Annual Report pacificstar. network

Transcription

1 Annual Report 2011 pacificstar network

2 pacificstar network

3 Corporate Directory Directors Company Secretary Registered Office Share Registry PACIFIC STAR NETWORK LIMITED ABN Andrew Moffat (Chairman) Ronald Hall Gary Pert Stephen Sweeney CA, MBA 473 Swan Street RICHMOND VIC 3121 Telephone: (03) Facsimile: (03) Internet: Computershare Investor Services Pty Ltd Yarra Falls, 452 Johnson Street ABBOTSFORD VIC 3067 Telephone: (08) Facsimile: (08) Auditors Solicitors Bankers Stock exchange listings Meetings BDO Audit (NSW-VIC) Pty Ltd Level 30, 525 Collins Street MELBOURNE VIC 3000 Cooper Mills Lawyers Level 4, 459 Collins Street MELBOURNE VIC 3000 Bank of Melbourne 424 Warrigal Road MOORABIN VIC 3189 ordinary shares are quoted on the Australian Stock Exchange (ASX code: PNW). The Company s Annual General Meeting will be held on Monday 28 November 2011 at 9.30am. The location of the meeting is 473 Swan Street, Richmond Victoria 3121.

4 Chairman s Report for Dear Shareholder, Your directors present their report on the consolidated entity consisting of and the entities it controlled at the end of, or during the year ended 30 June Highlights With continuing profitable results and positive cash flows, directors declared the Company s first unfranked interim dividend of 1.0 cents per ordinary share. Following a review of the full year financial results, directors have declared a further unfranked final dividend of 0.5 cents per ordinary share, returning an aggregated yield of 5% based on the current share price. The record date for the final dividend is 30 September and payment date will be 28 October Throughout the year, we welcomed a number of new clients including Carlton & United Breweries, Foxtel, National Australia Bank, De Bortolli Wines and Bingle. The quality of these clients and their desire to work with us reflects the growing awareness of the power and influence of the talk radio sports format. With our joint venture partners, Macquarie Radio Network Limited, we have developed new state of the art broadcasting studios at our premises in Richmond to house the MTR1377 on-air team and in April we lodged an application with the Australian Communications & Media Authority (ACMA) seeking approval to increase the strength and coverage of the MTR1377 radio licence so as to reach a greater audience, particularly in the North Western suburbs of Melbourne. I am delighted to report that 1116SEN ratings continue to go from strength to strength with the latest results 1 reflecting continuing growth in ratings and listening audience across all programs. 1116SEN s year on year ratings growth is a notable achievement, particularly in the male category where the stations regularly outperforms its main competitors. Digital Radio Commercial Radio Australia (CRA) announced in August that there were 940 thousand people listening to digital radio across five metropolitan capitals with 7.6% of all listening to radio now via a DAB+ digital radio device. Retailers have sold 500 thousand digital radios since the launch of digital in August CRA brought together nearly 100 motor vehicle industry representatives at the recent Sydney and Melbourne automotive workshops to move digital radio listening into more Australian motor vehicles. In May 2011, BMW became the first manufacturer in Australia to announce they would be including DAB+ digital radio as an option in their vehicles from May Integrating digital radio into vehicles will enable the delivery of real time traffic updates, text based traffic messages and latest fuel prices updates etc. In March, The Minister for Broadband, Communications, and the Digital Economy Senator Stephen Conroy officially switched on a system for the broadcast of DAB+ digital radio in Parliament House. All Members of Parliament and Senators were presented with a digital radio donated by digital radio manufacturers; Bush, Grundig, NextWave Digital, OXX Digital, Philips, Pure, Roberts and Sangean. 1 Nielsen Ratings Survey

5 Overview of Operating Results For the financial year: There was some evidence of a softening in advertising revenue for the first half of the financial year and this also continued into the second half with Sydney / Melbourne agency revenue down 5% on the comparative period. On a positive note, the 1116SEN direct revenue team delivered on budget despite the loss of key personnel from the team. The launch of MTR1377 in April 2010 called for a significant investment of funds, time, and effort and this continued throughout the financial year. Whilst rating results are lower than expected, we are extremely proud of this new talk station, the identity it has created and the hard working on-air broadcast team. The Company owns the 1116SEN, MTR1377 and other digital radio licences. Following a review of the current financial performance of MTR1377 (under the joint venture agreement, Pacific Star does not incur operating losses), directors concluded that the value of $5.8 million attributed to the MTR1377 radio licence should be written down by $788 thousand in recognition of the estimated future cash flows expected to be generated from ownership of that licence. Financial Results Achieved positive operating cash flows of $1.35 million (2010: $246 thousand) during the financial year contributing to cash reserves of $2.53 million at reporting date (2010: $2.13 million). Full year result was up 20.6% on the comparative period with a profit after tax of $825 thousand (2010: $684 thousand) and a pre impairment EBITDA of $1.02 million (2010: $808 thousand), up 26.2% on a normalised basis compared to the prior period. Revenue growth (including the share of profits of associates and joint ventures) was up 1.1% compared to the prior period, however this needs to be viewed in the following context: o 1116SEN advertising revenue was up 5.8% on the comparative period to $11.6 million. o The primary source of revenue for the MTR1377 licence is based on cost recoveries from Melbourne Radio Operations Pty Ltd, a joint venture company established with Macquarie Radio Network Limited to manage the day to day operations of MTR1377. Revenue included in these results is not directly comparable with the prior period due to changes in nature of the business. Advertising revenue for MTR1377 is reported through Melbourne Radio Operations Pty Ltd. Pre impairment operating costs at $12.56 million (2010: $12.63 million) were consistent with the prior period. Outlook As a board, we are acutely conscious of the need to diversify revenue streams. With this in mind, a key objective moving forward is to: o Leverage greater profitability from new and existing digital assets, on-line, production, and studios. o Seek partnerships in other media streams that strategically fit our core business; and o Identify and assess value added acquisition opportunities over the next 1-3 years.

