membership to sales and stronger revenue and earnings growth is expected in 2013 as a result. For 2013, the key priorities are member retention and conversion. Continuing member acquisition remains important. CC Media CC Media enables retailers to engage with consumers by distributing digital retail catalogues via its powerful iNC network that reaches over 3.8m consumers every month. In 2012, CC Media produced solid results with revenue of $5.2m, up 7% and EBITDA of $1.5m, up 52%. It acquired key new customers including David Jones, Ikea and The Good Guys and launched in New Zealand. CC Media expanded its mobile offerings and mobile campaigns, which now account for 40% of volume. The business strengthened its senior team, bringing in new capabilities and laying the foundations for succession planning. In 2013, CC Media plans to diversify its product range and enhance its distribution network with a focus on mobile devices. It will drive growth in New Zealand in partnership with the New Zealand Media sales force and pursue deeper integration with APN businesses, particularly in relation to sales force opportunities and data synergies.

15

Corporate Social Responsibility

APN and its businesses supported many charity and community initiatives in 2012. Making a meaningful contribution: Charity APN was a major sponsor of the Australian Children’s Music Foundation, which provides music lessons and instruments to disadvantaged children in schools and juvenile detention centres. Adshel, APN Outdoor and Australian Radio Network (ARN) were sponsors of the Sydney Children’s Hospital Gold Week Telethon. A highlight was the involvement of WSFM’s Sydney breakfast team, Jonesy & Amanda, who raised funds for a music therapist for the hospital. Adshel and APN Outdoor took part in the national ‘Wall of Hands’ campaign for the Australian Literacy and Numeracy Foundation. Their donation of outdoor advertising helped to raise money for the development of life-changing programs for children in remote areas of the Northern Territory. Adshel donated street furniture advertising to the charities R U OK?, Open Families Australia and the Royal Institute for Deaf and Blind Children during its Christmas promotion. These campaigns will take place during 2013. The Radio Network (TRN) supported more than 25 different charities with sponsorships and advertising including the Fred Hollows Foundation and Canteen. During National Breast Cancer Awareness Month, ARN partnered with Warner Music to run a month of music dedicated to women. Album sales of female singers featured by ARN at this time included a donation to the National Breast Cancer Foundation.

The New Zealand Herald provided advertising to many local and national charities. A highlight was its partnership with the Starship Children’s Hospital to promote its 2012 Christmas Album fundraiser. nzherald.co.nz promoted the appeals of a range of charities at no cost, such as the Auckland City Mission and Daffodil Day. The Herald also donated cash to the Auckland Ronald McDonald House, which creates and supports programs to help children live happier, healthier lives. GrabOne supported telephone counselling service Kidsline and brandsExclusive provided clothing donations to OzHarvest to assist in their efforts to feed and now clothe the homeless. Getting the message out there: Community APN’s radio businesses play an important role in their communities through the broadcast of community service announcements. In 2012, the benefit of ARN’s contribution went to over 170 community, local and national organisations. The Herald provided 1.4 million newspapers to families with secondary school children in low decile schools in Auckland as part of its ‘At Home with the Herald’ literacy program. The Herald sponsored the Auckland Santa Parade, a free community event attended by 200,000 people annually, as well as several community fundraising events with key advertisers, such as the Countdown Charity Golf Day. Australian Regional Media (ARM) supports a large number of local community events and charities across its regions by providing significant sponsorship and advertising throughout the year. As an example, ARM conducted a multi-newspaper campaign for the RACQ Capricorn Helicopter Service, which raised awareness of their vital work in the Rockhampton area. ARM continued its Adopt-A-Family Christmas initiative, which provides gifts and food to hundreds of local families, while TRN hosted its annual Special Children’s Christmas Party, providing entertainment and gifts for over 5,000 sick or underprivileged children across New Zealand.

16

APN annual report 2012

Creating unique spaces: Culture New Zealand Media sponsored various cultural organisations and events in 2012. It was the main sponsor of the Auckland Philharmonic Orchestra, which delivers an annual orchestral program and conducts outreach activities to local schools. The Herald also supports the Auckland Writers and Readers Festival and NZ Sculpture OnShore. APN Outdoor continued to sponsor unique events through its long-standing partnerships with the Sydney Opera House, Sydney Festival and St George Open Air Cinema, while brandsExclusive became a principal sponsor of the Opel Moonlight Cinema.

Keeping it clean: Broadcast standards and sustainability The importance of the broadcast integrity of radio stations was highlighted during the year. All ARN and TRN staff are trained each year in accordance with the relevant broadcast standards and codes in place at the time. In 2012, TRN tightened its policy on certain content, including prank calls, and implemented a strict approval protocol before such content is broadcast on air or on any digital platform. APN’s publishing businesses invest in the continual improvement of the environmental impact of their businesses. In Australia, APN is a member of the Publishers National Environment Bureau, which has assisted the country to recycle approximately 78% of available newspapers – one of the best records in the world. In New Zealand, APN’s print sites belong to the environmental certification program ‘Enviro-Mark’, which helps participants to identify and reduce their environmental impact and save money. Further, APN’s newspapers are printed on paper that is either fully recycled or made from the waste of milled logs and APN’s print sites recycle all unused paper. Adshel and APN Outdoor both recycle the majority of their advertising posters and are constantly looking for sustainable alternatives such as solar powered bus shelters and water-saving cleaning methods.

17

people and culture

APN has achieved a significant rise in employee engagement through investing in initiatives such as leadership development, reward and recognition systems and workplace improvement ideas. A note on the recent floods APN would like to acknowledge and thank the teams at Australian Regional Media (ARM) for the their efforts to keep local communities informed during the recent floods in Queensland and northern NSW. The teams overcame some remarkable challenges to ensure that newspapers were printed and delivered, while ARM’s digital and social media became a critical source of information as phone and email coverage faltered. The commitment and upbeat spirit of the teams in such adverse conditions is inspirational. Learn, Lead, Perform APN conducted its second Executive Leadership Development Program in collaboration with the Queensland University of Technology. This program aims to strengthen the capabilities of current and potential leaders across APN through a combination of residential sessions, ongoing team projects and personalised coaching. APN’s Fast Track Program continued in 2012, with the second cohort successfully completing a full year of projects across the Company. The two year program is designed to give participants experience in a variety of APN’s businesses while providing a meaningful contribution to the teams that they work with. Australian Radio Network (ARN) rolled out its Future Leaders Program for high performers and continued its study assistance program. The Radio Network also conducted a comprehensive leadership training program. Sales transformation and training remained a key focus across APN in 2012.

18

Values, Recognition, Reward Emphasising team values and using innovative ways to recognise and reward people was a theme across many of the businesses. ARM refreshed its vision and values and launched PeoplePLUS, an online rewards system linked to these values. In its first three months, PeoplePLUS was accessed by over 50% of employees who made over 500 nominations. Adshel continued its Core Value project, which featured one core value every two months and rewarded a ‘Core Value Champion’ nominated by staff. Similar initiatives in other divisions included ARN’s ‘Radar’ Awards, APN Outdoor’s ‘Spirit’ Awards, brandsExclusive’s ‘WOW’ Awards and GrabOne’s ‘GrabStars’. In addition, ARN distributed ‘Big Red Toolkits’ to managers to recognise and reward their teams. Assistance and Engagement ARM and New Zealand Media continued their Employee Assistance Program in 2012, which provides staff with continuous access to a confidential counselling service. Adshel offered its Good Health – Good Futures Program to all staff for the fifth year. Under this program, participants are provided with a comprehensive health check and full evaluation report by Health Futures. The results of APN’s third annual engagement survey found APN was in the top 25% of organisations for improved engagement over a three year period, reflecting the importance of the people and culture initiatives.

APN annual report 2012

table of contents

Contents Corporate Governance 20

19. Reserves and accumulated losses 76

Director’s Report 27

21.

Remuneration Report 34

22. Retirement benefit obligations 78

Auditor’s Independence Declaration 44

23. Capital commitments 79

Consolidated Income Statement 45

24. Lease commitments 79

Consolidated Statement of Comprehensive Income 46

25. Controlled entities 80

Consolidated Balance Sheet 47

26. Key management personnel disclosures 86

Consolidated Statement of Changes in Equity 48

27. Related party information 87

Consolidated Statement of Cash Flows 49

28. Remuneration of auditors 88

Notes to the Financial Statements 50

29. Business combinations 89

1.

Summary of significant accounting policies 50

30. Transactions with non-controlling interests 89

2.

Revenue and other income 58

31.

20. Dividends 77 Contingent liabilities 77

Earnings per share 90

3. Expenses 59

32. Cash flow information 90

4.

Segment information 60

33. Standby arrangements and credit facilities 91

5.

Income tax 62

34. Financial risk management 91

6. Receivables 63

35. Subsequent events 94

7. Inventories 64

36. Parent entity financial information 94

8.

Discontinued operations 64

Directors’ Declaration 95

9.

Other financial assets 65

Independent Auditor’s Report 96

10. Investments accounted for using equity method 65

Shareholder Information 98

11.

Property, plant and equipment 67

Five Year Financial History 100

12.

Intangible assets 68

Corporate Directory IBC

13. Payables 70 14.

Derivative financial instruments 70

15.

Interest bearing liabilities 72

16. Provisions 73 17.

Deferred tax assets and liabilities 74

18.

Contributed equity 75

19

APN annual report 2012

Corporate Governance APN News & Media Limited and Controlled Entities

The Board of APN News & Media Limited endorses good corporate governance practices and oversees an organisationwide commitment to high standards of legislative compliance and financial and ethical behaviour. The Directors’ overriding objective is to increase shareholder value within an appropriate framework that protects the rights and enhances the interests of all shareholders and ensures the Company is properly managed. The Company has considered the best practice recommendations established by the ASX Corporate Governance Council “Corporate Governance Principles and Recommendations with 2010 Amendments” (2nd edition) in effect during the reporting period (Recommendations) and, except to the extent indicated below, has complied with the Recommendations for the entire reporting period. In addition, a description of the Company’s main corporate governance practices and policies is set out below. This report is also available on the Company’s website ww w.apn.com.au. BOARD OF DIRECTORS Board responsibilities The Board is responsible for overseeing the long-term profitable growth of the Company. This is achieved through a process of regular reviews of strategy, operations and areas of risk. The Board sets overall corporate policy and provides guidance for senior management and oversight of policy execution. The responsibilities of the Board are to: –– oversee the workings of the Company, including its control and accountability systems; –– appoint and remove the Chief Executive Officer; –– a  ppoint and remove the Chief Financial Officer (based on the recommendation of the Chief Executive Officer); –– appoint and remove the Company Secretary; –– provide input into and approve corporate strategy; –– p  rovide input into and approve the annual operating budget (including the capital expenditure budget); –– a  pprove and monitor the progress of major capital expenditure, capital management and acquisitions/ divestitures; –– monitor compliance with legal and regulatory obligations; and –– r eview and ratify systems of risk management and internal compliance and controls, codes of conduct, continuous disclosure, legal compliance and other significant corporate policies.

Responsibility for the day-to-day operations of the Company is usually conferred on the Chief Executive Officer who reports to the Board and provides the Board with information in relation to the conduct of the business of the Company. The Chief Executive Officer exercises this responsibility in accordance with Boardapproved annual operating budgets and reports to the Board at regular Board meetings. Due to the recent resignation of the Chief Executive Officer on 19 February 2013, the responsibility for the day-to-day operations of the Company is currently conferred on a leadership team comprised of the Chairman, Deputy Chairman and Chief Financial Officer. In addition, the Company’s Senior Executive team meets regularly to examine the performance of the Company compared to Board-approved operating budgets and policies. Term of office The Constitution of the Company currently specifies that there shall be a minimum of three Directors and a maximum of nine or such other number as is determined by the Board from time to time by ordinary resolution. The Constitution of the Company specifies that an election of Directors must be held at each Annual General Meeting. A Director (other than any Managing Director) must retire from office at the third Annual General Meeting after being last elected or re-elected and is eligible for re-election. If no Director is required to retire at an Annual General Meeting, then the Director with the longest period in office since last being elected or re-elected must retire and is eligible for re-election at the Annual General Meeting. A Director appointed since the most recent Annual General Meeting shall hold office only until the next following Annual General Meeting and shall then be eligible for election by shareholders. Composition and qualifications The Board currently consists of five non-executive Directors. During the reporting period, the Board consisted of up to 10 members at any one time: nine non-executive Directors and one Managing Director (who was the Chief Executive Officer). After the reporting period, four non-executive Directors including the then Chairman, and the Managing Director resigned from the Board on 19 February 2013. Peter Cosgrove was appointed Chairman on 19 February 2013. Details of the names, qualifications, tenure, skills, experience and Board Committee memberships of the Directors and the meeting attendances of Directors during the reporting period appear on pages 27 to 32 of this Annual Report. Board procedure The Board meets formally on at least eight occasions during the financial year. From time to time, meetings are held at the offices of divisional operations, enabling Directors to obtain increased knowledge of individual Company operations. Meeting agendas Meeting agendas are usually settled by the Chairman with input from the Chief Executive Officer to ensure adequate coverage of financial, strategic and major risk areas throughout the financial year. Directors add items to the agenda. From time to time, nonexecutive Directors discuss issues, on an as needs basis, without management present.

20

APN annual report 2012

Corporate Governance APN News & Media Limited and Controlled Entities

Independent advice Directors have the right, in connection with their duties and responsibilities, to seek independent professional advice at the Company’s expense. Prior approval of the Chairman is required, however, this will not be unreasonably withheld. Independence of Directors The Company complies with Recommendation 2.1 due to the majority of the Board comprising independent Directors. However, during part of the reporting period (until 20 April 2012), the Company did not comply with Recommendation 2.2 due to the Chairman having an association with a significant shareholder, Independent News & Media PLC (INM). In terms of assessing independence, Directors are considered to meet the threshold for independence if they are independent of management and free from any business or other relationship which could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgement. Rather than applying materiality thresholds, materiality is assessed on a case-by-case basis. In relation to the reporting period, the following non-executive Directors were considered by the Board to be independent: –– Peter Hunt (Chairman) (appointed as a Director and Chairman on 3 September 2012) –– Ted Harris (Deputy Chairman) (appointed Acting Chairman on 20 April 2012) –– Melinda Conrad –– Peter Cosgrove –– John Harvey –– Kevin Luscombe –– John Maasland –– Pierce Cody (resigned as a Director on 22 February 2012). During the reporting period, Pierce Cody was considered by the Board to be independent despite being a former executive as he exercised independent judgement. His executive role with the Company ceased in August 2003. In relation to the reporting period, the following Directors were affiliated with INM: –– Gavin O’Reilly (resigned as a Director and Chairman on 20 April 2012) –– Vincent Crowley –– Paul Connolly (appointed as a Director on 18 October 2012). Brett Chenoweth was not considered independent from management for the purposes of the Recommendations due to his executive role as Chief Executive Officer. Since the end of the reporting period, Brett Chenoweth resigned as a Director and Chief Executive Officer and Peter Hunt, Melinda Conrad, John Harvey and John Maasland resigned as Directors, on 19 February 2013.

Performance evaluation From time to time, including during a reporting period, the operation of the Board, its Committees and individual Directors and their performance are discussed and, where appropriate, measures are taken to enhance their effectiveness. The Company uses various methods to evaluate performance including interviews with Directors. Outside advisers are also engaged to provide advice from time to time. Board Committees The Board has established a number of Committees to assist in the execution of its duties and to allow detailed consideration of various issues. Current Committees of the Board include, among others, the Nomination Committee, Remuneration Committee and Audit Committee which all consist entirely of non-executive Directors. Each of these Committees has its own formal charter setting out the authority delegated to it by the Board. Copies of the charters are available on the Company’s website. All matters determined by these Committees are submitted to the full Board for ratification. Nomination Committee The Board established a Nomination Committee in 1997. During the reporting period, the Nomination Committee consisted of the following non-executive Directors: –– Melinda Conrad (Chair) (appointed as Chair and a Committee member on 27 February 2012) –– Gavin O’Reilly (resigned as Chairman and a Committee member on 27 February 2012) –– John Maasland –– Peter Cosgrove –– Pierce Cody (resigned as a Director on 22 February 2012). Since the end of the reporting period, Melinda Conrad and John Maasland resigned as Directors on 19 February 2013. The main role of the Nomination Committee is to: –– review the composition of the Board to ensure it is comprised of members who provide the required breadth and depth of experience and knowledge to achieve the objectives of the Board; –– ensure the filling of any vacancies on the Board with the best possible candidate through the use of executive search firms and/or by direct approach; and –– consider the appointment of additional Directors to provide the expertise to achieve the strategic and economic goals of the Group. The Board appreciates that having a range of backgrounds, skills and experiences can contribute to a well functioning Board that robustly considers issues and makes decisions. The range of skills and experience currently represented on the Board includes, by way of example, management, business and operations (across a range of industries), accounting and financial, and advertising and marketing. Once a potential candidate for the Board is identified, the Nomination Committee conducts a review of the relevant candidate’s experience and qualifications and the needs of the Company and the Board. Following the review, the Nomination Committee may recommend to the Board that the candidate be appointed a Director.

21

APN annual report 2012

Corporate Governance APN News & Media Limited and Controlled Entities

Remuneration Committee The Board established a Remuneration Committee in 1997. During the reporting period, the Remuneration Committee consisted of the following non-executive Directors:

Audit Committee The Board established an Audit Committee in 1993. During the reporting period, the Audit Committee consisted of the following non-executive Directors:

–– Ted Harris (Chairman)

–– John Maasland (Chairman)

–– Kevin Luscombe

–– Ted Harris

–– Vincent Crowley (resigned as a Committee member on 9 March 2012)

–– Kevin Luscombe

–– Gavin O’Reilly (resigned as a Director on 20 April 2012). Vincent Crowley resigned from the Remuneration Committee to ensure that it consisted of a majority of independent Directors in accordance with Recommendation 8.2. During part of the reporting period (after 20 April 2012), the Company did not comply with Recommendation 8.2 due to the Remuneration Committee not having three members. The main role of the Remuneration Committee is to: –– ensure that remuneration policies and practices are consistent with the strategic goals of the Group and are relevant to the achievement of those goals; –– review on an annual basis the remuneration of executive Directors, including establishing the overall benefits and incentives; –– review in consultation with the Chief Executive Officer, remuneration packages of executives reporting directly to the Chief Executive Officer; –– review non-executive Directors’ remuneration and benefits; –– obtain independent advice, as necessary, on the appropriateness of remuneration; and –– be responsible for reviewing general incentive schemes and superannuation plans.

–– John Harvey. Since the end of the reporting period, John Maasland and John Harvey resigned as Directors on 19 February 2013. Ted Harris was appointed Chairman of the Audit Committee on 19 February 2013 and Vincent Crowley was appointed as a member of the Audit Committee on 14 March 2013. The main role of the Audit Committee is to: –– review the scope and effectiveness of the internal and external audit functions, financial reporting and risk management; –– review and consider any reports or findings arising from any audit function either internal or external; –– review the interim and annual financial statements; –– ensure that there are adequate disclosures and that the financial statements are consistent with previous statements and disclosures; –– assess the consistency of disclosures in the financial statements with other disclosures made by the Company to the financial markets and other public bodies; –– review the appointment, independence, performance and remuneration of external auditors and assess the ability of the external auditors to provide additional services which may be occasionally required;

The performance of Senior Executives is evaluated on an ongoing basis by the Chief Executive Officer who then makes recommendations to the Remuneration Committee in relation to the appropriate level of remuneration for the Senior Executives based on their performance against budgeted profitability targets (either Group or divisional as appropriate) and the achievement of individual business objectives. The Remuneration Committee reviewed the remuneration of the Senior Executives (including the Chief Executive Officer) during the reporting period in accordance with this process.

–– review and assess the adequacy of compliance with all regulatory requirements and generally accepted accounting principles;

Non-executive Directors may receive retirement benefits in accordance with the Corporations Act 2001.

–– review and approve risk management policy and consider reports on risk management; and

Further details on remuneration policy and the structure of executive and non-executive Director remuneration and further details of the appraisal and performance evaluation applicable to Senior Executives appear on pages 34 to 43 of this Annual Report.

–– assess the effectiveness of risk management throughout the Company and the Group and report to the Board on risk management.

22

–– review and monitor internal financial controls to ensure they are adequate and effective to minimise financial and other major operating risks; –– review the integrity and prudence of procedures for management control; –– consider the adequacy of internal controls by reviewing management letters and the response of management;

The Audit Committee has unlimited and unrestricted access to management and employees and regular meetings are held with the external auditors, providing an essential direct link between the auditors, management and the Board.

APN annual report 2012

Corporate Governance APN News & Media Limited and Controlled Entities

Audit Committee meetings are held at least twice every financial year to evaluate the financial information submitted to it and to review any procedures and policies that would affect the accuracy of that information. Audit Committee meetings are regularly attended by the Chief Executive Officer, Chief Financial Officer, Company Secretary, Internal Audit Manager and the external auditors. An ongoing five year rotation policy applies to the engagement partner of the external auditor of the Company. ENVIRONMENT The Company supports best practice and is committed to complying with all relevant legislation in relation to both the production of its products and environmental issues generally. The Group regularly discusses new products and processes with its suppliers and environmental issues are considered as part of the decision-making process for such matters. HEALTH AND SAFETY The Company’s operations are conducted in a wide range of work environments which present a wide variety of potential hazards and risks. The Company recognises this and is committed to ensuring the health, safety and wellbeing of its employees and those within the broader communities in which it operates. During 2012, the Company commenced a program of work aimed at improving the levels of safety reporting cooperation between the respective APN divisions. This included further strengthening of the safety governance and consultation arrangements and ongoing work to ensure compliance in an evolving legislative environment. This is supported through the progressive introduction of technology solutions to support managers and employees. RISK MANAGEMENT In addition to the role of the Audit Committee in the area of risk oversight and management, the Board monitors the operational and financial performance of all business units through regular reports from the Chief Executive Officer and Chief Financial Officer to enable the identification of the key business and financial risks which may prevent the Group from achieving its objectives. This enables the Directors and Senior Executives to be fully informed of such risks and to ensure that appropriate controls are in place to effectively manage those risks.

The Company maintains a Risk Management Policy to facilitate the oversight and management of material business risk. The approach of the Group to risk management is based on: –– ensuring the Group: –– identifies actual and potential risks which would have a material impact on the Group; –– assesses their impact on business and financial objectives of the Group; and –– implements effective and appropriate strategies and actions to address risk issues; –– clearly identifies responsibility and accountability for financial, operational and risk management issues; and –– continuously reviews and assesses the Group’s approach to risk management. Where appropriate, external professional advice is obtained to evaluate, assess and/or rectify potential key business or financial risks within the Group. Implementation of enhancements to the Risk Management Policy and risk management framework endorsed by the Board are pursued on an ongoing basis. For example, the Board has adopted a Fraud Policy to facilitate the development of controls which will aid in the detection and prevention of fraud. The Risk Management Policy and Fraud Policy are available on the Company’s website. In addition, management further enhanced its risk management process by developing and implementing the Group Risk Register. The Group Risk Register is used by management to ensure that the significant risks faced by the Company are identified, assessed and managed appropriately. The results are communicated to the Audit Committee periodically. As part of the Company’s risk management and internal compliance procedures, the Chief Executive Officer (or equivalent) and Chief Financial Officer reported to the Board in writing and in accordance with section 295A of the Corporations Act 2001 that the Company’s financial reports present a true and fair view of the Company’s financial condition and operational results, and are in accordance with relevant accounting standards. The Chief Executive Officer (or equivalent) and Chief Financial Officer also reported to the Board that their statements are based on a sound system of risk management and internal compliance and controls and that this system is operating effectively in all material respects, and all material Group risks are being managed effectively. Accordingly, through this statement, management reports to the Board as to the effectiveness of the Company’s management of its material business risks.

