MEDIAWORKS MEDIAWORKS INVESTMENTS LIMITED FINANCIAL STATEMENTS 31 December 2016 CONTENTS Consolidated Income Statement 1 Consolidated Statement of Comprehensive Income 2 Consolidated Statement of Financial Position 3 Consolidated Statement of Changes in Equity 4 Consolidated Statement of Cash Flows 5 Notes to the Consolidated Financial Statements 6 37 Audit report 38 40 The Board of Directors hereby present the consolidated financial statements and auditors' report of MediaWorks investments Limited for the 12 months ended 31 December 2016. During the prior year MediaWorks lnvestments Limited moved its balance date from 30 September to 31 December to align to buying cycles of key agency partners, programming schedules for major content distributors and peers within the industry. Accordingly, comparatives in the financial statements reflect a 15 month period to 31 December 2015. t?l- t: hke .. Director Lackey Director 29 May 2017 MED-IAWORKS INVESTMENTS LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2016 2016 2015 12 Months 15 Months Notes $?000 Revenue and other income 5 298,121 311. 403,477 Expenses Programming production (104,147) (157,606) Saies 8; marketing (114,57?8) (143,687) Broadcasting 3c infrastructure (58,645) (72,478) Corporate costs (8.791) (10,999) Depreciation amortisation 6 (14,611) (15,563) Net finance costs 7 (7.995) (12.297) Impairment 6 (6,465) Totai Expenses (315,232) 731 DH, (412,610) Share of 0055)] profit from equity accounted investments 15 (725) 184 Net loss before income tax (17,836) [1 . (8.949) Income tax benefit 9 2,98? 1,906 Net loss after income tax (14,849) (A. (7,043) These statements should be read with the accompanying notes. f% Page i MEDIAWORKS INVESTMENTS LIMITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2016 2016 2015 12 Months 15 Months Notes $'000 $'000 Net loss after income tax (14,849) (7,043) Other comprehensive income ltems that may be reclassi?ed subsequently to pro?t loss: Cash?ow hedges - interest rate swaps 22 314 (1.395) Cashflow hedges - forward foreign exchange contracts 22 (34) (251) income tax effect 22 (78) 461 Other comprehensive net of tax 202 (1,185) Total comprehensive loss. net of tax (14,647) (8,228) pixie These statements should be read with the accompanying notes. Page 2 MEDIAWORKS INVESTMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2016 2016 2015 Notes $000 $1300 Current assets Cash cash equivalents 10 22.610 23,272 Trade receivables, other receivables prepayments 11 35.648 37.950 Programme rights 12 14,593 22,188 Derivative financial instruments 26 - 4 Current tax asset 9 1,413 1,273 Total current assets 74,264 84,687 Nonncurrent assets Property. plant 6 equipment 13 55.679 53,200 intangible assets 14 210,296 215.216 Equity accounted investments 15 3.849 713 Deferred tax asset 9 9,865 7,111 Related party advance 25 129 Total non-current assets 279,689 277,369 Total assets 353,953 362,056 Current liabilities Trade 8: other payables 16 30.256 32,547 Programme rights payable 7,513 10,993 Provisions 19 298 4,963 Borrowings 18 92,916 17,000 Finance leases 17 624 1,162 Total current liabilities 131,607 66,665 Non-current liabilities Borrowings 18 - 72,916 Finance leases 17 3,991 4,702 Derivative financial instruments 26 2,037 2,254 Provisions 19 946 Total non-current liabilities 6.974 79,872 Total liabilities 138.581 146,537 Equity Share capital 21 226,584 212,184 Hedging reserves 22 (1,413) (1,615) Retained earnings (9,899) 4,950 Total equity 215,372 215,519 Total equity 8: liabilities 353,953 362,056 [fir 5? .i nerve-enlist!) Director Lackey - Director . For and on behalf of the board: 29 May 2017 1 These statements should be read with the accompanying notes. Page 3 pWi?i MEDIAWORKS INVESTMENTS LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2016 Share Hedge Retained Total capital reserves earnings equity For the year ended 31 December 2016 Notes $000 $000 $?000 $000 Balance at 1 January 2016 212,184 (1,615) 4,950 215,519 Net loss after income tax - (14,849) (14,849) Other comprehensive income - 202 - 202 Total comprehensive (loss)/income for the period - 202 (14,849) (14,647) Transactions with owners Issue of share capital 21 14,500 - 14.500 Balance at 31 December 2016 226,684 (1,413) (9,899) 215,372 Share Hedge Retained Total capital reserves earnings equity For the period ended 31 December 2015 Notes $000 $000 $?000 $?000 Balance at 1 October 2014 195,100 (430) 11,993 206,663 Net loss after income tax - - (7,043) (7,043) Other comprehensive loss - (1,185) - (1,185) Total comprehensive (loss)/income for the period - (1.185) (7,043) (8,228) Transactions with owners Issue of share capital 21 17,084 - 17,084 Balance at 31 December 2015 212,184 (1,615) 4.950 215,519 These statements should be read with the accompanying notes. Page 4 INVESTMENTS LIMITED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2016 2016 2015 12 Months 15 Months Notes $000 $000 Cash flows from operating activities Receipts from customers 343,968 466,207 Payments to supplier and empiovees (333.013) 388 (448,000) Dividends received - Finance costs 7 (7.995) (12,297) income taxes refunded/(pain; 9 19 (1,570) Net cash flow from operating activities 2,979 4,340 Cash flows from investing activities Investment in joint venture, net of cash acquired 15 (4.679) (150) Purchase of piant 3: equicment 13 (13,623) (19.254) Purchase of intangible assets 14 (1,976) (9:899) Proceeds from assets held for sale - 550 Proceeds from sale of property, plant equipment 490 - Net cash flow from investing activities (19,788) (28,753) Cash ?ows from ?nancing activities New borrowings under working capitai facility 20.000 17.000 Repayment of working capital facility (17,000) - Repayment of senior debt (17,084) Payments to related parties (105) Repayment of finance leases (1,248) (456} Shareholders equity received ?m 21 ?14,500 17,084 Net cash ?ow from financing activities 16,147 16,544 Net decrease in cash cash equivalents (662) (7,869) Cash at beginning of year 10 23,272 31,141 Cash 8; cash equivalents at end of year 22,610 23,2?2 These statements should be read with the accompanying notes. Page 5 MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 1. GENERAL INFORMATION These consolidated financial statements are for MediaWorks investments Limited ("the Company") and its subsidiaries (together ?the Group"). Refer to note 25 for a list of subsidiaries. As group financial statements are prepared and presented for MediaWorks investments Limited and its subsidiaries, separate financial statements for MediaWorks Investments Limited are no longer required to be prepared and presented under the Companies Act 1993. All companies are incorporated in New Zealand and have a 31 December balance date. MediaWorks investments Limited is a company registered under the Companies Act 1993 and is a limited liability company incorporated and domiciled in New Zealand. The address of the registered office is 3 Flower Street, Eden Terrace, Auckland. The Group and its subsidiaries are designated as profit-oriented entities for financial reporting purposes and operate in the free to air television and radio broadcasting sector. These consolidated financial statements have been prepared in accordance with the requirements of the Companies Act 1993 and have been approved for issue by the Board of Directors on 26 May 2017. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared under the historical cost convention as modified by the valuation of certain financial assets and financial liabilities at fair value. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. Basis of preparation These financial statements are for the 12 months ended 31 December 2016. During the prior year MediaWorks Investments Limited moved its balance date from 30 September to 31 December to align to buying cycles of key agency partners, programming schedules for major content distributors and peers within the industry. Accordingly. comparatives for 31 December 2016 reflect a 15 month period. The ?nancial statements have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand and comply with New Zealand equivalents to international Financial Reporting Standards and other applicable Financial Reporting Standards as appropriate for profit oriented entities. The consolidated financial statements also comply with International Financial Reporting Standards The Group has elected to report as a tier 1 reporting entity under XRB A1: External Reporting Board Standard A1: Accounting Standards Framework (For Profit Entities Update). The preparation of financial statements in accordance with NZ requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on experience and various other factors that are believed to be reasonable under the circumstances. The areas involving a higher degree of judgement or complexity. or areas where assumptions and estimates are significant to these financial statements are disclosed in Note 3. When considering the Group?s ability to continue operating as a going concern, the Group has forecast that it will meet operational cash requirements for the foreseeable future. The Directors have assessed certain events and conditions that may cast doubt over the forecasts and hence the ability to operate as a going concern. in summary these are: - The deterioration of the domestic TV free-to-air market and resulting ability of the Group to achieve associated forecast assumptions including revenue forecasts. - The Group?s ability to rely on continued shareholder funding support without written commitment. On assessing the Group's first quarter financial performance (January to March 2017) and full year forecasted performance, the Directors believe it reasonable that the underlying forecast assumptions are achievable. The Directors acknowledge there are material uncertainties within the forecast assumptions related to the TV free-to?air market impacting the Group's ability to operate within current funding levels. Any material departure from these assumptions may cast doubt over the ability to continue as a going concern. The Group's main sources of funding are Shareholder support and a debt facility, both of which are dependent on support from the Group?s Shareholder. Refer to note 18 for debt facility disclosures. pityc Page 6 MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 Historically, the Group's shareholder has provided financial funding on a business case basis and will continue to consider the provision of financial support on the same basis. For the 2017 year the Group has ensured sufficient funding is in place to assist with operational cash requirements this has been supported by equity injections from its Shareholder (refer note 21 and 27). The Directors acknowledge there is a material uncertainty relating to future Shareholder financial support with no written commitment given by the Shareholder