Annual Report 2008 For personal use only

Mitchell Communication Group

Annual Report 2008

…nothing is beyond our reach.

For

per

sona

l use

onl

y


For

per

sona

l use

onl

y

1

Contents

Chairman’s report 2

CEO’s report 4

Board of directors 6

Review of operations 10

Media division

Digital division

Diversified division

Corporate social responsibility 25

Directors’ report 26

Auditor’s independence declaration 43

Corporate governance statement 44

Financial report – 30 June 2008 49

Directors’ declaration 105

Independent audit report to members 106

Shareholder information 108

Company particulars 109

For

per

sona

l use

onl

y

We have evolved from a media buying and planning company to a

comprehensive communications agency,

now with 20 integrated business offerings.

2


For

per

sona

l use

onl

y

3

In today’s world, consumers hold the levers on what

media they will consume, and when. Traditional media,

like newspapers and free-to-air television, are being

eclipsed by read/watch/listen-on-demand services. Digital

networks and online communities require us to join in the

conversation, rather than think we can control it. All of this

means new challenges for the media business.

For our company, it also presents opportunities, and

over the past year we’ve continued to implement a model

that enables us to take advantage of the new media and

communications marketplace. That’s why the theme of

this year’s report is “nothing is beyond our reach” – we can

access the new market, the individual – through any means.

During the year, we continued our evolution from a

media buying and planning company to a comprehensive

communications agency, now with 20 integrated business

offerings.

We are Australia’s number one media buying entity, the

number one digital buyer, and we’re fast becoming an

emerging leader with our diversifi ed division. We’ve been

smart about our acquisitions – buying companies that

deliver value to our bottom line, and at the same time,

adding some of the brightest, most talented minds to our

business. Individually, each business unit continues to grow

organically and we have exceeded our revenue expectations.

As a service offering for our clients however, we’re more

than the sum of our parts.

We have diversifi ed our business so that we can deliver a

comprehensive, integrated service, with a quality team of

specialists to provide communications solutions that deliver

results. Our four divisions: Media, Digital, Diversifi ed and

the recently added Technology division, cover the spectrum

of the media and communications landscape. This means

we’re well-geared to deliver sound results and value

by expanding our offering, increasing touch points and

enriching consumer experiences.

We have solid, long-standing supplier relationships that are

built on more than just transactions and which allow us to

secure competitive, cross-platform deals. We have people

in our business who are passionate, creative and intelligent,

and we’ve fostered a good balance of youthful enthusiasm

and experience.

As the global economy is affected by events elsewhere,

our largely Australian-based clients are less vulnerable

and continue to perform well. In fact, many are capitalising

on the burgeoning local economies in Western Australia

and Queensland. The outlook is for steady growth and

we look forward to further exploiting the potential of our

consolidated model to deliver a creative, innovative and

tailored suite of services.

Thank you to my fellow Board members for their vision and

commitment over the last year. The young executive team

led by Stuart Mitchell, CEO, has done an outstanding job in

delivering strong results in our fi rst full year of operation.

Harold Mitchell AO, Chairman

Chairman’s

Report

Harold Mitchell AO

For

per

sona

l use

onl

y

4

In 2008, we became Australia’s fi rst

$1 billion billing media agency – a signifi cant milestone, and a new benchmark.


For

per

sona

l use

onl

y

Stuart Mitchell

5

CEO’s Report

In FY’08, we completed our fi rst full year of operations as

the Mitchell Communication Group, the publicly listed entity

formed following the acquisition by emitch of Mitchell &

Partners in 2007.

We have focussed on consolidating our business, and

delivering on its potential to give clients an integrated

service offering that is unrivalled in our market space. It is

pleasing to report that we have achieved this and more.

Our billings are up 24% from FY’07, on a like-for-like

basis, which is the result of strong organic growth and

contributions from successful entity acquisitions during

the year. Our strategic acquisitions of quality businesses

brings new service offerings, growth and diversifi cation to

the company, while our signifi cant organic revenue growth

is an indicator of the health of our underlying business.

It’s a tangible sign that we are able to very effectively grow

into new business areas, while staying focussed on the

fundamentals of what makes our business successful –

delivering a service that clients want in a manner that is

better than anyone else.

In CY’08, we became Australia’s fi rst $1 billion billing media

agency – a signifi cant milestone, and a new benchmark.

Growth in our Media, Digital and Diversifi ed divisions all

exceeded targets, and each of our strategic and operational

objectives were achieved during the year. We are already

seeing the benefi ts of the internal consolidation of our

business, with strong returns and development of our cross-

selling strategy, the full benefi t of which will be realised in

the coming fi nancial year.

But our business is about more than just the numbers. We

have a long history in cultivating good relationships with our

suppliers and this year, those relationships are stronger

than ever, enabling us to be fi rst-to-market with innovative

and unprecedented media solutions for our clients.

The acquisition of a number of quality, niche businesses

during the year has complemented our existing services,

and enabled creative collaboration between our business

units, which has yielded outstanding results for our clients.

This is an exciting step in our evolution - for us and our

clients - who continue the journey with us through an

emerging media frontier.

New companies to the group include:

We recently acquired Vivid, a leading communications

and technology services company. Vivid extends our

strategic footprint in digital-based media services and adds

signifi cant technology competencies in enterprise content

management, ecommerce and customer relationship

management.

The growth of the Group has also meant that our staff

numbers have swelled from 300 to over 550 during the year,

and I extend a warm welcome to each staff member who

has joined us, and thank all staff for their dedication and

commitment to excellence during the period. In the coming

year, we will further develop our systems and procedures to

improve communication within the business.

Finally, I take this opportunity to thank the senior executive

team for their excellent contribution. Thank you also to the

Board, who have provided great support and enlightened

stewardship during a rewarding, milestone year for our

company.

Stuart Mitchell, CEO

Company

Visual Jazz

Haystac

Rodeo

Vivid Group

Mitchell & Partners WA

Co Media Oz

Coleman Group

The Media Shop

Discipline

Digital creative

Public relations

Creative design services

Branding, Digital Media &

Application Development

Offl ine planning and buying


Sign production


For

per

sona

l use

onl

y

6


Experience

Harold Mitchell is Executive

Chairman of Mitchell

Communication Group. In

1976, he started the company

that is now the largest

media agency in Australia.

In December 2000, he

launched the Harold Mitchell

Foundation that distributes

funds between health and

the arts. In December 2002,

Deakin University conferred

on him an honorary degree

of Doctor of Laws. In January

2004, he was awarded

the Officer of the Order of

Australia, and in July 2005,

was awarded the Richard Pratt

Business Leader Award. He

has been Chairman of the

National Gallery Australia and

President of the Melbourne

International Festival of Arts.

Current directorships

Mr Mitchell is actively involved

with his clients and holds a

large number of community

roles including board

member of Opera Australia

Council and Care Australia.

He is Vice-Chairman of the

Care Australia Corporate

Council and Chairman of

ThoroughVision.

Experience

Stuart Mitchell is the Chief

Executive Offi cer of Mitchell

Communication Group.

Under his leadership, Mitchells

has grown to incorporate 20

communications specialists

across a broad range of

disciplines.

Stuart led the 2005

negotiations with French-

based Havas, to establish

a joint venture with their

media brand, MPG. Over the

past two years, it has been

Stuart’s vision which has

been the catalyst in shifting

the direction of the Mitchell

Communication Group from

online media buyer to a

diversifi ed communications

services provider. Stuart also

led the sales agreement for

the purchase of Mitchell

& Partners in April 2007,

creating the new Mitchell

Communication Group,

in addition to negotiating

acquisitions for Coleman Signs

and more recently, Haystac.

Stuart has worked with the

Group since 1992, learning the

business from every angle.

Experience

Ms Sparks has a background

in pharmaceutical marketing,

strategic consulting and

over 20 years experience in

the advertising industry. She

has held senior positions in

leading agencies in Australia

and UK, her most recent being

MD of M&C Saatchi.


Ms Sparks is currently director

of Blackmores Ltd and Racing

Victoria Ltd, Vice Chairman

of Osteoporosis Australia,

Vice President of Melbourne

International Arts Festival,

Vice President of Chief

Executive Women.

Experience

For 11 years, Mr Stewart was

National Managing Partner

of Minter Ellison, one of

Australia’s leading law fi rms,

before retiring in June 1999.

He was also a non-executive

director of Memtec Ltd, a

high technology fi ltration

company, from 1988 until

1997. Mr Stewart spent fi ve

years with Pacifi c Dunlop

from 1976 to 1981 in a variety

of general management

positions.


Mr Stewart is Chairman of

Melbourne IT Limited and

Metabolic Pharmaceuticals

Limited, and president of the

Baker IDI Heart and Diabetes

Institute.

Harold Mitchell AOEXECUTIVE CHAIRMAN

Naseema SparksStuart MitchellCHIEF EXECUTIVE OFFICER

Rob Stewart

For

per

sona

l use

onl

y

7

Board of Directors

Experience

Mr Nankervis has spent

more than 30 years in various

accounting, financial and

commercial roles with BHP

and Cadbury Schweppes. He

has been Finance Director

of Cadbury Schweppes

Australia Limited and Chief

Financial Officer for Cadbury

Schweppes Asia Pacific. He

has also been a member

of the Cadbury Schweppes

Global Senior Finance

Committee and a member

of the Asia Pacific Audit

Committee. Mr Nankervis

also served as a Trustee,

Director and Chairman of the

Superannuation Fund.


Mr Nankervis is currently a

director of Onesteel Limited

and Dairy Australia Limited.

Experience

Mr Cameron has over 35

years of experience in the

advertising and marketing

industry. Since 1970, he

has worked primarily in the

advertising industry with a

variety of global marketers

in Australia and Asia, and on

world-leading brands such as

Coca-Cola, McDonalds, Mars,

Nestlé, Levi’s and Goodyear.

Mr Cameron has held

a number of senior

management positions in

advertising agencies and was

a partner with advertising

agency George Patterson

Bates for eight years.

For seven years to December

2005, Mr Cameron was

Director of Corporate

Marketing for Optus.

Mr Cameron presently owns

and runs six Yes Optus retail

stores in metropolitan Sydney.

Experience

Mr Hounsell is a former

Senior Partner of Ernst &

Young and Chief Executive

Officer and Country Managing

Partner of Arthur Andersen.

He is also a Fellow of The

Institute of Chartered

Accountants in Australia,

and a Fellow of the Australian

Institute of Company

Directors. He holds a Bachelor

of Business (Accounting)

degree from Swinburne

Institute of Technology and

is a Certified Practicing

Accountant.


Mr Hounsell is currently

Chairman of PanAust Limited,

and a director of Qantas

Airways Limited, Orica Limited

and Nufarm Limited. He is

also Chairman of Investec

Global Aircraft Fund and

Prudentia Investments, and

a director of Ingeus Limited,

Freehills, and The Macfarlane

Burnet Institute for Medical

Research and Public Health

Limited.

Experience

Mr Lamplugh has over

19 years experience as a

commercial lawyer, and

is currently principal of

the law firm Lamplugh

McIntosh Lawyers. He has

a Bachelor of Laws and

Bachelor of Jurisprudence.

He was admitted to

practice law in 1988. He

has extensive experience in

media and entertainment

law and commercial law.


Mr Lamplugh has been

a director of Mitchell

Communication Group

since its inception.

Peter Nankervis Garry HounsellDEPUTY CHAIRMAN

Stephen Cameron Rod Lamplugh

For

per

sona

l use

onl

y


8

For

per

sona

l use

onl

y

9

Mitchell Communication Group Business Divisions

For

per

sona

l use

onl

y

FY’08 Financial Results…

Key Financial Highlights (like-for-like basis):

Gross Billings

24% to $1,175.2 million

Operating Revenues

46% to $190.8 million

Operating EBIT1

38% to $32.3 million1 – FY’08 includes normalised interest income on working capital of $3.5 million and excludes normalised: (i) interest expense on

fi nance facilities and deferred consideration payable of $4.2 million; and (ii) $1.6 million of acquisition intangibles amortisation.

10


For

per

sona

l use

onl

y

11

Introduction

The principal activities of the economic entity constituted by

Mitchell Communication Group and the entities it controls

(the Group) are the provision of communications services,

including:

traditional and online media strategy, planning and buying

digital creative and technology services

search engine marketing and optimisation

public relations

direct marketing

outdoor advertising

Corporate social responsibility consulting services

Year in Review

The fi nancial year ended 30 June 2008 was a remarkable

year for the Group, with exceptional growth in revenue and

profi t performance. The excellent result was driven by strong

organic revenue growth by existing Group entities and the

acquisition of exciting new companies in the past year.

Gross billings topped the billion dollar mark for the fi rst time

at $1,175.2 million, up $914.2 million or 350% over the prior

comparative period. Proforma gross billings were up $224.2

million or 24%.

Total revenues were $190.8 million, an increase of 131% per

comparative period. On a proforma basis, revenues grew by

$60.1 million or 46%.

Normalised operating EBIT grew 131% to $32.3 million,

whilst net profi t after tax grew 102% or $18.2 million over the

prior comparative period. On a proforma basis, this was an

increase of 38% or $8.9 million.

Each of the divisions – Media, Digital and Diversifi ed -

recorded exceptional growth. The Media division’s gross

billings increased by 21%, retaining market leadership

position for the fourth consecutive year. The Group’s Digital

business is growing at twice the market rate in Australia,

with gross billings increasing by 48.9% to $101.7 million. The

Diversifi ed division generated strong organic growth as well

as excellent new business growth.

A fi nal dividend of 2.1 cents per share, fully franked, has been

declared, resulting in a full year dividend of 3.9 cents per

share, up 1.9 cents or 95% over the prior comparative period.

Operating cash fl ow was $37.1 million, up $3.2 million or 10%.

Market conditions

FY’08 saw a shift in the way media is consumed, with the

Group ideally positioned to capitalise on emerging media

opportunities.

In FY’08, advertising grew by 8.2% (source: CEASA), refl ecting

strong economic growth and buoyant consumer and business

confi dence. The Outdoor market increased considerably

by 17.3% (source: CEASA) as advertisers looked for more

innovative ways to build brands.

The market’s appetite for our Diversifi ed services continued

to grow strongly. Online advertising increased by 27% (source:

IAB June 2008) over the previous year. It is expected that

this will continue to grow at double-digit rates into the near

future.

Outlook

The Group has had a powerful start to FY’09 throughout each

division, with billings higher than at the same time last year.

The strategic acquisition of Vivid, Australia’s leading

communications and technology services company with a

blue chip client base, extends our footprint in digital-based

media services and adds signifi cant technology competencies

in branding, digital media and application development.

In addition, new organic pursuits in automated agency ad

templating, research through econometric modelling and

further cross-selling amongst our Diversifi ed businesses

provides exceptional scope for growth throughout the

remainder of CY’08.

We are well-geared to further capitalise on our fully

operational, diversifi ed model. Despite market sentiment to

the contrary, the traditional media-buying business continues

to go from strength to strength. We have a large Australian

client base, which is less vulnerable to global economic

concerns and able to capitalise on growth in emerging

markets in Perth and Brisbane. We also have a strong

balance sheet, with funds available for further strategic

acquisitions.

As the fallout from the US downturn becomes clearer, our

diversifi ed model, market leadership position, and strong

client and supplier relationships place us in a strong and

confi dent position.

Review of Operations

1 Like-for-like basis.

For

per

sona

l use

onl

y

Gross billings increased by 21% to $1.028 billion

while revenue from continuing operations grew to $41.3 million.

12


For

per

sona

l use

onl

y

13

Media Division

The principal activities of the Media division are the provision

of media strategy, planning and buying across traditional

(non-digital) media.

Companies within Media Division

Mitchell & Partners

Mitchell & Partners is Australia’s leading media planning

and buying agency with offi ces in Melbourne, Sydney,

Brisbane, Perth, Gold Coast and Auckland, New Zealand.

Mitchell & Partners delivers communication messages to

the right people, at the right time, in the right place and at

the best possible price. Services include media strategy,

media planning, media buying, competitive analysis,

research and post campaign reporting,

MPG

MPG is an alliance between Mitchell Communication Group

and Havas, the world’s sixth largest communications group.

MPG collaborates with clients to build meaningful and

engaging connections between consumers and brands in

the common pursuit of achieving better business results.

Services include strategic communications development,

media planning and buying, market research and effi ciency

measurement, and interactive advertising for a range

of clients. MPG has offi ces in Sydney, Melbourne and

Auckland, New Zealand.

Year in Review

The fi nancial year ended 30 June 2008 produced an

outstanding result for the Media division, which became the

fi rst media agency group in Australia to exceed $1 billion

in audited billings. The division increased billings across

all Australian offi ces and for the fourth consecutive year,

Mitchell’s was independently named as Australia’s largest

media agency (source: AC Nielsen).

Gross billings increased by 21% to $1.028 billion whilst

revenue from continuing operations grew to $41.3 million.

The Media division’s gross billings growth outpaced the

traditional media market during this fi nancial year. June

half growth for the Media division was 20% higher than for

the comparative period versus 6.2% growth for the total

advertising market (source: CEASA).

The standout market was Sydney where gross billings

increased 31% to $344 million.

Our fl agship Melbourne operations contributed a solid 16%

growth on a very large base, to deliver over $460 million

in billings. Mitchell & Partners Melbourne is the largest

individual media agency in the country.

Our Brisbane/Gold Coast businesses remain the

uncontested market leaders in the key Queensland market,

while our new Perth operation consolidated its market

position to deliver strong top and bottom line success in

FY’08. Both Perth and Gold Coast are now fully integrated

into the Group, with positive signs for continued growth in

the new fi nancial year.

The New Zealand market remains challenging due to

economic constraints, however we remain committed to

developing the business and pursuing new opportunities.

Overall billings increases for the division were largely driven

through organic growth from our existing client portfolio,

particularly in the Retail, Telecommunications, Government,

and Finance/Insurance sectors.

This was supported by a successful new business program,

which saw the division add over $50 million. In addition, our

Perth operation was appointed one of two suppliers to the

Western Australia State Government campaign advertising

services account, commencing August 2008.

Complementing our new business efforts, the division also

successfully defended a number of key accounts over the

year including: Optus Singtel, BMW Automotive, Simplot,

Flight Centre, George Weston Foods and The Good Guys.

Review of OperationsMedia Division

For

per

sona

l use

onl

y

The main sectors of advertising expenditure growth were:

Subscription TV (36.4%),

Online (25.3%),

and Outdoor (20.3%) (Source: CEASA).

14


For

per

sona

l use

onl

y

15

Market Conditions

Advertising growth for FY’08 increased by 8.2% and refl ected

the previous period of strong economic growth and buoyant

levels consumer and business confi dence. The main sectors

of advertising expenditure growth were Subscription TV

(27.9%), Online (25.3%) and Outdoor (17.3%) (source:

CEASA). Growth rates in all media were at or above CPI

levels for the period, and most analysts are maintained

expectations of modest growth.

During the second half (January – June 2008) the market

had slowed slightly with overall growth of 6.2%. The growth

media channel leaders continue to be Online, Outdoor and

Subscription TV but only Online growth continues to outpace

the previous period.

Mainstream media usage continues to account for over 80%

of media consumed by Australians, and overall time spent

with media is increasing, with the highest growth rate in

usage being online based media.

The Group is well placed to capitalise on the online growth

through integrated campaign solutions involving both our

Media and Digital divisions.

The challenges facing traditional media are to maintain

audience levels in their traditional operations whilst

fully extending their platforms into the digital space.

Included in this is the requirement to produce and deliver

engaging content for an audience which in today’s world is

increasingly consuming media on its own terms, using new

digital technologies to do so.

Outlook

Clearly the Australian economy has slowed, and consumers

have been pinched by the diffi culties of interest rate rises,

high fuel prices and a weaker housing market in key areas.

Despite this, and industry speculation of recession and

gloom, we are not seeing indications of any major downturn

in the traditional media markets. Budgets are being

modestly trimmed in some cases, but not across the board.

Clients are being more circumspect in their media planning,

and media mixes are shifting slightly.

We anticipate that clients will seek the security of the larger,

more reliable traditional media such and press and Free TV

as well as a shift from brand image campaigns to stronger

‘product and price’ and retail advertising.

As a result, the Group continues to see indications of modest

growth over the next 12 months.

Review of OperationsMedia Division (continued)

For

per

sona

l use

onl

y

The ability to offer clients a

one-stop solution makes us the

pre-eminent Digital agency group

in Australia.

16


For

per

sona

l use

onl

y

17

Review of OperationsDigital Division

Digital Division

The principal activities of the Digital division are the

provision of digital media strategy, planning and buying,

search engine marketing and creative services.

Year in review

The fi nancial year ended 30 June 2008 was a remarkable

year for the Digital division. While the Australian digital

media market grew by 27% (source: IAB June 2008), our

revenue from continuing operations in Australia (excluding

Visual Jazz) grew by 59%, while our gross billings increased

by 61% to $110 million. At no point in its history has the

Digital division’s growth been this far in front of the industry.

Our continued expansion has seen us open new emitch

offi ces in Brisbane and Perth, and a new Visual Jazz offi ce

in Sydney.

We have realised our goal to become the fi rst digital group

in Australia to genuinely offer clients a full-service solution,

and we continue to aggressively look for new opportunities

where we can cross-sell the Group’s offering.

This ability to offer clients a one-stop solution makes us the

pre-eminent Digital agency group in Australia.

Australian operations

emitch

emitch is Australia’s only truly national digital offering, with

offi ces now in Sydney, Melbourne, Brisbane and Perth. With

an aggressive approach to new business and continued

investment in an outstanding group of digital media

professionals, we have achieved all of our revenue goals in

FY’08.

emitch continues to cultivate and foster very strong

relationships with our media owner partners and strives to

deliver value over and above the market norm for all clients,

regardless of their expenditure level.

The ability of emitch to win new business as an independent

digital business continued to drive increases in revenue.

Coupled with the opportunities presented by the wider

Mitchell Communication Group, emitch is ideally placed to

take advantage of the global movement into digital channels.

Media Contacts

Media Contacts Australia is an alliance between Mitchell

Communication Group and Havas, the world’s sixth largest

communications group. Just over two years old in Australia,

FY’08 has been a defi ning year for Media Contacts. Billings

increased by 300% year-on-year, margins remain strong,

and Media Contacts Melbourne’s fi rst full year in business

achieved a very strong 15% of total digital billings. This is

a signifi cant achievement and refl ects a highly successful

year. With expectations to grow well above the market,

Media Contacts is aiming for another fruitful year in both

Sydney and Melbourne.

Columbus

In a year when spend in search and directories increased

by 34% (source: IAB June 2008) Columbus, our specialist

search engine marketing division, achieved a billings

increase of over 110% from FY’07. Staff numbers grew from

6 to 17, and our decision to invest heavily in this sector has,

and will continue to bring, substantial dividends for the

whole Group.

Visual Jazz

In FY’08, Visual Jazz enjoyed one of its most successful

years in its history. It is now clearly positioned as one of

Australia’s leading Digital Creative agencies, with more

than 90 staff. During the year, Visual Jazz continued its

aggressive growth plans, by adding a Sydney offi ce to its

Melbourne and Canberra base, and delivering a strong

fi nancial result. New business wins included:

A major achievement for Visual Jazz was being awarded

2008 Best of Show at Australia’s Interactive Advertising

Bureau awards for the interactive games site produced for

Defence Force Recruiting.

Google

Domino’s

Australian Federal Police

ANZ

Funtastic

Jenny Craig

For

per

sona

l use

onl

y

Online advertising for the 12 months

ended June 2008 totalled $1,524m

This is a 27% increase on the

corresponding period last year.

18


For

per

sona

l use

onl

y

19

New Zealand operations

The Internet Bureau

The Internet Bureau is New Zealand’s largest online media

service company, with approximately 30% market share

of the general display internet advertising market in New

Zealand. The business has no natural direct competitors,

with the only competitive risks being agencies bringing

online media planning in-house. The company continues

to diversify its agency sales channels, with more than 55

advertising agencies in New Zealand using The Internet

Bureau in FY’08, up from 45 the previous year.

CATCH!

CATCH! is a brand new digital media business launched

in New Zealand in September 2008. The business will

specialise in digital direct response advertising, with

capabilities in search engine marketing and performance

display advertising, the latter via a New Zealand exclusive

reseller agreement with Adconion Media Group.

Market Conditions

Online advertising in Australia for the 12 months ended

June 2008 totalled $1,524m (source: IAB June 2008). This

is a 27% increase on the corresponding period last year.

All key sectors experienced strong growth year-on-year –

General 23%, Classifi eds 21% and Search and Directories

experiencing the highest growth at 34%.

The general internet advertising market should continue to

grow at strong double-digit rates for the short- to medium-

term future.

Outlook

“ Spending on online ads overtook

advertising on mainstream TV in Britain

last year, growing 40 percent to 2.8

billion pounds and accounting for 19

percent of all advertising, UK regulator

Ofcom said” Reuters August 13th 2008

Investment in digital channels worldwide continues to grow

apace, while in Australia we remain some way away from the

headlines experienced by the UK communications industry.

There is no doubt that like all developed economies, digital’s

growth prospects in Australia remain very strong.

We are ideally placed to take advantage of this growth,

because we can deliver solutions for clients that involve

business planning, creative solutions, search engine

marketing and online planning and buying.

We will continue to ensure that our clients benefi t from fi rst

class innovative thinking and solutions. We intend not only to

be fi rst with every new opportunity presented by digital, but

fi rst with advice for our clients on how they might use that

opportunity.

Our sophisticated return on investment (ROI) planning tools

enable us not only to account for each dollar spent, but

accurately predict the return from each dollar. We aim to

further grow both our analytics expertise and the ROI that

each of our clients enjoys in FY’09.

At a time when media fragmentation continues to present

new and interesting opportunities, we look forward to

helping our clients exceed their business growth targets.

We confi dently expect to out-perform the market in the

coming fi nancial year.

Review of OperationsDigital Division (continued)

(source: IAB June 2008)For

per

sona

l use

onl

y

The continued development of the Diversifi ed division’s

cross-selling capability has delivered organic growth, improved profi tability and high levels

of customer satisfaction as our client’s experience the benefi ts of an

integrated service offering.