23

APN annual report 2012

Corporate Governance APN News & Media Limited and Controlled Entities

SHAREHOLDER COMMUNICATION AND CONTINUOUS DISCLOSURE As part of an overall policy of open disclosure, the Company ensures that all material communications regarding its operations are made available for all interested stakeholders in a timely fashion. The Company has a policy in place to ensure compliance with Australian Securities Exchange (ASX) and NZX Limited (NZX) Listing Rules regarding disclosure and to ensure accountability at a Senior Executive level for compliance. The Market Disclosure Policy is designed to ensure that there is full and timely disclosure of the Company’s activities to shareholders and the market in accordance with the Company’s legal and regulatory obligations. In summary, the Market Disclosure Policy provides for the following: –– the disclosure of price-sensitive information (unless there is an applicable exception); –– the Company’s approach to market speculation; –– disclosure responsibilities and procedures; and –– how external communications are conducted. The Market Disclosure Policy also provides that: –– where possible, the Company will arrange for advance notification of significant briefings (including, but not limited to, results announcements) and make them widely accessible, including through the use of webcasting or any other mass communication mechanism as may be practical; and –– for shareholders who wish to attend General Meetings by proxy, to the extent considered practicable, the Company will provide for the electronic lodgement of proxy forms. A copy of the Market Disclosure Policy is available on the Company’s website. The Company’s website lists announcements made to the market, presentations to industry analysts and investors, information on dividends and the Dividend Reinvestment Plan, summary historical financial fundamentals information and information regarding annual and interim financial results among other matters. ASX and NZX announcements are posted to the website as soon as practicable after release to the ASX and NZX. Copies of recent past Company Annual Reports and details of the outcome of Annual General Meetings are also available from the website, or upon request directly from the Company. Announcements and financial data for the past three years is available on the Company’s website. Shareholders also have the option to receive certain electronic communications from the Company.

24

In relation to shareholder participation at Annual General Meetings, shareholders are encouraged to attend either in person or by proxy or corporate representative (if applicable). The Company provides a facility for the electronic lodgement of proxies. The Company has also provided live webcasts of its Annual General Meetings through the Company’s website. Shareholders attending Annual General Meetings are able to ask questions regarding the Financial Report, Directors’ Report and Independent Auditor’s Report or on company management. In addition, shareholders may also ask questions of the external auditor, who is requested by the Company to attend each Annual General Meeting, to respond to queries about the conduct of the audit of the Financial Report, the preparation and content of the Independent Auditor’s Report, the accounting policies adopted by the Company and the independence of the auditor. As required by the NZX Listing Rules, the Company discloses that the rules set out in Appendix 17 of the NZX Listing Rules do not apply to the Company as it is a “Dual Listed Issuer” (as defined in the NZX Listing Rules). SECURITIES TRADING Directors and Senior Executives are made aware that the law prohibits insider trading. The Directors are aware that the Corporations Act 2001, the ASX Listing Rules and NZX Listing Rules require disclosure of any trading undertaken by Directors or their related entities in Company securities. Senior Executives are also aware that the NZX Listing Rules impose certain disclosure obligations on Senior Executives. In addition to these requirements and obligations, the Company has a Securities Trading Policy and Guidelines. The Securities Trading Policy and Guidelines imposes trading restrictions on Directors, the Chief Executive Officer and all his direct reports (and those executives directly reporting to them), key management personnel and participants in any APN Employee Incentive Plan (as defined in the Policy) where trading is not permitted by law and also during Company-designated closed periods (prior to the release of half and full year results and any additional periods imposed by the Company from time to time when the Company is considering confidential matters which are not required to be disclosed to the market under ASX Listing Rule 3.1A). This Policy also prohibits the entering into of any hedging or other arrangements by which the economic risk associated with any unvested options, rights or similar instruments held pursuant to an APN Employee Incentive Plan is limited. The Policy states that breaches of the Securities Trading Policy and Guidelines will be subject to disciplinary action, which may include termination of employment. A copy of the Securities Trading Policy and Guidelines is available on the Company’s website.

APN annual report 2012

Corporate Governance APN News & Media Limited and Controlled Entities

ETHICAL STANDARDS The Group has developed a Code of Conduct covering policies and other standards within which employees are expected to act. A copy of the Code of Conduct is available on the Company’s website. Under the Code of Conduct, the practices necessary to maintain confidence in the Company’s integrity, legal obligations and the reasonable expectations of stakeholders are summarised as follows: –– all Directors and employees are required to abide by laws and regulations and the requirements of the Code of Conduct and to respect confidentiality and the proper handling of information; –– all Directors and employees are required to act with the highest standards of honesty, integrity and ethics in all dealings with each other, the Group, customers, suppliers and the community; –– Directors or employees giving and receiving gifts in connection with the operation of the Company and its subsidiaries are covered by the Code of Conduct, as are political contributions which must not be made directly or indirectly on behalf of the Company (or its subsidiaries) without Board approval; –– bribes or similar illegal payments must not be made to government officials, customers, suppliers or any other person in connection with obtaining orders or favourable treatment; and –– full cooperation with internal and external auditors, proper record keeping and the avoidance of conflicts of interest are all required. It is a term of standard Group employment contracts that employees are expected to comply with Company policy (which includes the Code of Conduct) and failure to do so is considered serious and may have consequences depending on the facts in each case, including termination of employment. Reporting of instances of breaches of the Code of Conduct is encouraged and the Company has adopted a Whistleblower Policy to assist in the identification and reporting of breaches of Company policy and similar matters. A copy of the Whistleblower Policy is available on the Company’s website. In the event a concern is submitted under the Whistleblower Policy, decisions as to the appropriate action to take in order to investigate and validate any allegations are taken jointly by the Internal Audit Manager, the Group General Counsel and the Chairman of the Audit Committee.

DIVERSITY Approach to diversity The Company views diversity as being important to facilitating the achievement of corporate objectives and the continued growth and success of its businesses. In particular, it is the view of the Board that a diverse workforce is essential for the Company to be able to deliver its strategic objectives and continue to meet its responsibilities to its customers, its employees, the communities in which it operates, and its shareholders. In particular, diversity has direct benefits in relation to: –– staff recruitment and retention; –– customer interaction and relationship development; and –– leveraging of diverse talent to better pursue business opportunities and response to business challenges. Specific steps were taken at Board level to enhance gender diversity and the Company continues to further refine its diversity objectives. Principles The Group believes that continued success and competitive advantage will be achieved by the Company providing an environment that respects, values and works to enhance a richness of diversity among its employees. The Group will, accordingly, focus on operating in a manner which: –– recognises the value of diversity relevant work practices; –– differentiates in favour of and promotes structures and programs of diversity and inclusiveness; –– develops leaders who are active and visible sponsors of diversity and inclusiveness; and –– sets meaningful objectives that demonstrate the commitment of the Group to align its operations to its diversity objectives. Oversight and sponsorship The Board oversees the Group’s focus on diversity, and delegates the responsibility for the management oversight and administration of the Diversity Policy to the Chief Executive Officer. At business level, divisional chief executive officers, with their human resources teams, will oversee and coordinate programs that improve the mix of diversity across the Group.

25

APN annual report 2012

Corporate Governance APN News & Media Limited and Controlled Entities

Programs and initiatives The Group has in place, and will continue to enhance, practices and programs which enable the identification, development, retention and recognition of programs and practices that promote and support an environment of diversity and inclusiveness. Such programs and practices do, and will, encompass wherever possible: –– employee recruitment; –– employment terms, including flexible work arrangements, job sharing, teleworking, parental leave and return to work, among others; –– leadership development, including training in enhancing diversity practices and leading diverse teams; and –– reward and recognition. During the reporting period, the Company took a number of steps to achieve its diversity objectives and satisfy the Recommendations on diversity, including: –– successful identification of a female Director, Melinda Conrad; –– the appointment of a female Chief Executive Officer of The Radio Network; –– establishment of a workstream, under the sponsorship of the Chief Executive Officer, to further develop, embed and distil a Diversity Policy which was formally adopted by the Board on 4 December 2012, and programs in support of the Diversity Policy; –– enhancement of systems for tracking gender proportions in the Group’s workforce; and –– analysis of employee diversity profiles across the Group’s businesses, including formal consultation with managers and employees to ascertain attitudes to key Group employment activities and opportunities for enhancement. Since the end of the reporting period, Melinda Conrad resigned as a Director on 19 February 2013. Gender balance –– Women constitute approximately 54% of the Group’s workforce in Australia and New Zealand; –– Women constitute approximately 22% of senior management within the Group; and –– The Board had one female member during the reporting period.

26

Objectives for gender diversity The Company has an aspirational objective of increasing diversity within the Group’s workforce and has identified specific measurable objectives as follows: –– increase the ratio of women in management level roles in the organisation by 10% by 2015; –– c  onduct specific focused reviews in key work groups to identify and correct any potential barriers to the promotion of women; –– increase the number of women each year participating in any company Executive Leadership Development Program and other leadership programs, with the target of reaching 50% of women being sponsored by 2015; and –– d  evelop effective policies and procedures to facilitate effective and flexible return to work arrangements for employees returning from parental leave. Specific actions to promote this will be implemented throughout 2013. A copy of the Diversity Policy is available on the Company’s website.

APN annual report 2012

Directors’ Report APN News & Media Limited and Controlled Entities

Your Directors present their report on the consolidated entity consisting of APN News & Media Limited (Company or parent entity) and the entities it controlled at the end of, or during, the year ended 31 December 2012. 1. DIRECTORS The Directors of APN News & Media Limited during the financial year and up to the date of this report are as follows. The Directors held office for the entire period unless otherwise stated. Peter Cosgrove

(appointed Chairman on 19 February 2013)

Peter Hunt (appointed to the Board and appointed Chairman on 3 September 2012, resigned from the Board on 19 February 2013) Ted Harris

(Deputy Chairman, Acting Chairman from 20 April 2012 to 3 September 2012)

Brett Chenoweth (Chief Executive Officer, resigned from the Board on 19 February 2013) Paul Connolly

(appointed to the Board on 18 October 2012)

Melinda Conrad

(resigned from the Board on 19 February 2013)

Vincent Crowley John Harvey

(resigned from the Board on 19 February 2013)

Kevin Luscombe John Maasland

(resigned from the Board on 19 February 2013)

Directors who held office for part of the year Gavin O’Reilly (Chairman, resigned from the Board on 20 April 2012) Pierce Cody

(resigned from the Board on 22 February 2012)

Details of each Directors’ qualifications, experience and special responsibilities are set out below. Director

Qualifications and experience

Responsibilities

Peter Cosgrove

Mr Cosgrove has been a Board Member since December 2003. Founder of the Buspak group of companies in Australia, New Zealand and Hong Kong, he has more than 20 years’ experience in the publishing, broadcasting and outdoor advertising industries. He is non-executive Chairman of Buspak Hong Kong (since June 2003), as well as non-executive Deputy Chairman of Clear Media Limited (Director since April 2001), which is listed on the Stock Exchange of Hong Kong. He is Chairman of GlobeCast Australia Pty Limited (since June 2002), a broadcasting company.

Chairman of the Board of Directors (from 19 February 2013), Member of Nomination Committee

Peter Hunt

Mr Hunt is non-executive Chairman and a founder of Greenhill Australia (previously Caliburn), a leading corporate advisory firm which is now part of the global Greenhill & Co advisory group. He was Joint Chief Executive and then Executive Chairman of Caliburn from its establishment in May 1999 through to its sale to Greenhill in April 2010. Mr Hunt spent nearly 30 years advising local and multi-national companies as well as governments in Australia at the highest levels.

Chairman of the Board of Directors, Chairman of Allotment Committee, Chairman of Options Committee

Mr Hunt’s other roles include Chairman of Cambooya Services Pty Ltd, Grameen Foundation Australia and So They Can and a Director of the St James Ethics Centre and Women’s Community Shelters. He is also a trustee of the Anindilyakwa Indigenous Mining Trust and a member of the Advisory Councils for Mission Australia and the Centre for Social Impact. Previous roles have included Chairman of AMP Foundation and the Australian String Quartet, Trustee of St Vincent’s Clinic Foundation and a Director of Odyssey House. Mr Hunt was made a member of the General Division of the Order of Australia in 2010 for services in the philanthropic sector.

27

APN annual report 2012

Directors’ Report APN News & Media Limited and Controlled Entities

1. DIRECTORS (continued) Director

Qualifications and experience

Responsibilities

Ted Harris AC

F.INST.D, FAIM, FAICD. Mr Harris has been a Board Member since March 1992 and Deputy Chairman since December 1994. He was Managing Director and Chief Executive Officer of the Ampol Group from 1977 to 1987. Mr. Harris was previously Chairman of Australian Airlines, British Aerospace Australia, Australian National Industries, Thakral Holdings and Gazal Corporation and Deputy Chairman of Metcash Limited. He is Chairman of Australian Radio Network and President of St Vincent’s Clinic Foundation. He is Life Governor of the Melanoma Foundation and a Life Member of the Australian Sports Commission. He was Chairman of the Zoological Parks Board of NSW from 1973 to 1990 and Chairman of the Australian Sports Commission from 1984 to 1994. Mr Harris started his career as a broadcaster and journalist with the Macquarie Broadcasting Service and he is a former Commissioner of the ABC. He was Trustee for the Walkley Awards from 1976 to 1980.

Non-Executive Director, Deputy Chairman, Chairman of Remuneration Committee, Member of Audit Committee (Chairman of Audit Committee from 19 February 2013)

Brett Chenoweth Mr Chenoweth has more than 18 years of professional experience working exclusively in the areas of media, technology, telecommunications and online businesses, having held senior executive roles at Telecom New Zealand (2001 to 2005: including Head of Group Strategy and Mergers & Acquisitions; Head of Australian Consumer Group; Director on a number of TCNZ group company Boards), the PBL group of companies (ecorp Ltd and ninemsn Pty Ltd 1997 to 2001: Head of Business Development) and Village Roadshow Pictures Pty Ltd (1991 to 1997: General Manager and Vice President).

Chief Executive Officer, Member of Allotment and Options Committees

Mr Chenoweth was recently the Managing Director and Head of Asia Pacific for The Silverfern Group, a New York based specialist merchant bank and was previously a Director of Living and Leisure Ltd (December 2008 to October 2010). He holds a Bachelor of Laws and a Bachelor of Economics degree from The University of Queensland and a Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia. Paul Connolly

B.Comm, FCA. Mr Connolly was appointed to the Board in October 2012 and brings extensive experience in media and communications. Since 1991, Mr Connolly has been Chairman of Connolly Capital Limited, a Dublin based corporate finance advisory firm focused on the telecom, media and technology sectors. He was a Director of Esat Telecommunications Limited (Esat Telecom), an Irish telecommunications company, from 1997 to 2000, and then a Director of Digicel Limited, a Caribbean-based telecommunications company. From 1987 through 1991, Mr Connolly held a position of Financial Controller of Hibernia Meats Limited and prior to that he worked with KPMG as an accountant. Currently, Mr Connolly serves on Boards of Independent News & Media PLC, Communicorp Group and Melita Cable PLC. He holds a Bachelor of Commerce degree from University College Dublin, Ireland; he is a Fellow of Chartered Accountants Ireland and a member of Executive Summit at Stanford Graduate School of Business.

Non-Executive Director

Melinda Conrad

Ms Conrad is the former founder and CEO of a retail chain of stores and was previously an executive at Colgate Palmolive. Ms Conrad has extensive expertise in retail, strategy and marketing to consumer facing organisations. Ms Conrad is a Director of The Reject Shop Limited (since August 2011), a Director of the NSW Government’s Clinical Excellence Commission and Agency for Clinical Innovation, a Director of the Garvan Medical Research Institute Foundation and also a Director of the Australian Brandenburg Orchestra. Ms Conrad holds an MBA from Harvard Business School and is a member of the Australian Institute of Company Directors.

Non-Executive Director, Chair of Nomination Committee

28

APN annual report 2012

Directors’ Report APN News & Media Limited and Controlled Entities

Director

Qualifications and experience

Vincent Crowley BA, FCA. Mr Crowley was appointed to the Board in March 2009. He was Chief Executive of APN from 2000 to 2002, having previously held the position of Finance Director from 1996 to 2000. A chartered accountant, he joined Independent News & Media PLC (INM) in 1990, became a Director in 1997 and was appointed Chief Executive of Independent News & Media – Ireland in August 2002. In June 2009, he retired from the Board of INM, and in January 2010, he was appointed Group Chief Operating Officer of INM. In April 2012, he was appointed Group Chief Executive Officer of INM and rejoined the INM Board.

Responsibilities

Non-Executive Director (Member of Audit Committee from 14 March 2013)

Mr Crowley was previously an audit manager with an international accountancy firm. He is also a director of a number of INM subsidiaries and associated companies. John Harvey

Mr Harvey has over 39 years’ professional experience as a chartered accountant and a company director. He was a Partner of PricewaterhouseCoopers for 23 years and held a number of management and governance responsibilities for PricewaterhouseCoopers in New Zealand. He retired from PricewaterhouseCoopers in June 2009.

Non-Executive Director, Member of Audit Committee

Mr Harvey is currently a Director of DNZ Property Fund Limited (since September 2009), Kathmandu Holdings Limited (since October 2009), Heartland Bank Limited (since March 2010), Port Otago Limited (since December 2008), Ballance Agri-Nutrients Limited (since February 2012) and New Zealand Opera Limited (since January 2002) and is an Advisor to the Board of Resource Coordination Partnership Limited (since July 2010). He holds a Bachelor of Commerce degree from the University of Canterbury and is a member of the Institute of Directors of New Zealand. Kevin Luscombe FAICD, FAIM, CPM. Mr Luscombe has been a Board Member since AM October 1997. Following a successful corporate career in Australia and USA, and Board roles in several South East Asian companies, he founded a marketing and research consultancy in 1976. In 1980, he started the advertising agency Luscombe & Partners, sold it to Clemenger BBDO in 1998, and joined their Board. He is Chairman of the management consultancy Growth Solutions Group. He is Deputy Chairman of Melbourne Food and Wine and a Board member of the John Truscott Design Foundation. In 1998, he was appointed Adjunct Professor at the Graduate School of Management, Swinburne University. He was the recipient of the 2001 Sir Charles McGrath Award for marketing excellence. John Maasland

Non-Executive Director, Member of Audit and Remuneration Committees

MA (Cantab). Mr Maasland has extensive business experience in the Non-Executive Director, media industry and in New Zealand, and serves on a number of private Chairman of Audit Committee, and public company boards. He is Chairman of Hellaby Holdings Ltd Member of Nomination Committee (Director since April 2008) and a Director of Waterman Capital (since 2005). He is the Chancellor of the Auckland University of Technology (AUT University) and was also a Director of Delegat’s Group Ltd (October 2004 to December 2012). He was Chairman and a Trustee of the Royal New Zealand Ballet (October 1998 to October 2007) and of the South Auckland Health Foundation (November 1999 to November 2012).

29

APN annual report 2012

Directors’ Report APN News & Media Limited and Controlled Entities

1. DIRECTORS (continued) Directors who held office for part of the year Director

Qualifications and experience

Gavin O’Reilly

BScBA (Hons).  Mr O’Reilly was a Board Member since 2004 and had served as Chairman since 2008, re-elected to the Board in May 2011. He was formerly Group Chief Executive Officer of Independent News & Media PLC (INM) from 2009 to 2012, having joined INM in 1993 and held various senior management roles.  He is Chairman of Dromoland Castle Hotel, Director of Jagran Prakashan Limited (India) (since 2005), and Director of TVC PLC (since 2007). He is an honorary member (and former President, 2005 to 2011) of WAN-IFRA, the World Association of Newspapers and News Publishers.

Pierce Cody

Mr Cody had been a Board Member since 2003. Mr Cody has more than 27 years’ experience in the advertising industry and founded Cody Outdoor Australasia. Mr Cody was formerly the Chief Executive of APN Outdoor, after selling Cody Outdoor to APN in 2001. Mr Cody founded Macro Wholefoods Market, Australia’s largest organic and natural food retailer. In 2009, Mr Cody sold Macro to Woolworths Australia. Mr Cody is a Life Governor and Director of The Australian Ireland Fund. From 1999 to 2007, Mr Cody was non–executive Director of Adcorp Australia Ltd. Prior to that, he was a Trustee of the Art Gallery of New South Wales.

2. QUALIFICATIONS AND EXPERIENCE OF COMPANY SECRETARY Yvette Lamont - Group General Counsel and Company Secretary Yvette Lamont is a Solicitor who was admitted to the Supreme Court of NSW in 1987 and the High Court of Australia in 1988. Ms Lamont has been in her current role with the Company since November 1998 and was previously the General Counsel of the publicly listed pay television company Australis Media Limited, a Senior Associate with the law firm Allens Arthur Robinson in the Media and Technology Group and a Solicitor with the law firm Boyd, House & Partners. She is a Committee Member of the Media and Communications Committee of the Law Council of Australia, is a Graduate of the Australian Institute of Company Directors and has attended courses at the Chartered Secretaries Institute. Ms Lamont is a Director of Theatre of Image, a not for profit company involved in theatre for families. 3. PRINCIPAL ACTIVITIES APN News & Media has a diverse portfolio of media assets in Australia and New Zealand. APN is New Zealand’s leading publisher with a portfolio that includes The New Zealand Herald and a stable of eight magazines. It has seven daily regional newspapers plus more than 35 community titles. In Australia, APN is a key publisher in regional Queensland and northern NSW. Its portfolio includes 12 daily newspapers, more than 56 non-daily newspapers and over 30 web sites. APN also has commercial printing businesses in Australia and New Zealand. APN operates two radio businesses, Australian Radio Network and The Radio Network in New Zealand, in a joint venture with Clear Channel. APN’s outdoor group consists of APN Outdoor, Adshel and Hong Kong Outdoor.  –– APN Outdoor provides billboard, transit and airport advertising. It operates in Australia and New Zealand and is a joint venture with Quadrant Private Equity. –– Adshel provides street furniture advertising and infrastructure in Australia and New Zealand. –– Hong Kong Outdoor is comprised of Cody, offering premium billboard advertising and Buspak, providing exterior and multimedia advertising.

Adshel and Hong Kong Outdoor are joint ventures with Clear Channel.

APN’s digital portfolio includes group buying venture GrabOne, online shopping club brandsExclusive, and digital retail advertising network CC Media.  The nature of the consolidated entity’s activities did not change significantly during the financial year.