6 Outlook Cont d Directors have implemented a strategy that lays the foundations for future growth to deliver improved returns to shareholders. I envisage that our dividend policy going forward will be to pay 50-60% of net profit, annually as dividends, subject to ensuring the Company has adequate funding to meet day to day needs and acquisition opportunities. I believe that this dividend policy together with the recent capital initiative to consolidate existing ordinary shares will lead to the Company s shares becoming a more appealing investment proposition. With the AFL rights agreement for TV broadcasting concluded, the focus will now move to finalising the next rights agreement for radio broadcasting. We envisage that this will be a longer term agreement and our 1116SEN station will be seeking to secure rights to continue live broadcasting of AFL, however for this to continue to be viable, we will only agree to a rights agreement that is not cost prohibitive. Looking to the future, another important consideration is the ratings and financial performance of MTR1377. In this same report last year, I drew attention to the difficulties in predicting when this new station would turn the corner. It continues to be a work in progress in a tough market environment and as a result, has not fully met revenue expectations. We continue to work closely with our joint venture partners in mapping out a viable model for this new radio station in Melbourne. We look forward to keeping you updated on your Company s performance. Yours sincerely Andrew Moffat Chairman Melbourne, 28 September 2011

7 Table of Contents Directors Report 6 Auditor s Independence Declaration 19 Independent Audit Report 20 Directors Declaration 22 Consolidated Statement of Comprehensive Income 23 Consolidated Statement of Financial Position 24 Consolidated Statement of Changes in Equity 25 Consolidated Statement of Cash Flows 26 Notes to the Financial Statements 27 Corporate Governance 65 Shareholder Information 72

8 Directors Report The directors of, the consolidated entity, submit herewith the annual financial report for the financial year ended 30 June In order to comply with the provisions of the Corporations Act 2001, the directors report as follows: The names and particulars of the directors of the company during or since the end of the financial year are: Current Directors Ronald Hall Appointed Non-Executive Director on 13 February 2002 Andrew Moffat Appointed Non-Executive Director on 1 September 2004 Gary Pert Appointed Non-Executive Director on 1 July 2008 The biographies for current directors and other staff are detailed below: Ronald Hall Non Executive Director age 70 Andrew Moffat Non Executive Director Chairman age 50 Mr Hall is the founder and promoter of several successful Melbourne based retail chains, including Going Going Green, Supply & Demand along with Going Going Gone. Ron has been a long time user of the radio medium for marketing his products. Mr Moffat has in excess of 20 years of corporate and investment banking experience and is the sole principal of Cowoso Capital Pty Ltd, a company providing corporate advisory services. Prior to establishing Cowoso Capital Pty Ltd, Andrew was a Director of Equity Capital Markets & Advisory for BNP Paribas Equities Australia Limited where he was responsible for mergers and acquisition advisory services and a range of equity capital raising mandates including placements, IPO s, rights issues, dividend reinvestment plans and underwritings. Andrew is Chairman of 360 Capital Property Limited and a Non Executive director of Rubik Financial Limited. Gary Pert Director aged 46 Mr Pert possesses extensive media industry experience, gained whilst serving in various senior executive roles including Managing Director of the Channel Nine Network and General Manager of Austereo Melbourne. After a successful AFL/VFL football career which included 233 games with Fitzroy and Collingwood, Gary took up a role with the AFL as promotions and development officer between 1989 and 1994, following which he became a sales executive in the Melbourne office of the Austereo radio network. During his 12 years with Austereo, Gary held various senior management roles culminating in 2006 when he held the joint role of General Manager of Austereo Melbourne and Austereo s National Sales Director. 6

