This Scheme Booklet is important and requires your immediate attention. You should read this document in its entirety. If you are in any doubt as to how to deal with this document, please consult your financial, legal or other professional adviser.

Media Group Scheme Booklet PART B

For the scheme of arrangement between Seven Network Limited (ACN 052 816 789) and the holders of Seven Shares and TELYS3 in relation to the proposed merger of Seven Network Limited and WesTrac Holdings Pty Limited to form Seven Group Holdings Limited.

THE INDEPENDENT SEVEN DIRECTORS UNANIMOUSLY RECOMMEND THAT SEVEN SHAREHOLDERS VOTE IN FAVOUR OF THE SHARE SCHEME, AND THAT TELYS3 HOLDERS VOTE IN FAVOUR OF THE TELYS3 SCHEME, IN THE ABSENCE OF A SUPERIOR PROPOSAL. The Independent Expert has concluded that the Share Scheme is fair and reasonable, and therefore in the best interests of Unrelated Seven Shareholders, and that the TELYS3 Scheme is fair and reasonable, and therefore in the best interests of TELYS3 Holders. If you have any questions about the Share Scheme or the TELYS3 Scheme, please call the Seven Network Limited Information Line on 1300 656 831 (from within Australia, for the cost of a local call) or +61 2 8986 9358 (from outside Australia).

FINANCIAL ADVISERS LEGAL ADVISER Overview of this Scheme Booklet

This Scheme Booklet is comprised of two separate parts: • this Part B, which is common to both Schemes and has been provided both to Seven Shareholders (in relation to the Share Scheme) and TELYS3 Holders (in relation to the TELYS3 Scheme); and • Part A (accompanying this Part B) which is specific to the Scheme that corresponds to the class of Seven securities (Seven Shares or TELYS3) that you hold and has only been provided to holders of that class of security.

You should read both Part A (including the Important Notices on the first page of Part A) and Part B of this Scheme Booklet in their entirety before making a decision on whether or not to vote in favour of the relevant Scheme.

If you are in any doubt as to what you should do, you should consult your financial, legal or other professional adviser before deciding whether or not to vote in favour of the Schemes. Table of contents

1 Information about Seven 3 2 Information about WesTrac Holdings 27 3 Information about SGH after implementation 65 of the Recommended Proposal 4 Implementation of the Recommended Proposal 83 5 Risk factors associated with the Recommended Proposal 97 6 Independent Expert’s Report 109 7 Investigating Accountant’s Report 365 8 Tax Letters 379 9 Additional information 395 10 Glossary 411 11 Scheme of Arrangement: Share Scheme 425 12 Scheme of Arrangement: TELYS3 Scheme 435 13 Deed Poll: Share Scheme 445 14 Deed Poll: TELYS3 Scheme 451 15 Appendix 1 457 Corporate directory 487

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2 Seven Network Limited Scheme Booklet – Part B 1 INFORMATION ABOUT SEVEN

Section 1 3 1.1 OVERVIEW OF SEVEN (A) INTRODUCTION Seven is one of Australia’s largest media holding companies. Seven owns interests in Australia’s largest commercial television network (by audience and advertising market share), Channel Seven; the second largest publisher of magazines in Australia, Pacific Magazines; and is creating a significant presence in online and new communications technologies. In addition, Seven owns a significant portfolio of investments in market leading listed and unlisted media and telecommunications businesses and holds significant cash reserves.

Seven has a market capitalisation of approximately $1.5 billion as at 10 March 2010. Seven is headquartered in Sydney. Mr Kerry Stokes AC, through Wroxby and Ashblue Holdings (which are entities associated with Kerry Stokes), is the largest shareholder of Seven with a 48.7% interest in Seven Shares.

(B) HISTORY OF SEVEN Since listing on the ASX in 1993, Seven has evolved from a free-to-air network to a multi-faceted, integrated media and entertainment company. Seven’s timeline of events is illustrated below:

2000 Sep-2007 Jul-2009 Seven broadcasts Sydney Acquires cornerstone stake in Wireless Acquires substantial Olympic Games Broadband Australia (formerly Unwired) shareholding in CMH

1956 1993 Jan-2006 Dec-2006 Jan-2008 VHF7 first ASX listing 50/50 joint venture Forms SMG joint Completes off market takeover broadcast formed with Yahoo! Inc. venture with KKR of Wireless Broadband Australia

1956 19911993 1995 2000 2001 2006 2007 2008 2009 2010

1995 Sep-2006 Aug-2008 Buys out its regional affiliate in Acquires 33.0% Strategic partnership formed Queensland, Sunshine Television stake in Engin between PRT and Yahoo!7

1991 2001 Oct-2006 Sep-2009 Several metropolitan networks Digital television introduced Acquires 14.9% Two Seven Directors invited to the CMH Board. bundled together to form Seven to Seven’s coverage strategic stake in WAN 12 month standstill agreement reached with CMH

Source: Seven management.

(C) RECENT STRATEGIC FOCUS Seven has focused on enhancing its presence in the creation and distribution of content across multiple delivery platforms. Recently, Seven has complemented its long standing strategic interests in broadcast television, newspapers publishing and magazines publishing with investments in PRT and WAN. At the same time it has been broadening its media offering with investments in high growth media distribution channels such as digital media and subscription television. The acquisition of Wireless Broadband Australia (at the time, Unwired Group Limited) provided Seven with content delivery infrastructure (wireless broadband) in Australia.

Seven is well-placed to play a leading role in the development of media and communications in Australia.

4 Seven Network Limited Scheme Booklet – Part B (D) SEVEN GROUP STRUCTURE Set out below is an overview of the structure of Seven and its investments:

~47%22% 23% 11% 58% 100%

Other assets Media Group

50%

Other listed PREMIERMEDIA securities1

100%100% 50% 50% 100% Channel Cash and other unlisted assets2

Source: Seven management. Notes: 1 Shareholdings in various listed securities, none of which is a “substantial holding” for the purposes of the Corporations Act. 2 Property holdings (Flagship, Perth Entertaiment Centre, Perth Land) and property management services entities (Premier Capital Developments Pty Limited, REVY Investment Trust, Sydney Broadcast Property Trust).

(E) SEVEN SECURITIES As at 10 March 2010, Seven had on issue: • 190,410,281 Seven Shares; • 6,875,000 unlisted executive options over unissued Seven Shares (with exercise prices between $7.00 and $11.00, and lapsing between 2010 and 2015); and • 4,963,640 TELYS3.

(F) SUBSTANTIAL SHAREHOLDERS IN SEVEN Based on substantial holder notices given to Seven up to 10 March 2010, Seven had the following substantial shareholders: Holding Cumulative holding Shareholder (%) (%) KM Stokes (through Wroxby and Ashblue Holdings which are entities associated with Kerry Stokes) 48.8% 48.8% Ausbil Dexia Ltd 7.3% 56.1% IOOF Holdings Ltd 5.0% 61.1%

Source: Seven substantial holding filings. Note: Holding may change as a result of the issue of 150,000 options on 10 March 2010. As at 7 September 2009, Seven had the following distribution of Seven Shareholders and TELYS3 Holders:

Range Seven Shareholders TELYS3 Holders 1 – 1,000 5,400 10,812 1,001 – 5,000 3,951 466 5,001 – 10,000 411 35 10,001 – 100,000 211 17 100,001 and over 36 4 Total number of holders 10,009 11,334

Source: Seven Annual Report 2009. As at 10 March 2010, TELYS3 were widely held with no holders owning more than 4% of TELYS3 on issue.

Section 1 5 (G) SEVEN SHARE PRICE PERFORMANCE The chart below depicts Seven’s share price performance over the past two years.

Seven share price performance

$14.00 Volume Price 6,000,000

$13.00 5,000,000 $12.00

$11.00 4,000,000

$10.00 3,000,000 A$ $9.00 Shares traded Shares

$8.00 2,000,000

$7.00 1,000,000 $6.00

$5.00 0 19-Feb-08 19-Jun-08 20-Oct-08 18-Feb-09 19-Jun-09 20-Oct-09 18-Feb-10

Source: IRESS.

The closing price of Seven Shares on the ASX was $7.99 on 10 March 2010. As at 10 March 2010: • The highest recorded closing price over the last two years was $10.01 on 25 March 2008. • The lowest recorded closing price over the last two years was $5.05 on 9 July 2009. • The one month VWAP was $7.37. • The three month VWAP was $7.05. • The six month VWAP was $6.61.

Over the two year period ended 10 March 2010, the cumulative volume of Seven Shares traded was 148.1% of Seven’s outstanding share capital.

Period 1 month 3 month 6 month 1 year 2 year Volume as % of outstanding share capital 6.1% 11.8% 32.5% 64.7% 148.1%

6 Seven Network Limited Scheme Booklet – Part B (H) CONTINUOUSLY DISCLOSING ENTITY Seven is a disclosing entity for the purposes of the Corporations Act and as such is subject to continuous reporting and disclosure obligations. Specifically, as an ASX-listed company, Seven is subject to the Listing Rules which require it (subject to certain exceptions) to notify the ASX immediately of any information of which it becomes aware concerning Seven that a reasonable person would expect to have a material effect on the price or value of its shares. The following table summarises key announcements made by Seven since 27 June 2009 (being the end of Seven’s last financial year).

Date Announcement 10 March 2010 Appendix 3B – Issue of Seven Shares upon exercise of Options 25 February 2010 Change in substantial holding from ACE and related entities 22 February 2010 Investor presentation – Part 2 (Appendix) 22 February 2010 Investor presentation – Part 1 22 February 2010 Seven Network and WesTrac – Scheme Implementation Key Terms 22 February 2010 Announcement of merger of Seven and WesTrac Group 22 February 2010 Half Year Report and Accounts – Appendix 4D 17 December 2009 Notice of initial substantial holder from IOOF Holdings Limited 11 December 2009 Appendix 3B and 3Y – Issue of Options to directors and executives 3 December 2009 Ceasing to be a substantial holder for GRD Limited 2 December 2009 Shareholding in CMH increased to 22.1% 3 November 2009 Dividend announced for TELYS3 12 October 2009 Shareholding in CMH increased to 21.0% 8 October 2009 Notice of Annual General Meeting 25 September 2009 FY2009 Annual Report 10 September 2009 Ryan Stokes and Peter Gammell appointed to the CMH Board 2 September 2009 vividwireless (Wireless Broadband Australia) announced details of a 4G wireless broadband network to be built in Perth 26 August 2009 Appendix 4E statement 16 July 2009 Shareholding in CMH increased to 19.9% 10 July 2009 Announced 18.3% shareholding in CMH

The disclosures made by Seven to the ASX are available for inspection at the ASX during normal business hours or from the ASX’s website at www.asx.com.au. Further announcements concerning material developments in relation to Seven will continue to be available on the ASX website after the date of this Scheme Booklet.

In addition, Seven is required to lodge annual and half yearly financial reports with ASIC. Copies of these and other documents lodged with ASIC by Seven may be obtained from, or inspected at, an ASIC office. Copies of Seven’s annual and half yearly financial reports may also be obtained from Seven’s website at www.sevencorporate.com.au.

(I) SEVEN BOARD OF DIRECTORS Seven Board of Directors, as at the date of this Scheme Booklet, comprises: • Kerry Stokes AC; • Peter Ritchie AO; • David Leckie; • Ryan Stokes; • Bruce McWilliam; • Elizabeth Dulcie Boling; • Peter Gammell; and • Professor Murray Wells.

Each of these directors will be directors of SGH following implementation of the Recommended Proposal. Their profiles are set out in section 3.7 of Part B of this Scheme Booklet. Robin Waters is an alternate director for Peter Gammell.

Section 1 7 (J) SEVEN MEDIA GROUP SMG is a joint venture between Seven and KKR, formed in December 2006 to pursue media opportunities in Australia and New Zealand. SMG’s major business segments are Channel Seven, Pacific Magazines and the Yahoo!7 online partnership. Seven and KKR each have a 47% (approximately) economic interest in SMG. Other financial investors hold the remaining interest in SMG.

Financial investors and management

~47% ~6% ~47%

Seven Media Group

„ Seven retained a 47% interest in SMG

100% 100% 50%

„ Free-to-air TV station „ Magazine publisher „ JV and online partnership with Yahoo Inc. „ Operates commercial TV stations in „ Publication titles include New Idea, „ One million users each month Sydney, Melbourne, Brisbane, Marie Claire, Better Homes and Adelaide and Perth Gardens and Who

(1) CHANNEL SEVEN SMG owns and operates five commercial metropolitan stations in the major metropolitan markets of Sydney, Melbourne, Brisbane, Perth and Adelaide. In addition, SMG owns and operates a commercial regional television station located in Queensland and broadcasts via locally branded affiliate networks. Together, SMG’s owned free-to-air television stations broadcast as Channel Seven. Channel Seven’s stations (together with affiliates) in aggregate reach just under 100% of the Australian population. Channel Seven is broadcast through Channel 7 analogue, and more recently digital. The resulting three digital channels comprise the main channel in standard definition (SD), 7TWO in SD and Channel 7 high definition (HD).

History A group of independent stations commenced broadcasting in Sydney and Melbourne in December 1956 and evolved to become Channel Seven, a leading free-to-air television network with channels in all Australian metropolitan areas and exposure to regional broadcasting.

Programming Channel Seven actively manages its inventory of news, current affairs, lifestyle and entertainment, drama and sport programming, and a mix of produced and purchased inventory, to satisfy prevailing tastes and meet Australian content requirements.

The majority of Channel Seven’s Australian programming is originated and produced in-house, and owned by Channel Seven; however, Channel Seven also partners with major Australian production companies and independent houses to produce programming. Many of Channel Seven’s produced programs have enjoyed rating success over a number of years. Channel Seven also purchases Australian free-to-air broadcast rights of programs produced by third party producers.

Channel Seven procures internationally produced programs, predominantly from major US studios with which it has “output agreements”. The “output agreements” are multi-year agreements through which Channel Seven purchases agreed amounts of programming at negotiated prices in advance of broadcasting these shows in Australia. Multi-year and upfront agreements provide Channel Seven with certainty in supply of programs and costs. Other international products also come on the market from time to time independently of “output agreements”.

8 Seven Network Limited Scheme Booklet – Part B Commercial television licences Channel Seven’s strength in free-to-air audience share has SMG wholly owns five commercial television licences in translated into success in metropolitan free-to-air advertising each of the key Australian metropolitan jurisdictions and market share. Channel Seven achieved higher free-to-air a commercial television licence in regional Queensland. advertising market share in metropolitan areas compared Commercial television licences are renewed every five years to other free-to-air broadcasters for the half year ended unless ACMA determines that the licensee is not a suitable 31 December 2006 and has maintained this position to entity to hold a licence, or ACMA has suspended or cancelled the half year ended 31 December 2009. the licence for breach of a licence condition or failure to Australian free-to-air metropolitan advertising market share comply with a remedial direction. Channel Seven Channel Nine Channel Ten None of SMG’s licences are subject to any conditions 45% outside of the conditions set down in the Broadcasting 40% Services Act. Channel Seven is in compliance with 35% each commercial television licence and the regulatory requirements for broadcasting. 30%

Audience and advertising market share 25% Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Free-to-air television advertising airtime in Australia is sold principally on the basis of viewing audience, which Source: FreeTV Australia. is measured by ratings data. Arrangement with affiliates The most important audience share rating period is Channel Seven has arrangements to deliver produced and generally considered to be the evening period between purchased programs to each of its regional affiliates, PRT 6.00pm and midnight (“prime time”), which is when most and Southern Cross. people watch television. PRT broadcasts in regional locations in New South Wales, While each metropolitan and regional market is rated Victoria and Western Australia and the Gold Coast area of separately and also broken out for demographics ratings eastern Queensland. Southern Cross broadcasts in Darwin and performance in the five metropolitan markets, collectively it throughout the Northern Territory, rural Queensland and parts is the key measure of popularity with television audiences. of New South Wales, Victoria, South Australia and Tasmania.

The graph below demonstrates Channel Seven’s higher Fees received by Channel Seven under each of these audience share, relative to the other national commercial arrangements are generally linked to gross airtime advertising networks, during prime time (6.00pm to midnight Sunday – revenue in the respective markets. Seven’s affiliate agreements Saturday). In the year ended 31 December 2009, and for the with PRT and Southern Cross mature in 2017 and 2013, third consecutive year, Channel Seven was the top-performing respectively. free-to-air television network in Australia in metropolitan (2) PACIFIC MAGAZINES markets by audience share. Pacific Magazines encompasses SMG’s magazine publishing Prime time free-to-air television audience shares business, Text Pacific, the custom publishing division of Pacific (aggregate figures for each broadcaster’s primary Magazines, and Pacific Insights, the research and consumer channel as well as additional standard definition and high insights division of Pacific Magazines. definition channels) (all people) Pacific Magazines is the second largest magazine publishing 28.1% 26.6% business in Australia and publishes over 25 different magazine 22.4% 17.0% titles, with varying publication frequencies.

5.9% Pacific Magazines’ titles reach two in five Australians and one in four magazines sold in Australia are published by Pacific Magazines. Ten Nine SBS ABC Seven Channel Channel Channel In 2009, Pacific Magazines achieved circulation of 58 million copies and outpaced the overall magazine publishing market Source: OzTAM. by delivering a 29% circulation share, the largest increase in circulation share of all major publishers. Pacific Magazine’s titles Note: Share for the television rating year ending 20 December 2009. SMG owns a 33% occupied two of the top three weekly magazine positions and interest in OzTAM. three of the top five magazine positions by number of readers in Australia in 2009.

Section 1 9 Pacific Magazines is the dominant publisher in fashion, homes, men’s lifestyle and parenting magazines and is increasing its share of readers in many key categories including homes, teens, women’s lifestyle, health, parenting and men’s lifestyle.

Source: Seven management.

Pacific Magazines uses a number of channels to distribute its magazines including retail outlets such as supermarkets and newsagents, digital media and mail-delivered subscription services. Pacific Magazines currently utilises the services of Gordon and Gotch, Australia’s oldest publications distributor and a subsidiary of PMP Limited, to lease display spaces and handle the distribution of some of its products.

Text Pacific has also created magazines and documents for major clients including Virgin Blue, NAB, Nestlé, Abercrombie & Kent and Star City.

(3) YAHOO!7 Yahoo!7 is a 50:50 joint venture between SMG and Yahoo! Inc. that was established in December 2005. Yahoo!7 brings together the television and magazine content and marketing capabilities of Channel Seven and Pacific Magazines with the online search and communications capabilities of Yahoo! Inc. Yahoo!7 offers an online platform with international and local content across online, mobile and internet protocol television areas such as news, sports, entertainment, TV, games, music and travel.

Yahoo!7 holds a 51% equity interest in Yahoo! Xtra, a joint venture formed with Telecom New Zealand Limited in December 2006. Yahoo! Xtra delivers online content and applications services in New Zealand.

(K) LISTED SECURITIES (1) CONSOLIDATED MEDIA HOLDINGS LIMITED CMH is a media investment company listed on the ASX. It holds a 25% interest in the pay television operator FOXTEL, a 50% shareholding in Premier Media Group and is the owner and operator of the FOXSports, Fuel TV and How To television channels. The largest substantial shareholder of CMH is Consolidated Press Holdings Limited which is connected with the Packer family.

In July 2009, Seven disclosed a shareholding of 19.9% in CMH. Seven Directors Ryan Stokes and Peter Gammell joined the CMH board in September 2009. As part of the appointment of Seven’s nominees to the CMH board, Seven and its associates entered into a standstill agreement which prevents Seven and its associates from acquiring a further interest in CMH before September 2010, subject to certain exceptions. In December 2009, Seven’s interest increased to 22.1% after the completion of a $210.4 million share

10 Seven Network Limited Scheme Booklet – Part B buyback by CMH. As at 10 March 2010, Seven had a 22.1% (4) ENGIN shareholding with 137.3 million shares in CMH with a Engin is a leading Australian internet telephony company listed market valuation of $438 million. on the ASX. Engin owns an Australian communications network and delivers Voice over Internet Protocol (VoIP) telephone CMH is listed on the ASX under the ticker ASX:CMJ. For services. Engin currently has 67,000 active services in operation, information on CMH, refer to its corporate website at reinforcing its position as one of the leading VoIP providers www.cmh.com.au or the ASX website at www.asx.com.au. in Australia. The company has been offering VoIP technology Further details on CMH may be obtained by calling CMH’s since 2004 and provided the first broadband phone service to Investor Relations on 1300 855 080 (within Australia, toll free) Australian consumers and small businesses. or +61 3 9415 4000 (outside Australia). Seven has a shareholding of 58.1% in Engin. Seven made an (2) WEST AUSTRALIAN NEWSPAPERS HOLDINGS LIMITED initial investment of $26 million in Engin in September 2006, WAN is a Western Australian-based news and media group buying a 33% shareholding in the company. Seven increased listed on the ASX. WAN is involved in the printing and its shareholding to 58.4% following a non-renounceable publishing of the daily newspaper, The West Australian, and rights issue undertaken by Engin in April 2008, which was 23 regional newspapers across Western Australia. WAN is underwritten by Seven and, as at 8 September 2009, held a also involved in commercial printing, digital media and radio 58.1% shareholding in Engin. As at 10 March 2010, Seven’s communications. WAN holds a 49.9% stake in Community shareholding in Engin had a market valuation of $3.4 million. Newspaper Group, a joint venture with News Limited that publishes 17 local newspapers in Western Australia, and (5) OTHER LISTED SECURITIES operates nine radio stations including RED FM, WA FM and In addition to the CMH, WAN, PRT and Engin shareholdings, Spirit Radio Network. Seven aims to invest in high yielding and liquid securities. As at 10 March 2010, Seven’s other listed portfolio had a market Seven executives Kerry Stokes and Peter Gammell joined the valuation of $351.7 million. board of WAN in September 2008. Kerry Stokes was appointed Chairman of the board of WAN in December 2008. As at 10 March (L) CASH AND CASH EQUIVALENTS 2010, Seven had a 23.4% shareholding with 50.1 million shares in Seven’s balance sheet is underpinned by significant net cash WAN with a market valuation of $373 million. reserves of $1,035.8 million as at 26 December 2009. Seven’s WAN is listed on the ASX under the ticker ASX:WAN. cash is held in a portfolio of term deposits and at call accounts For information on WAN, refer to its corporate website at with highly rated deposit taking institutions in Australia. www.thewest.com.au/shareholders or the ASX website at Seven’s cash portfolio has a diversified maturity profile up to www.asx.com.au. Further details on WAN may be obtained but not exceeding three months, providing a high level of by calling WAN’s Investor Relations on +61 8 9482 3111. liquidity in case Seven’s cash is required quickly.

(3) PRIME MEDIA GROUP LIMITED (M) WIRELESS BROADBAND AUSTRALIA PRT is a diversified media operator with operations in both Wireless Broadband Australia is an Australian-based wireless Australia and New Zealand and is listed on the ASX. PRT broadband network operator and is a leader in the delivery of provides free-to-air television services through its PRIME wireless broadband infrastructure and internet service provider Television Network and Golden West Network, both of which services. Seven acquired Wireless Broadband Australia (at the share a programming affiliation with Channel Seven. In time, Unwired Group Limited) in December 2007. addition, PRT operates radio services throughout Queensland, Wireless Broadband Australia launched its Sydney network focusing on the north and south east. PRT also offers broadcast commercially in August 2004 and in Melbourne in April production services and digital out-of-home advertising 2006 and currently provides wireless broadband services to through PRIME Digital Media which has a strategic partnership over 61,000 consumer and small business customers in both with Yahoo!7. The largest substantial shareholder in PRT is cities. These services are delivered over a network owned associated with Paul Ramsay. and operated by Wireless Broadband Australia using Navini Seven does not have any board representation on PRT. Network’s technology and spectrum in the 3.4 – 3.5 GHz band As at 10 March 2010, Seven had a 11.4% shareholding with which is licensed to Wireless Broadband Australia. Wireless 41.7 million shares in PRT with a market valuation of $30.9 million. Broadband Australia currently sells wireless “plug and play” modems to customers via its website and major retail outlets. PRT is listed on the ASX under the ticker ASX:PRT. For information on PRT, refer to PRT’s corporate website at Wireless Broadband Australia has secured access to the largest www.primemedia.com.au or the ASX website at www.asx.com.au. contiguous allocation of 4G spectrum (2.3 GHz band) in metropolitan Australia of any wireless operator. The spectrum will allow for the delivery of the latest standard in wireless

Section 1 11 technology (4G) supporting high speed broadband and full • Seven’s other unlisted securities comprise minority mobility. 4G provides a comprehensive and secure solution interests in Premier Capital Developments Pty Limited where services, such as data, streamed multimedia and voice (25% shareholding), REVY Investment Trust (25% are provided to users at up to 10 times the speed of previous shareholding) and Sydney Broadcast Property Trust generations of 2G and 3G. Wireless Broadband Australia’s (40% shareholding). Each of these entities provides 3.4 – 3.5 GHz spectrum licences and 2.3 GHz spectrum licences property management services. will expire in 2015. 1.2 SEVEN FINANCIAL INFORMATION vividwireless, a wholly-owned subsidiary of Wireless Broadband Australia, is building a 4G WiMAX wireless broadband network (A) OVERVIEW in the greater Perth metropolitan area. This network is due to This section contains a summary of the following be completed in March 2010 at an investment of $50 million. historical and forecast financial information of Seven Wireless Broadband Australia has chosen Perth to pilot a 4G (Seven Financial Information) and sensitivity analysis network due to its rapidly growing market and strong economic on the key forecast assumptions. fundamentals. In addition, Perth is considered to be a market The Seven Pro Forma Historical Financial Information that is currently under-served by 3G and ADSL infrastructure. comprises the: Wireless Broadband Australia will continue to grow its business • consolidated pro forma income statements of Seven for as an infrastructure builder, spectrum owner and provider the 52 weeks ended 30 June 2007, 28 June 2008 and of internet access services to the corporate sector while also 27 June 2009, and the half year ended 26 December 2009; continuing to support and improve the services it offers to and retail customers. Wireless Broadband Australia will maintain • consolidated pro forma historical balance sheet of its existing 3G wireless operations in Sydney and Melbourne Seven as at 26 December 2009. over the period from 2010 to 2012. Soon after vividwireless’ No consolidated pro forma historical statement of Perth launch in March 2010, Wireless Broadband Australia will comprehensive income is provided. commence deployment of services in Sydney, Melbourne, Brisbane, Adelaide and Canberra and these networks will The Seven Pro Forma Forecast Financial Information be “Metro Extension Networks” established to serve major comprises the: university sites and surrounding communities in these cities. • consolidated pro forma forecast income statements of While centred in the high density urban areas, the networks are Seven for the years ending 30 June 2010 and 30 June 2011; the starting point for future deployments. Wireless Broadband and Australia is finalising its plans and expects to have these • consolidated pro forma abridged cash flow statements of networks operating within 12 months. Seven for the years ending 30 June 2010 and 30 June 2011.