30

APN annual report 2012

Directors’ Report APN News & Media Limited and Controlled Entities

4. DIVIDENDS Dividends paid to owners during the financial year were as follows: 2012 $’000

2011 $’000

Final dividend for the year ended 31 December 2011 of 5.0 cents per share, franked to 1.5 cents paid on 30 March 2012 (2010: 7.0 cents per share franked to 2.0 cents paid on 31 March 2011)

31,511

42,426

Interim dividend for the year ended 31 December 2012 of 1.5 cents per share franked to 0.5 cents paid on 26 September 2012. (2011: 3.5 cents per share fully franked, paid on 28 September 2011)

9.735

21,650

41,246

64,076

The Directors have determined that no final dividend will be payable in respect of the year ended 31 December 2012. 5. CONSOLIDATED RESULT AND REVIEW OF OPERATIONS The consolidated loss attributable to owners of the parent entity for the financial year (after exceptional items and discontinued operations) was $455,769,000 (2011: loss of $45,070,000). A review of operations of the consolidated entity for the year ended 31 December 2012 is set out on pages 2 to 15. 6. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS In the opinion of the Directors, there were no significant changes in the state of affairs of the consolidated entity during the financial year under review not otherwise disclosed in this report or the consolidated financial statements. 7. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR Since the end of the financial year, there have been a number of significant events that have resulted in changes to the composition of the APN Board. Please refer to the announcements released to the ASX between 15 February and 20 February 2013. In January and February 2013, Cyclone Oswald and subsequent floods caused significant disruption to the regions in which Australian Regional Media (ARM) operates. The immediate impact on ARM’s operations has been less significant than the floods in 2011. The full financial impact is still being assessed. Please refer to note 5 of the financial statements for the latest developments in relation to the tax dispute with the New Zealand Inland Revenue Department. Other than the matters noted above, the Directors are not aware of any matter or circumstance that has arisen since the end of the financial year that has significantly affected or may significantly affect the Group’s operations, the results of those operations or the Group’s state of affairs in future financial years. 8. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS Overall strategic direction is discussed in the Chairman’s Report on pages 4 and 5 and the operational reviews on pages 6 to 15. Further information as to likely developments in the operations of the consolidated entity and the expected results of those operations in subsequent financial years has not been included in this report because, in the opinion of the Directors, it would unreasonably prejudice the interests of the consolidated entity. 9. ENVIRONMENTAL REGULATION The Directors recognise the importance of environmental and occupational health and safety issues. The Directors are committed to compliance with all relevant laws and regulations to ensure the protection of the environment, the community and the health and safety of employees. The operations of the consolidated entity are not subject to any particular and significant environmental regulation under the law of the Commonwealth of Australia or any of its states or territories, or New Zealand. 10. REMUNERATION REPORT A remuneration report is set out on pages 34 to 43 and forms part of this Directors’ Report.

31

APN annual report 2012

Directors’ Report APN News & Media Limited and Controlled Entities

11. DIRECTORS’ MEETINGS The number of meetings of the full Board of Directors and Board Committees held in the period each Director held office during the financial year and the number of those meetings attended by each Director were: Board of Directors

Director

Audit Committee

Held

Attended

Peter Hunt

3

3

Ted Harris

14

14

Brett Chenoweth

14

14

3

3

Pierce Cody

Remuneration Committee

Nomination Committee

Held

Attended

Held

Attended

6

5

6

6

Held

Attended

3

3

Melinda Conrad

14

14

3

3

Peter Cosgrove

14

14

3

2

Vincent Crowley

14

13

John Harvey

14

14

6

6

Kevin Luscombe

14

14

6

6

John Maasland

14

11

6

6

3

2

Gavin O’Reilly

5

5

Paul Connolly

1

1

6

6

4

4

Two meetings of the Allotment Committee were held and were attended by Peter Hunt (1), Gavin O’Reilly (1) and Brett Chenoweth (2). Four meetings of a Board Committee formed for purposes including reviewing and approving the half-year and annual financial statements, dividend payments, 2011 Annual Report and Shareholder Review, and Notice of Meeting were held and were attended by Ted Harris (4) and Brett Chenoweth (4). 12. DIRECTORS’ INTERESTS Note 26 to the financial statements contains details of shareholdings of the Directors and Senior Executives as at 31 December 2012. 13. SHARES UNDER OPTION Note 18 to the financial statements contains details of the number of unissued shares of APN News & Media Limited under option at 31 December 2012 and shares issued during the financial year as a result of the exercise of options. No options have been granted since the end of the financial year. 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The parent entity’s Constitution provides for an indemnity for Directors against any liability incurred by a Director in their capacity as an officer. Under the Corporations Act 2001, this indemnity does not extend to a liability to the parent entity or a related body corporate of the parent entity, a liability for a pecuniary penalty or compensation order under certain provisions of the Corporations Act 2001 or a liability that is owed to someone other than the parent entity or a related body corporate of the parent entity which did not arise out of conduct in good faith. 15. INSURANCE OF DIRECTORS AND OFFICERS The parent entity has paid for an insurance policy for the benefit of all persons who are or have been Directors or officers of the parent entity or the consolidated entity against liabilities incurred during the financial year. The insured persons include current and former Directors, officers and company secretaries of the parent entity and the consolidated entity. The insurance policy specifically prohibits the disclosure of the nature of the liability covered and the premium paid. 16. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Company with leave of a court under section 237 of the Corporations Act 2001.

32

APN annual report 2012

Directors’ Report APN News & Media Limited and Controlled Entities

17. NON-AUDIT SERVICES Full details of the amounts paid or payable to the auditors for audit and non-audit services provided during the financial year are set out in note 28 to the financial statements. During the financial year, the Company’s auditor, PricewaterhouseCoopers, received or is due to receive $822,000 for the provision of non-audit services. In addition, KPMG (auditors of a controlled entity) received or is due to receive $333,000 for the provision of non-audit services. The Company auditor has provided the Directors with an Auditor’s Independence Declaration in relation to the audit, a copy of which follows immediately after this Directors’ Report. The auditor has also confirmed to the Directors that it has in place independence quality control systems which support its assertions in relation to its professional and regulatory independence as auditor of the consolidated entity (including the requirements of APES 110 Code of Ethics for Professional Accountants). The Audit Committee has reviewed the fees provided to the auditor for non-audit services in the context of APES 110, the requirements of the Audit Committee Charter and general corporate governance practices adopted by the consolidated entity. Based on the above factors, the Audit Committee has no reason to believe that there has been any compromise in the independence of the auditor due to the provision of these non-audit services and has advised the Board accordingly. In accordance with the advice of the Audit Committee, the Directors are therefore satisfied that the provision of non-audit services during the financial year by the auditor is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 and that the provision of non-audit services during the financial year did not compromise the auditor independence requirements of the Corporations Act 2001. 18. AUDITOR’S INDEPENDENCE DECLARATION A copy of the Auditor’s Independence Declaration, as required under section 307C of the Corporations Act 2001, follows immediately after this Directors’ Report. 19. ROUNDING OF AMOUNTS TO NEAREST THOUSAND DOLLARS The Company is of a kind referred to in Class Order 98/100 issued by the Australian Securities and Investments Commission, relating to the rounding off of amounts in this report and the financial report. Amounts in this report and the financial report have been rounded off to the nearest thousand dollars, or in certain cases to the nearest dollar, in accordance with that Class Order. This report is issued in accordance with a resolution of the Directors.

Peter Cosgrove Chairman 14 March 2013

33

APN annual report 2012

Remuneration Report APN News & Media Limited and Controlled Entities

Contents and scope of this Remuneration Report Contents The Remuneration Report is set out under the following headings: A: Remuneration snapshot B: Executive remuneration policy and framework C: Executive remuneration – detail D: Remuneration outcomes for Senior Executives E: Senior Executive employment contracts F: Non-executive Director remuneration G: Additional statutory disclosures Scope This Remuneration Report for the financial year has been prepared to comply with section 300A of the Corporations Act 2001. Directors The Directors of APN News & Media Limited during the financial year are listed in section 1 of the Directors’ Report. Senior Executives of APN News & Media Limited The following Senior Executives, together with the Directors, were the key management personnel (KMP) having authority and responsibility for planning, directing and controlling the activities of the parent entity and consolidated entity during 2012: Name

Position

Brett Chenoweth

Chief Executive Officer

Peter Myers

Chief Financial Officer (until 19 September 2012)

Jeff Howard

Chief Financial Officer (from 12 November 2012)

Matthew Crockett

Chief Development Officer

Martin Simons

Chief Executive, New Zealand Media

Warren Bright

Chief Executive, Australian Regional Media

Richard Herring

Group Radio and Outdoor Chief Executive (until 30 April 2012)

34

APN annual report 2012

Remuneration Report APN News & Media Limited and Controlled Entities

A: Remuneration snapshot A summary of remuneration arrangements for 2012 are outlined in the table below. Senior Executive remuneration

Fixed remuneration

Fixed remuneration includes base salary, other fixed remuneration including fully costed salary packaged benefits such as motor vehicles (including fringe benefits tax as applicable) and superannuation. Senior Executive fixed remuneration is set with reference to market data, the individual’s experience and performance. There are no guaranteed fixed remuneration increases for Senior Executives.

Short-term incentive (STI)

STIs are paid in cash subject to achieving specific performance objectives, both financial (75%) and individual (25%). 50% of the financial award is payable for on-target performance and 100% at 10% over-target, except as disclosed in section C of this report. Financial targets include Group NPAT for Group executives and a mix of business unit specific EBIT and Group EBIT for business unit Chief Executives and the Chief Development Officer.

Long-term incentive (LTI)

The LTI plan awards Performance Rights subject to performance over a three year performance period. Awards are subject to two performance conditions: 1) Seventy-five percent (75%) of the award will be subject to an EPS target set by the Board; and 2) Twenty-five percent (25%) of the award will be subject to a relative TSR performance condition, compared against companies in the GICS Consumer Discretionary Index.

Employment contracts

Senior Executives, including the Chief Executive Officer, are entitled to receive fixed remuneration inclusive of superannuation and benefits and are eligible to participate in the Company’s STI and LTI plans. All Senior Executive contracts, except for that of the Chief Executive Officer are continuing contracts which require 6 to 12 months’ notice in order to terminate the contract. The Chief Executive Officer was employed on a three year contract which commenced on 1 January 2011.

Non-executive Directors

Directors’ fees

APN aims to provide remuneration commensurate with the expected time commitment, level of expertise and experience and considers fees paid to directors in similar companies. Directors are paid a base fee for services to the Board, and a fee for each Board Committee on which they sit.

35

APN annual report 2012

Remuneration Report APN News & Media Limited and Controlled Entities

B: Executive remuneration policy and framework To ensure that the Company is able to attract and retain executives capable of managing the consolidated entity’s operations and achieve its performance goals, remuneration packages of executives are structured to: –– Create value for shareholders; –– Be competitive in the market; –– Align executive reward with company performance; and –– Reward the achievement of strategic objectives. In 2010 the Company engaged independent external consultants, Ernst & Young, to undertake a review of the remuneration framework as it relates to the Senior Executives. The review was undertaken to ensure the arrangements continue to be in line with evolving market practice and the remuneration strategy while ensuring the appropriate mix of retention and performance focus. We believe the framework supports our business strategy implementation and aligns to shareholders’ interests by: –– Having profit as a core component of STI; –– Focusing on sustained growth in earnings by using EPS as a key driver of the LTI; –– Aligning to shareholder interests by introducing a relative TSR performance focus to the LTI; and –– Having a significant portion of remuneration “at-risk”. The framework provides a mix of fixed and variable remuneration, and a blend of short and long-term performance focused elements. The Company’s executive remuneration framework comprises three key components. The purpose of each element, and the approach to determining the remuneration outcomes are outlined in the table below. The Company believes that a mix of fixed and variable (i.e. at-risk) elements provides an appropriate retention, as well as performance, incentive. Remuneration element

Form of reward

Purpose of award

Fixed

Fixed remuneration

Base salary, superannuation and other benefits

Recognise capability, experience and scope of role.

Variable

Short-term incentives

Cash

Reward for achievement of annual Company and business unit targets as well as individual performance.

Long-term incentives

Equity

Reward for achievement of long-term sustained Company performance. Provides a multi-year performance focus and alignment to shareholder value creation.

Other remuneration related costs The Company incurs other remuneration related costs in respect of certain executives which are not regarded as part of the executive’s fixed remuneration. Typically, such payments are ancillary to the executive’s employment such as rental assistance or family travel in circumstances where the Company requires the executive to relocate. The costs include fringe benefits tax if applicable. Retirement benefits Retirement benefits are delivered to executives in the form of statutory superannuation contributions to a number of different funds. All contributions made on behalf of executives are based on a percentage of fixed salary. No Senior Executives are members of defined benefit schemes. Approach to setting executive remuneration levels The Remuneration Committee advises the Board on remuneration policy and principles generally, and makes recommendations on remuneration packages and other terms of employment annually for Senior Executives. The Company considers available market data for comparable roles in Australian organisations of similar size to APN. When positioning against the market data, APN positions fixed remuneration toward the 75th percentile of the market and on-target total remuneration between the median and the 75th percentile. Securities Trading Policy The Company’s Securities Trading Policy and Guidelines is outlined in the Corporate Governance section of this Annual Report. Under the policy restricted persons, which includes key management personnel, are not permitted to hedge any options, rights or similar instruments prior to them becoming vested or otherwise tradable under the applicable plan. Voting and comments made at the Company’s 2012 Annual General Meeting The Company received more than 99% of “yes” votes on its remuneration report for the 2011 financial year.

36

APN annual report 2012

Remuneration Report APN News & Media Limited and Controlled Entities

C: Executive remuneration – detail Short-term incentive (STI) plan Senior Executives participate in an STI plan. The following table summarises the key terms. Form of award, frequency and timing

STIs are paid in cash subject to achieving specific performance objectives determined by the Board, as outlined below. STIs in respect of any year will be paid early in the next financial year following the finalisation of the audited results.

Measures, weightings and targets

Corporate roles –– Seventy-five percent (75%) of an individual’s award is based on the achievement of target Group NPAT performance; and –– Twenty-five percent (25%) of an individual’s award is assessed against individual key performance indicators linked to strategic objectives. Business unit roles –– Twenty-five percent (25%) of an individual’s award is assessed against target Group EBIT performance; –– Fifty percent (50%) of an individual’s award is assessed against the relevant business unit’s EBIT; and –– Twenty-five percent (25%) of an individual’s award is assessed against individual key performance indicators linked to strategic objectives.

Performance assessment and leverage

The maximum STI opportunity for participants, other than the Chief Executive Officer and the Chief Development Officer, is 200% of the target STI. The maximum STI opportunity for the Chief Executive Officer is 246% of the target level, and for the Chief Development Officer is 167% of the target level. The maximum STI is payable if targets are exceeded by 10%, other than as detailed in the individual contracts disclosed in this report. In certain exceptional circumstances, the Remuneration Committee may take account of other factors impacting on the year’s results as well as the extent to which other business objectives have been achieved. The Remuneration Committee considers evaluation of financial performance to be a critical criterion and one which can be objectively assessed against the actual audited results. The Remuneration Committee considers that the use of objective and verifiable data to test the achievement of performance aids transparency.

Service condition

Typically, no part of the STI is payable where an executive leaves APN’s employ during the year.

37

APN annual report 2012

Remuneration Report APN News & Media Limited and Controlled Entities

C: Executive remuneration – detail (continued) Long-term incentive (LTI) plan The LTI plan provides for the grant of equity awards. Awards are split into two separate tranches, which vest independently. Seventyfive percent (75%) of the total award vests based on the achievement of an EPS growth performance hurdle, while the remaining 25% of the total award vests based on a relative TSR hurdle. EPS tranche (75% of total annual award)

Form of award

TSR tranche (25% of total annual award)

Awards under the LTI plan are structured as rights to acquire fully paid ordinary shares in the Company for nil consideration (i.e. Performance Rights). The number of Performance Rights (Rights) to be issued to Senior Executives is based on the individual’s LTI opportunity, expressed as a percentage of fixed remuneration. Rights were chosen as an appropriate vehicle as they are in line with market practice, provide alignment to the interests of shareholders and have simpler tax treatment than share options. Subject to the satisfaction of the performance hurdles, vested Rights will convert to fully paid ordinary shares on the date APN announces its annual results to the Australian Securities Exchange (ASX), immediately following the performance period of three years. Vested Rights will automatically convert into shares without the requirement for the participant to exercise their Rights.

Eligibility

The Chief Executive Officer, and other Senior Executives (at the discretion of the Board), are eligible to participate in the LTI plan.

Frequency of grants

It is envisaged that awards under the LTI plan will be made on an annual basis.

Performance conditions

Performance period

The number of Rights that vest is dependent on performance over a three year period. Any awards which do not vest when performance is tested (at the end of the three year performance period) will lapse.

Performance measures

EPS has been chosen as it focuses participants on earnings growth. EPS is the base earnings per share (as disclosed in the Company’s Income Statement) adjusted for any non-recurring or non-trading items as determined by the Board. EPS growth will be measured as the annual compound percentage increase in EPS over three consecutive financial years beginning the year in which the Rights are granted.

Relative TSR has been chosen as a performance hurdle because it aligns executive interests with those of shareholders by measuring the change in the Company’s share price and the payment of dividends. The Company’s TSR performance will be measured relative to constituents of the Global Industry Classification Standard (GICS) Consumer Discretionary Index at the date of grant. The GICS Consumer Discretionary Index was chosen as the companies in the peer group operate in similar industries to the Company and face similar challenges, opportunities and market conditions. Therefore, the Company must outperform companies with similar opportunities to receive any benefit in relation to the TSR-based tranche of awards. In order for any of the TSR-based portion of the award to vest, APN’s TSR must be at or above the 51st percentile of the comparator group’s companies’ TSRs over the three year performance period.

Vesting schedule

For awards granted in 2011 the EPS targets are:

The TSR vesting schedule is as follows:

Compound annual EPS Proportion of EPS grant growth vesting

Relative TSR percentile ranking

Proportion of Rights that will vest if the TSR hurdle is met

Less than 7% per annum

0%

Less than the 51st percentile

0%

At least equal to 7% per annum

50%

51st percentile

50%

Between 7% and 10% per annum Pro-rata straight line

Between the 51st and 75th percentile

Straight line vesting between the 51st and 75th percentile

At least 10% per annum

75th percentile

100%

100%

EPS tranche (75% of total annual award)

38

TSR tranche (25% of total annual award)

APN annual report 2012

Remuneration Report APN News & Media Limited and Controlled Entities

Treatment of awards on cessation of employment

The plan rules will allow flexibility for participants to remain in the plan post cessation of employment or for awards to be pro-rated for time and performance up to the date of cessation. For the initial grants where participants leave in certain “good leaver” circumstances, awards will be pro-rated for time and may vest to the extent performance hurdles are met as at the date of termination. For the CEO, annual awards that have been granted may vest on termination, to the extent that the performance hurdles are met, other than in certain “bad leaver” circumstances.

Treatment of awards on change of control

The Board will have discretion to pro-rate outstanding awards for time and performance in an event which the Board considers to be a change of control event. A change of control event is defined in the LTI plan rules.

D: Remuneration outcomes for Senior Executives Overview of the link between remuneration and 2012 performance APN’s performance-linked remuneration framework, as outlined in section B, ensures there is alignment between the generation of shareholder wealth and remuneration of key management personnel. Summary of five year performance

Net profit after tax (NPAT)(i) Annual change in NPAT Dividends per share Diluted EPS

(i) (ii)

Annual change in diluted EPS Share price at 31 December

2012

2011

2010

2009

2008

$54.4m

$78.2m

$103.1m

$94.2m

$143.1m

(30.5%) 1.5c 8.4c

(24.2%)

9.5%

8.5c

12.0c

(34.2%)

(15.5%)

4.0c

22.5c

12.6c

17.2c

17.0c

28.3c

(33.6%)

(26.4%)

1.2%

(39.9%)

(14.0%)

$0.25

$0.71

$1.94

$2.32

$2.48

(i) Pre exceptional items and discontinued operations (ii) Adjusted for bonus element of 2009 rights issue

Short-term incentives The following table outlines, for 2012, the proportion of the STI payable under the STI plan as determined by the Remuneration Committee. The performance of the Group in 2012 was not uniform across the divisions, and as a consequence Group financial targets were not met and were insufficient to meet STI targets. STI payable

STI forfeited

Brett Chenoweth

0%

100%

Peter Myers

0%

100%

Jeff Howard

0%

100%

Matthew Crockett

0%

100%

Martin Simons

0%

100%

Warren Bright

0%

100%

Richard Herring

0%

100%

Long-term incentives No Performance Rights were issued to Senior Executives during 2012. No awards issued under existing long-term incentive plans vested to Senior Executives during 2012.

39

APN annual report 2012

Remuneration Report APN News & Media Limited and Controlled Entities

D: Remuneration outcomes for Senior Executives (CONTINUED) Details of remuneration of Senior Executives (and comparatives) Details of short-term and post employment benefits of each Senior Executive (including the five receiving the highest emoluments) of the consolidated entity are set out in the following table. Short-term benefits Cash salary and fees $

Post employment benefits

Short-term Non-monetary incentive benefits $ $

Total

Superannuation $

Termination benefits $

$

Brett Chenoweth 2012

1,483,877



95,404

16,123



1,595,404

2011

1,484,513



81,350

15,487



1,581,350

Peter Myers (to 19 September 2012) 2012

578,783





27,442



606,225

2011

664,002





42,385



706,387

64,640





3,416



68,056













Jeff Howard (from 12 November 2012) 2012 2011 Matthew Crockett 2012

568,193



61,406

16,122



645,721

2011

449,475

56,250

88,035

12,213



605,973

2012

758,954



129,976





888,930

2011

747,270



126,881





874,151

2012

533,878





16,122



550,000

2011

336,363

40,000



9,855



386,218

Martin Simons

Warren Bright

Richard Herring (to 30 April 2012) 2012

221,742





16,667



238,409

2011

651,229

320,000

22,475

29,771



1,023,475

Rob Lourey (to 31 December 2011) 2012 2011













440,000





60,000

258,198

758,198













Warren Lee (to 5 April 2011) 2012 2011

161,816



4,580

7,600

736,737

910,733

Total 2012

4,210,067



286,786

95,892



4,592,745

Total 2011

4,934,667

416,250

323,321

177,311

994,935

6,846,484

In relation to share options held by Senior Executives, no cost has been recognised in profit or loss during the year as it is considered unlikely that the awards will vest. In relation to the Performance Rights held by the Chief Executive Officer during 2012, a charge of $80,625 (2011: $80,625) has been recognised in profit or loss in relation to the TSR tranche. No cost has been recognised in relation to the EPS tranche as it is considered unlikely that the awards will vest. Including this charge, Mr Chenoweth’s total cost to the Company is $1,676,029 (2011: $1,661,975) and the total cost to the Company of all Senior Executives is $4,673,370 (2011: $6,927,109).

40

APN annual report 2012

Remuneration Report APN News & Media Limited and Controlled Entities

E: Executive employment contracts Remuneration and other terms of employment for the Senior Executives are formalised in employment contracts. The extent to which each executive’s remuneration is performance-based is described in Section B. Fixed-term contracts Brett Chenoweth, Chief Executive Officer (commenced 1 January 2011, resigned on 19 February 2013) Mr Chenoweth was employed on a three year contract. Key details of Mr Chenoweth’s contract are as outlined below: –– Fixed remuneration: Mr Chenoweth received fixed remuneration, inclusive of superannuation and other benefits, of $1.5 million per annum. –– STI: For achievement of target performance under the STI plan, Mr Chenoweth was entitled to an award of $600,000. For each 1% increase up to 5% above target, Mr Chenoweth was eligible for an additional $75,000. In addition, for each 1% increase above 6%, up to 10% above target, Mr Chenoweth was eligible for an additional $100,000. –– LTI: Mr Chenoweth was eligible for an annual award of Performance Rights under the LTI plan as follows: –– 750,000 Performance Rights for the year ended 31 December 2011; –– Performance Rights to the value of 100% of fixed remuneration for each of the years ending 31 December 2012 and 2013 to be granted in 2012 and 2013; and –– Vesting is subject to meeting TSR and EPS performance hurdles for the three year period from 1 January 2011 to 31 December 2013 as outlined in Section C of this report. –– Notice period: Employment may be terminated by either party giving 12 months’ notice or, where employment is terminated by the Company, payment may be made in lieu of notice. –– Termination: If Mr Chenoweth is considered a “good leaver” (i.e. leaves by reason of death, total disablement, redundancy or certain other circumstances defined in Mr Chenoweth’s employment contract), and subject to any required shareholder approval, Mr Chenoweth will be entitled to all remuneration and statutory leave entitlements up to and including the date of termination, payment of STI for the relevant calendar year, pro-rated to the date of termination and payment of the unvested LTI awards to the extent that performance hurdles are met. Rolling contracts Other Senior Executives Peter Myers Jeff Howard Matthew Crockett Martin Simons Warren Bright Richard Herring

Chief Financial Officer (until 19 September 2012) Chief Financial Officer (from 12 November 2012) Chief Development Officer Chief Executive, New Zealand Media Chief Executive, Australian Regional Media Group Radio and Outdoor Chief Executive (until 30 April 2012)

Contractual operating terms for these other Senior Executives are substantially similar and contain confidentiality provisions: Length of contract

Continuing.