9 Current Directors (cont d) Gary Pert Director aged 46 Stephen Sweeney Company Secretary age 47 As Managing Director of Channel Nine Melbourne, Gary held principal responsibility for one of Australia s largest media organisations with more than 450 staff. After one of the most profitable periods in Channel Nine s history, Gary was recruited as Chief Executive Officer of the Collingwood Football Club, one of Australia s largest sporting brands. Mr Sweeney is a Chartered Accountant and also holds an MBA awarded by Heriot-Watt University (Edinburgh Business School). Stephen is also the Company s Chief Financial Officer and has over 20 years experience as a senior management executive in the banking, government and the not for profit sector. Directorship of other Listed Companies Directorships of other listed companies, held by directors in the three years preceding the end of the financial year are as follows: Andrew Moffat Non-Executive Director :- Cash Converters Int. Limited (resigned Oct 2008) Non-Executive Director :- Infomedia Limited (resigned Nov 2010) Non-Executive Director :- itx Limited (resigned Jan 2011) Principal Activities The principal activities of during the year was ownership of commercial broadcasting licences, 1116SEN (1116AM), MTR1377 (1377AM) and Aussie and MyMp on the new digital spectrum. Review of Operations The trading profit for the parent entity for the year after taking account of a deferred tax asset of $828 thousand (2010: $110 thousand) was $369 thousand (2010: $434 thousand loss). The trading profit for the consolidated entity for the year after income tax amounted to $825 thousand (2010: $684 thousand). Pre impairment EBITDA result of $1.02 million for the financial year (2010: $808 thousand). In April 2011, shareholders voted for a consolidation of share capital on a 1 for 10 basis and accordingly all share related disclosures have been restated for the impact of the share consolidation. Significant changes in the state of affairs There were no significant changes in the state of affairs of the consolidated entity. 7

10 Profit per Share The basic profit per share was 1.5 cents (2010: 1.3 cents) and diluted profit per share was 1.5 cents (2010: 1.3 cents). The weighted average number of ordinary shares on issue during the financial year used in the calculation of basic profit per share was 53,742,145 shares (2010: 53,530,090 shares). Subsequent Events On 21 September 2011, the Company announced that it had entered into a Heads of Agreement with International Publishing Group Pty Ltd, for the acquisition of Inside Football magazine. No other matters or circumstances have arisen since the end of the financial year that have significantly affected, or may significantly affect the state of affairs of the consolidated entity in subsequent financial years. Future Developments, Prospects and Business Strategies Refer to the Chairman s report for details of future developments, prospects, and business strategies. Dividends Directors declared an interim dividend of 1.0 cents and a final dividend of 0.5 cents per share in respect of the 2011 financial year. Refer to the Chairman s report for guidance on ongoing dividend policy. Shares and options granted to executives and employees In April 2011, shareholders voted for a consolidation of share capital and options on a 1 for 10 basis and consequently all shares / options on issue to KMP / executives were consolidated to 1 share / option for every 10 shares / options issued. These changes are referred to as a post consolidated adjusted basis for the purposes of this report. Shares and options are granted under the Employee Share Option Plan (ESOP). When exercisable, each option is convertible into one ordinary share of (ASX Code: PNW). The Company s obligations under the existing ESOP are as follows: The Company entered into contracts in 2008 to issue options over ordinary shares to Key Management Personnel (KMP) at future dates. If all conditions are met over the remaining term of these contracts, two hundred thousand options (on a post consolidation adjusted basis) will be issued to KMP for nil consideration as a Short Term Incentive (STI). Information on the performance and vesting criteria of these options can be located in the remuneration report below. Options issued under the plan will only vest provided the performance and vesting conditions are achieved and no options will be issued until this occurs. The vesting period is deemed to commence on the date that new contracts were agreed by both parties and it is only at this point that the Company is conditionally obliged to issue options in accordance with those contracts. Options not yet vested lapse if KMP resign their position. In addition to the future entitlements noted above, two hundred thousand options (on a post consolidation adjustment basis) were granted and vested during the year and were subsequently exercised into ordinary shares for an equivalent amount. 8

11 Shares and options granted to executives and employees Cont'd There are currently eight hundred and fifty thousand options (on a post consolidation adjusted basis) on issue to KMP / employees as a Long Term Incentive (LTI), exercisable on or after 20 October 2011 for a consideration of 40 cents per share (on a post consolidation adjusted basis) and with an expiry date of 20 October The vesting condition for these options is that KMP / employees continue to be employed on or after the vesting date. Further information on options issued by the Company can be located in the remuneration report below and in Note 7. In accordance with AASB 2: Share-based payment options have been valued and are or will be accounted for as an expense in the Statement of Comprehensive Income in this or future periods. Shares and options granted subsequent to reporting date will be expensed in future periods. The total number of options on issue under the STI / LTI at reporting date was eight hundred thousand options (on a post consolidated adjusted basis). The following KMP have a pre-existing entitlement to vested options over ordinary shares (on a post consolidation adjusted basis) relating to the grant of options in previous financial years: Key Management Personnel Number of options granted in previous years and / or subsequent to end of reporting period D Hung 2 100, ,000 M Johnson 3 50, ,000 S Sweeney 4 50, ,000 Exercise Price Nil 40 cents Nil 40 cents Nil 40 cents Value per option at grant date 31 cents 36 cents 31 cents 36 cents 31 cents 36 cents Vesting Date 100% on 01/09/11 100% on 20/10/11 100% on 20/10/11 100% on 20/10/11 100% on 20/10/11 100% on 20/10/11 Expiry Date 01/09/12 20/10/12 20/10/12 20/10/12 20/10/12 20/10/12 G Moore 100, cents 36 cents 100% on 20/10/11 20/10/12 A. Smyth 50, cents 36 cents 100% on 20/10/11 20/10/12 Total 850, cents 33 cents Meetings of Directors The following table sets out the number of directors meetings held during the financial year and the number of meetings attended by each director. During the financial year eight board meetings were held. Directors Eligible to Attended attend Ronald Hall 8 8 Andrew Moffat 8 8 Gary Pert In addition to the above, he exercised options over one hundred thousand ordinary shares for nil consideration in Sep 2010 under the ESOP. 3 In addition to the above, he exercised options over fifty thousand ordinary shares for nil consideration in Sep 2010 under the ESOP. 4 In addition to above, his corporate entity exercised options over fifty thousand ordinary shares for nil consideration in Sep