(N) UNLISTED INVESTMENTS No consolidated pro forma forecast statements of • Flagship has interests in a number of Melbourne properties comprehensive income are provided as there are no other and a property developer. Seven previously wholly-owned comprehensive income items forecast. Flagship; however, its interest was diluted when additional assets were vended into Flagship by a third party. Seven Further financial information is available in Seven’s annual currently has a 46.8% interest in Flagship. The carrying reports for 30 June 2007, 28 June 2008 and 27 June 2009 and value of Seven’s 46.8% interest in Flagship at 26 December its half year report for the half year ended 26 December 2009. 2009 was $27.1 million. These reports contain details of Seven’s accounting policies and, in each case, a discussion and analysis of the financial • Perth Entertainment Centre (PEC) is an indoor arena located results for the relevant period, and can be obtained from in Perth, Western Australia. PEC was officially closed in August Seven’s website (www.sevencorporate.com.au). 2002 and a new entertainment centre is currently being built on the car park site of the existing centre, due for completion The information in this section should also be read in conjunction in 2011. Seven is currently seeking development approval for with the information elsewhere in this Scheme Booklet including the redevelopment of the site into commercial and residential information on the risk factors set out in section 5 and the properties. The carrying value of PEC at 26 December 2009 sensitivity of the forecasts to changes in key assumptions, set was $23.3 million. out in section 1.2(I) of Part B of this Scheme Booklet. • Perth Land is a television broadcasting site located All amounts disclosed in the tables are presented in in a residential area in Perth, Western Australia. Australian dollars and, unless otherwise noted, are rounded Seven is currently seeking development approval for to the nearest thousand dollars. the redevelopment of the site. The book value of Perth Land at 26 December 2009 was $7.4 million.

12 Seven Network Limited Scheme Booklet – Part B (B) BASIS OF PREPARATION AND PRESENTATION attention, and consider all best estimate assumptions when OF THE SEVEN FINANCIAL INFORMATION taken as a whole to be reasonable at the time of preparing The Seven Financial Information has been prepared in this document. accordance with the recognition and measurement principles The Seven Pro Forma Forecast Financial Information has been of Australian Accounting Standards as at 31 December 2009, prepared on the basis of certain assumptions, including the although it is presented in an abbreviated form insofar key best estimate assumptions set out in section 1.2(H) of as it does not include all of the disclosures, statements Part B of this Scheme Booklet. This information is intended to or comparative information as required by the Australian assist investors in assessing the reasonableness and likelihood Accounting Standards applicable to annual financial reports of the assumptions occurring, and is not intended to be a prepared in accordance with the Corporations Act. A summary representation that the assumptions will occur. of Seven’s detailed accounting policies is contained in Appendix 1 to Part B of this Scheme Booklet. Seven’s pro forma consolidated income statement for the year ending 30 June 2010 comprises the pro forma actual All amounts disclosed are presented in AUD rounded to the results for the six months ended 26 December 2009 and nearest thousand dollars. consolidated forecast income statement for the six months The minority interests in Seven are entitled to their share of ending 30 June 2010. profits according to their ownership interests in these entities. CMH and WAN are non-controlled businesses. Whilst the Seven The forecast profit entitlements of minority interests have Directors have prepared forecast information by reference to been disclosed in the Seven Financial Information as net their knowledge of these businesses, the forecasts are those of profit attributable to minority interests. Seven and not the underlying businesses. In respect of SMG, PREPARATION OF SEVEN PRO FORMA HISTORICAL the forecast information reflects the view of Seven, not SMG, FINANCIAL INFORMATION and is presented on the basis of publicly available information. Seven and SMG prepare annual reports on a 52 week basis and Investors should be aware that the timing of actual events and half year results on a 26 week basis. Had the accounts for each the magnitude of their impact might differ from that assumed in year been prepared to 30 June or 31 December, there would preparing the Seven Pro Forma Forecast Financial Information, be no material difference to the pro forma results reported. and that this may have a materially positive or negative effect Wireless Broadband Australia (Unwired), Engin, CMH and on Seven’s actual financial performance or financial position. WAN prepare accounts to 30 June of each year. Accordingly, the Seven Directors cannot give any assurance that The Seven Pro Forma Historical Financial Information for the the forecasts will be achieved. Events and outcomes might differ 52 weeks ended 30 June 2007, 28 June 2008 and 27 June 2009 in quantum and timing from the assumptions, with material is based on the consolidated audited financial statements for consequential impact on the Seven Pro Forma Forecast Financial Seven for those periods. The historical financial information Information. As an investment company, Seven does not for the half year ended 26 December 2009 has been extracted control the majority of its underlying investments. It is therefore from Seven’s reviewed financial statements for this period. significantly exposed to market and operating risk that relates to such investments. Investors are advised to review the key On 4 April 2007, Seven ceased to consolidate SMG following best estimate assumptions set out in section 1.2(H) of Part B, in the KKR transaction. From this date, Seven has operated as a conjunction with the sensitivity analysis set out in section 1.2(I) diversified investment company. By its nature, the business of Part B and the risk factors set out in section 5 of Part B of this has been subject to significant one-off items of income and Scheme Booklet, together with the other information set out expense. To better illustrate the underlying performance, elsewhere in this Scheme Booklet. certain transactions summarised in section 1.2(C) of Part B of this Scheme Booklet have been adjusted to prepare the pro forma historical financial information for these periods.

Refer to section 1.2(C) of Part B of this Scheme Booklet for a reconciliation between the audited/reviewed financial statements of Seven and the Seven Pro Forma Historical Financial Information.

PREPARATION OF SEVEN PRO FORMA FORECAST FINANCIAL INFORMATION Seven Directors believe they have prepared the Seven Pro Forma Forecast Financial Information with due care and

Section 1 13 (C) SUMMARY OF HISTORICAL AND PRO FORMA FORECAST INCOME STATEMENTS Set out below is a summary of Seven’s pro forma consolidated historical income statements for the years ended 30 June 2007, 28 June 2008, 27 June 2009 and the half year ended 26 December 2009 and the pro forma consolidated forecast income statements for the years ending 30 June 2010 and 30 June 2011.

Table 1.2.1: Seven pro forma income statement

Summary basis – SMG fully – SMG share – SMG equity – SMG not – SMG equity – SMG, CMH of accounting for consolidated equity accounting equity accounted and WAN all major investments to 4 April 2007 accounted ceased on accounted from 1 January assumed to by period and equity – Acquired 58% 27 December – WAN equity 2010 be equity accounted for of Engin 2008 due to accounted – WAN equity accounted remainder of impairment – Acquired – CMH equity accounted – Wireless year (formed 100% of – WAN equity accounting – CMH equity Broadband joint venture Wireless accounted starts on accounted Australia and with KKR) Broadband from 10 September from Engin are – Telstra Dome Australia 25 September 2009 10 September operating sold 2008 businesses – Wireless 2009 – Wireless Broadband – Wireless Broadband Australia and Broadband Australia and Engin are Australia and Engin are operating Engin are operating businesses operating businesses businesses

Pro forma Pro forma Pro forma Pro forma Pro forma Pro forma six forecast forecast year ended year ended year ended months ended year ending year ending $000 30-Jun-07 28-Jun-08 27-Jun-09 26-Dec-09 30-Jun-10 30-Jun-11 Revenue 1,016,506 84,301 111,160 39,044 79,383 93,281 Other income 2,471 5,998 13,039 4,755 6,862 2,500 Share of results from equity accounted investees 2,556 50,699 42,533 18,071 22,278 74,857 Operating costs (739,126) (43,082) (74,313) (29,235) (70,388) (83,815) EBITDA 282,407 97,916 92,419 32,635 38,135 86,823 Depreciation and amortisation (34,807) (18,680) (33,602) (14,138) (30,534) (35,808) EBIT 247,600 79,236 58,817 18,497 7,601 51,015 Finance costs (108,546) (1,648) (2,918) (353) (399) (582) Finance income 94,267 130,970 78,410 21,727 45,759 49,793 Pro forma profit before income tax1 233,321 208,558 134,309 39,871 52,961 100,226

Note: 1 Reporting historical and forecast income tax expense on a pro forma basis is not considered to be meaningful or appropriate, thus this information has only been provided on a statutory basis for each period as set out below.

14 Seven Network Limited Scheme Booklet – Part B PRO FORMA ADJUSTMENTS The following pro forma adjustments have been made to statutory historical profit before tax to calculate pro forma profit before income tax:

Table 1.2.2: Seven summary of pro forma adjustments

Pro forma historical Pro forma forecast Six months Year ended Year ended Year ended ended 30-Jun-07 28-Jun-08 27-Jun-09 26-Dec-09 Year ending Year ending $000 Audited Audited Audited Reviewed 30-Jun-10 30-Jun-11 Profit after tax 1,621,951 141,594 8,208 508,910 566,094 111,326 Add back income tax expense/ (deduct income tax benefit) 123,478 25,918 159,884 159,874 115,780 (11,100) Profit before income tax per statutory accounts/forecast 1,745,429 167,512 168,092 668,784 681,874 100,226 1. C7 Litigation costs 50,000 – – – – – 2. Gains relating to SMG deconsolidation (1,509,909) (19,200) (1,356,906) – – – 3. Gain on sale of Telstra Dome (76,312) – – – – – 4. US note repayment close out costs 24,113 – – – – – 5. Impairment of listed securities and goodwill – 65,648 182,856 – – – 6. Other gains/losses – (5,402) (6,956) (10,855) (10,855) – 7. Impairment of spectrum and other assets – – 40,521 – – – 8. Impairment of investment in associates excluding CMH – – 1,106,702 (516,831) (516,831) – 9. Gain on investment in CMH – – – (101,227) (101,227) – Pro forma profit before income tax 233,321 208,558 134,309 39,871 52,961 100,226

Notes: Adjustment explanations: 1 Seven incurred one-off costs in FY2007 relating to the settlement costs in relation to the C7 litigation that are non-recurring. 2 In accounting for its investment in SMG, Seven has recorded accounting gains that do not reflect the underlying performance of SMG relating to: a. 2007: the initial gain on deconsolidation of SMG, 52% was taken as a gain, and 47.7% deferred reflecting Seven’s ongoing ownership interest at that time; b. 2008: the dilution of Seven’s interests to 47.0% as a result of a management equity plan; and c. 2009: the impairment of the investment in SMG resulting in a release of the gain originally deferred in 2007 (offset by an amount included in adjustment 8 in 2009). 3 Accounting gain on the disposal of interest in the Telstra Dome, a sporting stadium in Melbourne. 4 One-off cost relating to repayment of debt in the form of US dollar notes. 5 Non-recurring impairments were booked relating to: a. 2008: Listed investments ($47.3 million); investment in Engin ($18.3 million); and b. 2009: Listed investments ($160.8 million) and loss on sale of listed investments ($22.1 million). 6 Sundry other one-off gains and losses classified as “Unusual Items” in the Seven annual report. 7 Impairment of spectrum assets ($35.2 million) and impairment of assets of Engin ($5.3 million) 8 Impairment of investments and subsequent reversal of that impairment in: a. 2009: SMG ($793.9 million) and WAN ($312.8 million); and b. First half 2010: Reversals of impairment of SMG ($379.6 million); WAN ($152.3 million) and new impairment of Flagship ($15.0 million). 9 Gain recognised on achieving significant influence over CMH.

Section 1 15 (D) PRO FORMA CONSOLIDATED BALANCE SHEET Set out below are Seven’s actual and pro forma consolidated balance sheets as at 26 December 2009. The actual balance sheet has been extracted from the reviewed statutory financial information of Seven for the half year ended 26 December 2009. The pro forma balance sheet is the actual balance sheet adjusted to illustrate the estimated negative taxation impact of proposed legislation announced on 10 February 2010.

Table 1.2.3: Seven consolidated balance sheet

Actual as at Pro forma Pro forma as at $000 26-Dec-2009 adjustments1 26-Dec-2009 Current assets Cash and cash equivalents 1,041,856 – 1,041,856 Trade and other receivables 16,161 – 16,161 Inventories 1,724 – 1,724 Assets classified as held for sale 23,251 – 23,251 Total current assets 1,082,992 – 1,082,992 Non-current assets Receivables 7,518 – 7,518 Property, plant and equipment 43,727 – 43,727 Spectrum licences and software 90,262 – 90,262 Investments accounted for using the equity method: – SMG 385,862 – 358,862 – WAN 405,584 – 405,584 – CMH 425,668 – 425,668 – Other 29,226 – 29,226 Other listed investments 428,559 – 428,559 Total non-current assets 1,816,406 – 1,816,406 Total assets 2,899,398 – 2,899,398 Current liabilities Trade and other payables 43,703 – 43,703 Provisions 953 – 953 Interest bearing loans and liabilities 702 – 702 Total current liabilities 45,358 – 45,358 Non-current liabilities Interest bearing loans and liabilities 5,369 – 5,369 Provisions 1,975 – 1,975 Trade and other payables 5,625 – 5,625 Deferred income 7,321 – 7,321 Deferred tax liabilities 400,731 206,400 607,131 Total non-current liabilities 421,021 206,400 627,421 Total liabilities 466,379 206,400 672,779 Net assets 2,433,019 206,400 2,226,619 Equity Issued capital 551,834 – 551,834 Reserves and retained earnings 1,878,686 (206,400) 1,672,286 Total equity attributable to equity holders of the Company 2,430,520 (206,400) 2,224,120 Minority interest 2,499 – 2,499 Total equity 2,433,019 (206,400) 2,226,619 Note: 1 On 10 February 2010, Tax Laws Amendment (2010 Measures No 1) Bill 2010 was introduced into the House of Representatives. Certain provisions within this Bill would have a material impact on the deferred tax balances disclosed in these accounts relating to equity accounted investments. It is estimated that the impact would be an increase in deferred tax liabilities of approximately $206.4 million to the balance disclosed in the accounts with a corresponding increase in deferred tax expense. The relevant provisions in this Bill, if enacted, will apply from 10 February 2010. In accordance with AASB 110, this change is seen as a non-adjusting post balance date event. These adjustments do not impact current tax payable. To assist in presenting the potential impact of this matter, it was considered appropriate to reflect it as a pro forma adjustment in this pro forma balance sheet.

16 Seven Network Limited Scheme Booklet – Part B SUBSEQUENT EVENTS The value of listed investments and listed investments accounted for using the equity method at 26 December 2009 has since changed due to market movements affecting share prices. As at 10 March 2010 an unrealised and unadjusted loss of approximately $60 million exists in relation to these investments.

(E) PRO FORMA FORECAST STATEMENTS OF ABRIDGED CASH FLOWS Set out below are Seven’s pro forma forecast consolidated statements of abridged cash flows for the years ending 30 June 2010 and 30 June 2011. Refer to Seven’s annual reports for details of Seven’s historical statements of cash flows.

Table 1.2.4: Seven pro forma abridged forecast statement of cash flows

Pro forma forecast Pro forma forecast year ending year ending $000 30-Jun-10 30-Jun-11 EBITDA 38,135 86,823 Working capital movements (9,075) – Share of associates profit/(loss) (22,278) (74,857) Dividends received from equity accounted investments1 16,478 16,478 Net cash flows from operating activities pre tax and interest 23,260 28,444 Cash flows from other activities Income tax (payable)/recoverable 12,591 – Interest receivable 45,759 49,793 Interest payable (537) (639) Payment for property, plant and equipment2 (45,337) (7,700) Dividends payable to Seven Shareholders3 (64,688) (64,689) Dividends payable to TELYS3 Holders3 (23,273) (33,170) Net repayment of borrowings (1,315) (1,450) Net cash flows used in other activities (76,800) (57,855) Total4 (53,540) (29,411)

Notes: Underlying key cash flow assumptions: 1 Dividends received relate to CMH and are forecast to occur every six months in April and October which is consistent with historical payment trends. WAN dividends have been reinvested historically thus having no cash flow impact. 2 Property, plant and equipment cash outflow assumptions primarily relate to the rollout of the vividwireless 4G network in 2010 for Wireless Broadband Australia. 3 Dividend payments are forecast to be made to Seven Shareholders in line with historical rates. For FY2010 and FY2011, the dividends paid to ordinary shareholders is at $0.34 per share. The dividend payments to the TELYS3 Holders are forecast to be paid every December and June, with a one-time step-up in the margin by 2.25% starting in 31 May 2010 in accordance with the TELYS3 prospectus, dated 6 April 2005. 4 The forecast cash flows exclude payments for listed investments of $321.7 million from the 30 June 2010 pro forma forecast on the basis that they are non-recurring items.

Section 1 17 (F) SEGMENT INFORMATION Seven’s primary segment reporting format is business segments comprising the following: • Broadband and telephony: Provision of wireless broadband and telecommunication services; and • Investments: Listed and other investments including investments in associates.

Table 1.2.5: Seven segment information

Pro forma Pro forma Six months forecast forecast Year ended Year ended Year ended ended year ending year ending $000 30-Jun-07 28-Jun-08 27-Jun-09 26-Dec-09 30-Jun-10 30-Jun-11 Revenue and other income Broadband and telephony – 27,323 54,246 23,300 48,230 62,461 Investments 12,000 62,976 69,953 20,499 38,015 33,320 Television 812,123 – –––– Magazines 194,854 – –––– Total revenue and other income 1,018,977 90,299 124,199 43,799 86,245 95,781 EBIT Broadband and telephony – (17,913) (33,129) (13,903) (39,319) (43,981) Investments1 (13,228) 97,149 91,946 32,400 46,920 94,996 Television 235,861 – –––– Magazines 24,967 – –––– Total EBIT 247,600 79,236 58,817 18,497 7,601 51,015 Finance costs (108,546) (1,648) (2,918) (353) (399) (582) Finance income 94,267 130,970 78,410 21,727 45,759 49,793 Pro forma profit before tax2 233,321 208,558 134,309 39,871 52,961 100,226

Notes: 1 Includes share of net profit from associates. 2 After adjusting for impact of pro forma adjustments noted in section 1.2(C) of Part B of this Scheme Booklet.

(G) MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS Seven has controlling interests in Wireless Broadband Australia, a wireless broadband provider in Australia, and Engin, a leading Australian internet telephony company, which are classified under the “broadband and telephony” segment.

In addition, Seven has secured a media presence through its strategic holding in broadcast television, magazines publishing and online and broadband through its investment in SMG, an investment in PRT, which complements SMG’s broadcast television presence, and strategic shareholdings in pay television through CMH and newspapers through WAN.

Set out below is a brief financial summary for each of these key investments.

BROADBAND AND TELEPHONY Wireless Broadband Australia Table 1.2.6: Wireless Broadband Australia summary Pro forma Pro forma Six months forecast forecast Year ended Year ended Year ended ended year ending year ending $000 30-Jun-07 28-Jun-08 27-Jun-09 26-Dec-09 30-Jun-10 30-Jun-11 Revenue 22,373 34,046 12,751 26,104 38,513 EBITDA 1,312 1,517 (307) (10,012) (9,490) EBIT (16,051) (27,475) (13,316) (37,978) (44,349)

Note: 1 The amounts above represent the financial information used in the consolidation of Wireless Broadband Australia into Seven and may not agree to statutory accounts of Wireless Broadband Australia due to consolidation adjustments.

18 Seven Network Limited Scheme Booklet – Part B Wireless Broadband Australia was formed on 11 August 2000 through the incorporation of Wireless Broadband Australia, and through an initial equity capital raising undertaken in 2000 and 2001 which raised a total of $128.8 million. Those funds were used to purchase spectrum licences and to fund the initial start-up and planning costs for Wireless Broadband Australia’s fixed wireless access (FWA) network.

The company purchased its spectrum licences in the WiMAX designated 3.4 – 3.5 GHz range from the Federal Government at auction in 2000. Wireless Broadband Australia then purchased a small additional quantity of 3.4 – 3.5 GHz spectrum licences from pay TV operator Austar United Communications Limited in 2001. This brought Wireless Broadband Australia’s total spectrum licence ownership to 96.5 MHz in Sydney, 100 MHz in Melbourne and 65 MHz in other states, covering about 90% of the population for a total investment of $110 million. In April 2003, Wireless Broadband Australia chose Navini Networks’ non-line-of-sight technology for its network. In November 2003, Wireless Broadband Australia went to the financial markets with plans to build and operate a FWA network and raised new capital of $100 million.

In October 2007, Network Investment Holdings Pty Limited, a wholly-owned subsidiary of Seven, made a takeover bid for Wireless Broadband Australia (then Unwired Group Limited). Wireless Broadband Australia became a wholly-owned subsidiary of Seven.

Wireless Broadband Australia’s objective is to be the largest wireless broadband provider in Australia, providing the country’s first alternative local loop to the incumbent, Telstra.

The technical assessment of the company’s 4G network has been completed and Seven is currently investigating funding arrangements for the deployment of this network. In September 2009, vividwireless – a Wireless Broadband Australia company – confirmed the first phase of its plans for 4G with the development of infrastructure and services in Perth – Seven’s investment commitment is $50 million for this project. In January 2010, Wireless Broadband Australia announced a limited national deployment in select attractive local markets at an estimated cost of $14 million, increasing Seven’s total commitment from $50 million to $64 million. A total of $44 million is included in the forecast cash flow for FY2010 (of which $13 million was incurred at 31 December 2009) and $6 million in FY2011 for the capital expenditure of this 4G network. The remaining costs are to be funded through working capital.

Seven has not committed to a full national rollout of a 4G network by Wireless Broadband Australia. Wireless Broadband Australia is exploring funding needs and sources of funding – both potentially debt and equity. A full national rollout will require secured funding which may only partly come from SGH if the Recommended Proposal proceeds.

A significant portion of the EBIT loss forecast for Wireless Broadband Australia arises from non-cash amortisation of previously acquired spectrum and other assets. Revenue assumptions in FY2010 assume a decline in existing customer base in Sydney and Melbourne offset by growth in FY2011 in Perth with the rollout of 4G network. The FY2011 forecast assumes a level of demand amongst the public for this service that may be eroded due to competition from other wireless broadband suppliers.

Engin Table 1.2.7: Engin summary

Pro forma Pro forma Six months forecast forecast Year ended Year ended Year ended ended year ending year ending $000 30-Jun-07 28-Jun-08 27-Jun-09 26-Dec-09 30-Jun-10 30-Jun-11 Revenue 4,950 20,200 10,549 22,126 23,948 EBITDA (976) (1,482) 324 650 1,317 EBIT (1,862) (5,654) (587) (1,341) 368

Note: 1 The amounts above represent the financial information used in the consolidation of Engin into Seven and may not agree to statutory accounts of Engin due to consolidation adjustments.

Engin is a leading Australian internet telephony company. The company owns an Australian communications network and delivers Voice over Internet Protocol (VoIP) telephony services. Engin allows any broadband user to make and receive calls using their existing telephone handset at very low prices relative to fixed or mobile services. Seven controls Engin, with an ownership interest of 58.1%. In FY2009, Engin delivered revenues of $20.2 million and generated its first positive operating profit in the second half of the year.

Revenue is forecast to increase in the forecast years based on an assumed increase in the number of VoIP users.

Section 1 19 INVESTMENTS Seven Media Group (SMG) Seven holds a 47.0% interest in SMG, a joint venture with KKR which encompasses SMG’s broadcast television (Channel 7), Pacific Magazines and digital businesses (including Yahoo!7). SMG was formed on 29 December 2006, and SMG was deconsolidated from Seven on 4 April 2007.

Investors should be aware that the forecast for Seven assumes SMG continues its operations as part of the Seven Group throughout the forecast period with no material changes from refinancing assumed. Any changes to SMG’s operations and structure within the Seven Group may have a material impact on Seven’s forecast earnings and cash flows particularly in relation to the crystallisation of various deferred tax liabilities that relate to Seven’s investment in SMG and could crystallise if changes to SMG’s ownership structure occurred.

Table 1.2.8: SMG profit and loss summary Pro forma Pro forma forecast forecast Year ended Year ended Year ended year ending year ending $000 30-Jun-072 28-Jun-08 27-Jun-09 30-Jun-103 30-Jun-113 Revenue Television 1,090,338 1,160,920 Magazines 320,997 329,342 Total revenue 695,421 1,509,153 1,483,626 1,411,335 1,490,262 EBITDA Television 273,074 275,809 Magazines 56,976 58,457 Other (6,009) (6,165) Share of profit from associates 9,908 11,354 Total EBITDA 175,879 398,200 289,000 333,949 339,455 Depreciation and amortisation (25,144) (49,502) (58,316) (44,197) (44,197) EBIT 150,735 348,698 230,684 289,752 295,258 Unusual items – – (1,969,073) – – Net interest expense (212,015) (406,806) (399,167) (384,321) (385,095) Income tax benefit/(expense) 21,795 10,377 278,285 – – Profit/(loss) after tax (39,485) (47,731) (1,859,271) (94,569) (89,837) Seven’s share of SMG results1 n/a 53,755 28,912 (12,245) 33,581

Notes: 1 Seven’s share of SMG’s NPAT is equity accounted based on statutory profit/(loss) after tax plus adjustments for certain non-cash items and intra-group transactions. 2 Statutory accounts for 30 June 2007 include nine months of results following deconsolidation of SMG in April 2007. 3 Represents Seven Directors’ forecast for SMG.

Basis of preparation of SMG financial information The historical information presented above for SMG is based on publicly available information for this jointly-controlled investment. The SMG forecast has been prepared by the Seven Directors using publicly available information and then considered by the Seven Directors to ensure that there is reasonable basis for the forecast and it is not false or misleading. This is not a forecast by SMG and has not been considered or verified by SMG.

20 Seven Network Limited Scheme Booklet – Part B Television Television revenue is derived primarily from advertising which is primarily a function of market size and market share. Details of these key drivers are set out below:

Table 1.2.9: SMG television – key historical and assumed revenue drivers

Pro forma Pro forma forecast forecast Year ended Year ended Year ended year ending year ending $000 30-Jun-07 28-Jun-08 27-Jun-09 30-Jun-10 30-Jun-11 Metro television advertising market size ($000) 2,798,744 2,933,562 2,679,244 2,692,000 2,867,000 Television market audience share 37.5% 38.7% 40.1%1 38.0% 38.0%

Note: 1 Includes impact of Beijing Olympics.

Television advertising market size is closely correlated to the general performance and health of the economy. The growth in advertising spend from FY2007 to FY2008 and subsequent decline in FY2009 was driven by the buoyant market conditions followed by the onset of the GFC which led to a sharp reduction in advertising spend. The forecast growth in metro television advertising market size has been determined by reference to historical trends and current market trends. A third party report, prepared by LEK Consulting, was commissioned to support the Seven Directors’ assumptions. LEK Consulting’s drivers of metro television advertising market size take into account the most likely economic outlook for the Australian economy that was further refined by developing an outlook on total advertising spend using the historical correlation of total advertising spend with GDP. Adjustments were then made to account for market volatility based on observations of prior downturns and future trends in share of advertising spend by media type and free-to-air.

SMG has held the number one position in market share over the historical period and it is assumed that this position (approximately 38% audience market share) will be maintained in the forecast period. An increase in produced program costs has been forecast to support this position.

The cost base of SMG in the forecast period is assumed to be relatively stable given largely contracted or controllable program costs which are assumed to grow at 4.0% in FY2010 and 10.5% in FY2011 as management are increasing produced program spend to protect their market share in FY2011 with some new programs forecast.