20


For

per

sona

l use

onl

y

21

The principal activity of the Diversifi ed division is the

provision of marketing services and brand communication.

The division provides services to the core Mitchell client

base as well as clients outside the Group’s media agency

relationships.

The division enjoyed a very positive year, completing

two strategic acquisitions and delivering strong

growth. Divisional profi tability to 30 June 2008 exceeded

expectations.

Particularly pleasing was the continued development of

the Diversifi ed division’s cross-selling capability, which has

delivered organic growth, improved profi tability and high

levels of customer satisfaction as our client’s experience the

benefi ts of an integrated service offering.

The division has been separated into three operating

groups:

PR and Marketing Services – this business unit

comprises the PR agencies (Haystac and Spark), the

creative services agency (Rodeo), the experiential

agency (Impact) and our Corporate Social Responsibility

business (Positive Outcomes).

Rights Management – this business unit comprises our

rights management and media sales business, Stadia

Media and our mobile marketing joint venture, Mocom.

Production Services – comprising Coleman Group,

it is anticipated that the offering of this unit will be

broadened to provide video production services within Q2

FY’09.

Year in Review

Within the FY’08 year the Group successfully completed the

business acquisitions of Coleman Group Pty Ltd and Haystac

Public Affairs Pty Ltd. The start-up of the Group’s second

digital creative business, Rodeo, was also established as a

division of Haystac.

Coleman Group is a leading provider of large format, short-

run digital printing services to the sports, exhibition and

retail sectors. The business was one of Stadia Media’s

largest suppliers and the acquisition has allowed this

company to vertically integrate a key aspect of its service

offering.

The Coleman Group results to the period ended 30 June

2008 were over 37% ahead of expectations.

Haystac is a leading provider of PR, marketing and

communication services with more than 40 staff located in

its Melbourne and Sydney offi ces. The company provides

communication strategy development, media relations,

issues management, brand building, stunts and brand

activation, public education and creative services. It has a

blue chip client base of major consumer brands, all levels

of government, not-for-profi ts, healthcare companies, peak

bodies and major event organisers.

The Haystac acquisition was completed with effect from 1

October 2007. Over the period to 30 June 2008, the business

has shown good organic growth and has integrated well

within the division and across the broader Group.

Over the period since acquisition, Haystac has won or

renewed the following accounts:

Stadia Media delivered its sixth consecutive year of record-

breaking revenues and profi tability.

The FY’08 fi nancial year represented a watershed year for

Stadia Media, with successful rights renewal negotiations

with the AFL and Cricket Australia. On the back of the

successful Melbourne Cricket Ground renewal in FY’07,

all rights held by Stadia Media have now been renewed on

multiple year agreements.

From a revenue and profi t perspective, Stadia Media

delivered its best-ever results in FY’08. Cricket revenues

across the New Zealand / India / Sri Lanka tour were up

on what was a record-breaking Ashes tour the year before.

Comparing like tour with like tour revenues (i.e. India tours)

the company’s cricket program has increased in value by

more than 70%.

Review of OperationsDiversifi ed Division

7 Eleven Stores

ANZ

Australian Defence Force

Australian Government’s

National Binge Drinking

Campaign

City of Melbourne

Jetstar

Mitre 10

Myer

Nintendo

Scanlon Foundation

Sensis / Whereis

Tourism Australia

Walt Disney Studio Home

Entertainment.

Westfi eld

For

per

sona

l use

onl

y

22

The company’s AFL program provided its sixth consecutive

year of growth.

Outside its traditional media sales role, Stadia Media

successfully negotiated Tennis Australia’s broadcast rights

renewal with the Seven Network. This activity, undertaken

on behalf of Tennis Australia, more than doubled the

value of the benefi ts enjoyed by Tennis Australia from

its broadcast rights. In addition, the company provided

consultancy services to ANZ relative to their acquisition of

the naming rights at the Olympic Stadium, Homebush (ANZ

Stadium).

Stadia Media’s profi tability for the year represented an

increase of 40% year-on-year.

To ensure that Stadia Media maintains it leadership

position within the sports-ground signage media industry,

the company conducted a review of emerging signage

technologies with a key focus on LED signage, which has

been installed at a number of sites around the world. The

fi ndings from this review indicated that whilst the technology

has some advantages over current scrolling and static

signage systems with respect to animation and production

savings, the installation requirements, resolution and capital

cost of the technology does not render it a viable alternative

for our major fi eld sports at this point. The business is

committed to providing the best solutions the stadia require,

and accordingly, we are maintaining a watching brief.

The Spark Impact brand has been separated into its

constituent parts, with the emergence of two offers – Spark

Communications (PR agency) and Impact (Experiential

Agency). Each brand has developed its own personality and

the client base has a stronger understanding of the offering

of each.

Both businesses demonstrated growth over the year with

wins including:

Business expansion continues into the new fi nancial year,

with Q1, FY’09 wins including John West and Kraft.

Positive Outcomes’ LBG (London Benchmarking Group)

client base increased from 26 to 37 over the FY’08 fi nancial

year. The LBG membership comprises a large number of

Australia’s blue chip companies. LBG continues to build as

the authoritative measure of CSR investment in this market.

Positive Outcomes’ strategic consulting service has been

integrated into the broader Haystac business to provide the

client base with an integrated CSR and communications

offer.

The division’s mobile marketing business Mocom, has had

a number of successes with implementation of its Mobot™

image recognition technology. It has delivered successful

campaigns deployed across a broad range of third party

media, including ACP’s Dolly title and News Limited

commuter newspaper mX. These relationships are ongoing

and should continue to grow.

Mocom has made signifi cant investments in proprietary

campaign management tools and has expanded its offer to

include Bluetooth and SMS campaigns.

Mocom is profi table and extremely well positioned to provide

marketers with measurable mobile-based campaigns.

Haystac’s design department was launched within Q3 of the

year as a second digital creative business within the Group,

Rodeo Agency. The business has shown extraordinary

growth in the period to 30 June 2008 and is currently

generating annualised revenues in excess of $1.5 million.

Rodeo Agency specialises in online and mobile digital

creative services along with traditional graphic design work

and has successfully completed work for:

Outlook

The Diversifi ed division is well-placed for continued strong

performance in FY’09. The companies within the division

are all profi table and hold strong and long-standing

client relationships, together with experienced and stable

employee bases.

The businesses have a proven ability to cross-sell their

services in a manner that meets client demands for effi cient


Nintendo

3 Mobile

ANZ

Fosters

Department of

Sustainability

Renault

Pretty Girl Fashion Group

Claude Group / Torch

Media

ANZ

Fosters

Jetstar

News Limited (mX)

Renault

Walt Disney

For

per

sona

l use

onl

y

23

and integrated service. Client response and satisfaction with

these initiatives has been extremely positive. The broadening

of this cross-sell competency throughout the division (and

the broader group) - involving identifying and matching

clients’ needs with appropriate integrated responses - is

a key growth platform.

The development of a video production capability to

capitalise on client appetite for brand-funded content and to

meet the broadcasters’ and the internet’s content demands,

will occur within the fi rst half of FY’09.

Additionally, the business is looking at opportunities

to strengthen its direct marketing capabilities.

Rights Management Unit

Early indications within Stadia Media indicate that the

revenues are unlikely to be affected by reported softening

of economic conditions, with the business’ client base

appearing stable. Similarly, the business’ cricket program is

not as heavily affected by the perceived value of the touring

side. This has been an outcome of the product development

implemented over recent years, which presents the

underlying media value of the property rather than the

perception of the tour quality.

The division’s Rights Management group has a well-

deserved strong reputation of high quality rights

management and commercialisation. With renewal

processes complete for the business’ key sporting rights,

the company is focussing on leveraging this capability to

expand the rights portfolio across sport, entertainment and

niche “out-of-home” properties.

Management and sales structures have been established to

facilitate this during FY’09.

PR and Marketing Services

The outlook is very positive for the PR and Marketing

Services business unit, with strong profi t increases expected

on the previous year.

Historically, the appetite for PR and Marketing Services

during economic downturns increases rather than

decreases, due in part perhaps to the smaller budgets

required for program delivery compared to above-the-line

campaigns.

Haystac – the business unit’s fl agship public relations

business – is set to record a solid fi rst quarter with

signifi cant Australian Government and major corporate

brand project wins.

Part of Haystac’s brief is to grow nationally and regionally

beyond its current Melbourne and Sydney offi ces. An

offi ce has already been established in Canberra to lift

the business’ profi le and to allow for increased service

capacity for the Australian Government – traditionally one

of the agency’s largest clients. Haystac plans to establish

a presence in Brisbane and Perth through leveraging

Mitchell’s existing offi ces in these rapidly growing markets.

Similarly, opportunities to establish a presence in New

Zealand will be explored in the coming year.

As mentioned previously, Haystac will assume management

responsibility for some of Positive Outcomes’ consulting

services, which will increase Haystac’s Social Marketing

business unit’s remit to include broader Corporate Social

Responsibility communications consulting capabilities.

Rodeo Agency continues to grow profi tably and has

developed a solid management framework to accommodate

signifi cant client demand in the rapidly expanding digital

marketing sector. Rodeo benefi ts signifi cantly from referral

and integration with other Diversifi ed business units.

Demand for Mocom’s mobile phone marketing service is

growing quickly and Mocom relies on signifi cant digital and

creative fulfi lment for client briefs from Rodeo. This – and

the continued cross-selling of Rodeo’s services through

Haystac and the broader Diversifi ed business - should

ensure it delivers continued strong growth.

Clearer service offering delineation between the recently

split Spark and Impact businesses is likely to lead to

improved performance. Both units have started the new

fi nancial year well with signifi cant new business wins and

senior appointments.

Production Unit

Coleman Group has demonstrated strong growth within

the exhibition sector. This has been fuelled by underlying

strength within this market segment and investment by

the company over FY’08 in fabric printing and welding/

fi nishing equipment. The strength in this market segment is

expected to continue over FY’09.

Capital investment in equipment upgrades within the

business has continued with the purchase of a high volume

Durst printer, which is scheduled to be commissioned in

September 2008. This printer will increase Coleman’s

printing capacity by almost 300% and will signifi cantly

reduce client lead-times and reduce operating costs.

Review of OperationsDiversifi ed Division (continued)

For

per

sona

l use

onl

y

24

Wicked – A story of two sisters, a client

prepared to try something new, and

a Group that delivered

ANZ’s $1 million sponsorship of the Australian premier

of Wicked is the biggest commitment made in Australian

musical theatre history. ANZ’s Louise Eyres, Head of Brand

& Sponsorship says, “We wanted to take our sponsorship in

a new direction – to do things we’ve never done before.”

ANZ was keen to capitalise on the unprecedented success

of the production overseas, which had been renowned for

attracting a new, younger theatre audience. The client

engaged Haystac, part of Mitchell Communication Group’s

Diversifi ed division, with a brief that they wanted to interact

with customers, stakeholders and their staff in a fun,

interactive way.

The result was a multi-dimensional campaign that utilised

the expertise of a number of the Group’s business units

to deliver a highly successful launch event and a leverage

campaign, which included:

The launch event at the Plaza Ballroom, attended by

print, online and broadcast media as well as more than

200 ANZ staff. Coverage was overwhelmingly positive,

with ongoing editorial praising ANZ for its commitment

to the arts.

Advertising via billboards, metrolights and internet

banners

The creation of www.anzwicked.com, an interactive

website that enables users to discover the land of Oz and

learn more about ANZ, the Offi cial Bank of Oz.

Installation of bluetooth units in the Regent Theatre,

which send ‘welcome messages’ from the six leading

cast members to patrons’ mobile phones, wall papers

and a Wicked trailer, which could be forwarded to a

friend

Installation of 3-D Wicked graphics in front of 11 ANZ

ATMs around Melbourne.

The campaign was a collaborative effort between Haystac,

Rodeo, emitch, Mitchells and Mocom.

“We were looking for something different,” says Louise.

“We have been highly impressed with the creativity of the

response to our brief and the ability of the Group to deliver

what has been, and continues to be, a most successful

campaign.”


Delivering Integrated Solutions

A scene from ‘Wicked’ featuring cast members: Lucy Durack

and Amanda Harrison.

Interactive website: www.anzwicked.com

3-D fl oor graphics positioned in front of ANZ ATMs.

For

per

sona

l use

onl

y

Expanding our community contributions in partnership

with our clients, staff and suppliers.

At Mitchell Communication Group, we’re serious about

leveraging our networks, resources and reputation to help

the community. We do this in a number of ways, including:

Supporting our people to help school-aged children

learn to read as part of the children’s charity, Leaning

Links’ Reading for Life program.

Using our strong media and publishing relationships to

negotiate valuable pro bono advertising value for over 25

charities. In FY’08, we increased the amount of free air

time value we secured for our community partners to

$8 million (up from $6 million in FY’07).

Supporting staff volunteering activities. In FY’08, 103

of our people volunteered, with the Group contributing

more than 730 hours in company time. This mainly

involved staff providing discounted services to our

community-partner clients, helping them to get their

messages out to the Australian and New Zealand public.

Supporting a number of charitable organisations to raise

funds or awareness about their causes. During the year,

our Brisbane offi ce team leveraged their skills, expertise

and industry networks to make a real difference for the

Leukaemia Foundation’s Shave for a Cure campaign.

The team raised approximately $85,000, to become

number one fundraiser in Queensland, and overall fourth

nationally.

In FY’08, our community contributions increased to

$464,519, compared to $109,980 in FY’07. The increase

refl ects better data collection from all our businesses, as

well as growth in our CSR program.

We use the London Benchmarking Group (LBG) reporting

model to calculate our contributions to the community.

Mitchells is a founding member of LBG Australia/New

Zealand, which has increased its membership to 37 in

FY’08, up from 26 in the previous year.

Over the past year, we supported the following community

groups through fundraising, volunteering and facilitating

community service announcements and discounted services

for our community partners:

In FY’09, we will expand our CSR activities in our focus areas

of community investment, environmental improvement

and employee wellbeing. We’ll also be establishing a more

strategic and proactive approach to our pro bono work.

The environment

We’re always looking for ways to reduce our impact on

the environment. During the year, we commissioned an

environmental audit of our buildings by external specialists.

The audit revealed that whilst our current environmental

performance was very good, there are areas in which we

can improve, and we have set out an action plan to address

these. This is an especially timely initiative as it will help us

build a strong base of experience and commitment over the

next three years through to the occupation of an exciting

new eco-friendly building in York Street, Melbourne in late

2010.

Corporate Social Responsibility

Prostate Cancer Foundation of Australia

Red Cross

Redcliffe Hospital

Royal Brisbane Womens Hospital

Shepherd Centre

SIDS and Kids

SPCA

Starlight Foundation

Sydney Children’s Hospital

The Cancer Council

The Salvation Army

Ultimo Public School

Vision Australia

Wesley Research Institute

World Vision

Australian Cancer Research Foundation

Australian Childhood Foundation

Australian Red Cross

Autism Intervention

Burnett Institute

CanTeen

Care Australia

Care International (Global)

Child Fund of N.Z.

Juvenile Diabetes Research Foundation

Kids Help Line

Leukaemia Foundation of Australia

Leukaemia Foundation of N.Z.

Pareto Fundraising

Port Melbourne Public School

25

For

per

sona

l use

onl

y

2008 2007

$’000 $’000

Final dividend for the year ended 30 June 2007 of 1.2 cents (2006 – 1.3 cents)

per fully paid share paid on 12 October 2007 (2006 – 23 October 2006). Fully franked

(2006 – unfranked) based on tax paid at 30%. 3,329 2,420

Interim Dividend for the year ended 30 June 2008 of 1.8 cents (2007 – 0.8 cents)

per fully paid share paid on 28 March 2008 (2007 - 28 March 2007). Fully franked

(2007 – 75% franked) based on tax paid at 30%. 5,182 1,496

Total 8,511 3,916

26

Directors’ Report

Your directors present their report on the Group (referred to hereafter as the Group) consisting of Mitchell Communication Group

Limited and the entities it controlled at the end of, or during, the year ended 30 June 2008.

Directors

The following persons were directors of Mitchell Communication Group Limited (the company) during the whole of the fi nancial

year and up to the date of this report:

Harold C Mitchell AO (Executive Chairman)

Stuart J Mitchell (Chief Executive Offi cer)

Garry A Hounsell

Robert J Stewart

Rodney J Lamplugh

Stephen A Cameron

Peter G Nankervis

Naseema Sparks

Principal activities

During the period the principal continuing activities of the Group consisted of:

The provision of services to clients for communications strategy and the planning and buying of traditional media.

The provision of services to clients for interactive marketing and communications strategy and planning and buying of

interactive media, and digital creative services.

The development and implementation of communications campaigns across a broad range of disciplines including public

relations, experiential marketing, brand experience, sponsorship, sports-ground marketing, direct marketing and corporate

social responsibility.

There were no signifi cant changes in the nature of the activities of the group during the fi nancial year, however the year did

represent the fi rst full year of trading post the acquisition of the Mitchell & Partners Group of companies on 1 April 2007.

Dividends

Dividends paid to members during the fi nancial year were as follows:

Since the end of the fi nancial year, the directors have approved the payment of a fully franked fi nal dividend of $6,048,390 (2007:

$3,328,628) to be paid on 26 September 2008 out of profi ts earned for the fi nancial year ended 30 June 2008.

Review of operations

The directors’ review of operations is contained on pages 10 to 23.

For

per

sona

l use

onl

y

2008 2007

Cents Cents

Basic earnings per share 6.5 4.5

Diluted earnings per share 6.5 4.4

27

Signifi cant changes in the state of affairs

Signifi cant changes in the state of affairs of the Group during the fi nancial year were as follows:

(a) Acquisitions:

During the fi nancial year, Mitchell Communication Group completed the purchase of the following businesses:

Mitchell & Partners (WA) Pty Ltd (51%)

Co Media Oz (100%)

Coleman Group Pty Ltd (100%)

The Media Shop (100%)

Visual Jazz Pty Ltd (100%)

Haystac Public Affairs Pty Ltd (100%)

(b)

(c) Net cash received from the increase in contributed equity amounting to $39,338,000 was predominately used to fund the

acquisitions referred to in note (a) above and to pay the deferred consideration owing from the acquisition of Mitchell &

Partners group of companies in 2007.

Earnings per share

Matters subsequent to the end of the fi nancial year

Effective 1 July 2008 the Mitchell Communication Group Limited acquired from Workhouse Advertising Pty Ltd the remaining

49% of the issued capital in Mitchell & Partners (WA) Pty Ltd, for the consideration of $6,174,000 in cash.

On 27 August 2008, with effect from 1 July 2008, the Mitchell Communication Group Limited acquired 100% of the issued capital

in Vivid Holdings Australia Pty Ltd (“Vivid Group”), a communications and technology services company which delivers innovation

in branding, digital media and application development, for consideration of $13,000,000 in cash. Further consideration is

payable on the achievement of certain profi t hurdles to FY’10.

The directors declared a 2.1 cent a share fully franked dividend on 27 August 2008 payable on 26 September 2008 with a record

date of 5 September 2008.

Except for the dividend and acquisitions discussed above, the directors are not aware of any matter or circumstance that has

occurred since the end of the fi nancial year that has signifi cantly affected, or may signifi cantly affect the operations of the Group,

the results of those operations, or the state of affairs of the Group in subsequent fi nancial years.

2008

$’000

An increase in contributed equity of $46,127,000 (from $86,944,000 to $133,071,000) (2007: $66,011,000

(from $20,933,000 to $86,944,000)) as a result of:

Issue of 4,166,667 fully paid ordinary shares at $1.15 as payment for the deferred consideration relating

to the 2007 acquisition of Mitchell & Partners Group of companies 4,792

Issue of 2,541,933 fully paid ordinary shares at an average price of $0.90 per share as part

of consideration for the acquisition of 51% of Mitchell & Partners (WA) Pty Ltd and 100% of

Visual Jazz Pty Ltd 2,284

Issue of 30,000,000 fully paid ordinary shares at $1.10 to institutional investors 33,000

Issue of 6,334,532 fully paid ordinary shares at $1.09 to shareholders as part of a share purchase plan 6,904

2,015,329 fully paid ordinary shares to be issued as deferred consideration for the acquisition of

Visual Jazz Pty Ltd and Coleman Group Pty Ltd 1,102

1,382,025 fully paid ordinary shares cancelled as part of Share buyback program (923)

Transaction costs, net of tax (1,032)

Net increase in share capital 46,127

For

per

sona

l use

onl

y

28

Likely developments and expected results of operations

Additional comments on expected results of the operations of the Group are included in this report under the review of

operations and activities on pages 10 to 23.

Further information on likely developments in the operations of the Group and the expected results of operations has not been

included in this report because the directors believe it would be likely to result in unreasonable prejudice to the Group.

Environmental regulation

The Group is not subject to any signifi cant environmental regulations.

Information on directors

Harold Mitchell AO Executive Chairman. Age 66.

Non-executive director for 8 years. Executive Chairman since 25 May 2007. Founder, principal and owner of Mitchell &

Partners, Australia’s largest independent media planning and buying agency, which was acquired by the Group on 1 April 2007.

Active involvement in arts and charitable organisations.

Other current directorships

Non-executive director of Care Australia (director since 2006), and Opera Australia (director since 1997). Also Vice-Chairman of

the Care Australia Corporate Council (from 2005).

Former directorships in last 3 years

Chairman of the National Gallery of Australia Council (from 2001 to 2005), President of the Museums Board of Victoria (from

2001 – 2007), non-executive director of Copperart Holdings Limited (from 2006 – 2007)

Special responsibilities

Executive Chairman of the Board.

Interests in shares and options

102,408,827 ordinary shares in Mitchell Communication Group Limited. As at the date of this report the Mitchell & Partners

Executive Share Plan Trust holds 1,800,000 shares in the company, which are included above. Mr H.C. Mitchell is the trustee of

the Mitchell & Partners Executive Share Plan Trust but not a benefi ciary thereof.

Stuart Mitchell Chief Executive Offi cer. Age 38.

Experience and expertise

Non-executive director for 8 years. Executive director since 25 May 2007. Involvement in media planning and buying operations

since 1992.


None.


None.


Chief Executive Offi cer


12,858,797 ordinary shares in Mitchell Communication Group Limited.

Directors’ Report (continued)F

or p

erso

nal u

se o

nly

29

Garry Hounsell B.Bus (Acctg) FCA CPA FAICD. Deputy Chairman – non-executive. Age 53.


Director for 2 years. Former CEO and Country Managing Partner of Arthur Andersen and Senior Partner of Ernst & Young.


Non-executive director of four other publicly listed companies: Chairman of PanAust Limited (director since July 2008), Qantas

Airways Limited (director since 2005), Orica Limited (director since 2004), and Nufarm Limited (director since 2004). Also

Chairman of Investec Global Aircraft Fund and Prudentia Investments, a non-executive director of Ingeus Limited, Freehills, and

The Macfarlane Burnet Institute for Medical Research and Public Health Ltd.


None.


Deputy Chairman of the Board.

Member of Human Resources, Remuneration and Nomination Committee from 16 October 2006



Robert Stewart LL.B (Hons), BCom, MBA (Harvard). Independent non-executive. Age 59.


Director for 8 years. Former National Managing Partner of legal fi rm Minter Ellison.


Non-executive Chairman of two other publicly listed companies: Melbourne IT Limited (director since 1999), Metabolic

Pharmaceuticals Limited (director since 2007), and President of Baker IDI Heart and Diabetes Institute.


Non-executive director of an unlisted public company, Plantic Technologies Limited from 2004 to 2006, and non-executive

director of Meditech Research Limited (director from 2005 to 2006).


Lead independent director

Chairman of Human Resources, Remuneration and Nomination Committee


307,849 ordinary shares in Mitchell Communication Group Limited.

Rodney Lamplugh LL.B, B.Juris Non-executive director. Age 45.


Director for 8 years. Legal practitioner specialising in commercial, media and intellectual property law.


None.


None.


Member of the Audit and Corporate Governance Committee.



For

per

sona

l use

onl

y

30

Information on directors (continued)

Stephen Cameron Independent non-executive director. Age 56.


Director for 2 years. Senior advertising and marketing executive with over 35 year’s industry experience.


None.


None.


Member of the Audit and Corporate Governance Committee.


71,298 ordinary shares in Mitchell Communication Group Limited.

Peter Nankervis B Ec. (Hons), FCPA, GAICD Independent non-executive director. Age 58.


Director for 1 year. Senior fi nancial executive with more than 30 years experience. Formerly Finance Director of Cadbury

Schweppes Australia and CFO of Cadbury Schweppes Asia Pacifi c.


Non-executive director of Onesteel Ltd (Director since 2004) and Dairy Australia Limited (Director since 2005).


None.


Chairman of the Audit and Corporate Governance Committee.


None

Naseema Sparks B Pharm, M Pharm (Pharmacol), MBA, GAICD Independent Non-executive director. Age 55.


Director for 1 year. Background in pharmacology and strategic consulting. Senior Advertising Agency executive for 11 years.

Formerly Managing Director and Partner of M&C Saatchi.


Non-executive director of Blackmores Ltd (Director since 2005) and Racing Victoria Limited (Director since 2007); Deputy Chair

of Osteoporosis Australia, Vice President of the Melbourne International Arts Festival, Vice President of Chief Executive Women.


None.


Member Human Resources, Remuneration and Nomination Committee.


None


or p

erso

nal u

se o

nly

31

Company Secretaries

The company secretary is Mr Andrew Seaburgh FCPA. Mr Seaburgh was appointed on 4 October 2005. Mr Seaburgh has many

years experience as a senior fi nance executive and company secretary in various industries for over 30 years. Mr Dion Cust

B.Bus CA also remains a company secretary. Mr Cust was appointed to the position of company secretary on 23 August 2005.

Mr Cust has been the CFO of Mitchell Communication Group Limited for the past 8 years, and prior to that he worked as a

chartered accountant for a major chartered accounting fi rm.