to the Group. Historically no written commitment has been provided by the Shareholder but continued funding support has been provided to date. if the business experienced a material decline in financial performance and funding support was withheld by the Shareiulder, this may cast doubt over the Group's ability to continue as a going concern. The above matters have been considered by the Directors in the adoption of the going concern assumption in these financial statements. The Directors forecast the Group will trade at levels necessary to meet working capital requirements and has continued shareholder support as evidenced by shareholder contributions to data allowing the Group to continue to operate for the foreseeable future. If the Group is unable to continue meeting its obligations. achieve profitability forecasts or has funding sources withdrawn (including shareholder funding), this would indicate the existence of a mate-rial uncertainty that may cast significant doubt over the Group?s ability to continue as a going concern. Should the Group be unable to continue as a going concern. adjustments to the financial statements may be required including assets being realised at values other than the amount at which they are recorded in the Statement of financial position. in addition, the Group would have to provide for further liabilities that might arise and to reclassify non-current assets and liabilities as current. The Group reported a loss of $14.849m {2015: (15 months) $7,043m} for the year ended 31 December 2016. As at 31 December 2016 the Group had net assets of $215,372m (2015: $215.519m}, negative working capital of $57.343m (2015: Positive $18.023m) and cash balances of $22.610m (2015: $23.272m). Basis of consolidatlon (I) Subsidiaries Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to: variable returns from its in roivement with the entity and has the ability to affect those returns through its power over the 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. All material transactions and outstanding balances between subsidiaries or between the parent and the subsidiaries are eliminated on consolidation. The acquisition method of accounting is used to account for subsidiaries and businesses acquired by the Group. The col-isideration transferred for the acquisition of a subsidiary is measured as the fair value of the assets transferred. and liabilities incurred or assumed at the date of exchange. identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values. The excess of cost of acquisition over the fair value of the Group?s share of the identifiable net assets acquired is recorded as goodwill. (ii) Joint arrangements 8: Associates Joint arrangements are those arrangements over whose activities the Group has joint control established by contractual agreement and requiring unanimous agreement for strategic ?nancial and operating decisions. Investments in joint arrangements are either classified as joint ventures orjoint operations. Arrangements are classified as joint ventures when the parties that have joint control of the arrangements have rights to the net assets of the arrangement. Arrangements will be classified as joint operations when the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint ventures are accounted for using the equity method. The carrying amount of the investment in joint ventures is calculated at cost plus the Group's subsequent share of thejolnt venture's post acquisition income and movement in other comprehensive income. Joint operations are accounted for by recognising the Groups direct right to the assets, liabilities, revenues and expenses of the joint operation as well as the Groups share of jointly held or incurred assets. liabilities, revenues and expenses. investments in associates are accounted for using the equity method. Associates are entities over which the Group has significant influence. but not control, over the financial and operating policies. The carrying amount of the investment in associates is calculated at cost plus the entity?s subsequent share of the associates' post acquisition income and movement in other comprehensive income. Page 7 pwe MEDIAWORKS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 At the end of the reporting period the Group determines whether there is any objective evidence that the investment is impaired. if this is the case the Group calculates the amount of impairment as the difference between the recoverable amount and the carrying value of the investment and recognises the amount in the income statement. Functional 8: presentation currency The ?nancial statements are presented in New Zealand dollars which is the Company's and its subsidiaries' functional currency, rounded to the nearest thousand. Foreign currencies Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated. Foreign exchange gains and losses resulting from settlement of foreign currency transactions and from the translation of monetary assets and denominated in foreign currencies at the period end exchange rates are recognised in the income statement except where hedge accounting is applied and the resulting foreign exchange gains and losses are recognised in other comprehensive income. Goods 8; services tax (GST) The income statement and cash flow statement have been prepared so that all components are stated exclusive of GST. All items in the balance sheet are stated net of GST, with the exception of trade receivables and accounts payable, which include GST where invoiced. Financial assets The Group classifies its financial assets as either at fair value through profit 8: loss or loans and receivables. The classi?cation depends on the purpose for which the ?nancial assets were acquired. Management determines the classification of its financial assets at initial recognition on trade data and derecognises financial assets when the rights to receive cash flows have expired or been transferred. Financial assets classified as at fair value through profit and loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are categorised as held for trading unless they are designated as hedges. Gains and losses arising from changes in the fair value of the financial assets at fair value through the profit 8: loss category are recognised in the income statement. Financial assets classified as loans 84 receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are classified as current assets, except for those with maturities greater than 12 months after balance date which are classi?ed as non-current assets. The Group?s loans 8: receivables comprise trade and other receivables in the balance sheet. Gains or losses are recognised in pro?t loss when the loans and receivables are de recognised or impaired. Cash 8: cash equivalents Cash cash equivalents include cash balances and call deposits with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group?s cash management are included as a component of cash and cash equivalents in the cash flow statement. Trade receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method less a provision for impairment. Collectability of trade receivables is reviewed regularly. Debts which are known to be uncollectible are written off. A provision for impairment of trade receivables is established when there is objective evidence such as default or delinquency in payment that the Group will not be able to collect all amounts due according to the original terms of the receivable. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the provision is expensed in the income statement within sales and marketing. Property, plant 8: equipment Property, plant equipment is stated at cost plus other expenses directly incurred in bringing the assets to the location and condition necessary for their intended service. less accumulated depreciation. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that the future economic benefits associated with the item will flow to the Group and the cost of the item can be reliably measured. All other repairs and maintenance costs are recognised as an expense in the income statement during the period in which they are incurred. Page 8 MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 Depreciation Land is not depreciated. Depreciation on the following assets is provided on a straight-line basis at rates calculated to allocate the asset cost, less estimated residual value. over their estimated useful lives, as follows: Buildings 50 years Leasehold improvements 5-10 years TV studio equipment 3?10 years Radio broadcasting equipn'ient 3-15 years Office equipment 310 years Motor vehicles 3-5 years The assets' residual values and useful lives are reviewed and adjusted as appropriate at each balance date. Intangible assets Software Acquired software licenses are capitalised on the basis of the costs incurred to acquire and bring into use the specific asset. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets when the foitcwing criteria are met: it is technically feasible to complete the software product so that it will be available for use; management intends to complete the software product and use or sell it: there is an ability to use or sell the software product; it can be de nonstrated how the software product will generate probable future economic benefits: a adequate technical, financial and other resources to complete the development and to use or sell the software product are available; - the expenditure attributable to the software product during its development can be reliably measured. Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Computer software development costs recognised as assets are amortised over their estimated useful lives (3 to 5 years). Costs associated with maintaining computer software programmes are recognised as an expense as incurred. (ii) Broadcast licences Commercial television spectrum licences are recognised at cost and are amortised on a straight line basis over the period of the licence. Television licences expire in 2033. Commercial radio licences are recognised at cost and amortised on a straight line basis over the period of the licence. The Radio licences are generally for a 20 year life and expire in 2031. Programme rights Programme rights are recognised at cost as an asset in the balance sheet provided the programme is available to play and the rights period has commenced at the balance date. The costs relating to programmes produced internally for the purpose of broadcast are recognised as a programme right. Programme rights are amortised in the ?programming production" costs on a proportional basis depending on the type of programme right and the expected screening plan. The assessed rates take into account the diminished value of successive plays available within the programme rights period. Programme rights are regularly reviewed and additional write?downs are made whenever events or changes in circumstances indicate programmes are considered to be impaired. For the purposes of assessing impairment. programme rights are grouped at the lowest level for which there are separately identifiable cash flows, which is deemed to be the MediaWorks TV cash generating unit (CGU). Es Page 9 MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (iv) Brands Brands that were acquired in a business combination are recognised at fair value at the acquisition date. Brands are considered to have indefinite useful lives as the Group has rights to use these names in perpetuity. The carrying values of brands are reviewed for impairment annually or more frequently whenever events or changes in circumstances indicate that the carrying amount may be impaired. (I) Goodwill Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the fair value of the net identifiable assets acquired. For the purpose of impairment testing. goodwill acquired in a business combination is allocated to each of the or groups of CGUs, that is expected to bene?t from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents t.e lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of the CGU containing the goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognised immediately as an expense and is not subseq uentiy reversed. Impairment of property, plant and equipment The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash-generating unit the asset belongs to. If any such indication exists and where the carrying values exceed the estimated recoverable amount. the assets or CGUs are written down to their recoverable amount. impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation but are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised in the income statement 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. (0) Trade payables 8: accrued liabilities Accounts payable accrued liabilities are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest method where applicable. Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation and the amount has been reliably estimated. The amount recognised as a provision is the present value of the expenditures required to settle the obligation using a pre?tax rate that re?ects the time value of money and the risks specific to the obligation. Programme rights payable 8: commitments These rights are recognised as liabilities once the programme rights licence period has commenced. Commitments are disclosed as existing in the period that purchase contracts have been approved by management. Meets held for Sale Non-current assets are classi?ed as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. The sale must be highly probable and the asset available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets classified as held for sale are measured at the lower of the asset's previous carrying amount and its fair value less costs to sell. Page 10 MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 Borrowings interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings, using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance date. Leases - finance leases Leases where the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Assets under ?nance leases are recognised as non-current assets in the balance sheet. Finance leases are capitalised at commencement of the lease at the lower of the fair value of the leased property or the present value of minimum lease payments. and are depreciated on a straight line basis over the expected useful life of the leased asset. A corresponding liability is established. and each lease payment is allocated between the liability and interest expense, so as to achieve a constant rate of interest on the remaining balance of the liability. in) Leases - operating ieases Leases under which all the risks and benefits of ownership are substantially retained by the lessor are classified as operating leases. Operating lease payments are recognised as an expense on a straight line basis over the term of the lease. Derivative financial Instruments The Group uses derivative financial instruments to hedge its exposure to foreign currency and interest rate risks. The Group does not hold or issue derivative financial instruments for trading purposes. Derivatives consist of foreign currency exchange contracts and interest rate swaps. Derivative financial instruments are initially recognised at fair value on the date a derivative financiai instrument is entered into and are remeasured at their fair value at subsequent reporting dates. The method of recognising the resulting gain or loss depends on whether the derivative is deSlgnated as a hedging instrument and the nature of the item being hedged. Cash flow hedge The Group designates hedges of both firm commitments and highly probable forecast transactions as cash fiow hedges. The effective portion of changes in the fair value of derivatives. that are designated and qualify as cash flow hedges are recognised in other comprehensive income. The gain or loss relating to any ineffective portion is recognised immediately in the statement of comprehensive income. Amounts accumulated in equity are reieased either to profit or loss in the same period the hedged item affects profit or ioss or used to adjust the carrying amount of assets purchased. Fair value hedge The Group designated hedges of the fair value of recognised assets and liabilities as fair value hedges. Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement. together with any changes in the fair veins of the hedged asset or liability that are attributable to the hedged risk. Derivatives that are not designated for hedge accounting Certain derivative instruments may not be designated for hedge accounting. Ail changes in the fair value of any derivative instrument that is not designated for hedge accounting are recognised immediately in the income statement. For qualifying hedge relationships, the Group documents at the inception of the transaction. the relationship between the hedging instrument and the hedged item, as well as the risk management objective and strategies for undertaking various hedge transactions. The process included linking all derivatives as hedges to specific assets or liabilities or to specific committed forecasts transactions. When a hedging instrument expires or is sold, 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 ii". the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. Es Page 11 MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 Fair value estimation The fair value of financial assets and ?nancial liabilities must be estimated for recognition and measurement and for disclosure purposes. The fair value of financial instruments not traded on the active market is determined using valuation techniques. The Group uses a variety of methods and assumption that are based on market conditions existing at each balance date. Techniques such as discounted cash flow are used to determine the fair value of financial instruments. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance date. The carrying value less impairment provision of trade receivables and payables is a reasonable approximation of their fair values due to the short term nature of these instruments. The fair value of financial liabilities and financial assets for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. Share capital Ordinary shares are classified as equity. Incremental costs, directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds of the share issue. Revenue Revenue comprises the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided stated net of discounts and rebates. For transactions in which the Group is deemed to be the principal, advertising revenue is recorded at the gross amount of the transaction with commissions recorded as an expense. For transactions in which the Group is deemed to be the agent, only net commissions are recognised as revenue. Advertising revenue is recognised as income at the time of broadcast. In some instances, the Group or subsidiaries receive goods and services in exchange for advertising. In these instances, the advertising revenue recognised is recorded at an amount equivalent to the fair value of the goods and services received. Other income is recognised when the right to receive payment has been established and all counterparty obligations have been extinguished. Taxation The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. in this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date. 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 income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except for a deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on the same taxable entity. @1 Page 12 pure MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (ea) Government grants Government grants relating to costs are deducted from the relevant cost to be compensated in the same period. Grants to compensate for the costs of television programme production are deducted from the cost of the related programme at fair value when the Group has complied with the conditions of the grant and the grant will be received. (bb) Employee entitlements Employee entitlements to salaries and wages annual leave and bonuses, to be settled within 12 months of the reporting date, represent present obligations resulting from employees? services provided up to the reporting date, calculated at undiscounted amounts based on remuneration rates that the Group expects to pay. (cc) Board and senior management incentive schemes The Group operated a share-based incentive scheme for DireCtors and Key Management personnel which was dated 8 November 2013 and triggered on 17' May 2015. The Group also has a constructive obligation associated with a 2016 incentive scheme that has not yet been finalised. MediaWorks accounts for both schemes as cash-settled share-based payment schemes under N2 IFRS 2. The liability associated with the incentive schemes is measured at the end of each reporting period until settled. The liability is measured at the fair value of the incentive scheme by applying a Black Scholes option pricing model or, if an exit event has occurred, the actual increase In oddity value measured from the specified scheme start date to the "exit event?. The liability also takes into account the terms and conditions on which the incentive scheme rights are granted, and (in respect of the 2016 Scheme) the extent to which participants have rendered SEWICE to date. MediaWorks also has a cash?based incentive obligation for certain members of the board and executive. The liability is measured at the fair value of the consideration expected to be provided under the contracts based on estimated performance against KPl's. (dd) New international Financial Reporting Standards There