Following an announcement by the Australian Minister for Broadband, Communications and the Digital Economy on 7 February 2010, and subsequent Federal Opposition comment, Seven has assumed no reduction of current licence fees. No major anticipated sporting right renegotiations are expected to financially impact the forecast period. People costs are expected to largely move in line with wage inflation. Given that FY2009 results include the summer Olympics, management has isolated this one-off event when considering the FY2010 forecast.

Given the relatively fixed nature of SMG’s cost base, movements in either market share or market size can have a significant impact on underlying EBITDA. Given the debt levels in SMG, sustained decline in market size or unanticipated loss of market share would lead to a significant loss of recorded investment value to Seven. Refer to the sensitivity analysis in section 1.2(I) of Part B and the discussion of key risk factors in section 5 of Part B of this Scheme Booklet for further consideration of this.

Magazines (Pacific Magazines) The magazine division has historically been relatively stable. Its earnings forecast is based on the following key assumptions: • circulation is assumed to remain static from FY2009 to FY2010, and circulation in FY2011 is assumed to grow in line with CPI; • advertising display revenue is forecast to increase by CPI in both FY2010 and FY2011; and • expenses are assumed to be all variable costs where FY2010 and FY2011 forecasts are at the same percentage of revenues as historical levels.

Other (Yahoo!7, SkyNews) SMG’s share of associate NPAT primarily relates to the Yahoo!7 joint venture and is assumed to grow at 10.0% in FY2010 and 14.6% in FY2011. These growth rates are based on broker consensus growth rates for online advertising display.

Section 1 21 Financing The SMG business has substantial debt finance maturing that will require refinancing or repayment in the near-term but outside the forecast period. As at 30 June 2009, approximately $2.0 billion of bank loans mature in December 2012 with a further $420 million maturing in December 2013. The Seven Directors are not aware of any anticipated breaches of any term of the finance facilities that would require early repayment; however, the sensitivity of SMG earnings to market share and market size movements or other unanticipated factors means this risk cannot be eliminated.

Consolidated Media Holdings (CMH) Table 1.2.10: CMH consolidated profit and loss summary

Pro forma Pro forma Six months forecast forecast Year ended Year ended Year ended ended year ending year ending $000 30-Jun-071 30-Jun-08 30-Jun-09 31-Dec-092 30-Jun-103 30-Jun-113 Revenue4 2,017,821 10,017 5,977 5,773 EBIT5 460,878 958,687 429,935 37,278 NPAT5 290,907 995,762 430,134 37,274 Seven dividend6 n/a n/a 5,511 n/a n/a n/a Seven share of NPAT n/a n/a n/a 6,176 13,479 19,601

Notes: 1 On 12 December 2007, CMH completed a reorganisation by transferring two subsidiaries, Crown Entertainment Group Holdings Pty Ltd and Publishing and Broadcasting (Finance) Ltd to Crown Ltd, explaining why the 30 June 2007 financial information is significantly higher than 30 June 2008. 2 Significant decline in NPAT for the six months ended 31 December 2009 is due to the sale of CMH’s interest in SEEK Limited. 3 CMH financial information for the forecast years ending 30 June 2010 and 30 June 2011 is based on Seven Director forecasts which assume a 3.0% CPI uplift on the underlying FY2009 result of $83.6 million (being FY2009 statutory NPAT of $430.1 million less non-recurring fair value gain on investments of $346.5 million). For FY2010 Seven equity accounts for CMH from 10 September 2009. 4 EBIT and NPAT for the years ended 30 June 2007, 30 June 2008 and 30 June 2009 and for the six months ended 31 December 2009 have been calculated by adding finance costs to profit before tax per the CMH income statement in the statutory/reviewed accounts. 5 Revenue excludes other income. 6 Dividends received are included in Seven’s share of NPAT.

Basis of preparation of CMH financial information The historical information presented above for CMH is based on publicly available information for this non-controlled investment. Forecast Seven share of CMH earnings has been prepared by Seven Directors by applying a 3.0% (CPI) uplift to CMH’s underlying FY2009 NPAT of $83.6 million (that is, after excluding the fair value gain on investment of $346.5 million from the statutory NPAT of $430.1 million). Seven’s share is then calculated as 22.1% of this figure. For FY2010, Seven equity accounts for CMH from 10 September 2009 such that Seven’s share of CMH earnings is calculated as a proportion of CMH’s full year earnings.

Background information On 16 July 2009, Seven confirmed its holding of 19.9% in CMH. CMH owns 50% of subscription television programming company, Premier Media Group (PMG), which owns and operates FOXSports, Fuel TV and the How to Channel, as well as 25% of pay television company FOXTEL.

On 10 September 2009, Mr Ryan Stokes and Mr Peter Gammell were appointed to the CMH board of directors. It was considered that Seven had significant influence over CMH as from this date. From 10 September 2009 to 26 December 2009, Seven increased its ownership interest in CMH to 22.1% as a result of it not participating in a CMH share buy-back. From its initial date of investment to 10 September 2009, Seven accounted for dividend income received from CMH. From 10 September 2009, Seven has accounted for CMH as an associate and accounted for its share of CMH’s profit after tax.

CMH has a 25% interest in FOXTEL, with 25% held by News Corporation Limited and 50% held by Telstra Corporation Limited. In the year ended 30 June 2009, FOXTEL’s EBITDA was $406 million, up 16% from $351 million in FY2008. The growth in EBITDA was delivered despite the significant investment FOXTEL made in the launch of its high definition service at the beginning of FY2009 and the accelerated rollouts of the IQ product in 2009. FOXTEL’s subscription revenue increased from $1.43 billion to $1.56 billion reflecting an uplift of 9%. At 31 December 2009, FOXTEL had more than 1.62 million subscribers.

CMH has a 50% interest in PMG. PMG’s EBITDA grew to $152 million in FY2009, up 14% from FY2008. Subscription revenues of $315 million were up 18% on FY2008 due largely to growth in subscribers at PMG’s major distributors FOXTEL and Austar plus the benefits of favourable USD:AUD exchange rate over FY2008. Profit before tax of $144 million reflected a growth of 7% over FY2008.

22 Seven Network Limited Scheme Booklet – Part B Refer to CMH’s historical annual reports and earnings announcements, which can be located at CMH’s website (www.cmh.com.au) and the ASX website (www.asx.com.au), for further financial information and discussion of historical performance.

West Australian Newspapers Holdings Limited (WAN) Table 1.2.11: WAN consolidated profit and loss summary

Pro forma Pro forma Six months forecast forecast Year ended Year ended Year ended ended year ending year ending $000 30-Jun-07 30-Jun-08 30-Jun-09 31-Dec-09 30-Jun-10 30-Jun-11 Revenue1 447,043 471,683 418,619 205,109 EBIT – from continuing 176,200 198,300 154,900 78,300 operations2, 3 NPAT – from continuing operations2 53,968 116,615 87,244 49,492 Seven dividend 9,354 19,525 14,899 n/a n/a n/a Seven share of NPAT n/a n/a 13,321 11,545 21,044 21,675 Total earnings 9,354 19,525 28,220 11,545 21,044 21,675

Notes: 1 Revenue excludes other income. 2 EBIT and NPAT for the years ended 30 June 2007, 30 June 2008 and 30 June 2009 and for the six months ended 31 December 2009 have been calculated by adding finance costs to profit before tax per the WAN income statement in the statutory/reviewed accounts. 3 EBIT figures have been extracted from publicly available investor presentations accompanying the statutory accounts for the years ended 30 June 2008 and 30 June 2009, and the reviewed accounts for the six months ended 31 December 2009. 4 WAN financial information for the forecast years ending 30 June 2010 and 30 June 2011 is based on Seven Director forecasts which assume a 3.0% CPI uplift on the underlying FY09 result.

Basis of preparation of WAN financial information The historical information presented above for WAN is based on publicly available information for this non-controlled investment. Forecast Seven share of WAN earnings has been prepared by Seven Directors by applying a CPI uplift of 3.0% in FY2010 and FY2011 to WAN’s FY09 statutory NPAT of $87.2 million. Seven’s share is then calculated as 23.4% of this figure.

Seven currently has a 23.4% shareholding in WAN which is equity accounted. Two directors of Seven, Mr Kerry Stokes AC and Mr Peter Gammell, are directors of WAN.

From its initial date of investment in October 2006 to 25 September 2008, Seven accounted for dividend income received from WAN. From 25 September 2008, Mr Kerry Stokes AC and Mr Peter Gammell were appointed to the WAN board of directors and as a consequence Seven was considered to have significant influence over WAN and commenced accounting for WAN as an associate and accounted for its share of WAN’s profit after tax.

WAN has a new board and management team, and has successfully implemented a new organisational structure, introduced new cost management programs and formed a new online alliance with Yahoo!7.

Refer to WAN’s historical annual reports and earnings announcements, which can be located at WAN’s website (www.thewest.com.au) and the ASX website (www.asx.com.au), for further financial information and discussion of historical performance.

Section 1 23 Other listed securities Seven Network’s remaining listed investment portfolio consists primarily of equity investments in high yield, highly liquid entities.

Table 1.2.12: Seven listed investments dividend yield

Pro forma Pro forma Six months forecast forecast Year ended Year ended Year ended ended year ending year ending $000 30-Jun-07 28-Jun-08 27-Jun-09 26-Dec-09 30-Jun-10 30-Jun-11 Value of listed investments 524,110 1,236,207 417,296 428,559 Dividend income1 885 37,453 36,504 15,744 31,153 30,820 Dividend yield %2 7.3% 7.2%

Notes: 1 This excludes dividend income from CMH and WAN. 2 Dividend yield has been calculated using total dividend income divided by the value of listed investments as at 31 December 2009 of $428.6 million.

Cash Seven has a significant cash balance ($1.0 billion at 26 December 2009) from which it derives interest income. The forecast assumes this cash will not be invested and will yield the following interest rates:

Table 1.2.13: Summary of forecast interest rates Period Average forecast rate January 2010 – June 2010 4.60% 1 July 2010 – 30 June 2011 4.79%

(H) BEST ESTIMATE ASSUMPTIONS UNDERLYING THE FORECAST FINANCIAL INFORMATION SPECIFIC ASSUMPTIONS Specific key assumptions underlying the forecast for Seven’s broadband and telephony operations and investments are detailed above in this section 1.2.

GENERAL ASSUMPTIONS The following general assumptions are relevant to the forecast financial information: • no material change in the competitive operating environment; • no significant deviation from current market expectations of global economic conditions; • no material new investments, business acquisitions or disposals, other than the Recommended Proposal; • no material industrial strikes or other disturbances, environmental costs or legal claims; • retention of key personnel; • no significant change in the legislative regimes and regulatory environments in the jurisdictions in which Seven operates; • no significant change in the legislative tax regimes other than the 10 February 2010 Tax Laws Amendment (2010 Measures No 1) Bill 2010 introduced into the House of Representatives. Certain provisions within this Bill would have a material impact on the deferred tax balances disclosed in these accounts relating to equity accounted investments. It is estimated that the impact would be an increase in deferred tax liabilities of approximately $206.4 million to the balance disclosed in the accounts with a corresponding increase in deferred tax expense. This has been incorporated in the pro forma balance sheet; • no change in the applicable Australian Accounting Standards or other mandatory Australian professional reporting requirements which would have a material effect on Seven’s financial performance, cash flows, balance sheet, accounting policies, financial reporting or disclosure; • no change in Seven’s capital structure other than as set out in, or contemplated by, this Scheme Booklet; • no material change in CPI and AWOTE (average weekly ordinary times earnings) assumptions underlying the Seven Directors’ forecast; • no material amendment to any material agreement or arrangement relating to Seven’s businesses and investments; • no material change in the value, operations or structure of WAN; • no material change in the value, operation or structure of CMH; and • no material change to value or dividend policies of listed investments.

24 Seven Network Limited Scheme Booklet – Part B (I) SENSITIVITY ANALYSIS The forecast financial information is based on a number of estimates and assumptions that are subject to business, economic and competitive uncertainties and contingencies, many of which are beyond the control of Seven, Seven Directors and management, and upon assumptions with respect to future business decisions, which are subject to change.

Set out below is a summary of the sensitivity of certain forecast financial information to changes in a number of key assumptions. The changes in the key assumptions as set out in the sensitivity analysis are not intended to be indicative of the complete range of variations that may be experienced. The sensitivities presented impact both revenue and PBT by the same amount (with the exception of item 3 (interest rates) that impacts finance income instead of revenue); therefore PBT impact only is illustrated.

Table 1.2.14: Sensitivity analysis

Half-year Increase/ 30 June 2010 30 June 2011 $000 (decrease) PBT impact PBT impact Assumption Change in metropolitan television advertising market size (Seven impact)1 + 1.0%/(1.0%) 1,739/(1,739) 4,089/(4,089) Change in metropolitan television advertising market size (Seven impact)1 +5.0%/(5.0%) 8,695/(8,695) 20,445/(20,445) Change in metropolitan television advertising market share (Seven impact)2 + 1.0%/(1.0%) 4,700/(4,700) 11,750/(11,750) Change in metropolitan television advertising market share (Seven impact)2 +2.0%/(2.0%) 9,400/(9,400) 23,500/(23,500) Interest rates3 + 1.0%/(1.0%) 5,300/(5,300) 10,800/(10,800) Dividend yield on listed investments4 +1.0%/(1.0%) 2,140/(2,140) 4,290/(4,290) Inclusion of licence fee rebates5 n/a 6,156 17,719

Notes: 1 These sensitivities are to reflect the Seven impact of movements in SMG market size assumptions by calculating the 47.0% share of the PBT impact as this represents Seven’s equity accounted share of NPAT of SMG. 2 These sensitivities are to reflect the Seven impact of movements in SMG market share from 38% assumed in FY2010 and FY2011. The Seven impact is derived by calculating the 47.0% share of the PBT impact as this represents Seven’s equity accounted share of NPAT of SMG. 3 Finance income could be impacted by changes in forecast interest rates. This sensitivity illustrates the impact on finance income if interest rates used in the forecast would increase or decrease by 1% (excludes interest expense impact). 4 Dividend yield sensitivity is base on increasing or decreasing the dividend yield on listed investments by one percentage point. 5 Inclusion of the licence fee rebates announced by the Minister of Broadband and Communication on 7 February 2010. This has been excluded from the forecasts pending issue of the draft regulation and in case the regulation is disallowed.

Section 1 25 THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK

26 Seven Network Limited Scheme Booklet – Part B 2 INFORMATION ABOUT WESTRAC HOLDINGS

Section 2 27 2.1 OVERVIEW OF WESTRAC HOLDINGS WesTrac Holdings currently holds several unrelated investments (A) INTRODUCTION and non-core assets that will be transferred back to ACE and its associates before the Recommended Proposal is WesTrac Holdings, which owns WesTrac Group (WesTrac implemented. These non-core assets include listed investments, Australia and WesTrac China), is an investment holding property interests and other unlisted investments and will company wholly-owned by ACE. ACE is a private investment not be acquired by SGH. Further details of these pre-scheme company chaired by Mr Kerry Stokes AC, one of Australia’s most restructuring steps are set out in section 9.14(F) of Part B prominent businessmen. As part of the Recommended Proposal, of this Scheme Booklet. WesTrac Holdings will be sold to SGH pursuant to the Purchase Agreement. WesTrac Holdings is headquartered in Perth and WesTrac Australia and WesTrac China are together one of directly and indirectly employs over 4,000 people nationally. Caterpillar’s top five dealers globally by sales.

WesTrac Holdings’ current three core investments are: In addition to the WesTrac Australia, WesTrac China and • WesTrac Australia – WesTrac Australia is an authorised National Hire investments, WesTrac Holdings also indirectly Caterpillar dealer in its Western Australia, and New South holds, via a wholly-owned subsidiary Wroxby, 16.1% of the Wales/ACT Service Territories. WesTrac Australia is one ordinary shares in Seven. Wroxby (which also holds other of only four authorised Caterpillar dealers in Australia, investments and is a Related Holder) will be transferred to is the leading provider of heavy equipment in each of ACE before the Share Scheme is implemented. its service territories and primarily services the mining Kerry Stokes AC, through another Related Holder, Ashblue and construction markets; Holdings, also has an interest in a further 32.7% of the ordinary • WesTrac China – WesTrac China is one of only four shares in Seven. Refer to section 9.7 of Part B of this Scheme authorised Caterpillar dealers in China. WesTrac China Booklet for further information. is an authorised Caterpillar dealer in its North Eastern China Service Territory, which covers six provinces and the The diagram below provides a high level overview of WesTrac municipalities of Beijing and Tianjin. These are some of Holdings’ current business structure: China’s fastest growing and most mineral rich territories; and • National Hire – WesTrac Group holds a 66% equity interest ACE

in National Hire, a company listed on the ASX with a current 100% market capitalisation of approximately A$297 million on 10 March 2010. National Hire owns 100% of Allight, WesTrac Holdings

which manufactures, assembles and sells Allight mobile 100% lighting towers, power generation and dewatering WesTrac Australia equipment. It also distributes Perkins engines, FG Wilson power generation sets, Godwin wet ends and parts and 100% 66% has a 46% investment in Coates Hire. Coates Hire is the WesTrac China National Hire largest equipment hire business in Australia with over 200 branches and satellite locations and serves the mining, 46% (National Hire’s share) construction and event management sectors. Coates Hire As part of the Recommended Proposal, ACE has agreed to underwrite the value of WesTrac’s interest in National Hire at Source: ACE management. the time of the release of the National Hire audited accounts (B) HISTORY OF ACE AND ITS MAJOR INVESTMENTS for the year ending 30 June 2011 at an effective $2.50 per share ACE was established in 1980 by interests associated with (subject to certain adjustments). This underwrite will remain in Mr Kerry Stokes AC, as a vehicle for his diverse investment place until the release of National Hire’s financial results for year activities. ACE has grown significantly over its history, by ending 30 June 2011 and provides that if the value of WesTrac’s implementing a strategy of acquiring business assets at attractive investment in National Hire shares as valued by an independent prices and creating value by developing these businesses into expert is less than $2.50 per share, ACE will pay to SGH the leaders in their respective fields. ACE has been involved in many difference between $2.50 (as adjusted) and the independent transactions across a diverse range of industries including media, expert’s valuation. Refer to section 9.14(E) of Part B of this general industrial, mining services, property and resources. Scheme Booklet for more detail on the National Hire Market The main components of ACE’s investments portfolio are Value Deed. WesTrac Group, Seven and National Hire, all of which will be consolidated under a single entity if the Recommended Proposal is implemented. A selection of transactions in which ACE has been involved are shown in the following diagram.

28 Seven Network Limited Scheme Booklet – Part B WesTrac China WesTrac commences Seven partners with ACE acquires operations in control of commences CAT KKR to create NSW / ACT WesTrac WA dealership $4.0bnA$ Seven operations in North Media Group joint Eastern China WesTrac acquires venture controlling interest in National Hire Group

1990 1995 2001 2002 2004 2005 2006 2007

ACE acquires Ashblue Holdings controlling National Hire invests in Seven interest in Allight National Hire partners with Holdings Limited Group acquires Carlyle Group in AH Plant Hire A$2.8bn buyout of Coates Hire

Source: ACE management.

(1) THE WESTRAC GROUP (2) NATIONAL HIRE/COATES HIRE ACE’s first investment in WesTrac Group was a minority interest ACE has had a strategic stake in National Hire since 2004. (30%) in the WesTrac Western Australia Caterpillar dealership As part of its subscription for National Hire shares, the WesTrac in 1989. In 1990, ACE acquired the remaining 70% of WesTrac Group sub-licenced the right to operate the CAT Rental Stores Western Australia. (CRS) business in New South Wales and the Australian Capital Territory. In December 2004, the WesTrac Group increased its WesTrac Group and its predecessor companies have a long shareholding in National Hire to 67%. At the same time, its history with Caterpillar, dating back to 1925 when Caterpillar CRS business in Western Australia was vended into National established its Western Australian dealership, one of the first Hire and National Hire also acquired 100% of Allight. In 2006, dealerships established outside of the United States, which was Australian Highway Plant Services Pty Limited was acquired. subsequently awarded to the US based Morgan Equipment, In 2007, National Hire partnered with the Carlyle Group to Inc. In 1990 the dealership name was changed to WesTrac acquire all of the shares in Coates Hire Limited for $2.8 billion Equipment Pty Ltd. WesTrac Equipment Pty Ltd was acquired to form the largest equipment hire company in Australia. by WeTrac Holdings in 1990, as discussed above. In 1999 Caterpillar invited WesTrac Group to establish a Caterpillar In 2008, WesTrac Group acquired further shares on market dealership in North Eastern China. WesTrac Group selected to restore its shareholding in National Hire which had been a region in China’s North East due to a number of attractive diluted to 54% as a result of an equity raising that was characteristics identified in that region (refer to section 2.5(H) completed at the time National Hire acquired Coates Hire of Part B of this Scheme Booklet for further details). Limited. Following this acquisition of shares, WesTrac Group’s interest in National Hire remains at 66%. In late 2003, Caterpillar appointed WesTrac Group as the authorised Caterpillar dealer in its New South Wales/ACT Territories and 2.2 HEAVY EQUIPMENT INDUSTRY OVERVIEW commenced its operations in these territories the following year. (A) AUSTRALIA WesTrac China is a wholly owned foreign entity that was WesTrac Australia distributes Caterpillar equipment in the heavy established in Hong Kong in 1999 and commenced operations equipment industry, which includes mining and construction in 2001, and is an authorised Caterpillar dealer in its North machinery. This market in Western Australia and New South Wales Eastern China Service Territories. The shares in WesTrac China is dominated by global original equipment manufacturers (OEM). Ltd were transferred from White City Pty Ltd to WesTrac Holdings effective 1 July 2008, which brought all of the WesTrac In the market in which it competes, WesTrac Group/Caterpillar businesses under the ownership of WesTrac holdings. As accounts for approximately 54% of total sales by value in part of this transaction WesTrac Australia paid approximately Western Australia and approximately 51% of total sales by $411 million for the shares in WesTrac China Ltd based on value in New South Wales. The top three brands collectively independent valuation. account for over 76% of total sales in Western Australia and approximately 69% of total sales in New South Wales.

Section 2 29 HEAVY EQUIPMENT SALES Western Australia by sales (FY2009) New South Wales by sales (FY2009)

Other 24% Other 31% WesTrac WesTrac Competitor #2 Group Group 51% 1% 54%

Competitor #2 3% Competitor #1 21% Competitor #1 15% Source: WesTrac Group management, Percentage of Industry Sales – Equipment Research Group data.

From 2004 to 2008, the Australian mining and construction crushers and grinding mills, demonstrated strong growth machinery manufacturing industry experienced a period of over the period. high growth, driven by strong growth in the mining and non- Following the financial crisis in late 2008, mining investment residential construction markets. WesTrac Australia is highly contracted significantly in 2009. Metals and other minerals leveraged to both these markets, which accounted for 62% production decreased by 4% in the 12 months to June 2009 and 25% respectively of its revenues in FY2009. and resource companies committed to or started work on After 2008, the global financial crisis resulted in weaker 11 new projects in Australia in the six months to April 2009, commodity prices and a downturn in energy and mineral down from 58 over the previous corresponding period. exploration and production, constraining demand for industry The mining industry is expected to return to strong growth in products. It is expected that the industry will recover in the second half of 2010 and over 2011. Australian production 2010 to 2011 as improving economic conditions and strong of metals and other minerals is forecast to increase by commodity prices underpin investment into mining and approximately 6% in 2010, reflecting a strong increase in construction machinery. It is expected that industry revenue iron ore production (which is up 21%). This trend is expected will increase at an approximate average annualised rate of 6%, to continue in 2011, with Australian production forecast to compared to an approximate average annualised rate of 3% increase by approximately 7% driven by higher production over the five years to 2010. in key commodities such as iron ore and gold. In the medium (B) MINERALS MINING MARKET term, Australian energy and mineral production is expected The mineral mining industry is the largest contributor to to increase by approximately 25% in 2015 when compared the Australian heavy equipment industry. It is estimated this to 2010 volumes, with new mine capacity expected to be segment will account for approximately 59% of the Australian commissioned and infrastructure expansions are completed. heavy equipment industry’s revenue in 2010, up from Improving economic conditions and strong commodity prices approximately 43% in 2003. WesTrac Group’s commodity are expected to underpin investment into mining machinery. exposure is predominantly coal and iron ore which is expected A stabilisation of credit markets and rising business confidence to represent the bulk of industry revenue, followed by gold, as the Australian economy returns to strong growth will support alumina, copper, nickel and zinc. In 2009, iron ore represented this, leading miners to invest in new machinery and equipment. approximately 58% of Western Australia’s commodity production and coal represented approximately 83% of (C) CONSTRUCTION New South Wales’ commodity production. The construction segment can be broken into two broad categories: residential construction and non-residential From 2003 to 2008, the Australian mining industry enjoyed construction. Non-residential construction encompasses heavy strong growth. Commodity prices appreciated as rapid industry and other non-building construction, including the industrialisation and population growth in emerging markets construction of engineering projects and infrastructure such increased demand for mineral and energy resources. It is as railways, roads, pipelines, water or gas supply systems estimated that capital expenditure on mining increased at an and mineral and energy infrastructure. New South Wales and average annualised rate of 24% over this period, as mining Western Australia collectively contribute to approximately 50% companies invested in new, and replaced old, equipment. of total engineering construction work completed in Australia. Capital sales and product support of both underground and surface mining machinery, including bucket excavators,