Meetings of directors

The numbers of meetings of the company’s Board of directors and of each Board Committee held during the year ended 30 June

2008, and the numbers of meetings attended by each director were:

A = Number of meetings attended

B = Number of meetings held during the time the director held offi ce or was a member of the Committee during the year

* = Not a member of the relevant Committee

^ = Mr Hounsell attends the Audit and Corporate Governance Committee meetings as an observer

Retirement, election and continuation in offi ce of directors

There were no changes to directors during the year-ended 30 June 2008.

Mr Harold Mitchell is a director retiring by rotation who, being eligible, offers himself for re-election.

Mr Garry Hounsell is a director retiring by rotation who, being eligible, offers himself for re-election.

Remuneration Report

The remuneration report is set out under the following main headings:

A Principles used to determine the nature and amount of remuneration

B Details of remuneration

C Service agreements

D Share-based compensation.

E Additional information

The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act

2001.

A Principles used to determine the nature and amount of remuneration

The objective of the Group’s executive reward framework is to ensure that reward for performance is competitive with the

market and appropriate for the results delivered. The framework aligns executive reward with the achievement of company

goals, and therefore, the creation of value for shareholders. The Board, through the Human Resources, Remuneration and

Nomination Committee, ensures that executive rewards satisfy the following criteria:

Competitiveness in the marketplace;

Acceptability to shareholders; and

Alignment to performance.

Meetings of Committees

Full meeting of

Directors

Audit and Corporate

Governance

HR/Remuneration

Nomination

A B A B A B

H C Mitchell 10 11 * * * *

S J Mitchell 11 11 * * * *

G A Hounsell ^ 9 11 4 4 1 1

R J Stewart 10 11 * * 1 1

R J Lamplugh 11 11 4 4 * *

S A Cameron 11 11 4 4 * *

P G Nankervis 11 11 4 4 * *

N Sparks 9 11 * * 1 1

For

per

sona

l use

onl

y

32

A Principles used to determine the nature and amount of remuneration (continued)

The framework is aligned to shareholders’ interests in that it:

has revenue and profi t growth as a core component of the framework, and

assists in attracting and retaining high calibre executives.

The framework is aligned to the executives’ interests in that it:

rewards capability and performance;

refl ects competitive reward for contribution to profi t and shareholder growth; and

provides a clear structure for earning rewards.

The Human Resources, Remuneration and Nomination Committee provides advice on remuneration and incentive policies and

practices and specifi c recommendations on remuneration packages and other terms of employment for executive directors,

other senior executives and non-executive directors. The Corporate Governance Statement provides further information on the

role of this committee.

The framework consists of a mix of fi xed pay, and short term incentives.

Non-Executive directors

Fees and payments to non-executive directors refl ect the increased demands, which are made on, and the increasing

responsibility of, the directors. Non-executive directors’ fees are reviewed annually by Human Resources and the Remuneration

and Nomination Committee, on behalf of the Board. The Chairman does not receive remuneration for his role and is not present

at any discussions relating to determination of his own remuneration.

Directors’ fees

The current global limit on directors’ remuneration is $1,500,000 and was set on 28 November 2007. Directors who chair

Committees receive additional fees.

No retirement allowances are payable to directors.

The following fees have applied:

^ The Deputy Chairman also received a consultancy fee of $300,000 for additional services provided to the group for mergers and acquisition

activity. This agreement ended on 30 June 2008.

Executive Pay

The executive pay and reward framework has three components:

base pay and benefi ts

short-term performance incentives

other remuneration such as superannuation

The combination of these comprises the executive’s total remuneration.

Base Pay

Structured as a total employment cost, which may be delivered as a mix of cash and non-fi nancial benefi ts within approved

guidelines at the discretion of the executive.

Executives are offered a competitive base pay, which is reviewed annually on 1 July to ensure it remains competitive with the

market for a comparative role. There are no guaranteed base pay increases for executives.

Benefi ts

Executives can receive car fringe benefi ts as part of their total remuneration package.

Base fee

Chairman Nil

Deputy Chairman ^ $120,000

Other non-executive directors $80,000

Additional Fees

Audit and Corporate Governance Committee chairman $15,000

Human Resources, Remuneration and Nomination Committee chairman $15,000

Directors’ Report (continued)

Remuneration Report (continued)

For

per

sona

l use

onl

y

33

Short-term Incentives

Should the company reach pre-determined gross revenue and profi t targets set by the Board, and achieve personal performance

based indicators, senior executives are entitled to short-term incentives. The short-term incentives are payable by 30

September each year. The targets are set so as to ensure shareholder value is increased and the maximum available incentive

is only available for out-performance.

Each executive has a profi t target, along with individual non-fi nancial performance objectives aligned to their key performance

indicators and linked to the drivers of performance in future reporting periods including staff management, systems

improvement, and strategy development.

The Human Resources, Remuneration and Nomination Committee are responsible for assessing whether targets and KPI’s have

been met. To help make this assessment, the Committee receives detailed reports on performance from management.

Mitchell Communication Group Limited Employee Option Plan

Information on the Mitchell Communication Group Limited Employee Option Plan is set out in note 37 to the fi nancial

statements. Option grants under the scheme are not subject to performance conditions apart from the exercise price. Exercise

prices of option grants are determined by the Human Resources, Remuneration and Nomination Committee having regard to

the share price at grant date to ensure robust growth in share value is required for the exercise price to be reached. The plan is

now closed to all employees and directors.

B Details of remuneration

Amounts of remuneration

Details of the remuneration of the directors and key management personnel (as defi ned in AASB124 Related Party Disclosures)

of Mitchell Communication Group Limited and the Group are set out in the following tables.

The key management personnel of Mitchell Communication Group Limited and the Group includes the directors as per pages 28

to 30 above and the following fi ve executive offi cers, who have authority and responsibility for planning, directing and controlling

the activities of the entity:

Luke Littlefi eld – Chief Operating Offi cer (from 3 December 2007)

Jonathon White – Managing Director – Corporate

Anthony Charles – Managing Director – Diversifi ed

John Murray – Managing Director – Digital

Dion Cust – Chief Financial Offi cer

In addition the following employee must be disclosed under the are the Corporations Act 2001 as she is among the 5 highest

remunerated Group executives:

Teena Jameson – Managing Director – Mitchell & Partners (Qld) Pty Ltd

The cash bonuses are dependent on the satisfaction of performance conditions as set out in the section headed Short-term

incentive above. All other elements of remuneration are not directly related to performance.

For

per

sona

l use

onl

y

34

B Details of remuneration (continued)

Key management personnel of the Group and other executives of the Company and the Group

* On the 25th June 2008 directors forfeited their rights to options issued to them. The company subsequently cancelled the options. The

remuneration in the form of options disclosure does not include the negative value of options forfeited by the directors. The negative values of

the options were as follows: HC Mitchell ($35,447), GA Hounsell ($68,824), RJ Stewart ($35,608), SA Cameron ($35,608), PG Nankervis (nil),

N Sparks (nil).

^ Denotes one of the fi ve highest paid executives of the Group, as required to be disclosed under the Corporations Act 2001.

2008 Short-term employee benefi tsPost-employment

benefi ts

Long-term

benefi tsEquity

Name

Cash salary

and fees

$

Cash

bonus

$

Non-

monetary

benefi ts

$

Super-

annuation

$

Termination

benefi ts

$

Long

service

leave

$

Options *

$

Total

$

Non-executive directors

G A Hounsell 420,000 - - 10,800 - - - 430,800

R J Stewart 95,000 - - 8,550 - - - 103,550

R J Lamplugh 60,000 - - 27,200 - - - 87,200

S A Cameron 80,000 - - 7,200 - - - 87,200

P G Nankervis 28,945 - - 74,605 - - - 103,550

N Sparks 80,000 - - 7,200 - - - 87,200

Sub-total non-

executive directors 763,945 - - 135,555 - - - 899,500

Executive directors

H C Mitchell AO - - - - - - - -

S J Mitchell^ 375,000 375,000 - 33,750 - 675 - 784,425

Other key management personnel

L Littlefi eld

(from 3 Dec 2007) 138,141 166,000 - 25,038 - 100 - 329,279

J N Murray^ 251,720 75,000 23,280 24,750 - 317 46,942 422,009

J White^ 256,881 76,000 - 23,119 - 1,696 - 357,696

A Charles^ 255,019 76,000 1,984 22,952 - 8,200 - 364,155

D G Cust 189,925 - 21,084 18,991 - 3,670 10,763 244,433

Total key

management

personnel

compensation 1,466,686 768,000 46,348 148,600 - 14,658 57,705 2,501,997

Other Group executives

Teena Jameson^ 391,200 - 4,452 28,800 - 7,500 - 431,952



For

per

sona

l use

onl

y

35

2007 Short-term employee benefi tsPost-employment

benefi ts

Long-term

benefi tsEquity

Name

Cash salary

and fees

$

Cash

bonus

$

Non-

monetary

benefi ts

$

Super-

annuation

$

Termination

benefi ts

$

Long

service

leave

$

Options *

$

Total

$

Non-executive directors

G A Hounsell 180,000 - - 10,575 - - 68,824 259,399

R J Stewart 68,750 - - 6,188 - - 35,608 110,546

R J Lamplugh 33,750 - - 24,837 - - - 58,587

S A Cameron 53,750 - - 4,837 - - 35,608 94,195

S A Simson (to 1

Sept 2006) 18,333 - - - 165,000 - - 183,333

P G Nankervis

(from 13 Mar 2007) 7,960 - - 22,485 - - - 30,445

N Sparks (from 13

Mar 2007) 24,242 - - 2,182 - - - 26,424

Sub-total non-

executive directors 386,785 - - 71,104 165,000 - 140,040 762,929

Executive directors

H C Mitchell AO - - - - - - 35,447 35,447

S J Mitchell (CEO

from 25 May 2007) 44,621 - 9,697 4,016 - - - 58,334


J N Murray

(from 1 April 2007) 68,570 - 4,980 6,188 - - 11,415 91,153

A Charles

(from 1 April 2007) 55,482 12,500 - 4,993 - 906 - 73,881

P McBeth

(from 1 April 2007) 60,550 20,000 - 7,575 - - - 88,125

J White

(from 1 April 2007) 62,500 40,000 - 5,625 - - - 108,125

D G Cust ^ 164,871 30,000 21,084 19,976 - 8,209 7,722 251,862

L A Stephens

(to 7 May 2007) ^ 275,230 - - 31,520 - - - 306,750

Total key

management

personnel

compensation 731,824 102,500 35,761 79,893 - 9,115 54,584 1,013,677

Other Group executives

L Brahe ^ 146,789 20,917 - 15,503 - - 7,722 190,931

M Crook ^ 140,839 28,257 - 20,980 - 1,666 7,722 199,464

J Richards ^ 110,000 21,425 - 12,718 - - 5,820 149,963

Key management personnel of the Group and other executives of the Company and the Group

* Remuneration in the form of options does not include negative amounts for options that lapsed during the year for LA Stephens.

The negative value of options that lapsed was ($51,204).

^ Denotes one of the fi ve highest paid executives of the Group, as required to be disclosed under the Corporations Act 2001.For

per

sona

l use

onl

y

Fixed remuneration At risk - STI

2008 2007 2008 2007


S J Mitchell 67.1% - 32.9% -

L Littlefi eld 66.7% - 33.3% -

J N Murray 80.0% - 20.0% -

J White 87.0% - 13.0% -

A Charles 87.0% - 13.0% -

D Cust 100.0% 83.5% 0% 16.5%

36

B Details of remuneration (continued)

The relative proportions of contracted full-year remuneration that are linked to performance and those that are fi xed are as

follows:

C Service Agreements

On appointment to the Board, all non-executive directors enter into a service agreement with the company in the form of a letter

of appointment, which summarises the Board policies and terms, including compensation, relevant to the director.

Mr G Hounsell entered into a consultancy agreement with the Board, which outlined additional services to be provided to the

Group in relation to mergers and acquisition activity. This agreement ran for one year from 1 July 2007 to 30 June 2008 and was

not renewed.

Remuneration and other terms of employment for the Chief Executive Offi cer, Chief Operating Offi cer, Chief Financial Offi cer

and other key management personnel are also formalised in service agreements. Some of these agreements provide for the

provision of performance-related cash bonuses and participation, when eligible, in the Mitchell Communication Group Limited

Employee Option Plan. Other major provisions of the agreements relating to remuneration are set out below.

G Hounsell, Deputy Chairman

The agreement is with an entity associated with the Deputy Chairman for the services of the Deputy Chairman.

Agreement, commenced 1 July 2007, ran for a term of one year, with a base fee of $300,000 and was not renewed.

S Mitchell, Chief Executive Offi cer

Term of agreement - 3 years commencing 25 May 2007

Short-term incentive bonus based on achievement of agreed performance indicators, both fi nancial and non-fi nancial to a

maximum of $250,000. Additional incentive payable for internal budget out-performance.

Agreement may be terminated by either party giving six months notice.

Annual remuneration package, inclusive of superannuation, for the year ending 30 June 2009 of $420,000, reviewed annually

by the Board.

Payment in lieu of notice capped at six months salary.

L Littlefi eld, Chief Operating Offi cer

Agreement, dated 3 December 2007, may be terminated by either party giving 90 days notice.



Base salary, inclusive of superannuation, for the year ending 30 June 2009 of $315,000, to be reviewed annually by the

Human Resources, Remuneration and Nomination Committee.

Payment of termination benefi t is capped at three months salary.



For

per

sona

l use

onl

y

37

A Charles, Managing Director – Diversifi ed

Agreement, dated 27 May 2002, may be terminated by either party giving 90 days notice.






J White, Managing Director – Corporate

Agreement, dated 1 July 2006, may be terminated by either party giving 90 days notice.






J Murray, Managing Director – Digital

Agreement, dated 9 January 2007, may be terminated by either party giving 90 days notice.


maximum of $105,000.




D Cust, Chief Financial Offi cer

Agreement, dated 19 February 2001, may be terminated by either party giving 30 days notice.



Payment of termination benefi t is capped at one month salary.

D Share-based compensation

Options are granted under the Mitchell Communication Group Limited Employee Option Plan. The plan is now closed to all

employees and directors.

Options were granted under the Mitchell Communication Group Limited Employee Option Plan, which was created prior to

the listing of the company but included in the prospectus dated 9 February 2000. All staff were eligible to participate in the

plan (including directors). Options were granted under the plan for no consideration. Options granted under the plan carry

no dividend or voting rights, and were granted at the discretion of the Human Resources, Remuneration and Nomination

Committee.

On 25 June 2008 the directors elected to forfeit all options outstanding to them and the company subsequently cancelled these

options. The options were not replaced and the directors were not compensated for the forfeiture.For

per

sona

l use

onl

y

Number of options granted

during the year

Number of options vested

during the year

2008 2007 2008 2007

Directors of Mitchell Communication Group Limited

H C Mitchell AO - 1,000,000* - -

G A Hounsell - 500,000* - -

R J Stewart - 200,000* - -

S A Cameron - 200,000* - -

P G Nankervis 200,000* - - -

N Sparks 200,000* - - -

Other key management personnel of the Group

J Murray - 300,000 - -

D G Cust - 81,204 - -

Grant date Expiry date Exercise price Value at exercise date Date exercisable

29 November 2005 28 November 2010 $0.60 $0.203 29 November 2007



2 October 2006 2 October 2011 $0.55 * $0.290 2 October 2008



23 November 2006 28 November 2011 $0.75 * $0.599 29 November 2008

23 November 2006 28 November 2011 $1.05 * $0.463 29 November 2008

2 April 2007 2 April 2012 $1.42 * $0.288 2 April 2009

2 April 2007 30 September 2011 $1.55 * $0.234 1 October 2008


38

D Share-based compensation (continued)

The terms and conditions of each grant of options affecting remuneration in this and previous reporting periods are as follows:

* The dilution to existing shareholders caused by the rights issue has led to a reduction in the exercise price of options on issue at the date of the

rights issue. The reduction was 4.7 cents per option.

When exercisable, each option is convertible into one ordinary share. Options may only be exercised in accordance with the

company policy on trading in securities. The exercise price of options is determined by the Human Resources, Remuneration

and Nomination Committee at the date of grant.

Details of options over ordinary shares in the company provided as remuneration to each director of Mitchell Communication

Group Limited and each of the key management personnel of the Group are set out below. When exercisable, each option is

convertible into one ordinary share of Mitchell Communication Group Limited. Further information on the options is set out in

note 37 to the fi nancial statements.

* Options granted during the year were forfeited in full on 25 June 2008



For

per

sona

l use

onl

y

Date of

exercise of

options

Number of ordinary shares

issued on exercise of options

during the year

2008 2007


R J Stewart 10 April 2007 - 200,000

Other key management personnel of the Group

L A Stephens 3 October 2006 - 1,500,000

D G Cust 1 March 2007 - 300,000

39

The assessed fair value at grant date of options granted to the 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 determined using an

enhanced Hull-White Trinomial Lattice option pricing model that takes into account the exercise price, the term of the option,

the vesting criteria, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected

price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.

The model inputs for options granted during the year ended 30 June 2008 included:

(a) options were granted for no consideration, and vest two years after grant date

(b) exercise price: $1.50 (2007 – $0.55, $0.65, $0.75, $1.05, $1.42, $1.55)

(c) grant date: 29 November 2007 (2007 – 2 October 2006, 23 November 2006, 2 April 2007)

(d) vesting date: 29 November 2009 (2007 – 2 October 2008, 29 November 2008, 2 April 2009, 1 October 2008)

(e) expiry date: 29 November 2012 (2007 – 2 October 2011, 29 November 2011, 2 April 2011, 30 September 2011)

(f) share price at grant date: $1.17 (2007 – $0.915, $1.30, $1.27)

(g) expected price volatility of the company’s shares: between 21% and 42% (2007 – between 26% and 56%)

(h) expected dividend yield: between 3.9% and 5.5% (2007 – between 1.5% and 5.0%)

(i) risk-free interest rate: 6.25% (2007: 6.27%)

Shares provided on exercise of remuneration options

Details of ordinary shares in the company provided as a result of the exercise of remuneration options to key management

personnel of the Group are set out below.

E Additional information

Principles used to determine the nature and amount of remuneration: relationship between remuneration and company

performance

The overall level of executive reward takes into account the performance of the Group over a number of years, with greater

emphasis given to the current year. Over the past fi ve years, the Group’s profi t from ordinary activities after income tax has

grown at an average rate of 213% per annum, and total shareholder return has grown at an average rate of 127% per annum.

During the same period, average executive remuneration has grown at an average of 27% per annum.

For

per

sona

l use

onl

y

40

E Additional information (continued)

Details of remuneration: Cash bonuses and options

For each cash bonus and grant of options included in the tables on pages 34 to 39, the percentage of the available bonus or

grant that was paid, or that vested, in the fi nancial year, and the percentage that was forfeited because the person did not meet

the service and performance criteria is set out below. No part of the bonuses or grants of options are payable in future years.

Share-based compensation: Options

Further details relating to options are set out below.

A = The percentage of the value of remuneration consisting of options, based on the value at grant date set out in column B.

B = The value at grant date calculated in accordance with AASB 2 Share-based payments of options granted during the year as part of

remuneration.

C = The value at exercise date of options that were granted as part of remuneration and were exercised during the year.

D = The value at lapse date of options that were granted as part of remuneration and that lapsed during the year.

Loans to directors

Information on loans to directors is set out in note 27 to the fi nancial statements.

Cash bonus Options

Paid ForfeitedYear

GrantedVested Forfeited

Financial

years in which

options vest

Minimum total

value of grant

yet to vest

Maximum total

value of grant

yet to vest

% % % % $ $

H C Mitchell - - 2007 - 100% - - -

G A Hounsell - - 2007 - 100% - - -

R J Stewart - - 2007 - 100% - - -

S A Cameron - - 2007 - 100% - - -

P G Nankervis - - 2008 - 100% - - -

N Sparks - - 2008 - 100% - - -

S Mitchell 85 15 - - - - - -

A Charles 83.3 16.7 - - - - - -

J White 83.3 16.7 - - - - - -

J Murray 100 - 2007 - - 30/6/2009 70,284 70,284

L Littlefi eld 83.3 16.7 - - - - - -

D G Cust - - 2007 - - 30/6/2009 21,034 21,034

A B C D E

Remuneration

consisting of

options

Value at grant

date

Value at

exercise date

Value at lapse

date

Total of

columns B-D

% $ $ $ $

J Murray 11% 70,284 - - 70,284

D G Cust 4% 21,034 - - 21,034



For

per

sona

l use

onl

y

Consolidated

During the year the following fees were paid or payable for services provided by the auditor

of the parent entity, its related practices and non-related audit fi rms: 2008 2007

Audit services $ $

PricewaterhouseCoopers – Australian fi rm:

Audit and review of fi nancial reports and other audit work under the Corporations Act 2001 338,550 445,505

Agreed upon procedures 5,000 -

Related practices of PricewaterhouseCoopers Australian fi rm 44,950 -

Non-PricewaterhouseCoopers audit fi rms for the audit or review of fi nancial reports of any entity

in the group - 12,390

Total audit and other assurance services 388,500 457,895

41

Shares under option

Unissued ordinary shares of Mitchell Communication Group Limited under option at the date of this report are as follows:

No option holder has any right under the options to participate in any other share issue of the company or of any other entity.

Shares issued on the exercise of options

There were no ordinary shares of Mitchell Communication Group Limited issued during the year ended 30 June 2008 and

subsequent to the end of the fi nancial year on the exercise of options granted under the Mitchell Communication Group Limited

Employee Option Plan.

Insurance of offi cers

During the period, Mitchell Communication Group Limited paid a premium of $45,948 to insure the directors and offi cers of the

company and its controlled entities.

The liabilities insured are costs and any damages, judgments or settlements that may be incurred in defending civil or criminal

proceedings that may be brought against the offi cers in their capacity as offi cers of entities in the Group.

Proceedings on behalf of company

No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf

of the company, or to intervene in any proceedings to which the company is a party, for the purpose of taking responsibility on

behalf of the company for all or part of those proceedings.

No proceedings have been brought or intervened in on behalf of the company with leave of the Court under section 237 of the

Corporations Act 2001.

Non-audit services

During the year ended 30 June 2008, the company did not use the auditor (PricewaterhouseCoopers) for any non-audit related

services.

Details of the amounts paid or payable to the auditor for audit and non-audit services provided during the year are set out below.

NumberIssue price of

sharesGrant date

First exercise

dateExpiry date

Mitchell Communication Group Limited

Employee Option Plan options

150,767 $0.55 2 Oct 2006 2 Oct 2008 2 Oct 2011

150,767 $0.65 2 Oct 2006 2 Oct 2008 2 Oct 2011

150,767 $0.75 2 Oct 2006 2 Oct 2008 2 Oct 2011

300,000 $1.55 2 April 2007 1 Oct 2008 30 Sept 2011

Total 752,301

For

per

sona

l use

onl

y

42

Auditors’ Independence Declaration

A copy of the auditors’ independence declaration as required under section 307C of the Corporations Act 2001 is set out on page

43.

Rounding of amounts

The company is of a kind referred to in Class Order 98/100, issued by the Australian Securities & Investments Commission,

relating to the “rounding off” of amounts in the directors’ report. Amounts in the directors’ report have been rounded off in

accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar.

This report is made in accordance with a resolution of the directors.

Harold C Mitchell AO

Executive Chairman

Melbourne, 30 September 2008


or p

erso

nal u

se o

nly

43

PricewaterhouseCoopersABN 52 780 433 757

Freshwater Place2 Southbank BoulevardSOUTHBANK VIC 3006GPO Box 1331LMELBOURNE VIC 3001DX 77Telephone 61 3 8603 1000Facsimile 61 3 8603 1999

Auditor’s Independence Declaration

As lead auditor for the audit of Mitchell Communication Group Limited for the year ended 30 June2008 I declare that to the best of my knowledge and belief, there have been:

a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in

relation to the audit; and

b) no contraventions of any applicable code of professional conduct in relation to the audit.

This declaration is in respect of Mitchell Communication Group Limited and the entities it controlledduring the period.

John Yeoman MelbournePartner 30 September 2008PricewaterhouseCoopers

For

per

sona

l use

onl

y

Corporate governance statement

Mitchell Communication Group Limited (the company) and the Board are committed to achieving and demonstrating the highest

standards of corporate governance. An extensive review of the company’s corporate governance framework was completed

in September 2003 in light of the best practice recommendations released by the Australian Stock Exchange Corporate

Governance Council in March 2003. The corporate governance framework is continually reviewed to ensure best practice

developments are incorporated. Changes to the company’s governance arrangements made in the course of the last year are

highlighted in this statement.

The company acknowledges the requirement to report against the Revised Principles released on 2 August 2007 in the annual

report for the fi nancial year ending 30 June 2009 and has elected not to make an early transition to the Revised Principles for

the 2008 annual report.

A description of the company’s main corporate governance practices is set out below. All these practices, unless otherwise

stated, were in place for the entire year. In order to assist shareholders understand the approach taken by the company to

corporate governance, the report has been set out using the same headings as used by the ASX Corporate Governance Council’s

“Principals of Good Corporate Governance”.

Principle 1

Lay Solid Foundations for Management and Oversight by the Board

The Board of Directors is responsible for guiding and monitoring the company on behalf of the shareholders by whom it is

elected and to whom it is accountable. In discharging its stewardship it makes use of sub-Committees which are able to

focus in greater detail on relevant issues in their areas of responsibility. The current Committees are Human Resources,

Remuneration and Nomination Committee and Audit and Corporate Governance Committee.

The key functions of the Board of Directors are:

to set strategic direction and to manage and monitor strategy against key objectives and targets;

adopting the annual budget and monitoring performance on a regular basis;

appointment and removal of the CEO and setting appropriate remuneration and performance targets;

appointment and removal of the Company Secretary;

approval of the appointment (and removal) of the Chief Financial Offi cer;

monitoring and reviewing the performance of management;

set in place effective audit, compliance and control mechanisms;

ensuring the company has effective risk management processes;

approving and monitoring fi nancial and other reporting;

approving and monitoring the progress of major capital expenditure, acquisitions and divestitures;

reviewing Board performance and remuneration and ensuring a formal and transparent Board nomination process;

ensuring that the company complies with the law and has a high standard of ethical behaviour; and

monitoring and managing potential confl icts of interest of management, Board members and shareholders.