12 Indemnification of Officers and Auditors During the financial year, paid premiums to insure Directors and Officers against liabilities and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of officer of the Company, other than conduct involving a wilful breach of duty in relation to the Company. The amount of the premium is not disclosed under the terms and conditions of the policy. As at the date of this report, no amounts have been claimed or paid in respect of this indemnity, other than the premium referred to above. During or since the financial period, the Company has not indemnified or made a relevant agreement to indemnify the auditor of the Company against a liability incurred as auditor. Environmental Regulation The consolidated entity is not subject to any significant and/or particular environmental regulation. Directors Shareholdings The relevant interests of past / current directors in the shares of the Company (on a post consolidation adjusted basis) or a related body corporate as at the date of this report are as follows. There are no options on issue to directors. Directors No. of Fully Paid Ordinary Shares Ronald Hall 5 15,877,968 Andrew Moffat 6 704,629 Gary Pert - Total 16,582,597 Remuneration Report (Audited) This Remuneration Report outlines the director and executive remuneration arrangements of the Company in accordance with the requirements of the Corporations Act 2001 and its regulations. This information has been audited as required by section 308(3C) of the Act. For the purposes of this report, Key Management Personnel are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company, directly or indirectly, whether as an executive or otherwise, and includes the five executives in the Company receiving the highest remuneration. Principles used to determine the nature and amount of remuneration The primary objective is to ensure that rewards paid for performance are competitive and appropriate for the results that are delivered. The guiding principles for developing executive remuneration are: There should be an appropriate mix of fixed and performance based variable pay components; The various components of remuneration should be understandable, transparent and easy to communicate; and Remuneration practices should be acceptable to internal and external stakeholders. 5 Ron Hall has a beneficial interest in shares through a controlling interest in Rosh Hagiborim Pty Ltd, Talk to Edith Pty Ltd and Mastiff Nominees Pty Ltd. 6 Andrew Moffat has a direct interest in 27,000 shares and a beneficial interest in half of the remaining shares through the Cowoso Superannuation Fund. 10

13 Remuneration Report (Audited) Cont d There is no specific relationship between the Company s remuneration policies and its financial performance over the last 5 years. Components of Key Management Personnel Total Remuneration In accordance with best practice corporate governance, the structure of non-executive director and other Key Management Personnel (KMP) remuneration is separate and distinct. Non-executive directors are remunerated by fees within the aggregate limit approved by shareholders. Each non-executive director receives a fixed fee for being a director of the Company. Their remuneration for the period ending 30 June 2011 is detailed in the table below. The Company aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities and remuneration structures are reviewed regularly to ensure that: Total remuneration is competitive by market standards; Link rewards with the strategic goals and performance of the Company; and Accountabilities are clearly defined so as to minimise conflicts of interest and enable effective decision making. Total remuneration is made up of the following elements: Fixed Remuneration; Short Term Incentive (STI); and Long Term Incentive (LTI). Fixed remuneration is set so as to provide a base level of remuneration that is appropriate to the position, is competitive with the market and takes account of each individual s experience, qualifications, capabilities and responsibility and is benchmarked to ensure that remuneration is competitive with the market median. KMP receive their fixed remuneration in cash. This remuneration is detailed in the table below. Short Term Incentives (STI) are based on Key Performance Measures (KPI s) that focus participants on achieving personal and business goals which contribute to the creation of sustained shareholder value. STI s are the variable component of remuneration and is dependent on individual KPI s which are linked to their role in the Company. As this variable component is not dependent on share price, or on dividends, a discussion on the relationship between the board s remuneration policy and the Company s performance is not provided in this report. STI s are based on achieving agreed performance targets. These targets reflect the key business drivers / measures of the business and incorporate the principles of growth, retention, and service. STI s include paying incentives to individuals for achieving / over achieving periodic sales targets and / or issuing ordinary shares for nil consideration as an incentive for achieving / over achieving annual targets. The CEO is responsible for assessing the performance of individuals against targets on a periodic basis, and he may also recommend other STI s over and above target amounts. The CEO presents his recommendations to the full board for consideration and approval. During the financial year, two hundred thousand options were issued for nil consideration to key executives in recognition of key deliverables having been achieved. Options are exercisable into escrowed ordinary shares thus restricting the holder from dealing in those shares for a twelve month period from the date of issue. 11