30 Seven Network Limited Scheme Booklet – Part B WesTrac Group is a market leader in non-residential choices are more influenced by the initial selling price of construction equipment in New South Wales and Western equipment. As Caterpillar equipment is initially priced at a Australia, and has significant exposure to the residential premium to its competitors, the increased sophistication in construction segment through its ownership interest in National customers over the total life cycle cost of a machine is expected Hire (which has a 46% investment in Coates Hire). It is estimated to be beneficial to WesTrac China. that non-residential construction will contribute approximately The economic output of the North Eastern Chinese provinces 11% of total heavy equipment industry revenue in 2011. in which WesTrac China operates represented 23% of China’s From 2003 to 2008, the construction industry experienced 2007 GDP. The economies of these provinces are expected to strong growth. It is estimated that private sector fixed capital be heavy users of earthmoving and heavy equipment through expenditure on non-dwelling construction increased at an the growth in surface mining of mineral commodities and annualised rate of approximately 11% over the five years to construction and development of transport infrastructure 2008 as unprecedented levels of investment into the resources led by government fiscal stimulus, continued urbanisation sector resulted in the expansion in engineering infrastructure. and demand for Chinese exports in global markets. The value of completed work in the engineering infrastructure (E) CATERPILLAR market has averaged growth of approximately 14% per annum over the five years to 2009. Growth was not confined to the (1) OVERVIEW mining infrastructure sector, with a follow-on impact into Caterpillar is the world’s largest construction equipment other parts of the economy such as the commercial, office and manufacturer and a leading heavy construction and mining industrial construction sectors which were stimulated overall by equipment provider. Caterpillar is listed on the New York Stock strong growth in income, employment and company earnings. Exchange, is a member of the Dow Jones Industrial Index and had a market capitalisation of approximately US$37 billion as Demand conditions eased in the engineering infrastructure at 10 March 2010. market during 2009. Investments into recently completed projects were wound back with investment deferred into start- The Caterpillar brand is a globally recognised brand. Caterpillar up mining projects as mineral export demand softened, driven was the only manufacturer of earthmoving or construction by the deterioration in global economic conditions. However, equipment included in BusinessWeek’s Top 100 Global Brands residential construction and government stimulus including the in 2009. $22 billion “nation building” infrastructure program provided Caterpillar has one of the construction equipment industry’s support for the industry over that year. broadest product offerings with more than 300 different It is expected that during the second half of 2010 and over earthmoving, industrial and power generation machines. 2011, the construction market will benefit from a continuation Caterpillar continuously adds to its product line, utilising of government stimulus, boosting demand for both light and an extensive research and development program (that has heavy construction equipment. Non-residential construction resulted in the introduction of hundreds of new products in the growth is expected to be weaker, mitigated by a tight housing last decade) and through acquisitions of smaller manufacturers. market and expected low interest rate environment which is (2) DEALER NETWORK expected to support the real estate market. This will increase Caterpillar’s strong dealer network consists of 182 dealers, the level of dwelling construction and the overall demand of which 128 are located outside of the US, spanning 182 for construction equipment. countries. Caterpillar’s dealer network is its means of product (D) CHINA distribution and a key platform of its strategy. In WesTrac’s WesTrac China operates in the construction, mining, marine, experience, Caterpillar strongly supports dealers to ensure its power generation and petroleum markets in North Eastern leading market position is maintained. China. These markets are expected to grow strongly and Generally, it is WesTrac’s experience that Caterpillar typically there is limited market data presently available. enters into standard dealership agreements with its The growth in construction and mining markets in North independent dealers. Pursuant to these agreements, Caterpillar Eastern China is significantly driven by increased stimulus grants the dealer the right to purchase and sell its products, spending by the Chinese Government. The ongoing and to service the products, in a specified geographic service consolidation of smaller operators into larger scaled operations territory. Prices to dealers are set by Caterpillar incorporating is expected to result in increased demand for larger equipment feedback from dealers globally on pricing in the marketplace. of the type which is distributed by WesTrac China and an The agreement grants the dealer a non-exclusive licence to increased customer understanding of costing over the life cycle use certain specified Caterpillar trade marks, service marks of a machine. This longer term view based on the life cycle and brand names. of a machine is not yet prevalent in China. Rather, customers’

Section 2 31 In exchange for these rights, the agreement requires the • Caterpillar Finance – Highest financial market share partner dealer to develop and promote the sale of Caterpillar products (2000 to 2004); to current and prospective customers in the dealer’s service • 6 Sigma Asia Pacific division President’s Gold Award (2002); territory. Caterpillar’s assistance to its dealers includes the and provision of financial support to dealers and their customers, • Western Australia – Rio Tinto global steering committee participation in sales calls, provision of technical support to Chairman’s Award, continuous improvement 2008. the parts and service division, provision of extensive marketing materials, establishment of global purchasing arrangements for The strength of the relationship is also evidenced by the major global customers, and provision of proprietary software expansion of WesTrac Group’s dealership territories. In 1999, to its dealers. WesTrac Group was invited to establish a dealership in China’s North Eastern provinces, along with the award of the Generally, Caterpillar’s dealership agreements can be New South Wales/ACT Service Territory in late 2003. terminated by Caterpillar or the dealer at their discretion with 90 days written notice. They also provide for automatic or Caterpillar has been provided on a confidential basis with accelerated termination if the dealer files for insolvency or goes detailed information about the Recommended Proposal and, into administration in certain circumstances, such as material pursuant to the provisions of its various Caterpillar dealer breach, or upon the occurrence of comparable action seeking agreements, has provided its consent to the transaction in a protection from creditors. Material changes to management letter dated 5 February 2010. This letter is further referenced in positions, ownership, or voting control of identified principles section 9.14 of Part B of this Scheme Booklet. In summary, ACE’s require Caterpillar consent. Accordingly, WesTrac Group’s commitment to Caterpillar includes that: relationship with Caterpillar is critical to WesTrac Group’s • ACE and the Related Holders will exercise the voting rights business. A number of Caterpillar dealers are part of listed attaching to the SGH shares they hold in the same manner; companies around the world (e.g. Finning International Inc., • Mr Kerry Stokes AC will remain as the “dealer principal” for Toromont Industries Ltd, Sime Darby Berhad, Barloworld Ltd, each dealership, and ACE has agreed a succession plan with Haein Corp and TIL Limited). Caterpillar; and • ACE and the Related Holders will collectively hold (3) THE WESTRAC GROUP’S RELATIONSHIP more than 60% of the voting shares in SGH. WITH CATERPILLAR WesTrac Group operates its dealerships under standard 2.3 BASIS OF COMPETITION dealership agreements. These agreements permit WesTrac (A) WESTRAC GROUP’S COMPETITORS Group entities to sell new Caterpillar equipment and parts throughout WesTrac Group’s dealership service territories, and In Australia, the competitive landscape WesTrac Group consists designate WesTrac Group as Caterpillar’s sole authorised parts of global OEMs. In China, global participants are present but and service provider in the dealership territories. In WesTrac’s a substantial share of competition emanates from specialised experience, it is Caterpillar’s practice, including WesTrac Group’s local competitors. service territories, to authorise only a single dealer in each Global competitors include, but are not limited to, Bobcat service territory. While other dealers may sell equipment into Company, Komatsu Ltd, Volvo Construction Equipment (part WesTrac Group’s service territories, a service fee is payable by of the Volvo Group AB), Hitachi Construction Machinery Co, the other dealer to WesTrac Group on such sales. The key terms Terex Corporation, Doosan Infracore Co, Ltd and Liebherr of these agreements are set out in section 9.14(B) of Part B International AG. Each of these competitors has a varying of this Scheme Booklet. number of product lines that compete with Caterpillar products There are currently four Caterpillar dealers in Australia and four and a different level of regional focus. in China (in each case, including WesTrac Group’s dealerships), WesTrac Group remains the market leader in each of its service each with separate, non-overlapping designated geographical territories in Australia, with a growing presence in China. service territories. Market share statistics by product groups are illustrated in WesTrac Group has a strong working relationship with the following tables for WesTrac Australia and the current Caterpillar that has spanned 20 years. WesTrac Group is one expanded product offering in China: of Caterpillar’s five largest equipment dealers globally (by sales) and a premier dealer based on both market share and operational excellence. WesTrac Group has received a number of awards including: • Caterpillar of Australia district – Used equipment number 1 trading partner (2000 to 2004);

32 Seven Network Limited Scheme Booklet – Part B #1 or #2 position in Western Australia (2009) #1 or #2 position in New South Wales (2009)

Off highway Wheel type Off highway Wheel type truck loader truck loader

Track type Hydraulic Track Hydraulic tractor excavator type tractor excavator

Articulated Motor Wheeled Motor dump truck grader dozer grader

Mini Wheeled Track type Scraper hydraulic dozer loader excavator open bowl

Backhoe Skid steer Skid steer Backhoe loader loader loader loader

Landfill Track type Log skidder Road rollers compactor loader

Source: WesTrac Group management.

WesTrac Group’s market share in the diagram above is shaded in yellow.

(B) FACTORS THAT IMPACT COMPETITION (C) KEY DRIVERS OF DEMAND FOR WESTRAC GROUP’S The value equation is the main basis for competition in PRODUCTS the heavy equipment industry. It is widely recognised that Most of the activity in the machinery industry is driven by Caterpillar products are the premium products in the heavy customer activity in the mining, infrastructure and non- equipment industry. As such, in WesTrac’s experience, residential construction sectors. Caterpillar’s strategy is to focus customers on a “whole of life” Demand for machinery in the mining industry is driven by equipment cost. Factors include the useful life of equipment, a number of factors including demand for the underlying product support, quality, reliability, innovation, product range, commodity, commodity prices, interest and exchange rates, financing, servicing and distribution which are important and fleet machine age. to customers. For more sophisticated and larger customers, price is only one component to the calculation of whole of life The key demand requirement for machinery in mining is the equipment cost. volumes of earth moved, which in turn is correlated with the level of demand for commodities. As mines expand volumes, Caterpillar products are priced at a premium to its competitors. the number of machines required to service the production This pricing differential is related to “up-time”, the proportion levels also increases. A growing equipment fleet increases the of time the equipment is operational relative to its total time product support requirements and provides additional market in the field, where Caterpillar is the established industry leader. activity in the form of used equipment sales. The “up-time” factor is a function of the product support, quality and reliability. Over the total machine life, productivity, useful In the construction and infrastructure industries, demand is life, maintenance and repair cost savings, compensate for the impacted by a diverse range of factors. Demand for buildings upfront cost differential. This “whole of life” value proposition and infrastructure is driven by factors such as population, underpins Caterpillar’s global market share. employment growth, interest rates, household incomes and general economic activity. WesTrac Group also seeks to put in place service agreements for its customers such that the business provides ongoing Typically, as machinery ages, the cost of maintenance increases service and maintenance in return for a fee. This arrangement as it consumes more parts and requires major rebuilds of provides a greater level of certainty with contracted revenue components such as the engine. An ageing machinery fleet has and highlights WesTrac Group’s confidence in the quality of the both positive and negative implications. On the positive side it product and service it provides. boosts expenditure on parts and services, which is an area of

Section 2 33 higher margin but also negatively impacts the level of capital • smaller customers who use a relatively limited range sales given that expenditure on new equipment is deferred. of equipment on a less regular basis.

A further demand influence relates to the trends in rental A number of mergers have taken place in the plant and fleets and outsourcing. The move to establish rental fleets or equipment hire industry in recent years, including Coates equipment pools may reduce the overall demand to purchase Hire Limited’s acquisition of the Wreckair business in February new equipment by customers who often use rental fleets to 2002, National Hire’s acquisition of Australian Highway Services manage peaks in commodity demand. Pty Limited in February 2006 and Coates Hire’s acquisition of Allied Equipment in July 2005. Furthermore, Coates Hire was The decision to hire rather than purchase is driven by factors acquired by National Hire and the Carlyle Group in early 2008. such as reducing ongoing maintenance costs, access to the Notwithstanding this level of consolidation, the equipment hire latest available technology and reducing initial capital outlay. industry is considered highly fragmented.

2.4 AUSTRALIAN EQUIPMENT HIRE In 2009, the top four industry participants (Coates Hire, Emeco, INDUSTRY OVERVIEW Kennards Hire and Boom Logistics) accounted for an estimated The equipment hire industry is engaged in the renting of 41% of industry revenue. industrial machinery, plant or equipment (except transport Competition between industry participants is primarily based equipment) without operators, from stock physically held on price and qualitative factors. Qualitative factors include: for that purpose. Coates Hire is estimated to have the largest • condition of fleet – including the extent of equipment market share in Australia of approximately 26%. repairs in addition to regular maintenance; The industry is characterised as capital intensive, due to the • age of fleet – operators are required to consistently invest in high initial investment in equipment required. The equipment new equipment in order to obtain a competitive advantage; hire industry is highly fragmented in terms of product category, • ability to deliver the fleet at short notice; and including plant hiring and leasing, scaffolding, portable • customer relationships – which have or can be developed construction equipment, computer hiring and leasing and over a number of years through a number of factors such other construction equipment. as providing reliable equipment, timely services and Plant hiring and leasing is represented by large national responsiveness to customer needs. operators, which exclusively service the large, capital intensive The industry’s performance is linked to the trends in commercial, industrial and mining projects. New South Wales outsourcing of plant and equipment needs and maintenance, and Queensland are the largest equipment hire markets, particularly in the highly capital intensive areas of mining and followed by Victoria and Western Australia. The market oil and gas, electricity and water, and other major infrastructure segmentation of the industry can be broken into major areas such as freeway construction. construction related industries, mining industries, businesses and households. The level of demand is largely related to the overall trend in capital expenditure by the public and private sectors. Factors The hire equipment end-markets by segment are as follows which influence general equipment hire in Australia include: (percentages are approximates): • the level of economic activity; • major construction related industries – 35%; • non-dwelling building, infrastructure and resource • mining industries – 35%; development; and • trade businesses – 25%; • continuation of the trend of companies and government • households – 5%. bodies to outsource capital equipment requirements rather than purchase. Across these segments, hire companies operate in the building and engineering construction, government department, 2.5 WESTRAC GROUP’S OPERATIONS AND industrial, mining and resources, manufacturing, maintenance, BUSINESS DESCRIPTION special events and home handyman markets. (A) INTRODUCTION The major construction and industrial related hire firms account WesTrac Group is an authorised dealer of Caterpillar equipment for approximately two-thirds of income in the industry. in its Western Australia, and New South Wales/ACT Service The hirers of general equipment in Australia can be classified Territories, as well as in its North Eastern China Service Territory. into two primary customer groups: WesTrac Group is one of Caterpillar’s largest global dealers • large enterprises and government bodies, which hire an when measured by sales. WesTrac Group provides equipment extensive range of equipment on a regular basis; and and service to a broad range of customers including those in the contract mining, owner mining, heavy construction, building construction and local government sectors. 34 Seven Network Limited Scheme Booklet – Part B FY2009 AUSTRALIA FY2009 CHINA REVENUE BY REVENUE BY MARKET Heilongjiang MARKET Other Inner Other 13% Mongolia Mining TianjinJilin 18% 32% Mining Hebei 62% Liaoning WesternWestern Beijing Construction AustraliaAustralia 25% New South Wales/ /ACT Construction 50%

WA Key Statistics NSW/ACT Key Statistics4 China Territories Key Statistics

YEAR OF COMMENCEMENT1: 1990 YEAR OF COMMENCEMENT1: 2004 YEAR OF COMMENCEMENT1: 2001 NO. OF BRANCHES: 10 NO. OF BRANCHES: 15 NO. OF BRANCHES: 38 NO. OF EMPLOYEES2: 1,621 NO. OF EMPLOYEES2: 1,026 NO. OF EMPLOYEES2: 1,392 TOTAL NO. MACHINES AND TOTAL NO. MACHINES AND TOTAL NO. MACHINES AND ENGINES CURRENTLY INSTALLED3: 15,844 ENGINES CURRENTLY INSTALLED3: 15,631 ENGINES CURRENTLY INSTALLED3: 9,743 FY2009 NO. OF MACHINES SOLD: 597 FY2009 NO. OF MACHINES SOLD: 529 FY2009 NO. OF MACHINES SOLD: 1,709 KEY COMMODITY: Iron Ore KEY COMMODITY: Coal KEY COMMODITY: Coal AREA: 2.5m km2 AREA: 0.8m km2 AREA: 2.3m km2 POPULATION: 2.2m POPULATION: 7.4m POPULATION: 263.4m GDP: A$155bn GDP: A$380bn GDP: A$993bn

Source: WesTrac Group management, Australian Bureau of Statistics, China Statistical Yearbook 2008 (National Bureau of Statistics of China). Notes: Key operating statistics are as at 31 Jan 2010. AUD$1:USD$0.85. 1 From the time ACE acquired or assumed control of the dealership. 2 As at 31 January 2010. 3 As at 16 February 2010. 4 Key statistics relate to all of New South Wales and the Australian Capital Territory. WesTrac Group’s New South Wales Service Territory excludes that portion of the state that is west of 144° longitude, which means that areas such as Broken Hill are outside its service territory.

WesTrac Australia holds a 66% interest in National Hire. National equipment industry competitors. In this context, operating cost Hire’s major asset is a 46% interest in Coates Hire. Coates Hire is includes the acquisition cost, maintenance cost and opportunity Australia’s leading general equipment hire company with 200 cost from machine downtime, less the residual value at disposal. branches and satellite locations. Refer to section 2.5(j) and 2.5(k) The concept of purchasing equipment based on “whole of life” of Part B of this Scheme Booklet for a description of WesTrac operating cost is accepted by most sophisticated equipment Group’s interest in National Hire and Coates Hire. users. This concept is developing and has a growing acceptance in the Chinese market. (B) WESTRAC GROUP’S BUSINESS MODEL WesTrac Group is an equipment management company that WesTrac Group has two main categories of revenue: offers a total equipment management solution to clients, • equipment sales and rental (“capital sales”), which extending beyond the sale of equipment. The total solution accounted for approximately 61% of WesTrac Group’s total encompasses the entire life cycle of equipment. The initial sale sales for FY2009; and is the start of an ongoing customer relationship. • parts and servicing (“product support”), which accounted for the remaining 39% of WesTrac Group’s sales for FY2009. WesTrac Group focuses on providing a lower total “whole of life” equipment operating cost to its customers compared to other

Section 2 35 Whilst WesTrac Group has ordinary course supply arrangements with a range of organisations, the Caterpillar relationship is its only key supply arrangement.

Capital Sales1 WesTrac Group is an equipment management Product Support company providing end-to-end products and services fInstalled base ofof 31,47531,475 machinesmachines andand f35 service locations engines in Australia f398 field parts and service operation f1,126 units sold in 2009 inin AustraliaAustralia vehicles fLeverage to growth in mining f217,736 line items in warehouse Capital sales1 fMaintenance contracts account for 14% (FY11E 61%) of total parts and service revenue Delivery and fInventory fill stocked items 95% commissioning

Rentals of WesTrac Fleet Product Monitoring of Equipment Support Three state of the art condition monitoring (FY11E 39%) f Rentals laboratories in WA, NSW and Tianjin Monitoring of fOne of the largest Caterpillar dealer oil fOver $80 million invested equipment laboratories in the world with approx. f56 large Caterpillar machines inin WAWA and 41 1,100 samples processed daily (Guildford) inand NSW/ACT 41 in NSW/ACT fRemote GPS and computer monitoring fRental market in China is growinggrowing withwith systems current fleet of over 109109 unitsunit since since start -up Source: WesTrac Group management. fAbility to identify mechanical problems instart-up 2000 in 2000 Note: in early stages 1 Capital sales includes new and used equipment sales and rental revenue.

The revenue cycle starts with the sale of equipment and is • During a period of economic contraction, customers followed by the servicing of equipment and sale of replacement typically seek to prolong equipment life and therefore parts. Therefore, the sale of new equipment leads to a stable direct their expenditure toward servicing and maintenance recurring revenue stream over the life of the equipment in of existing equipment rather than the purchase of new the form of higher margins for services and parts revenues. equipment. Consequently, product support revenues grow organically • WesTrac Group’s business is working capital intensive but as the machine population grows. Other revenue sources for has a limited requirement for capital expenditure. WesTrac Group include dealing in used equipment and used WesTrac Group manages its inventory by closely tracking sales, parts, rental of equipment and equipment management customers’ equipment needs and the useful lives of equipment services such as conditioning monitoring and training under maintenance and service contracts. The specific approach and education. depends on the product: Parts and services revenues are substantial and typically account • Larger heavy equipment: Inventory is held at a minimum, for between 40% and 50% of WesTrac Group’s total revenues. as these products are usually purchased based on specific Service revenues are often generated in conjunction with customer requirements. Ordinary lead times can be replacement parts revenues and typically entail a combination substantial with delivery of large mining equipment likely of preventive and repair or rebuild maintenance. to be 6 to 12 months after the order is placed, typically WesTrac Group’s business model has some defensive depending on Caterpillar’s capacity. characteristics that make its earnings more resilient during • Smaller heavy equipment line: Demand is broad-based and an economic downturn. can be reasonably forecasted to minimise holding costs. For new and used equipment, a pooling methodology is WesTrac Group’s model has earning streams that are resilient also available for use across service territories to maintain during a downturn: investment at low levels. All equipment inventory ordering • Product support revenues are considered more stable and is managed through a common automated process, closely recurring than capital sales, which are typically less regular monitored by the management team. and dependent upon the prevailing economic conditions. • Parts: These are managed by a sophisticated inventory WesTrac Group has a number of service contracts and the system, which forecasts demand on a rolling 12 month basis. machines in its service territories will require ongoing Main warehouses (one based in each of WesTrac Group’s service to keep them operational. service territories) hold significant parts stocks to service

36 Seven Network Limited Scheme Booklet – Part B local branches and over the counter demand. Branches also Caterpillar dealer in Australia and Asia. WesTrac Group’s parts stock a limited amount of parts inventory to meet regular support network has the ability to fill approximately 95% of all local requirements. stocked parts on demand, and its ability to obtain parts from Caterpillar inventory located in Singapore and Melbourne and, WesTrac Group has material supply arrangements with if necessary, from the three other dealers in Australia, ensures Caterpillar, which are discussed in section 9.14 of Part B of that customers receive the best parts support service possible. this Scheme Booklet. WesTrac Group’s extensive parts support network differentiates (C) EQUIPMENT SALES AND RENTALS it from other equipment providers in Western Australia and WesTrac Group sells and rents Caterpillar’s entire line of New South Wales. heavy and medium equipment for earthmoving, road WesTrac Group utilises state-of-the-art computer technology construction, resurfacing, mining, engineering, petroleum, to manage parts distribution. Its computers have direct links forestry and general construction projects. Examples of to Caterpillar and to other dealers in Australia. WesTrac Group these types of products include track-type tractors (dozers), currently maintains an electronic system where customers excavators, track-type and wheel loaders, scrapers and can make enquiries, order parts and receive invoices across its graders, tool carriers, dump trucks, specialised logging computer network. This network has been designed so that trucks, pipelayers, compactors and rollers. WesTrac Group customers from anywhere in Western Australia or New South also sells Caterpillar’s complete line of compact construction Wales/the Australian Capital Territory can rely on fast, reliable equipment (some of these products are also available service. Branches, depots, field service vehicles, and parts and for rental through Coates Hire’s CRS). WesTrac Group also sales representatives are strategically placed throughout these carries a large range of specialised attachments. This broad states to service the needs of WesTrac Group’s diverse customer product range enables WesTrac Group to meet the diverse base. WesTrac Group’s after-hours parts and service support requirements of its customer base, which ranges from large, is considered to be a benchmark for the industry. well-capitalised heavy construction and mining companies to small building contractors. (2) SERVICING OF EQUIPMENT WesTrac Group places a strong emphasis on excellence in Additionally, WesTrac Group manages an extensive inventory customer service as a core competency. This focus fosters of low hour, late model used equipment from Caterpillar valuable customer relationships and repeat business. and other manufacturers. WesTrac Group believes it has a competitive advantage in the sale of used equipment due to Service revenues are often generated in conjunction with its reputation for quality and technical expertise in servicing replacement parts revenues and typically entail repair or and refurbishing machines. preventive maintenance. While the majority of WesTrac Group’s service activity is performed on Caterpillar For FY2009, equipment sales and rental contributed 61% equipment, it also offers service for other manufacturers’ of the total WesTrac Group revenues. equipment. WesTrac Group’s 24-hour workshop can overhaul (D) PARTS AND SERVICES and repair other manufacturers’ equipment, replace damaged WesTrac Group’s parts and services business includes or worn parts with Caterpillar parts, and test engines through aftermarket product offerings, such as equipment service, its advanced engine diagnostic systems and condition condition monitoring, maintenance, repairs, rebuilds and monitoring laboratories. supply of new and used parts. Parts and service is a higher WesTrac Group has designed and implemented new service margin business than machine sales, driven by the large (and programs and invested in new service facilities. It provides growing) base of installed equipment in WesTrac Group’s service from 10 branch service locations in Western Australia service territory. There are currently approximately 31,475 and 15 in New South Wales/Australian Capital Territory and Caterpillar machines and engines operating in WesTrac also provides on-site service. Service technicians are staffed Australia’s service territories and 9,743 operating in WesTrac to provide 24-hour service in shifts to repair equipment in a China’s service territories. For FY2009, WesTrac Group estimates short turnaround time when necessary. In China, there are that parts and service represented 39% of total sales. 38 branch locations plus a full service rebuild centre in Tianjin (1) SALE OF REPLACEMENT PARTS with product support revenue accounting for 18% of total Parts sales consist of genuine Caterpillar and other replacement China revenue in 2009. For FY2009, product support revenue parts sold to WesTrac Group’s diversified customer base. represented 40% of total group sales. WesTrac Group provides parts support from 55 major WesTrac Group has expanded its value-added services branch locations and from on-site customer service centres provided to customers to improve productivity, efficiency and throughout Western Australia, New South Wales and China. availability of the customer’s equipment. Its service programs, This is amongst the largest parts support network of any facilities, and business processes have been designed and

Section 2 37 implemented to support the major components and operating systems for Caterpillar machines. These specialised services include the WesTrac Group condition monitoring laboratory, engine, undercarriage and attachments rebuild and fabrication capabilities, the WesTrac hydraulic centre and on-site service for the mining and construction industries.

WesTrac Group condition monitoring laboratories provide services to the dealerships’ customers in Western Australia, New South Wales/Australian Capital Territory and China and utilise state-of-the-art technologies to test equipment in the field through oil and other fluid samples. These technologies identify mechanical problems in their early stages to minimise maintenance costs and improve equipment efficiency and performance, and they represent an important component of WesTrac Group’s differentiation from competitors and its unique value offering to its customers.

By utilising WesTrac Group’s unique services, customers can extend the useful life of their equipment, decrease downtime and increase efficiency, thereby improving the productivity of the equipment and reducing overall capital costs. Special tooling, technical training and field sales support have been committed to all product support initiatives. For example, WesTrac Group generates revenue from managing the health of its on-site customer machines through the use of on-board technology and telecommunications which relay information in real-time to the central management centre at WesTrac Group’s head office. In addition, WesTrac Group maintains an extensive rental and customer fleet by utilising a GPS-based product to monitor equipment health, location and security (geofencing).

As Caterpillar products have evolved to incorporate a higher level of on-board computer sophistication, WesTrac Group has expanded its service capabilities to include many electronic diagnostic tools, personal computer, mobile phone/wireless connection, and CD-ROM based reference materials. WesTrac Group initially provides some of these materials to customers free of charge to increase interaction with WesTrac Group services, while there is a growing trend of full revenue recovery for specialised services offered.

(E) WESTRAC GROUP MANAGEMENT The current WesTrac Group management team led by the CEO, Jim Walker, has been responsible for successfully building the business to its current form and delivering the growth to date. WesTrac Group management team has significant experience and is well placed to assist SGH to capitalise on future growth opportunities. The table below provides a summary biography on key management team members.

38 Seven Network Limited Scheme Booklet – Part B Years with Years in Executive WesTrac industry Summary biography Jim Walker 20 40 Jim has been with WesTrac Group for over 20 years. Group Chief Executive Group CEO Officer of WesTrac Group since November 2000.

Over 40 years experience in the equipment industry. Prior to joining WesTrac Group, he held roles with Hastings Deering and Morgan Equipment.

Director of Coates Hire and of National Hire.

Currently occupies the roles of President/Chairman of the Australian Institute of Management Western Australia, Director AIM – National. Sybrandt van Dyk 8 8 Sybrandt joined WesTrac Group in 2001. Responsible for mining, COO, Western Australia construction and rental operations in Western Australia.

Currently occupies various board seats on subsidiaries controlled by WesTrac. Darren Tasker 12 20 Darren joined WesTrac Group in 1997. Responsible for mining, construction COO, New South and rental operations in New South Wales and Australian Capital Territory. Wales/Australian Prior to joining WesTrac Group, Darren worked at Gough & Gilmour Capital Territory for seven years and has 20 years experience in the industry. Donald James 9 9 Donald joined WesTrac Group in July 2000. Appointed Chief Financial CFO Officer in May 2001.