Management’s responsibilities are:

to be responsible to the Board for the overall performance of the company;

establishing the strategic direction of the company in conjunction with, and for approval by the Board;

implementing decisions in accordance with the strategic direction of the company as approved by the Board;

providing leadership and direction for all staff;

maintaining an effective risk management and internal control system;

ensuring integrity and timeliness of reporting to the Board and shareholders; and

ensuring that all management and staff comply with company policies.

44

For

per

sona

l use

onl

y

The Chairman’s role is to ensure that the relationship between the Board, management, shareholders, other stakeholders and

the individual directors is effective, effi cient and further the best interests of the company, shareholders, the Board and other

stakeholders.

The Board meets monthly, with special meetings called if required between scheduled meetings. Agendas are established to

ensure proper coverage of strategic, fi nancial and major risk areas throughout the year.

Principle 2

Structure the Board to Add Value

The Constitution of Mitchell Communication Group Limited allows for the appointment of up to twelve directors. There are

currently eight directors. Six directors are non-executive, fi ve of whom are considered independent by the Board. The directors

have been chosen so as to provide an appropriate mix of experience and qualifi cations for the governance of the company.

The Board of Mitchell Communication Group appreciates the need for corporate transparency and accountability whilst also

balancing the need for skills, commitment, effective knowledge management and workable Board size. The current level of skill

and experience is appropriate to ensure the highest level of scrutiny.

Mr Rob Stewart, Lead Independent Director, Mr Garry Hounsell, Deputy Chairman, Mr Stephen Cameron, Mr Peter Nankervis

and Ms Naseema Sparks are independent under ASX guidelines.

The Deputy Chairman, Mr Garry Hounsell, became independent on 1 July 2008 when a consultancy agreement lapsed.

Mr Rod Lamplugh is not independent under ASX guidelines (being associated directly with a substantial shareholder); however

he brings formal legal qualifi cations, which are highly regarded by the Board and management structure.

Mr Harold Mitchell AO, whilst not an independent Director (because he is Executive Chairman), has extensive industry

experience and knowledge and, as the founder of Mitchell & Partners, a company now owned by Mitchell Communication Group

Limited, he adds signifi cant historical knowledge and strategic vision at Board level as Executive Chairman. This is a departure

from ASX corporate governance recommendations, however the Board believes the Chairman is able, and does, bring quality and

independent judgement to all relevant issues falling within the scope of the role of the Chairman.

Mr Stuart Mitchell (Chief Executive Offi cer), whilst also not independent under ASX Guidelines, brings a combination of

professional expertise and industry knowledge (media placement) to the Board. These skills are highly regarded within the

company Board.

In summary, the company’s Board has a majority of independent directors, and the Board believes the current structure is

appropriate for the company and its current state of development. The company’s Code of Conduct also ensures that directors

are aware of their responsibilities in areas such as confl icts of interest and related party transactions.

The Board is committed to developing an ongoing dialogue with its key stakeholders over any matters of concern with Board

structure and/or independence.

The company recognises the need for a clear division of responsibility at the head of the company and as such, the roles of

Chairman and CEO roles have been separated.

Materiality is assessed on a case-by-case basis by reference to each director’s individual circumstances rather than applying

materiality thresholds.

One third of directors must retire from offi ce at the time of the Annual General Meeting each year. Directors are eligible for re-

election. The directors who retire by rotation are those with the longest period in offi ce since their appointment or last election.

At the time when any director is coming up for re-election, the Board considers that question and makes a conscious decision as

to whether to recommend the re-election to shareholders.

Directors and Board Committees have the right, in connection with their duties and responsibilities, to seek independent

professional advice at the company’s expense. Prior written approval of the Chairman is required, but this will not be

unreasonably withheld.

The Board has established a Human Resources, Remuneration and Nominations Committee. This Committee has the

responsibility for ensuring that proper human resource management and remuneration policies are developed and followed by

the company and for assisting the Board in reviewing the performance of the Board and individual directors and in selecting any

new directors. The committee follows the policy set down by the board for appointment of new directors.

The Committee is chaired by Mr Rob Stewart.

Details of directors’ attendance at Human Resources, Remuneration and Nominations Committee meetings are set out in the

Directors’ Report.

45

For

per

sona

l use

onl

y

The Committee’s responsibilities include:

assisting in the annual performance review of the CEO;

recommending to the Board the compensation and key performance targets for the CEO;

assisting in the performance review of the Board;

identifying, evaluating and recommending suitable candidates for appointment as directors;

recommending to the Board appropriate remuneration policies for non-executive directors;

approving compensation packages and performance targets for senior executives;

succession planning for the Board, CEO and key executives;

review of human resource and remuneration policies and practices for the company as brought forward by the CEO and

where appropriate, recommend adoption by the Board; and

review and approve recommendations from the CEO on appointments and terminations to senior executive positions

reporting to the CEO with the exception of the CFO and Company Secretary whose appointment or termination must be

approved by the Board.

The Charter of the Human Resources, Remuneration and Nominations Committee can be viewed on the company’s website.

Principle 3

Promote Ethical and Responsible Decision-making

The company has a Code of Conduct applicable to all directors and staff. The Code is based on the premise that, in all conduct,

the company directors and staff are to act honestly, diligently, lawfully and fairly. A copy of the Code is available on the

company’s website.

The company has also developed a Securities Trading Policy. This applies to all directors and staff and sets out the approach to

be followed should any of them wish to buy or sell Mitchell Communication Group Limited securities. A copy of this policy can

also be viewed on the company’s website.

Principle 4

Safeguard Integrity in Financial Reporting

The Board has established an Audit and Corporate Governance Committee with responsibility for ensuring that proper

accounting and auditing practices are maintained; that business risks are identifi ed and managed effectively; that assets are

protected against fi nancial loss; and that legal and regulatory obligations are met.

The Audit and Corporate Governance Committee is chaired by Mr Peter Nankervis.

Details of directors’ attendance at Audit and Corporate Governance Committee meetings are set out in the Directors’ Report.

The Committee also receives regular reports from the external auditors concerning any matters which arise in connection with

the performance of their role, including adequacy of internal controls. The Committee reports to the Board on its activities after

each meeting, and copies of the minutes of the Committee’s meetings are provided to all directors.

Its role includes:

reviewing reports submitted by external auditors;

reviewing and recommending to the Board for approval half-yearly and yearly fi nancial statements;

reviewing the performance of the auditors and recommending to the Board any change in the company’s auditors;

monitoring and confi rming to the Board the continuing independence of the external auditors and the level of assurance

given by the auditors;

monitoring regulatory compliance;

evaluating the appropriateness of the company’s administrative, operating and accounting policies; and

risk management generally (including such issues as insurances, management of information systems and

internal controls).

46

Corporate governance statement (continued)F

or p

erso

nal u

se o

nly

The removal and nomination of auditors will be determined in accordance with the Corporations Act 2001.

The Charter of the Audit and Corporate Governance Committee can be viewed on the company’s website.

The CEO and the CFO are required to state to the Board in writing, at the time of submitting the half-year and full year accounts

for Board approval, that the company’s fi nancial reports are complete and present a true and fair view, in all material respects,

of the fi nancial condition and operational results of the company and Group and are in accordance with relevant accounting

standards and that the company’s risk management and internal compliance and control system is operating effi ciently and

effectively in all material respects.

Principle 5

Make Timely and Balanced Disclosure

The Board has adopted a Disclosure Protocol to ensure the timely and appropriate release of disclosable information to the

market in accordance with the ASX Listing Rules. Details of the Protocol are available on the company’s website.

Mr Dion Cust, Company Secretary has been appointed as the Continuous Disclosure Offi cer. The Chairman or CEO approve the

fi nal form of announcements, subject to any comments from directors, who are given the opportunity to comment on proposed

material announcements prior to their release.

Principle 6

Respect the Rights of Shareholders

It is a fundamental tenet that the Board must act in the interests of all shareholders and, when Board decisions may affect

different shareholder groups differently, the Board must treat all shareholders fairly.

The company is committed to ensuring that shareholder’s are fully informed of the company’s affairs. Effective communications

with shareholders is, therefore, very important. The ways in which the company does this include:

Regular reports to shareholders, including the company’s Annual Report;

The Annual General Meeting, where the external auditor is in attendance to answer any shareholder questions about the

audit and the auditor’s report; and

Disclosure of all announcements made to the ASX on the company website, located at www.mitchells.com.au, as soon as

they have been lodged.

Principle 7

Recognise and Manage Risk

It is a key part of the role of the Audit and Corporate Governance Committee to oversee the establishment and implementation of

the risk management system.

The company has, taking into account its current size and structure, a relatively strong system of internal controls.

During the year a risk management framework and register was formerly developed and adopted.

Principle 8

Encourage Enhanced Performance

The expected performance of the CEO and the senior executive staff reporting directly to him is specifi ed each year using key

performance indicators. These KPI’s include, where appropriate, fi nancial targets for the company overall as well as personal

objectives and targets, appropriate for each individual’s role.

The Human Resources, Remuneration and Nominations Committee assists the Board to address the various issues in this

area (see Principle 2 above). The CEO reviews the performance of staff reporting directly to him and makes recommendations

to the Committee for approval. The CEO’s own performance is reviewed by the Board, facilitated by the Human Resources,

Remuneration and Nominations Committee and the Chairman.

Enhanced performance by executives and senior staff is encouraged by structuring their remuneration with fi xed and variable

elements.

It is vital that directors are provided with and have access to all relevant information to enable them to properly discharge their

duties. Management is responsible for ensuring that reporting to the Board is comprehensive and timely.

47

For

per

sona

l use

onl

y

Directors can request from management (through the CEO, CFO or the Company Secretary) whatever information they require

to enable the Board to make informed decisions. As mentioned previously, if necessary, directors may also access independent

professional advice at the company’s expense.

The Company Secretary is appointed, and can only be removed, by the Board and is accountable to the Board on all governance

matters.

Principle 9

Remunerate Fairly and Responsibly

The company’s remuneration policy has been set to ensure that remuneration of all directors and all staff properly refl ects each

person’s accountabilities, duties and their level of performance, and to ensure that remuneration is competitive in attracting,

motivating and retaining staff of the highest quality.

All remuneration packages are reviewed at least annually, taking into account individual and company performance, market

movements and expert advice.

The remuneration of non-executive directors consists of a fi xed fee, with the total payable not exceeding a global limit (currently

$1,500,000) set by shareholders at a General Meeting from time to time. Directors do not receive a fee for their membership of

Committees of the Board other than Chair’s of Committees.

Directors are not entitled to retirement benefi ts.

The remuneration of the CEO and senior executives comprises the following four elements:

Fixed salary;

Short term incentives;

Long term incentives; and

Superannuation.

Short term incentives are payable based on a formula based on achievement of budget as approved by the Board, achievement

of a defi ned level of out-performance and the assessment of qualitative criteria.

Long term incentives consist of past membership of the Mitchell Communication Group Limited Employee Option Plan.

Details of remuneration paid to directors and senior executives are set out in full in the Directors Report on pages 31 to 41.

Principle 10

Recognising Legitimate Interests of Shareholders

The company has a Code of Conduct applicable to all directors and staff. The Code is based on the premise that, in all conduct,

the company directors and staff are to act honestly, diligently, lawfully and fairly. The Code will be regularly reviewed and

updated to ensure it refl ects the highest standards of behaviour and professionalism.

In summary, the Code requires that all company personnel operate openly, honestly, with integrity and responsibility whilst

maintaining a strong sense of corporate and social responsibility. The Code includes a mechanism for employees to report any

breach of the Code without fear of retribution.

48

Corporate governance statement (continued)F

or p

erso

nal u

se o

nly

Financial report – 30 June 2008

This fi nancial report covers both Mitchell Communication Group Limited as an individual entity and the consolidated

entity consisting of Mitchell Communication Group Limited and its controlled entities. The fi nancial report is presented

in Australian currency.

Mitchell Communication Group Limited is a company limited by shares, incorporated and domiciled in Australia.

Its registered offi ce and principal place of business is:


105 York Street

South Melbourne Vic 3205

A description of the nature of the Group’s operations and its principal activities is included in the review of operations and

activities on pages 10 to 23 and in the directors’ report on pages 26 to 42, both of which are not part of this fi nancial report.

The fi nancial report was authorised for release by the directors on 24 September 2008. The company has the power to amend

and reissue the fi nancial report.

Press releases and other information are available on our website: www.mitchells.com.au

For queries in relation to our reporting please call (03) 9690 5544 or e-mail [email protected]

Contents Page

Financial report – 30 June 2008 49

Income statements 50

Balance sheets 51

Statements of changes in equity 52

Cash fl ow statements 54

Notes to the fi nancial statements 55

Directors’ declaration 105

Independant audit report to the members 106

49

For

per

sona

l use

onl

y

Consolidated Parent entity

2008 2007 2008 2007

Note $’000 $’000 $’000 $’000

Revenues from the rendering of services 5 187,796 81,231 - 41,231

Other revenue 5 2,976 1,278 11,473 2,460

190,772 82,509 11,473 43,691

Cost of revenue

- Media delivery expenses 95,869 51,992 - 30,905

Total cost of revenue 95,869 51,992 - 30,905

Gross profi t before expenses 94,903 30,517 11,473 12,786

Other income 6 47 542 - 480

Expenses

- Employee, director and contractor expenses 44,409 11,815 5,177 4,618

- Finance expenses 7 3,655 571 3,627 508

- Occupancy expense 3,585 776 84 236

- Travel and accommodation expense 2,803 847 574 372

- Media research expense 2,744 845 - 139

- Accounting, legal and consultant’s expenses 1,822 704 1,236 316

- Software and infrastructure maintenance expense 1,009 259 47 54

- Communication expenses 943 152 60 42

- Insurance expenses 820 252 63 65

- Other operating expenses 2,899 1,143 576 462

Total expenses 64,689 17,364 11,444 6,812

Share of net profi ts/(losses) of joint venture entity accounted

for using the equity method 34 (13) 112 - -

Profi t before income tax expense, depreciation and

amortisation 30,248 13,807 29 6,454

Depreciation and amortisation expenses 7 3,711 973 128 199

Profi t/(loss) before income tax expense 26,537 12,834 (99) 6,255

Income tax (benefi t)/expense 8 7,720 3,826 (2,830) 1,402

Profi t after income tax attributable to members of the

company before minority interest 18,817 9,008 2,731 4,853

Minority interest 633 25 - -

Profi t after income tax attributable to members of the

company after minority interest 18,184 8,983 2,731 4,853

Basic earnings per share (cents) 36 6.5 4.5

Diluted earnings per share (cents) 36 6.5 4.4

Income statements

For the year-ended 30 June 2008

The above income statements should be read in conjunction with the accompanying notes.

50

For

per

sona

l use

onl

y


2008 2007 2008 2007

Note $’000 $’000 $’000 $’000

ASSETS

Current assets

Cash and cash equivalents 9 73,318 62,100 10,146 8,609

Trade and other receivables 10 146,368 123,104 39,415 9,360

Other assets 11 9,471 6,308 2,389 7,707

Current tax assets 15 1,705 1,046 424 182

Total current assets 230,862 192,558 52,374 25,858

Non-current assets

Receivables 12 - 154 - 154

Other fi nancial assets 13 - - 188,127 171,981

Property, plant and equipment 14 5,993 3,023 623 415

Deferred tax assets 15 77 340 77 265

Intangible assets 16 204,559 160,204 207 913

Total non-current assets 210,629 163,721 189,034 173,728

Total assets 441,491 356,279 241,408 199,586

LIABILITIES

Current liabilities

Trade and other payables 17 218,255 190,841 2,275 14,048

Other Financial Liabilities 18 6,101 45,415 52,178 74,126

Provisions 19 2,268 1,903 199 39

Current tax liabilities 3,902 3,410 4,466 3,100

Total current liabilities 230,526 241,569 59,118 91,313

Non-current liabilities

Borrowings 20 60,000 26,000 60,000 26,000

Deferred tax liabilities 21 1,696 1,870 - -

Provisions 22 989 292 84 43

Other fi nancial liabilities 23 279 575 279 575

Total non-current liabilities 62,964 28,737 60,363 26,618

Total liabilities 293,490 270,306 119,481 117,931

Net assets 148,001 85,973 121,927 81,655

EQUITY

Contributed equity 24 133,071 86,944 133,071 86,944

Reserves 25(a) (220) 335 163 238

Accumulated earnings/(losses) 25(b) 8,318 (1,331) (11,307) (5,527)

Parent entity interest 141,169 85,948 121,927 81,655

Minority interest 6,832 25 - -

Total equity 148,001 85,973 121,927 81,655

Balance sheets

As at 30 June 2008

The above balance sheets should be read in conjunction with the accompanying notes.

51

For

per

sona

l use

onl

y

Consolidated June 2008

Issued

capital

Retained

earnings

Equity

plan

reserve

Foreign

currency

reserve

Minority

interestTotal

Note $’000 $’000 $’000 $’000 $’000 $’000

At 1 July 2007 86,944 (1,331) 238 97 25 85,973

Profi t for the year - 18,184 - - 633 18,817

Total recognised income and expense for

the period - 18,184 - - 633 18,817

Dividends declared and paid 26 - (8,535) - - - (8,535)

Share consideration on acquisitions 24 8,178 - - - - 8,178

Share placement and share purchase plan 24 39,904 - - - - 39,904

Share buy back 24 (923) - - - - (923)

Transaction costs arising on share issues

(net of tax) 24 (1,032) - - - - (1,032)

Minority interest 49% of M&P WA - - - - 6,174 6,174

Foreign currency translation 25(a) - - - (480) - (480)

Share-based payments 25(a) - - (75) - - (75)

At 30 June 2008 133,071 8,318 163 (383) 6,832 148,001

Consolidated June 2008

Issued

capital

Retained

earnings

Equity

plan

reserve

Foreign

currency

reserve

Minority

interestTotal

Note $’000 $’000 $’000 $’000 $’000 $’000

At 1 July 2006 20,933 (6,398) 51 6 - 14,592

Profi t for the year - 8,983 - - 25 9,008


the period - 8,983 - - 25 9,008

Dividends declared and paid 26 - (3,916) - - - (3,916)

Share consideration on acquisitions 24 22,848 - - - - 22,848

Share placement and share purchase plan 24 43,681 - - - - 43,681

Share buy back 24 872 - - - - 872


(net of tax) 24 (1,390) - - - - (1,390)

Foreign currency translation 25(a) - - - 91 - 91

Share-based payments 25(a) - - 187 - - 187

At 30 June 2007 86,944 (1,331) 238 97 25 85,973

Statements of changes in equity

For the year ended 30 June 2008

The above statements of changes in equity should be read in conjunction with the accompanying notes

52

For

per

sona

l use

onl

y

Parent entity June 2008

Issued capitalRetained

earnings

Equity plan

reserveTotal

Note $’000 $’000 $’000 $’000

At 1 July 2007 86,944 (5,527) 238 81,655

Profi t for the year - 2,731 - 2,731


the period - 2,731 - 2,731

Dividends declared and paid 26 - (8,511) - (8,511)

Share consideration on acquisitions 24 8,178 - - 8,178

Share placement and share purchase plan 24 39,904 - - 39,904

Share buy back 24 (923) - - (923)


(net of tax) 24 (1,032) - - (1,032)

Share-based payments 25(a) - - (75) (75)

At 30 June 2008 133,071 (11,307) 163 121,927

Parent entity June 2007

Issued capitalRetained

earnings

Equity plan

reserveTotal

Note $’000 $’000 $’000 $’000

At 1 July 2006 20,933 (6,464) 51 14,520

Profi t for the year - 4,853 - 4,853


the period - 4,853 - 4,853

Dividends declared and paid 26 - (3,916) - (3,916)

Share consideration on acquisitions 24 22,848 - - 22,848

Rights issue 24 43,681 - - 43,681

Options exercised 24 872 - - 872


(net of tax) 24 (1,390) - - (1,390)

Share-based payments 25(a) - - 187 187

At 30 June 2007 86,944 (5,527) 238 81,655

Statements of changes in equity (continued)


The above statements of changes in equity should be read in conjunction with the accompanying notes.

53

For

per

sona

l use

onl

y

Cash fl ow statements



2008 2007 2008 2007

Note $’000 $’000 $’000 $’000

Cash fl ows from operating activities

Cash receipts in the course of operations 1,280,457 336,023 3,197 43,362

Cash payments in the course of operations (1,246,346) (303,408) (6,898) (37,835)

Interest received 2,976 1,240 232 498

Borrowing costs (3,331) (87) (3,302) (24)

Income taxes paid (7,825) (2,274) (4,688) (1,093)

Net cash infl ow/(outfl ow) from operating activities 35 25,931 31,494 (11,459) 4,908

Cash fl ows from investing activities

Payment for purchase of subsidiary, net of cash acquired 32 (34,739) (41,761) (15,602) (68,122)

Payments for plant and equipment (3,443) (594) (691) (273)

Payments for intangible software assets (430) (38) (236) -

Proceeds from sale of plant and equipment 35 180 - 6

Dividends received 187 - 187 -

Proceeds from sale of joint venture 274 - 274 -

Investment in joint venture (13) - (13) -

Repayment of other loans 6 166 - -

Loans to related parties (16) (125) - 421

Loans from related parties 845 - 4,835 -

Repayment of loans by joint venture entity - 40 - 40

Net cash outfl ow from investing activities (37,294) (42,132) (11,246) (67,928)

Cash fl ows from fi nancing activities

Proceeds of issue of shares 41,189 44,552 41,189 44,552

Share issue costs (928) (187) (928) (187)

Share buy-back (923) - (923)

Proceeds of borrowings net of transaction costs 33,829 25,856 33,829 25,856

Repayment of non-interest bearing liabilities (61) (193) - -

Repayment of lease liabilities (1,055) - - -

Payment of deferred consideration (40,414) - (40,414) -

Dividends paid 26 (8,535) (3,916) (8,511) (3,916)

Net cash infl ow from fi nancing activities 23,102 66,112 24,242 66,305

Net increase in cash held 11,739 55,474 1,537 3,285

Cash at the beginning of the fi nancial year 62,100 6,561 8,609 5,324

Effects of exchange rate changes on cash and cash

equivalents (521) 65 - -

Cash at the end of the fi nancial year 9 73,318 62,100 10,146 8,609

The above statements of cash fl ows should be read in conjunction with the accompanying notes

54

For

per

sona

l use

onl

y

Notes to the fi nancial statements

30 June 2008

Note Contents Page

1 Summary of signifi cant accounting policies 56

2 Financial risk management 63

3 Critical accounting estimates and judgements 64

4 Segment information 65

5 Revenue 67

6 Other income 68

7 Expenses 68

8 Income tax 69

Current assets

9 Cash and cash equivalents 70

10 Trade and other receivables 70

11 Other assets 71

Non-current assets

12 Receivables 72

13 Other fi nancial assets 72

14 Property, plant and equipment 73

15 Deferred tax assets 75

16 Intangible assets 76

Current liabilities

17 Trade and other payables 78

18 Other fi nancial liabilities 79

19 Provisions 79

Non-current liabilities

20 Borrowings 79

21 Deferred tax liabilities 81

22 Provisions 81

23 Other fi nancial liabilities 82

Equity

24 Contributed equity 82

25 Reserves and accumulated earnings/(losses) 85

26 Dividends 85

27 Key management personnel disclosures 86

28 Remuneration of auditors 90

29 Contingencies 90

30 Commitments 90

31 Related parties 91

32 Business combinations 92

33 Investments in controlled entities 100

34 Interests in joint ventures 100

35 Reconciliation of profi t after income tax to net cash infl ow from operating activities 101

36 Earnings per share 102

37 Share-based payments 102

38 Events occurring after reporting date 104

55

For

per

sona

l use

onl

y

Notes to the fi nancial statements (continued)

30 June 2008

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of the fi nancial report are set out below. These policies have been

consistently applied to all the periods presented, unless otherwise stated. The fi nancial report includes separate fi nancial

statements for Mitchell Communication Group Limited as an individual entity and the consolidated entity consisting of Mitchell

Communication Group Limited and its subsidiaries.

(a) Basis of preparation

This general purpose fi nancial report for the fi nancial year ended 30 June 2008 has been prepared in accordance with Australian

equivalents to International Financial Reporting Standards (AIFRSs), other authoritative pronouncements of the Australian

Accounting Standards Board, Urgent Issues Group and the Corporations Act 2001.

Compliance with IFRSs

Australian Accounting Standards include AIFRSs. Compliance with AIFRSs ensures that the consolidated fi nancial statements

and notes of Mitchell Communication Group Limited comply with International Financial Reporting Standards (IFRSs)

Historical cost convention

These fi nancial statements have been prepared under the historical cost convention.

Critical accounting estimates

The preparation of fi nancial statements in conformity with AIFRS requires the use of certain critical accounting estimates.

It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas

involving a higher degree of judgement or complexity, or areas where assumptions and estimates are signifi cant to the fi nancial

statements, are disclosed in note 3.

(b) Principles of consolidation

(i) Subsidiaries

The consolidated fi nancial statements incorporate the assets and liabilities of all subsidiaries of Mitchell Communication Group

Limited (‘’company’’ or ‘’parent entity’’) as at 30 June 2008 and the results of all subsidiaries for the fi nancial year then ended.

Mitchell Communication Group Limited and its subsidiaries together are referred to in this fi nancial report as the Group.

Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the fi nancial

and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and

effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group

controls another entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the

date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to note 1(h)).

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated.

Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred.

Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the

Group.

Minority interests in the results and equity of subsidiaries are shown separately in the consolidated income statement and

balance sheet respectively.

(ii) Joint ventures

The interest in a joint venture entity is accounted for in the consolidated fi nancial statements using the equity method and is

carried at cost by the parent entity. Under the equity method, the share of the profi ts or losses of the entity is recognised in the

income statement, and the share of movements in reserves is recognised in reserves in the balance sheet. Details relating to

the joint venture entity are set out in note 34.