Fixed compensation

Other Senior Executives receive fixed remuneration, inclusive of superannuation, and benefits which are reviewed annually by the Chief Executive Officer, subject to approval of the Remuneration Committee.

Short-term incentives

Other Senior Executives are eligible to receive a STI payment, heavily weighted towards the financial performance of the Group or the relevant division and determined in accordance with the principles for STIs detailed in Section B.

Long-term incentives

Other Senior Executives are eligible to participate in the Company’s LTI at the Board’s discretion.

Termination

Employment may be terminated by either party giving 12 months’ notice (six months in the case of Mr Howard and of Mr Crockett when giving notice to APN) or, where employment is terminated by the Company, payment may be made in lieu of notice.

Redundancy

If the Company terminates the employment of Mr Howard, Mr Crockett, Mr Simons or Mr Bright, for reasons of redundancy, a termination payment would be paid depending on the length of their service, in each case not exceeding the following amounts: Mr Crockett – 12 months’ base salary, Mr Simons – two years’ base salary and Mr Bright and Mr Howard – six months’ base salary.

Non-compete

Other Senior Executives are subject to non-compete provisions for the term of their notice period.

All contracts provide that employment may be terminated at any time without notice for serious misconduct.

41

APN annual report 2012

Remuneration Report APN News & Media Limited and Controlled Entities

F: Non-executive Director Remuneration Approach to determining non-executive Director fees Fees and payments to non-executive Directors reflect the demands which are made on, and the responsibilities of, the Directors. The Remuneration Committee has responsibility for reviewing and recommending the level of remuneration for non-executive Directors in relation to Board and Committee duties. Approved fee pool The maximum amount approved by shareholders is $750,000 per annum. Retirement benefits Non-executive Directors may receive retirement benefits in accordance with the Corporations Act 2001. Fees paid to non-executive Directors of APN News & Media Limited during 2012 (and comparatives) Cash salary and fees $

Superannuation $

Total $

68,975

6,207

75,182







Amounts paid by APN News & Media Limited Peter Hunt (from 3 September 2012) 2012 2011 Ted Harris 2012

150,000



150,000

2011

150,000



150,000

71,972

6,477

78,449







2012

28,601

38,399

67,000

2011

17,234

49,766

67,000

2012

73,396

6,604

80,000

2011

70,337

6,330

76,667

2012

90,000



90,000

2011

90,000



90,000

2012

87,156

7,844

95,000

2011

87,156

7,844

95,000

Melinda Conrad 2012 2011 Peter Cosgrove

John Harvey

Kevin Luscombe

John Maasland

Pierce Cody (until 22 February 2012) 2012

9,968

897

10,865

68,808

6,192

75,000

Total 2012

580,068

66,428

646,496

Total 2011

483,535

70,132

553,667

2012

7,465



7,465

2011

7,462



7,462

Total 2012

587,533

66,428

653,961

Total 2011

490,997

70,132

561,129

2011

Amounts paid by subsidiaries of APN News & Media Limited Peter Cosgrove – Chairman’s fee Buspak Hong Kong

Directors not specified in the above table received no remuneration. Consistent with previous years, certain Directors affiliated with Independent News & Media PLC do not receive Directors’ fees from the Company. Refer note 27 to the financial statements for details of related party transactions.

42

APN annual report 2012

Remuneration Report APN News & Media Limited and Controlled Entities

G: Additional statutory disclosures Equity instrument disclosures relating to Directors and Senior Executives The key terms and conditions of each grant of options affecting remuneration of Directors and Senior Executives in this or future reporting periods are as follows:

Grant date

2 June 2008

Expiry date

Exercise price

Value per option at grant date

2 June 2013

$3.93

$0.55

Date first exercisable (subject to performance hurdles)

2 June 2011

The minimum performance hurdles for the above options have not been satisfied as at 31 December 2012 and will not be met in the remaining life of the options. The options will expire in June 2013. Option holdings Options held by Senior Executives during the year ended 31 December 2012 are shown in the table below. Balance at start of the year

Peter Myers

500,000

Lapsed

Exercised

Balance at end of the year

Options vested during the year

Vested and exercisable at end of the year









(500,000)

Martin Simons

400,000





400,000





Richard Herring

400,000





400,000







800,000





Total

1,300,000

(500,000)

Senior Executives not specified in the above table hold no options. No Directors hold any options. Performance Right Holdings Brett Chenoweth held 750,000 Performance Rights issued under the LTI plan at 31 December 2012. Value of options exercised and shares issued No ordinary shares in the Company were issued as a result of the exercise of options by any Director or Senior Executive during the year. The information provided in the above table is based on information known to the Directors and Senior Executives of the Company. In relation to any holdings of related parties (as defined in AASB 124 Related Party Disclosures), the Directors and Senior Executives have no control or influence over the financial affairs of the related parties to substantiate their holdings. Loans to Directors and Senior Executives There are no loans made to Directors of the Company or Senior Executives. Other transactions with Directors and Senior Executives Details of other transactions with Directors and Senior Executives are provided in note 27 to the financial statements.

43

APN annual report 2012

Auditor’s Independence Declaration APN News & Media Limited and Controlled Entities

Auditor’s Independence Declaration As lead auditor for the audit of APN News & Media Limited for the year ended 31 December 2012, 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 APN News & Media Limited and the entities it controlled during the period.

DS Wiadrowski Partner PricewaterhouseCoopers

PricewaterhouseCoopers, ABN 52 780 433 757 Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 DX 77 Sydney, Australia T +61 2 8266 0000, F +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation.

44

Sydney 14 March 2013

APN annual report 2012

Consolidated Income Statement APN News & Media Limited and Controlled Entities for the year ended 31 December 2012

Note

2012 $’000

2011 $’000

Revenue from continuing operations

2

857,151

842,142

Other revenue and income

2

10,176

25,722

867,327

867,864

3

(771,510)

(744,321)

12

(638,448)

(159,495)

3

(44,416)

(57,190)

Total revenue and other income Expenses from operations before finance costs Impairment of intangible assets Finance costs Share of profits of associates and joint venture

10

Loss before income tax credit Income tax credit

5

Loss from continuing operations Profit from discontinued operations

9,155 (577,892) 68,392 (509,500)

8

Loss for the year

5,807 (87,335) 48,696 (38,639)

77,543

19,703

(431,957)

(18,936)

(455,769)

(45,070)

Loss for year is attributable to: Owners of the parent entity Non-controlling interests

23,812

26,134

(431,957)

(18,936)

Earnings per share from continuing operations Basic/diluted earnings per share

31

(82.3) cents

(10.5) cents

31

(70.4) cents

(7.3) cents

Earnings per share from continuing and discontinued operations Basic/diluted earnings per share

45

APN annual report 2012

Consolidated Statement of Comprehensive Income APN News & Media Limited and Controlled Entities for the year ended 31 December 2012

Note

Loss for the year

2012 $’000

(431,957)

2011 $’000

(18,936)

Other comprehensive income Revaluation of freehold land and buildings

19

Net exchange differences on translation of foreign operations

19

19,933

4,758

Net gain/(loss) on hedge contracts

19

3,243

(3,608)

Share of joint venture’s hedging reserves

19

Exchange and other differences applicable to non-controlling interests Other comprehensive income, net of tax Total comprehensive income

(628)

(632) 3,812 25,728



– (288) 862

(406,229)

(18,074)

(433,853)

(43,920)

Total comprehensive income is attributable to: Owners of the parent entity Non-controlling interests

27,624

25,846

(406,229)

(18,074)

(512,928)

(67,236)

Total comprehensive income attributable to owners of the parent entity arises from: Continuing operations Discontinued operations

46

79,075

23,316

(433,853)

(43,920)

APN annual report 2012

Consolidated Balance Sheet APN News & Media Limited and Controlled Entities AS AT 31 December 2012

Note

2012 $’000

2011 $’000

Current assets 32

20,338

23,885

Receivables

Cash and cash equivalents

6

127,767

169,085

Inventories

7

10,370

9,053

1,506

546

Income tax receivable Other current assets Total current assets

49,211

27,907

209,192

230,476

28,738

1,516

Non-current assets Receivables Other financial assets Investments accounted for using the equity method

6 9

22,471

31,164

10

102,298

43,331

Property, plant and equipment

11

171,541

233,066

Intangible assets

12

774,765

1,456,952

Deferred tax assets

17

36,281



Retirement benefit asset

22

1,557

1,471

1,137,651

1,767,500

1,346,843

1,997,976

Total non-current assets Total assets Current liabilities Payables

13

160,184

135,667

Derivative liabilities

14



778

Interest bearing liabilities

15

29,797

27,504

6,403

5,925

Current tax liabilities Provisions

16

Total current liabilities

12,653

16,436

209,037

186,310



4,043

Non-current liabilities Payables

13

Derivative liabilities

14



3,839

Interest bearing liabilities

15

449,320

633,526

Deferred tax liabilities

17



47,638

Provisions

16

47,585

9,819

Total non-current liabilities

496,905

698,865

Total liabilities

705,942

885,175

Net assets

640,901

1,112,801

1,093,372

1,074,115

Equity Contributed equity

18

Reserves

19

(76,455)

(77,441)

Accumulated losses

19

(611,085)

(117,700)

Total parent entity interest Non-controlling interests Total equity

19

405,832

878,974

235,069

233,827

640,901

1,112,801

47

APN annual report 2012

Consolidated Statement of Changes in Equity APN News & Media Limited and Controlled Entities for the year ended 31 December 2012

Attributable to owners of the parent entity

Note

Balance at 1 January 2011

1,045,999

Total comprehensive income Transfers between reserves

Contributed equity $’000

Reserves $’000

(75,796)

Accumulated losses $’000

(8,170)



1,150

(45,070)

19



384

(384)

Total $’000

Noncontrolling interests $’000

Total equity $’000

962,033

226,172

1,188,205

(43,920)

25,846





(18,074) –

Transactions with equity holders

Contributions of equity

18

28,116





Dividends paid

20





Equity transactions with non-controlling interests

19



(3,179)

Balance at 31 December 2011

1,074,115

(77,441)

(117,700)

878,974

233,827

1,112,801

Balance at 1 January 2012

1,074,115

(77,441)

(117,700)

878,974

233,827

1,112,801



21,916

(455,769)

(433,853)

19



(3,630)

Total comprehensive income Transfers between reserves

– (64,076) –

3,630

28,116



28,116

(64,076)



(64,076)

(3,179)

(18,191)

27,624

(21,370)

(406,229)







19,257



19,257

(41,246)



(41,246)

Transactions with equity holders

Contributions of equity

18

19,257





Dividends paid

20





Equity transactions with non-controlling interests

19

Balance at 31 December 2012

48



(17,300)

1,093,372

(76,455)

– (41,246) – (611,085)

(17,300) 405,832

(26,382) 235,069

(43,682) 640,901

APN annual report 2012

Consolidated Statement of Cash Flows APN News & Media Limited and Controlled Entities for the year ended 31 December 2012

2012 $’000

2011 $’000

Receipts from customers

1,052,631

1,212,500

Payments to suppliers and employees

(907,862)

(1,015,818)

Note

Cash flows from operating activities

Dividends received

703

Interest received

1,085

Interest paid

(44,787)

Income taxes paid Net cash inflows from operating activities

32

474 1,270 (52,729)

(14,496)

(22,634)

87,274

123,063

Cash flows from investing activities Payments for property, plant and equipment

(14,244)

Payments for goodwill



Payments for software

(8,984)

Payments for other intangible assets



(31,743) (920) (2,152) (3,492)

Acquisition of controlled entities

(35,161)

(9,061)

Proceeds from sale of property, plant and equipment

22,600

3,705

Net (payments for purchase)/proceeds from sale of investments

5,272

Net proceeds on formation of APN Outdoor joint venture

174,220

Proceeds from sale of associate Loans repaid by other entities Dividends received from associate





689

2,039

2,775

3,500

Net cash inflows/(outflows) from investing activities

(815)

2,500

149,242

(38,514)



(324)

Cash flows from financing activities Loans advanced to:

Director related entities

Associates

(251)

(5)

Proceeds from borrowings

237,119

261,194

Repayments of borrowings

(426,776)

(323,156)

(149)

(582)

Payments for borrowing costs Principal repayments under finance leases

(6,606)

(2,408)

Dividends paid to shareholders

(21,989)

(35,960)

Net payments to non-controlling interests

(21,587)

(23,074)

(240,239)

(124,315)

Change in cash and cash equivalents

(3,723)

(39,766)

Cash and cash equivalents at beginning of the year

23,885

63,539

Net cash outflows from financing activities

Effect of exchange rate changes Cash and cash equivalents at end of the year

32

176

112

20,338

23,885

49

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of APN News & Media Limited and its subsidiaries. (a) Basis of preparation This general purpose financial report has been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The financial report also complies with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB). 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) and certain classes of property, plant and equipment. (b) Principles of consolidation (i) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of APN News & Media Limited (Company or parent entity) and its subsidiaries as defined in AASB 127 Consolidated and Separate Financial Statements. APN News & Media Limited and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the Group (refer note 1(h)). Inter-entity transactions, balances and unrealised gains on transactions between Group entities are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated income statement, statement of comprehensive income, statement of changes in equity and balance sheet respectively. The effects of all transactions with non-controlling interests are recorded in equity if there is no change in control. Where there is a loss of control, any remaining interest in the entity is remeasured to fair value and a gain or loss is recognised in the income statement. Any losses are allocated to the non-controlling interest in subsidiaries even if the accumulated losses should exceed the non-controlling interest in the individual subsidiary’s equity.

50

(ii) Associates Associates are all entities over which the Group has significant influence but not control or joint control. Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting, after initially being recognised at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends received from associates are recognised in the consolidated financial statements as a reduction in the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. The accounting policies of associates are consistent with the policies adopted by the Group in all material respects. (iii) Joint ventures Jointly controlled assets The proportionate interests in assets, liabilities and results of joint venture activity have been incorporated in the financial statements under the appropriate headings. Joint venture entities The interest in a joint venture entity is accounted for using the equity method after initially being recognised at cost. Under the equity method, the share of the profits or losses of the joint venture entity is recognised in profit or loss, and the share of post-acquisition movements in reserves is recognised in other comprehensive income. Details relating to the joint venture entity are set out in note 10. The accounting policies of joint ventures are consistent with the policies adopted by the Group in all material respects. (c) Segment reporting The Group identifies operating segments based on the format of internal reports which are reviewed by key management personnel in assessing performance and in allocating resources. (d) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (functional currency). The consolidated financial statements are presented in Australian dollars, which is APN News & Media Limited’s functional and presentation currency.

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

(ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation. (iii) Group entities The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: –– assets and liabilities are translated at the closing rate at the date of the balance sheet; –– income and expenses are translated at average exchange rates; and –– all resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments are recognised in other comprehensive income. When a foreign operation is sold or a partial disposal occurs, a proportionate share of such exchange differences is recognised in the income statement as part of the gain or loss on disposal. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. (e) Revenue recognition Revenue is measured at the fair value of consideration received or receivable. Amounts disclosed as revenue are net of commissions, returns, rebates and taxes paid. The Group recognises revenue when the amount of revenue can be reliably measured and it is probable that the economic benefits will flow to the Group. Advertising revenue from Publishing is recognised when a newspaper or magazine is published, from Broadcasting when the advertisement is broadcast and from Outdoor and Online operations over the period when displayed. Sale of goods, circulation, printing and coupon revenue is recognised when control of the goods passes to the buyer.

(f) Income tax The income tax expense for the year is the tax payable on the current year’s taxable income based on the applicable income 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 also adjusted for unused tax losses utilised in the year. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. 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 enacted tax rates applicable to 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. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Temporary differences in relation to indefinite life intangible assets are determined with reference to their respective capital gains tax bases in respect of assets for which capital gains tax will apply. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax balances attributable to amounts recognised in other comprehensive income are also recognised in other comprehensive income.

Other income includes rental income and dividends. These items are recognised when the services have been provided or the Group’s right to receive payment has been established.

51

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (g) Leases A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of leased non-current assets, and operating leases under which the lessor effectively retains substantially all such risks and benefits. Assets acquired under finance leases are included as property, plant and equipment in the balance sheet. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. A corresponding liability is also established and each lease payment is allocated between the liability and finance charges. The interest element is charged to profit or loss over the period of the lease. Leased assets are amortised on a straight line basis over the term of the lease, or where it is likely that the consolidated entity will obtain ownership of the asset, the life of the asset. Leased assets held at balance date are amortised over periods ranging from one to five years. Other leases under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Operating lease payments, excluding contingent payments, are charged to profit or loss on a straight line basis over the period of the lease. (h) Business combinations The acquisition method of accounting is used to account for all business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value through profit or loss. Acquisition related costs are expensed as incurred. The identifiable assets acquired and liabilities and contingent liabilities assumed are measured initially at their fair values at the acquisition date. Non-controlling interests in an acquiree are recognised either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. This decision is made on an acquisition-by-acquisition basis. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the Group’s share of the net identifiable assets acquired is recorded as goodwill.

52

(i) Impairment of assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment and whenever there is an indication that they may be impaired. Assets that are subject to amortisation are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment charge is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell, and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash generating units). Non-financial assets other than goodwill that suffer an impairment are reviewed for possible reversal of the impairment at each reporting date. (j) Cash and cash equivalents For cash flow presentation requirements, cash and cash equivalents comprises cash on hand, deposits held at call with banks and investments in money market instruments, net of outstanding bank overdrafts. (k) Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for doubtful debts. Trade receivables are generally settled within 60 days. Debts which are known to be uncollectible are written off. A provision for impairment of trade receivables is established where 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 carrying amount of the asset is reduced through the use of a provision account and the amount of the loss is recognised in the income statement within other expenses. When a trade receivable is uncollectible, it is written off against the provision account for trade receivables. (l) Inventories Inventories are stated at the lower of cost and net realisable value. Costs are assigned to inventory quantities on hand at balance date using the first in first out basis. Cost comprises material, labour and an appropriate proportion of fixed and variable overheads. Net realisable value is the estimated selling price in the ordinary course of the business less the estimated cost of completion and the estimated cost necessary to make the sale.

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

(m) Non-current assets held for sale and discontinued operations Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. They are measured at the lower of their carrying amount and their fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial assets and investment property that are carried at fair value and contractual rights under insurance contracts, which are specifically exempt from this requirement.

For financial assets measured at amortised cost, the Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired.

Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised.

(o) Derivatives Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. Fair value is determined with reference to quoted market prices. The method of recognising the resulting gain or loss depends on whether the derivative is designated and effective as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges) or hedges of highly probable forecast transactions (cash flow hedges).

Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet.

(i) Fair value hedges Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the income statement.

(ii) Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated in the hedging reserve in equity. The gain or loss relating to the ineffective portion is recognised in profit or loss in other income or other expenses.

(n) Financial assets In 2009, the Group elected to early adopt AASB 9 Financial Instruments. (i) Classification and initial measurement of financial assets Financial assets are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss which are initially measured at fair value. Financial assets are subsequently measured at fair value or where certain criteria are met at amortised cost. (ii) Financial assets at amortised cost The Group’s loans and receivables meet the requirements for measurement at amortised cost based on the objectives for which they are held and the contractual terms. (iii) Financial assets at fair value The Group’s investments in equity instruments are measured at fair value, determined in the manner described in note 34. At initial recognition, the Group can make an irrevocable election (on an instrument-by-instrument basis) to recognise gains and losses on equity instruments not held for trading, in other comprehensive income. Otherwise, all gains and losses are recognised in profit or loss.

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 finance costs. The gain or loss relating to the effective portion of forward foreign exchange contracts is recognised in profit or loss within other income. 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 transferred to profit or loss. (iii) Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised in profit or loss.

53

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (p) Property, plant and equipment Land and buildings are shown at fair value, based on periodic valuations by external independent valuers, less subsequent depreciation for buildings. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Increases in the carrying amounts arising on revaluation of land and buildings are credited to revaluation reserves in equity. To the extent that the increase reverses a decrease previously recognised in the income statement, the increase is first recognised in the income statement. Decreases that reverse previous increases of the same asset are first charged against revaluation reserves directly in equity to the extent of the remaining reserve attributable to the asset; all other decreases are charged to the income statement. Land is not depreciated. Depreciation on other assets is calculated using the straight line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives, as follows: –– buildings

50 years

–– plant and equipment

3–25 years

The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (refer note 1(i)). Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit or loss. (q) Intangible assets (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired business at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments in associates. Goodwill is not amortised but rather is subject to periodic impairment testing as described in note 1(i).

54

(ii) Software Costs incurred in developing systems and costs incurred in acquiring software and licences are capitalised to software. Costs capitalised include external direct costs of materials and service and direct payroll and payroll related costs of employees’ time spent on the project. Amortisation is calculated on a straight line basis over periods generally ranging from three to five years. (iii) Mastheads Mastheads, being the titles of the newspapers and magazines produced by the consolidated entity, are accounted for as identifiable assets and are brought to account at cost. The Directors believe the mastheads have indefinite lives and accordingly, no amortisation has been provided against the carrying amount. Australian Accounting Standards state explicitly that an active market does not exist in respect of newspaper mastheads, brands and other assets as such assets are unique. The Board of Directors does not agree that an active market does not exist in respect of newspaper mastheads; however, it has complied with the requirements of the relevant standard to reverse all past revaluation of such assets. (iv) Radio licences – Australia Commercial radio licences are accounted for as identifiable assets and are brought to account at cost. The Directors believe the licences have indefinite lives and accordingly, no amortisation has been provided against the carrying amount. The commercial radio licences held by the consolidated entity are renewable every five years under the provisions of the Broadcasting Services Act 1992 and the Directors have no reason to believe that the licences will not be renewed from time to time for the maximum period allowable under the Act and without imposition of any conditions. (v) Radio licences – New Zealand Commercial radio licences are accounted for as identifiable assets and are brought to account at cost. The current New Zealand radio licences have been renewed to 31 March 2031 and are being amortised on a straight line basis to that date. (vi) Transit and outdoor advertising systems Transit and outdoor advertising systems are accounted for as identifiable assets and are brought to account at cost. The Directors believe these assets have indefinite lives and accordingly, no amortisation has been provided against the carrying amount. (vii) Brands Brands are accounted for as identifiable assets and are brought to account at cost. The Directors have considered the geographic location, legislative environment and legal, technical and other commercial factors likely to impact on the useful lives of the brands and consider that they have indefinite lives. Accordingly, no amortisation has been provided against the carrying amount.