14 Components of Key Management Personnel Total Remuneration Cont d 1. The following table summarises the performance and vesting conditions for options that may be issued under the STI plan, as at the date of this report. Series Issued Vesting Timing Vesting Conditions Options Issued Vest over a 3 year Divisional EBITDA not less than 95% of 20/10/08 contract period YTD budget for 3 consecutive months. KMP performance conditions are varied based on position and responsibilities. Divisional revenue not less than 90-95% of YTD budget for 3 consecutive months. Divisional YTD expenditure not to exceed budget by +/- 10% for 3 consecutive months. Combined radio station ratings of 5 or more in last published ratings. Continuing to be employed at the vesting date. 2. With Long Term Incentives (LTI), the objective is to reward staff including KMP, in a way that aligns this element of remuneration with the creating of shareholder value and accordingly LTI grants are made to staff and KMP to promote staff retention for the benefit of shareholder wealth. LTI grants to staff including KMP, are delivered in the form of options. The Company uses a premium or an at market price of the shares under option as a component of the performance hurdle and in addition staff and KMP are required to meet certain length-of-service obligations. As neither the fixed nor variable component of remuneration is dependent on share price or dividends, a discussion of the relationship between the board s remuneration policy and performance is not provided in this report. Directors invite individuals to participate in the Employee Share Option Plan (ESOP) and grant them options subject to service / vesting conditions at the end of specific periods. Options only vest if service / vesting conditions are achieved. There is no intention to provide loans, interest free or otherwise to fund such transactions but this will be reviewed closer to the time that individuals will have the opportunity to exercise options and purchase ordinary shares. The table on the next page summarises the service and vesting conditions for shares issued under the LTI plan as at the date of this report. Directors believe there is no risk to KMP limiting their exposure in relation to options / shares that have been or will be issued and accordingly has not formalised a policy in relation to KMP hedging their exposure to shares. Series Issued Vesting Timing Vesting Conditions Options Issued Vest 20/10/11 Continuing to be employed 20/10/08 Expiry 20/10/12 at the vesting date. If performance conditions are met over the three-year period and KMP continue to be employed, then they will be considered to have met the required the service conditions for the vesting of options. These conditions are considered an appropriate measure to reward KMP for achieving benchmarks. There was a 1 for 10 share consolidation during the year and the number of options quoted for 2010 and 2011 are stated on a post-consolidation basis. 12

15 Details of Remuneration Key Management Personnel Remuneration arrangement for KMP are formalised in employment or consulting agreements. Remuneration packages contain cash salary / fees, commissions / incentives, bonuses, superannuation and the cost of share based payments expensed under STI / LTI plans. Remuneration for each member of KMP for the year ended 30 June 2011 is set out below. Short Term Employee Benefits Cash salary/fees $ 2011 Directors of Pacific Star Network Limited Post Employment Benefits Superannuation $ Share Based Payment STI / LTI Options $ / % Short Term Employee Benefits Cash bonus R Hall 45,872 4, ,000 A Moffat 68,807 6, ,000 (Non Exec Chairman) G Pert 45,872 4, ,000 Sub-total 160,551 14, ,000 Other Key Management Personnel of the Group B Quick 337,615 31,285-32, ,880 8% M Johnson 155,000 14,580 11,792 7, ,372 6% 4% S Sweeney 153,845-11, ,637 7% - G Moore 110,000 10,434 3,707 15, ,819 D Hung A Smyth 3% 10% 11% 26% 181, ,000 15,332 14,961 27,222 1,854 70,965 57, , ,070 1% 28% Sub-total 1,067,860 86, , , ,394,697 4% 14% Total 1,228, ,041 56, ,878 1,569,697 4% 13% $ / % Total $ 7 Includes bonus of $22,979, and $10,001 of commissions related to the previous financial year. 8 As S Sweeney is not a full time employee, he provides his services via a corporate entity. 9 Benefit calculated under the Binomial model in respect of the value of share options issued to date. 10 Includes monthly, quarterly, and annual incentives paid during the financial year resulting from the achievement of sales targets. 13

16 Remuneration Report (Audited) Cont d Details of Remuneration Key Management Personnel Cont d 2010 Short Term Employee Benefits Cash salary/fees $ Post Employment Benefits Superannuation $ Share Based Payment STI / LTI Options $ Short Term Employee Benefits Other performance $ / % Total $ Directors of R Hall 45,871 4, ,000 P Quattro (resigned Oct 16, , ) A Moffat (Non Exec 68,807 6, ,000 Chairman) G Pert 45,871 4, ,000 Sub-total 177,216 14, ,667 Other Key Management Personnel of the Group B Quick 220,000 27, , M Johnson 155,000 14,040 24,885 13% G Meadows 130,000-10,914 6% S Sweeney 110,046-24,885 G Moore 18% 110,000 9,900 3,638 3% D Hung 165,138 14,462 53,408 14% Sub-total 890,184 65, , % 1,000 1% 33,051 19% 355, , , , , , ,967 38% 285, ,358,949 9% 21% Total 1,067,400 80, , ,186 1,550,616 8% 18% 11 Under his employment contract, the CEO was entitled to a bonus based on achieving budgeted profitability. B Quick had the potential to earn a bonus of $34,000. His actual bonus was $23,000 (68%) and bonus foregone was 11,000 (32%) of the potential bonus amount. 12 P Quattro, G Meadows and S Sweeney provided their services via corporate entities. 13 Benefit calculated under the Binomial model in respect of the value of share options issued to date. 14 Includes monthly, quarterly, and annual incentives paid during the financial year resulting from the achievement of sales targets. 14