were no significant new accounting standards or amendments to existing standards adopted by the Group in the year ended 31 December 2016. The following new standards, amendments and interpretations to existing standards have been published and are applicable to the Group but not yet effective. The Group will adopt these standards. interpretations and amendments when they become mandatory. NZ 16: Leases (Effective date; periods beginning on or after 1 January 2019) NZ 16, ?Leases'. replaces the current guidance in NZ Under NZ IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Under NZ IAS 17. a lessee was required to make a distinction between a finance lease (on balance sheet) and an operating lease (off baiance sheet). NZ IFRS 16 now requires a lessee to recognise a lease liability reflecting future lease payments and a ?right?of?use asset? for virtually all lease contracts. Included is an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees. The Group intends to adopt NZ IFRS 16 on its effective date and has yet to assess its full impact. NZ IFRS 15: Revenue from contracts with customers (Effective date: periods beginning on or after 1 January 2018) NZ IFRS 15, 'Revenue from contracts with customers: deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature. amount. timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces NZ IAS 18 'Revenue' and NZ IAS 11 ?Constructicn contracts' and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted. The Group intends to adopt NZ IFRS 15 on its effective date and has yet to assess its full impact. a; Page 13 331i! pit to MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 NZ 9: Financial Instruments (Effective date: periods beginning on or after 1 January 2018) NZ 9, ?Financial instruments', addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of NZ IFRS 9 was issued in September 2014. It replaces the guidance in NZ IAS 39 that relates to the classification and measurement of financial instruments. NZ 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income and fair value through profit or loss. The basis of classi?cation depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in other comprehensive income not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in NZ IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. NZ 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the 'hedged ratio' to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under NZ 39. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted. The group intends to adopt NZ 9 on its effective date and has yet to assess its full impact. 3. CRITICAL ACCOUNTING ESTIMATES 8t JUDGEMENTS The Group makes estimates and judgements 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 assets and liabilities within the next financial year are disclosed below. Radio Goodwill and Brands - Radio Cash Generating Unit The Group tests whether goodwill and brands have suffered any impairment at each year end, in accordance with the accounting policy stated in Note 2. The lowest level at which impairment of these assets can be tested is the Radio CGU. The recoverable amount of the Radio CGU has been determined based on a value in use assessment. This assessment requires the Group to estimate the future cash flows of the CGU and use suitable discount rates and terminal growth rates to calculate the present value of the CGU. Details of the value in use calculation including the key assumptions are provided in note 14. TVAssets TV Cash Generating Unit The Group has considered whether assets within the TV CGU have suffered any impairment due to current and anticipated future declines in free-to-air television revenues. The lowest level at which impairment of these assets can be tested is the TV CGU. The recoverable amount of the TV CGU and the resulting impairment loss has been determined by estimating the fair value of the CGU less costs to sell. This required the Group to estimate the amount obtainable from the theoretical sale of the TV CGU in an arm?s length transaction between knowledgeable, wiiling parties, less the costs of disposal. The model used to determine the recoverable amount is highly sensitive to a number of key assumptions and there is a wide range within which a reasonable recoverable value could be determined. Further details are provided in note 14. Revenue There is judgement involved in the appropriate classification of commissions within the Income Statement. Based on all available information the Group has determined that recording these as an expense within direct selling costs is the most appropriate treatment. Employee incentives The present value of the 8 November 2013 and 2016 incentive schemes depends on a number of factors that are determined using assumptions including calculating the equity value of the business at balance date and inputs required for a Black Scholes option valuation model. Any changes in these assumptions would impact the carrying amount of the compensation obligations. Details of these are disclosed in note 25. Deferred Tax Assets The Group recognises deferred income tax assets relating to prior year revenue losses. Deferred income tax assets should only be recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. The determination on whether these temporary differences can be utilised requires estimation and judgement in relation to the future performance of the Group. Details of these determinations are disclosed in note 9. Going Concern Refer to note Page 14 MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 4. PRIOR YEAR ADJUSTMENT During the year the company reviewed its revenue recognition policies and agency reiationships. During this review it was identified that certain items classified as revenue offsets would be more appropriate to be classified as direct selling costs. These costs include items directly attributabie to fulfilling customer contracts and commissions. This adjustment has been reflected in the current and prior financial periods presented and has the effect of increasing revenue by $38.567m in the current year (2015: $55.59?rn) anti increasing expenditure by $38.567m in the current year (2015?. $55.597rn). There is no effect on the statement of financial position or net profit after tax for either the current or prior period. Certain comparati-res have been restated in order to conform to current year presentation. Page 15 MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 5. REVENUE AND OTHER INCOME 2?16 2?15 12 Months 15 Months $000 Advertising revenue 291,072 37-0 401,708 Other income 7,049 1,769 Total revenue and other income 298,121 403,477 6. EXPENSES 2?16 2?15 12 Months 15 Months $'000 $'000 Depreciation amortisation Depreciation 10,411 11,571 Amortisation 4,200 3,992 Impairment - Intangibles (refer note 14) 3.595 - impairment - Programme Rights (refer note 12) 2.365 - Impairment - Investments (refer note 15) 170 Impairment - Loans (refer note 25) 233 Total impairment 6,465 - Total depreciation, amortisation 8: impairment 21,075 15563 Fees paid to auditors Audit fees 227 195 Taxation compliance services 55 80 Other assurance servicesil) 5 Treasury advice 3 Other services 55 89 Total fees paid to auditors 292 234 Bad 8: doubtful debt expense 189 215 Directors fees (refer note 25 453 556 Employee costs 116,268 143,509 Employee termination benefits ?g 5.12 (1) 2015: Other services primarily relate to work performed in reiation to internal management reporting. 7. NET FINANCE cosrs 2?15 2?15 12 Months 15 Months 9000 Finance cost - borrowings 7,977 11,662 Finance cost - leases 597 677 Interest 8; bank charges 121 549 Interest income (700) (591) 7,995 12,297 Total net ?nance costs Page 16 MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 8. GOVERNMENT GRANTS 2016 2015 12 Months 15 Months Government grants received radio (1) 488 333 Government grants received - Iocai television production 5,024 5,507 Total government grants 5,512 5,840 (1) Grants are provided by New Zeaiend On-Air for speci?c local radio and television programming. 9. INCOME TAX 2016 2015 $?000 Current tax on profit for the year 1,544 Deferred tax. (2,678) (3,450) income tax over provision in prior year (309) Total income tax bene?t (2,987) (1,906) Loss before income tax (17,836) (8,949) income tax at 28% (4,994) (2,506) Expenses not deductible for tax purposes 2,316 380 Income tax over provision in prior year (309} 220 Income tax benefit "m (2,937) (1.906) Current tax reconciliation Opening Balance 1,273 (296) Provisional Tax Pavments?Refund) (19) 1,570 Current Tax Expense - - income tax over provision in prior year 159 - Closing Balance 1,413 1.273 lmputation credits imputation credits available for subsequent reporting periods (1) The above amounts represents the balance of the imputation account as at the end of the reporting period adjusted for imputation credits arising from the payment of current year income tax and imputation debits from the payment of dividends. _i%3 Page 17 MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 Group deferred tax assets recognised on the balance sheet are attributable to the following categories: As at 31 December 2016 Fixed assets Losses ?8:522: Accruais Fair value Total $000 $000 $?000 $'000 $000 $000 Opening balance (1,934) 1,462 3,795 3,160 628 7,111 Credited/(Debited) to income statement 4 1,855 1,971 (1,152) - 2,678 Credited directly to equity - (78) (78) Prior period adjustment 155 405 101 (507) 154 Closing deferred tax asset balance (1,775) 3,722 5.867 1,501 550 9,865 As at 31 December 2015 Fixed assets Losses meg: Accruals Fair value Total $?000 $?000 $?000 $?000 $?000 $000 Opening balance (1.768) (2,212) 2,248 167 (1,565) Credited/(Debited) to income statement (166) 1,462 1,242 912 - 3.450 Credited directly to equity - 461 461 Prior period adjustment - 4,765 - - 4.765 Closing deferred tax asset balance (1,934) 1,462 3,795 3.160 628 7,111 10. CASH AND CASH EQUIVALENTS 2015 2015 $000 $000 Bank deposits and cash 22,610 23,272 Total cash and cash equivalents 22,610 23,272 As at 31 December 2016 there was a Group set-off arrangement in place with respect to all Group bank accounts. 11. TRADE AND OTHER RECEIVABLES 2016 2015 $?000 $?000 Trade receivables 33,762 35,310 Provision for impaired receivables (388) (881) Net receivables 33,374 34,429 Other receivables - 133 Prepayments 2,274 3,388 35,648 37.950 Total trade 8: other receivables Page 18 MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 11. TRADE AND OTHER RECEIVABLES (continued) 2016 2015 $?000 $?000 As at period and the analysis of the not trade receivables is as follows: Neither past due nor impaired 25.143 24,696 Past clue but not impaired 8,231 9,?33 A provision for impaired receivables has been made for advertising clients who have not met agreed credit terms. Provision for impaired receivables Opening balance 881 604 Charged during the year 189 493 Utilised during the year (682) (216} Provision for impaired receivables 388 881 The recognition and release of the provision for impaired receivables has been included in 'salas marketing expense in the income statement. Amounts charged to the provision are generally written off when there is no expectation of recovering additional cash. Fair vaiue and credit risk Due to the short term nature of these trade receivables, their carrying value is assumed to approximate their fair value. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivables mentioned above. The Group does not hold any collateral as security, 12. PROGRAMME RIGHTS 2?16 2?15 Cost 142,835 101.821 Less impairment of acquired programme rights during the year (2,355) {775) Less amortisation {125,876} (78,857) Total programme rights 14.593 22,188 Amortisation charges of $51.744m (2015: $79534) are included within programming and production expenses within the income Statement. Page 19 MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 13. PROPERTY, PLANT EQUIPMENT Buildings 8: Furniture 8: leasehold Land office Total improvements equipment $?000 $?000 $?000 $?000 $?000 For the period ended 31 December 2016 Opening book value 21,839 3,407 1,798 16,404 9,752 53,200 Additions 3,454 - 495 2,435 7,239 13,623 Disposals (428) (160) (73) (72) (733) Depreciation cost (2,681) - (813) (4,255) (2,662) (10,411) Closing net book value 22,184 3,407 1,320 14,511 14.257 55.679 Cost . 28,165 3,407 4,167 28,247 20,774 84,760 Accumulated Depreciation (5,981) - (2,847) (13,736) (6,517) (29,081) Closing net book value 22,184 3,407 1,320 14,511 14,257 55,679 Buildings 8: Furniture 8: leasehold Land ?mg; 8333:: of?ce Total improvements equipment $?000 $?000 $?000 $?000 $?000 $?000 For the period ended 31 December 2015 Opening book value 17,087 3,407 2,519 15,976 6,528 45,517 Additions 6,873 600 6,109 5,672 19,254 Disposals - - Depreciation cost (2,121) - (1,321) (5,681) (2,448) (11,571) Closing net book value 21,839 3,407 1,798 16,404 9,752 53,200 Cost 25,141 3,407 4,142 26,333 13,517 72,540 Accumulated Depreciation (3,302) (2,344) (9,929) (3,765) (19,340) Closing net book value 21,839 3,407 1,798 16,404 9.752 53.200 Page 20 pwe MEDIAWORKS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 14. ASSETS Broadcast ., . Software Licenses Brands uoodw?l Total $?000 $?000 $000 $?000 $000 For the period ended 31 December 2016 Opening book value 2,950 46,557 8,000 158,709 216,216 Additions 1,197 295 400 84 1.976 Disposals - Amortisetion (1,065) (3,135) (4,200) Impairment (1,412} (400) (1,884) (3,696) Closing net book vaiue 3,082 42,305 8,000 156,909 210,296 Cost 5,380 52.378 8,400 158,793 224,951 Accumulated amortisation and impairn'ient (2,298) (10,073) (400) (1.884) (14,655) Closing net book value 3.082 42,305 8,000 156,909 210,296 Software 8321::3: Brands Goodwill Total $000 $000 $000 $000 $?000 For the period ended 31 December 2015 Opening book value 1,669 41,931 8,000 158,709 210,309 Additions 2,033 7.874 9,907 Disposals (8) (8) Amortisation (744) (3,248} (3,992) impairment - Closing net book value 2,950 46,557 8,000 158,709 216,216 Cost 4,183 52,084 8,000 158,709 222,976 Accumulated amortisation and impairment (1,233) (5,527) (6,760) Closing net book value 2,950 46,557 8,000 158,709 216,216 Brands and Goodwill inde?nite life intangible assets The allocation of goodwill and brands to the respective 000?s of the business is as follows: 2016 2015 $000 $000 Goodwill - MediaWorks Radio CGU 156,909 156,825 Brands - MediaWorks Radio CGU 8,000 8.000 Goodwill - MediaWorks TV 000 1,884 164.909 166.709 Page 21 p?irETC MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 14. ASSETS (continued) Radio Cash Generating Unit Goodwill and brands have been tested for impairment as at 31 December 2016 using discounted cash flows on a value-in? use basis. Management has used its past experience of sales growth, operating costs and margin, and external sources of information where appropriate, to determine its expectations for the future. These cash flow projections are principally based on the group's two-year forecast, which has been extended for a further three years. Cash flows beyond 2 years have been extrapolated using estimated growth rates which do not exceed the long-term average growth rate for the industries in which the business units operate. A terminal growth rate of 1.5% (2015: and a post-tax discount rate of 9.16% (2015: 8.39%) have been used to determine value in use. The calculations confirmed there was no impairment write-down required of goodwill or brands with indefinite useful lives. No reasonable change in key assumptions would result in impairment. TV Cash Generating Unit Goodwill and other assets within this CGU have been tested for impairment as at 31 December 2016 using discounted cash flow on a fair value less cost to sell basis. The recoverable amount of the CGU has been determined using level 3 inputs as per the fair value hierarchy. Management has used its past experience of sales growth, operating costs and margin, and external sources of information where appropriate, to determine its expectations for the future. These cash flow projections are principally based on the group's two?year forecast, which has been extended for a further three years. Cash flows beyond two years have been extrapolated using estimated growth rates, which do not exceed the long-term average growth rate for the industries in which the business units operate. Included in the future cashflow projections are estimates of synergies that would be available to market participants under a different operating structure. A terminal growth rate of 1.5% (2015: and a post-tax discount rate of 9.63% (2015: 8.39%) have been used to determine fair value less cost to sell. The results of the impairment testing concluded that the carrying amount exceeded its recoverable amount by $5.562m. This is predominately due to current and anticipated future declines in cashflow from free-to?air television due to changing technological and consumer trends. An impairment charge of $5.662m was recorded to reduce the carrying amount of the following assets within the TV CGU: I Goodwill: $1.884m Broadcast licenses: $1.412m I Programme rights: $2.366m The carrying values of Goodwill and Broadcast licenses within the TV CGU have been reduced to Nil. Impairment charges relating the TV CGU are recorded within ?lmpairment charges? in the Income Statement. .1 Post impairment, Programme Rights, Property, Plant and Equipment and Software allocated to the TV CGU are carried at $53.085m in the financial statements as follows: I Programme Rights: $14.593m I Property, Plant 8: Equipment: $36.213m I Software: $2.279m Sensitivity The model used to determine the recoverable amount of the TV CGU is particularly sensitive to changes in the revenue growth assumptions, terminal growth rate, discount rate as well as the synergies available to market participants. I A 1% change to the revenue growth assumptions would result in a change of to the recoverable amount I A 1% change to the terminal value would result in a change of to the CGU's recoverable amount I A 1% change in the discount rate would result in a change to the recoverable amount. jet/?76 Page 22 INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 14. ASSETS (continued) I A 1% change in the synergies available to market participants would result in a change to the CGU's recoverable amount of Whilst the impairment charge of $5.662m is the best available estimate. the range of reasonably possible scenarios is large. 15. EQUITY ACCOUNTED INVESTMENTS 2016 2015 For the period ended 31 December 2016 Opening book value 713 379 Additional equity?? 4,679 150 Disposal of equityiSl (131) Share of loss after tax (725} 184 Reclassification of assets and liabilities ofjoint operationii.i (517) impairment (170) Dividends paid Closing net book value 3,849 713 The Groups investment in The Radio Bureau was reciassii?isd as ajoint operation in the current year. The equity accounted investment previously held has been de~recognised, with the Group now recognising its direct right to the assets, revenues and expenses of the joint operation and its share of anyjointiy heid or incurred assets, liabilities. revenues and expenses in these consolidated financial statements. The Group?s investments in associates and joint ventures at 31 December 2016 are as fallows: Associate - KPEX Limited (KPEX) The Group has a 25% interest in KPEX, a New Zealand incorporated company. KPEX was established to develop and operate a high quality advertising exchange for the buying and sailing of digitai advertising inventory in NZ. Associate - Freeview Limited {Freeview} The Group has a 32.4% interest in Freeview. an incorporated associate. with Television New Zealand Limited, Maori Television Services and Radio New Zealand Limited. Joint Venture - Drive Software Limited (Drive) The Group has a 60% interest in Drive, a New Zealand incorporated company. Drive Software provides and develops computer software for the Radio industry. This interest has been determined to be a joint venture as each party has the ability to appoint one director to the Board. (3) The Groups interest in Drive was sold on 23 December 2016. Associate - Bravo TV New Zealand Limited (Bravo) On 1 July 2016 the Group entered into an arrangement with NBC Universal to operate the television channel Bravo through Bravo TV New Zeaiand Limited newiy incorporated New Zealand entity). This interest has been determined to be an associate as the Group holds 49.9%. of the voting shares. (2) The Group paid consideration of $4.509m for its investment in Bravo. Contingent Liabilities There are no contingent liabilities relating to the Group's interest in the joint ventures and associates and there are no contingent liabilities or capital commitments of the ventures. pwe Page 23 MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 15. EQUITY ACCOUNTED INVESTMENTS (continued) Summarised ?nancial information for associates The table below provides summarised ?nancial information for the material associates of the Group. The information disclosed reflects the amounts presented in the financial statements of the relevant associates for the period of ownership and not the Groups share of those amounts. Bravo 2016 2015 Summarised Financial Position Cash and cash equivalents 1,422 Current assets 4,821 Non-current assets 4,396 Current liabilities (3,234) Non?current liabilities - Net Assets 7.405 - Summarised Financial Performance Revenue 5,246 Net loss after income tax (1,617) Depreciation/amortisation 15 16. TRADE OTHER PAYABLES 2?15 2015 $000 $000 Trade Payables 11,511 15,261 Employee entitlements 9,575 9,504 Accruals 9,169 7,682 30,256 32,547 Total trade and other payables Page 24 . MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 17. FINANCE LEASES 2?16 2015 $000 $?000 The present value of the finance lease liability is as follows: Current liabilities 624 1,162 Non-current ilabilities 3,991 4.702 4.615 5,864 Repayment terms Finance lease liability - minimum lease payment - Within one year 624 1.162 - One to five year 1,135 2,370 More than five years 2.856 2,332 Total ?nance leases 4,615 5,864 The Groups obligations under finance ieases are secured by the lessor?s title to the leased assets in the event of default. The effective interest rates range from 4.3% to 9.44% pa. Finance leases are utilised to fund the purchase of various assets including motor vehicles, computer software and broadcast licenses. 