Profi ts or losses on transactions establishing the joint venture entity and transactions with the joint venture are eliminated to the

extent of the Group’s ownership interest until such time as they are realised by the joint venture entity on consumption or sale,

unless they relate to an unrealised loss that provides evidence of the impairment of an asset transferred.

56

For

per

sona

l use

onl

y

(c) Foreign currency translation

(i) Functional and presentation currency

Items included in the fi nancial statements of each of the Group’s entities are measured using the currency of the primary

economic environment in which the entity operates (‘the functional currency’). The consolidated fi nancial statements are

presented in Australian dollars, which is Mitchell Communication Group Limited’s functional and presentation currency.

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the

transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation

at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income

statement.

(iii) Group companies

The results and fi nancial position of all the Group entities (none of which has the currency of a hyperinfl ationary economy) that

have a functional currency different from the presentation currency are translated into the presentation currency as follows:

assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable

approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses

are translated at the dates of the transactions); and

all resulting exchange differences are recognised as a separate component of equity.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the

foreign entities and translated at the closing rate.

(d) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Intercompany revenue is eliminated based

on commissions earned by the mainstream media segment from sales by the digital and diversifi ed segments. Revenue is

recognised for the major business activities as follows:

(i) Media

The Media division acts as agent for its clients. Amounts disclosed as revenue represent the amount earned for planning,

buying and delivering media and is recognised in the period that the media is delivered and it is probable that the revenue will

be received, and are net of payments to media suppliers and rebates of commission to clients and to advertising agencies that

transact with the Group on behalf of their clients.

(ii) Digital

The Digital division acts as a principal and not as an agent in its transactions with clients and suppliers. Amounts disclosed as

revenue and gross billings represent the amount earned for planning, buying and delivering media impressions on third party

websites and is recognised in the period that the impression is delivered and it is probable that the revenue will be received.

This amount includes the value of the media impressions that are purchased from third party websites and sold to clients. The

Group is liable for the payment to third party websites for the cost of media impressions acquired from those websites.

Gross billings are shown before the deduction of commissions allowed to advertising agencies that transact with the Group on

behalf of their clients. Amounts disclosed as revenue are shown net of these commissions.

(iii) Diversifi ed

Revenue from the delivery of services is recognised upon the delivery of the service. Revenue relating to a specifi c contract is

recognised based over the contract and service period. Income received in advance of the service or contract period is recorded

as unearned revenue. Amounts disclosed as revenue are net of commissions paid to advertising agencies that transact with the

Group on behalf of their clients.

(iv) Interest income

Interest income is recognised on a time proportion basis using the effective interest method

(e) Deferred revenue

Deferred revenue represents gross billings received in advance for which the media has not yet been delivered. These amounts

are recognised as revenue in accordance with the revenue recognition policy in note 1(d).

57

For

per

sona

l use

onl

y


30 June 2008

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(f) Income tax

The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the

national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary

differences between the tax bases of assets and liabilities and their carrying amounts in the fi nancial statements, and to unused

tax losses.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets

are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction.

The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the

deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an

asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a

transaction, other than a business combination, that at the time of the transaction did not affect either accounting profi t or

taxable profi t or loss.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future

taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases

of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary

differences and it is probable that the differences will not reverse in the foreseeable future.

Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.

Tax consolidation legislation

Mitchell Communication Group Limited and its wholly-owned Australian controlled entities have implemented the tax

consolidation legislation as of 1 July 2006.

The head entity, Mitchell Communication Group Limited, and the controlled entities in the tax consolidated group continue

to account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax

consolidated group continues to be a stand alone taxpayer in its own right.

Mitchell Communication Group Limited has fi nalised a Tax-funding and Sharing Agreement. Under the Agreement the

wholly-owned entities fully compensate Mitchell Communication Group Limited for any current tax payable assumed and are

compensated by Mitchell Communication Group Limited for any current tax receivable and deferred tax assets relating to

unused tax losses or unused tax credits that are transferred to Mitchell Communication Group Limited under tax consolidation

legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ fi nancial

accounts.

In addition to its own current and deferred tax amounts, Mitchell Communication Group Limited also recognises the current tax

liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled

entities in the tax consolidated group.

Assets or liabilities arising under tax-funding agreements with the tax consolidated entities are recognised as amounts

receivable from or payable to other entities in the group.

Any difference between the amounts assumed and amounts receivable or payable under the tax-funding agreement are

recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities.

(g) Leases

Leases in which a signifi cant portion of the risks and rewards of ownership are retained by the lessor are classifi ed as operating

leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income

statement on a straight line basis over the period of the lease.

(h) Business combinations

The purchase method of accounting is used to account for all business combinations, including business combinations involving

entities or businesses under common control regardless of whether equity instruments or other assets are acquired. Cost is

measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus

costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the value of the instruments

is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the

58

For

per

sona

l use

onl

y

published price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods

provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised

directly in equity.

Identifi able assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially

at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition

over the fair value of the Group’s share of the identifi able net assets acquired is recorded as goodwill (refer to note 1(p)). If the

cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in

the income statement, but only after a reassessment of the identifi cation and measurement of the net assets acquired.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their

present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at

which a similar borrowing could be obtained from an independent fi nancier under comparable terms and conditions.

(i) Impairment of assets

Assets that have an indefi nite useful life are not subject to amortisation and 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 for the amount by which the asset’s carrying amount exceeds

its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the

purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifi able cash fl ows

(cash generating units).

(j) Cash and cash equivalents

Cash and cash equivalents includes cash on hand, deposits held at call with fi nancial institutions, and other short term, highly

liquid investments with original maturities of three months or less that are instantly convertible to known amounts of cash and

which are subject to no risk of changes in value.

(k) Trade and other receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful

debts. Trade receivables are due for settlement no more than 45 days from the date of recognition.

Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off

by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is established

when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms

of receivables. Signifi cant fi nancial diffi culties of the debtor, probability the debtor will enter bankruptcy or fi nancial

reorganisation, and default on payment arrangements are considered indicators that the trade receivable is impaired. The

amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash

fl ows, discounted at the effective interest rate. Cash fl ows relating to short term receivables are not discounted if the effect of

discounting is immaterial.

The amount of the impairment loss is recognised in the income statement within other expenses. When a trade receivable for

which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the

allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the income

statement.

l) Investments and other fi nancial assets

The Group classifi es its investments as loans and receivables. The classifi cation depends on the purpose for which the

investments were acquired. Management determines the classifi cation of its investments at initial recognition and re-evaluates

this designation at each reporting date.

(i) Loans and receivables

Loans and receivables are non derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active

market. They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the

receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet

date which are classifi ed as non current assets. Loans and receivables are included in receivables in the balance sheet.

59

For

per

sona

l use

onl

y


30 June 2008


(m) Fair value estimation

The fair value of fi nancial assets and fi nancial liabilities must be estimated for recognition and measurement or for disclosure

purposes.

The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair

values. The fair value of fi nancial liabilities for disclosure purposes is estimated by discounting the future contractual cash fl ows

at the current market interest rate that is available to the Group for similar fi nancial instruments.

(n) Property, plant and equipment

Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly

attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is

probable that future economic benefi ts associated with the item will fl ow to the Group and the cost of the item can be measured

reliably. All other repairs and maintenance are charged to the income statement during the fi nancial period in which they are

incurred.

Depreciation on assets is calculated using the straight line method to allocate their cost, net of their residual values, over their

estimated useful lives, as follows:

Plant and equipment 3-10 years

Furniture and fi ttings 5-10 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than

its estimated recoverable amount (note 1(i)).

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income

statement.

(o) Leasehold improvements

The cost of improvements to or on leasehold properties is amortised over the unexpired period of the lease or the estimated

useful life of the improvements to the Group, whichever is the shorter. Lease hold improvements held at the reporting date are

being amortised over between 3 and 5 years.

(p) Intangible assets

(i) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifi able assets

of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries would be included in

intangible assets. Goodwill on acquisitions of associates would be included in investments in associates. Goodwill acquired

in business combinations will not be amortised. Instead, goodwill will be tested for impairment annually, or more frequently

if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment

losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash generating units for the purpose of impairment testing.

(ii) Software

Software has a fi nite useful life and is carried at cost less accumulated amortisation and impairment losses. Amortisation is

calculated using the straight-line method to allocate the cost of the software over its estimated useful life, which is currently

between 3 and 5 years.

(iii) Brand names

Brand names recognised by the company have an indefi nite useful life and are not amortised. Each period, the useful life of the

asset is reviewed to determine whether events and circumstances continue to support an indefi nite useful life assessment for

the asset.

60

For

per

sona

l use

onl

y

(iv) Customer relationships

Customer contracts acquired as part of a business combination are recognised separately from goodwill. The customer

relationships are carried at their fair value at the date of acquisition less accumulated amortisation and impairment losses.

Amortisation is calculated based on the timing of projected cash fl ows of the contracts over their estimated useful lives, which

currently vary from 7 to 10 years.

(v) Stadia rights

Stadia rights acquired as part of a business combination have a fi nite useful life and are carried at their fair value at the date

of the acquisition less accumulated amortisation and impairment losses. Amortisation is calculated based on the timing of

projected cash fl ows of the rights over their estimated useful lives, which vary from 6 to 18 months.

(q) Trade and other payables

These amounts represent liabilities for goods and services provided to the Group prior to the end of fi nancial year which are

unpaid. The amounts are unsecured and are usually paid within 45 days of recognition.

(r) Borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at

amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the

income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan

facilities, which are not incremental costs relating to the actual draw down of the facility, are recognised as prepayments and

amortised on a straight line basis over the term of the facility.

Borrowings are removed from the balance sheet when the obligation specifi ed in the contract is discharged, cancelled or

expired. The difference between the carrying amount of a fi nancial liability that has been extinguished or transferred to another

party and the consideration paid, including and non-cash assets transferred or liabilities assumed, is recognised in other

income or other expenses

Borrowings are classifi ed as current liabilities unless the Group has an unconditional right to defer settlement of the liability for

at least 12 months after the balance sheet date.

(s) Employee benefi ts

(i) Wages and salaries, annual leave and sick leave

Liabilities for wages and salaries, including non monetary benefi ts and annual leave expected to be settled within 12 months of

the reporting date are recognised in payables in respect of employees’ services up to the reporting date and are measured at the

amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the

leave is taken and measured at the rates paid or payable.

(ii) Long service leave

The liability for long service leave is recognised in provisions and measured as the present value of expected future payments to

be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage

and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using

market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as

possible, the estimated future cash outfl ows.

(iii) Share-based payments

Share-based compensation benefi ts have been provided to employees via the Mitchell Communication Group Limited Employee

Option Plan. The Plan has been closed and no new grants will be made in future.

The fair value of options granted under the Mitchell Communication Group Limited Employee Option Plan is recognised as an

employee benefi t expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over

the period during which the employees become unconditionally entitled to the options.

The fair value at grant date is independently determined using an enhanced Hull-White Trinomial Lattice option pricing model

that takes into account the exercise price, the term of the option, the vesting, the impact of dilution, the non-tradeable nature of

the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the

risk-free interest rate for the term of the option.

Upon the exercise of options, the balance of the share based payments reserve relating to those options is transferred to share

capital.

61

For

per

sona

l use

onl

y


30 June 2008


(s) Employee benifi ts (continued)

(iv) Bonus plans

The Group recognises a liability and an expense for bonuses based on a formula that takes into consideration revenue earned.

The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive

obligation and a reliable estimation of the obligation can be made.

(t) Contributed equity

Ordinary shares are classifi ed as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from

the proceeds. Incremental costs directly attributable to the issue of new shares or options are not included in the cost of the

acquisition as part of the purchase consideration.

If the entity re-acquires its own equity instruments, for example as the result of a share buy-back, those instruments are

deducted from equity and the associated shares are cancelled. No gain or loss is recognised in the profi t or loss and the

consideration paid including any directly attributable incremental costs (net of income taxes) is recognised directly in equity.

(u) Dividends

Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the

entity, on or before the end of the fi nancial year but not distributed at balance date.

(v) Earnings per share

(i) Basic earnings per share

Basic earnings per share is calculated by dividing the profi t attributable to equity holders of the company, excluding any costs of

servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the fi nancial

year, adjusted for bonus elements in ordinary shares issued during the fi nancial year.

(ii) Diluted earnings per share

Diluted earnings per share adjusts the fi gures used in the determination of basic earnings per share to take into account the

after income tax effect of interest and other fi nancing costs associated with dilutive potential ordinary shares and the weighted

average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

(w) Segment reporting

A business segment is a group of assets and operations engaged in providing services that are subject to risks and returns that

are different to those of other business segments. A geographical segment is engaged in providing products or services within

a particular economic environment and is subject to risks and returns that are different from those segments operating in other

economic environments.

(x) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable

from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable

from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet.

Cash fl ows are presented on a gross basis. The GST components of cash fl ows arising from investing or fi nancing activities

which are recoverable from, or payable to the taxation authority, are presented as operating cash fl ow.

(y) Rounding of amounts

The company is of a kind referred to in Class order 98/0100, issued by the Australian Securities and Investments Commission,

relating to the ‘’rounding off’’ of amounts in the fi nancial report. Amounts in the fi nancial report have been rounded off in

accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar.

62

For

per

sona

l use

onl

y

30 June 2008 30 June 2007

Weighted

average

interest rate

Balance

Weighted

average

interest rate

Balance

% $’000 % $’000

Bank loans 8.48% 60,000 7.25% 26,000

(z) New accounting standards and UIG interpretations

Certain new accounting standards and UIG interpretations have been published that are not mandatory for 30 June 2008

reporting periods. The Group’s assessment of the impact of these new standards and interpretations is set out below.

(i) AASB 8 Operating Segments

AASB 8 is applicable to reporting periods commencing on or after 1 January 2009. The Group has not adopted the standard

early. Application of the standards will not affect any of the amounts recognised in the fi nancial statements, but may impact the

type of information disclosed in relation to the Group’s operating segments.

(ii) Revised AASB 123 Borrowing Costs

Revised AASB 123 is applicable to reporting periods commencing on or after 1 January 2009. The Group has not adopted the

standard early. Application of the standards will not affect any of the amounts recognised in the fi nancial statements.

(iii) AASB 101 Presentation of Financial Statements

AASB 101 applicable to reporting periods commencing on or after 1 January 2009. The Group has not adopted the standard

early. Application of the standards will not affect any of the amounts recognised in the fi nancial statements, but will impact the

type of information disclosed in the fi nancial statements.

NOTE 2. FINANCIAL RISK MANAGEMENT

The Group’s activities expose it to a variety of fi nancial risks; market risk (including currency risk and fair value interest rate

risk), credit risk, liquidity risk and cash fl ow interest rate risk. The Group’s overall risk management program focuses on the

unpredictability of fi nancial markets and seeks to minimise potential adverse effects on the fi nancial performance of the Group.

The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity

analysis for interest rate and currency risk, and aging analysis for credit risk.

Risk management is carried out by the Chief Financial Offi cer under direction of the Board of Directors.

(a) Market risk

(i) Foreign exchange risk

Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a

currency that is not the entity’s functional currency.

The Group operates internationally and is exposed to foreign exchange risk arising from currency exposures to the New Zealand

dollar.

The international operations act as a natural hedge, with the only risk arising on translation to functional currency. No hedges

are in place for this translation risk on the basis of materiality. The carrying amounts of the parent entities fi nancial assets and

liabilities are wholly denominated in Australian dollars.

(ii) Cash fl ow and fair value interest rate risk

The Group holds its funds in cash and term deposits. Term deposit maturity dates are based on future operating cash fl ow

requirements. The value and term of the cash and deposits are such that the Group’s income and operating cash fl ows are not

materially exposed to changes in market interest rates.

The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to

cash fl ow interest rate risk. There is currently no group policy to fi x interest-rates. As at the reporting date, the Group had the

following variable rate borrowings denominated wholly in Australian Dollars:

The Group manages its interest rate exposure by actively managing excess cash balances to reduce the outstanding debt

balances. Interest rates on cash balances and borrowings are based on short-term money markets and act as a natural hedge

against interest rate movements. Cash on hand at 30 June 2008 held as a natural hedge was $73.318 million.

63

For

per

sona

l use

onl

y


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Trade Receivables

- Covered by credit insurance policy 120,266 104,176 292 7,012

- Not covered by credit insurance policy – media and digital 9,528 12,083 - 828

- Not covered by credit insurance policy – diversifi ed and corporate 9,386 3,207 - -

Total 139,180 119,466 292 7,840


30 June 2008

NOTE 2. FINANCIAL RISK MANAGEMENT (continued)

Group sensitivity

At 30 June 2008, if interest rates had changed by +/- 100 basis points from the year end rates with all other variables held

constant, post tax profi t for the year would have been $19,000 lower/higher (2007: change of +/- 100 bps: $79,000 higher/lower),

mainly as a result of higher interest expense on borrowing offset by higher interest revenue on bank deposits.

(b) Credit risk

Credit risk is managed on a segment basis. Credit risk arises from cash and cash equivalents as well as credit exposures on

clients, including outstanding receivables and commitments. The Group holds a mercantile insurance policy over the trade

receivable debts of all non-related party and government-related customers in the Media and Digital segments. The Group is

responsible for a deductible amount under the policy, which ranges from $nil to $200,000 in aggregate. The insurance policy

has minimum coverage levels and where the client spend is expected to fall beneath this level, the Group has policies in place to

ensure that appropriate checks are made to customer’s credit history, including checking trade references and obtaining a clear

adverse credit report. Client insurance limits are regularly checked against outstanding commitments with adjustments made

to credit limits as necessary.

The maximum exposure to credit risk at the reporting date is the carrying amount of the fi nancial assets. Refer to note 9 and 10

for further details.

The credit quality of fi nancial assets that are neither past due nor impaired can be assessed by reference to the level of

insurance coverage held:

The majority of the media and digital receivables not covered by insurance relate to clients where coverage is pending, or where

increased limits are being sought.

(c) Liquidity risk

Prudent liquidity risk management implies maintaining suffi cient cash balances to cover working capital needs, with excess

funds used to pay down debt or invested. These invested funds have varying maturity dates set with regards to potential cash

fl ow needs, with the ability to access the funds at any time. The group has the availability of funding through an adequate

amount of undrawn credit facilities – refer note 20. For details of the maturity profi le of fi nancial liabilities refer note 20.

(d) Cash fl ow and fair value interest rate risk

The Group holds its funds in cash, term deposits and 11am deposits. The value and term of the cash and deposits are such that

the Group’s income and operating cash fl ows are not materially exposed to changes in market interest rates.

The Group’s interest rate risk arises from long term borrowings. Borrowings issued at variable rates expose the Group to cash

fl ow interest rate risk. There is currently no group policy to fi x interest-rates.

NOTE 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including

expectations of future events that may have a fi nancial impact on the entity and that are believed to be reasonable under the

circumstances.

64

For

per

sona

l use

onl

y

(a) Critical accounting estimates

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by defi nition,

seldom equal the related actual results. The estimates and assumptions that have a signifi cant risk of causing a material

adjustment to the carrying amounts of assets and liabilities within the next fi nancial year are discussed below.

(i) Estimated impairment of goodwill and other indefi nite life intangible assets

The Group tests annually whether goodwill and other indefi nite life intangible assets has suffered any impairment, in accordance

with the accounting policy stated in note 1(p). The recoverable amounts of cash generating units have been determined

based on value in use calculations. These calculations require the use of assumptions. Refer to note 16 for details of these

assumptions. Management does not consider a change in any key assumptions will have a signifi cant risk of causing a material

adjustment to the carrying amount of the goodwill due to the large excess of value-in-use over the carrying amount of the

CGU’s.

(b) Critical accounting judgements

(i) Revenue recognition

The Group has made the judgement to recognise revenue from the Media division on an agency basis, while revenue from

the digital and diversifi ed segments is recognised as principal. Refer to note 1(d) for further details regarding the revenue

recognition policy of the Group.

NOTE 4. SEGMENT INFORMATION

(a) Description of segments

Business Segments

The Group is organised on a global basis into the following divisions by product and service type:

Media

The provision of services to clients for communications strategy and the planning and buying of traditional media. The activities

commenced with the purchase of the Mitchell & Partners group of companies on 1 April 2007. Information shown for the prior

year comparatives only covers the three months for the year ended 30 June 2007.

Digital

The provision of services to clients for interactive marketing and communications strategy and planning and buying of interactive

media, and digital creative production.

Diversifi ed

The development and implementation of communications campaigns across a broad range of disciplines including public

relations, experiential marketing, brand experience, sponsorship, sports ground marketing, direct marketing and corporate

social responsibility. The activities commenced with the purchase of the Mitchell & Partners group of companies on 1 April 2007.

Information shown for the prior year comparatives only covers the three months for the year ended 30 June 2007.

Corporate Central Services

The corporate and fi nancial control functions of running the Group, including Group Management, Finance, Human Resources

and Information Technology and Administration activities.

Geographic Segments

Although the Group is managed on a global basis, it operates in two main geographical areas:

Australia

The home country of the parent entity, which is also the main operating entity. The areas of operation are principally Media,

Digital, Diversifi ed, and Corporate

New Zealand

Comprises operations in the Media and Digital divisions

65

For

per

sona

l use

onl

y


30 June 2008

NOTE 4. SEGMENT INFORMATION (continued)

Primary reporting segment

– Business segmentsMedia Digital Diversifi ed

Corporate

central servicesConsolidated

2008 2007 2008 2007 2008 2007 2008 2007 2008 2007

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Revenue

Revenue from the rendering

of services 38,251 9,767 109,581 62,547 39,964 8,917 - - 187,796 81,231

Other revenues 2,554 690 190 581 68 7 164 - 2,976 1,278

Total Segment Revenues 40,805 10,457 109,771 63,128 40,032 8,924 164 - 190,772 82,509

Segment result

Profi t/(loss) before

depreciation, amortisation

and income tax 11,599 2,961 16,987 9,303 9,670 3,115 (8,008) (1,572) 30,248 13,807

Depreciation of plant and

equipment (556) (11) (377) (108) (445) (86) (99) - (1,477) (205)

Amortisation of intangibles (655) (164) (527) (111) (1,023) (493) (29) - (2,234) (768)

Profi t/(loss) before income

tax 10,388 2,786 16,083 9,084 8,202 2,536 (8,136) (1,572) 26,537 12,834

Income tax expense (7,720) (3,826)

Net profi t after income tax

attributable to members of

the company before minority

interest 18,817 9,008

Minority interest 633 25

Net profi t after income tax

attributable to members of

the company after minority

interest 18,184 8,983

Primary reporting segment

– Business segmentsMedia Digital Diversifi ed

Corporate

central servicesConsolidated

2008 2007 2008 2007 2008 2007 2008 2007 2008 2007

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Assets

Segment assets 296,420 262,421 43,127 30,275 88,841 63,583 13,103 - 441,491 356,279

Segment result

Segment liabilities 185,441 168,038 28,416 21,577 11,423 8,701 68,210 71,990 293,490 270,306

Consolidated net assets 110,979 94,383 14,711 8,698 77,418 54,882 (55,107) (71,990) 148,001 85,973

66

For

per

sona

l use

onl

y


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Revenues

Revenue from the rendering of services 187,796 81,231 - 41,231

Other revenue

Interest received 2,976 1,240 232 498

Dividends received - - 8,250 1,300

Distributions from interest in joint venture entity - - - 187

Management fees - 38 2,991 475

2,976 1,278 11,473 2,460

Revenue from continuing operations 190,772 82,509 11,473 43,691

Secondary reporting segment – Geographical

segmentsAustralia New Zealand Consolidated

2008 2007 2008 2007 2008 2007

$’000 $’000 $’000 $’000 $’000 $’000

Revenue

Revenue from the rendering of services 171,074 68,006 16,722 13,225 187,796 81,231

Other revenues 2,608 1,146 368 132 2,976 1,278

Total segment revenue 173,682 69,152 17,090 13,357 190,772 82,509

Segment result

Profi t/(loss) before depreciation, amortisation

and income tax 28,524 12,503 1,724 1,304 30,248 13,807

Depreciation of plant and equipment (1,453) (186) (24) (19) (1,477) (205)

Amortisation of intangibles (2,159) (749) (75) (19) (2,234) (768)

Profi t before income tax 24,912 11,568 1,625 1,266 26,537 12,834

Income tax expense (7,720) (3,826)

Net profi t after income tax attributable to

members of the company before minority

interest 18,817 9,008

Minority interest 633 25

Net profi t after income tax attributable to

members of the company after minority

interest 18,184 8,983

Secondary reporting segment – Geographical

segmentsAustralia New Zealand Consolidated

2008 2007 2008 2007 2008 2007

$’000 $’000 $’000 $’000 $’000 $’000

Assets

Segment assets 421,923 336,584 19,568 19,695 441,491 356,279

Liabilities

Segment liabilities 286,507 264,698 6,983 5,608 293,490 270,306

Consolidated net assets 135,416 71,886 12,585 14,087 148,001 85,973

NOTE 5. REVENUE

67

For

per

sona

l use

onl

y


2008 2007 2008 2007

Note $’000 $’000 $’000 $’000

Profi t on sale of joint venture entity 34 - 480 - 480

Foreign exchange gains (net) 47 62 - -

Total 47 542 - 480


30 June 2008

NOTE 6. OTHER INCOME

Profi t before income tax expense includes the following specifi c

expenses:Consolidated Parent entity

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Expenses

Depreciation

Plant and equipment 955 135 98 43

Furniture and fi ttings 191 40 1 27

Leasehold improvements 187 17 - 17

Plant and equipment under fi nance leases 133 13 - 3

Motor vehicles 11 - - -

Total depreciation 1,477 205 99 90

Amortisation

Software 620 121 29 109

Customer related 655 483 - -

Stadia rights 959 164 - -

Total amortisation 2,234 768 29 109

Total depreciation and amortisation 3,711 973 128 199

Finance costs

Interest and fi nance charges paid/payable 3,655 571 3,627 508

Finance costs expensed 3,655 571 3,627 508

Net loss on disposal of property, plant and equipment 115 73 - -

Net foreign exchange losses recognised in profi t before income tax

expense for the year - - - 2

Rental expense relating to operating leases

Minimum lease payments 2,953 656 43 203

NOTE 7. EXPENSES

68

For

per

sona

l use

onl

y


2008 2007 2008 2007

$’000 $’000 $’000 $’000

(a) Income tax expense

Current tax 8,121 4,131 (2,770) 1,326

Under/(over) provision in prior years difference 114 17 (70) 17

Deferred tax (515) (322) 10 59

Income tax expense attributable to profi t from continuing

operations 7,720 3,826 (2,830) 1,402

Deferred income tax expense included in income tax expense

comprises:

Decrease/(increase) in deferred tax assets (341) (272) 10 59

(Decrease)/increase in deferred tax liabilities (174) (50) - -

(515) (322) 10 59

(b) Numerical reconciliation of income tax expense to prima facie

tax payable

Profi t from continuing operations before income tax expense 26,537 12,834 (99) 6,255

Tax at the Australian tax rate of 30% (2007 – 30%) 7,961 3,850 (30) 1,876

Tax effect of amounts which are not deductible/(taxable) in

calculating taxable income:

Expenditure not deductible/(taxable) for tax purposes 142 (59) 25 (61)

Acquisition costs (280) - (280) -

Non-taxable dividends - - (2,475) (413)

Sundry items (286) (19) - -

7,537 3,771 (2,760) 1,402

Previous unrecognised tax losses used to reduce deferred tax

expense 24 - - -

Difference in overseas tax rates 45 57 - -

(Over)/under provision in prior year 114 (2) (70) -

Aggregate income tax expense 7,720 3,826 (2,830) 1,402

(c) Amounts recognised directly in equity

Aggregate current and deferred tax arising in the reporting period

and not recognised in net profi t or loss but directly credited or

debited to equity.