17 Remuneration Report (Audited) Cont d Share Based Payments 2011 Issue 5 Issued to / grant date D Hung Date Vested and Exercisable Expiry Date Exercise Price Number Vested during the year Number Exercised during the year Number Balance at the end of the year Number Share price at grant date Risk free interest rate % 06 Nov Nov 09 N/a Nil 100,000 (100,000) - 31 cents 5.62% M Johnson 06 Nov Nov 09 N/a Nil 50,000 (50,000) - 31 cents 5.62% S Sweeney 06 Nov Nov 09 N/a Nil 50,000 (50,000) - 31 cents 5.62% Total N/a Nil 200,000 (200,000) - 31 cents 5.62% 2009 Issue 3 Issued to / grant date D Hung Date Vested and Exercisable Expiry Date Exercise Price Number Balance at start of the year Number Vested during the year Number Balance at the end of the year Number Share price at grant date Risk free interest rate % 20 Oct Oct Oct cents 300, , cents 4.45% M Johnson 20 Oct Oct Oct cents 100, , cents 4.45% S Sweeney 20 Oct Oct Oct cents 100, , cents 4.45% G Moore 20 Oct Oct Oct cents 100, , cents 4.45% A. Smyth 20 Oct Oct Oct cents 50,000-50, cents 4.45% Total 20 Oct cents 650, , cents 4.45% The fair value of each of the two hundred thousand options exercised by KMP was 31 cents. In 2008, the Company granted million (on a post consolidation adjusted basis) options to KMP and other employees as an LTI, with an exercise date of 20 October 2011 and an exercise price of 40 cents. Unexpired options at reporting date were: o six hundred thousand options that can be exercised at a future date by KMP as per the table above; and o two hundred thousand options that can be exercised at a future date by other employees as per the table in Note 7. For STI purposes, 200,000 options were granted to KMP on 29 September 2010 as reward for achieving STI performance conditions (Issue 5) and these were subsequently exercised and converted to shares of an equivalent amount for nil consideration on that date. Subject to meeting required performance conditions as disclosed on page 11, the Company has the discretion to issue a further 200,000 options to KMP as STI s over the coming months. There are currently 1million options issued to KMP and other employees under the ESOP. When exercisable, each option is convertible into one ordinary share in. 15

18 Remuneration Report (Audited) Cont d Share Based Payments Cont d Details of options over ordinary shares provided as remuneration to KMP is set out below. When exercisable, each option is convertible into one ordinary share in. Further information on issued options can be located in the table in Note 7. Key Management Personnel Granted in previous years Number Granted / (Exercised) in the year Number Vested and Exercisable Date Exercised Number Vested during the year % Forfeited during the year % Expiry Date Estimate of min / max value of grant $ 2009 Issue 3 D Hung 300,000-20/10/ /10/12 10,914 M Johnson 100,000-20/10/ /10/12 3,638 S Sweeney 100,000-20/10/ /10/12 3,638 G Moore 100,000-20/10/ /10/12 3,638 A. Smyth 50,000-20/10/ /10/12 1,819 Sub-total 650,000-20/10/ /10/12 23, Issue 5 D Hung 200,000-29/09/10 (100,000) 50 - N/a 16,308 M Johnson 100,000-29/09/10 (50,000) 50 - N/a 8,154 S Sweeney 100,000-29/09/10 (50,000) 50 - N/a 8,154 Sub-total 400,000-29/09/10 (200,000) 50 - N/a 32,616 Total 1,050, (200,000) 19 - N/a 56,263 Where applicable, the assessed fair value at grant date of options granted to individuals is allocated equally over the period from grant date to vesting date, and the amount is included in the remuneration tables above. Fair values at grant date are independently determined using the binomial approximation option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The model inputs for options granted during the financial year ended 30 June 2011 included: a) Options were issued for nil consideration and on vesting are exercisable into an equivalent amount of ordinary shares. b) Exercise price at grant date of 06 November 2009 was 31 cents and at vest date on 29 September 2010 was 40 cents. c) Vest date for the options was 29 September d) Expected price volatility of shares for the calculation of the share based cost was 75.2%. e) Risk free interest rate for options issued on 29 September 2010 was 5.62%. The weighted average fair value of options granted and exercised during year was 31 cents. 16