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

(viii) Lease intangibles Lease intangibles are accounted for as identifiable assets and are brought to account at cost. These assets represent capitalised outdoor site leases and are being amortised over the estimated lease term of the site leases, including expected renewal periods. (r) Trade and other payables Trade payables, including accruals not yet billed, are recognised when the consolidated entity becomes obliged to make future payments as a result of a purchase of assets or services. Trade payables are unsecured and are generally settled within 30 days. (s) Borrowings Loans, bonds and convertible notes are carried at their principal amounts, which represent the present value of future cash flows associated with servicing the debt. Interest is accrued over the period it becomes due and is recorded as part of trade and other payables. Ancillary costs incurred in connection with the arrangement of borrowings are deferred and amortised over the period of the borrowing. These ancillary costs are netted off against the carrying value of borrowings in the balance sheet. 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 reporting period. (t) Provisions Provisions for restructuring costs and make good obligations are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments 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. (u) Employee benefits (i) Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave, expected to be settled within 12 months from the reporting date are recognised in trade and other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable.

(ii) Long service leave The liability for long service leave expected to be settled within 12 months of the reporting date is recognised in the provision for employee benefits and is measured in accordance with the above paragraph. The liability for long service leave expected to be settled more than 12 months from the reporting date is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. (iii) Short-term incentive plans A liability for short-term incentives is recognised in trade and other payables when there is an expectation of settlement and at least one of the following conditions is met: –– there are contracted terms in the plan for determining the amount of the benefit; –– the amounts to be paid are determined before the time of completion of the financial report; or –– past practice gives clear evidence of the amount of the obligation. Liabilities for short-term incentives are expected to be settled within 12 months and are measured at the amounts expected to be paid when they are settled. (iv) Defined benefit superannuation plans A liability or asset in respect of defined benefit superannuation plans is recognised in the balance sheet, and is measured as the present value of the defined benefit obligation at the reporting date plus unrecognised actuarial gains (less unrecognised actuarial losses), less the fair value of the superannuation fund’s assets at that date and any unrecognised past service cost. The present value of the defined benefit obligation is based on expected future payments which arise from membership of the fund to the reporting date, calculated annually by independent actuaries using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Actuarial gains and losses are recognised, under the corridor method as outlined in AASB 119 Employee Benefits, in the income statement in the periods in which they arise. The portion recognised is the excess of the unrecognised gain/loss at the start of the year over the greater of 10% of the value of assets and 10% of the defined benefit obligation at the start of the year, divided by the expected future service of members.

55

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (v) Share-based payments Share-based compensation benefits are provided to employees via the Executive and Director Option Plan.

(z) Parent entity financial information The financial information for the parent entity, APN News & Media Limited, disclosed in note 36 has been prepared on the same basis as the consolidated financial statements, except as set out below:

The fair value of options granted under the Executive and Director Option Plan is recognised as an employee benefits expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the options vest.

(i) Investments in subsidiaries Investments in subsidiaries are accounted for at cost in the financial statements of APN News & Media Limited.

The fair value at grant date is independently determined using the Binomial option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. The fair value of the options granted excludes the impact of any non-market vesting conditions (eg profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the Company revises its estimate of the number of options that are expected to become exercisable. The employee benefits expense recognised each period takes into account the most recent estimate. (v) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (w) Earnings per share (i) Basic earnings per share Basic earnings per share is determined by dividing the net profit or loss attributable to owners of the Company by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share by taking into account the after-tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (x) Dividends Provision is made for the amount of any dividend declared, determined or publicly recommended by the Directors at or before the end of the financial year but not distributed at balance date. (y) Rounding of amounts The Company is of a kind referred to in Class Order 98/100, 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, or in certain cases, the nearest dollar.

56

(ii) Tax consolidation legislation APN News & Media Limited and its wholly-owned Australian subsidiaries have formed a tax consolidated group. Each member of the tax consolidated group accounts for their own current and deferred tax amounts using the ‘separate taxpayer within group’ approach. In addition to its own current and deferred tax amounts, APN News & Media Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from available tax losses assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under tax funding arrangements with the tax consolidated entities are recognised as current amounts receivable from or payable to other entities in the group. The amounts receivable/payable under the tax funding arrangements are due upon demand of the head entity. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax installments. (aa) Critical accounting judgements and key sources of estimation uncertainty The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of the assets and liabilities within the next financial year are discussed below: (i) Impairment The Group annually tests whether goodwill and other nonamortising intangible assets have suffered any impairment, in accordance with the accounting policy stated in note 1(i). The recoverable amounts of cash generating units have been determined based on value in use calculations. These calculations require the use of assumptions. Refer note 12 for details of these assumptions and the potential impact of changes to these assumptions. (ii) Property valuations The Group periodically revalues land and buildings in accordance with the accounting policy stated in note 1(p). These valuations are based on available evidence at the time the valuation is conducted but is subject to estimation. (iii) Income taxes The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgement is required in determining the provision for income taxes. There are certain transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group estimates its tax liabilities based on the Group’s understanding of the tax law. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

(ab) Standards and interpretations issued but not yet effective Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2012 reporting periods. The Group’s assessment of the impact of these new standards and interpretations is set out below. (i) AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 12 Disclosure of Interests in Other Entities, revised AASB 127 Separate Financial Statements and AASB 128 Investments in Associates and Joint Ventures and AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards (effective 1 January 2013) In August 2011, the AASB issued a suite of five new and amended standards which address the accounting for joint arrangements, consolidated financial statements and associated disclosures. AASB 10 replaces all of the guidance on control and consolidation in AASB 127 Consolidated and Separate Financial Statements, and Interpretation 112 Consolidation – Special Purpose Entities. The core principle that a consolidated entity presents a parent and its subsidiaries as if they are a single economic entity remains unchanged, as do the mechanics of consolidation. However, the standard introduces a single definition of control that applies to all entities. It focuses on the need to have both power and rights or exposure to variable returns. Power is the current ability to direct the activities that significantly influence returns. Returns must vary and can be positive, negative or both. Control exists when the investor can use its power to affect the amount of its returns. There is also new guidance on participating and protective rights and on agent/principal relationships. While the Group does not expect the new standard to have a significant impact on its composition, it has yet to perform a detailed analysis of the new guidance in the context of its various investees that may or may not be controlled under the new rules. AASB 11 introduces a principles based approach to accounting for joint arrangements. The focus is no longer on the legal structure of joint arrangements, but rather on how rights and obligations are shared by the parties to the joint arrangement. Based on the assessment of rights and obligations, a joint arrangement will be classified as either a joint operation or a joint venture. Joint ventures are accounted for using the equity method, and the choice to proportionately consolidate will no longer be permitted.

AASB 12 sets out the required disclosures for entities reporting under the two new standards, AASB 10 and AASB 11, and replaces the disclosure requirements currently found in AASB 127 and AASB 128. Application of this standard by the Group will not affect any of the amounts recognised in the financial statements, but will impact the type of information disclosed in relation to the Group’s investments. Amendments to AASB 128 provide clarification that an entity continues to apply the equity method and does not remeasure its retained interest as part of ownership changes where a joint venture becomes an associate, and vice versa. The amendments also introduce a “partial disposal” concept. The Group is still assessing the impact of these amendments. The Group does not expect to adopt the new standards before their operative date. They would therefore be first applied in the financial statements for the annual reporting period ending 31 December 2013. (ii) AASB  13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13 (effective 1 January 2013) AASB 13 was released in September 2011. It explains how to measure fair value and aims to enhance fair value disclosures. The Group has yet to determine which, if any, of its current measurement techniques will have to change as a result of the new guidance. It is therefore not possible to state the impact, if any, of the new rules on any of the amounts recognised in the financial statements. However, application of the new standard will impact the type of information disclosed in the notes to the financial statements. The Group does not intend to adopt the new standard before its operative date, which means that it would be first applied in the annual reporting period ending 31 December 2013. (iii) Revised AASB 119 Employee Benefits, AASB 2011-10 Amendments to Australian Accounting Standards arising from AASB 119 (September 2011) and AASB 2011-11 Amendments to AASB 119 (September 2011) arising from Reduced Disclosure Requirements (effective 1 January 2013)

Parties to a joint operation will account their share of revenues, expenses, assets and liabilities in much the same way as under the previous standard. AASB 11 also provides guidance for parties that participate in joint arrangements but do not share joint control.

In September 2011, the AASB released a revised standard on accounting for employee benefits. It requires the recognition of all remeasurements of defined benefit liabilities/assets immediately in other comprehensive income (removal of the so-called corridor method) and the calculation of a net interest expense or income by applying the discount rate to the net defined benefit liability or asset. This replaces the expected return on plan assets that is currently included in profit or loss. The standard also introduces a number of additional disclosures for defined benefit liabilities/assets and could affect the timing of the recognition of termination benefits. The amendments will have to be implemented retrospectively. The impact of the new rules on the Group is not expected to be material.

The Group does not currently hold any joint arrangements. The new APN Outdoor joint venture will be classified as a joint venture under the new rules and be accounted for under the equity method.

There are no other standards that are not yet effective and that are expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

57

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

2. REVENUE AND OTHER INCOME 2012 $’000

2011 $’000

822,964

842,142

From continuing operations Advertising revenue Revenue from sale of goods

34,187



Revenue from continuing operations

857,151

842,142

Dividends received Rent received Foreign exchange gains Gains on insurance claims Gains on disposal of properties and businesses Fair value adjustment on acquisition of associate Gains on equity instruments Other Other income Interest from joint venture Interest from other entities

703

474

1,271

1,285



5,339

2,054

4,377

1,825

788



8,307

349

3,652

82

238

6,284

24,460

2,811



1,081

1,262

Finance income

3,892

1,262

Total other revenue and income

10,176

25,722

Total revenue and other income

867,327

867,864

71,493

229,069

From discontinued operations (note 8) Total revenue and other income

58

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

3. EXPENSES 2012 $’000

2011 $’000

Employee benefits expense

337,555

328,417

Expenses from continuing operations before finance costs Selling and production expense

265,401

238,103

Rental and occupancy expense

63,572

54,746

Depreciation and amortisation expense

30,959

29,874

Redundancies and associated costs

8,436

17,332

Asset write downs and business closures

7,344

18,298

Loss on sale of property

2,353



New Zealand Herald relaunch costs

2,939



Other Total expenses from continuing operations before finance costs

52,951

57,551

771,510

744,321

556

1,017

22,352

21,280

3,002

3,187

25,910

25,484

Depreciation Buildings Plant and equipment Plant and equipment under finance lease Total depreciation Amortisation Software

3,109

2,480

Radio licences

1,940

1,910

Total amortisation

5,049

4,390

41,993

54,164

2,423

3,026

44,416

57,190

26,920

23,544

Finance costs Interest and finance charges Borrowing costs amortisation Total finance costs Rental expense relating to operating leases Property Outdoor site rentals

Minimum lease payments

15,788

11,652



Contingent rentals

3,454

3,207

Other Total rental expense relating to operating leases Impairment of receivables Contributions to employee superannuation plans

4,362

4,448

50,524

42,851

2,219

2,823

15,312

14,607

67,227

200,356

From discontinued operation (note 8) Total expenses

59

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

4. SEGMENT INFORMATION (a) Description of segments The Group has identified its operating segments based on the internal reports reviewed by the Board of Directors and the senior management team in assessing performance and determining the allocation of resources. There are six reportable segments as follows: Australian Regional Media

Newspaper and online publishing

New Zealand Media

Newspaper, magazine and online publishing

Australian Radio Network

Metropolitan radio networks

The Radio Network

Radio networks throughout New Zealand

Outdoor group

Roadside billboard, transit and other outdoor advertising

Digital group

Digital businesses

(b) Results by operating segment The Directors and senior management team assess the performance of the operating segments based on a measure of EBITDA which excludes the effects of exceptional items such as restructuring costs and impairment of intangible assets. The segment information provided to the Directors and senior management team for the year ended 31 December 2012 is as follows: Australian Regional New Zealand Media Media $’000 $’000

2012

Revenue from external customers

Australian Radio Network $’000

The Radio Network $’000

Outdoor group $’000

Digital group Unallocated $’000 $’000

55,311

248,760

287,360

139,951

86,708

110,485

38,655

47,810

50,777

15,130

19,553

Segment result Share of profits of associates and joint venture Segment assets

(755)









9,062



224,358

268,393

350,645

140,967

187,275

101,276

72,007

43,091

27,413

10,324

46,683

57,758

Segment liabilities

21 (15,139) –

Total $’000

928,596 156,031 9,062

73,929 1,346,843 448,666

705,942

Reconciliation of segment result to operating loss before income tax Segment result

156,031

Less: Depreciation and amortisation

(33,492)

Net finance costs

(40,524)

Loss on disposal of properties and businesses

(528)

Gains on insurance claims

2,054

New Zealand Herald relaunch costs

(2,939)

Profit from discontinued operations

(4,266)

Redundancies and associated costs

(8,436)

Asset write downs and business closures

(7,344)

Impairment of intangible assets (note 12)

(638,448)

Loss before tax from continuing operations

(577,892)

Gains on insurance claims relates to claims made against damage to property, plant and equipment and lost earnings as a result of the Christchurch earthquakes and Queensland floods during 2011. Redundancies and associated costs relate to the ongoing restructuring of our publishing divisions and The Radio Network. Asset write downs relates mainly to print properties and equipment.

60

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

Australian Regional New Zealand Media Media $’000 $’000

2011

Revenue from external customers

Australian Radio Network $’000

The Radio Network $’000

Outdoor group $’000

Digital group Unallocated $’000 $’000

276,002

301,067

133,212

86,712

263,740

11,661

55,105

61,856

47,510

16,917

45,803

(4,088)









6,143

(336)

354,143

764,747

362,383

152,823

279,344

76,424

106,714

42,779

22,430

51,257

Segment result Share of profits/(losses) of associates Segment assets Segment liabilities

Total $’000

– 1,072,394 (14,162)

208,941



5,807

40,673

43,863

1,997,976

15,744

569,827

885,175

Reconciliation of segment result to operating loss before income tax Segment result

208,941

Less: Depreciation and amortisation

(37,543)

Net finance costs

(55,944)

Gain on disposal of properties and businesses

788

Gains on insurance claims

4,377

Fair value adjustment on acquisition of associate

8,307

Gains on equity instruments

3,652

Foreign exchange gains

3,925

Profit from discontinued operations

(28,713)

Redundancies and associated costs

(17,332)

Asset write downs and business closures

(18,298)

Impairment of intangible assets (note 12)

(159,495)

Loss before tax from continuing operations

(87,335)

Gains on insurance claims relates to claims made against damage to property, plant and equipment as a result of the Christchurch earthquakes during 2011. Total proceeds received were $4,792,000. The fair value adjustment on acquisition of associate is the uplift in fair value that arose from the acquisition in February 2011 of the further 25% of Idea HQ Limited. Redundancies and associated costs relate to the restructuring program put in place during the year with approximately 300 staff being made redundant in the Group’s publishing divisions, delivering $25 million in annualised costs savings. Asset write downs and business closures relate mainly to the closure of certain loss making magazines in the Australian Regional Media division, the closure of the Bundaberg and Mackay printing facilities and the move to a digital first approach in the Tweed and Coffs Coast markets. (c) Other segment information Segment revenues and expenses comprise amounts that are directly attributable to a segment and the relevant portion that can be allocated on a reasonable basis. Corporate overheads, including centralised finance, legal and administrative costs, are not allocated against operating segments but rather are included above as unallocated amounts. Segment assets include all assets used by a segment and consist primarily of operating cash, receivables, inventories, property, plant and equipment, goodwill and other intangible assets, net of related provisions. Segment liabilities consist primarily of trade and other payables, employee benefits and provision for restructuring. Tax balances and external borrowing are not allocated to operating assets or liabilities. Segment revenues and results exclude transfers between segments. Such transfers are priced on an arm’s length basis and are eliminated on consolidation. The entity is domiciled in Australia and operates predominantly in Australia, New Zealand and Asia. The amount of its revenue from external customers in Australia is $489,006,000 (2011: $604,730,000), in New Zealand is $392,951,000 (2011: $411,542,000) and in Asia is $46,639,000 (2011: $56,123,000). Segment revenues are allocated based on the country in which the customer is located. The total of non-current assets located in Australia is $733,896,000 (2011: $819,775,000) and in other countries is $403,775,000 (2011: $947,725,000). Segment assets are allocated to countries based on where the assets are located. 61

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

5. INCOME TAX 2012 $’000

Current tax expense Deferred tax credit Adjustment for current tax of prior periods Income tax credit

2011 $’000

20,519

17,203

(82,222)

(57,396)

(5,737)

507

(67,440)

(39,686)

(68,392)

(48,696)

Income tax is attributable to:

Loss from continuing operations



Profit from discontinued operations

Aggregate income tax credit

952

9,010

(67,440)

(39,686)

(499,397)

(58,622)

(149,819)

(17,587) (21,528)

Income tax expense differs from the amount prima facie payable as follows: Loss before income tax expense Prima facie income tax at 30% Tax effects of differences:

Difference in international tax treatments and rates

(21,224)



Non-deductible impairment charge

127,127



Accounting gain on formation of APN Outdoor joint venture

(24,011)



Assets write downs and business closures



Fair value adjustment on acquisition of associate



Foreign exchange gains



Non-deductible interest

6,817

Other Prima facie tax adjusted for differences Adjustment for current tax of prior periods Income tax credit

643 –



2,304



(2,476)

54

(1,538) –

(647)

(11)

(61,703)

(40,193)

(5,737) (67,440)

507 (39,686)

The Company is involved in a dispute with the New Zealand Inland Revenue Department (“IRD”) regarding certain financing transactions. The Company is satisfied that its treatment of the financing transactions is consistent with all relevant legislation and that no tax will become payable. The dispute involves tax of NZ$48 million for the period up to 31 December 2012. The IRD are seeking to impose penalties of between 10% and 50% of the tax in dispute and interest in addition to the tax claimed. In the event the Company is unsuccessful in the dispute the Company has tax losses available to offset any amount of tax payable to the extent of NZ$32 million. On 22 February 2013 the Adjudication Unit of the IRD advised that it agrees with the position taken by the IRD. Accordingly the Company will be issued shortly with Notices of Assessment denying deductions in relation to interest claimed on certain financing transactions. In response to this step the Company will commence litigation in the High Court of New Zealand to defend its position in relation to this matter.

62

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

6. RECEIVABLES 2012 $’000

2011 $’000

114,393

158,612

Current Trade receivables Provision for doubtful debts

(3,640) 110,753

Loans to associates Other receivables Total current receivables

(5,125) 153,487

3,084

734

13,930

14,864

127,767

169,085

Non-current Loans to related parties

28,738

1,516

Total non-current receivables

28,738

1,516

Trade receivables are generally settled within 60 days. The Directors consider the carrying amount of trade receivables approximates their net fair value. Loans to associates are unsecured, interest bearing and repayable at call. Loans to related parties includes a loan of $28,000,000 to APN Outdoor Pty Limited. This loan is unsecured and interest bearing. (a) Impaired trade receivables As at 31 December 2012, current trade receivables of the Group with a nominal value of $6,375,000 (2011: $7,133,000) were impaired.  For the purposes of AASB 7 Financial Instruments: Disclosures, impaired receivables are regarded as those that are more than 90 days past due together with any other balances where the credit department considers collection to be in doubt. The amount of the provision was $3,640,000 (2011: $5,125,000). It was assessed that a portion of the impaired receivables is expected to be recovered. 2012 $’000

2011 $’000

The ageing of these receivables is as follows: One to three months

2,176

3,169

Three to six months

1,790

2,779

Over six months

2,409

1,185

Impaired receivables

6,375

7,133

Balance at beginning of the year

5,125

7,551

Amounts (disposed on)/relating to formation of APNO joint venture

(923)

Movements in the provision for doubtful debts are as follows:

Provision for doubtful debts expensed

964

2,219

2,823

Receivables written off

(2,781)

(6,213)

Provision for doubtful debts

3,640

5,125

(b) Past due but not impaired trade receivables As of 31 December 2012, trade receivables of $27,742,000 (2011: $37,280,000) were past due but not impaired. These receivables are 90 days or less past due. Amounts charged to the provision account are generally written off when there is no expectation of recovery. The other classes within trade and other receivables do not contain impaired assets and are not past due. Based on previous collection history, over 98% of these receivables would be expected to be collected.

63

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

6. RECEIVABLES (continued) (c) Foreign exchange risk The carrying amounts of the Group’s current and non-current receivables are denominated in the following currencies:

Australian dollars New Zealand dollars Hong Kong dollars

2012 $’000

2011 $’000

98,813

109,815

50,048

51,902

7,644

4,492



4,392

156,505

170,601

28,738

1,516

Indonesian rupiah

(d) Fair value and credit risk The fair value of current receivables is assumed to be their current value due to their short-term nature. The fair value and carrying value of non-current receivables of the Group are as follows: Loans to related parties The loans to related parties have no fixed term. The maximum exposure to credit risk at the reporting date is the higher of the carrying value and fair value of each receivable. The Group does not hold any collateral as security. Refer note 34 for further information on the risk management policy of the Group. 7. INVENTORIES Raw materials and stores Finished goods Total inventories

7,882

9,013

2,488

40

10,370

9,053

8. DISCONTINUED OPERATIONS (a) Discontinued operations On 30 April 2012 the group disposed of 52% of its interest in APN Outdoor Group Pty Limited and its subsidiaries. The remaining 48% interest has been treated as an investment in a joint venture and equity accounted from 1 May 2012. The results of the business prior to disposal are reported as a discontinued operation. Financial information relating to the discontinued operation for the period to the date of disposal is set out below: (i) Financial performance and cash flow information Revenue and other income Expenses

71,493

229,069

(67,227)

(200,356)

Profit before income tax

4,266

Income tax credit/(expense)

(1,677)

(9,010)

Profit after income tax of discontinued operation

2,589

19,703

74,229



725



Gain on sale of the division after income tax

74,954



Profit from discontinued operations

77,543

19,703

Net cash inflow from operating activities

16,478

41,071

Gain on sale of the division before income tax Income tax credit/(expense)

Net cash inflow/(outflow) from investing activities

171,900

Net increase in cash generated by the division

188,378

64

28,713

(7,976) 33,095

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

(ii) Carrying amount of assets and liabilities The carrying amounts of assets and liabilities of the discontinued operations at 30 April 2012 were: $’000

Cash and cash equivalents

2,836

Receivables

35,548

Inventories

429

Property, plant and equipment

25,795

Intangible assets

127,608

Other assets

19,833

Total assets

212,049

Payables

30,957

Provisions

1,406

Deferred tax liabilities

7,834

Total liabilities

40,197

Net assets

171,852

9. OTHER FINANCIAL ASSETS 2012 $’000

2011 $’000



7,636

Shares in other corporations

22,471

23,528

Total other financial assets

22,471

31,164

Listed securities

10. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Name of associate/ joint venture

Investment type

Principal activity

Country of incorporation and principal place of business

Ownership interest

Consolidated Carrying values

2012 %

2011 %

2012 $’000

2011 $’000

Outdoor advertising Australia

50

50

42,868

37,331

APN Outdoor Pty Limited

Joint venture Outdoor advertising Australia

48



53,430



Soprano Design Pty Limited

Associate

25

25

6,000

6,000

102,298

43,331

2012 $’000

2011 $’000

9,037

5,807

118



9,155

5,807

Adshel Street Furniture Pty Limited Associate

Mobile messaging

Australia

Share of profits of associates and joint venture Share of profits of associates Share of profits of joint venture

65

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

10. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD (continued) (a) Investment in associates Movements in carrying amounts of investments in associates 2012 $’000

2011 $’000

Carrying amount at beginning of the year

43,331

41,152

Additions

4,996



Share of profits after income tax

9,037

5,807

Dividends received

(3,500)

(2,500)

Disposals and other

(4,996)

(1,128)

Carrying amount at end of the year

48,868

43,331

Summarised financial information of associates The Group’s share of the results of its principal associates and their aggregated assets (including goodwill) and liabilities are as follows: Group’s share of Assets $’000

Liabilities $’000

Revenue $’000

Profit $’000

64,279

21,856

71,395

9,037

60,304

23,746

61,133

5,807

2012 Adshel 2011 Adshel

(b) Interest in joint ventures The investment in the APNO joint venture is accounted for in the financial statements using the equity method of accounting. Information relating to the joint venture for the 8 months from formation on 1 May 2012 to 31 December 2012, is set out below. 2012 $’000

Share of joint venture assets and liabilities Current assets

30,344

Non-current assets

129,010

Total assets

159,354

Current liabilities Non-current liabilities Total liabilities Net assets

10,983 94,941 105,924 53,430

Share of joint venture revenue, expenses and results Revenue

72,260

Expenses

(72,142)

Net profit after tax Share of joint venture capital commitments

66

118 2,000

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

11. PROPERTY, PLANT AND EQUIPMENT

Freehold land $’000

Buildings $’000

Plant and equipment $’000

Plant and equipment under finance lease $’000

15,526

36,170

501,757

53,352

606,805

(2,223)

(363,057)

(5,703)

(370,983)

Total $’000

At 1 January 2011 Cost or fair value Accumulated depreciation



Capital works in progress





7,513



7,513

15,526

33,947

146,213

47,649

243,335

Net book amount Year ended 31 December 2011 Opening net book amount

15,526

33,947

146,213

47,649

243,335

Additions



70

32,788



32,858

Acquisition of controlled entities





28



28

Disposals

(2,032)

Depreciation



Impairment



Transfers and other adjustments



Foreign exchange differences Closing net book amount

(1,689)

(3,897)

(1,017)

(27,888)

– (141)

– (743)



(7,618)

(3,186)

(32,091)

(3,486)

(3,486)



(884)

105

174

645



924

13,599

31,344

147,146

40,977

233,066

13,599

34,376

477,174

53,352

578,501

(12,375)

(362,097)

At 1 January 2012 Cost or fair value Accumulated depreciation and impairment



Capital works in progress





16,662



16,662

13,599

31,344

147,146

40,977

233,066

13,599

31,344

147,146

40,977

233,066



171

15,505



15,676

Net book amount

(3,032)

(346,690)

Year ended 31 December 2012 Opening net book amount Additions Acquisition of controlled entities Disposals Depreciation Impairment Transfers and other adjustments Foreign exchange differences Revaluations Closing net book amount

– (7,167) – (121) – 330 (24)



709



709

(16,050)

(27,905)

(722)

(51,844)

(556)

(24,681)

(3,002)

(28,239)

(183)

(970)



26

7

2

3,235



4,073





113,065

37,260

171,541

421,477

51,710

494,403

(313,024)

(14,450)

(327,474)

(31) 508 (604)

6,617

14,599

6,617

14,599





(1,274)

(628)

At 31 December 2012 Cost or fair value Accumulated depreciation and impairment Capital works in progress Net book amount





4,612



4,612

6,617

14,599

113,065

37,260

171,541

(i) The Directors consider that freehold land and buildings are carried at fair value. Independent valuations were carried out in 2012 and carrying values have been adjusted to reflect such valuations. Independent valuations were carried out by certified registered valuers.