Net deferred tax – debited/(credited) directly to equity 104 104 104 104

(d) Tax losses

Unused tax losses for which no deferred tax asset has been

recognised 277 204 - -

Potential tax benefi t @ 30% 83 61 - -

Differences in overseas tax rates 3 1 - -

Total potential tax benefi t 86 62 - -

(e) Unrecognised deductible temporary differences

Unrealised foreign exchange loss – New Zealand subsidiary 24 - - -

NOTE 8. INCOME TAX

69

For

per

sona

l use

onl

y


2008 2007 2008 2007

Note $’000 $’000 $’000 $’000

Trade receivables (a) 146,694 123,621 292 8,930

Less: Provision for impaired receivables (b) (326) (517) - (34)

146,368 123,104 292 8,896

Loans to related parties * - - 43,982 5,323

Less: Provision for write-down of related party receivable - - (4,859) (4,859)

- - 39,123 464

Total 146,368 123,104 39,415 9,360


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Cash at bank and on hand 71,176 55,714 10,146 4,026

Deposits at call 2,142 6,386 - 4,583

Total 73,318 62,100 10,146 8,609


30 June 2008

NOTE 8. INCOME TAX (continued)

(f) Tax consolidation legislation

Mitchell Communication Group Limited and its wholly-owned Australian controlled entities have implemented the tax

consolidation legislation as of 1 July 2006. The wholly-owned Australian controlled entities in the Mitchell & Partners

acquisition joined the group on 1 April 2007. Other acquired entity joined the Group on the date of their acquisition. The

accounting policy in relation to this legislation is set out in note 1(f).

The entities in the tax consolidated group are in the process of entering into tax sharing agreements which, in the opinion of the

directors, limits the joint and several liability of the wholly-owned entities in the case of a default by the head entity, Mitchell

Communication Group Limited.

The entities have also entered into a tax-funding agreement under which the wholly-owned entities fully compensate Mitchell

Communication Group Limited for any current tax payable assumed and are compensated by Mitchell Communication Group

Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are

transferred to Mitchell Communication Group Limited under the tax consolidation legislation. The funding amounts are

determined by reference to the amounts recognised in the wholly-owned entities’ fi nancial statements.

The amounts receivable/payable under the tax-funding agreement are due upon receipt of the funding advice from the head

entity, which is issued as soon as practicable after the end of each fi nancial year. The head entity may also require payment of

interim funding amounts to assist with its obligations to pay tax instalments. The funding amounts are recognised as current

inter-company receivables or payables.

NOTE 9. CURRENT ASSETS – CASH AND CASH EQUIVALENTS

(a) Cash at bank and on hand

The cash at bank and on hand is bearing a fl oating interest rate from 0% to 7% (2007: 0% to 6%).

(b) Deposits at call

The deposits are bearing fl oating interest rates from 4.55% to 7.4% (2007 – 6.25%). Deposits at call in New Zealand of

$2,072,000 (2007 - $1,735,000) are bearing fl oating interest rates of between 8.0% to 8.9% (2007 – 7.33% and 8.18%)

NOTE 10. CURRENT ASSETS – TRADE AND OTHER RECEIVABLES

* Further information relating to loans to related parties is set out in note 31.

70

For

per

sona

l use

onl

y

(a) Trade receivables

The average credit period on sale of services is 38 days. No receivables are charged interest. Material credit risk on trade

receivables is covered by a comprehensive mercantile insurance policy, refer note 2 (b) for further detail.

Before accepting new media customers, the Group applies for mercantile insurance against the potential debt. Where the

debtor falls below the insurable limit, or does not receive coverage, the Group performs a background credit check to determine

the potential customers credit quality and then defi nes the credit limits for that customer. Limits attributed to customers are

reviewed regularly.

(b) Impaired trade receivables

Included in the Group’s trade receivable balance are debtors with a carrying amount of $7.2m (2007: $3.6m) which are past due

at the reporting date and for which the Group has not provided for, as there has not been a signifi cant change in credit quality

and the amounts are considered recoverable.

NOTE 11. CURRENT ASSETS – OTHER ASSETS


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Accrued revenue 342 388 - 144

Loans to joint venture entities 16 - 1 -

Prepayments 6,234 2,405 146 1,215

Dividend receivable - 187 - 587

Other assets 2,879 3,328 2,242 5,761

Total 9,471 6,308 2,389 7,707

71


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Ageing past due but not impaired:

60 – 90 days 5,000 2,863 - 400

90 – 120 days 1,877 429 - 68

120+ days 311 346 - 622

Total 7,188 3,638 - 1,090

Movement in the provision for impaired receivables:

Opening Balance 517 78 34 78

Acquired balance 15 372 - -

Impairment losses recognised on receivables 162 111 - -

Amounts written off as not collectible (15) (44) - (44)

Amounts recovered during the year 5 - - -

Transfer to group entity - - (34) -

Impairment losses reversed (358) - - -

Balance at the end of the year 326 517 - 34

Ageing of impaired trade receivables:

60 – 90 days 4 - - -

90 – 120 days 12 - - -

120+ days 310 517 - 34

Total 326 517 - 34

For

per

sona

l use

onl

y


30 June 2008

NOTE 12. NON-CURRENT ASSETS – RECEIVABLES

* Represents deferred consideration receivable on sale of joint venture. For further information refer to note 34.

(a) Fair values

The fair value and carrying value of non-current receivables of the group are as follows:

(b) Interest rate and credit risk

No receivables are charged interest. There is no concentration of credit risk.

NOTE 13. NON-CURRENT ASSETS – OTHER FINANCIAL ASSETS

These fi nancial assets are carried at cost.

72


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Shares in subsidiaries - - 188,127 171,981

2008 2007

Carrying

AmountFair Value

Carrying

AmountFair Value

$’000 $’000 $’000 $’000

Receivable from sale of joint venture interest * - - 154 154

Total - - 154 154


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Receivable from sale of joint venture interest * - 154 - 154

Total - 154 - 154

For

per

sona

l use

onl

y

NOTE 14. NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT

Plant &

equipment

Furniture &

fi ttings

Leasehold

improve-

ments

Leased

plant &

equipment

Motor

vehicleTotal

Consolidated $’000 $’000 $’000 $’000 $’000 $’000

At 1 July 2006

Cost 386 259 141 118 - 904

Accumulated depreciation (286) (148) (82) (105) - (621)

Net book amount 100 111 59 13 - 283

Year ended 30 June 2007

Opening net book amount 100 111 59 13 - 283

Additions 214 128 202 - - 544

Acquisition of subsidiary 2,050 442 103 10 55 2,660

Disposals (69) (101) (34) - (55) (259)

Depreciation/amortisation charge (135) (40) (17) (13) - (205)

Closing net book amount 2,160 540 313 10 - 3,023

At 30 June 2007

Cost 6,419 1,527 614 128 52 8,740

Accumulated depreciation (4,259) (987) (301) (118) (52) (5,717)

Net book amount 2,160 540 313 10 - 3,023


Opening net book amount 2,160 540 313 10 - 3,023

Additions 1,860 620 903 - 11 3,394

Acquisition of subsidiary 552 75 77 451 52 1,207

Disposals (87) (42) (5) - - (134)

Foreign exchange movement (12) (8) - - - (20)

Depreciation/amortisation charge (955) (191) (187) (133) (11) (1,477)

Closing net book amount 3,518 994 1,101 328 52 5,993

At 30 June 2008

Cost 9,992 2,134 1,577 1,082 132 14,917

Accumulated depreciation (6,474) (1,140) (476) (754) (80) (8,924)

Net book amount 3,518 994 1,101 328 52 5,993

73

For

per

sona

l use

onl

y


30 June 2008

NOTE 14. NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT (continued)

Plant &

equipment

Furniture &

fi ttings

Leasehold

improvements

Leased plant

& equipmentTotal

Parent entity $’000 $’000 $’000 $’000 $’000

At 1 July 2006

Cost 362 259 141 118 880

Accumulated depreciation (275) (148) (82) (105) (610)

Net book amount 87 111 59 13 270


Opening net book amount 87 111 59 13 270

Additions 97 93 83 - 273

Disposals (4) - (34) - (38)

Depreciation/amortisation charge (43) (27) (17) (3) (90)

Closing net book amount 137 177 91 10 415

At 30 June 2007

Cost 402 352 166 118 1,038

Accumulated depreciation (265) (175) (75) (108) (623)

Net book amount 137 177 91 10 415


Opening net book amount 137 177 91 10 415

Transfer to subsidiary (136) (177) (91) (10) (414)

Additions 712 9 - - 721

Depreciation/amortisation charge (98) (1) - - (99)

Closing net book amount 615 8 - - 623

At 30 June 2008

Cost 713 9 - - 722

Accumulated depreciation (98) (1) - - (99)

Net book amount 615 8 - - 623

74

For

per

sona

l use

onl

y

Tax lossesEmployee

benefi ts

Share Issue

expensesOther Total

Movements – Consolidated $’000 $’000 $’000 $’000 $’000

At 1 July 2006 - 25 - 68 93

Charged/(credited) to the income statement - 143 - 124 267

Charged directly to equity - - 414 - 414

Acquisition of subsidiary 4 501 - 107 612

At 30 June 2007 4 669 414 299 1,386

Charged/(credited) to the income statement 3 168 - 170 341

Charged directly to equity - - (103) - (103)

Acquisition of subsidiary - 153 - 5 158

At 30 June 2008 7 990 311 474 1,782

Movements – Parent entity $’000 $’000 $’000 $’000 $’000

At 1 July 2006 - 25 - 68 93

Charged/(credited) to the income statement - 38 - (98) (60)

Charged directly to equity - - 414 - 414

At 30 June 2007 - 63 414 (30) 447

Charged/(credited) to the income statement - 22 - 135 157

Charged directly to equity - - (103) - (103)

At 30 June 2008 - 85 311 105 501


2008 2007 2008 2007

$’000 $’000 $’000 $’000

The balance comprises temporary differences attributable to:

Doubtful debts 127 151 - 10

Employee benefi ts 990 669 85 63

Accrued expenses 578 263 105 75

Depreciation (100) (59) - (59)

Dividend receivable - (56) - (56)

Leased assets (37) - - -

Work in progress (94) - - -

Tax losses* 7 4 - -

Share issue expenses 311 414 311 414

Net deferred tax assets 1,782 1,386 501 447

Deferred tax assets to be recovered after more than 12 months 77 340 77 265

Deferred tax assets to be recovered within 12 months 1,705 1,046 424 182

Total 1,782 1,386 501 447

NOTE 15. DEFERRED TAX ASSETS

* The deferred tax asset attributable to tax losses does not exceed taxable amounts arising from the reversal of existing

assessable temporary differences

75

For

per

sona

l use

onl

y


30 June 2008

NOTE 16. NON-CURRENT ASSETS – INTANGIBLE ASSETS

76

Software GoodwillBrand

name

Customer

related

Stadia

rightsTotal

Consolidated $’000 $’000 $’000 $’000 $’000 $’000

At 1 July 2006

Cost 772 7,486 - - - 8,258

Accumulated amortisation - - - - - -

Net book amount 772 7,486 - - - 8,258


Additions 476 138,442 5,750 6,400 1,600 152,668

Acquisition of subsidiary 46 - - - - 46

Amortisation charge (121) - - (164) (483) (768)

Closing net book amount 1,173 145,928 5,750 6,236 1,117 160,204

At 30 June 2007

Cost 1,323 145,928 5,750 6,400 1,600 161,001

Accumulated amortisation (150) - - (164) (483) (797)

Net book amount 1,173 145,928 5,750 6,236 1,117 160,204


Additions 443 46,137 - - 46,580

Disposal (25) - - - - (25)

Acquisition of subsidiary 34 - - - - 34

Amortisation charge (620) - - (655) (959) (2,234)

Closing net book amount 1,005 192,065 5,750 5,581 158 204,559

At 30 June 2008

Cost 1,775 192,065 5,750 6,400 1,600 207,590

Accumulated amortisation (770) - (819) (1,442) (3,031)

Net book amount 1,005 192,065 5,750 5,581 158 204,559

For

per

sona

l use

onl

y

(a) Software

The software has a useful life of between 3 and 5 years (refer note 1(p))

(b) Determination of intangibles relating to prior year acquisition

The goodwill that was provisionally assessed, relating to the acquisition of the Mitchell & Partners Group during the year ended

30 June 2007, has been fi nalised during the period. The Group has identifi ed and independently valued intangibles of

the acquired businesses, which has resulted in a reduction of the goodwill provisionally booked in 2007 of $13,950,000.

The intangibles identifi ed are specifi ed in the note above, and includes software assets of $200,000.

(c) Impairment tests for goodwill

Goodwill is allocated to the Group’s cash-generating units (CGU’s) identifi ed according to business segment and country

of operation.

The recoverable amount of a CGU is determined based on value in use calculations. These calculations use cash fl ow

projections based on fi nancial budgets approved by management covering a ten-year period.

Software Total

Parent $’000 $’000

At 1 July 2006

Cost 772 772

Accumulated amortisation - -

Net book amount 772 772


Additions 250 250

Acquisition of subsidiary - -

Amortisation charge (109) (109)

Closing net book amount 913 913

At 30 June 2007

Cost 1,022 1,022

Accumulated amortisation (109) (109)



Additions 236 236

Disposal (913) (913)

Acquisition of subsidiary - -

Amortisation charge (29) (29)

Closing net book amount 207 207

At 30 June 2008

Cost 236 236

Accumulated amortisation (29) (29)


77

For

per

sona

l use

onl

y


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Trade payables 193,066 176,520 678 10,956

Accrued interest 348 249 348 249

Deferred revenue 8,277 6,725 - -

Other creditors 16,564 7,347 1,249 2,843

Total 218,255 190,841 2,275 14,048

CGU Gross margin * Growth rate ** Discount rate ***

2008 2007 2008 2007 2008 2007

% % % % % %

Mitchell & Partners Australia n/a n/a 4.5 7.5 10.0 10.7

Mitchell & Partners (Qld) Pty Ltd n/a n/a 4.5 4.4 10.0 10.7

Mitchell & Partners (NZ) Ltd n/a n/a 3.5 5.9 10.0 10.7

The Internet Bureau Limited 17.5 16.5 3.5 28.1 10.0 10.7

Visual Jazz Pty Ltd n/a - 4.5 - 10.0 -

Stadia Media Pty Ltd n/a n/a 4.5 6.2 10.0 10.7

Haystac Public Affairs Pty Ltd

& Positive Outcomes Pty Ltd n/a n/a 4.5 7.1 10.0 10.7

Spark PR Pty Ltd n/a n/a 4.5 8.9 10.0 10.7

Coleman Group Pty Ltd 50.9 - 4.5 - 10.0 -


30 June 2008

NOTE 16. NON-CURRENT ASSETS – INTANGIBLES ASSETS (continued)

(d) Key assumptions used for value-in-use calculations

* Budgeted gross margin. Revenue from Mitchell & Partners Group of companies is recognised on an agency principle. Refer note 1(d).

** Weighted average growth rate used to extrapolate cash fl ows beyond the budget period

*** In performing the value in use calculations for each CGU, the company has applied post-tax discount rates to discount the forecast future

attributable post-tax cash fl ows. The equivalent pre-tax discount rates are disclosed above.

Management determined budgeted gross margin based on past performance prior to the purchase and its expectations for the

future. The weighted average growth rates used are consistent with forecasts included in industry reports. The growth rates are

consistent with industry forecasts and historical patterns.

(e) Impact of possible changes in key assumptions

There are no reasonably possible changes in the key assumptions that would cause the CGU’s carrying amount to exceed its

recoverable amount.

NOTE 17. CURRENT LIABILITIES – TRADE AND OTHER PAYABLES

(a) Risk exposure

Information about the Group’s and parent entities exposure to foreign exchange risk is provided in note 2.

78

For

per

sona

l use

onl

y


2008 2007 2008 2007

Current assets $’000 $’000 $’000 $’000

Floating charge

Cash and cash equivalents 68,361 9,895 10,146 8,609

Trade and other receivables 139,778 14,913 39,415 9,360

Other assets 6,825 5,294 2,389 7,707

Total current assets pledged as security 214,964 30,102 51,950 25,676

NOTE 18. CURRENT LIABILITIES – OTHER FINANCIAL LIABILITIES

NOTE 19. CURRENT – PROVISIONS

NOTE 20. NON-CURRENT LIABILITIES – BORROWINGS

(a) Assets pledged as security

The bank loans of the parent entity are secured by registered mortgage debentures over the assets of the parent entity,

Neodigital Pty Ltd, Digital Artists Pty Ltd, The Internet Bureau Limited, Mitchell & Partners Pty Ltd, Mitchell & Partners Pty Ltd,

Mitchell & Partners (NSW) Pty Ltd, Mitchell & Partners (Qld) Pty Ltd, Mitchell & Partners Australia Pty Ltd, Stadia Media Pty

Ltd, Positive Outcomes Pty Ltd, Spark PR Pty Ltd, Drive Communications Pty Ltd and Mitchell & Partners (NZ) Limited (2007:

the parent entity, Neodigital Pty Ltd, Digital Artists Pty Ltd, and The Internet Bureau Limited)

The carrying amount of assets pledged as security for the non-current borrowings are:


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Employee entitlements 2,268 1,885 199 21

Provision for surplus lease space - 18 - 18

Total 2,268 1,903 199 39


2008 2007 2008 2007

Total secured liabilities $’000 $’000 $’000 $’000

Bank loans 60,000 26,000 60,000 26,000


2008 2007 2008 2007

Note $’000 $’000 $’000 $’000

Deferred consideration – acquisitions 6,101 45,415 1,036 45,415

Other – related party loans 31 - - 51,142 28,711

Total 6,101 45,415 52,178 74,126


2008 2007 2008 2007

Non-current assets $’000 $’000 $’000 $’000

Floating charge

Receivables - 154 - 154

Property, plant and equipment 3,483 486 623 415

Total non-current assets pledged as security 3,483 640 623 569

Total assets pledged as security 218,447 30,742 52,573 26,245

79

For

per

sona

l use

onl

y

Fixed interest rate

Floating

interest

rate

1 year or

less

Over 1 to

2 years

Over 2 to

3 years

Over 3 to

4 years

Over 4 to

5 years

Over 5

yearsTotal

2008 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Bank loans 60,000 - - - - - - 60,000

Weighted average interest rate 8.13% - - - - - - 8.13%

Fixed interest rate

Floating

interest

rate

1 year or

less

Over 1 to

2 years

Over 2 to

3 years

Over 3 to

4 years

Over 4 to

5 years

Over 5

yearsTotal

2007 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Bank loans 26,000 - - - - - - 26,000

Weighted average interest rate 7.25% - - - - - - 7.25%


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Bank loan facilities – Pool “A”

Total facilities 50,000 40,000 50,000 40,000

Used at balance date 46,558 26,000 46,558 26,000

Unused at balance date 3,442 14,000 3,442 14,000

Bank loan facilities – Pool “B”

Total facilities 30,000 - 30,000 -

Used at balance date 13,442 - 13,442 -

Unused at balance date 16,558 - 16,558 -


30 June 2008

NOTE 20. NON-CURRENT LIABILITIES – BORROWINGS (continued)

(b) Cash advance facility (Bank loans)

The cash advance facility is drawn down as required as separate fully drawn advances. The facility consists of two pools, $50

million for working capital purposes and $30 million for merger and acquisition activity. The facility is repayable in full by

31 August 2010. Each fully drawn advance has a variable interest rate based on the bank bill swap rate for the period of the

advance.

The current interest rates on the cash advance facility are between 8.05% and 8.20% (2007: 7.25% to 7.27%).

(c) Financing arrangements

Unrestricted access was available at balance date to the following lines of credit:

The cash advance facility may be drawn at any time up to the facility limit.

(d) Interest rate risk exposures

The following table sets out the Group’s exposure to interest rate risk, including the contractual re-pricing dates and weighted

average interest rate by maturity periods.

Exposures arise from liabilities bearing variable interest rates.

80

For

per

sona

l use

onl

y


2008 2007 2008 2007

The balance comprises temporary differences attributable to: $’000 $’000 $’000 $’000

Amounts recognised in profi t or loss

Intangibles 1,696 1,870 - -

Net deferred tax liabilities 1,696 1,870 - -

Intangibles ProvisionsEmployee

benefi ts

Unrealised

exchange

differences

Total

Movements – Consolidated $’000 $’000 $’000 $’000 $’000

At 1 July 2006 - 26 (13) (6) 7

Charged/(credited) to the income statement (50) (26) 13 6 (57)

Acquisition 1,920 - - - 1,920

At 30 June 2007 1,870 - - - 1,870

Charged/(credited) to the income statement (174) - - - (174)

At 30 June 2008 1,696 - - - 1,696

2008 2007

Carrying

amountFair value

Carrying

amountFair value

$’000 $’000 $’000 $’000

On balance sheet

Non traded fi nancial liabilities

Bank loans 60,000 60,000 26,000 26,000

(e) Fair value

The carrying amounts and fair values of borrowings at balance date are for the Group and Parent:

None of the classes of borrowings are readily traded on organised markets in standardised form. Fair value is inclusive of costs,

which would be incurred on settlement of a liability.

(i) On balance sheet

The fair value of borrowings is based upon market prices where a market exists or by discounting the expected future cash fl ows

by the current interest rates for liabilities with similar risk profi les.

(f) Risk exposures

Information about the Group’s and parent entities exposure to interest rate and foreign exchange changes is provided in note 2.

NOTE 21. NON-CURRENT LIABILITIES – DEFERRED TAX LIABILITIES

NOTE 22. NON-CURRENT LIABILITIES – PROVISIONS


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Employee benefi ts – long service leave 989 292 84 43

81

For

per

sona

l use

onl

y


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Deferred consideration 279 575 279 575


30 June 2008

NOTE 23. NON-CURRENT LIABILITIES – OTHER FINANCIAL LIABILITIES

NOTE 24. CONTRIBUTED EQUITY

82

Parent entity Parent entity

2008 2007 2008 2007

Note Number ‘000 Number ‘000 $’000 $’000

(a) Share capital

Ordinary shares

Fully paid (b)(c) 288,019 246,357 133,071 86,944

(b) Movements in ordinary share capital:

Date Details Number of sharesAverage

issue price$’000

30 Jun 2006 Balance 184,289,412 20,933

13 Sep 2006 Exercise of options (d) 45,000 $0.30 14

26 Sep 2006 Exercise of options (d) 135,000 $0.23 31

3 Oct 2006 Exercise of options (d) 180,000 $0.25 45

3 Oct 2006 Exercise of options (d) 1,500,000 $0.40 600

22 Nov 2006 Issued pursuant to the purchase of an

intangible asset, Onemail email software

(f)

424,448 $0.59 250

8 Jan 2007 Exercise of options (d) 60,000 $0.25 15

1 Mar 2007 Exercise of options (d) 300,000 $0.25 75

13 Mar 2007 Exercise of options (d) 60,000 $0.25 15

10 Apr 2007 Exercise of Director options (d) 200,000 $0.20 40

11 May 2007 Rights issue (e) 41,600,866 $1.05 43,681

21 May 2007 Issued as part consideration of purchase of

Mitchell & Partners Group

(g)

17,382,728 $1.30 22,598

28 Jun 2007 Exercise of options (d) 180,000 $0.20 37

Less: Transaction costs arising on share issue (1,805)

Deferred tax credit recognised directly in

equity

415

30 Jun 2007 Balance 246,357,454 86,944

For

per

sona

l use

onl

y

(c) Ordinary shares

Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the

number of and amounts paid on the shares held.

On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon

a poll each share is entitled to one vote.

(d) Options over unissued shares

Information relating to the Mitchell Communication Group Limited Employee Option Plan and, including the details of options

issued, exercised and lapsed during the year ended 30 June 2008 and options outstanding at 30 June 2008 are set out in note 37.

No options were exercised by directors of Mitchell Communication Group Limited during the year ended 30 June 2008.

Information relating to these options including details of options issued, exercised and lapsed during the year ended 30 June

2008 and options outstanding at 30 June 2008 are set out in note 27.

(e) Rights issue

On 1 April 2007 the company invited its shareholders to subscribe to a rights issue of 41,600,886 ordinary shares at an issue

price of $1.05 per share on the basis of 2 shares for every 9 shares held, with such shares to be issued on, and rank for

dividends after, 11 May 2007. The issue was fully subscribed.