19 Remuneration Report Cont d (Audited) Service Agreements Key Management Personnel Remuneration and other terms of employment for the CEO and other specified executives are formalised in service agreements. None of the directors are under contract. Barrie Quick, Chief Executive Officer - Term of Agreement is 4 years renewable from 1 July Base salary, inclusive of superannuation, for the year ended 30 June 2011 was $368,000 p.a. - Payment of termination benefit on early termination, other than for gross misconduct, equal to three months base salary (to be confirmed). The contract may be terminated by the employee providing three months notice (to be confirmed). Mark Johnson, Group Program Director - Term of employment is ongoing. - Base salary, inclusive of superannuation, for the year ended 30 June 2011 was $168,950 p.a. - Payment of termination benefit on early termination, other than for gross misconduct, equal to three months base salary. The contract may be terminated by the employee providing three months notice. Stephen Sweeney, Company Secretary, and Chief Financial Officer - Term of Agreement is 3 years renewable from 20 October Base fee for the year ended 30 June 2011 was $154,285 p.a. - Payment of termination benefit on early termination, other than for gross misconduct, equal to three months base fee. The contract may be terminated by the contractor providing three months notice. Gordon Moore, Group Creative & Brand Director - Term of Agreement is ongoing. - Base fees, inclusive of superannuation for the year ended 30 June 2011 was $119,900 p.a. - Payment of termination benefit on early termination by the Company, other than for gross misconduct, equal to three months base salary. The contract may be terminated by the employee providing three months notice. David Hung, Group Sales Director - Term of Agreement is 3 years renewable from 1 September Base fees, inclusive of superannuation for the year ended 30 June 2011 was $180,000 p.a. - Payment of termination benefit on early termination, other than for gross misconduct, equal to three months base salary. The contract may be terminated by the employee providing three months notice. Anthony Smyth, Group Agency Manager - Term of Agreement is ongoing. - Base fees, inclusive of superannuation for the year ended 30 June 2011 was $130,000 p.a. - Payment of termination benefit on early termination, other than for gross misconduct, equal to one months base salary. The contract may be terminated by the employee providing one months notice. End of Remuneration Report 17

20 Non Audit Services The Company may decide to employ the auditors on assignments additional to their statutory audit duties where the auditors expertise and experience is considered important. Non-audit services performed by BDO was for taxation services during the year, was $23,650. The board is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001, for the following reasons: all non-audit services have been reviewed by the board to ensure they do not impact the impartiality and objectivity of the auditor; and none of the services undermine the general principles relating to auditor independence as set out in the Corporations Act 2001 including reviewing or auditing the auditor s own work, acting in a management or a decision making capacity, or acting as advocate, or jointly sharing economic risk and rewards. The details of fees paid to auditors are disclosed in Note 8 including fees for non-audit services. Auditor s Independence Declaration The auditor s independence declaration for the year ended 30 June 2011 as required under Section 307(c) of the Corporations Act 2001 has been received and is located on page 19 of this report. Proceedings on behalf of the Company No person has applied to the Court under Section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of, or to intervene in proceedings to which the Company is a party, for the purposes of taking responsibility on behalf of the Company for all or part of those proceedings. Environmental Regulation The consolidated entity s operations are not subject to any significant Commonwealth or State environmental regulations or laws. Directors Interests in Contracts Directors interests in contracts are disclosed in Note 23(d) to the financial statements. Rounding of Amounts In accordance with ASIC Class Order 98/100 dated 10 July 1998, amounts shown in the directors report and the financial report have been rounded off to the nearest thousand dollars. Signed in accordance with a resolution of the Board of Directors made pursuant to section 298 (2) of the Corporations Act On behalf of the Directors, Andrew Moffat Chairman Melbourne, 28 September

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23 !"() $ # /0 $!# / 0! "! ". $ $ & / 0 $!!/!! $ 04 $ 5! & / 0 $ $ ' ("" ("(", " 5 5$ $!6.$ '( $$ $$ $ 5 5$ " 2 $ -$$ 5 5$!'!"() $ 5 5$ $ "!"# $% &"'"! ) + *$ 21

24 ANNUAL REPORT 2010 Directors Declaration In the Directors opinion a) the financial statements and notes set out on pages 23 to 64 are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity s financial position as at 30 June 2011 and of its performance, as represented by the results of operations, changes in equity and cash flows, for the financial year ended on that date; and (ii) complying with Accounting Standards and the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (iii) As stated in Note 1, the consolidated financial statements also comply with International Financial Reporting Standards. b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and c) the Directors have been given the declarations required by section 295A of the Corporations Act 2001 for the financial year ended 30 June d) the remuneration disclosures included at pages 10 to 17 of the Directors Report (the Audited Remuneration Report) for the year ended 30 June 2011, comply with section 300A of the Corporations Act Signed in accordance with a resolution of the Directors made pursuant to section 295 (5) of the Corporations Act On behalf of the Directors, Andrew Moffat Chairman Melbourne, 28 September

25 Consolidated Statement of Comprehensive Income for the Financial Year Ended 30 June 2011 Notes Consolidated $'000 $'000 REVENUE 2 13,167 13,205 Sales and marketing expenses (3,324) (3,715) Occupancy expenses Administration expenses Technical expenses Corporate expenses (542) (481) (2,453) (2,388) (5,618) (5,406) (624) (641) Licence value impairment 13 (788) - Share of net profit of associates and joint venture partnerships accounted for using the equity method EXPENSES (13,349) (12,631) (LOSS) / PROFIT BEFORE INCOME TAX (3) 574 Income tax benefit NET PROFIT AFTER INCOME TAX TOTAL COMPREHENSIVE INCOME FOR THE YEAR EARNINGS PER SHARE - Basic (cents per share) Diluted (cents per share) The financial statements should be read in conjunction with the accompanying notes on pages 27 to