Prior to joining WesTrac Group, Donald was an Assurance Services Manager with PricewaterhouseCoopers.

Donald currently occupies various board seats on subsidiaries controlled by WesTrac. Martin Bryant 9 30 Martin is the Managing Director for WesTrac China. Managing Director Over 30 years experience in Caterpillar dealerships, including roles with for China Monark Equipment and V-TRAC.

Martin occupies board seats on several subsidiaries controlled by WesTrac. Chris Forde 20 37 Chris has been with WesTrac Group for over 20 years. COO, Corporate Prior to his current role, he was the Chief Operating Officer of WesTrac Support Services New South Wales/Australian Capital Territory.

Chris currently occupies various board seats on subsidiaries controlled by WesTrac Group. Total 78 144

Section 2 39 (F) WESTRAC AUSTRALIA It is expected that WesTrac Australia’s exposure to the (1) OVERVIEW mining sector in New South Wales will increase in the future. WesTrac Australia’s service territories in Australia are Western In addition to its core operations, WesTrac Australia has an Australia and the combined service territory of New South interest in the following entities: Wales and the Australian Capital Territory. Western Australia is • A 40% interest in Energy Power Systems Australia. Energy the largest contributor, representing 64% of WesTrac Australia’s Power Systems Australia has responsibility for the capital total revenues in FY2009. The mining and construction sectors sales of Caterpillar engines for the power generation, were the major end-markets of WesTrac Australia’s products marine, on-highway trucks and industrial markets for and services, representing 87% of total revenue in FY2009. Australia and Papua New Guinea and market rental power generation units for the Australian service territory. The WesTrac Australia revenue by geography (FY2009) remaining 60% interest in Energy Power Systems Australia is split equally between three other Australian Caterpillar dealers. Energy Power Systems Australia achieved sales of $170 million for FY2009. • A 75% interest in Mining Equipment Spares. Mining NSW/ACT Equipment Spares’ core business is the refurbishment of 36% WA equipment used in the mining and construction industries 64% and overhaul of electric wheel motors. • A 75% interest in EMT. EMT is an original equipment manufacturer for utility truck models EMT100 and EMT600. Fabrication is mainly outsourced and components purchased from third party suppliers. WesTrac Australia revenue by sector (FY2009) • A 51% interest in SiTech. SiTech provides sales and support of worksite earthmoving control and site positioning Other technology and systems. 13% (2) WESTERN AUSTRALIA WesTrac Australia is the leading supplier of equipment, service, Construction Mining and related technology to heavy equipment users in Western 25% 62% Australia. The Western Australia Service Territory is rich in natural resources and is a major source of minerals. Resource extraction is a major component of the economy and the state’s minerals make up a large portion of aggregate Australian exports and as such there is a high concentration of customers Source: WesTrac Group management. that use the large and heavy equipment. The geographic and sectoral diversity of the combined service territories’ customer bases provide increased stability for WesTrac Australia’s offices are strategically located throughout WesTrac Australia’s operations. WesTrac Australia’s service Western Australia with the main head office and major service territories together represent 44% of Australia’s population facility located on a large site at South Guildford, outside and generate 47% of Australian GDP. Western Australia’s strong Perth. The head office is augmented by an extensive branch mining market complements New South Wales’ strong heavy network which is designed to match the population trends and construction market and growing mining market. industrial demographics of Western Australia.

40 Seven Network Limited Scheme Booklet – Part B The Western Australia Service Territory and branch locations are detailed on the map below:

WesTrac Group’s Western Australia Service Territory

Kununurra

WesTrac Branch Resident WesTrac Technician Broome WesTrac Onsite Operation

Port Hedland Karratha Teller Tom Price Newman Paraburdoo

Carnarvon

Lawlers

Murrin Geraldton

Kalgoorlie South Guildford

Kewdale Welshpool Mandurah Boddington Busselton Bunbury Esperance Manjimup Kojonup Albany

Source: WesTrac Group management. Past performance is not a reliable indicator of future performance. Most of WesTrac Avstralia’s Western Australia customers are headquartered in Perth. WesTrac Australia’s Perth headquarters include a complete parts and services workshop, apprentice training and education facilities, a state-of-the-art analysis laboratory, senior executive management and the majority of the Western Australian sales force.

The Western Australian economy is heavily reliant upon the resource industry. The majority of large customers are involved in the mining industry. WesTrac Western Australia’s key commodity exposure is iron ore as illustrated in the chart below, which accounts for approximately 97% of Australia’s annual iron ore production. Annual iron ore production is forecast to grow by approximately 9% p.a. over the next six years.

Australian iron ore production (m tonnes) WesTrac Group’s Western Australia key commodity exposure (FY2009) Coal 3% Others 1% 800 Bauxite 8% 700 CAGR 2010 – 2015: 9% Iron ore 60% 600 Gold 11% 500 400 CAGR 2004 – 2009: 10% 300 200 Nickel 17% 100 0 20042005 20062007 20082009 20102011 20122013 2014 2015

Source: AME Mineral Economics data. Source: WesTrac Group management, Australian Mineral Economics data. Past performance is not a reliable indicator of future performance. Past performance is not a reliable indicator of future performance.

Section 2 41 WesTrac Group currently enjoys a very strong heavy equipment A new Guildford Parts Distribution Centre is planned, which market share position in Western Australia, which was will provide 17,643m2 of parts storage under cover, with a total approximately 54% in FY2009 (by sales value). site area of 39,000m2. In addition, the WesTrac Institute will be refurbished, with three levels of office space and training The disparity between WesTrac Group’s market share based on facilities. Other facilities will also be developed and enhanced. sales and units is explained by its leading position in the larger Additions and expansions are subject to SGH Board approval. high value equipment market (e.g. 240T off highway truck). (G) NEW SOUTH WALES AND THE AUSTRALIAN Western Australia market share by sales (FY2009) CAPITAL TERRITORY WesTrac Group also has a significant presence in the New South Wales and Australian Capital Territory markets. Other This service territory is considered attractive for the 24% following reasons: WesTrac • New South Wales is the most heavily populated Competitor #2 Group 1% 54% Australian state; • it has an excellent market for general construction equipment due to the size of the service territory and the Competitor #1 21% wide distribution of the population outside of Sydney; • both state and federal governments have committed to Western Australia market share by units (FY2009) large infrastructure development programs; • its mining sector is large and growing dominated by large export coal mining; and • Sydney is the largest city in Australia and is constantly WesTrac Other Group undergoing urban renewal and expansion. 44% 37% In late 2003, WesTrac Group was appointed by Caterpillar as an authorised dealer to operate the New South Wales/ACT Service Territory.

Competitor #2 Competitor #1 From the time Caterpillar awarded WesTrac Group this service 9% 10% territory, it had just six months to develop and launch from Source: WesTrac Group management, Equipment Research Group, June 2009. greenfield start-up, a dealer branch network to provide sales Past performance is not a reliable indicator of future performance. and service across a large geographical service territory. WesTrac Group has strong relationships with the largest The New South Wales/ACT Service Territory and branch owner and contract miners in Australia and heavy locations that have been developed since then are detailed construction companies. on the map below:

WesTrac Western Australia customer concentration (FY2009) WesTrac Group’s New South Wales/ACT Service Territory Tweed Heads

WesTrac Branch Lismore Resident WesTrac Technician WesTrac Onsite Operation Moree Grafton

Other Top 1-5 WesTrac Parts Branch Coffs Harbour 37% 30% Tamworth Port Macquarie

Cobar Dubbo Top 6-20 Foster Hunter valley (Singleton) Ravensworth 19% Thornton (Parts & Services) Glendell (Singleton) Bulga Top 21-50 Parkes Cadia Mines (Orange) Lake Cowal Bathurst Penrith 14% Oberon Parramatta Griffith Caringbah Wollongong Source: WesTrac Group management. Wagga Wagga Goulburn Past performance is not a reliable indicator of future performance. Deniliquin Canberra

The South Guildford property is owned by WesTrac but will be Albury transferred to a subsidiary of ACE before implementation of Eden the Share Scheme. WesTrac Group is currently planning a major redevelopment of its head office facility at South Guildford. Source: WesTrac Group management. 42 Seven Network Limited Scheme Booklet – Part B WesTrac’s New South Wales/ACT Service Territory only includes New South Wales market share by sales (FY2009) that portion of NSW that is east of 144o longitude. Whilst areas such as Broken Hill are not with WesTrac’s Service Territory, WesTrac considers that these areas are immaterial in the context of the overall NSW market. Other 31% WesTrac In New South Wales, the customer demographic is spread more Group evenly throughout the State although many customer head 51% offices are based in Sydney. Competitor #2 3% Compared to WesTrac Western Australia, WesTrac New South Wales/Australian Capital Territory has larger non-residential Competitor #1 and heavy construction markets and its mining market is an 15% increasingly important contributor to the New South Wales New South Wales market share by units (FY2009) economy. The State’s mining operations are centred around the Hunter Valley (one of Australia’s largest coal producing regions) and coal is the key commodity that the WesTrac Group is exposed to (as illustrated in the chart below). Annual WesTrac coal production is forecast to grow by approximately 5% p.a. 24% over the next five years, supported by growth in thermal coal Other 52% exports to China. Competitor #2 10% WesTrac Group’s New South Wales key commodity exposure (FY2009) Competitor #1 Base metals 3% 14%

Source: WesTrac Group management. Gold Past performance is not a reliable indicator of future performance. 14% Similar to WesTrac Western Australia, WesTrac New South Wales has strong relationships with the largest owner and contract miners in New South Wales.

Coal 83% New South Wales customer concentration (FY2009)

New South Wales coal production (m tonnes) Top 1 - 5 Other 27% 200 36% CAGR 2010 – 2015: 5% 150 2004 – 2009: 4% CAGR Top 6 - 20 22% 100

50 Top 21 - 50 16%

0 20042005 20062007 2008 2009 20102011 20122013 2014 2015 Source: WesTrac Group management.

Source: WesTrac Group management, AME Mineral Economics data. Note: Coal Production refers to saleable historical and forecast production of metallurgical and thermal coal.

WesTrac Group has a very strong market position in New South Wales/Australian Capital Territory and in FY2009 achieved a share of the heavy equipment market greater than 50% by sales.

Past performance is not a reliable indicator of future performance.

Section 2 43 WesTrac Group’s equipment management capability and but is being expanded to include track type tractors, capacity in New South Wales are expected to step up compactors and motor graders. significantly with the planned greenfield development at From establishment in 2001, WesTrac China’s revenues have Tomago, Newcastle. The estimated cost of this multi-year grown from start-up to $555 million in FY2009. During the development in 2010 dollars is $121 million. same period, WesTrac China’s EBITDA has grown from start- WesTrac Australia is the prospective tenant for the Tomago up to $32 million and strong growth is expected to continue property. The development plan is expected to be completed in in FY2011. 2013 and is subject to SGH Board approval. This development (2) SERVICE TERRITORIES AND DISTRIBUTION NETWORK will enable the operations of WesTrac New South Wales to be significantly expanded to meet the expected increase in WesTrac China’s North Eastern China Service Territory includes coal mining in the Hunter Valley in the coming years and will the provinces of Hebei, Liaoning, Heilongjiang, Jilin, Shanxi, provide increased capacity to service the New South Wales Inner Mongolia and the municipalities of Beijing and Tianjin. market generally. This area is substantial and it generates approximately 25% of China’s gross domestic product (approximately US$1.8 trillion). (H) WESTRAC CHINA WesTrac China’s service territory accounts for approximately (1) OVERVIEW 20% of China’s population. WesTrac China commenced operations in 2001 and is one WesTrac China’s presence in its service territory is well of only four authorised dealer groups that have Caterpillar positioned and extensive, with 34 branches, four CRS and the distributorship rights in China. Its service territory covers WesTrac Equipment Rebuild Centre (WERC) in Tianjin. WesTrac several prime provinces and major cities in North Eastern China China’s headquarters are in Beijing. including Beijing. WesTrac’s North Eastern China service territory As a relatively recently established business, WesTrac China and branch locations is in the early stages of development and is poised for strong growth given the long-term growth outlook for the Chinese economy. To date, it has established an extensive Coal Mine Iron Ore Mine Aluminium Mine branch network throughout its service territory and achieved Jiamusi Limestone Mine Hulunbeier revenue growth. Heilongjiang Gold Mine WesTrac China Branch Harbin In WesTrac’s view, the Chinese market is critical to Caterpillar’s Huolinhe Jilin future growth. Consequently, WesTrac expects that Caterpillar Chanchun Xilinhaote Yanji will direct substantial resources to supporting its four dealer Jinzhou CRS: Siping Chifeng Tonghua principals through growing its local manufacturing bases to Chengde Shenyang Baotou CRS: Zunhua Anshan Hebei Benxi provide a greater range of equipment at competitive prices. Inner Mongolia CRS: Beijing COE CRS:Jianping Ordos Zhangjiakou Tangshan Yingkou Liaoning Wuhai Beijing - HQ Jixian Dalian Hohhot Datong WERC WesTrac China’s footprint in the China economy is a major Shuozhou Shijiazhuang Tianjin strength since: Taiyuan Shanxi Handan • it provides direct access to one of the largest and fastest Linfen Jincheng growing economies in the world, with significant potential Source: WesTrac Group management. for adoption of equipment of the type distributed by the WesTrac Group as economic growth and industrialisation WesTrac China’s service territory offers exciting growth progresses; potential for reasons including: • China’s economic growth requires substantial infrastructure • high levels of development are anticipated across its service investment to support and sustain its growth; territory; • the general trend towards urbanisation in China creates • the service territory embraces the large municipalities substantial construction and development opportunities; of Beijing and Tianjin; and and • the service territory includes the provinces of Shanxi and • In WesTrac’s view, China plays a major role in the long- Inner Mongolia, two of the major mining areas in China. term strategy of Caterpillar. Caterpillar started selling its In addition, WesTrac’s North Eastern China Service Territory products in China in 1975 and has 12 production plants in overall is host to a range of mining activities, including coal China, including joint ventures and wholly-owned plants. mines and iron ore mines. Production capacity predominantly covers hydraulic excavators, wheel loaders, diesel engines and components

44 Seven Network Limited Scheme Booklet – Part B (3) BUSINESS OPERATIONS In the interim, the WesTrac Group is introducing a broader WesTrac China is structured into four operating divisions: range of products from the Caterpillar owned Shandong SEM • equipment sales; Machinery Co. Ltd. (SEM). SEM is a lower price point product • power system sales; that is sold in many countries around the world. The pro forma forecast financial information for WesTrac assumes that WesTrac • rental and used equipment; and is appointed as an authorised SEM dealer in its North Eastern • parts and services. China Service Territory although formal documentation has Equipment sales is the largest business segment by revenue, not yet been entered into by the parties. Caterpillar’s SEM contributing approximately 63% to WesTrac China’s total range of equipment is developed for applications requiring sales for FY2009. Unlike WesTrac Australia, due to China’s lower operating hours per day than Caterpillar machines stimulus package. WesTrac China’s major end market in 2010 but will offer a useful life of approximately 5 – 10% longer is the construction market which contributes 50% of its total than the current leaders of that lower price market segment. revenues, followed by mining (which contributes 32% of total However, it is not envisaged that SEM equipment will undergo revenues); however, it is expected that from 2011 the market rebuilds to increase their useful lives further, as is the case with will trend towards mining. Caterpillar equipment. SEM equipment is targeted at the mid- tier, price sensitive market and does not compete directly with (4) EQUIPMENT SALES Caterpillar equipment. WesTrac China currently sells a range of industrial and mining machines and engines which are predominantly sourced from The current Caterpillar strategy, as observed by WesTrac, is Caterpillar’s manufacturing joint ventures and operations for customers to purchase lower priced SEM equipment and based in China. Hydraulic excavator sales currently represent upgrade to Caterpillar products as increased operating hours approximately 90% of WesTrac China’s total equipment sales are required and the scale of operations results in lower cost and are expected to increase as new models are included in of operation over the life of the machinery. product sales. (5) POWER SYSTEM SALES Growth in the use of mining equipment is expected to be WesTrac China supplies power generation systems and driven by government regulation of the industry, increased coal engines to customers in the petroleum, marine and coal gas consumption and heightened industry productivity. Government extraction industries as well as for general emergency power regulation is expected to impact mining equipment sales by generation purposes. driving efficiency and consolidation and increasing industry Growth within this segment is expected primarily in electrical reliance on and demand for larger Chinese-made mechanised power generation sales and marine sales. This is expected equipment to replace less efficient equipment and methods. to be driven by growth within off-shore petroleum and gas Construction machinery sales are expected to be driven by the extraction activities, supporting China’s growing consumption growth in Fixed Assets Investment (FAI) in urban development of energy. In 2009, Chinese demand for energy grew by 7% and public infrastructure. FAI can be viewed as a driver of the and is expected to remain strong as the Chinese government construction machinery market, in particular the real estate, promotes investment in infrastructure and urban development. infrastructure and mining sectors. (6) RENTAL AND USED EQUIPMENT Across all industries, WesTrac China’s product range satisfies WesTrac China rents Caterpillar equipment and allied products the requirements under Chinese regulations and its business such as JLG access work equipment to customers, as well as licence to sell equipment in China including any requirement selling used Caterpillar machines from its rental fleet, trade-ins for equipment to have a high component of locally and other machines it acquires for resale. manufactured content. WesTrac China offers “wet” hire rental agreements (that is, Due to competitive pressures and the early stage of equipment is provided with experienced operators) over a development of the market, equipment sale margins for majority of its rented machines and equipment, preventing WesTrac China are lower than those generated by WesTrac to some extent damage or overuse of equipment and Australia. A large proportion of WesTrac China’s customers are enabling extended equipment life. Whilst the useful life of first time owners of heavy equipment who typically seek the WesTrac China’s rental equipment is generally around 10 lowest initial purchase price, putting less emphasis on the total years, the individual units are rolled out as used equipment cost of ownership. Key competitive advantages of Caterpillar approximately within 18-24 months of utilisation. equipment in Western markets are low downtime levels, long Growth will be driven by development of new CRS sites across service life and high resale value. These factors are expected all eight provinces and municipalities. Currently four CRS sites to become increasingly important in the Chinese market are in operation. Plans to improve sales of rental and used over time.

Section 2 45 equipment include overhauling the layout of branches to include the offering of product warranties for longer better suit customer demands. WesTrac China aims to secure periods of time with unlimited hours of operation. competitive leasing agreements across its CRS network by WesTrac China’s success in capturing market share will be aided targeting key customer groups. by the availability of large mining trucks (which previously was (7) PARTS AND SERVICE difficult to access for the China market) and increased market WesTrac China provides parts and maintenance services as share through competitive pricing. WesTrac China is targeting a customer support, delivered by a team of technicians and market share between 10% and 20% in the hydraulic excavator service engineers. A large proportion of part sales are to segment by December 2010. Chinese state-owned enterprises (SOEs) in the mining sector. (I) RECENT STRATEGIC INITIATIVES/KEY GROWTH WesTrac China maintains its parts inventory at its own facilities STRATEGIES and in a few cases at the premises of key customers. WesTrac Recent strategic initiatives for WesTrac Australia and WesTrac China has the ability to supplement these inventories by China are described separately below: ordering parts from Caterpillar’s China Distribution Centre in (1) WESTRAC AUSTRALIA Shanghai, or Caterpillar’s Asia Distribution Centre in Singapore. The business is also supported by the WERC located in Tianjin. As an authorised dealer of Caterpillar products in its Western Australia, and New South Wales/ACT Service Territories, WesTrac (8) CUSTOMER MARKETS, SALES AND MARKETING Australia aims to take a leadership position in all the markets WesTrac China has to date been structured into product in which it competes for heavy equipment management segments, which is commonplace for newly established services. WesTrac Australia establishes this significant market Caterpillar dealers. This structure also addresses WesTrac presence by focusing on being the leading and preferred China’s large SOE customers that deal across multiple industry supplier of equipment, service and related technology to end segments, which requires WesTrac China’s sales personnel users of its equipment. WesTrac Australia provides a complete to represent the full range of WesTrac Group products and equipment solution to its customers with a particular focus services. As the market is becoming more developed, an on providing a competitive operating cost over the life of the industry focused approach is being implemented, similar equipment. WesTrac Australia accomplishes this by selling the to the current structure at WesTrac Australia. right equipment for the purpose, providing parts and service over the life of the equipment, performing value enhancing In 2006, WesTrac China created its first department to cater maintenance analysis to maintain the equipment in the field specifically for large mining customers. The mining sector in and providing thorough training of staff (through the WesTrac China is particularly active, enjoying high levels of demand, Institute) and additional on-site services. Caterpillar equipment consolidation and increasing mechanisation. WesTrac China’s is generally more durable and is considered to have a longer top six mining customers are among the largest in China and machine life than competitor products. include primarily SOE customers. Mining sales are expected to increase significantly, driven by sustainable mining growth in It is anticipated growth in the Australian service territories will Inner Mongolia and Shanxi (which includes China’s two largest come from the following key areas: mines in Shanxi) and increased equipment sales due to the • A projected increase in mining production levels of iron Government’s focus on efficiency and safety. ore in Western Australia and coal in the Hunter Valley region. WesTrac is constantly in discussions with its mining WesTrac’s market share in the hydraulic excavator segment was customers about their current requirements and expansion approximately 8% for the calendar year 2009. The three leading plans so that they can plan equipment needs accordingly. manufacturers, Doosan, Hitachi and Komatsu, account for approximately 45% of the hydraulic excavator segment at this • An upswing in the non-residential construction and time. Management anticipates WesTrac China’s market share in engineering markets in New South Wales following a this segment will increase as: slow-down during late 2008 and 2009. Government infrastructure investment in New South Wales and Western • the existing limited Caterpillar China product range Australia is expected to increase significantly. is expanded to include a range that competes with competitors’ much larger product sets. WesTrac China • Continuing to leverage capabilities to become more currently offers a limited range of hydraulic excavators and integrated within customers’ operations, through offering recently introduced paving machines, track type tractors new products and services to meet their changing needs and motor graders; and throughout the life cycle of the machine. WesTrac already has existing capability and will continue to enhance • WesTrac China differentiates itself through higher service its service offering through the introduction of new levels (similar to WesTrac Australia). Current strategies technology to services.

46 Seven Network Limited Scheme Booklet – Part B • Caterpillar’s leadership in technological development and loaders are sold annually in China than in the rest of the new construction and mining equipment products. WesTrac world combined. Caterpillar also announced a multi- Group and Caterpillar are continually developing innovative million dollar expansion to increase the capacity of SEM, technological processes to extend the life of customers’ demonstrating its commitment to support its growing equipment. Caterpillar is a leader in introducing new customer base in the Chinese construction equipment products to the market first and broadening its product industry. The investment will allow WesTrac China to meet range. Some examples include: growing demand and provide a broader product portfolio – Navistar and Caterpillar on-highway trucks which will to construction and mining customers. introduce the first Caterpillar branded highway trucks • Caterpillar plans to further expand its global business with Caterpillar engines; model in China by adding to its China-based research – Caterpillar and Trimble to pursue technological-based and development (R&D) operations to increase the GPS solutions to provide ongoing monitoring of technical support for products serving markets in China machines in the field; and and the rest of the Asia Pacific region. The city of Wuxi – Caterpillar to introduce a new large electric mining truck in Jiangsu province was announced as the location for which is a product range not previously competed in. a multifunctional research and development centre serving Caterpillar’s ventures in China and the rest of (2) WESTRAC CHINA the Asia Pacific region. This additional R&D effort is WesTrac China’s service territory across eight provinces and part of Caterpillar’s strategy to support the expanded municipalities in North Eastern China has significant growth manufacturing footprint being implemented in China potential and opportunities following: and the growing market demand in emerging markets. The centre will be built in multiple phases with the first • high levels of sustainable growth from WesTrac China’s phase completed at the end of 2009. focus on branch growth, sales and service expansion within each province; It is acknowledged that these strategic initiatives may change • sustained government fixed asset investment within if Caterpillar’s Chinese market strategy changes. the region, driving construction activity in infrastructure (J) NATIONAL HIRE/COATES HIRE (rail and highway), urbanisation property investment and resources; (1) OVERVIEW • increased mining activity in Shanxi and Inner Mongolia National Hire was established in 1981 and listed on the due to continued export growth driven by government ASX in 1997. It has a market capitalisation of $297 million initiatives to improve cost-effectiveness, productivity as at 10 March 2010. Following the merger of Coates Hire and and services; National Hire’s rental services division in January 2008, National Hire now consists of Allight, a wholly-owned equipment sales • increased competitive position driven by what WesTrac and support business and a 46% interest in Coates Group considers to be Caterpillar’s focus on the Chinese market, Holding Pty Limited which owns the Coates Hire business. particularly through locally-based manufacturing. This is supported by government aims to increase manufacturing National Hire is listed on the ASX under the ticker ASX:NHR. activity within China; and For information on National Hire’s rental services, refer to its • urban growth within the service territory – there are corporate website at www.nationalhire.com.au or the ASX 17 cities with a population over a million people in website at www.asx.com.au. WesTrac China’s service territory. (2) ALLIGHT Future growth will be sensitive to WesTrac China’s ability to Allight is a major supplier of light, power and water secure market share in the higher growth power generation management equipment and support solutions. Based in Perth, and mining markets. This will require continued emphasis from Allight has been providing equipment solutions globally and Caterpillar in securing market share within China and WesTrac has grown to employ over 115 people in Australia. Its principal China’s service territories. activities relate to the manufacture, assembly and sales of mobile lighting, power generation and dewatering equipment, and the In addition, two recent strategic initiatives by Caterpillar, distribution and support of Perkins engines, FG Wilson power observed by WesTrac, are expected to positively influence generation sets and the assembly of Godwin pump wet ends. WesTrac China’s growth outlook: • In early 2008, Caterpillar completed the final steps in Allight offers a broad range of mobile lighting towers to the the acquisition of 100% equity interest in a leading mining, construction, night safety and event management wheel loader manufacturer in China (SEM). The market industries and is the exclusive supplier of FG Wilson generators opportunity is significant for WesTrac China as more wheel throughout Australia, New Zealand and the Pacific Island

Section 2 47 nations. In Australia, Allight is the sole distributor of Perkins in the North Sea, with the remaining business derived from diesel engines to suit light to heavy machinery for industrial other offshore customers around the world. or commercial use. Coates Hire also operates in Indonesia under a division called Allight manufactures mobile lighting towers. The company’s Coates Hire Indonesia which hires air compressors, lighting Nightshifter mobile lighting tower products are manufactured towers, compaction, pumps, welding, access equipment and in China. The business is currently making progress to expand other equipment to mainly mining and oil and gas companies its international reach with this product. across the archipelago. Coates Hire Indonesia operates its major centres in Java and Kalimantan, with on-site facilities In 2009, Allight generated equipment sales and support in Sulawesi, Sumatera and Irian Jaya. Coates Hire Indonesia revenue of $107 million. has a small team of expatriates and is supported by 70 highly (K) COATES HIRE experienced Indonesian staff.