18. BORROWINGS 2016 2015 $?000 $'000 Drawn down as at 31 December 2016 7' Current liabilities Working Capital Facility 20,000 17,000 - Acquisition Advance 72,916 92,916 17,000 Non-current liabilities - Acquisition Advance -- 72,916 72,916 Total borrowings 92.916 89.916 MediaWorks Finance Limited has a five year Senior Facilities Agreement which includes the Acquisition Advance of $72.916m, (2015: $72.916m?) and a Working Capital Facility with a limit of 3320.000m (2015; 520000211}. This agreement has a termination date of 8 November 2016. Bank borrowings are secured by mortgages over various assets of the Group and a General Security Dead. The debt is heid by a syndicate of debt holders, with Westpac NZ Limited appointed as agent. Variable interest rates applicable at 31 December 2016 ranged from to 167% per annum 2015: 5.80% to The average interest rate on these loans for the year ended 31 December 2016 was 6.34% {2015: During the year the Group was required to meet certain financial covenants and undertakings as part of the Senior Agreement. These covenants included: - Interest cover ratio shall not be less than 2.00:1.00 . Leverage ratio shall not exceed 3.50:1.00 I Capital expenditure shali not exceed 110% of the annual budget provided to lenders. The Group was in breach of the interest cover and leverage ratio financial covenants as at the September and December 2016 quarterly test dates and is forecast to remain in breach unti! the 31 December 2017 test date. at which point compliance is expected. No waiver or remedy was obtained for these covenant breaches prior to year-end. Subsequent to year-end, Westpac on the instruction of the Majority Lenders. agreed to a waiver of this covenant breach until the 30 June 2017 test date as per a letter agreement dated 9 February 2017. As the waiver was received post balance date, the debt has been classified as current. 'i ., Page 25 Emil/L. MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 18. BORROWINGS (continued) The Group?s shareholder holds a material portion of the company's debt relative to the other parties in the banking syndicate, and accordingly retains the ability to prevent certain actions being taken. In addition to the waiver described above, for any action to be taken under the Senior Facilities Agreement with respect to an event of default or breach of covenants, approval of the Majority Lenders is required. This provides the Group's shareholder the ability to exercise negative control. The Acquisition Advance can be partially or fully repaid at the Group's discretion. Mandatory repayments are paid as excess cash is available at the reporting date. Excess cash is defined in the Senior Debt Facility. The mandatory payment of excess cash was not required as at 31 December 2016 (2015: Nil). The fair value of current borrowing approximates the carrying amount. Liquidity risk is disclosed in note 26. 19. PROVISIONS 2016 2015 $000 $'000 Current liabilities Shared based payment incentive scheme 298 4,963 298 4,963 Non?current liabilities - Cash based incentive scheme 404 - Make-good provision 542 946 Total borrowings 1,244 4.963 20. CASH FLOW RECONCILIATION 2?16 2?15 12 Months 15 Months $?000 $?000 Reconciliation of operating cash flows with loss after income tax Net loss after income tax (14,849) (7,043) Items not involving cash Depreciation, amortisation impairment 21,076 15,563 Share of equity accounted investments 7?25 (184) Gain on sale of plant, equipment and investments 374 - Non-cash expenditure - 2,400 FX losses/(gains) 55 (588) Reclassification of assets and liabilities of joint operation 517 - Movement in deferred taxes (2,832) (8,217) Assets held for sale - (133) 19.926 8,841 Impact of changes in working capital Increase in trade other receivables 1,188 2,080 Accounts payable 8? accrued ?abilities (3,375) (909) Income tax payable (140) (1,569) Programme right assets 5,229 2,940 (2,098) 2,542 Net cash flow from operating activities 2,979 4,340 awe Page 26 MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 21. SHARE CAPITAL 2016 2015 .2016 2015 Shares Shares $000 Opening balance 212,184 195.100 212,184 195,100 Issued shares 14.500 17,084 14,500 17,084 Total share capital 226,684 212,184 226,684 212,184 During the year the Groups Shareholder introduced new equity of $14.500m (2015: $17.084m}. This equity was provided by way of issuing new capital of 14.500m shares (2015: 17.074m new shares). 22. HEDGING RESERVES 2016 2015 $000 Cash flow hedge reserve - forward foreign exchange contracts Opening balance (8) (189) Net fair value gain 34 251 Deferred tax effect (10) (70) 16 (3) Cash flow hedge reserve - interest rate swap Opening balance 1,623 619 Net fair varue loss (314) 1,395 Deferred tax effect 88 (391} 1,397 1,623 Total hedging reserves L413 L615 23. CONTINGENT LIABILITIES The Group has a bank guarantee to secure the Garnet (Customs temporary export/import; facility. The guarantee on this facility at 31 December 2016 is $1.860m MediaWorks Holdings Limited has an indemnity agreement with the Receivers of the various GR Media Group companies (in receivership) entities in respect of any receivers costs, remuneration, liabilities or claims made against the Receivers in connection with their duty as receivers on the various GR Media Group companies. MediaWorks Holdings Limited has an Indemnity agreement with various consultants to the GR Media syndicate in respect of any claim made against the indemnified consultants reiating to any act or omission by them when acting for any Group company. MediaWorlts Holdings Limited nas an indemnity agreement with the shareholders and debt holders of the Group as at 8 November 2013 in respect of any claims made against the shareholders 8r: debt holders reiating to any iiability of the GR Media Companies not being paid, satisfied or discharged in full. Due to the nature of the broadcasting industry, various claims have been made against the Group. The Directors are of the opinion that no provision is required in these financial statements from any known claims. nag? Page 27 game MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 24. COMMITMENTS 2?16 2?15 $?000 $?000 Programme rights Within one year 10,280 24,452 - Later than one year not later than five years 937 5,211 - Later than five years - Total programme rights 11,217 29,663 Non-cancellable operating leases Within one year 13,539 9,571 Later than one year not later than five years 21,550 25,240 - Later than five years 2,321 5,192 Total non-cancellable operating leases 37.610 40,103 Capital expenditure on property. plant equipment - Within one year 4,235 955 - Later than one year not later than ?ve years - Later than five years - 4,235 956 Total capital expenditure on property, plant equipment Programme rights This balance represents programme right commitments in relation to supply contracts where the broadcast programme has not yet come into Non-cancel'lable operating leases The Group leases transmission facilities and various office spaces under non?canceliable operating lease agreements. All leases have varying terms, escalation clauses and renewal rights. Capital expenditure on property, plant equipment This balance represents the purchase commitments in relation to capital expenditure on property, plant 8: equipment at balance date. Page 28 awe MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 25. RELATED PARTIES The ultimate coritroliing party of MediaWorks Investments Limited is Tokyo Opportunities BV. The company has related party relationships with the following entities and with its directors and executive officers: Entity 2016 2015 Relationship MedieWorks Finance Limited 100% 100% Subsidianr of MediaWorks Investments Limited MediaWorks Hoidings Limited 100% 100% Subsidiary MediaWorks Finance Limited MediaWorks Radio Limited 100% 100% SubSidiary of MediaWorks Holdings Limited MediaWorks TV Limited 100% 100% Subsidiary of MediaWorlts Holdings Limited MediaWorks Kiwi Radio Limited 100% 100% Subsidiary of MediaWc-rits Radio Limited MW NZ Bureau Limited 100% 100% Subsidiary of MediaWorks Radio Limited Drive Software Limited - 60% Ajoint venture held by Holdings Limited The Radio Bureau 50% 50% Ajoint operation held by MW NZ Bureau Limited Freeview Limited 32.4% 32.4% An assomate held by MediaWorks i?v? Limited KPEX Limited 25% 25% An associate held by MediaWorks Holdings Limited Media-Works Maidstone Limited 51% 51% Subsidiary of MediaWorks Holdings Limited Bravo TV New Zeaiand Limited 501% 50.1% An associate held by MediaWorks Tv? Limited MediaWorks Foundation WA A charitable society Related party advances - MediaWorks Foundation 2016 2015 $000 $000 Opening Balance 129 Advances 104 129 impairment i233) Ciosing Balance - 129 Key management personnel compensation The gross remuneration of Directors and Group executives during the period was as follows: 2016 2015 12 Months 15 Months $?000 $?000 Salaries and other short-term employee benefits 4,554 3,291 Sharebased incentive compensation scheme 337 5.290 Cash-based incentive compensation scheme 403 Termination costs 1,415 ng5 Directors fees 453 555 Consulting fees paid to directors - 125 Total key management personnel compensation 7,662 10,470 p?ivgi?f; Page 29 MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 25. RELATED PARTIES (Continued) Board and senior management share-based incentive compensation schemes The Group operated a share-based incentive scheme for Directors and Key Management personnel which was dated 8 November 2013. The Group also has a constructive obligation associated with a 2016 share-based incentive scheme that has not yet been finalised. MediaWorks accounts for both schemes as cash-settled share-based payment schemes under NZ 2. The liability associated with the incentive schemes is measured at the end of each reporting period until settled. The liability is measured at the fair value of the incentive scheme by applying a Black Scholes option pricing model or, if an exit event has occurred, the actual increase in equity value measured from the specified scheme start date to the "exit event". The liability also takes into account the terms and conditions on which the incentive scheme rights are granted, and (in respect of the 2016 scheme) the extent to which participants have rendered service to date. Board and senior management 2016 sharebased incentive scheme The 2016 share?based incentive scheme is a cash-settled share?based payment scheme which will be triggered on an ?exit event". The scheme has a staged vesting of units over a four year period at 25% of entitlement share on each anniversary of the award date. An "exit event" includes a share sale, an asset sale, IPO or liquidation. 