26 Consolidated Statement of Financial Position as at 30 June 2011 Consolidated Notes $'000 $'000 CURRENT ASSETS Cash and cash equivalents 2,528 2,132 Trade and other receivables 9 3,775 3,352 TOTAL CURRENT ASSETS 6,303 5,484 NON-CURRENT ASSETS Property, plant and equipment Deferred tax assets Receivables 12(b) Investments accounted for using the equity method Intangibles 13 8,421 9,256 TOTAL NON-CURRENT ASSETS 10,952 10,811 TOTAL ASSETS 17,255 16,295 CURRENT LIABILITIES Trade and other payables 14 2,080 1,607 Provisions TOTAL CURRENT LIABILITIES 2,406 1,768 TOTAL LIABILITIES 2,406 1,768 NET ASSETS 14,849 14,527 EQUITY Contributed equity 16 52,419 52,484 Share based payment reserve Accumulated losses 17 (38,108) (38,398) TOTAL EQUITY 14,849 14,527 The financial statements should be read in conjunction with the accompanying notes on pages 27 to

27 Consolidated Statement of Changes in Equity for the Financial Year Ended 30 June 2011 Notes Contributed Equity $'000 Share Based Payment Reserve $'000 Accumulated Losses $'000 Total $ 000 BALANCE AT 01 JULY , (39,082) 13,712 Transactions with owners in their capacity as owners: Issue of share capital Share options granted to staff Total comprehensive income BALANCE AT 30 JUNE , (38,398) 14,527 Notes Contributed Equity $'000 Share Based Payment Reserve $'000 Accumulated Losses $'000 Total $ 000 BALANCE AT 01 JULY , (38,398) 14,527 Transactions with owners in their capacity as owners: Share buy back scheme 16 (65) - - (65) Dividends paid (535) (535) Issue of share capital Share options granted to staff Total comprehensive income BALANCE AT 30 JUNE , (38,108) 14,849 The financial statements should be read in conjunction with the accompanying notes on pages 27 to

28 Consolidated Statement of Cash Flows for the Financial Year Ended 30 June 2011 CASH FLOWS FROM OPERATING ACTIVITIES Consolidated Inflows / (Outflows) Notes $ 000 $ 000 Receipts from customers 15,563 14,008 Payments to suppliers and employees (14,355) (13,804) Interest received Interest and other costs of finance paid - - Net cash provided by operating activities 24(b) 1, CASH FLOWS FROM INVESTING ACTIVITIES Payment for property, plant and equipment (359) (342) Net cash used in investing activities (359) (342) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (535) - Payment for buy back of equity securities (65) - Net cash provided by financing activities (600) - NET INCREASE/ (DECREASE) IN CASH EQUIVALENTS 396 (96) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 2,132 2,228 CASH AND CASH EQUIVALENTS AT END OF YEAR 24(a) 2,528 2,132 The financial statements should be read in conjunction with the accompanying notes on pages 27 to

29 Notes to the Financial Statements for the year ended 30 June Summary of Accounting Policies Basis of Preparation The financial statements have been prepared on the basis of historical costs and except where stated, does not take into account changing money values or fair values of assets. All amounts are presented in Australian dollars, unless otherwise stated. The consolidated financial statements include the information contained in the financial statements of and each of its controlled entities as from the date the parent entity obtains control until such time as control ceases. Separate financial statements for as an individual entity are no longer presented as a consequence of a change to the Corporations Act However, limited financial information for this individual entity is included in Note 25. is a company limited by shares and domiciled in Australia, whose shares are publicly traded on the Australian Stock Exchange. Statement of compliance with IFRS This report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards (including Australian Accounting Interpretations), other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act This report is to be read in conjunction with any other public announcements made by Pacific Star Network Limited during the reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001 and the Australian Stock Exchange Listing Rules. Australian Accounting Standards include International Financial Reporting Standards (IFRS) as adopted in Australia. The financial statements and notes of comply with International Financial Reporting Standards (IFRS). Critical accounting judgements and key sources of estimation uncertainty In the application of accounting policies, management is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised, in the period in which the estimates are revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. 27

30 Notes to the Financial Statements for the year ended 30 June Summary of Accounting Policies Cont d Adoption of new and revised Accounting Standards and Interpretations In the current year, the Company has adopted the following new and amended Australian Accounting Standards and AASB Interpretations as of 1 July 2011: Standard AASB Further Amendments to Australian Accounting Standards arising from the Annual Improvements Process AASB Amendments to Australian Accounting Standards Classification of Rights Issues AASB Amendments to Australian Accounting Standards arising from Annual Improvement Project AASB Further Amendments to Australian Accounting Standards arising from Annual Improvement Project Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments. Effective for annual reporting periods beginning on or after Applied this financial year 1 January January July January July 2010 Details of the impact of the adoption of these new accounting standards where applicable are set out in the individual accounting policy notes on the following pages. Standards and Interpretations issued but not yet effective Certain new accounting standards and interpretations have been published that are not mandatory or material for the 30 June 2011 reporting period. The application of these standards is not expected to materially affect the amounts recognised in the current or future period financial statements. These standards included: AASB 9: Financial Instruments AASB 10: Consolidated Financial Statements AASB 11: Joint Arrangements AASB 13: Fair Value Measurements Significant Accounting Policies The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. 28