(1) OVERVIEW OF COATES HIRE MERGER For FY2009, Coates Hire recorded revenues of $978 million and In 2008, National Hire, in conjunction with the Carlyle Group, $44 million of NPAT. acquired all of the outstanding shares in Coates Hire Limited. As part of the transaction, National Hire transferred its rental 2.6 WESTRAC GROUP FINANCIAL INFORMATION services business to Coates Hire Limited, thereby merging (A) OVERVIEW Coates Hire’s and National Hire’s respective rental divisions This section contains a summary of the following historical to form Coates Hire. and forecast financial information of WesTrac Group (WesTrac National Hire and Carlyle each hold a 46% economic interest Group Financial Information) and sensitivity analysis on the in Coates Group Holdings Pty Limited, a legal entity which key forecast assumptions. owns the Coates Hire business, with the balance held by The WesTrac Group Pro Forma Historical Financial Information financial investors. comprises the: (2) OVERVIEW OF COATES HIRE • consolidated pro forma income statements of the WesTrac Coates Hire is Australia’s largest equipment hire company Group, excluding National Hire, for the years ended with over 120 years of experience. Its Coates Hire business has 30 June 2007, 30 June 2008 and 30 June 2009, and the been supplying hiring equipment to a wide variety of markets half year ended 31 December 2009; including engineering, civil construction, building construction and • consolidated pro forma historical balance sheet of the maintenance, mining and resources, manufacturing, government, WesTrac Group, excluding National Hire except for the industrial shutdowns and event management. Coates Hire has historical cost of investment, as at 31 December 2009; and been operating for more than a century, and currently has a • consolidated pro forma abridged cash flow statements of network of over 200 branches across Australia and satellite the WesTrac Group, excluding National Hire, for the years locations, including operations in the UK and Indonesia. Coates ended 30 June 2007, 30 June 2008 and 30 June 2009, and Hire is the leading equipment hire business in Australia and the half year ended 31 December 2009. one of the largest equipment hire businesses globally. No consolidated pro forma historical statement of Its product range includes equipment for compaction, access, comprehensive income is provided. power generation, mobile lighting, welding and general equipment, as well as portable buildings, commercial buildings, The WesTrac Group Pro Forma Forecast Financial Information portable toilets, temporary fencing and containers, shoring, comprises the: traffic management, confined space and laser equipment. • consolidated pro forma forecast income statements of Coates Hire is Australia’s largest hirer of excavation support the WesTrac Group, excluding National Hire, for the years equipment, trench safety systems, specialist pumps, dewatering ending 30 June 2010 and 30 June 2011; and equipment and associated products. • consolidated pro forma forecast abridged cash flow statements of the WesTrac Group, excluding National Hire, Coates Offshore, an operating division of Coates Hire, provides for the years ending 30 June 2010 and 30 June 2011. specialised hire equipment to oil and gas projects throughout the world from its UK headquarters based in Aberdeen, hiring No consolidated pro forma forecast statements of comprehensive specialist compressors and steam generators to the global income are provided as there are no other comprehensive offshore oil and gas industries. Approximately 50% of Coates income items forecast. Offshore’s revenues are generated from supplying equipment

48 Seven Network Limited Scheme Booklet – Part B The information in this section should also be read in Refer to section 2.6(j) of Part B of this Scheme Booklet for conjunction with the information elsewhere in this Scheme a summary of National Hire historical financial information Booklet including the risk factors set out in section 5 of Part B extracted from the publicly available financial statements of of this Scheme Booklet and the sensitivity of the forecasts to National Hire. Refer to section 9.14(E) of Part B of this Scheme changes in key assumptions, set out in section 2.6(i) of Part B Booklet for details of the National Hire Market Value Deed of this Scheme Booklet. provided by ACE pursuant to which ACE “underwrites” the value of WesTrac Group’s investment in National Hire. All amounts disclosed in the tables are presented in Australian dollars and, unless otherwise noted, are rounded to the nearest PREPARATION OF WESTRAC GROUP PRO FORMA HISTORICAL thousand dollars. FINANCIAL INFORMATION The WesTrac Group Pro Forma Historical Financial Information (B) BASIS OF PREPARATION AND PRESENTATION OF THE for the years ended 30 June 2007, 30 June 2008 and 30 June WESTRAC GROUP FINANCIAL INFORMATION 2009 is based on the consolidated audited financial statements The WesTrac Group Financial Information has been prepared in for WesTrac Holdings for those periods adjusted to reflect accordance with the recognition and measurement principles only those entities that form part of the SGH Group after of Australian Accounting Standards as at 31 December 2009, implementation of the Share Scheme. The historical financial although it is presented in an abbreviated form insofar information for the half year ended 31 December 2009 has as it does not include all of the disclosures, statements been extracted from the WesTrac Holdings reviewed financial or comparative information as required by the Australian statements for this period, which excludes the entities that Accounting Standards applicable to annual financial reports do not form part of the SGH Group after implementation of prepared in accordance with the Corporations Act. A summary the Share Scheme and recognises the investment in National of WesTrac Group’s detailed accounting policies is included in Hire at its cost in the pro forma balance sheet and not as a Appendix 1 to Part B of this Scheme Booklet. consolidated entity. WesTrac China’s functional and operating currency is US dollars, Refer to section 2.6(C) of Part B of this Scheme Booklet for while its financial statements are reported in Hong Kong dollars. a reconciliation between the audited/reviewed financial The historical results for WesTrac China have been translated statements of WesTrac Group and the WesTrac Group Pro Forma from US dollars at exchange rates applicable to each period of: Historical Financial Information. • year ended 30 June 2007: AUD$1:USD$0.79; • year ended 30 June 2008: AUD$1:USD$0.90; PREPARATION OF WESTRAC GROUP PRO FORMA FORECAST • year ended 30 June 2009: AUD$1:USD$0.75; FINANCIAL INFORMATION • six months ended 31 December 2009: AUD$1:USD$0.90; The ACE Directors believe they have prepared the WesTrac Group Pro Forma Forecast Financial Information with due care • year ending 30 June 2010: AUD$1:USD$0.90; and and attention, and consider all best estimate assumptions • year ending 20 June 2011: AUD$1:USD$0.90. when taken as a whole to be reasonable at the time of The minority interests in certain subsidiary entities are entitled preparing this information. to their share of profits according to their ownership interests The WesTrac Group Pro Forma Forecast Financial Information in these entities. The forecast profit entitlements of minority has been prepared on the basis of certain assumptions, interests have been disclosed in the WesTrac Group Financial including the key best estimate assumptions set out in section Information as net profit attributable to minority interests. 2.6(H) of Part B of this Scheme Booklet. This information is NATIONAL HIRE intended to assist investors in assessing the reasonableness and National Hire (ASX: NHR) financial information is excluded from likelihood of the assumptions occurring, and is not intended to all of the WesTrac Group Financial Information with the sole be a representation that the assumptions will occur. exception of the historical cost of the National Hire investment WesTrac Group’s pro forma consolidated income statement recorded in the WesTrac Group balance sheet. Forecast for the year ending 30 June 2010 comprises the pro forma financial information of National Hire is not available for the actual results for the six months ended 31 December 2009 and reasons explained in section 9.14(E) of Part B of this Scheme pro forma consolidated forecast income statement for the six Booklet, and therefore to present the financial information months ending 30 June 2010. on a consistent basis across periods, National Hire financial information has been excluded for all historical and forecast Investors should be aware that the timing of actual events and periods disclosed in this section. Instead the investment in the magnitude of their impact might differ from that assumed National Hire is recognised at its cost in the WesTrac Group in preparing the WesTrac Group Pro Forma Forecast Financial pro forma balance sheet. Information, and that this may have a materially positive or negative effect on WesTrac Group’s actual financial performance

Section 2 49 or financial position. Accordingly, neither ACE nor the WesTrac Holdings directors can give any assurance that the forecasts will be achieved. Events and outcomes might differ in quantum and timing from the assumptions, with material consequential impact on the WesTrac Group Pro Forma Forecast Financial Information. Investors are advised to review the key best estimate assumptions set out in section 2.6(H), in conjunction with the sensitivity analysis set out in section 2.6(I) and the risk factors set out in section 5 of Part B of this Scheme Booklet, together with the other information set out elsewhere in this Scheme Booklet.

(C) SUMMARY OF PRO FORMA CONSOLIDATED HISTORICAL AND FORECAST INCOME STATEMENTS Set out below is a summary of WesTrac Group’s pro forma consolidated historical income statements for the years ended 30 June 2007, 30 June 2008, 30 June 2009, the half year ended 31 December 2009 and the pro forma forecast income statements for the years ending 30 June 2010 and 30 June 2011.

Table 2.6.1: WesTrac Group pro forma consolidated income statements (excluding National Hire) Pro forma historical Pro forma forecast Six months Year ended Year ended Year ended ended Year ending Year ending $000 30-Jun-07 30-Jun-08 30-Jun-09 31-Dec-09 30-Jun-10 30-Jun-11 Revenue 1,854,975 2,304,227 2,431,555 1,051,410 2,271,321 2,737,315 Other income 1,345 17,914 – 2,167 – – Share of results and 1,595 2,426 1,821 (709) 2,500 2,500 impairment from equity accounted investees Operating costs (1,686,306) (2,103,215) (2,217,192) (961,368) (2,088,076) (2,509,303) EBITDA 171,609 221,352 216,184 91,500 185,745 230,512 Depreciation and (21,246) (29,191) (38,984) (16,015) (32,868) (38,095) amortisation EBIT 150,363 192,161 177,200 75,485 152,877 192,417 Finance costs (46,994) (75,846) (104,506) (43,379) (85,086) (90,924) Finance income 5,249 6,583 9,720 3,563 6,960 3,300 Profit before income tax 108,618 122,898 82,414 35,669 74,751 104,793 Income tax expense1 (10,313) (18,496) (28,271) Net profit after tax 25,356 56,255 76,522 for the period Attributed to: WesTrac Group 25,639 56,511 76,095 equity holders Minority interests (283) (256) 427

Note: 1 Reporting historical and forecast income tax expense on a pro forma basis is not considered to be meaningful or appropriate, due to significant pre transaction restructuring of WesTrac Group and the changed tax profile rendering such hypothetical information meaningless.

50 Seven Network Limited Scheme Booklet – Part B PRO FORMA ADJUSTMENTS The following pro forma adjustments have been made to statutory historical profit before income tax, as reported in the WesTrac Holdings’ financial statements, to calculate pro forma profit before tax:

Table 2.6.2: WesTrac Group pro forma adjustments to the historical income statements Pro forma historical Six months Year ended Year ended Year ended ended $000 30-Jun-07 30-Jun-08 30-Jun-09 31-Dec-09 Profit/(loss) before income tax per accounts7 110,917 (23,339) 70,449 86,921 National Hire exclusion1 (501) (5,759) (28,652) (3,345) Other ACE-related exclusions2 771 141,849 44,737 (42,869) WesTrac China results3 6,863 23,868 – – WesTrac Group restructured pro forma profit before 118,050 136,619 86,534 40,707 income tax Rental charge on properties sold and leased back4 (8,971) (8,971) (8,971) (4,486) Changes in accounting policy (amendment to AASB 139 – (3,991) 2,250 – Financial Instruments)5 Other6 (461) (759) 2,601 (552) Pro forma profit before income tax 108,618 122,898 82,414 35,669

Notes: Explanations for pro forma adjustments are as follows: 1 The net profit/(loss) attributable to National Hire in each of the historical financial periods has been excluded from the WesTrac Group Historical Financial Information to ensure consistency with the WesTrac Group Pro Forma Forecast Financial Information, as explained in section 2.6(b) of Part B of this Scheme Booklet. 2 Relates to entities that will not form part of the group going forward as a result of restructuring the WesTrac Group to transfer non-core assets of WesTrac Holdings prior to the implementation of the Share Scheme. This adjustment removes the net (profit)/loss and preference dividends received which were attributable to these entities in the historic financial periods. 3 WesTrac Group acquired WesTrac China Ltd (the entity that operates the WesTrac China business) from other interests associated with Mr Kerry Stokes AC on 1 July 2008, and therefore the WesTrac China results have been fully consolidated into the WesTrac Holdings financial statements since this date. This adjustment recognises the net profit attributable to WesTrac China in the period prior to this date as if it had been acquired by WesTrac Group on 1 July 2006. 4 As described in section 9.14(F) of Part B of this Scheme Booklet, the land and buildings currently owned by WesTrac Group will be sold to ACE-related entities and leased back to WesTrac Group prior to the implementation of the Share Scheme. This results in additional rental charges to WesTrac Group which have been reflected in the pro forma historical financial information as if this sale of properties had occurred on 1 July 2006. 5 Under the requirements of the amendment to Accounting Standard AASB 139 Financial Instruments, from 1 July 2009 the time value of certain options is expensed, but was previously taken to reserves. This adjustment reflects this revised accounting policy in the historical periods. 6 Other adjustments represent individually immaterial amounts that have been made to reflect the historical financial information on a consistent basis with that determined for the restructured group going forward. 7 The financial statements for the three years ended 30 June 2007, 30 June 2008 and 30 June 2009, prior to any pro forma adjustments, have been subject to audit. WesTrac Group restructured pro forma financial information for the six months ended 31 December 2009 has been subject to audit review.

Section 2 51 (D) PRO FORMA CONSOLIDATED BALANCE SHEET Set out below is WesTrac Group’s pro forma consolidated balance sheet as at 31 December 2009.

Table 2.6.3 WesTrac Group pro forma consolidated balance sheet at 31 December 2009 (excluding National Hire) Pro forma Existing Pro forma consolidated $000 WesTrac Group adjustments WesTrac Group CURRENT ASSETS Cash and cash equivalents 140,915 (95,292) 45,623 Trade and other receivables 289,170 (1,170) 288,000 Inventories 495,732 – 495,732 Total current assets 925,817 (96,462) 829,355 NON-CURRENT ASSETS Receivables 48,340 (44,240) 4,100 Property, plant and equipment 163,822 (36,334) 127,488 Intangible assets 448,945 – 448,945 Investments accounted for using the equity method 8,990 – 8,990 Investment in National Hire1 197,351 – 197,351 Other investments 3,162 – 3,162 Deferred tax assets 2,728 – 2,728 Total non-current assets 873,338 (80,574) 792,764 Total assets 1,799,155 (177,036) 1,622,119 CURRENT LIABILITIES Trade and other payables 220,731 – 220,731 Provisions 32,273 – 32,273 Interest bearing loans and liabilities 97,717 – 97,717 Current tax liabilities 1,143 – 1,143 Derivative financial instruments 2,396 – 2,396 Deferred revenue 37,343 – 37,343 Total current liabilities 391,603 – 391,603 NON-CURRENT LIABILITIES Interest bearing loans and liabilities 995,883 – 995,883 Provisions 83 – 83 Trade and other payables 9,453 (9,453) – Deferred revenue 9,520 – 9,520 Derivative financial instruments 29,877 – 29,877 Total non-current liabilities 1,044,816 (9,453) 1,035,363 Total liabilities 1,436,419 (9,453) 1,426,966 Net assets 362,736 (167,583) 195,153 EQUITY Issued capital 177,672 (156,172) 21,500 Reserves 179,846 (11,411) 168,435 Total equity before minority interests 357,518 (167,583) 189,935 Minority interests 5,218 – 5,218 Total equity 362,736 (167,583) 195,153

Note: 1 While the National Hire balance sheet has been excluded from the consolidated balance sheet above, the historical cost of the investment in National Hire by WesTrac Group of $197 million is recognised in its balance sheet.

52 Seven Network Limited Scheme Booklet – Part B A detailed summary of pro forma adjustments made to the WesTrac Group balance sheet is set out below:

Table 2.6.4: Summary of pro forma adjustments Non-current Net Current assets Non-current assets liabilities assets Equity Cash Trade Property, Trade and cash and other plant and and other Non-share $000 equivalents receivables Receivables equipment payables equity Reserves Net assets 362,736 before pro forma adjustments 1. Disposal of (36,334) (36,334) (100,470) 64,136 WesTrac properties 2. Settlement of (5,617) (1,170) 6,787 – intercompany loans 3. Settlement of tax 41,574 (44,240) 2,666 – related balances 4. Repayment of (55,702) (55,702) (55,702) non-share equity balance 5. Payment of (75,547) (75,547) (75,547) dividend Pro forma (95,292) (1,170) (44,240) (36,334) 9,453 (167,583) (156,172) (11,411) adjustments Net assets post pro 195,153 forma adjustments

Notes: Explanations for pro forma adjustments are as follows: 1 Reflects the proposed sale by WesTrac Group of certain properties to ACE-related entities as part of the restructure of WesTrac Group prior to the implementation of the Share Scheme. The disposal is recognised at market values established by independent valuations performed in February 2010. A profit on sale of $64 million arises. Settlement of the sales value of $100 million occurs through repayment of non-share equity. The book value of the properties of $36 million is removed from property, plant and equipment with the corresponding profit on sale being recognised in reserves. See section 9.14(E) of Part B of this Scheme Booklet for further details. 2 Reflects the expected settlement of payables and receivables due to/from ACE group companies with entities within WesTrac Group before being acquired by SGH. 3 Reflects the expected settlement of all tax related assets and liabilities with the ACE tax consolidated group upon exit from the ACE tax consolidated group. 4 Reflects the expected repayment of the remaining non-share equity in WesTrac Group prior to the acquisition by SGH. 5 Reflects a dividend payable to ACE in relation to the period to 31 December 2009 prior to the acquisition of WesTrac Group by SGH. The net effect of these transactions will be the payment of $76 million to ACE group. The overall impact of the pro forma adjustments is a $95 million cash payment by WesTrac Group to ACE.

DIVIDENDS WesTrac Holdings paid dividends to its shareholder, ACE, from time to time based on factors such as available distributable accounting profits and available cash on hand. As disclosed above, a dividend of $76 million is estimated to be payable in respect of the period to 31 December 2009, and this is reflected as paid in the pro forma balance sheet. Similarly, WesTrac Holdings intends to pay a dividend to ACE in relation to the period from 1 January 2010 to the date of implementation of the Share Scheme equivalent to the accounting profits earned in that period. This may have the effect of increasing the net debt position of WesTrac Group as at the time of the payment of the dividend by an equivalent amount but is not expected to reduce the pro forma net assets of WesTrac Group.

Section 2 53 (E) PRO FORMA CONSOLIDATED HISTORICAL AND FORECAST ABRIDGED STATEMENTS OF CASH FLOWS Set out below are WesTrac Group’s pro forma consolidated abridged statements of cash flows for the years ended 30 June 2007, 30 June 2008, 30 June 2009, the six months ended 31 December 2009 and pro forma forecast consolidated abridged statements of cash flows for the years ending 30 June 2010 and 30 June 2011.

Table 2.6.5: WesTrac Group pro forma consolidated abridged statements of cash flows (excluding National Hire) Pro forma Pro forma Six months forecast forecast Year ended Year ended Year ended ended year ending year ending $000 30-Jun-07 30-Jun-08 30-Jun-09 31-Dec-09 30-Jun-10 30-Jun-11 EBITDA 171,609 221,352 216,184 91,500 185,745 230,512 Working capital movements (21,755) (59,445) (179,302) 204,179 41,042 (106,960) Other non-cash items (2,940) (17,895) 29,039 (1,458) (2,500) (2,500) Dividends received from equity – 221 788 – – – accounted investees Operating cash flows before 146,914 144,233 66,709 294,221 224,287 121,052 interest and tax Cash flows from other activities Income tax paid1 (63,785) (54,555) (66,277) 14,575 2,104 (37,004) Interest received 4,732 6,438 9,648 4,787 6,715 3,300 Interest paid (31,170) (60,266) (96,121) (38,204) (78,657) (84,464) Proceeds from sale of property, 4,714 4,126 4,635 460 460 – plant and equipment Payment for property, (35,562) (34,450) (20,539) (13,200) (32,667) (48,908) plant and equipment Net proceeds from borrowings (43,307) 50,269 Net cash flows used in (121,071) (138,707) (168,654) (31,582) (145,352) (116,807) other activities Total2 25,843 5,526 (101,945) 262,639 78,935 4,245

Notes: 1 Historical tax paid reflects actual cash payments and is not necessarily representative of future tax cash outflows as part of the SGH Group. 2 Cash movement excludes historical payments for acquisition of controlled entities and investments, proceeds from the issue of shares, proceeds from the issue of non-share equity, repayment of non-share equity and dividends paid as these are not considered relevant or meaningful in relation to the restructured WesTrac Group going forward.

WORKING CAPITAL MOVEMENTS Working capital movements in the forecast period to 30 June 2010 comprise cash inflows of $204.2 million in the six months to 31 December 2009 and $163.2 million cash outflow in the six months to 30 June 2010. This is primarily related to working capital levels falling heavily in the first half of the financial year and being expected to rise rapidly in the second half of the financial year as the GFC-related destocking/restocking cycle completes.

54 Seven Network Limited Scheme Booklet – Part B (F) SEGMENT INFORMATION The WesTrac Group operates in two geographical segments (Australia and China) and two primary operational areas (capital sales and product support).

Table 2.6.6: WesTrac Group segment information Pro forma Pro forma forecast forecast Year ended Year ended Year ended year ending year ending $000 30-Jun-07 30-Jun-08 30-Jun-09 30-Jun-10 30-Jun-11 REVENUE Australia Capital sales 996,245 1,220,829 1,112,984 828,495 1,030,970 Product support 759,702 859,450 976,456 930,747 1,037,779 Eliminations1 (166,737) (221,066) (213,309) (148,474) (163,793) Total Australia revenue 1,589,210 1,859,213 1,876,131 1,610,768 1,904,956 China Capital sales 207,415 368,643 453,716 558,249 713,532 Product support 48,867 64,235 100,176 97,389 116,304 Other 9,483 12,136 1,532 4,915 2,523 Total China revenue 265,765 445,014 555,424 660,553 832,359 Total revenue 1,854,975 2,304,227 2,431,555 2,271,321 2,737,315 EBITDA Australia 160,897 191,786 183,927 162,046 196,589 China 10,712 29,566 32,257 23,699 33,923 Total EBITDA 171,609 221,352 216,184 185,745 230,512 EBITDA % 9.3% 9.6% 8.9% 8.2% 8.4% EBIT Australia 143,100 166,602 151,205 134,801 167,541 China 7,263 25,559 25,995 18,076 24,876 Total EBIT 150,363 192,161 177,200 152,877 192,417 EBIT % 8.1% 8.3% 7.3% 6.7% 7.0%

Note: 1 Eliminations relate to internal sales within the WesTrac Group.

The WesTrac Group consolidated pro forma forecast segment information for the year ending 30 June 2010 comprises the pro forma actual segment information for the six months ended 31 December 2009 and pro forma forecast consolidated forecast segment information for the six months ending 30 June 2010.

Section 2 55 Table 2.6.7: WesTrac Group segment information for the year ending 30 June 2010

Pro forma forecast six Pro forma forecast Six months ended months ending year ending $000 31-Dec-09 30-Jun-10 30-Jun-10 Revenue Australia Capital sales 381,844 446,651 828,495 Product support 466,679 464,068 930,747 Eliminations1 (46,329) (102,145) (148,474) Total Australia revenue 802,194 808,574 1,610,768 China Capital sales 204,732 353,517 558,249 Product support 41,452 55,937 97,389 Other 3,032 1,883 4,915 Total China revenue 249,216 411,337 660,553 Total revenue 1,051,410 1,219,911 2,271,321 EBITDA Australia 82,357 79,689 162,046 China 9,143 14,556 23,699 Total EBITDA 91,500 94,245 185,745 EBITDA % 8.7% 7.7% 8.2% EBIT Australia 70,853 63,948 134,801 China 4,632 13,444 18,076 Total EBIT 75,485 77,392 152,877 EBIT % 7.2% 6.3% 6.7%

Note: 1 Eliminations relate to internal sales within the WesTrac Group.

(G) MANAGEMENT DISCUSSION AND ANALYSIS OF (1) OPERATING RESULTS HISTORICAL RESULTS Year ended 30 June 2007 compared to year ended The operating results for WesTrac Group comprise the WesTrac 30 June 2008 Australia business, which includes the Caterpillar dealerships in Australia the Western Australia, New South Wales/ACT Service Territories, Australian capital sales increased 22.5% ($225 million) to and the WesTrac China business, which includes the Caterpillar $1.2 billion driven by a $167 million increase in new machine dealership in the North Eastern China Service Territory. sales in the Western Australian mining market, primarily off-highway trucks, as a result of the growing iron ore mining There are two main income streams for the WesTrac Group, sector. Sales revenue for new machines in the New South Wales being capital sales and product support sales. Capital sales mining market increased by $26 million, driven by increased includes the sales of new and used equipment in both the sales to key customers in the New South Wales coal sector as mining and construction sectors, sales of engines to the power well as civil and mining contractors. generation, petroleum, mining and construction sectors, as well as revenue derived through the rental of compact and heavy Australian product support revenue increased 13.1% ($100 mobile equipment. Product support represents revenue derived million) to $859 million. Parts revenue grew by $27 million from the sale of parts and servicing of equipment, engineering despite an average parts price decrease of approximately and technology solutions and equipment condition monitoring. 8.4% experienced during the year ended 30 June 2008. This increase was driven by growing mining market activity and the Inter-departmental eliminations are made to remove the impact growing installed base of equipment. Service revenue grew of internal sales between capital sales and product support by $71 million. Similar to parts, this growth was driven by the divisions in Australia. increase in new equipment deliveries and a larger installed

56 Seven Network Limited Scheme Booklet – Part B base of aging equipment. $23 million of the service revenue Product support sales increased 13.6% ($117 million) to increase was sourced from maintenance contracts of which $21 $976 million over this period with parts revenue growth of million of the increase was driven by Western Australian mining $80 million. Caterpillar introduced a parts price increase of customers as mining activity increased. 30% on 1 January 2009 which was primarily driven by the rapid depreciation of the Australian dollar against the US dollar EBIT growth of 16.4% ($24 million) to $167 million was during the second half of calendar year 2008. Service revenue driven by: grew by $37 million due largely to the continued growth in the • the increase in revenue outlined above, with gross margin installed base of equipment and increases in the sell rate. remaining consistent over this period; and • partially offset by an increase in overheads including a Australian EBIT reduced by 9.2% ($15 million) to $151 million 22.7% ($31 million) increase in personnel costs to support as a result of: the revenue growth. • an increase in gross profit of $59 million arising from the higher average margin obtained from the higher mix of China product support revenue to capital sales and achievement Chinese capital sales increased 77.7% ($161 million) to of higher margin on new equipment sales due to foreign $369 million. This was partly driven by a 71.4% ($101 million) exchange gains on US dollar sales transactions in the increase in the number of new machine units sold, and a 17% ordinary course of business which did not qualify for hedge increase in the average unit selling price of machines driven accounting; and by changes in product mix. This growth was largely driven by • the increase in gross profit was offset by: an increase in the number of branches (from 11 in the year – a $19 million foreign exchange loss relating to US dollar ended 30 June 2007 to 19 in the year ended 30 June 2008), which transactions made in the ordinary course of business resulted in increased market coverage and the general growth which did not qualify for hedge accounting purposes; in the construction, mining and electric power generation – an onerous contract provision of $5 million primarily industries. In addition, there was a 146.9% ($59 million) increase in relation to one customer for which servicing costs in engine revenue primarily due to a change in customer are not being covered by revenues earned; sales arrangements whereby in the year ended 30 June 2007, $61 million of sales were made directly by Caterpillar for which – a $7 million increase in maintenance and contract WesTrac China received the margin only. During the year ended expenses including a reassessment of contract 30 June 2008 these sales were made directly by WesTrac China. performance and estimated contract life revenue and profits; and Chinese product support revenue increased 31.4% ($15 million) – an increase in personnel costs of $24 million due to to $64 million, primarily driven by an increase in the total the significant growth in personnel in the first half installed equipment base and a focus by large mining state of the year in line with growth in revenue. owned enterprises (SOEs) on their productivity and attendant maintenance practices. China Capital sales in China increased 23.1% ($85 million) to EBIT growth of 251.9% ($18 million) to $26 million was $454 million in the year ended 30 June 2009, of which driven by: $75 million was driven by the movement in the USD:AUD • the increase in revenue outlined above, resulting in an exchange rate. Underlying growth in sales was 2.7% increase of $23 million in gross profit; and ($10 million). WesTrac faced a number of set-backs in FY2009 • partially offset by an increase in overhead costs of including the GFC, the suspension of construction projects $4 million to support the revenue growth. in Beijing and the Greater Hebei province as a result of the Olympic Games, and the closure of all mines (except the large Year ended 30 June 2008 compared to year ended SOE mines) by the Chinese Government for the completion 30 June 2009 of safety audits. Australia Capital sales in Australia decreased 8.8% ($108 million) to Product support sales increased 56.0% ($36 million) to $1.1 billion in the year ended 30 June 2009. This was primarily $100 million, of which $17 million was driven by the movement driven by the impact of the GFC on second half sales. New in the AUD to USD exchange rate. The underlying growth of machine sales decreased by $84 million primarily due to $19 million was due to the continued growth in the installed Western Australian mining revenue decreasing by $74 million equipment base, the large SOE mining activity and the CMM as a result of a number of customers cancelling orders as part engine fleets. of capital preservation measures and uncertainty in their direct China EBIT increased by 1.7% ($0.4 million); however, the industry and the broader economic environment. In addition, underlying EBIT in US dollars declined by USD$3.5 million. used machine sales decreased by $31 million partially offset by a $8 million increase in rental sales.

