Ann: Interim Results Investor Briefing - change of date, page-13

I saw those comments estimating affiliation fees payable to SWM by PRT at 40% but think the estimate is on the low side.

I think in your hunt for the figure in FY17 you have engaged in some double counting. For example, management attributes the majority of the $920k reduction in total operating expenses ($50m - being broadcast and admin costs) in FY17 (p6) to a $735k reduction in employment expenses. Note 3 to the FY17 accounts (p37) shows total employee benefit expenses reducing by the same amount as the commentary on p6 (i.e. employee benefit expenses are wholly a subset of total broadcast and admin costs - so this $39m expense is part of the $50m in operating expenses - the two are not separate).

The affiliation fees have to be buried within COS, which was $126m in FY17. COS seems to comprise affiliation fees payable to SWM, licence fees payable to the government and other costs based on recent annual report commentaries on movements in GM%.

The FY17 COS figure doesn't include TV licence fees because the government waived the fees that year so FY17 COS, at 53% of PRT's FY17 advertising revenue, only comprises SWM affiliation fees and other costs.

SWM total "Affiliation fees and other" for FY17 was $121.7m. If you assume that entire figure was affiliation fees paid by PRT it equates to 51% of PRT's FY17 advertising revenue and sets the 'ceiling' for what the possible fees could be but seems too high given the recently announced deal between SXL and SWM at 50%.

If the SWM affiliation fees payable by PRT was 40% of advertising revenue it would be c.$95m in FY17 - but I find it hard to believe that:

* PRT had $126m - $95m = $31m in other costs associated with earning advertising revenue

* that updating their broadcast licence value DCF model for a new 'market' affiliation fee rate of c.50% would only have a $18.6m impact (equal to revenue CAGR decline of 1.5% p.a.) if the current rate was 40%.

Annual report commentary on GM% movements since FY14 seems to suggest the affiliation fees payable to SWM have escalated each year over the six year agreement - I suspect by 1pp per year based on annual report comments. So if the rate was 40% of advertising revenue in FY14 when the agreement started I'm guessing it was 44% in FY17 so c.$104m of the $126m FY17 COS figure.

If this is correct then affiliation fees are 45% of advertising revenue in FY18, increase to 46% in FY19 and management has inputted a higher % in its broadcast licence value DCF model for FY20 onwards (though might start in FY19 if a new deal is executed later this year).