0n condition of an "exit event? units which are not already vested will vest and the participants will receive 100% entitlement to earned amounts. The obligation (incentive pool) will be determined based on the increase in equity value for the Group from 19 May 2015 (being the end date of the previous scheme) to the "exit event". The closing equity value will be determined via reference to the "exit event" transaction. The scheme is to be settled in cash notwithstanding the ?exit event? being an IPO. In the case of an the Participant may be required to purchase shares in the vehicle up to the amount paid to them under the Scheme. The scheme is uncapped. No amount is payable until an ?exit event" occurs- The fair value of the liability has been determined using a Black-Scholes option pricing model. The key assumptions are the starting equity value as set out in the scheme agreement, the estimated equity value at 31 December 2016, and a risk free rate of 3.28% and volatility of 35%. The "exit date? for the purposes of determining the valuation of the obligation at 31 December 2016 is within 4 years of the scheme commencing. Based on the assumptions specified no provision has been recognised in respect of this LTI scheme as at 31 December 2016. Board and senior management share-based incentive scheme dated 8 November 2013 The Group incentive scheme dated 8 November 2013 had a de?ned "exit event" occur. The event date was 17 May 2015 when the Company became a wholly-owned subsidiary of Tokyo Opportunities B.V. The participants of the scheme were the directors and certain senior management. The obligation has been determined based on the actual increase in equity value of the Group from 8 November 2013 to 17 May 2015. The liability also takes into account the terms and conditions on which the incentive scheme rights were granted. The amount of the incentive pool allocated to scheme participants was $8.736m. The incentive pool was paid in several instalments, with the first instalment paid in August 2015 and the final instalment to be paid in May 2017. Senior management participants have a condition which requires them to be either good leavers, or employed by MediaWorks at the time of the incentive scheme instalment payment. Exiting before payments as a bad leaver results in forfeiting any vested incentives. The amount not accrued in relation to services still to be performed is $0.047m. MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 25. RELATED PARTIES (Continued) Incentive scheme provision 2016 2015 $1300 Opening balance 4,963 3553 Income statement expense 33-7 5290 Payments (5,502) {2.890) Total incentive scheme provision 298 4,963 26. FINANCIAL RISK MANAGEMENT The Group undertakes transactions with a range of financial instruments including cash and cash equivalents, deposits, receivables, payaoies, derivatives and various forms of borrowings. The business activities expose the Group to various financial risks that include currency risk. fair value risk, interest rate risk, credit risk and liquidity risk. Currency Risk The Group is exposed to foreign exchange risk arising from various currency exposures, primarily in respect to the Australian dollar and the United States dollar. In the normal course of business the Group is required to make various transactions which are not in the Group's funcdonal currency. As a result of these transactions. exposure to fluctuations in foreign currency exchange rates arises. The Group seeks to minimise the effects of currency risk by using derivative financial instruments such as foreign currency forward exchange contracts to hedge this risk exposure. The use of these financial derivatives is carried out under policies approved by the Board of directors. The Board provides written principles for overall risk management. The risk management approach identifies. evaluates and manages financial risk in close cooperation with the Group?s operating units. The Group does not enter into or trade financial instruments. including financial instruments for speculative purposes. The currency risk management policy is to hedge highly probable forecast purchases based upon a percentage cover range for various time bands. The above policy must be applied unless the Treasury Advisory Group formally agrees to a recommended exception. A summary of the Group's currency risk and a sensitivity analysis is given below: Assets Liabilities $'000 $?000 Balance at 31 December 2016 Cashflow hedges forward foreign exchange contracts 22 Fair value hedges forward foreign exchange contracts - 75 Totai - 97 Comprising: Current - 97 Non-Current Total - 97 The notional value of the outstanding forward foreign currency exchange contracts at 31 December 2016 was $11.916m (2015: $10.137m). grit/re Page 31 MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 26. FINANCIAL RISK MANAGEMENT (continued) Assets Liabilities $?000 $?000 Balance at 31 December 2015 Cashflow hedges - forward foreign exchange contracts 12 Fair value hedges - forward foreign exchange contracts . 8 Total 12 8 Comprising: Current 12 8 Non-Current . Total 12 8 The hedged highly probable forecast transactions dominated in foreign currencies are expected to occur at various dates during the next 12 months. Gains and losses recognised in the hedging reserve in equity on forward foreign exchange contracts as at 31 December 2016 are recognised in the income statement in the period for which the hedge transaction effects the income statement. This is generally within 12 months from the end of the reporting period. Exchange Rates The weighted average rate of forward foreign exchange contracts held as at 31 December 2016 is as follows: 2016 2015 Australian Dollar 0.94 0.92 0.70 0.83 United States Dollar Sensitivity Analysis It is estimated that a 10% movement in the New Zealand Dollar against the Australian Dollar would result in an increase/ (decrease) to profit and loss of (2015: Nil). The same movement would also result in an increase/ (decrease) to the FX hedge reserve of $0.256m/ ($0.296m) (2015: Nil). It is estimated that a 10% movement in the New Zealand Dollar against the United States Dollar would result in an increase/ (decrease) to profit and loss of (2015: $0.131m). The same movement would also result in an increase/ (decrease) to the FX hedge reserve of $0.036m/ ($0.022m) (2015: $0.160m). Based on historical movement a 10% increase or decrease in the N20 is considered to be a reasonable estimate. This analysis assumes all other variables; in particular interest rates remain constant. Page 32 MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 26. FINANCIAL RISK MANAGEMENT (continued) Interest Rate Risk The Group is exposed to interest rate risk arising from changes in floating interest rates on both the Acquisition Advance and Working Capital Facility provided under the senior facilities agreement. Under this facility the Group must ensure that at least 50% of the Acquisition Advance is hedged against changes in the floating interest rate exposure. The Group uses interest rate swaps to hedge this risk. Interest rate hedging is monitored by the corporate treasury function which reports monthiy to the Board of directors. The Board has an audit and risk committee which is responsible for developing and monitoring the Group?s risk management policies. A summary of the Group?s interest rate risk and a sensitivity analysis is given below: Assets Liabilities $?000 Balance at 31 December 2016 Cashflow hedges - interest rate swaps - 1,940 Total - 1,940 Comprising: Current Non-Current - 1,940 Total - 1.940 Assets Liabilities $?000 $1360 Balance at 31 December 2015 Cashfiow hedges interest rate swaos 2,254 Total - 2,254 Comprising: Current NonuCurrent . 2254 Total - 2,254 The interest rate swaps held by the Group in respect of the Group's floating rate bank borrowings have a face value of $45.000m (2015: $A5.000m). The interest rate swaps are used to convert economically floating rate exposure on interest bearing liabilities into fixed rate exposure where it is considered appropriate. Gains and losses recognised in the hedging reserve in equity on interest rate swaps as at 3:1. December 2016 will be continuously released to the income statement within finance costs until the repayment of the bank borrowings. MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 26. FINANCIAL RISK MANAGEMENT (continued) The contractual amounts of interest rate swaps are: 2016 2015 $000 Less than one year - Greater than one year, less than two years 45,000 Greater than two years, less than five years - 45,000 Total 45,000 45,000 Sensitivity Analysis It is estimated that a 1% movement in interest rates would result in a change to the group's annual interest costs of approximately $0.4?9m (2015: $0.449m) on the group?s debt portfolio exposed to floating rates at balance date. A 1% movement in interest rates would also result in an estimated change in the hedge swap reserve of approximately $0.811m (2015: $1.256m) as a result of changes to the mark to market value of the Groups interest rate swap. Based on historical movement a 1% increase or decrease in the ?oating interest rates is considered to be a reasonable estimate. The Group has no significant interest bearing assets except for cash and cash equivalents for which the interest earned is not signi?cant. A reasonably possible change in interest rates on these assets would not significantly impact the Group. Credit risk Credit risk is risk of financial loss to the Group if a customer or counterparty to a financial risk fails to meet contractual obligations and arises from cash and cash equivalents, derivative financial instruments and the Groups receivables from customers. The Group has no significant concentration of credit risk. However the maximum exposure to credit risk is the trade and other receivables closing balance. Derivative counterparties and cash transactions are limited to high credit quality financial institutions. Customer risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. The utilisation of credit limits by customers is regularly monitored by management. The Group has credit policies that restrict the exposure to financial institutions and individual trade receivables, and management reviews these exposures on a regular basis. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. As at 31 December 2016, the working capital facility is fully drawn (2015: $3.000m unused facility) with an outstanding balance of $20.000m (2015: $17.000m). The table below analyses the Group?s ?nancial liabilities into relevant maturity groupings based on the remaining period from the balance date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Page 34 INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 26. FINANCIAL RISK MANAGEMENT (continued) As at 31 December 2016 0-1 Year 1-5 Years 5+ Years Accounts payabies and accruals 37,768 Finance leases 624 1,135 2,856 Borrowings and interest 92,916 - Derivative financial instruments 2,037 - Total 131,308 3,172 2.856 As at 31 December 2015 0-1 Year 15 Years 5+ Years @000 $000 $?000 Accounts payables and accruals 43,544 - Finance leases 1,162 2,370 2,332 Borrowings and interest 17.000 72,916 Total 61,706 75,286 2,332? Capital risk management The Group's objectives when managing capital- are to safeguard the Group's ability to continue as a going concern in order to provide returns to its shareholder and bene?ts for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital (refer going concern assessment in note 2ldd)). The capital structure of the Group consists of debt which includes the borrowings disclosed in note 18, equity and cash and cash equivalents. Tl?e Group monitors capital on the oasis of the gearing ratio. At 31 December the gearing ratio was as follows: 2016 2015 $?000 $000 Total borrowings 92,916 89,916 Less cash and cash equivalents (22,610) {23.272} Net debt 70,306 66,644 Total equity 226,684 215,515 Total capital 296,990 282,159 Gearing ratio 23.67% 23.62% The Group is subject to externally imposed debt requirements, The group was in breach of these requirements as at and during the year ended 31 December 2016 (refer note 18). We Page 35 MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 26. FINANCIAL RISK MANAGEMENT (continued) Fair value estimates The Group analyses its financial instruments that are measured in the Balance Sheet at fair value, by valuation methods in accordance with the following fair value measurement hierarchy. Level 1 Quoted prices (unadjusted) in active market for identified assets and liabilities Level 2 inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (that is as priced) or indirectly (that are derived from prices). Level 3 Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs). The fair value of financial instruments that are not traded in an active market (for example, over the counter derivatives) is determined by using valuation techniques and assumptions. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable the instrument is included in level 2. All of the Group?s derivatives are classi?ed as level 2. The table below analyses the Groups financial instruments into relevant categories: As at 31 December 2016 ash, Fair Fair $33,333:: ??5553 We" equaty $?000 $?000 $?000 Trade and other receivables 33,374 - - - 33,374 Cash and cash equivalents 22,610 - - 22,610 Equity accounted investments - - 3,849 3,849 Trade and other payables (37,768) - (37,768) Borrowings (92,916) (92,916) Finance lease liabilities (4,616) - - (4,616) Derivative financial instruments (1,962) (75) (2,037) Total 55,984 (135,300) (1,962) 3,774 (77,504) As at 31 December 2015 Amortised v33: v53: Total receivables cost through through equnty $?000 $?000 $?000 $'000 Trade and other receivables 34,429 - 34,429 Cash and cash equivalents 23,272 23,272 Equity accounted investments - 713 713 Trade and other payables - (43,540) (43,540) Borrowings - (89,916) (89,916) Finance lease liabilities (5,864) - (5,864) Derivative ?nancial instruments - (2,242) (8) (2,250) Total 57,701 (139,320) (2,242) 705 (33,156) pw Page 36 MEDIAWORKS INVESTMENTS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 27. SUBSEQUENT EVENTS Share Issue The Group?s Shareholder has Introduced additional new equity as at 20 March 2017 of This equity has been provided by way of issuing share capitai (8.000m shares). Bank Covenants Subsequent to year-end. Westpac on the instruction of the Majority Lenders, have agreed to a waiver of the covenant breach referred to in Note 18 until the 30 June 201? test date as per a letter agreement dated 9 February 2017. j. Independent auditor ?3 report To the shareholders of MediaWorks Investments Limited MediaWorks Investments Limited?s consolidated ?nancial statements comprise: - the consolidated statement of ?nancial position as at 31 December 2016; the consolidated income statement for the year then ended; a the consolidated statement of comprehensive income for the year then ended; . the consolidated statement of changes in equity for the year then ended; - the consolidated statement of cash flows for the year then ended; and the notes to the consolidated ?nancial statements, which include a summary of signi?cant accounting policies. Qualified (minim: In our opinion, except for the possible effects of the matter described in the Basis for quali?ed opinion section of our report, the consolidated ?nancial statements of MediaWorks Investments Limited (the Company), including its subsidiaries (the Group), present fairly, in all material respects, the ?nancial position of the Group as at 31 December 2016, its ?nancial performance and its cash ?ows for the year then ended in accordance with New Zealand Equivalents to International Financial Reporting Standards (NZ IF RS) and International Financial Reporting Standards (IFRS). Basis for qualified opinion The Group?s programme rights, property, plant 8: equipment and intangible assets allocated to the TV CGU are carried at $53.1 million in the consolidated statement of ?nancial position as at 31 December 2016. This includes programme rights of $14.6 million, property, plant 8: equipment of $36.2 million and intangible assets (software) of $2.3 million. We refer to note 14 that discloses the Directors basis for the recognition of the carrying values of the TV CGU. We were unable to obtain suf?cient appropriate audit evidence to support the reported carrying amount of the TV CGU and, consequently, we were unable to determine whether any adjustments to the carrying value of the speci?ed assets was necessary at 31 December 2016. We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs NZ) and International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor?s responsibilities for the audit of the consolidated ?nancial statements section of our report. With the exception of the matter referred to above we believe that the audit evidence we have obtained is suf?cient and appropriate to provide a basis for our opinion. We are independent of the Group in accordance with Professional and Ethical Standard 1 (Revised) Code of Ethics for Assurance Practitioners (PES 1) issued by the New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants? Code of Ethics for Professional Accountants (IESBA Code), and we have ful?lled our other ethical responsibilities in accordance with these requirements. Our ?rm carries out other services for the Group in the areas of tax compliance and tax consulting. The provision of these other services has not impaired our independence as auditors of the Group. PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand T: +64 9 355 8000, F: +64 9 355 8001, pwc.co.nz I. Without further qualifying our opinion, we also draw attention to Note 2(a) and Note 18 in the. ?nancial statements which indicates the adoption of the going concern assumption in preparing these ?nancial statements is dependent on the ahilit}r of the Group to meet the forecasted results based on the assumptions relating to the TV free-to-air market. If the Group is unable to meet its forecasted results and requires additional funding then a material uncertainty mayr exist as the Shareholder, who also holds a significant portion of the Group?s debt, has not provided a written commitment to support the Group through further equity funding. The ability to achieve the forecasts and the uncertainties surrounding the ongoing funding indicate the existence of material uncertainties that may cast significant doubt about the Group's ability to continue to operate as a going concern. The ?nancial statements do not include any adjustments. that might be necessary if the .S-roup is unable to realise assets and liabilities in the normal course of business. The Directors are responsible for the annual report. Our opinion on the consolidated financial statements does not cover the other information included in the annual report and we do not express any,r form of assurance conclusion on the other information. In connection with our audit of the consolidated ?nancial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated ?nancial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor?s report, we conclude that there is a material misstatement of this other information, we are requi ed to report that fact. We have nothing to report in this regard. The Directors are responsible, on behalf of the Company, for the preparation and fair presentation of the consolidated ?nancial statements in accordance with NZ IFRS and IFRS, and for such internal control as the Directors determine is necessary to enable the preparation of consolidated ?nancial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated ?nancial statements, the Directors are responsible for assessing the Group?s ability to continue as a going concern, disclosing, as applicable, matters related. to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Putt) 2 PWC Auditors reaperzsibilities?n' the audit of ?le consolidated ?nancial statemenis Our objectives are to obtain reasonable assurance about whether the consolidated ?nancial statements, as a whole, are free from material misstatement, whether due to fraud or error, and to issue an auditor?s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs NZ and ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to in?uence the economic decisions of users taken on the basis of these consolidated ?nancial statements. A further description of our responsibilities for the audit of the ?nancial statements is located at the External Reporting Board?s website at: Ixriagm Luv" 5 Site?anditing_Ass1u?anre Who we report to This report is made solely to the Company?s shareholders, as a body. Our audit work has been undertaken so that we might state those matters which we are required to state to them in an auditor?s report and for no other purpose. To the fullest extent permitted bylaw, we do not accept or assume responsibility to anyone other than the Company and the Company?s shareholders, as a body, for our audit work, for this report or for the opinions we have formed. The eagerness agrees on Eli; assigning in this independent For and on behalf of: xx, 'x 1 . . Chartered Accountants Auckland 29 May 2017