Section 2 57 The performance of the underlying business was primarily as movements). The reduction in working capital was primarily a result of: due to the wind down of inventory from abnormally high levels • an increase in personnel and operating expenses primarily at 30 June 2009. A $97 million investment in working capital in driven by a 23% increase in headcount due to expansion Australia and an $81 million investment in China is forecast in of the labour-intensive service business and greater sales the six months to 30 June 2010 to build up working capital to coverage through additional branches (including the full normal levels in line with the increase in forecast revenue. year impact of branch openings in the prior year); (H) BEST ESTIMATE ASSUMPTIONS UNDERLYING THE • continued development of the dealership infrastructure; and WESTRAC GROUP PRO FORMA FORECAST FINANCIAL • a $1.4 million increase in rental expense due to the head INFORMATION office relocation in 2008 and the full year impact of SPECIFIC ASSUMPTIONS branches opened in 2008. The WesTrac Group forecast for the year ending 30 June 2010 (2) CASH FLOWS has been prepared on the basis of the actual results for the six Year ended 30 June 2007 compared to year ended months ended 31 December 2009 and the forecast results for 30 June 2008 the six months ending 30 June 2010. The $59 million increase in working capital cash outflows The following best estimate assumptions have been used to was largely driven by growth in the WesTrac China business, derive forecasts for the six months ending 30 June 2010 and with a $24 million increase in inventory from 30 June 2007 to for the year ending 30 June 2011: 30 June 2008, with the remaining increase resulting from the movement in other operating assets and liabilities. (1) INCOME STATEMENT ASSUMPTIONS Capital sales assumptions Capital expenditure of $34 million in the year ended The forecast for capital sales is based on: 30 June 2008 primarily relates to $18 million of capital • for mining sales of new equipment in Australia, an expenditure by WesTrac Australia for replacement of plant assessment of committed orders, forecast capital and equipment and building refurbishments. $15 million was requirements as provided by Caterpillar global alliance invested by WesTrac China primarily in rental fleet and the customers and forecast sales to existing customers based relocation to the new head office premises in Beijing. on specifically identified mining projects; Year ended 30 June 2008 compared to year ended • for construction sales of new equipment in Australia, an 30 June 2009 assessment of construction market forecast spend in the The $179 million increase in working capital cash outflows was New South Wales/Australian Capital Territory and Western largely due to a $69 million increase in the WesTrac Australia Australia construction markets based on forecasts from working capital, primarily driven by a $39 million increase in external industry sources and assuming market share is inventory on hand and a $55 million decrease in trade payables, generally in line with that experienced historically; partially offset by $33 million decrease in trade receivables. • for used equipment sales and rental sales in Australia, WesTrac China’s working capital increased by $102 million of historic trends with no material growth forecast; which $31 million relates to foreign exchange movements. • an inflation increase of 2% from 1 July 2010 in Australia, This growth in working capital is primarily due to an underlying resulting in an increase in average selling price and cost growth in inventory of $84 million. Both WesTrac Australia and of sales; WesTrac China experienced temporary increases in inventory • an assumption that the forecast gross margins by product holding due to the GFC induced economic slowdown. The category will be generally in line with that experienced remainder of the increase related to the movement in other historically; operating assets and liabilities. • for mining capital sales in China, the forecast is based on Capital expenditure included $15 million for WesTrac Australia supply of specialist mining equipment from Caterpillar. This and for replacement of plant and equipment and building equipment is now available for the China market whereas in refurbishments and $0.5 million for WesTrac China for rental previous years the equipment was difficult to access for the equipment and other minor purchases such as motor vehicles, China market as more profitable markets existed elsewhere plant and equipment and leasehold improvements. for Caterpillar. Caterpillar has now invested heavily in the development of the mining capital sales in China; and Six months ended 31 December 2009 • for SEM capital sales in China, the forecast is based on The $204 million reduction in working capital cash flows was transition of 40% SEM territories to WesTrac China in due to a $154 million reduction in WesTrac Australia’s working the six months ending 30 June 2010, with the territory capital and a reduction in WesTrac China’s working capital of coverage assumed to increase to 50% in the financial year $77 million (of which $21 million related to foreign exchange ending 30 June 2011.

58 Seven Network Limited Scheme Booklet – Part B Product support assumptions Depreciation assumptions The forecast for product support revenue is based on: The forecast for depreciation is based on the historic level • for mining product support revenue in Australia, an of depreciation adjusted to remove the properties being assessment of the average product support revenue for the transferred before implementation of the Share Scheme and installed equipment base, which includes management’s including forecast capital expenditure depreciated on a straight estimates on changes to machine utilisation and product line basis over the estimated useful economic life of the assets. mix. The installed machine base is increased in line with the Income tax assumptions increase in capital sales forecasts; The forecast for income tax is based on an effective tax • for construction product support revenue in Australia, rate of 25% for the year ending 30 June 2010, increasing a consideration of construction market forecast spend to 27% for the year ending 30 June 2011, reflecting a in the New South Wales/Australian Capital Territory and weighted blend of the tax rates in each jurisdiction in Western Australian construction markets based on external which WesTrac Group operates. industry data and assuming market share is in line with that experienced historically; Net interest expense assumptions • the forecast increase in equipment population in China The forecast for net interest expense is based on the effective generating product support needs, in particular for mining interest expense on expected debt levels prior to and following customers; the transaction under the terms of the existing debt facilities • an average increase of 5% from 1 July 2010 for service as applicable (also accounting for existing hedge positions). labour rates; The $600 million of fully drawn term debt in WesTrac Group is • productivity of servicing staff is assumed to remain assumed to remain in place during the forecast period, with consistent with that experienced historically; and borrowing costs assumed of 4.75% in the six month period • additional product support staff will be available to meet to 30 June 2010 and 5.75% for the year ending 30 June 2011. the forecast demand including sourcing through external After implementation of the Share Scheme it is assumed that contractors. this debt is repaid. Refer to the SGH Financial Information in section 3.11(F) of Part B of this Scheme Booklet for further Operating costs assumptions details on the repayment of this facility and its impact on SGH. The forecast for operating costs is based on: • an increase in Australian personnel in line with the Interest expense on other WesTrac debt is subject to variable service and support staff increase required to support interest rates. Assumed rates are as follows: the incremental service revenue. Service staff productivity • 6.0% for Australian short-term domestic debt in the six is assumed to remain consistent with actual historical months ending 30 June 2010 and 6.5% for the year ending experience; 30 June 2011; and • an average increase in wages and salaries base rates of 5% • 5.5% for China short-term domestic debt in the six months from 1 July 2010; ending 30 June 2010 and 6.3% for the year ending • an increase of premises costs based on existing or 30 June 2011. proposed lease agreements, including those for the Interest is payable on the fixed term US dollar note purchase properties transferred to ACE-related entities as part of the agreements half yearly in arrears based on a fixed coupon rate restructure of WesTrac Group prior to implementation of which is valid for the term of each tranche of notes. WesTrac the Share Scheme; Group has entered into forward exchange contracts and • with the exception of certain expenses, such as warranty foreign exchange put option contracts in order to hedge the expense, which are driven by sales activity levels, for other foreign exchange risk associated with the principal and coupon Australian overheads, expenses are based on historical repayments. experience, increased by 3%; and • in China, the costs associated with the rollout of Exchange rates assumptions branches and attendant manpower increase, including The AUD:USD exchange rate is based on an average cross rate the development of the SEM distribution network, are of 0.90 for the forecast period. consistent with actual historical experience for the opening WesTrac Group’s financial performance is not materially of equivalent branches. impacted by movements in the Chinese Yuan as it has been assumed that the cross rate is effectively pegged to the US dollar. However, the results of WesTrac China, when translated into Australian dollars, are impacted by movements in the AUD:USD exchange rate.

Section 2 59 (2) CASH FLOW ASSUMPTIONS Western Australian mining machine sales are expected to The following best estimate assumptions have been used to decrease by $217 million as first half sales were impacted derive the cash flow statement forecasts for the six months by customer order cancellations in response to capital ending 30 June 2010 and the year ending 30 June 2011: preservation measures, abnormally tough and stressed global credit markets and generally, widespread economic uncertainty Capital expenditure assumptions created by the GFC. This decrease is forecast to be partially The forecast for capital expenditure in Australia is based on offset by New South Wales mining machine sales which are committed capital expenditure for a new WesTrac Group forecast to grow by $16 million. Second half sales are forecast enterprise resource planning (ERP) IT system of $4.2 million in to start recovering from first half lows with new machine the six months ending 30 June 2010 and $7 million for the year sales improving by $50 million on the first half performance. ending 30 June 2011, and replacement capital expenditure This improvement is driven predominantly by a growing coal based on actual historic experience. sector in New South Wales and the Australian Capital Territory. Capital expenditure for China is forecast based on committed Machine sales for mining customers are 90% covered by capital expenditure for the new WesTrac Group ERP IT system committed orders for the six months ending 30 June 2010. of $0.7 million in the six months ending 30 June 2010 and Product support sales in Australia are forecast to decrease by $3.3 million for the year ending 30 June 2011, branch expansion $46 million to $931 million. The decrease is primarily due to plans, rental inventory expansion plans and replacement capital a $43 million decrease in service revenue resulting from the expenditure based on actual historic experience. continuation of the depressed economic conditions in the first Working capital assumptions half which has resulted in lower machine assembly service revenues for capital sales and less servicing opportunities For Australia, working capital is forecast based on the historic for equipment in the field due to lower utilisation. In average working capital as a percentage of sales, after taking addition, there was a 17.5% parts price decrease introduced into account the material inventory movements arising from by Caterpillar in January 2010 which has impacted forecast the GFC. Working capital turnover ratios are assumed to be sales in the second half. The large new Caterpillar parts price consistent with historical trends. decrease was predominantly driven by the rapid and significant For China, working capital is forecast at above the longer term appreciation of the Australian dollar against the US dollar from historic average working capital as a percentage of sales, after its low point during the GFC. taking into account the material inventory movements arising EBIT in Australia is forecast to decrease 10.8% ($16 million) to from the GFC. The higher investment is due to seeding core $135 million due to the decrease in revenue as outlined above, SEM and mining stock as WesTrac China pursues sales growth in at consistent gross margins to that experienced historically, these areas. Other working capital turnover ratios are assumed offset by: to be consistent with historic trends. • an improvement in used equipment margins due to an Interest payment assumptions improving outlook in key markets; The forecast assumes interest is paid in accordance with • $17 million reduction in personnel costs, driven by existing facility agreements based on interest rate forecast progressive staff count reductions throughout calendar assumptions outlined in the income statement assumptions year 2009; and above. It is assumed that the existing working capital facilities • reductions in other areas of variable expenditure as activity are available as required in order to fund working capital is reduced from previous highs. fluctuations in the forecast period. China Income tax paid assumptions China capital sales are forecast to increase 23.0% ($104 million) The forecast for income tax paid is based on: to $558 million. Underlying growth in US dollar denominated • Australian corporate tax rate of 30%; sales was 48.0% ($218 million), offset by a negative foreign • China corporate tax rate of 25%; and exchange impact of $114 million driven by the increase • Hong Kong corporate tax rate of 16.5%. in the AUD:USD exchange rate. The capital sales growth is primarily driven by a 36.4% ($105 million) increase in non- Forecast management discussion and analysis mining equipment sales due to the increase in the number Year ended 30 June 2009 compared to year ending of construction projects following the Chinese Government’s 30 June 2010 forecast US$586 billion stimulus package and a planned 46% increase in Australia the number of branches. Mining sales are expected to increase Australian capital sales are forecast to decrease 25.6% by $22 million due to WesTrac China being invited to participate ($284 million) to $828 million, primarily driven by lower in more tenders than previous years (a recognition of the Western Australian mining machine sales.

60 Seven Network Limited Scheme Booklet – Part B productive advantage of Caterpillar equipment as experienced There is also a $70 million increase in service revenue through SOE’s investments in overseas mining companies). resulting from an assumed 5% rate increase in July 2010, additional service labour opportunity arising from more Product support sales in China are forecast to decrease 3% buoyant market conditions and a further increase in the ($3 million) to $97 million. Underlying growth of $17 million installed equipment base. is forecast to be offset by a $20 million negative impact from the movement in the AUD:USD exchange rate. Underlying EBIT in Australia is forecast to increase by 24.3% ($33 million) parts, services and rebuild revenue is forecast to increase to $168 million due to: by approximately 35% ($28 million) due to the continued • revenue growth outlined above; increase in the total population of equipment and the • achievement of historical gross margins; and improved maintenance practices at major mines which are • partially offset by an increase in overhead costs of now purchasing a greater percentage of Caterpillar mining $51 million of which $35 million is due to the build up in equipment. This growth is partially offset by the decline in service and support personnel to support the growth in the lower margin Allight and parts business in WERC which is revenue, a 5% allowance for salary and wage rate increases, reducing by $9 million due to management concentrating on and a 3% allowance for other operating expense increases. the higher margin rebuild business. China EBIT in China is forecast to decrease 30.5% ($8 million) to Capital sales revenue for China is forecast to increase by 27.8% $18 million due to: ($155 million) to $714 million, driven by revenue growth in • a reduction of approximately $4 million EBIT due to foreign SEM product sales of $22 million, $60 million in mining product exchange movement in the translation of China’s results; sales, and a 71.6% ($55 million) increase in engine sales. SEM • a reduction in gross profit of $6 million driven by a decline growth is primarily driven by the geographic expansion of the in capital sales gross margin primarily due to a reduction SEM dealership operation controlled by WesTrac Group, with in the average selling price of hydraulic excavators in order 40% of the North Eastern China Territory allocated to WesTrac to reduce the level of inventory that had built up as a Group from January 2010. Forecast growth in the mining consequence of the GFC; and industry is driven by the anticipated increasing number of • an increase in overheads of $2 million, primarily due to mining projects based on current projects under a bidding head count increases. process and in the order book. Engine revenue is forecast to increase primarily driven by sales into Coal Mine Methane Year ending 30 June 2010 forecast compared to the year (CMM) power generation projects. The projects to which these ending 30 June 2011 forecast sales relate are currently under tender and the securing of Australia these tenders is based on historic success rates. In addition, Capital sales revenue for Australia is forecast to increase by there is an expectation that the marine and petroleum markets 24.4% ($202 million) to $1.0 billion driven primarily by new will begin to improve, providing additional growth opportunity. machine revenue growth of $193 million. This growth is to be driven by the mining sector with forecast revenue growth Product support revenue in China is forecast to increase by of $64 million and $99 million in Western Australia and New 19.4% ($19 million) to $116 million. The forecast growth in South Wales respectively. In Western Australia this growth is product support is expected from a $14 million increase to be driven by the continued growth in new mining projects in parts sales, driven mainly by the impact of the growing that have been notified by customers. In New South Wales installed equipment base, a maturing mining market and this growth is driven by a significant coal mining customer CMM engines requiring overhauls and rebuilds. that continues to expand fleets in their Hunter Valley mine EBIT in China is forecast to increase by 37.6% ($7 million) to sites. 36% of capital sales for the year ending 30 June 2011 $25 million due to: are covered by committed orders or Caterpillar global alliance • the revenue growth outlined above; customer forecasts. Revenue from construction equipment • a 1% improvement in capital sales margin as discounts is forecast to increase by $14 million over this period due to provided in the year ending 30 June 2010 are wound back, general market improvement. In addition to the above, used machinery revenue is forecast to increase by $3 million and but partially offset by an increase in overhead costs of rental equipment revenue is forecast to grow by $7 million. $13.5 million required to support this growth. The incremental costs include the rollout of infrastructure required to expand The Australian product support revenue is forecast to increase both the Caterpillar and SEM businesses. by 11.5% ($107 million) to $1.0 billion. The forecast growth in product support is expected from a $35 million increase in parts revenue, driven mainly by further increases in the installed equipment base and improving product utilisation.

Section 2 61 General assumptions • no material amendment to any material agreement or The following general assumptions are relevant to the WesTrac arrangement relating to the WesTrac Group’s businesses Group Pro Forma Forecast Financial Information: and investments; and • Chinese Yuan exchange rate (as against the Australian dollar) • no material change in the competitive operating environment; remains in line with the current USD:AUD exchange rate. • no significant deviation from current market expectations of global economic conditions; (I) SENSITIVITY ANALYSIS • no material new investments, business acquisitions or The WesTrac Group Pro Forma Forecast Financial Information disposals, other than the Recommended Proposal outlined is based on a number of estimates and assumptions that are in this Scheme Booklet; subject to business, economic and competitive uncertainties • no material industrial strikes or other disturbances, and contingencies, many of which are beyond the control of environmental costs or legal claims; the WesTrac Group, its directors and management, and upon • retention of key personnel; assumptions with respect to future business decisions, which are subject to change. • no significant change in the legislative regimes (including tax) and regulatory environments in the jurisdictions in Set out below is a summary of the sensitivity of certain which the WesTrac Group operates; assumptions to changes in a number of key variables. • no change in the applicable Australian Accounting The changes in the key variables as set out in the sensitivity Standards or other mandatory Australian professional analysis are not intended to be indicative of the complete reporting requirements which would have a material effect range of variations that may be experienced. on WesTrac Group’s financial performance, cash flows, Sensitivities for the year ending 30 June 2010 are calculated balance sheet, accounting policies, financial reporting and applied based on the period of the forecast, being the or disclosure; six months ending 30 June 2010. • no change in WesTrac Group’s capital structure other than as set out in, or contemplated by, this Scheme Booklet;

Table 2.6.8: WesTrac Group sensitivity analysis Increase/ 30 June 2010 30 June 2010 30 June 2011 30 June 2011 Assumption (decrease) revenue PBT revenue PBT 1. Timing slippage for capital sales -5% (39,328) (3,704) (59,194) (5,268) 2. Change in capital sales gross margin +/-1% n/a +/-8,022 n/a +/-17,445 3. Change in product support gross margin +/-1% n/a +/-5,200 n/a +/-11,541 4. USD:AUD exchange rate +/-5 cents +/-36,305 +/- 2,220 +/-115,470 +/-12,722 5. Overall revenue sensitivity +/- 2% +/-26,443 +/-5,280 +/-57,971 +/-8,262 6. Interest rates +/- 1% n/a +/-4,262 n/a +/- 7,891

Notes: 1 The timing of revenue recognition for capital sales can be impacted by slippage as orders may be deferred or cancelled depending on a variety of factors including extended lead times, change in customer strategies or external economic or market factors. The forecast is also reliant on Caterpillar being able to adequately supply forecast demand within the timeframes forecast, therefore unexpected increases in lead times may impact revenue during the forecast period. The sensitivity shows the impact should 5% of assumed capital sales for the six months ending 30 June 2010 move to the year ending 30 June 2011, and 5% of the year ending 30 June 2011 capital sales are moved to the year ending 30 June 2012. 2 Gross margins on capital sales may be impacted by pricing terms with Caterpillar, negotiated pricing terms with customers, discounts provided on surplus machines and changes in product mix depending on customer requirements. This sensitivity shows the impact should capital sales gross margins vary by 1%. 3 Gross margins on product support revenue may be impacted by the number of external contractors required to complete servicing requirements and productivity of employed servicing staff. This sensitivity shows the impact should product support gross margin vary by 1%. 4 The USD:AUD exchange rate has an impact on the results of WesTrac Group because: – parts pricing changes are driven by a combination of factors including large movements in the USD:AUD exchange rate with gross margins fixed by recommended consumer price lists advised by Caterpillar. WesTrac Group ordinarily adopts the recommended consumer pricing. As parts pricing changes are only applied on a six monthly basis (in January and July each year), there is no additional parts price change impact in the year ending 30 June 2010 resulting from this exchange rate movement. The actual parts price change that occurred in January 2010 has already been assumed in the six months ending 30 June 2010; – capital sales of certain large mining equipment is denominated in US dollars and is therefore sensitive to movements in the USD:AUD exchange rate; and – WesTrac China’s functional and operating currency is US dollars and therefore subject to sensitivity in the USD:AUD exchange rate on consolidation into WesTrac Group in Australian dollars. The foreign exchange sensitivity is calculated on the basis that it does not include any changes to sales volumes for capital equipment and parts resulting from customer demand changes or changes in the economic environment which would impact the construction and mining sectors arising from movements in foreign exchange. Changes in sales volumes and customer activity may occur when there are variations in exchange rates which vary the relative cost of capital equipment and parts. 5 Revenue is subject to variability from a number of factors including market demand, pricing pressures and competitive dynamics. The sensitivity shows the impact should revenue vary by 2%. 6 Significant components of WesTrac Group’s debt is subject to variable interest rates. The sensitivity shows the impact should interest rates vary by 1%. This sensitivity excludes any repayment of the $600 million of debt for capital efficiency under the proposed new structure. Refer to the SGH sensitivity analysis in section 3.11(F) of Part B of this Scheme Booklet for further details.

62 Seven Network Limited Scheme Booklet – Part B (J) NATIONAL HIRE SUPPLEMENTARY DISCLOSURE National Hire is a public company and investors should refer to the published financial statements and other company announcements of National Hire (www.nationalhire.com.au) in order to consider the historic performance of its business. The information presented below is based on publicly available financial information from the National Hire annual reports and preliminary half year results.

The key balance sheet item is the investment in Coates Hire, with the remainder of the balance sheet being composed of trading accounts related to the Allight business.

Table 2.6.9: National Hire Group consolidated historical EBIT and net asset summary Year ended Year ended Year ended Six months ended $000 30-Jun-07 30-Jun-08 30-Jun-09 31-Dec-09 Revenue 68,848 83,255 106,014 42,397 Other income 46 3 155 49 Share of results and impairment from – 1,188 20,155 1,930 equity accounted investees Operating costs (65,895) (78,032) (99,321) (40,735) EBITDA 2,999 6,414 27,003 3,641 Depreciation and amortisation (558) (685) (594) (318) EBIT 2,441 5,729 26,409 3,323

Net asset summary Investment in Coates Hire 312,072 Other net assets 62,419 Net assets 374,491 WesTrac Group share of net assets of National Hire excluding minority interest1 248,064

Note: 1 WesTrac Group owns 66% of National Hire and results are consolidated with WesTrac Group for accounting purposes. National Hire in turn owns 46% of Coates Hire and is equity accounted by National Hire.

Section 2 63 THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK

64 Seven Network Limited Scheme Booklet – Part B 3 INFORMATION ABOUT SGH AFTER IMPLEMENTATION OF THE RECOMMENDED PROPOSAL

Section 3 65 3.1 OVERVIEW The combination of Seven and WesTrac Group will create a significant Australian diversified operating and investment group with market leading businesses and investments with strong revenues and earnings. The parent company of the combined group will be named Seven Group Holdings Limited (SGH).

SGH will comprise wholly-owned industrial operating businesses alongside key strategic investments in media and industrial equipment hire. It will be an operating company with an attractive growth outlook while retaining upside to existing strategic investments.

COMPANY SGH OWNERSHIP INDUSTRY FY2009 REVENUE (A$m)1 STRATEGIC POSITION

2 47% Metro free-to-air television #1 prime time free-to-air television network

One of the two largest magazine 1,484 47% Magazines publishers in Australia Leading online platform with global and local 24%3 Online media content across online, mobile and IPTV #1 equipment solutions company 100% Equipment management 1,876 in WA and NSW/ACT One of the leading global equipment solutions 100% Equipment management 555 companies in China

31%4 Equipment hire 978 #1 Australian equipment hire company

23% Newspaper/Radio 419 #1 newspaper in WA

22% Pay TV n/a Highly strategic investments in FOXTEL and FOXSports

100% Broadband 34 First to launch 4G service

Notes: 1 Total full year company revenue as at 30 June 2009, without reference to SGH’s interests. 2 Prime time free-to-air television audience shares for the year ended December 2009. 3 SGH’s economic interest in Yahoo!7. Seven’s interest is 47% in SMG, which in turn has a 50% interest in Yahoo!7. 4 SGH’s economic interest in Coates Hire. WesTrac’s interest in National Hire is 66%, which in turn has a 46% interest in Coates Hire.

SGH is forecast to achieve FY2011 revenue of $2.8 billion, EBITDA of $312 million and NPAT of $187 million. See section 3.11 for the assumptions underlying the SGH forecast and the sensitivities of the forecast.

SEVEN FY2011 FORECAST REVENUE4 WESTRAC GROUP FY2011 SGH FY2011 FORECAST PRO FORMA REVENUE FORECAST REVENUE2 3 Other operating Investment income1 revenue 2% 1% Investment Product Capital income1 support sales 35% 39% WesTrac 61% WesTrac capital product sales support 59% 38% Operating revenue 65%

Revenue: $96 million Revenue: $2.7 billion Total Revenue: $2.8 billion

Source: Seven management estimates, LEK forecast of free-to-air TV advertising market, ACE management estimates. Notes: For the year ended 30 June 2011. The assumptions underlying the financial forecasts and the sensitivities of the forecasts are set out in Appendix 1. 1 Includes dividend income. 2 Capital sales includes “other” China revenue. Eliminations allocated according to proportionate split of revenues. 3 Includes Seven operating revenue. 4 Includes other income.