67

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

12. INTANGIBLE ASSETS

Goodwill $’000

Software $’000

Mastheads $’000

Radio licences $’000

Transit and outdoor advertising systems $’000

297,670

25,481

963,287

352,721

54,713

Brands $’000

Lease intangibles $’000

Total $’000

40,748

3,961

1,738,581

At 1 January 2011 Cost Accumulated amortisation and impairment

(101,418)

(20,653)





Net book amount

196,252

4,828

938,205

337,977

54,713

40,748

Opening net book amount

196,252

4,828

938,205

337,977

54,713

Additions

28,864

3,611

27

57

















(25,082)

(14,744)

(2,686)

(164,583)

1,275

1,573,998

40,748

1,275

1,573,998

3,406

3,452

39,417

Year ended 31 December 2011

Disposals Amortisation Impairment Other adjustments Foreign exchange differences Closing net book amount

(775) – (2,297)

(3) (2,541) –

(4,451) – (157,198)

(1,910) –

– (581) –

(5,229) (5,032) (159,495)

511

652







(638)



1,330

10

10,261

357



819

(9)

525

223,885

6,557

786,844

336,481

54,713

44,335

4,137

1,456,952

968,166

353,258

54,713

44,335

7,021

1,784,951

12,768

At 1 January 2012 Cost

327,636

29,822

Accumulated amortisation and impairment

(103,751)

(23,265)





Net book amount

223,885

6,557

786,844

336,481

54,713

44,335

4,137

1,456,952

223,885

6,557

786,844

336,481

54,713

44,335

4,137

1,456,952

Additions

48,586

8,984



4,200

Disposals

(69,269)

(181,322)

(16,777)

(2,884)

(327,999)

Year ended 31 December 2012 Opening net book amount

Amortisation Impairment Other adjustments Foreign exchange differences Closing net book amount

– (89,741) (27)

(740) (3,127) – (6)

5



(19)



– (548,707)

(1,940) –

(54,043)





(4,079)





(171)





(670)



61,775 (128,150) (5,238) (638,448)

7



685



2,491

229

21,530

1,557



1,965

113

27,885

(11)

115,925

11,897

259,660

336,098



51,185



774,765

309,417

38,311

1,004,550

355,578



51,185



1,759,041

(193,492)

(26,414)

(744,890)

(19,480)







(984,276)

115,925

11,897

259,660



51,185



774,765

At 31 December 2012 Cost Accumulated amortisation and impairment Net book amount

68

336,098

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

Allocation of goodwill and non-amortising intangible assets to cash generating units (CGUs) 2012 $’000

2011 $’000

97,136

205,896

132,576

561,889

Name of CGU Australian Regional Media New Zealand Media – Metro New Zealand Media – Regional Australian Radio

27,137

107,828

300,158

300,158

New Zealand Radio

83,287

79,418

Outdoor – Australia



105,472

84,727

27,744

2,501

17,172

727,522

1,405,577

Digital Ventures Other Total goodwill and non-amortising intangible assets

Impairment of CGUs including goodwill and indefinite life intangible assets At the half year, it was determined that there were indicators of impairment of New Zealand and Australian publishing assets, arising from the subdued economic environment affecting the areas in which they operate. Therefore, in accordance with AASB 136 impairment of assets, management performed an impairment review of the respective CGUs. As a result of the review, the carrying amount of mastheads allocated to the New Zealand publishing CGUs was reduced to their recoverable amounts through the recognition of an impairment charge. No impairment charge arose on the Australian publishing assets. The impairment of the New Zealand assets was a result of a number of factors including the economic weakness facing the New Zealand economy and the structural changes in the advertising market. The impairment charge impacted the three New Zealand publishing CGUs as follows:

New Zealand Media – Metro New Zealand Media – Regional New Zealand Magazines

Impairment charge $’000

Carrying value of intangible assets $’000

372,042

172,847

84,132

21,137

31,103 487,277

Year-end impairment review A comprehensive impairment review was conducted at 31 December 2012. The recoverable amount of each CGU which includes goodwill or indefinite life intangible assets was reviewed. The recoverable amount of each CGU is determined based on value in use calculations using management budgets and forecasts for a three year period after adjusting for central overheads. Cash flows beyond three years are extrapolated at growth rates not exceeding the long-term average growth rate for the business in which the CGU operates. As a result of the review, the carrying amount of goodwill and mastheads in the New Zealand and Australian Regional publishing divisions has been reduced to their recoverable amounts through the recognition of an impairment charge. These are summarised in the table below. The impairment charges are a result of the continuing economic weakness facing both the New Zealand and Australian regional economies in which we operate as well as the structural changes continuing to impact the advertising market.

Australian Regional Media New Zealand Media – Metro

Impairment charge $’000

Carrying value of intangible assets $’000

111,500

97,136

39,671

132,576

151,171

69

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

12. INTANGIBLE ASSETS (continued) The key assumptions used in the value in use calculations are: –– Long-term growth rates ranging from -2% per annum for publishing CGUs to 4% per annum for digital and online (2011: 2.5% to 4.0%); and –– Post-tax discount rates ranging from 10% to 15% (2011: 9.5% to 10.0%) per annum. Value in use calculations are highly sensitive to changes in certain key assumptions. All CGUs, except for the New Zealand MediaMetro and Australian Media division CGUs, have sufficient headroom such that reasonable changes to key assumptions would not give rise to an impairment charge. For the Australian Regional Media CGU, a 1% increase in the discount rate used would result in an increase in the impairment provision recognised by $12.7 million. A 1% decrease in long-term growth rates would increase the impairment provision recognised by $10.8 million. If forecasted cash flows were to decrease by 10%, an increase in the impairment provision of $14.7 million would be required. For the New Zealand Media-Metro CGU, a 1% increase in the discount rate used would result in an increase in the impairment provision recognised by $13.6 million. A 1% decrease in long-term growth rates would increase the impairment provision recognised by $14.7 million. If forecasted cash flows were to decrease by 10%, an increase in the impairment provision of $21.4 million would be required. 13. PAYABLES 2012 $’000

2011 $’000

Trade and other payables

119,477

133,408

Amounts due to related entities

40,707

956

Current

Loans from Directors and Director related entities (refer note 27) Total current payables



1,303

160,184

135,667

Amounts due to related parties includes amounts payable to APN Outdoor Group Pty Limited which are non-interest bearing and repayable at call subject to certain conditions. Also included are amounts payable to Independent News & Media PLC and related companies of $314,000 (2011: $542,000). During the year, a loan from a Director of PT Rainbow Asia Posters, F Moniaga, was disposed of on the formation of the APN Outdoor joint venture (2011: $1,303,000). The loan was unsecured, non interest bearing and repayable at call. Non-current Trade and other payables



4,043

Total non-current payables



4,043

Trade and other payables are generally settled within 30 days from the end of the month in which they are incurred. Foreign currency risk The carrying amounts of payables are denominated in the following currencies: Australian dollars

97,485

65,110

New Zealand dollars

55,935

53,812

6,381

4,909



15,879

Hong Kong dollars Indonesian rupiah Other

383



160,184

139,710

2012 $’000

2011 $’000

Interest rate swaps – cash flow hedge



646

Foreign currency contracts



132

Total current derivative liabilities



778

Interest rate swaps – cash flow hedge



3,839

Total non-current derivative liabilities



3,839

14. DERIVATIVE FINANCIAL INSTRUMENTS

Current liabilities

Non-current liabilities

70

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

(a) Interest rate swaps The Group’s borrowings include amounts that bear variable interest rates. It is Group policy to protect part of the loans from exposure to interest rates. Following the repayment of borrowings using the proceeds from the formation of the APN Outdoor joint venture, it was determined that the Group’s exposure to fixed interest rates was too high. Therefore, the Group terminated all remaining interest rate swap contracts, leaving some fixed rate debt in place. The contracts required settlement of net interest receivable or payable each 90 days. The settlement dates coincide with the dates on which interest is payable on the underlying debt. The contracts were settled on a net basis. The gain or loss from remeasuring the hedging instruments at fair value is recognised in other comprehensive income and deferred in equity in the hedging reserve, to the extent that the hedge is effective. It is reclassified into profit or loss when the hedged interest expense is recognised. In the year ended 31 December 2012, a loss of $3.9 million was reclassified into profit or loss (2011: loss of $2.3 million) and included in finance costs. There was no hedge ineffectiveness in the current or prior year. The swaps in place at 31 December 2011 had a mark to market loss of $4,485,000. The table below analyses these net settled interest rate swaps into relative maturity groupings based on the remaining period at the reporting date to the contractual maturity date. For interest rate swaps, the cash flows have been estimated using current interest rates applicable at the reporting date.

31 December 2011

Net settled – interest rate swaps (outflow)

Less than one year $’000

Between one and two years $’000

(2,124)

(577)

Between two and five years $’000

Over five years $’000





(b) Forward exchange contracts – cash flow hedges During the year, forward exchange contracts were used to hedge future foreign capital purchase commitments. The contracts are timed to mature as payments are scheduled to be made to suppliers. There were no contracts remaining in place at the balance date. The table below analyses the Group’s derivative financial instruments at 31 December 2011 that were to be settled on a gross basis, into relevant maturity groupings based on the remaining period at balance date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Less than one year $’000

Between one and two years $’000

Between two and five years $’000

Over five years $’000

– inflow

441







– outflow

578







31 December 2011

Forward foreign exchange contracts Cash flow hedge

As at balance date the details of the outstanding contracts are: Buy British Pounds

Sell Australian dollars

Average exchange rate

2012 $’000

2011 $’000

2012

2011

Zero to 12 months



578



0.502

One to two years









Maturity

The foreign currency contracts were considered to be fully effective hedges as they are matched against the highly probable foreign capital purchases with any gain or loss on the contracts taken to equity. When the cash flows occur, the Group adjusts the initial measurement of the component recognised in the balance sheet by removing the related amount from other comprehensive income. During the year ended 31 December 2012, a loss of $0.1 million (2011: loss of $0.1 million) was reclassified from other comprehensive income and included in the initial measurement of capital purchases. As at 31 December 2012, the Group held no cash flow hedge contracts.

71

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

15. INTEREST BEARING LIABILITIES 2012 $’000

2011 $’000

27,376

25,057

Current Bank loans – unsecured Lease liabilities (refer note 24) Total current interest bearing liabilities

2,421

2,447

29,797

27,504

337,429

520,390

Non-current Bank loans – unsecured New Zealand Bond

79,428

76,104

Lease liabilities (refer note 24)

38,872

45,452

455,729

641,946

Borrowing costs

13,961

15,550

Accumulated amortisation

(7,552)

Deduct

Net borrowing costs Total non-current interest bearing liabilities

(7,130)

6,409

8,420

449,320

633,526

Fair value and risk management The fair value of interest bearing liabilities equals their carrying value. (a) Risk exposures The exposure of borrowings to interest rate changes and the contractual repricing at the balance dates are as follows: Six months or less Six to twelve months One to five years Greater than five years

327,104

190,676

17,986

121,648

140,436

357,126





485,526

669,450

291,627

388,566

New Zealand dollars

193,899

280,884

Interest bearing liabilities

485,526

669,450

Interest bearing liabilities The carrying amounts of borrowings are denominated in the following currencies: Australian dollars

For an analysis of the sensitivity of borrowings to interest rate risk, refer note 34. (b) Capital risk management The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can continue to provide 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, return capital to shareholders, issue new shares or sell assets to reduce debt.

72

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

16. PROVISIONS 2012 $’000

2011 $’000

Employee benefits

6,826

7,133

Restructuring

2,852

2,797

Contingent consideration

2,975

6,506

Total current provisions

12,653

16,436

Current

Non-current Employee benefits

1,827

2,282

Restructuring

5,125

4,358

39,574

3,179

1,059



47,585

9,819

Contingent consideration Other Total non-current provisions

Movements in provisions Movements in each class of provision during the financial year, other than employee benefits, are set out below: Restructuring $’000

Contingent consideration $’000

Total $’000

2012 movements in provisions Carrying amount at beginning of year

7,155

9,685

16,840

Charged/(credited) to profit or loss – additional provisions recognised

4,104

42,495

46,599

Amounts used

(3,431)

Foreign exchange differences Carrying amount at end of the year

(9,775)

(13,206)

149

144

293

7,977

42,549

50,526

The restructuring provision includes onerous rental contracts related to closure of certain New Zealand commercial printing operations and expected redundancy costs related to formally announced restructuring plans. The provision for contingent consideration comprises the fair value of amounts payable on business combinations should certain pre determined gross margin thresholds be met by the acquired businesses and the fair value of amounts payable should put options over remaining non-controlling interests be exercised. 2012 $’000

2011 $’000

6,826

7,133

Aggregate employee benefit liabilities Current provision

1,827

2,282

Included in trade and other payables

Non-current provision

12,325

12,156

Total employee benefit liabilities

20,978

21,571

73

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

17. DEFERRED TAX ASSETS AND LIABILITIES Movements in deferred tax Balance 1 Jan 12 $’000

Recognised in income $’000

Recognised in equity $’000

Other movements $’000

Balance 31 Dec 12 $’000

Tax losses

35,741

8,195





43,936

Employee benefits

5,602

632





6,234

810

221





1,031

Doubtful debts Accruals/restructuring Intangible assets

6,051 (87,372)

1,432





72,655

446

1,251

(13,020)

Depreciation

(3,555)





(5,629)

Other

(4,915)

1,161





(3,754)

(47,638)

82,222

446

1,251

36,281

Balance 1 Jan 11 $’000

Recognised in income $’000

Recognised in equity $’000

Other movements $’000

Balance 31 Dec 11 $’000

22,595

13,146





35,741





5,602

Tax losses Employee benefits

(2,074)

7,483

6,094

(492)

Doubtful debts

2,265

(1,455)





810

Accruals/restructuring

3,438

2,613





6,051

(134,552)

45,759

1,159

262

(87,372)

(24,659)

21,104





(3,555)

18,364

(23,279)

Intangible assets Depreciation Other

(106,455) There are no material unbooked tax losses as at 31 December 2012.

74

57,396





(4,915)

1,159

262

(47,638)

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

18. CONTRIBUTED EQUITY 2012 $’000

2011 $’000

1,093,372

1,074,115

2011 number

2012 $’000

2011 $’000

630,211,415 606,084,019

1,074,115

1,045,999

Issued and paid up share capital (a) Movements in contributed equity during the financial year 2012 number

Balance at beginning of the year Dividend reinvestment plan Balance at end of the year

31,315,171

24,127,396

19,257

28,116

661,526,586

630,211,415

1,093,372

1,074,115

(b) Executive and Director Option Plan (EDOP) Until 2008 an option plan was operated by the Company to allow selected employees and Directors to participate in the growth of the Company through the issue of options over ordinary shares in the Company. (c) Options issued under EDOP

Grant date

2 June 2008

Exercise price $

Balance at start of the year number

Issued number

Exercised number

3.93

5,125,000





(1,340,000)

3,785,000

5,125,000





(1,340,000)

3,785,000

Lapsed number

Balance at end of the year number

The 2008 awards were tested on 31 December 2012, and it was determined that the minimum performance hurdles had not been satisfied, and they are not likely to be achieved during the remaining life of the options. The options will lapse in June 2013. (d) Ordinary shares Ordinary shares entitle the holder to participate in dividends 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, every holder of ordinary shares present at a meeting in person or by proxy, representative or attorney is entitled to one vote, and upon a poll each share is entitled to one vote.

75

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

19. RESERVES AND accumulated losses (a) Reserves

Asset revaluation reserve Foreign currency translation reserve Capital profits reserve Share-based payments reserve Hedging reserve

2012 $’000

2011 $’000

9,248

13,661

(69,821)

(89,981)

104

120

5,181

5,181

(632)

(3,243)

Transactions with non-controlling interests reserve

(20,535)

(3,179)

Total reserves

(76,455)

(77,441)

13,661

14,816

Asset revaluation reserve Balance at beginning of the year Revaluation of freehold land and buildings Transfer to foreign currency translation reserve Transfer between reserves Transfer to accumulated losses Balance at end of the year

(628) (93) – (3,692)

– – (1,539) 384

9,248

13,661

(89,981)

(94,739)

Foreign currency translation reserve Balance at beginning of the year Foreign exchange transfers from other reserves and accumulated losses Net exchange difference on translation of foreign operations Balance at end of the year

227



19,933

4,758

(69,821)

(89,981)

Hedging reserve Balance at beginning of the year Net gain/(loss) on hedge contracts Share of joint venture’s hedging reserves Transfer between reserves Balance at end of the year

(3,243) 3,243 (632) – (632)

(1,174) (3,608) – 1,539 (3,243)

Transactions with non-controlling interests reserve Balance at beginning of the year

(3,179)



Increase in purchase consideration for controlled business

(5,006)



Acquisition of controlled business

(12,294)

Transfer to foreign currency translation reserve Balance at end of the year

(56) (20,535)

(3,179) – (3,179)

(b) Accumulated losses Balance at beginning of the year Loss attributable to owners of the parent entity Transfer from other reserves Dividends paid Balance at end of the year

76

(117,700)

(8,170)

(455,769)

(45,070)

3,630

(384)

(41,246)

(64,076)

(611,085)

(117,700)

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

(c) Nature and purpose of reserves (i) Asset revaluation reserve The asset revaluation reserve is used to record increments and decrements on the revaluation of non-current assets, as described in the accounting policies. The balance standing to the credit of the reserve may be used to satisfy the distribution of bonus shares to shareholders and is only available for the payment of cash dividends in limited circumstances as permitted by law. (ii) Foreign currency translation reserve Exchange differences arising on translation of any foreign controlled entities are taken to the foreign currency translation reserve, as described in the accounting policies. (iii) Share-based payments reserve The share-based payments reserve is used to recognise the fair value of options issued. (iv) Hedging reserve The hedging reserve is used to record unrealised gains/losses on cash flow hedging instruments. (v) Transactions with non–controlling interests reserve This reserve is used to record the differences described in note 1 (b)(i) which may arise as a result of transactions with non-controlling interests that do not result in a loss of control (d) Non-controlling interests

Share capital

2012 $’000

2011 $’000

211,635

210,393

Reserves

(3,709)

Retained profits

21,225

Other

(7,521) 13,485

5,918

17,470

235,069

233,827

2012 $’000

2011 $’000

Final dividend for the year ended 31 December 2011 of 5.0 cents per share, franked to 1.5 cents, paid on 30 March 2012 (2010: 7.0 cents per share franked paid on 31 March 2011)

31,511

42,426

Interim dividend for the year ended 31 December 2012 of 1.5 cents per share franked to 0.5 cents, paid on 26 September 2012. (2011: franked interim dividend of 3.5 cents per share paid on 28 September 2011.)

9,735

21,650

41,246

64,076

2,469

2,644

Non-controlling interests 20. DIVIDENDS

Total dividends Franking credits available for subsequent financial years at the 30% corporate tax rate after allowing for tax payable in respect of the current year’s profit and tax refunds due The Directors have determined that no final dividend will be payable for the year ended 31 December 2012. 21. CONTINGENT LIABILITIES (a) Guarantees For information about guarantees given by entities within the Group, including the parent entity, refer note 36.

(b) Claims Claims for damages are made against the consolidated entity from time to time in the ordinary course of business. The Directors are not aware of any claim that is expected to result in material costs or damages. The Company is involved in a dispute with the IRD regarding certain financing transactions. Refer note 5 for further details.