(f) Purchase of the software assets of Onemail Pty Ltd

The company purchased the software assets of Onemail Pty Ltd on 19 May 2006 for consideration including two tranches of

424,448 fully paid ordinary shares in the capital of Mitchell Communication Group Limited. The fair value of ordinary shares

issued was calculated by taking the average price of the fi ve trading days prior to 12 May 2006. The average was used due to

the thin trading of the shares on the day prior to the date of acquisition. The fi nal tranche payment of 424,448 fully paid ordinary

shares in the capital of the company was made on 22 November 2006.

(g) Purchase of the business’ of the Mitchell & Partners group

The company purchased 100% of the issued capital of the entities in the Mitchell & Partners Group, details of which can be

found in note 32, effective 1 April 2007 for consideration including 17,382,728 fully paid ordinary shares in the capital of Mitchell

Communication Group Limited. The fair value of ordinary shares issued was calculated by taking the average price of the fi ve

trading days prior to the date of exchange.

At 30 June 2007, the company owed the Mitchell family $45.415m in deferred consideration for the sale of Mitchell & Partners

group. During the year ended 30 June 2008, the Mitchell family elected to take part of the payment due in the form of 4,166,667

ordinary shares. The fair value of ordinary shares issued was calculated by taking the average price of the fi ve trading days prior

to the date of exchange.

(b) Movements in ordinary share capital:

Date Details Number of sharesAverage

issue price$’000

30 Jun 2007 Balance 246,357,454 86,944

16 Aug 2007 Issued as part consideration for the purchase

of Mitchell & Partners (WA) Pty Ltd (h) 1,028,160 $1.25 1,285

4 Sep 2007 Share placement to institutions (i) 30,000,000 $1.10 33,000

19 Oct 2007 Issued under share purchase plan (j) 6,334,532 $1.09 6,904

29 Nov 2007 Issued pursuant to earn-out on purchase of

Mitchell & partners Group (g) 4,166,667 $1.15 4,792

7 May 2008 Issued as part consideration of the purchase

of Visual Jazz Pty Ltd (k) 1,513,773 $0.66 999

Share buy-back, net of transaction costs (l) (1,382,025) $0.67 (923)

Shares to be issued to vendors of Visual Jazz

Pty Ltd and Coleman Group Pty Ltd as part

consideration of earn-out payments (m) 1,102

Less: Transaction costs arising on share issue (928)

Deferred tax credit recognised directly in

equity

(104)

30 Jun 2008 Balance 288,018,561 133,071

83

For

per

sona

l use

onl

y


30 June 2008

NOTE 24. CONTRIBUTED EQUITY (continued)

(h) Issued relating to purchase of Mitchell & Partners (WA) Pty Ltd

The company purchased 51% of the issued capital of Workhouse Advertising Pty Ltd, details of which can be found in note 32,

effective 16 August 2007 for consideration including 1,028,160 fully paid ordinary shares in the capital of Mitchell Communication

Group Limited. The fair value of ordinary shares issued was calculated by taking the average price of the fi ve trading during the

period 25 June to 30 June 2007.

(i) Share placement to institutional investors

On 4 September 2007 the company announced the placement of 30,000,000 shares at $1.10 per share to institutional investors.

The equity raised is to be used in part to fund future acquisitions.

(j) Share purchase plan

On 4 September 2007 the company announced a “Shareholder Purchase Plan” whereby shareholders were offered the

opportunity to buy shares in the company at $1.09 for a maximum value of $5,000 per shareholder. Under the plan the company

issued 6,334,532 shares.

(k) Purchase of the Visual Jazz Pty Ltd

The company purchased 100% of the issued capital of Visual Jazz Pty Ltd, details of which can be found in note 32, effective 7

September 2007 for consideration including 1,513,773 fully paid ordinary shares in the capital of Mitchell Communication Group

Limited. The fair value of ordinary shares issued was calculated by taking the average price of the fi ve trading days prior to the

date of exchange.

(l) Share buy-back program

During the period, the company executed a publicly announced share buy-back program. The company made the decision to buy

back up to 10% of the company’s shares, with the strategy of effi cient capital management and maximising shareholder value.

All the shares purchased on market are cancelled. Since the announcement was made on 22 January 2008 the company has

bought back 1,382,205 shares, which have been cancelled.

(m) Shares to be issued as deferred consideration

The company will issue shares to the value of $1.102 million to the vendors of Visual Jazz Pty Ltd and Coleman Group Pty Ltd

as part payment of deferred consideration due under the sale and purchase agreements. The shares will be issued before 30

September 2008.

(n) Capital risk management

The Group and the parent entity’s objectives when managing capital are to safeguard their ability to continue as a going concern,

so that they can continue to provide returns for shareholders and benefi ts for other stakeholders and to maintain an optimal

capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return

capital to shareholders, issue new shares or sell assets to reduce debt.

The Group and parent monitor capital by analysing the net cash / debt position and gearing ratio. The gearing ratio is calculated

as net debt divided by total capital. The business is currently in a net cash position, which is consistent with the fact that the

parent is running a share buy-back program to optimise the return to shareholders.

84

For

per

sona

l use

onl

y


2008 2007 2008 2007

$’000 $’000 $’000 $’000

(a) Reserves

Share-based payments reserve 163 238 163 238

Foreign currency translation reserve (383) 97 - -

(220) 335 163 238

Movements:

Share-based payments reserve

Balance 1 July 238 51 238 51

Option expense (75) 187 (75) 187

Balance 30 June 163 238 163 238

Foreign currency translation reserve

Balance 1 July 97 6 - -

Currency translation differences arising during the year (480) 91 - -

Balance 30 June (383) 97 - -

(b) Accumulated earnings/(losses)

Movements in accumulated losses were as follows:

Accumulated losses at the beginning of the fi nancial year (1,331) (6,398) (5,527) (6,464)

Net profi t attributable to members of Mitchell Communication Group

Limited 18,184 8,983 2,731 4,853

Dividends paid (8,535) (3,916) (8,511) (3,916)

Accumulated earnings/(losses) at the end of the fi nancial year 8,318 (1,331) (11,307) (5,527)

NOTE 25. RESERVES AND ACCUMULATED EARNINGS/(LOSSES)

(c) Nature and purpose of reserves

(i) Share-based payments reserve

The share-based payments reserve is used to recognise the fair value of options issued but not exercised.

(ii) Foreign currency translation reserve

Exchange differences arising on translation of the foreign controlled entity are taken to the foreign currency translation reserve,

as described in note 1(c). The reserve is recognised in profi t and loss when the net investment is disposed of.

NOTE 26. DIVIDENDS


2008 2007 2008 2007

$’000 $’000 $’000 $’000

(a) Ordinary shares

Final dividend for the year ended 30 June 2007 of 1.2 cents (2006 –

1.3 cents) per fully paid share paid on 12 October 2007 (2006 – 23

October 2006). Fully franked (2006 – unfranked) based on tax paid at

30%. 3,329 2,420 3,329 2,420

Interim dividend for the year ended 30 June 2008 of 1.8 cents (2007

– 0.8 cents) per fully paid share paid on 28 March 2008 (2007 - 28

March 2007). Fully franked (2007 – 75% franked) based on tax paid at

30% 5,182 1,496 5,182 1,496

Dividend paid by subsidiary to minority interest 24 - - -

Total dividends provided for or paid 8,535 3,916 8,511 3,916

85

For

per

sona

l use

onl

y

Name Position Employer

L Littlefi eld Chief Operating Offi cer (from 3 December 2007) Mitchell Communication Group Management Services Pty Ltd

J Murray Managing Director – Digital Mitchell Communication Group Management Services Pty Ltd

J White Managing Director – Corporate Mitchell Communication Group Management Services Pty Ltd

A Charles Managing Director – Diversifi ed Mitchell Communication Group Management Services Pty Ltd

D G Cust Chief Financial Offi cer Mitchell Communication Group Management Services Pty Ltd


2008 2007 2008 2007

$’000 $’000 $’000 $’000

(c) Franked dividends

Franking credits available for subsequent fi nancial years based on a

tax rate of 30% (2007 – 30%) 14,734 10,793 14,734 10,793

Record date Payment date TypeAmount per

securityTotal dividend

Franked amount per

security

Foreign sourced

dividend amount per

security

5 September

2008

26 September

2008Final 2.1 cents 6,048,390 2.1 cents Nil


30 June 2008

NOTE 26. DIVIDENDS (continued)

(b) Dividends not recognised at year end

Details of dividends declared subsequent to the year ended 30 June 2008 are as follows:

There is no dividend reinvestment plan in operation.

The above amounts represent the balance of the franking account as at the end of the fi nancial year, adjusted for:

(a) franking credits that will arise from the payment of the current tax liability;

(b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and

(c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.

The consolidated amounts include franking credits that would be available to the parent entity if distributable profi ts of

controlled entities were paid as dividends.

The impact on the franking account of the dividend recommended by the directors since year-end, but not recognised as a

liability at year-end, will be a reduction in the franking account of $2,592,000 (2007: 1,427,000).

NOTE 27. KEY MANAGEMENT PERSONNEL DISCLOSURES

(a) Directors

The following persons were directors of Mitchell Communication Group Limited during the fi nancial year:

Chairman H C Mitchell AO (Executive Chairman)

Executive directors S J Mitchell (Chief Executive Offi cer)

Non-executive directors G A Hounsell

R J Stewart

R J Lamplugh

S A Cameron

P G Nankervis

N Sparks

(b) Other key management personnel

The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group,

directly or indirectly, during the fi nancial year:

86

For

per

sona

l use

onl

y

2008

Balance at

the start of

the year

Granted

during the

year as

remuneration

Exercised

during the

year

Lapsed

during the

year

Forfeited

during the

year

Balance at

the end of

the year

Vested and

exercisable at

the end of the

year


H C Mitchell 1,000,000 - - - (1,000,000) - -

G A Hounsell 500,000 - - - (500,000) - -

R J Stewart 200,000 - - - (200,000) - -

S A Cameron 200,000 - - - (200,000) - -

P G Nankervis 200,000 - - (200,000) - -

N Sparks 200,000 - - (200,000) - -

Specifi ed executives of the Group

D G Cust 81,204 - - - - 81,204 -

J Murray 300,000 - - - - 300,000 -

No options are vested and un-exercisable at the end of the year.

2007

Balance at

the start of

the year

Granted

during the

year as

remuneration

Exercised

during the

year

Lapsed

during the

year

Forfeited

during the

year

Balance at

the end of

the year

Vested and

exercisable

at the end of

the year


H C Mitchell - 1,000,000 - - - 1,000,000 -

G A Hounsell - 500,000 - - - 500,000 -

R J Stewart 200,000 200,000 (200,000) - - 200,000 -

S A Cameron - 200,000 - - - 200,000 -

Specifi ed executives of the Group

L A Stephens 2,460,000 - (1,500,000) (960,000) - - -

D G Cust 300,000 81,204 (300,000) - - 81,204 -

J Murray - 300,000 - - - 300,000 -



2008 2007 2008 2007

$ $ $ $

Short-term employee benefi ts 3,044,979 1,256,870 3,044,979 951,520

Post-employment benefi ts 284,155 315,997 284,155 293,788

Long-term benefi ts 14,658 9,115 14,658 8,209

Share-based payments 57,705 143,420 57,705 143,420

Total 3,401,497 1,725,402 3,401,497 1,396,937

(c) Key management personnel compensation

The company has taken advantage of the relief provided by Corporations Regulation 2M.3.03 and has transferred the detailed

remuneration disclosures to the directors’ report. The relevant information can be found in sections A-C of the remuneration

report on pages 31 to 37.

(d) Equity instrument disclosures relating to key management personnel

(i) Options provided as remuneration and shares issued on exercise of such options

Details of options over ordinary shares in the company provided as remuneration and shares issued on the exercise of such

options, together with terms and conditions of the options can be found in Section D of the remuneration report on pages 37 to 39.

(ii) Option holdings

The numbers of options over ordinary shares in the company held during the fi nancial year by each director of Mitchell

Communication Group Limited and other key management personnel of the Group, including their personally-related entities,

are set out below.

87

For

per

sona

l use

onl

y

Group

Balance at the

start of the

year

Interest paid

and payable

for the year

Interest not

charged

Balance at the

end of the year

Number in

Group at the

end of the year

$ $ $ $ $

2008 - - - - -

2007 - - 833 - -

2008

Balance at the

start of the year

Received during

the year on the

exercise of options

Other changes

during the year

Balance at the end

of the year

Directors of Mitchell Communication Group Limited - Ordinary shares

H C Mitchell 100,242,160 - 2,166,667 102,408,827

S J Mitchell 12,858,797 - - 12,858,797

G A Hounsell 72,000 - 1,588,500 1,660,500

R J Stewart 305,556 - 2,293 307,849

R J Lamplugh 1,040,000 - - 1,040,000

S A Cameron 71,298 - - 71,298

Other key management personnel of the Group - Ordinary shares

J White - - 20,510 20,510

D G Cust 366,667 - 4,587 371,254


2007

Balance at the

start of the year

Received during

the year on the

exercise of options

Other changes

during the year

Balance at the end

of the year

Directors of Mitchell Communication Group Limited - Ordinary shares

G A Hounsell 40,000 - 32,000 72,000

R J Stewart 50,000 200,000 55,556 305,556

R J Lamplugh 1,040,000 - - 1,040,000

S A Cameron 58,334 - 12,964 71,298

H C Mitchell 70,918,848 - 29,323,312 100,242,160

S J Mitchell 10,020,833 - 2,837,964 12,858,797

S A Simson (resigned 1 Sept 2006) 8,753,560 - (8,753,560) -

Other key management personnel of the Group - Ordinary shares

L A Stephens (to 7 May 2007) - 1,500,000 (1,500,000) -

D G Cust - 300,000 66,667 366,667

P H McBeth 450,000 - 70,000 520,000


30 June 2008

NOTE 27. KEY MANAGEMENT PERSONNEL DISCLOSURES (continued)

(iii) Share holdings

The numbers of shares in the company held during the fi nancial year by each director of Mitchell Communication Group Limited

and other key management personnel of the Group, including their personally-related entities, are set out below. There were no

shares granted during the reporting period as compensation.

(e) Loans to key management personnel

Details of loans made to directors of Mitchell Communication Group Limited and other key management personnel of the Group,

including their personally related parties, are set out below.

(i) Aggregates for key management personnel

88

For

per

sona

l use

onl

y

2008 2007

$ $

Amounts recognised as revenue

Gross billings - 24,115,428

Commission to advertising agencies - (2,052,669)

Rent 43,125 4,934

Telephone - 953

Total 43,125 22,068,646

Amounts recognised as expense

Research - 48,750

Rent of offi ce building 45,100 36,328

Consultancy services 300,000 62,500

Licence fees - 6,858

Legal fees 138,025 25,282

Total 483,125 179,718

(ii) Individuals with loans above $100,000 during the fi nancial year

(f) Other transactions with directors and specifi ed executives


Two directors, H C Mitchell AO and S J Mitchell were directors and shareholders of the Mitchell & Partners Group, which was

purchased by the company on 1 April 2007. Details of the purchase can be found in note 32. Part of the proceeds payable to the

vendors was deferred. Refer to note 18. Part of the deferred proceeds was funded by way of a share placement on 4 September

2007. Refer to note 24 for further information. Full details of the payment of the deferred consideration during the year ended

30 June 2008 to the directors is as follows:

Prior to the purchase, Mitchell & Partners was a major client of the Group. This relationship was formalised in an Alliance Deed

between Mitchell & Partners Pty Ltd and the parent entity. The Group granted an advertising agency commission on these gross

billings. The billings and commission were based on normal commercial terms.

Prior to the purchase, an entity within the Mitchell & Partners Group provided research services to the company on normal

commercial terms and conditions.

From 21 May 2007, a private entity related to Mr H C Mitchell AO and Mr S J Mitchell leased offi ce space to an entity in the

Group. The rental is based on arms length terms.

Two directors, H C Mitchell AO and S J Mitchell are directors and shareholders of the Mitchell Family Offi ce. The Mitchell Family

Offi ce sub-leased space from an entity within the Group from 21 May 2007. The rental was based on arms length terms.

A Director, H C Mitchell AO is founder of the Harold Mitchell Foundation. The Harold Mitchell Foundation sub-let space from an

entity within the Group from 21 May 2007. The rental is based on arms length terms.

A director, R J Lamplugh is a partner in the law fi rm Lamplugh McIntosh. This fi rm provided legal services to the company on

normal terms and conditions. Lamplugh McIntosh sub-leased offi ce space from an entity within the Group from 21 May 2007.

The rental was based on arms length terms.

A director, G A Hounsell provided mergers and acquisitions consultancy services to the Group.

Aggregate amounts of each of the above types of other transactions

with key management personnel of Mitchell Communication Group Limited:

Group

Balance at the

start of the

year

Interest paid

and payable

for the year

Interest not

charged

Balance at the

end of the year

Number in

Group at the

end of the year

$ $ $ $ $

2008 - - - - -

2007 - - 833 - 27,999,976

Cash paid 39,893,226

Equity issued 5,000,000

Total deferred consideration 44,893,226

89

For

per

sona

l use

onl

y


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Operating leases

The Group lease various offi ces under non-cancellable operating

leases expiring within two to six years. The leases have varying

terms, escalation clauses and renewal rights. On renewal, the

terms of the leases are renegotiated.

Commitments for minimum lease payments in relation to

non-cancellable operating leases are payable as follows:

Within one year 3,079 1,912 268 263

Later than one year but not later than fi ve years 4,464 2,353 164 424

Later than fi ve years 89 - - -

Total 7,632 4,265 432 687

2008 2007

$ $

Aggregate amounts of assets at balance date relating to the above types of other transactions

with key management personnel of the Group:

Current assets 470 6,018

Aggregate amounts payable to key management personnel of the Group at balance date

relating to the above types of other transactions:

Current liabilities – Mitchell Family - 44,161,767

Current liabilities – other related parties 12,620 34,412

Total 12,620 44,196,179


2008 2007 2008 2007

$ $ $ $

During the year the following fees were paid or payable for services

provided by the auditor of the parent entity, and non-related audit

fi rms:

(a) Audit services

PricewaterhouseCoopers − Australian fi rm

Audit and review of fi nancial reports and other audit work under

the Corporations Act 2001 338,550 445,505 338,550 419,255

Agreed upon procedures 5,000 - - -

Related practices of PricewaterhouseCoopers Australian fi rm 44,950 - - -

Non-PricewaterhouseCoopers audit fi rms for the audit or review of

fi nancial reports of any entity in the group - 12,390 - -

Total audit and other assurance services 388,500 457,895 338,550 419,255

NOTE 29. CONTINGENCIES

The Group had no contingent liabilities at balance date.

NOTE 30. COMMITMENTS


30 June 2008

NOTE 27. KEY MANAGEMENT PERSONNEL DISCLOSURES (continued)

NOTE 28. REMUNERATION OF AUDITORS

90

For

per

sona

l use

onl

y


2008 2007 2008 2007

$ $ $ $

Purchases of goods and services

Sale of media - - - 8,716,538

Commission on sale of media - - - (638,311)

Purchase of recruitment short-listing services from joint venture

entity. - 34,250 - 34,250

Purchase of mobile marketing services from joint venture entity 60,350 - - -


Current tax payable assumed from wholly-owned tax consolidated

entities - - 10,317,257 2,505,476

Dividend revenue

Subsidiaries - - 8,250,000 1,300,000

Joint venture entity - 187,500 - 187,500

Other transactions

Management fees paid to the parent entity by joint venture entity - 38,400 - 38,400

Management fees paid to the parent entity by controlled entity - - 2,991,738 437,093

Current receivables – Management fees (2007: sale of media)

Subsidiaries - - 292,124 5,968,258


Current tax payable assumed from wholly-owned tax consolidated

entities - - 10,317,257 2,505,476

Current receivables (tax-funding agreements)

Wholly-owned tax consolidated entities - - 11,238,084 2,505,476

Current payables (purchases of services)

Subsidiaries - - 109,775 48,755

NOTE 31. RELATED PARTIES

(a) Key management personnel

Disclosures relating to key management personnel are set out in note 27.

(b) Subsidiaries

Interests in subsidiaries are set out in note 33.

(c) Transactions with related parties

The following transactions occurred with related parties:

(d) Outstanding balances arising from sales/purchases of good and services

The following balances are outstanding at the reporting date in relation to transactions with related parties:

No provisions for doubtful debts have been raised in relation to any outstanding balances, and no expense has been recognised

in respect of bad or doubtful debts due from related parties.

91

For

per

sona

l use

onl

y

Note Principal activityDate of

acquisition

Proportion

of shares

acquired

Cost of

acquisition

$’000

2008

Mitchell & Partners (WA) Pty Ltd (a) Offl ine planning & buying 1/7/07 51 7,108

Co Media Oz (b) Offl ine planning & buying 1/7/07 100 644

Coleman Group Pty Ltd (c) Sign production services 1/11/07 100 7,453

The Media Shop (d) Offl ine planning & buying 1/9/07 100 1,050

Visual Jazz Pty Ltd (e) Digital creative 1/7/07 100 16,353

Haystac Public Affairs Pty Ltd (f) Public relations 1/10/07 100 9,026

Total 41,634

2007

Mitchell & Partners group of companies (g) Offl ine planning & buying 1/4/07 100 165,370

Total 165,370


2008 2007 2008 2007

$ $ $ $

Loans to subsidiaries

Beginning of the year - - 463,749 29,390

Loans advanced by/(to) parent - - 74,783,789 854,908

Loan payments received from subsidiaries - - (36,192,360) (420,549)

Interest charged - - 68,276

End of the year - - 39,123,454 463,749

Loans from subsidiaries

Beginning of the year - - (28,711,250) -

Loans transferred by parent - - (36,482,229) 9,479,326

Loan transfer made by subsidiaries - - 14,051,416 (38,190,576)

End of the year - - (51,142,063) (28,711,250)

Loans to/(from) joint venture entities

Beginning of the year - 40,000 - 40,000

Loans advanced by parent 559 - 559 -

Loan payments received/(advanced) by joint venture entity - (40,000) - (40,000)

Provision for loan write-down released - - - -

End of the year 559 - 559 -


30 June 2008

NOTE 31. RELATED PARTIES (continued)

(e) Loans to / from related parties

No provisions for doubtful debts have been raised in relation to any outstanding balances, and no expense has been recognised

in respect of bad or doubtful debts due from related parties.

NOTE 32. BUSINESS COMBINATIONS

92

For

per

sona

l use

onl

y

$’000

Purchase consideration

Cash paid 5,141

Equity issued 1,285

Direct costs relating to the acquisition 682

Total purchase consideration 7,108

Minority interest 6,174

Fair value of net identifi able assets/(liabilities) acquired (refer below) (18)

Goodwill - provisional (refer below) 13,300

2008

$’000

Outfl ow of cash to acquire subsidiary, net of cash acquired

Cash consideration 5,141

Acquisition costs 682

Outfl ow of cash 5,823

Acquiree’s

carrying

amount

Fair value

$’000 $’000

Plant and equipment 7 -

Deferred tax asset - 8

Provision for employee benefi ts (26) (26)

Net identifi able assets acquired (19) (18)

(a) Acquisition of Mitchell & Partners (WA) Pty Ltd

(i) Summary of acquisition

On 16 August 2007, the Mitchell Communication Group Limited announced it had acquired 51% of the issued capital of Mitchell

& Partners (WA) Pty Ltd, a media planner and buyer, for consideration of $6,426,000, consisting of $5,140,800 in cash and

$1,285,200 in equity. The fair value of shares issued was $1.25 based on the weighted average price of the shares during the

period 25 June to 30 June 2007.

Details of the fair value of the assets and liabilities acquired and goodwill are as follows:

(ii) Purchase consideration

(iii) Assets and liabilities acquired

The assets and liabilities arising from the acquisition are as follows:

The fair value of assets and liabilities acquired are based on discounted cash fl ow models.

The fair value of identifi able assets and liabilities acquired has been assessed provisionally. The company is in the process

of appraising the value of the identifi able intangible assets, if any. The company will determine and disclose the allocation to

intangible assets and its associated tax effect within 12 months of the acquisition date in accordance with AASB3 Business

Combinations.

The goodwill is attributable to the profi table nature of the business, which is generated via customer relationships, the ability of

the business to attract high performing personnel, buying power and market dominance. Since the acquisition the company has

performed a detailed value-in-use calculation (refer note 16) that supports the carrying value of all intangibles arising out of the

acquisition.

93

For

per

sona

l use

onl

y

Acquiree’s

carrying

amount

Fair value

$’000 $’000

Plant and equipment 5 -

Net identifi able assets acquired 5 -

2008

$’000


Cash consideration 644

Outfl ow of cash 644

$’000


Cash paid 644

Total purchase consideration 644

Fair value of net identifi able assets acquired (refer below) -

Goodwill 644


30 June 2008

NOTE 32. BUSINESS COMBINATIONS (continued)

b) Acquisition of Co Media Oz


On 17 August 2007, the Mitchell Communication Group Limited announced it had acquired the business and assets of Co Media

Oz, a media planner and buyer on the Gold Coast, for consideration of $644,000 in cash.






The goodwill is attributable to the profi table nature of the business, which is generated via customer relationships, and the

ability of the business to attract high performing personnel. Since the acquisition the company has performed a detailed value-

in-use calculation (refer note 16) that supports the carrying value of all intangibles arising out of the acquisition.

(c) Acquisition of Coleman Group Pty Ltd


On 3 September 2007, the Mitchell Communication Group Limited announced the acquisition of 100% of the issued capital of the

Coleman Group Pty Ltd, one of the largest suppliers of sign production services to major stadia and sporting events in Australia,

for initial consideration of $5,619,000 in cash. Additional consideration is payable to the vendors subject to achievement of profi t

before tax targets for the three years ending 30 June 2010. The contingent consideration payable for the current fi nancial

year is $1,546,000, with $1,137,000 payable in cash and $409,000 payable in shares. The payment of additional consideration

for fi nancial years ending 30 June 2009 and 2010 is not probable at 30 June 2008 and has not been included in the cost of

acquisition. A reassessment of the contingent consideration will be made at 30 June 2009.