77

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

22. RETIREMENT BENEFIT OBLIGATIONS (a) Superannuation plans The Company operates superannuation plans under which eligible employees and their dependants are entitled to benefits on retirement, disability or death. Employees contribute to the plans at various percentages of their wages and salaries. The respective employer entities within the consolidated entity also contribute to the plans at rates recommended by actuaries, industrial awards or the Superannuation Guarantee Charge legislation. The continuation of contributions, except those made pursuant to an award set down under a national wage case or the Superannuation Guarantee Charge legislation, are not legally enforceable. Scheme information The defined benefit section of the scheme is closed to new members. All new members receive accumulation only benefits. (b) Balance sheet amounts The amounts recognised in the balance sheet are determined as follows: 2012 $’000

2011 $’000

Australian shares

2,887

2,890

International shares

2,887

2,890

Other

4,917

4,922

Fair value of defined benefit scheme assets Present value of the defined benefit obligation Shortfall of assets Unrecognised net loss Net asset

10,691

10,702

(13,036)

(12,396)

(2,345)

(1,694)

3,902

3,165

1,557

1,471

Reconciliation of the defined benefit obligation Defined benefit obligation at beginning of the year

12,396

15,375

Company service cost

470

453

Interest cost

385

714

Estimated member contributions

132

Estimated benefit payments and tax Expected defined benefit obligation at end of the year

(1,732)

185 (4,741)

11,651

11,986

Actual defined benefit obligation at end of the year

13,036

12,396

Actuarial loss on defined benefit obligation

(1,385)

(410)

Reconciliation of the fair value of defined benefit scheme assets Value of assets at beginning of the year

10,702

14,803

Expected return on assets

595

897

Estimated employer contributions

385

522

Estimated member contributions

132

185

Estimated benefit payments and tax

(1,732)

(4,741)

Expected market value of assets at end of the year

10,082

11,666

Actual value of assets at end of the year

10,691

10,702

Actuarial gain/(loss) on assets

609

(964)

The Group has recognised an asset in the balance sheet in respect of its defined benefit superannuation arrangements. The APN Superannuation Scheme does not impose a legal liability on the Group to cover any deficit that exists in the scheme. If the scheme were wound up, there would be no legal obligation on the Group to make good any shortfall. The trust deed of the scheme states that if the scheme winds up, the remaining assets are to be distributed by the trustee of the scheme in an equitable manner as it sees fit. The Group may at any time, by notice to the trustee, terminate its contributions. The Group has a liability to pay the monthly contributions due prior to the effective date of the notice, but there is no requirement for the Group to pay any further contributions, irrespective of the financial condition of the scheme. Key assumptions used in the latest actuarial valuation are discount rate 2.8% (2011: 3.2%); incremental salary inflation rates of 2.0% in year 1, 3.0% in year 2 and 3, and 4.0% for every year after that (2011: 4.0%); and expected return on plan assets 2.8% (2011: 5.5%). As at 31 December 2012, the plan assets have been invested in the following asset classes: Australian shares 27% (2011: 27%), international shares 27% (2011: 27%), property 9% (2011: 9%), cash and fixed interest 17% (2011: 17%) and other 20% (2011: 20%). 78

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

Amounts recognised in income statement 2012 $’000

2011 $’000

Company service cost

470

453

Interest cost on defined benefit obligation

385

714

Actuarial loss recognised

269

69

Expected return on assets

(595)

(897)

529

339

Expense recognised in income statement Actual return on plan assets

1,204

(67)

23. CAPITAL COMMITMENTS Capital expenditure contracted for at balance date but not recognised as liabilities: Not later than one year Later than one year but not later than five years Total capital commitments

658

6,012



2,221

658

8,233

24. LEASE COMMITMENTS Commitments for minimum lease payments in relation to operating leases and rental commitments contracted for at the reporting date but not recognised as liabilities, payable: Not later than one year

46,260

99,015

Later than one year but not later than five years

111,071

207,582

Later than five years

51,756

139,318

209,087

445,915

Commitments not recognised in the financial statements Representing:

Cancellable operating leases and rental commitments



Non-cancellable operating leases and rental commitments



Future finance lease charges

Commitments not recognised in the financial statements

2,598

6,708

206,489

439,165



42

209,087

445,915

5,784

6,376

40,495

50,649

46,279

57,025

Commitments for finance leases are payable as follows:

Not later than one year



Later than one year but not later than five years



Less future finance charges on finance leases

Total lease liabilities

(4,986) 41,293

(9,126) 47,899

Representing lease liabilities (refer note 15): 2,421

2,447

Non-current

Current

38,872

45,452

Total lease liabilities

41,293

47,899

The weighted average interest rate implicit in the leases is 8.1% (2011: 8.1%) per annum. The rental commitments represent fixed portions of long-term rental contracts. The Directors believe that the associated future revenue streams will be sufficient to cover these commitments.

79

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

25. CONTROLLED ENTITIES The consolidated financial statements incorporate the assets, liabilities and results of the following entities in accordance with the accounting policy described in note 1. Equity holding Country of incorporation

2012 %

A.C.N 160 613 589 Pty Ltd

Australia

79.5



Actraint No. 116 Pty Limited 1, 4

Australia

50

50

Adhoc Pty Ltd

Australia

Adhub Limited 1

New Zealand

Adspace Pty Ltd 10 Airplay Media Services Pty Limited 1, 4 APN AP National Sales Pty Ltd 2

Name of entity

2011 %

75

75

100

78

Australia

48

100

Australia

50

50

Australia

100

100

APN Braeside Pty Ltd

Australia

100

100

APN Broadcasting Investments Pty Limited 2, 3

Australia

100

100

APN Broadcasting (Regionals) Pty 1, 4

Australia

50

50

APN Business Information Group Pty Ltd 2

Australia

100

100

APN Business Magazines Pty Ltd 2

Australia

100

100

APN Computing Group Pty Ltd 2

Australia

100

100

APN Digital Pty Ltd 2

Australia

100

100

APN Digital NZ Limited

New Zealand

100

100

APN Educational Media Pty Limited 2

Australia

100

100

APN Educational Media (NZ) Limited

New Zealand

100

100

APN Finance Pty Limited 2

Australia

100

100

APN Holdings NZ Limited

New Zealand

100

100

APN Media (NZ) Limited

New Zealand

100

100

APN Milperra Pty Ltd

Australia

100

100

APN New Zealand Limited

New Zealand

100

100

APN Newspapers Pty Ltd

Australia

100

100

APN NZ Investments Limited

New Zealand

100

100

APN Online (Australia) Pty Limited

Australia

100

100

APN Online (New Zealand) Limited

New Zealand

100

100

APN Outdoor Limited 10

New Zealand

48

100

APN Outdoor Pty Limited 10, 11

Australia

48

100

APN Outdoor (Trading) Pty Ltd 10, 11

Australia

48

100

2, 3

APN Print NZ Limited

New Zealand

100

100

APN Printing Services Pty Ltd 2, 3

Australia

100

100

APN Specialist Publications NZ Limited

New Zealand

100

100

ARN Adelaide Pty Ltd 1, 4

Australia

50

50

ARN Brisbane Pty Ltd 1, 4

Australia

50

50

Australia

50

50

ARN Communications Pty Ltd 1, 4

Australia

50

50

ARN New Zealand Pty Limited

ARN Broadcasting Pty Ltd

1, 4

Australia

50

50

ARN NZ Investments Limited 1, 4

New Zealand

50

50

ARN Overseas Pty Limited

Australia

50

50

Australia

50

50

Australia

50

50

1, 4

ARN Perth Pty Ltd 1, 4 ARN South Australia Pty Ltd

80

1, 4

1, 4

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

Equity holding Name of entity

Country of incorporation

ARN Superannuation Pty Ltd 1, 4

Australia

50

50

ARNSAT Pty Limited 1, 4

Australia

50

50

ARN Limited Partnership 1,4

Australia

50

50

Asia Posters Pte Ltd

Singapore

100

100

Asia Posters Sdn Bhd

Malaysia

100

100

Australia

48

100

Australia

48

100

The Australasian Advertising Company Pty Limited

10, 11

Australian Posters Pty Ltd 10, 11 Australian Provincial Newspapers International Pty Limited Australian Provincial Newspapers Ltd 2, 3

2, 3

2012 %

2011 %

Australia

100

100

Australia

100

100

Australian Radio Network Pty Limited 1, 4

Australia

50

50

Australian Radio Network Sales Pty Ltd 1, 4

Australia

50

50

Australia

100

100

Biffin Pty Limited 2, 3

Australia

50

50

Border Newspapers Pty Ltd 2

Australia

100

100

brandsExclusive (Australia) Pty Limited

Australia

82



brandsExclusive (New Zealand) Pty Limited

Australia

82



Brisbane FM Radio Pty Ltd

Blue Mountains Broadcasters Pty Limited

1, 4

Australia

25

25

The Brisbane Publishing Company Pty Ltd 2

Australia

100

100

The Bundaberg Newspaper Company Pty Limited 2, 3

Australia

100

100

Buspak Advertising (China) Limited

Hong Kong

100

100

Buspak Advertising Group Pty Ltd 10, 11

Australia

48

100

Buspak Advertising (Hong Kong) Limited 6

Hong Kong

50

50

Byron Shire News Pty Ltd 2

Australia

100

100

Campus Review Pty Ltd 2

Australia

100

100

Capital City Broadcasters Pty Limited 1, 4

Australia

50

50

Capricornia Newspapers Pty Ltd

Australia

100

100

Australia

100

100

Catalogue Central Pty Limited

Australia

79.5

79.5

Central Coast Broadcasting Pty 1, 4

Australia

50

50

Central Queensland News Publishing Company Pty Ltd 2

Australia

100

100

1, 5

2, 3

Cardcorp (Manufacturing) Pty Limited

Central Telegraph Pty Ltd 2

Australia

100

100

Chinchilla Newspapers Pty Ltd 2

Australia

100

100

Cody Link Pty Ltd 10, 11

Australia

48

100

Cody Outdoor International (HK) Limited 7

Hong Kong

50

50

Coffs Coast RE Marketing Pty Ltd

Australia

70

70

Commonwealth Broadcasting Corporation Pty Ltd 1, 4

Australia

50

50

Covette Investments Pty Limited 2, 3

Australia

100

100

Daily Commercial News Pty Ltd 2

Australia

100

100

The Daily Examiner Pty Ltd 2

Australia

100

100

Dalby Herald Pty Ltd

Australia

100

100

DCN (Electronic Services) Pty Ltd 2

Australia

100

100

Double T Radio Pty Ltd

Australia

50

50

Australia

48

100

2

1, 4

Eastcott Investments Pty Ltd 10, 11

81

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

25. CONTROLLED ENTITIES (continued) Equity holding Country of incorporation

2012 %

Esky Limited

New Zealand

100

100

Everfact Pty Limited 10, 11

Australia

48

100

Australia

48

100

Name of entity

Everfact Unit Trust 10

2011 %

Australia

50

50

Gatton Star Pty Ltd 2

Australia

100

100

Gergdaam Capital Pty Limited 2, 3

Australia

100

100

Gladstone Newspaper Company Pty Ltd 2

Australia

100

100

The Gold Coast Press Pty Limited

Australia

100

100

Australia

100

75

5AD Broadcasting Company Pty Ltd

1, 4

2

Grab One Australia Pty Limited GrabOne Investments Limited

UK

GrabOne Limited 1

New Zealand

75

75

100

75

Australia

48

100

2, 3

Australia

100

100

Gympie Times Pty Ltd 2

Australia

100

100

Haswell Pty Limited

Australia

100

100

New Zealand

100

100

New Zealand

100

75

50

50

GSP Print Pty Ltd 10, 11 Gulgong Pty Limited

2, 3

The Hive Online Limited Idea HQ Limited

1

The Internet Amusements Group Pty Limited 1, 4

Australia

KAFM Broadcasters Proprietary Limited 1, 4

Australia

50

50

Kelly Publications Pty Ltd 2

Australia

100

100

Level 4 Investments Pty Limited 2

Australia

100

100

The Level 4 Partnership

Australia

100

100

Longbeach Publications Pty Ltd 2

Australia

100

100

Longbeach Publications Unit Trust

Australia

100

100

Lunchbox Investments Pty Ltd

Australia

100



Australia

100

100

The Maryborough Hervey Bay Newspaper Company Pty Ltd 2, 3

Australia

100

100

Marnin Limited 9

Ireland





Media Tek Pty Limited 2, 3

Australia

100

100

Melbourne Independent Newspapers Pty Ltd 2

Australia

100

100

The Mackay Printing and Publishing Company Pty Limited

2, 3

Mt Maunganui Publishing Co Limited

New Zealand

100

100

Nathco Holdings Pty Ltd 2, 3

Australia

100

100

National Outdoor Advertising Pty Limited 10, 11

Australia

48

100

Nettlefold Advertising Pty Ltd 10, 11

Australia

48

100

Australia

48

100

Australia



100

Nettlefold Outdoor Advertising Trust

10

New Hobsons Press Pty Limited New Zealand Radio Network Limited

1, 4

North Coast News Pty Ltd 2 Northern Star Ltd 2, 3 Observer Times (Hervey Bay) Pty Ltd Outdoor Network Co Ltd

2

New Zealand

50

50

Australia

100

100

Australia

100

100

Australia

100

100

Thailand



100

2

Australia

100

100

Provincial Investments Pty Ltd 2, 3

Australia

100

100

Peterhouse Proprietary Limited

82

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

Equity holding Name of entity

Country of incorporation

PT Rainbow Asia Posters 8

Indonesia

The Queensland Times Pty Limited 2, 3

Australia

The Radio Bureau Limited 1, 4

New Zealand

The Radio Network Limited

New Zealand

50

50

Australia

50

50

100

100

50

50

1, 4

RadioWise Pty Ltd 1, 4

2012 %

2011 %



50

100

100

50

50

Regional Publishers Limited

New Zealand

Regmax Pty Limited 1, 4

Australia

Sabawin Pty Limited

Australia

100

100

New Zealand

100

75

Sell Me Free Limited

New Zealand

100

100

SOL Australia Pty Ltd 10, 11

Australia

48

100

Australia

100

100

2

Sella Limited 1

The South Burnett Times Pty Ltd 2

Australia

50

50

Speedlink Services Pty Ltd 1, 4

Australia

50

50

Stanley Newcomb & Co Limited

New Zealand

100

100

Stanthorpe Newspapers Services Unit Trust

Australia

100

100

Southern State Broadcasters Pty Limited

1, 4

Australia

50

50

Sunshine Coast Newspaper Company Pty Ltd 2, 3

Australia

100

100

Taximedia Pty Ltd 10, 11

Australia

48

100

TMS Outdoor Advertising Pty Limited 10, 11

Australia

48

100

Toowoomba Newspapers Ltd 2, 3

Australia

100

100

SunCoastal FM Radio Pty Ltd

Total Cab Media Pty Ltd

1, 4

Australia

10

Trade Debts Collecting Co Limited

48

100

New Zealand

100

100

Australia

100

100

Universal Outdoor Pty Limited 10, 11

Australia

48

100

Universal Radio Pty Ltd 1, 4

Australia

50

50

Valtoff Pty Limited 10, 11

Australia

48

100

The Warwick Newspaper Pty Limited 2, 3

Australia

100

100

Web Metrics Limited 1

New Zealand

100

75

Wesgo 1, 4

Australia

50

50

West Sydney Radio Pty Ltd 1, 4

Australia

50

50

Westat Research Pty Ltd 1, 4

Australia

50

50

Western Star Pty Ltd

Australia

100

100

Australia

75

75

The Tweed Newspaper Co Pty Ltd

2

2

Whitsunday Times Unit Trust Wilson & Horton Australia Pty Ltd

Australia

100

100

Wilson & Horton Finance Pty Ltd 2, 3

Australia

100

100

Wilson & Horton Limited

New Zealand

100

100

W&H Interactive Limited

New Zealand

100

100

Zodiac Australia Pty Ltd 2

Australia

100

100

83

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

25. CONTROLLED ENTITIES (continued) 1 Denotes controlled entities audited by auditors other than PricewaterhouseCoopers. 2 These companies are parties to a Deed of Cross Guarantee dated 5 December 2006 under which each company guarantees the debts of the others (Deed of Cross Guarantee). These companies represent a Closed Group for the purposes of ASIC Class Order 98/1418. There are no other members of the Extended Closed Group. 3 These wholly-owned entities have been relieved from the requirement to prepare a financial report and directors’ report under Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission. 4 Under the shareholders agreement, whilst APN News & Media Limited holds 50% of the issued capital and is entitled to appoint 50% of the Directors, APN News & Media Limited has the right to appoint the chief executive of this entity and so exercises effective positive and sustained control over the financial policies of this entity. 5 The Australian Radio Network Group has a 50% controlling interest in Brisbane FM Radio Pty Ltd, resulting in APN News & Media Limited having control of this entity and an effective interest of 25%. 6 Under the shareholders agreement, whilst the immediate parent entity holds 50% of the issued capital and is entitled to appoint 50% of the Directors, the Chairman of the controlled entity, who is a Director on the APN News & Media Limited Board, exercises positive and sustained control over the strategic and financial policies of this entity. 7 This entity is 100% owned by Buspak Advertising (Hong Kong) Limited. 8 Under the memorandum of understanding, APN News & Media Limited had the right to appoint 50% of the Directors including the Vice President who had the authority to resolve any deadlocks between the shareholders. 9 The consolidated entity holds no equity interest in Marnin Limited but is deemed to exercise control in accordance with UIG Interpretation 112 Consolidation – Special Purpose Entities. Marnin Limited was established in 2005 to enter into a finance transaction on behalf of the Group. The debt owed by Marnin Limited is fully disclosed in the consolidated financial statements. 10 This is no longer a controlled entity following the formation of the APN Outdoor joint venture with Quadrant Private Equity announced on the Australian Securities Exchange on 1 May 2012. 11 This entity was removed from the Deed of Cross Guarantee following the formation of the APN Outdoor joint venture with Quadrant Private Equity announced on the Australian Securities Exchange on 1 May 2012.

Deed of Cross Guarantee Set out below is the consolidated income statement for the year ended 31 December 2012 for the Closed Group:

Revenue from continuing operations Other revenue and income

2012 $’000

2011 $’000

240,766

274,540

70,621

204,452

Expenses from operations before finance costs

(238,567)

(289,113)

Impairment of intangible assets

(380,748)

(9,243)

(41,460)

(89,556)

Finance costs Share of profits of associates (Loss)/profit before income tax credit Income tax credit

9,037 (340,351) 3,182

6,143 97,223 15,458

(Loss)/profit from continuing operations

(337,169)

112,681

Gain from discontinued operations

122,464

21,644

Profit/(loss) attributable to non-controlling interests (Loss)/profit attributable to owners of the parent entity



(193)

(214,705)

134,132

Balance at beginning of the year

(514,708)

(584,764)

Profit attributable to owners of the parent entity

(214,705)

Accumulated losses

Dividends paid Transfer to reserves Balance at end of the year

84

(41,246) (162) (770,821)

134,132 (64,076) – (514,708)

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

Set out below is a consolidated balance sheet as at 31 December 2012 of the Closed Group: 2012 $’000

2011 $’000

Current assets Cash and cash equivalents Receivables Inventories Tax assets Other current assets Total current assets

2,132

2,875

323,601

198,406

5,172

6,107

1,507



2,304

7,124

334,716

214,512

Non-current assets Receivables Other financial assets

107,139

102,696

260,336

296,347

Investment accounted for using equity method

48,868

43,331

Property, plant and equipment

74,399

114,206

263,232

720,612

1,557

1,471

Intangible assets Retirement benefit asset Other non-current assets

30,851

22,501

Total non-current assets

786,382

1,301,164

Total assets

1,121,098

1,515,676

498,296

563,340



778

Current liabilities Payables Derivative liabilities Interest bearing liabilities

2,421

2,433

Current tax liabilities

9,637

14,928

Provisions

2,067

8,646

512,421

590,125

Total current liabilities Non-current liabilities Payables Interest bearing liabilities Derivative liabilities Provisions



4,043

281,530

372,140



3,839

2,061

4,395

Total non-current liabilities

283,591

384,417

Total liabilities

796,012

974,542

Net assets

325,086

541,134

1,093,372

1,074,115

Equity Contributed equity Reserves

2,535

(18,273)

Accumulated losses

(770,821)

(514,708)

Total parent entity interest

325,086

541,134

Total equity

325,086

541,134

85

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

26. KEY MANAGEMENT PERSONNEL DISCLOSURES Total remuneration for Directors and other key management personnel

Short-term employee benefits Post employment benefits Termination benefits Share-based payments

2012 $

2011 $

5,084,386

6,165,236

162,320

247,442



994,935

80,625

80,625

5,327,331

7,488,238

Detailed remuneration disclosures will be provided in the Remuneration Report, which will be contained within the 2012 Annual Report. Shareholding information The number of ordinary shares in the Company held by each Director of APN News & Media Limited and each of the other key management personnel for the year ended 31 December 2012, including their related parties, is set out below: Balance at start of the year

Net changes

Gavin O’Reilly* (until 20 April 2012)

20,000



20,000

Ted Harris

724,792 1



724,792

Pierce Cody* (until 22 February 2012)

105,186



105,186

Balance at end of the year

Directors of APN News & Media Limited

Peter Cosgrove

150,000

3,425

153,425

Vincent Crowley

760,404



760,404

Kevin Luscombe

67,052

67,500

134,552

Other key management personnel Brett Chenoweth Peter Myers* (until 19 September 2012) Jeff Howard* (from 12 November 2012)



306,000

306,000

252,000



252,000



15,000

15,000

Matt Crockett

79,000



79,000

Martin Simons

55,000



55,000

Richard Herring* (until 30 April 2012)

24,000



24,000

* In the case of retired directors, the closing balance represents the number of shares at the date the director retired from the Board. For other key management personnel who have resigned in the period the closing balance represents the balance at resignation. In the case of Jeff Howard, who became a KMP in the year, the opening balance represents his holding at appointment as a KMP. 1

In addition, Ted Harris is a Director of a trustee company which holds 427,078 shares (2011: 427,078) for the benefit of other parties.

2

Directors and other key management personnel not listed above do not hold any ordinary shares in the Company.

The information provided in the above table is based on information known to the Directors and other key management personnel of the Company. Loans to Directors and other key management personnel There are no loans made to Directors of the Company or other key management personnel.

86

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

27. RELATED PARTY INFORMATION Unsecured and interest bearing loans 2012 $’000

2011 $’000



331

Loans from Directors of entities in the consolidated entity and their Director related entities, are disclosed in note 13. Loan repayments – F Moniaga

Transactions with other related parties The aggregate amounts recognised in respect of the following types of transactions and each class of related party involved were: Transaction type

Class of other related party

Loan interest

Joint venture (i)

Consulting services received

Key management personnel

Dividends paid

Other related parties (iii)

Independent News & Media fees

2,811



55

55

12,450

20,112

Other related party (iv)

615

1,115

Management fees receivable

Associates (v)

190

150

Associate company fee

Associates

50

50

(ii)

(vi)

The above transactions were made on commercial terms and conditions and at market rates except where indicated. (i)

Interest on loans with APN Outdoor joint venture.

(ii) Consultancy fees paid to a company associated with Peter Cosgrove for marketing services rendered. (iii) Dividends paid to Independent News & Media (Australia) Limited and News & Media NZ Limited. (iv) Payments to Independent News & Media PLC include reimbursements for services provided including travel and ancillary expenses, provision of unlimited live editorial copy, services of directors and for advisory services on a range of matters including global media and advertising trends and product development. (v) Management fees received/receivable from associates. (vi) Chairman’s fee paid to Peter Cosgrove by Adshel Street Furniture Pty Limited.

87

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

28. REMUNERATION OF AUDITORS 2012 $’000

2011 $’000

PricewaterhouseCoopers – Australian firm

576

717

PricewaterhouseCoopers – overseas firm

460

534

Other firms

297

310

PricewaterhouseCoopers – Australian firm

15

17

PricewaterhouseCoopers – overseas firm

19

26

Other firms

71

54

1,438

1,658

179

269

118

88

14

496

332

274

152

122

27

74

Remuneration for audit or review of the financial reports

Remuneration for other assurance services

Total audit and other assurance services Remuneration for other services PricewaterhouseCoopers – Australian firm

Tax services





Transactional advice

– Compliance

Other advisory services*

PricewaterhouseCoopers – overseas firm

Tax services





Transactional advice

– Compliance

Other advisory services

Other firms

Tax services





Transactional advice

– Compliance

Other advisory services

Total non-audit services *

88

2011 includes $470,000 for due diligence services in relation to APN Outdoor joint venture.

46

24

80

88

207

73

1,155

1,508

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

29. BUSINESS COMBINATIONS On 21 June 2012, the Group acquired 82% of brandsExclusive (Australia) Pty Limited, a leading eCommerce business based in Australia. The purchase agreement includes put and call options over the remaining shares. Details of the purchase consideration, net assets acquired and goodwill are as follows: $’000

Purchase consideration

Cash paid

36,124



Contingent consideration

19,882

Total purchase consideration

56,006

Net assets acquired Cash and cash equivalents

9,684

Receivables

405

Inventories

1,589

Property, plant and equipment Intangible assets

709 4,200

Other assets Total assets

761 17,348

Payables

4,314

Other liabilities

4,630

Total liabilities

8,944

Value of net identifiable net assets

8,404

Less: Non-controlling interests

(984)

Add: Goodwill

48,586

Net assets acquired

56,006

The cash paid includes $6,300,000 invested in the company for newly issued capital, which will be used to fund growth enabling initiatives. The goodwill recognised is attributable to the fast rate of growth in sales and resulting profitability expected from the business over the short term. The goodwill is not deductible for tax purposes. (i) Contingent consideration In the event that certain pre-determined earnings thresholds are achieved by brandsExclusive, contingent consideration up to a maximum of $29,823,600 may be payable in cash. The amount provided of $19,882,000 is based on the forecast earnings outcome over the earn out period. (ii) Non-controlling interests The non-controlling interest has been recognised at fair value. (iii) Revenue and profit contribution The acquired business contributed revenue of $34,187,000 and a net profit after tax of $89,000 to the Group for the period from 21 June 2012 to 31 December 2012. If the acquisition had occurred on 1 January 2012, consolidated revenue and loss for the year ended 31 December 2012 would have been $890,160,000 and ($433,874,000) respectively. These amounts have been calculated using the Group’s accounting policies and by adjusting the results of the subsidiary to reflect the additional depreciation and amortisation that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had applied from 1 January 2012. 30. TRANSACTIONS WITH NON-CONTROLLING INTERESTS Acquisition of final 25% of IdeaHQ Limited In May 2012, the Group acquired the final 25% of Idea HQ Limited and subsidiaries, including GrabOne Limited. This transaction was treated as a transaction with a non-controlling interest as the Group previously controlled and consolidated Idea HQ. The purchase consideration was $3,200,000 with a further $6,173,000 payable should the businesses achieve certain predetermined performance targets. The carrying amount of the non-controlling interests in Idea HQ Limited on the date of acquisition was $4,367,000. The Group recognised a decrease in equity attributable to owners of the parent of $5,006,000.

89

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

31. EARNINGS PER SHARE (a) Reconciliation of earnings used in calculating earnings per share 2012 $’000

Loss from continuing operations attributable to owners of the parent entity Profit from discontinued operations attributable to owners of the parent entity Loss attributable to owners of the parent entity used in calculating basic/diluted earnings per share

(533,312)

2011 $’000

(64,773)

77,543

19,703

(455,769)

(45,070)

(b) Weighted average number of shares Weighted average number of shares used as the denominator in calculating basic earnings per share Adjusted for calculation of diluted earnings per share Weighted average number of shares used as the denominator in calculating diluted earnings per share

Number

Number

647,718,642

618,522,559





647,718,642

618,522,559

2012 $’000

2011 $’000

20,338

23,885

(431,957)

(18,936)

35,915

40,148

32. CASH FLOW INFORMATION Reconciliation of cash Cash at end of the year, as shown in the statement of cash flows, comprises:

Cash and cash equivalents Reconciliation of net cash inflows from operating activities to loss for the year: Loss for the year Depreciation and amortisation expense Net loss/(gain) on sale of non-current assets Profit on formation of APN Outdoor joint venture

966 (78,148)

(900) –

Share of profits of associates and joint ventures

(9,062)

(5,807)

Fair value gains on financial assets

(1,493)

(2,400)

Impairment of intangible assets Change in current/deferred tax

638,448 (81,937)

159,495 (62,320)

Fair value gains on acquisition of associate



(8,307)

Foreign exchange gains



(3,926)

Fair value gains on equity instruments



(3,652)

Asset write offs and business closures Other non-cash items

1,856 (3,339)

16,594 (730)

Changes in assets and liabilities net of effect of acquisitions:

Trade and other receivables

13,179

9,449

Inventories

(29)

3,408

Prepayments

(411)

(1,727)



Trade and other payables and employee benefits

Net cash inflows from operating activities

3,286

2,674

87,274

123,063

Non-cash financing and investing activities Share issue Share issues other than for cash referred to in note 18 are not reflected in the statement of cash flow. Finance facilities Details of credit standby arrangements and loan facilities are included in note 33. Restricted cash Restricted cash included in cash and cash equivalents totalled $2.9 million at 31 December 2012 and $4.7 million at 31 December 2011.

90

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

33. STANDBY ARRANGEMENTS AND CREDIT FACILITIES Entities in the consolidated entity have access to: 2012 $’000

2011 $’000

7,806

11,659

Overdraft facilities Unsecured bank overdraft facility totalling Amount of credit utilised Amount of available credit

(503)

(714)

7,303

10,945

564,400

920,234

Loan facilities Unsecured bank loan facility totalling New Zealand Bond Amount of facility utilised Amount of available facility

79,428

76,104

(492,975)

(621,550)

150,853

374,788

Loan facilities utilised as at 31 December 2012 includes $47,151,000 for letters of credit. 34. FINANCIAL RISK MANAGEMENT The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management programme 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 foreign exchange contracts to hedge certain risk exposures. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate and foreign exchange risk and ageing analysis for credit risk. Risk management is carried out by a central treasury function under policies approved by the Board of Directors. The policies provide principles for overall risk management, as well as covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity. (a) Market risk (i) Cash flow and fair value interest rate risk The Group’s main interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed interest rates expose the Group to fair value interest rate risk. Group policy is to maintain a mix of fixed and variable rate borrowings using interest rate swap arrangements where necessary. Refer to note 14 for further detail of the Group’s interest rate swap arrangements. Based on the outstanding net floating debt at 31 December 2012, a change in interest rates of +/–1% per annum with all other variables being constant would impact post-tax profit by $3.3 million lower/higher (2011: $2.5 million lower/higher). The parent entity has no significant exposure to a change in interest rates. (ii) Foreign exchange risk Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities that are denominated in a currency that is not the entity’s functional currency. Individual transactions are assessed and forward exchange contracts are used to hedge the risk where deemed appropriate. A US dollar denominated bank account is held for the purposes of paper contract purchases, which is kept at a minimum balance. As such, any foreign exchange exposure is considered immaterial. Whilst the Group as a whole has assets and liabilities in multiple currencies, individual entities in the Group do not have a significant foreign exchange exposure to receivables or payables in currencies that are not their functional currency. (iii) Price risk The Group is not exposed to significant price risk.

91

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

34. FINANCIAL RISK MANAGEMENT (continued) (b) Credit risk Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables and committed transactions. For banks and financial institutions, the creditworthiness is assessed prior to entering into arrangements and approved by the Board. For other customers, risk control assesses the credit quality, taking into account financial position, past experience and other factors. The utilisation of credit limits is regularly monitored. Credit risk further arises in relation to financial guarantees given to certain parties (refer note 21 for details). Credit risk arises from the potential failure of counterparties to meet their obligations under the respective contracts at maturity. This arises on derivative financial instruments with unrealised gains. At reporting date, no amount was receivable (Australian dollar equivalents) for the Group from forward exchange contracts (2011: $nil). The Group undertakes 100% of its transactions in foreign exchange contracts with financial institutions. (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying business, Group Treasury aims at maintaining flexibility in funding by keeping committed credit lines available. Management monitors rolling forecasts of the Group’s liquidity reserve on the basis of expected cash flows. The table below analyses the Group’s financial liabilities including interest to maturity into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the tables are the contractual undiscounted cash flows. Less than one year $’000

Between one and two years $’000

Between two and five years $’000

Over five years $’000

31 December 2012 Trade and other payables

119,477







Bank loans (including interest to maturity)

53,582

142,634

263,932



6,243

6,243

87,232



New Zealand Bond Other loans Gross liability

40,707







220,009

148,877

351,164



(18,462)



Less interest

(30,029)

(25,850)

Principal

189,980

123,027

332,702



Trade and other payables

133,408

1,348

2,696



Bank loans (including interest to maturity)

272,344

53,292

357,497



5,982

5,982

89,562



31 December 2011

New Zealand Bond Other loans

2,331







414,065

60,622

449,755



Less interest

(39,598)

(30,065)

(45,635)



Principal

374,467

30,557

404,120



Gross liability

92

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

(d) Fair value measurements The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. AASB 7 Financial Instruments: Disclosures 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 frssom prices); and –– Level 3 inputs for the asset or liability that are not based on observable market data (unobservable inputs). The following table presents the Group’s financial assets and liabilities measured and recognised at fair value at 31 December 2012 and 31 December 2011: Level 1 $’000

Level 2 $’000

Level 3 $’000

Total $’000





31 December 2012 Assets Financial assets at fair value through profit or loss

Listed securities







Shares in other corporations





22,471

22,471



Short-term financial instrument at fair value





40,000

40,000





62,471

62,471





40,000

40,000





40,000

40,000

7,636





7,636





23,528

23,528

7,636



23,528

31,164

Total assets Liabilities Financial liabilities at fair value through equity

Short-term financial instrument at fair value

Total liabilities 31 December 2011 Assets Financial assets at fair value through profit or loss

Listed securities



Shares in other corporations

Total assets Liabilities Financial liabilities at fair value through equity

Derivatives used for hedging

Total liabilities



(4,617)



(4,617)



(4,617)



(4,617)

The fair value of financial instruments traded in active markets (such as trading and available-for-sale securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques. The Group uses a variety of methods, including discounted cash flow models, and makes assumptions that are based on market conditions existing at the end of each reporting period. The assumptions used in the discounted cash flow models are consistent with those used in the Group’s impairment review. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward exchange contracts is determined using forward exchange market rates at the end of the reporting period. These instruments are included in level 2 and comprise debt investments and derivative financial instruments. The carrying amount of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of current borrowings approximates the carrying amount, as the impact of discounting is not significant.

93

APN annual report 2012

Notes to the Financial Statements APN News & Media Limited and Controlled Entities

35. SUBSEQUENT EVENTS Since the end of the financial year, there have been a number of significant events that have resulted in changes to the composition of the APN Board. Please refer to the announcements released on the ASX between 15 February and 20 February 2013. In January and February 2013, Cyclone Oswald and subsequent floods caused significant disruption to the regions in which Australian Regional Media (ARM) operates. The immediate impact on ARM’s operations has been less significant than the floods of 2011. The full financial impact is still being assessed. Please refer to note 5 of the financial statements for the latest developments in relation to the tax dispute with the New Zealand Inland Revenue Department. Other than the matters noted above, the Directors are not aware of any matter or circumstance that has arisen since the end of the financial year that has significantly affected or may significantly affect the Group’s operations, the results of those operations or the Group’s state of affairs in future financial years. 36. PARENT ENTITY FINANCIAL INFORMATION (a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: 2012 $’000

2011 $’000

Balance sheet Current assets Total assets Current liabilities Total liabilities

1,567

558

902,633

1,346,250





261,732

214,337

1,093,371

1,074,115

5,181

5,181

52,617

65,173 (64,076)

Shareholders equity Issued capital Reserves

Share based payments reserve

Retained profits

Opening profit reserve



Dividends paid during the year

(41,246)



Brought forward profit reserve

11,371



(Loss)/profit for the year



Closing profit reserve



Closing loss reserve

(469,022) 11,371

1,097 51,520 52,617

(469,022)



640,901

1,131,913

(Loss)/profit for the year

(469,022)

51,520

Total comprehensive income

(469,022)

51,520

(b) Guarantees entered into by the parent entity The parent entity and all wholly-owned controlled entities have provided guarantees in respect of banking facilities. As at 31 December 2012, the facilities had been drawn to the extent of $483,140,000 (2011: $594,911,000). The parent entity and some wholly-owned controlled entities have given guarantees in respect of certain banking facilities to a maximum of $45,000,000 (2011: $45,000,000). (c) Contingent liabilities and contractual commitments The parent entity did not have any contingent liabilities or contractual commitments as at 31 December 2012 or 31 December 2011.

94

APN annual report 2012

Directors’ Declaration APN News & Media Limited and Controlled Entities

In the Directors’ opinion: (a) the financial statements and notes set out on pages 45 to 94 are in accordance with the Corporations Act 2001, including:

(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and



(ii) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2012 and of its performance for the financial year ended on that date, and

(b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable, and (c) at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group identified in note 25 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 25. Note 1 (a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. This declaration is made in accordance with a resolution of the Directors, after receiving the declarations required to be made by the persons performing the chief executive function and the chief financial officer function in accordance with section 295A of the Corporations Act 2001.

Peter Cosgrove Chairman Sydney 14 March 2013

95

APN annual report 2012

Independent Auditor’s Report APN News & Media Limited and Controlled Entities

Independent auditor’s report to the members of APN News & Media Limited Report on the financial report We have audited the accompanying financial report of APN News & Media Limited (the company), which comprises the balance sheet as at 31 December 2012, and the income statement, 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 the APN News & Media Limited group (the consolidated entity). The consolidated entity comprises the company and the entities it controlled at the year's 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.

Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing 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 auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. Our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

PricewaterhouseCoopers, ABN 52 780 433 757 Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 DX 77 Sydney, Australia T +61 2 8266 0000, F +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation.

96

APN annual report 2012

Independent Auditor’s Report APN News & Media Limited and Controlled Entities

Auditor’s opinion In our opinion a) the financial report of APN News & Media Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2012 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; and 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 34 to 43 of the directors’ report for the year ended 31 December 2012. 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.

Auditor’s opinion In our opinion, the remuneration report of APN News & Media Limited for the year ended 31 December 2012, complies with section 300A of the Corporations Act 2001.

Matters relating to the electronic presentation of the audited financial report This auditor’s report relates to the financial report and remuneration report of APN News & Media Limited (the company) for the year ended 31 December 2012 included on APN News & Media Limited’s web site. The company’s directors are responsible for the integrity of the APN News & Media Limited web site. We have not been engaged to report on the integrity of this web site. The auditor’s report refers only to the financial report and remuneration report named above. It does not provide an opinion on any other information which may have been hyperlinked to/from the financial report or the remuneration report. If users of this report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the hard copy of the audited financial report and remuneration report to confirm the information included in the audited financial report and remuneration report presented on this web site.

PricewaterhouseCoopers

DS Wiadrowski Partner

Sydney 14 March 2013

97

APN annual report 2012

Shareholder Information APN News & Media Limited and Controlled Entities

1. Shares (a) Substantial shareholders The following information is extracted from substantial shareholder notices received by the Company as at 4 March 2013: Number of shares

Name

Independent News & Media PLC

191,541,073

Baycliffe Limited

199,783,031*

Allan Gray Australia Pty Ltd

131,273,212

Maple-Brown Abbott Limited

36,565,371

* The substantial shareholder notice from Baycliffe Limited noted that, through its holding in Independent News & Media PLC (INM), it holds a relevant interest in 191,541,073 shares in the Company held by INM.

(b) Top 20 holders of fully paid ordinary shares at 4 March 2013 Number of shares

Name

Independent News & Media (Australia) Limited

% of total shares

116,541,073

17.62

92,449,174

13.98

JP Morgan Nominees Australia Limited

90,484,365

13.68

News & Media NZ Limited

75,000,000

11.34

42,807,725

6.47

National Nominees Limited

Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited RBC Investor Services Australia Nominees Pty Limited (MBA a/c)

38,859,173

5.87

25,550,845

3.86

Custodial Services Limited (Beneficiaries Holding a/c)

12,521,320

1.89

CS Fourth Nominees Pty Ltd

10,613,393

1.60

BNP Paribas Noms Pty Ltd (DRP)

7,453,848

1.13

QIC Limited

3,435,609

0.52

2,900,000

0.44

BNP Paribas Nominees Pty Ltd ACF Pengana (DRP a/c) Accumulation Chess Entrepot

2,263,981

0.34

Sydney Equities Pty Ltd (Superannuation Fund a/c)

1,959,558

0.30

Mr Michael David Jeffreys (M & J Jeffreys Super a/c)

1,600,000

0.24

1,595,346

0.24

Citicorp Nominees Pty Limited (Colonial First State Inv a/c) S M & R W Brown Pty Ltd (Robert & Sally Brown SF a/c)

1,500,000

0.23

Comsec Nominees Pty Limited

1,349,875

0.20

Milton Corporation Limited

1,309,855

0.20

JP Morgan Nominees Australia Limited (Cash Income a/c)

1,216,602

0.18

531,411,742

80.33

Number of shares

% of issued capital

0.14

Total (c) Analysis of individual ordinary shareholdings as at 4 March 2013 Holding

Number of shareholders

1-1,000

2,329

24.36

948,177

1,001-5,000

3,691

38.60

10,090,486

1.53

5,001-10,000

1,500

15.69

11,135,604

1.68

10,001-100,000

1,830

19.14

51,974,646

7.86

100,001 and over Total holdings

% of total

211

2.21

587,377,673

88.79

9,561

100.00

661,526,586

100.00

There were 3,100 holders of less than a marketable parcel. (d) Voting rights of shareholders The voting rights are governed by rule 16 of the Constitution. In summary, shareholders are entitled to vote in person or by proxy, attorney or corporate representative at any meeting of shareholders of the Company on: –– a show of hands – one vote per shareholder; and –– a poll – one vote per share.

98

APN annual report 2012

Shareholder Information APN News & Media Limited and Controlled Entities

2. Options Analysis of individual option holdings as at 4 March 2013: Holding

Number of optionholders

% of total

Number of options

% of total options

1-1,000









1,001-5,000









5,001-10,000

1

2.04

10,000

0.26

44

89.80

2,465,000

65.13

4

8.16

1,310,000

34.61

49

100.00

3,785,000

100.00

Number of shares

Number of options

Peter Cosgrove

153,425



Ted Harris

724,792



Vincent Crowley

760,404



Kevin Luscombe

134,552







10,001-100,000 100,001 and over Total holdings

3. Directors’ interests The relevant interest of each Director in the securities of the parent entity as at 4 March 2013 is: Director

Paul Connolly

4. other information Stock exchange listing APN News & Media Limited shares are listed on the Australian Securities Exchange (ASX) and the New Zealand Exchange (NZX) (code APN). Enquiries Shareholders or investors with any enquiries concerning their holdings, shareholder details, dividend information, or administrative matters, should direct their enquiries to the Share Registry. Contact details for the Share Registry appear on the inside back cover. Dividend payments Dividends to shareholders may be paid direct to any bank, building society or credit union account in Australia. Shareholders who wish to receive dividends by electronic transfer should advise the Share Registry. Tax file number (TFN) The Company is obliged to deduct tax from unfranked or partially franked dividend payments to shareholders resident in Australia who have not supplied their TFN to the Share Registry. To avoid this deduction, you should advise the Share Registry of your TFN. Register your email address Shareholders are encouraged to register their email address to receive dividend advices, notification of availability of annual reports and other shareholder communications. To register, shareholders should go to ww w.linkmarketservices.com.au. Other services available to shareholders at this website include: viewing details of their shareholdings, updating address details, updating bank details and obtaining a variety of registry forms. Consolidation of holdings Shareholders who have multiple issuer-sponsored holdings and wish to consolidate their separate shareholdings into one account should advise the Share Registry in writing. Change of name or address Shareholders who are issuer sponsored should notify the Share Registry in writing of any change in either their name or registered address. If a change of name has occurred, it will be necessary to supply a copy of the relevant deed poll or marriage certificate. Shareholders sponsored by a broker (CHESS) should advise their broker of the amended details. Dividend reinvestment plan (DRP) Shareholders may elect to participate in the DRP for all or part of their shareholding. Shareholders wishing to participate in the DRP should contact the Share Registry. Terms and conditions of the DRP and forms to apply for, vary or cancel participation in the DRP are also available on the corporate website, ww w.apn.com.au. The Directors have set the current rate of discount applicable to the DRP at 2.5%. No brokerage, commission, stamp duty or other transaction costs are payable on any allotment of shares under the DRP. Investor information The Annual Report is the most comprehensive publication with information for investors. Copies of the 2012 Annual Report and Shareholder Review may be obtained by contacting the Share Registry or on the corporate website, ww w.apn.com.au. Other financial and relevant information, including press releases on financial results and Chairman’s addresses, are available from the corporate office in Sydney, or at the corporate website.

99

APN annual report 2012

Five Year Financial History APN News & Media Limited and Controlled Entities

2012 $’m

2011 $’m

2010 $’m

2009 $’m

2008 $’m

Total revenue

929

1,072

1,059

1,031

1,226

EBITDA

156

209

244

230

320

EBIT2

123

171

205

189

279

Income Statement 1

Adjusted net profit

3

Statutory net (loss)/profit

54

78

103

94

143

(456)

(45)

94

93

(24)

406

879

962

933

816

1,347

1,998

2,163

2,203

2,323

486

669

720

783

968

16.8%

19.5%

23.1%

22.3%

26.1%

Balance Sheet Equity excluding non-controlling interests Total assets Total bank borrowings Statistical Analysis EBITDA/total revenue Total bank borrowings/EBITDA

3.1

3.2

3.0

3.4

3.0

Earnings per share – basic (cents)4

8.4

12.6

17.2

17.0

28.3



8.4

12.6

17.2

17.0

28.3

1.5

8.5

12.0

4.0

22.5

18%

67%

70%

25%

79%

3.9

3.7

4.9

4.5

4.2

661,527

630,211

606,084

595,312

490,413

9,546

9,419

9,891

11,138

11,593

165

447

1,176

1,381

1,216

$0.25

$0.71

$1.94

$2.32

$2.48

– diluted (cents)4

Dividends per share (cents) Dividend payout ratio

5

Interest cover based on EBITDA (times) No. of shares on issue (’000) No. of shareholders Market capitalisation ($’m) Market price per share at 31 December 1

Profit before exceptional items, interest, tax, depreciation and amortisation.

2

Profit before exceptional items, interest and tax.

3

Net profit after tax before exceptional items.

4 Earnings per share are before exceptional items and have been restated for prior years for the bonus element of the pro-rata entitlement offer in 2009. 5

100

Before exceptional items.

APN annual report 2012

Corporate Directory APN News & Media Limited ACN 008 637 643

DIRECTORS Peter Cosgrove (Chairman) Ted Harris (Deputy Chairman) Paul Connolly Vincent Crowley Kevin Luscombe SECRETARY Yvette Lamont REGISTERED OFFICE Level 4, 100 William Street Sydney NSW 2011 Telephone: +61 2 9333 4999 Facsimile: +61 2 9333 4900

SHARE REGISTRY Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 Locked Bag A14 Sydney South NSW 1235 Telephone: (Australia) 1300 553 550 (New Zealand) 09 375 5998 (International) +61 2 8280 7142 Fax: (Australia) 02 9287 0303 (New Zealand) 09 375 5990 (International) +61 1300 553 550 Email: [email protected] Website: ww w.linkmarketservices.com.au AUDITORS PricewaterhouseCoopers Darling Park Tower 2 201 Sussex Street Sydney NSW 2000 PRINCIPAL BANKERS ANZ Commonwealth Bank HSBC National Australia Bank RBS Westpac Banking Corporation

Notice is hereby given that the Annual General Meeting of members of APN News & Media Limited will be held at The Four Seasons Hotel, 199 George Street, Sydney NSW 2000 on Thursday, 2 May 2013 at 11am.

ww w.apn.com.au