94

For

per

sona

l use

onl

y

Acquiree’s

carrying

amount

Fair value

$’000 $’000

Inventories 389 386

Work in progress 11 11

Prepayments 4 4

Fixed assets 778 778


Accrued liabilities (30) (30)

Provision for employee benefi ts - (135)

Lease liabilities (763) (751)

Net identifi able assets acquired 389 303

2008

$’000





$’000


Cash paid 5,619


Additional consideration – 30 June 2008 1,546


Fair value of net identifi able assets acquired (refer below) 303

Goodwill – provisional (refer below) 7,150






The goodwill is attributable to the profi table nature of the business, which is generated via customer relationships, the ability of

the business to attract high performing personnel, buying power and market dominance.




Combinations.

Since the acquisition the company has performed a detailed value-in-use calculation (refer note 16) that supports the provisional

carrying value of all intangibles arising out of the acquisition.

95

For

per

sona

l use

onl

y

Acquiree’s

carrying

amount

Fair value

$’000 $’000

Fixed assets 12 -


Sundry debtor 49 49



2008

$’000



Acquisition costs -


$’000


Cash paid 1,050



Goodwill 1,038


30 June 2008


(d) Acquisition of The Media Shop


On 3 September 2007, the Mitchell Communication Group Limited announced that Mitchell & Partners (WA) Pty Ltd had

acquired the media buying assets of The Media Shop, for consideration of $1,050,000 in cash.






The goodwill is attributable to the profi table nature of the business, and the ability of the business to attract high performing

personnel. Since the acquisition the company has performed a detailed value-in-use calculation (refer note 16) that supports the

carrying value of all intangibles arising out of the acquisition.

(e) Acquisition of Visual Jazz Pty Ltd


On 7 September 2007, the Mitchell Communication Group Limited announced it had acquired the business and assets of Visual

Jazz Pty Ltd, a digital advertising agency, for initial consideration of $10,723,000 in cash. Additional consideration is payable

to the vendors subject to achievement of profi t before tax targets for the two years ending 30 June 2009. The contingent

consideration payable for the current fi nancial year is $4,621,000, with $3,928,000 payable in cash and $693,000 payable in

shares. The payment of additional consideration for fi nancial years ending 30 June 2009 and 2010 is not probable at 30 June

2008 and has not been included in the cost of acquisition. A reassessment of the contingent consideration will be made at 30

June 2009.

96

For

per

sona

l use

onl

y

Acquiree’s

carrying

amount

Fair value

$’000 $’000

Receivables 3,260 3,260

Plant and equipment 352 352


Trade and other payables (1,822) (1,884)


Lease liabilities (282) (282)

Net identifi able assets acquired 1,332 1,329

$’000


Cash paid 10,723

Equity issued 999

Additional consideration – 30 June 2008 4,621



Fair value of net identifi able assets acquired (refer below) 1,329


2008

$’000




Outfl ow of Cash 5,907

2008

No.

Equity issued to acquire subsidiary

Ordinary shares issued 1,513,773

Fair value of ordinary shares issued per share $0.66

2008

$’000

Fair value of ordinary shares issued 999





97

For

per

sona

l use

onl

y

Acquiree’s

carrying

amount

Fair value

$’000 $’000

Receivables 1,668 1,668

Fixed assets 100 100

Deferred tax asset 36 36

Bank overdraft (78) (78)

Trade and other payables (786) (786)

Accrued liabilities (88) (88)



$’000


Cash paid 9,000





2008

$’000




Outfl ow of Cash 9,026


30 June 2008


(iii) Assets and liabilities acquired (continued)


The goodwill is attributable to the profi table nature of the business, future growth prospects, the ability of the business to attract

high performing personnel, and the current workforce in use.




Combinations.

Since the acquisition the company has performed a detailed value-in-use calculation (refer note 16) that supports the carrying

value of all intangibles arising out of the acquisition.

(f) Acquisition of Haystac Public Affairs Pty Ltd


On 17 October 2007, the Mitchell Communication Group Limited announced the acquisition of 100% of the issued capital of the

public relations, marketing communications and brand activation business Haystac Public Affairs Pty Ltd, for consideration of

$9,000,000 in cash.






98

For

per

sona

l use

onl

y

$’000


Cash paid 66,005

Equity issued 22,598

Deferred consideration – Mitchell family 45,571

Deferred consideration – Mitchell & Partners (Qld) Pty Ltd 740

Debt assumed 28,138

Direct costs relating to the acquisition 2,318


Fair value of net identifi able assets acquired 26,247

Goodwill 139,123

Acquiree’s

carrying

amount

Fair value

$’000 $’000

Cash 26,361 26,361

Trade receivables 113,737 113,737

Prepayments 912 912

Plant and equipment 3,147 2,661

Non-interest bearing loans at call 28,034 28,034

Deferred tax asset 612 612

Investments 659 -

Brand names - 5,750

Customer relationships - 6,400

Stadia rights - 1,600

Software - 200

Trade and other payables (155,348) (155,348)

Provision for employee benefi ts (1,668) (1,668)

Current tax liability (889) (889)

Deferred tax liability - (1,920)

Lease liability (195) (195)

Net identifi able assets acquired 15,362 26,247

The goodwill is attributable to the profi table nature of the business, future growth prospects, the ability of the business to attract

high performing personnel, and the current workforce in use.




Combinations.

Since the acquisition the company has performed a detailed value-in-use calculation (refer note 16) that supports the carrying

value of all intangibles arising out of the acquisition.

(g) Mitchell and Partners group of companies

The goodwill that was assessed provisionally at 30 June 2007 has been fi nalised during the period. Details of the fair value of the

assets and liabilities acquired and goodwill are as follows:

Assets and liabilities acquired


(h) Impact on income statement

The contribution to net profi t after tax of the consolidated entity by the acquired entities from the date of their acquisition to

30 June 2008 was $5,016,535. It is not practical to disclose the full year impact of the acquisitions due to the owner related

transactions that occurred in the period up until their purchase.

99

For

per

sona

l use

onl

y

Equity Holding

Name of entityCountry of

incorporationClass of shares

2008

%

2007

%

Mitchell & Partners Pty Ltd Australia Ordinary 100 100

Mitchell & Partners (NSW) Pty Ltd Australia Ordinary 100 100

Mitchell & Partners (Qld) Pty Ltd Australia Ordinary 100 100

Mitchell & Partners Australia Pty Ltd Australia Ordinary 100 100

Drive Communications Pty Ltd Australia Ordinary 100 100

Spark PR Pty Ltd Australia Ordinary 100 100

Positive Outcomes Pty Ltd Australia Ordinary 100 100

Stadia Media Pty Ltd Australia Ordinary 100 100

Mitchell & Partners (NZ) Limited New Zealand Ordinary 100 100

Kiwispace Limited New Zealand Ordinary 67 67

The Internet Bureau Limited New Zealand Ordinary 100 100

emitch New Zealand Limited New Zealand Ordinary 100 100

WSA Media Buying Pty Ltd Australia Ordinary 100 100

Neodigital Pty Ltd Australia Ordinary 100 100

dmitch Pty Ltd * Australia Ordinary 100 100

Mitchell Communication Group Management Services

Pty Ltd ^^

Australia Ordinary 100 100

emitch Pty Ltd ^ Australia Ordinary 100 100

Digital Artists Pty Ltd Australia Ordinary 100 100

Mitchell & Partners (WA) Pty Ltd Australia Ordinary 51 -

Coleman Group Pty Ltd Australia Ordinary 100 -

Visual Jazz Pty Ltd Australia Ordinary 100 -

Haystac Public Affairs Pty Ltd Australia Ordinary 100 -


30 June 2008

NOTE 33. INVESTMENTS IN CONTROLLED ENTITIES

* Named emitch Direct Marketing Pty Ltd until 26 July 2007

^ Named emitch Interactive Marketing Pty Ltd until 27 July 2007

^^ Named emitch Email Services Pty Ltd until 15 December 2007

The proportion of ownership interest is equal to the proportion of voting power held.

NOTE 34. INTERESTS IN JOINT VENTURES

Joint venture entity

On 3 July 2007 the Group entered into a joint venture to establish Mocom Pty Ltd, a company that operates a Mobile Advertising

business.

The parent entity had a 50% interest in Shortlist Solutions Pty Ltd, which is resident in Australia, and the principal activity

of which is recruitment short-listing services. The Group’s share of the joint venture entity was sold on 29 June 2007. Net

proceeds from the sale were $480,000.

100

For

per

sona

l use

onl

y


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Profi t from ordinary activities after income tax 18,817 9,008 2,731 4,853

Depreciation and amortisation 3,711 973 128 199

Net (profi t)/loss on sale of non-current assets 122 73 - -

Share-based payments (75) 187 (75) 187

Net exchange differences 128 (62) - -

Accrued interest on deferred consideration 381 - - -

Gain on sale of joint venture interest - (480) - (480)

Dividends receivable - - (8,250) -

Share of (profi ts)/losses of joint venture not received as distributions

or dividend

13 (112) - -

Change in operating assets and liabilities -

(Increase) in receivables (13,258) (3,533) (292) (5,781)

(Increase)/decrease other assets (8,755) - 446 -

(Increase)/decrease in deferred tax assets (334) (463) - 60

Increase in payables 24,453 23,871 1,374 5,610

Increase/(decrease) in provision for tax payable 404 2,022 (7,521) 250

(Decrease) in deferred tax liability (174) (7) - -

Increase in provision 498 17 - 10

Net cash infl ow from operating activities 25,931 31,494 (11,459) 4,908

The interest in the joint venture entity is accounted for in the fi nancial statements using the equity method of accounting and is

carried at cost by the parent entity. Information relating to the joint venture entity is set out below.

NOTE 35. RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH INFLOW

FROM OPERATING ACTIVITIES

Consolidated

2008 2007

$’000 $’000

Carrying amount of investment

At cost 13 -

Equity accounted profi ts/(losses) (13) 187

Less: Dividends receivable - (187)

- -

Proceeds from sale - 480

Profi t on sale - 480

Share of entities revenue expenses and results

Revenues 102 659

Expenses (136) (499)

Profi t/(loss) before income tax (34) 160

Income tax - (48)

Profi t/(loss) after income tax (34) 112

Prior year accounting losses recouped - -

101

For

per

sona

l use

onl

y

Consolidated

2008 2007

Cents Cents

Basic earnings per share attributable to the ordinary equity holders of the company 6.5 4.5

Diluted earnings per share attributable to the ordinary equity holders of the company 6.5 4.4

2008 2007

Number Number

Weighted average number of shares used as the denominator in calculating basic earnings

per share 278,839,852 201,790,212

Adjustments for calculation of diluted earnings per share:

Options 190,739 350,994

Weighted average number of ordinary shares and potential ordinary shares used as the

denominator in calculating diluted earnings per share. 279,030,591 202,141,206


30 June 2008

NOTE 36. EARNINGS PER SHARE

The earnings as stated in the income statement have been used as the numerator to calculate basic and diluted earnings per

share.

Information concerning the classifi cation of securities

Options granted to non-executive directors and to executive directors and employees under the Mitchell Communication Group

Limited Employee Option Plan are considered to be potential ordinary shares to the extent the exercise price is lower than

the average market price for the year ended 30 June 2008. The options have not been included in the determination of basic

earnings per share. Details relating to the options are set out in note 37.

NOTE 37. SHARE-BASED PAYMENTS

(a) Mitchell Communication Group Limited Employee Options Plan

All full time employees of Mitchell Communication Group Limited and its controlled entities were eligible to participate in the

plan. Options are granted under the plan for no consideration. The options are vested as soon as they become exercisable.

Employee’s entitlements to the options cease upon the termination of their employment. The options granted carry no dividend

or voting rights. Each option is convertible into one ordinary share. The option plan is now closed.

102

For

per

sona

l use

onl

y

Exercise

priceGrant date

First

exercise

date

Expiry date

On issue at

start of the

year

Granted

during the

year

Exercised

during the

year

Lapsed

during the

year

Forfeited

during the

year

On issue at

end of the

year

Vested and

exercisable

at end of

the year

$ Number Number Number Number Number Number Number

Consolidated and parent entity – 2008

$0.55 2-Oct-06 2-Oct-08 2-Oct-11 180,000 - - (29,233) - 150,767 -

$0.65 2-Oct-06 2-Oct-08 2-Oct-11 180,000 - - (29,233) - 150,767 -

$0.75 2-Oct-06 2-Oct-08 2-Oct-11 180,000 - - (29,233) - 150,767 -

$0.75 23-Nov-06 29-Nov-08 28-Nov-11 400,000 - - - (400,000) - -

$1.05 23-Nov-06 29-Nov-09 29-Nov-11 500,000 - - - (500,000) - -

$1.42 2-Apr-07 2-Apr-09 2-Apr-11 1,000,000 - - - (1,000,000) - -

$1.55 2-Apr-07 1-Oct-08 30-Sep-11 300,000 - - - - 300,000 -

$1.50 29-Nov-07 29-Nov-09 29-Nov-12 - 400,000 - - (400,000) - -

2,740,000 400,000 - (87,699) (2,300,000) 752,301 -

Weighted average exercise price $1.12 $1.50 - $0.65 $1.28 $1.01

Consolidated and parent entity – 2007

$0.10 27-Jun-03 1-Jul-03 30-Jun-07 240,000 - (240,000) - - - -

$0.20 27-Dec-02 1-Jan-03 30-Jun-07 200,000 - (200,000) - - - -

$0.20 27-Jun-03 1-Jan-04 30-Jun-07 240,000 - (240,000) - - - -

$0.30 27-Jun-03 1-Jan-05 30-Jun-07 240,000 - (240,000) - - - -

$0.30 29-Nov-04 29-Nov-04 29-Nov-06 500,000 - (500,000) - - - -

$0.40 27-Jun-03 1-Jan-06 30-Jun-07 240,000 - (240,000) - - - -

$0.40 29-Nov-04 29-Nov-04 29-Nov-06 500,000 - (500,000) - - - -

$0.50 29-Nov-04 29-Nov-04 29-Nov-06 500,000 - (500,000) - - - -

$0.60 29-Nov-05 29-Nov-07 29-Nov-10 320,000 - - (320,000) - - -

$0.55 2-Oct-06 2-Oct-08 2-Oct-11 - 180,000 - - - 180,000 -

$0.70 29-Nov-05 29-Nov-07 29-Nov-10 320,000 - - (320,000) - - -

$0.65 2-Oct-06 2-Oct-08 2-Oct-11 - 180,000 - - - 180,000 -

$0.80 29-Nov-05 29-Nov-07 29-Nov-10 320,000 - - (320,000) - - -

$0.75 2-Oct-06 2-Oct-08 2-Oct-11 - 180,000 - - - 180,000 -

$0.75 23-Nov-06 29-Nov-08 28-Nov-11 - 400,000 - - - 400,000 -

$1.05 23-Nov-06 29-Nov-09 29-Nov-11 - 500,000 - - - 500,000 -

$1.42 2-Apr-07 2-Apr-09 2-Apr-11 - 1,000,000 - - - 1,000,000 -

$1.55 2-Apr-07 1-Oct-08 30-Sep-11 - 300,000 - - - 300,000 -

3,620,000 2,740,000 (2,660,000) (960,000) - 2,740,000 -

Weighted average exercise price $0.42 $1.12 $0.33 $0.67 $1.12

The dilution to existing shareholders caused by the rights issue has led to a reduction in the exercise price of options on issue at

the date of the rights issue. The reduction was 4.7 cents per option.

The weighted average remaining contractual life of share options outstanding at the end of the period was 3.26 years (2007 –

4.49 years)

103

For

per

sona

l use

onl

y


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Options issued under Mitchell Communication Group Limited

employee option plan

(75) 187 (75) 187


30 June 2008

NOTE 37. SHARE-BASED PAYMENTS (continued)

Fair value of options granted

The assessed fair value at grant date of options granted during the year ended 30 June 2008 was 17 cents (2007 – between 23

cents and 60 cents). Fair values at grant date are determined using an enhanced Hull-White Trinomial Lattice option pricing

model that takes into account the exercise price, the term of the option, the vesting criteria, the impact of dilution, the non-

tradable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected

dividend yield and the risk-free interest rate for the term of the option.

The model inputs for options granted during the year ended 30 June 2008 included:

options are granted for no consideration, and vest two years after grant date

exercise price: $1.50 (2007 – $0.55, $0.65, $0.75, $1.05, $1.42, $1.55)

grant date: 29 November 2007 (2007 – 2 October 2006, 23 November 2006, 2 April 2007)

vesting date: 29 November 2009 (2007 – 2 October 2008, 29 November 2008, 2 April 2009, 1 October 2008)

expiry date: 29 November 2012 (2007 – 2 October 2011, 29 November 2011, 2 April 2011, 30 September 2011)

share price at grant date: $1.17 (2007 – $0.915, $1.30, $1.27)

expected price volatility of the company’s shares: between 21% and 42% (2007 – between 26% and 56%)

expected dividend yield: between 3.9% and 5.5% (2007 – between 1.5% and 5.0%)

risk-free interest rate: 6.25% (2007 – 6.27%)

The expected price volatility is based on historic volatility (based on the remaining life of the options), adjusted for any expected

changes to future volatility due to publicly available information.

(b) Expenses arising from share-based payment transactions

Total expenses arising from share based payment transactions recognised during the period as part of employee benefi t

expense were as follows:

NOTE 38. EVENTS OCCURRING AFTER REPORTING DATE

(a) Dividend

The directors declared a 2.1 cent a share fully franked dividend on 27 August 2008 payable on 26 September 2008 with a record

date of 5 September 2008.

(b) Acquisition of Mitchell & Partners Western Australia Pty Ltd

Effective 1 July 2008 the Mitchell Communication Group Limited acquired from Workhouse Advertising Pty Ltd the remaining

49% of the issued capital in Mitchell & Partners Western Australia Pty Ltd, for the consideration of $6,174,000 in cash.

(c) Acquisition of Vivid Holdings Australia Pty Ltd

On 27 August 2008, with effect from 1 July 2008, the Mitchell Communication Group Limited acquired 100% of the issued capital

in Vivid Holdings Australia Pty Ltd (“Vivid Group”), a communications and technology services company which delivers innovation

in branding, digital media and application development, for consideration of $13,000,000 in cash. Further consideration is

payable on the achievement of certain profi t hurdles to FY’10.

104

For

per

sona

l use

onl

y


Directors’ declaration

In the directors’ opinion:

(a) the fi nancial statements and notes set out on pages 49 to 104 are in accordance with the Corporations Act 2001, including:

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

requirements; and

(ii) giving a true and fair view of the company’s and Group’s fi nancial position as at 30 June 2008 and of their performance,

for the fi nancial year ended on that date; and

(b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and

payable, and

The directors have been given the declarations by the chief executive offi cer and chief fi nancial offi cer required by section 295A

of the Corporations Act 2001.

This declaration is made in accordance with a resolution of the directors.


Executive Chairman

Melbourne

30 September 2008

105

For

per

sona

l use

onl

y

PricewaterhouseCoopersABN 52 780 433 757

Freshwater Place2 Southbank BoulevardSOUTHBANK VIC 3006GPO Box 1331LMELBOURNE VIC 3001DX 77Telephone 61 3 8603 1000Facsimile 61 3 8603 1999

Independent auditor’s report to the members ofMitchell Communication Group Limited

Report on the financial report

We have audited the accompanying financial report of Mitchell Communication Group Limited (the company), whichcomprises the balance sheet as at 30 June 2008, and the income statement, statement of changes in equity andcash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatorynotes and the directors’ declaration for both Mitchell Communication Group Limited and the MitchellCommunication Group (the consolidated entity). The consolidated entity comprises the company and the entities itcontrolled at the year's end or from time to time during the financial year.

Directors’ responsibility for the financial report

The directors of the company are responsible for the preparation and fair presentation of the financial report inaccordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and theCorporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to thepreparation and fair presentation of the financial report that is free from material misstatement, whether due to fraudor error; selecting and applying appropriate accounting policies; and making accounting estimates that arereasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting StandardAASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents to InternationalFinancial Reporting Standards ensures that the financial report, comprising the financial statements and notes,complies with International Financial Reporting Standards.

Auditor’s responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit inaccordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevantethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurancewhether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risksof material misstatement of the financial report, whether due to fraud or error. In making those risk assessments,the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial reportin order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressingan opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriatenessof accounting policies used and the reasonableness of accounting estimates made by the directors, as well asevaluating the overall presentation of the financial report.

Our procedures include reading the other information in the Annual Report to determine whether it contains anymaterial inconsistencies with the financial report.

For further explanation of an audit, visit our website http://www.pwc.com/au/financialstatementaudit.

Our audit did not involve an analysis of the prudence of business decisions made by directors or management.

106

Liability limited by a scheme approved under Professional Standards Legislation

For

per

sona

l use

onl

y

Independent auditor’s report to the members ofMitchell Communication Group Limited (continued)

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our auditopinions.

Independence

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

Auditor’s opinion

In our opinion:

(a) the financial report of Mitchell Communication Group Limited is in accordance with the Corporations Act2001, including:

(i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30June 2008 and of their performance for the year ended on that date; and

(ii) complying with Australian Accounting Standards (including the Australian AccountingInterpretations) and the Corporations Regulations 2001; and

(b) the consolidated financial statements and parent entity financial statements and notes also comply withInternational Financial Reporting Standards as disclosed in Note 1.

Report on the Remuneration Report

We have audited the Remuneration Report included in pages 31 to 41 of the directors’ report for the year ended 30June 2008. The directors of the company are responsible for the preparation and presentation of the RemunerationReport in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinionon the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor’s opinion

In our opinion, the Remuneration Report of Mitchell Communication Group Limited for the year ended 30 June2008, complies with section 300A of the Corporations Act 2001.

PricewaterhouseCoopers

John Yeoman MelbournePartner 30 September 2008

107

For

per

sona

l use

onl

y

Shareholder information

The shareholder information set out below was applicable as at 31 August 2008

A. Distribution of equity securities

Analysis of numbers of equity security holders by size of holding:

There were 725 holders of less than a marketable parcel of ordinary shares.

B. Equity security holders

Twenty largest quoted equity security holders

The names of the twenty largest holders of quoted equity securities are listed below:

Unquoted equity securities

The names of the twenty largest holders of quoted equity securities are listed below:

*Number of unissued ordinary shares under the options. John Murray benefi cially holds 300,000 of these securities, or 39.88%

C. Substantial holders

Substantial holders of ordinary shares in the company are set out below:

D. Voting rights

The voting rights attaching to each class of equity securities are set out below:

(a) Ordinary shares

On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share

shall have one vote.

(b) Options

No voting rights.

Number

held

Percentage

Harold Mitchell 52,357,101 18.18

Tora Bran Nominees Pty Ltd 31,573,133 10.97

Number

on issue

Number

of holders

Options issued under the emitch Limited Employee Option Plan to take up ordinary shares 752,301 * 12

Ordinary shares

Name

Number held

Percentage of

issued shares

%

Harold Mitchell 52,357,101 18.18

Tora Bran Nominees Pty Ltd 31,573,133 10.97

HSBC Custody Nominees (Australia) Pty Ltd 14,059,153 4.88

Stuart Mitchell 12,858,797 4.46

Amanda Mitchell 12,858,796 4.46

National Nominees Pty Ltd 10,661,546 3.70

J P Morgan Nominees Australia Limited 9,303,681 3.23

Citicorp Nominees Pty Ltd 9,180,294 3.19

I7 Pty Ltd 8,442,508 2.93

Cogent Nominees Pty Ltd 6,687,214 2.32

J.T. Campbell & Co Equity P/L 6,215,432 2.16

M F Custodians Ltd 5,963,025 2.07

Beverly Mitchell 5,619,797 1.95

Amcil Ltd 3,250,276 1.13

Invia Custodian Pty Ltd 3,017,239 1.05

John, Meghann and Ian Stewart 2,801,599 0.97

Harold Mitchell Foundation Limited 2,000,000 0.69

AMP Life Ltd 1,822,065 0.63

ANZ Nominees Limited 1,725,776 0.60

UBS Wealth Management Australia Nominees Pty Ltd 1,550,078 0.54

Total 201,947,510 70.11

Ordinary shares

Shares Options

1 – 1,000 848 -

1,001 – 5,000 1,490 -

5,001 – 10,000 837 -

10,001 – 100,000 1,385 11

100,001 – And over 155 1

Total 4,715 12

108

For

per

sona

l use

onl

y


Company particulars

Directors


Chairman

Garry A Hounsell

Deputy Chairman

Robert J Stewart

Stephen A Cameron

Rodney J Lamplugh

Stuart J Mitchell

Peter G Nankervis

Naseema Sparks

Secretaries

Andrew J Seaburgh

Dion G Cust

Principal registered offi ce in Australia

105 York Street

South Melbourne Victoria 3205

Ph: 03 9690 5544

Country of incorporation

Australia

Share registry

Computershare Investor Services Pty Ltd

452 Johnson Street

Abbotsford Victoria 3067

Ph: 1300 85 05 05

Auditor

PricewaterhouseCoopers

Freshwater Place

2 Southbank Boulevard

Melbourne Victoria 3006

Solicitors

Mallesons Stephen Jacques

500 Bourke Street


Bankers

Australia and New Zealand Banking Group Limited

287 Collins Street


Stock exchange listings

Shares are listed on the Australian Stock Exchange and

trade under the code MCU.

Website Address

www.mitchells.com.au

109

For

per

sona

l use

onl

y

MEDIA PLANNING AND BUYING (OFFLINE AND ONLINE)

SEARCH ENGINE MARKETING

PR AND BRAND EXPERIENCE

DIGITAL CREATIVE AND TECHNOLOGY

VIDEO PRODUCTION

SPORTS GROUND MEDIA

CORPORATE SOCIAL RESPONSIBILITY

RESEARCH AND ANALYTICS

SYDNEY MELBOURNE BRISBANE CANBERRA GOLD COAST PERTH AUCKLAND

For

per

sona

l use

onl

y

Annual Report 2008 For personal use only

Documents

Transcript of Annual Report 2008 For personal use only