66 Seven Network Limited Scheme Booklet – Part B 3.2 RATIONALE FOR THE RECOMMENDED • it would transform Seven from an investment holding PROPOSAL (INCLUDING THE SCHEMES) company to a significant Australian diversified operating and investment group with market leading businesses The Recommended Proposal will transform Seven from an and investments with strong revenues and earnings, while investment holding company to a diversified operating and retaining full upside to existing strategic investments; investment group. • unique opportunity for Seven Shareholders to gain The Recommended Proposal provides Seven with a unique exposure to WesTrac Group, including Western Australia, opportunity to combine with WesTrac Group which is a the New South Wales/ACT resources sector and the growing high growth operating business while retaining upside to Chinese economy; and its existing strategic investments. Since the formation of the • combined company will have a conservative capital SMG in December 2006, Seven has been actively searching for structure, increased dividend coverage and greater scope opportunities that fit its acquisition criteria. Seven’s focus has for future dividend per share growth. been on businesses with a strong revenue and earnings growth profile and a market leading position. Opportunities in media Refer to sections 1 and 3 of Part A of this Scheme Booklet have been limited and unlikely to be value accretive to Seven for more detail regarding the benefits of the Schemes. shareholders. In the last quarter of 2009, ACE approached Seven to discuss a potential combination with WesTrac Group. 3.3 STRUCTURE OF SGH Following the approach, the Seven Board established the IBC It is proposed that SGH will create one integrated corporate and appropriate protocols to review the opportunity. structure, to oversee the businesses and investments of WesTrac Group and Seven. Each key business unit will report The IBC was attracted to the Recommended Proposal directly to the Chief Executive Officer of SGH, and will be opportunity for a number of reasons, including: supported by SGH’s corporate head office. A summary of the structure is illustrated below.

SEVEN GROUP HOLDINGS LIMITED

Cash and other investments

47%

100% 22% Media Group

66%

Australia 100% 23%

100% 46%1

100% 11%

China

50%2 100%

WESTRAC GROUP SEVEN

Notes: Yellow dotted box indicates businesses which are part of WesTrac Group. Red dotted box indicates businesses which are part of Seven. 1 National Hire’s interest in Coates Hire is 46%. 2 SMG’s interest in Yahoo!7 is 50%.

Section 3 67 3.4 SGH’S OPERATIONS • 6,875,000 unlisted executive options over unissued SGH (A) SEVEN Shares (with exercise prices between $7.00 and $11.00, and lapsing between 2010 and 2015). Seven is one of Australia’s largest media holding companies. Seven operates and has equity interests in Australia’s largest Refer to section 3.5(C) of Part B of this Scheme Booklet for commercial television network, Channel Seven; the second largest further information in relation to the TELYS3 securities and publisher of magazines in Australia, Pacific Magazines; and is the proposed issue of TELYS4. Immediately following the creating a significant presence in online and new communications implementation of the Share Scheme, Kerry Stokes AC, technologies. In addition, Seven holds a significant portfolio of through Related Holders, will have an interest in 67.9% investments in market leading listed and unlisted media and of the SGH Shares. telecommunications businesses and has significant cash reserves. (B) BORROWINGS (B) WESTRAC GROUP SGH intends that all amounts outstanding under the WesTrac WesTrac Group is an authorised Caterpillar dealer in its Western Syndicated Facility Agreement (SFA) will be voluntarily repaid Australia and New South Wales/ACT Service Territories and in following implementation of the Recommended Proposal. It is its North Eastern China Service Territory. National Hire owns assumed that funding for this repayment will be sourced from and operates the Allight equipment sales and support business existing cash resources of Seven. This repayment is considered and has a 46% interest in Coates Hire. Coates Hire is the largest to be an appropriate use of Seven’s cash resources given the equipment hire business in Australia with over 200 branches net financial benefit from interest cost savings that will accrue and satellite locations and serves the mining, construction and to SGH. Following this assumed repayment, the pro forma event management sectors. Refer to section 2 of Part B of this balance sheet as at 31 December 2009 shows that SGH will Scheme Booklet for further detail on the WesTrac Group. have pro forma net cash of $7 million, comprising pro forma borrowings of $500 million and pro forma cash on hand of (C) BUSINESS INTEGRATION $507 million. As a result, SGH’s pro forma gross debt to equity The SGH Directors are of the view that the businesses will continue ratio would have been 18% as at 31 December 2009 if SGH had to be managed as separate divisions. As such, it is envisaged that been formed at this time. the majority of the corporate functions for both Seven and WesTrac will remain largely separate. However, the management of SGH The terms of the SFA will require amendment if it is to continue plan to integrate some functions (such as treasury and accounting) following implementation of the Recommended Proposal. at a group level and may seek to procure some products and WesTrac Group intends to seek these amendments, which services as a group (for example, telecommunications), given may include reducing the facility limit. The forecast financial the enlarged size of the group. As a result of the appointment information assumes that a facility limit of $400 million is of certain directors and executives of SGH it will incur additional agreed with the financiers under the SFA. expenses of approximately $5 million per annum. As at the date of this Scheme Booklet, discussions are ongoing These additional expenses reflect the costs of additional with the SFA lender group. Discussions are not sufficiently independent non executive SGH Directors that will be appointed advanced to enable SGH to form a view on the likely terms and the remuneration of key management. Further details in upon which this facility could be referenced. relation to the remuneration of SGH Directors and executives The assumption in the pro forma forecast financial information is set out in section 3.10 of Part B of this Scheme Book. for SGH that the facility limit of $400 million is agreed with ACE and WesTrac have no further developed intentions. They financiers is one of a number of possible outcomes. The pro have no integration plans or business plans for SGH. forma forecast financial information also assumes that the SFA is repaid in full and that there will be no drawdowns on the 3.5 SGH’S CAPITAL STRUCTURE SFA, even though the facility is assumed to be available.

(A) EQUITY Due to this assumption, the outcome of negotiations with the Following the Recommended Proposal, SGH’s pro forma SFA lender group will not have a material effect on the pro shareholders’ equity will be $2.759 billion as at 31 December forma forecast financial information. 2009. SGH will have the following equity securities on issue: WesTrac Group’s business is working capital intensive but has a • 305,410,281 ordinary shares, including the 115,000,000 SGH limited requirement for capital expenditure. Details of forecast Shares (less the number of SGH Shares already on issue) working capital requirements are dicussed in the WesTrac issued to ACE as consideration for the transfer of all of the Group Financial Information set out in section 2.6(E) of Part B outstanding shares in WesTrac Group to SGH and the issue of this Scheme Booklet. SGH will have sufficient working capital of 190,410,281 SGH Shares to Seven Shareholders for all of to undertake its stated objectives, regardless of the outcome of the outstanding shares in Seven; and negotiations with the SFA lender group.

68 Seven Network Limited Scheme Booklet – Part B SGH will be funded predominantly by bank debt in Australia • TELYS3 will become a subsidiary company hybrid, issued and China (working capital and rental fleet finance facilities by a company with no quoted ordinary shares; and from a number of banks and other financiers) and by US private • the TELYS3 Holders will obtain the benefit of the placement notes. The facilities are existing facilities of WesTrac TELYS3 Undertaking. Group, and are detailed in the notes to the pro forma financial information. Refer to notes 15 and 20 in section 11 of Part B of The TELYS3 Undertaking, a deed poll entered into by Seven, this Scheme Book. is conditional on: • the Share Scheme being implemented; and Going forward, the SGH Board may elect to partially offset some • the TELYS3 Scheme not being implemented, of the borrowings of SGH with the significant cash reserves of the Company. and results in TELYS3 dividends becoming, in practical terms, cumulative in nature (currently dividends are non-cumulative). (C) TELYS3/TELYS4 Seven will undertake to pay all scheduled dividends on any Contemporaneously with the Share Scheme, Seven is proposing outstanding TELYS3 if it has funds legally available to do so and the TELYS3 Scheme, pursuant to which each TELYS3 Holder there is no TELYS4 Dividend Stopper Event in effect. However, will receive one TELYS4 for each TELYS3 held by that person on certain payments under the TELYS3 Undertaking will only be the TELYS3 Scheme Record Date. Seven is also proposing the made on Exchange of the TELYS3, which could be delayed TELYS4 Offer, pursuant to which each TELYS3 Holder can elect for up to 80 years. (Under the TELYS3 Undertaking, Seven has to receive TELYS4 on an individual basis, subject to certain other undertaken that it will not exercise its discretion to Convert any conditions. The TELYS3 Scheme and TELYS4 Offer is conditional TELYS3, but instead will opt to Exchange those TELYS3 for cash.) on, amongst other things, the Share Scheme being approved and implemented. SGH’s capital structure will vary depending The SGH pro forma balance sheet set and SGH Pro Forma on whether the TELYS3 Scheme is implemented. Forecast Financial Information out in section 3.11 of this Scheme Booklet has been prepared on the basis that all existing TELYS3 (1) EFFECT ON SGH’S CAPITAL STRUCTURE IF THE TELYS3 issued by Seven are replaced by TELYS4 issued by SGH on the SCHEME IS IMPLEMENTED terms set out in the Scheme Booklet. Should not all TELYS3 If the TELYS3 Scheme is implemented, the 4,963,640 TELYS3 Holders accept the conversion to TELYS4, there would be material on issue will be acquired by WesTrac Holdings, and 4,963,640 changes to the SGH pro forma balance sheet. The impact cannot TELYS4 will be issued by SGH. be reliably quantified as it will vary depending on the acceptance level of TELYS3 holders. The nature of the changes would be to The TELYS4 will be issued on similar terms to TELYS3 and will classify remaining TELYS3 as debt in the pro forma balance sheet, pay dividends equal to the dividends that would otherwise recognise TELYS3 distributions as interest expense and change be paid by TELYS3 at that time (including the dividend rate the treatment and calculation of tax expense and deferred tax. after the “step-up” from 31 May 2010). Like Seven in respect of TELYS3 from 31 May 2010, SGH will be able to “Convert” or An example sensitivity calculation assuming 50% of TELYS3 “Exchange” some or all of the TELYS4 on any Dividend Payment remain, is set out at section 3.11(F). Date. However, unlike TELYS3, holders of TELYS4 will be able to demand “Conversion” or “Exchange” (at the election of SGH) in 3.6 DIVIDEND POLICY OF SGH the event that SGH breaches the “Dividend and Capital Stopper”. Subject to the financial forecasts being achieved and other relevant The SGH pro forma balance sheet for the year ended factors, the Seven Directors expect to declare a final dividend of 31 December 2009 set out in section 3.11 of Part B of this 17 cents per share for the full year ending 30 June 2010, resulting Scheme Booklet has been prepared on the basis that all in a full year dividend for Seven Shareholders of 34 cents per share. existing TELYS3 issued by Seven are replaced by TELYS4 Dividends are expected to be fully franked. issued by SGH on the terms set out in this Scheme Booklet. Dividends are forecast to increase in the full year ending 30 June (2) EFFECT ON SGH’S CAPITAL STRUCTURE IF THE TELYS3 2011 to 36 cents per share fully franked, subject to earnings SCHEME IS NOT IMPLEMENTED performance and the extent to which dividends can be franked. If the TELYS3 Scheme is not implemented (for example, because The SGH Directors are committed to a dividend policy of it is not approved by the requisite majorities of TELYS3 Holders), maintaining and growing dividends over time, subject to earnings TELYS3 Holders will be offered an opportunity to individually performance and the extent to which dividends can be franked. exchange TELYS3 for TELYS4 (with a minimum acceptance level of $100 million aggregate) (the TELYS4 Offer). To the extent In respect of future years, subject to available profits and the that TELYS3 Holders do not accept the TELYS4 Offer, their financial position of SGH, an interim dividend is expected to be TELYS3 will remain on issue, however: payable annually in April, with a final dividend payable annually in October.

Section 3 69 3.7 SGH – BOARD AND MANAGEMENT Peter is a member of the Institute of Chartered Accountants ofScotland. Following implementation of the Recommended Proposal, the SGH Board will consist of the current Seven Directors, with DAVID LECKIE the addition of Jim Walker who will join the SGH Board. SGH EXECUTIVE DIRECTOR AND CEO – BROADCAST TELEVISION intends to invite two additional independent directors to the David Leckie is the Chief Executive Officer of Broadcast SGH Board to further strengthen the SGH Board should the Television for Seven and has been a director of Seven since Recommended Proposal be successful. It is anticipated that the April 2003. He is also Chief Executive and a director of SMG, additional independent directors will be nominated for election positions he has held since its formation in December 2006. at SGH’s first annual general meeting in late 2010. A former Chief Executive of the Nine Network, David has been The following are short profiles of each of the proposed a director of Pacific Magazines, Australian News Channel Pty SGH Directors following implementation of the Limited, Free TV Australia Limited and Yahoo!7 Pty Limited. Recommended Proposal: David holds a Bachelor of Arts from Macquarie University, KERRY STOKES AC majoring in Economics and Financial Studies. EXECUTIVE CHAIRMAN JIM WALKER Kerry Stokes was elected Executive Chairman of Seven in EXECUTIVE DIRECTOR AND CEO – WESTRAC GROUP July 1999, prior to which he was Non-Executive Chairman Jim Walker has been the Group CEO of WesTrac since 2000. from June 1995. Kerry has also been Chairman of SMG since its Prior to his current duties, Jim held roles within WesTrac Group formation in December 2006 and has been a director of WAN in the areas of Sales and Marketing and Operations. Jim has since September 2008. Kerry was subsequently appointed been with WesTrac Group for over 20 years. Chairman of WAN in December 2008. Additionally, Kerry is Chairman of ACE which has significant interests in media, Prior to joining WesTrac Group, Jim held roles with other entertainment, research and technology development, property Caterpillar dealers within Australia including Hastings Deering, and industrial activities (including WesTrac Group). Morgan Equipment and the Bougainville dealership in PapuaNew Guinea. Kerry was awarded a Companion in the General Division of the Order of Australia in 2008. Jim is a director of Coates Hire and National Hire. He currently serves on the board of the Australian Institute of Management, PETER RITCHIE AO is the President and Executive of the Chamber of Minerals and NON-EXECUTIVE DEPUTY CHAIRMAN Energy and is a member of the Rotary Club of Mill Point. Jim is Peter Ritchie is the Deputy Chairman of Seven and has held also a trustee of the Motor Museum Whiteman Park. this position since August 1991. Peter is Chairman of the Remuneration Committee, Chairman of the Risk and Compliance RYAN STOKES Committee and a member of the Audit Committee. In addition EXECUTIVE DIRECTOR to his position at Seven, Peter is also the current Chairman of Ryan Stokes is a Director of Seven, a position he has held since both Mortgage Choice Limited and Reverse Corp Limited. December 2005. In addition, Ryan is a director of SMG, a position he has held since its formation in December 2006 and is a director Peter is an Officer in the General Division of the Order of of ACE, Engin and CMH. Ryan is currently President of Seven Asia Australia, a fellow of CPA Australia and holds a Bachelor Limited, an executive of ACE and Chairman of Wireless Broadband of Commerce from the University of New South Wales. Australia. Ryan is a former Chairman of Pacific Magazines and PETER GAMMELL Headspace, the National Youth Mental Health Foundation. EXECUTIVE DIRECTOR AND GROUP CEO Ryan holds a Bachelor of Commerce from Curtin University and Peter Gammell will become the Chief Executive Officer of has previous experience in international investment banking. SGH if the Recommended Proposal is implemented. Peter is a Director of Seven, a position that he has held since November BRUCE McWILLIAM 1997. Peter is Chairman of the Finance Committee, a member COMMERCIAL DIRECTOR of the Seven Audit Committee and the Seven Internal Audit Bruce McWilliam has been a Director of Seven since September Committee. In addition, he is a director of SMG, a position that 2003 and is a member of the Risk and Compliance Committee he has held since its formation in December 2006. Peter is and the Commercial Director of Seven. In addition, Bruce has currently Managing Director of ACE, a position he has held for been a director of SMG since its formation and is currently a 20 years and has been a founding director of WesTrac Group director of Australian News Channel Pty Limited, Engin and since it was established 20 years ago. Peter is also a director of Wireless Broadband Australia. Bruce is an alternate director WAN, CMH and an alternate director of National Hire. of WAN and in the past was a director of Yahoo!7 Pty Limited.

70 Seven Network Limited Scheme Booklet – Part B Bruce is an Honorary Fellow of the University of Sydney, SGH’s policies and procedures in relation to corporate Chairman of the Sydney University Law School Advisory governance will be substantively similar to those that are Council and a council member of St Paul’s College. Bruce has in place in relation to Seven. The SGH Board will continually previous experience as a partner of law firms Gilbert & Tobin, review and monitor the appropriateness of its corporate Turnbull McWilliam and Allen Allen & Hemsley. governance policies and procedures.

ELIZABETH DULCIE BOLING The main policies and practices adopted by SGH, which will NON-EXECUTIVE DIRECTOR take effect from implementation of the Share Scheme, are Dulcie Boling has been a director of Seven since August 1993 summarised below. and is a member of the Remuneration Committee and the Risk (A) SGH BOARD COMMITTEES and Compliance Committee. Dulcie is a former Chairman and The SGH Board may from time to time establish appropriate Chief Executive of Southdown Press, former Chief Executive of committees to assist in the discharge of its responsibilities. The Magazines, PMP Limited, and a former director of News Limited, SGH Board has established, with effect from the implementation ING Australia Limited and Tourism Victoria. of the Share Scheme, an Audit Committee, a Risk and Compliance Dulcie is a former member of the Australian Cancer Research Committee, and a Remuneration Committee. Council, the Mental Health Research Institute, the Melbourne The SGH Board as a whole will fulfil the role of a nomination International Festival and the Opera Foundation Australia, and committee. It will be responsible for matters relating to a former trustee of the National Gallery of Victoria. succession planning, recruitment and the appointment of SGH PROFESSOR MURRAY WELLS Directors and the CEO, and overseeing succession planning, NON-EXECUTIVE DIRECTOR selection and appointment practices for management and Professor Murray Wells has been a director of Seven since July employees of SGH. 1995 and is Chairman of both the Audit Committee and the Other committees may be established by the SGH Board as Internal Audit Committee. Murray is also a member of the and when required. Membership of the SGH Board committees Finance Committee and the Risk and Compliance Committee. will be based on the needs of SGH, relevant legislative and He is an Executive Director of the Australian Scholarships other requirements, and the skills and experience of individual Foundation. Murray is a former director of the Graduate School SGH Directors. of Business and the Foundation of the Graduate School of Business at the University of Sydney and a former Chairman AUDIT COMMITTEE of the Australian National Business School. Under its charter, this committee must have at least three members, a majority of whom must be independent and all Murray is a fellow of CPA Australia and the Academy of Social of whom must be non-executive directors. The Chairperson of Sciences Australia. He holds a PhD from the University of the Audit Committee must be an independent non-executive Sydney and a Masters of Commerce from the University of director who is not the chairperson of the SGH Board. The Canterbury. He is an Emeritus Professor of Accounting. members of this committee will be Murray Wells, Peter Ritchie and another independent director. Murray Wells will act as 3.8 SGH MANAGEMENT Chairperson of the committee. Following implementation of the Recommended Proposal, SGH management will consist of: The primary role of this committee includes: • responsibility to assess the company’s financial and non- CEO of SGH Peter Gammell financial risk, external control, and compliance systems; CFO of SGH Peter Lewis • responsibility for legal and regulatory compliance as it CEO of SMG David Leckie relates to external reporting; CEO of WesTrac Group Jim Walker • overseeing the process of financial reporting; • assessment of the company’s taxation obligations; and 3.9 SGH – CORPORATE GOVERNANCE • evaluation and overview of the internal and external audit functions. The SGH Board is responsible for the overall corporate governance of SGH, including adopting appropriate policies Under the charter, it is the policy of SGH that its external and procedures and seeking to ensure that SGH Directors, auditing firm must be independent of the company. management and employees fulfil their functions effectively The committee will review and assess the independence and responsibly. The SGH Board has created a framework for of the external auditor on an annual basis. managing SGH, including adopting relevant internal controls and risk management procedures which it believes are appropriate for SGH’s businesses.

Section 3 71 RISK AND COMPLIANCE COMMITTEE that optimises risk and return and to ensure that the SGH Board Under its charter, this committee must have at least three knows in advance the risks of the business. members who are non-executive directors that are independent The Risk and Compliance Committee is responsible for of both management and SGH. The members of this committee monitoring risk management and commissioning and will be Peter Ritchie, Murray Wells, Dulcie Boling and Bruce reviewing strategic risk assessments to identify and prioritise McWilliam. Peter Ritchie will act as Chairperson of the committee. the material risks facing SGH. The primary role of this committee will be to consider matters CONTINUOUS DISCLOSURE POLICY relating to the identification and management of material risks SGH is committed to observing its disclosure obligations under and compliance with laws and regulations applicable to SGH the Listing Rules. SGH has adopted a policy to take effect and its subsidiaries. In addition, the other main responsibilities from implementation of the Share Scheme which establishes of the committee will be to: procedures which are aimed at ensuring that directors and • review insurance and other risk transfer arrangements; management are aware of and fulfil their obligations in relation • review the disaster recovery planning process and ensure to the timely disclosure of material price sensitive information that appropriate plans are in place; to the market. • monitor compliance with applicable laws and regulations (excluding in relation to financial reporting as addressed The continuous disclosure policy applies to all directors by the Audit Committee); and of SGH and to those members of senior management who • establish procedures for the receipt of complaints received are likely to be in possession of, or become aware of, the by SGH, including anonymous submission by employees relevant information. of the company of concerns regarding questionable SECURITIES TRADING POLICIES business practices. SGH has adopted policies, to take effect from implementation REMUNERATION COMMITTEE of the Share Scheme, for dealing in SGH Shares, TELYS3 and Under its charter, this committee must have a majority of TELYS4 and options and other financial products issued over independent directors, all of whom must be non-executive these classes of shares. directors. The members of this committee will be Peter Ritchie Subject to the overriding restriction that persons may not and Dulcie Boling. Peter Ritchie will act as Chairperson of deal in SGH securities while they are in possession of material the committee. price sensitive information, SGH Directors, management (and The main functions of the committee will be to: their associates) may only deal in SGH securities in certain “window periods” such as after SGH’s annual and half yearly • assist the SGH Board with a view to establishing a board results. Outside of these window periods, SGH Directors and of effective composition size and expertise to adequately management must obtain approval for any proposed dealing discharge its duties and responsibilities; in SGH securities. • assist the SGH Board in relation to determining appropriate remuneration of non-executive directors; EMPLOYEE CONDUCT GUIDELINES • assist the CEO in relation to corporate management The SGH Board recognises the need to observe the highest and remuneration structure; and standards of corporate practice and business conduct. • review and advise on executive and employee Accordingly, the SGH Board has adopted employee conduct incentive plans. guidelines, to take effect from implementation of the Share Scheme, to be followed by all employees. The key aspects of (B) SGH CORPORATE GOVERNANCE POLICIES these guidelines are to: SGH has adopted a number of corporate governance • behave honestly and openly and with integrity in their policies which will take effect on the implementation of the dealings with SGH; Share Scheme. • follow health and safety guidelines and procedures and RISK MANAGEMENT POLICY to report any potential hazards; and The risk management policy seeks to ensure there is a • use SGH property, assets, and resources properly. consistency to the methods used in assessing, monitoring and (C) EMPLOYEE AND EXECUTIVE INCENTIVE PLANS communicating risks throughout SGH and that risk management Seven has issued options to seven of its current executives. efforts are aligned with SGH’s strategic and business objectives. To the extent that these options have not vested or expired on It also outlines SGH’s requirements for assessing, monitoring the Implementation Date of the Share Scheme, SGH intends and treating risks and will assist in understanding the impact to replace these Seven Options with SGH options issued on of uncertainties inherent in business decisions. An important equivalent terms. objective of this policy is to promote a balanced approach to risk

72 Seven Network Limited Scheme Booklet – Part B The SGH Board will consider the development of appropriate their ownership of the shares in a way that will remedy the equity incentive plans for executives and directors in the contravention of the ownership and control restriction. future, but has no current intention to replicate the existing • Forfeiture of shares: the SGH Board has a lien over the equity incentive plans currently in place for Seven (described shares (and any dividends and proceeds of the shares) in section 9.8 of Part B) at the SGH level. for any unpaid amounts in respect of those shares (and certain other amounts payable), and may exercise rights (D) INDEMNITY INSURANCE AND ACCESS of forfeiture in respect of any unpaid amounts in respect SGH has entered into deeds of indemnity insurance and access, of the shares. effective from implementation of the Share Scheme with each • Acquisition of shares by SGH: SGH may acquire its own director which confirm the SGH Director’s rights of access to shares in accordance with the Corporations Act and the board papers and require SGH to indemnify the director to the Listing Rules. full extent permitted by law and on a full indemnity basis for liability incurred as a director or officer of SGH or of any of its • Amendments: the SGH Constitution can be amended with related bodies corporate. the approval of shareholders by special resolution.

(E) RELATED PARTY COMMITTEE (B) ASX LISTING The SGH Board will establish a Related Party Committee to The SGH Directors will make a conditional application to the manage any conflicts or related party transactions arising ASX for the listing of SGH within 7 days of the date of this under the Transaction Documents or otherwise. The Related Scheme Booklet. Party Committee will comprise the independent directors (C) AUDITOR of SGH only. The SGH directors have not yet appointed the auditor for SGH, but this appointment will be made prior to the end of the 3.10 SGH – OTHER INFORMATION current financial year. (A) OVERVIEW OF SGH CONSTITUTION (D) REMUNERATION OF SGH NON-EXECUTIVE The list below sets out some of the more material features of DIRECTORS the SGH Constitution. It is not an exhaustive list of all such features and Seven Shareholders should consider inspecting The SGH Constitution provides that the SGH non-executive the SGH Constitution themselves (a copy may be obtained directors are entitled to such remuneration as determined by the by contacting the Seven Network Limited Information Line). SGH Directors, which must not exceed the maximum aggregate The SGH Constitution should be read in conjunction with the annual amount determined by SGH in general meeting. Corporations Act. Currently, it has been determined that (conditional on the • Listing Rules: for so long as the Company remains listed on listing of SGH) such remuneration will not exceed $2 million, the ASX, if the Listing Rules require the SGH Constitution to be apportioned among the SGH non-executive directors as to contain a provision and it does not contain such a they determine in their absolute discretion. The level of fees provision, the SGH Constitution is taken to contain paid to individual non-executive directors will be determined that provision. by reference to an independent remuneration report prepared • Board of directors: the SGH Board can appoint any person by Ernst & Young. as a SGH Director. SGH Shareholders may at a meeting at SGH non-executive directors may be paid such additional or which a SGH Director retires or otherwise vacates office, special remuneration as the SGH Directors decide is appropriate by resolution fill the vacated office by electing a person. where a non-executive directors performs extra services or • Directors’ power to issue shares: under the SGH Constitution makes special exertions for the benefit of SGH. and the Listing Rules, the SGH Board may issue equity securities with shareholder approval by ordinary resolution (E) RIGHTS ATTACHING TO SGH SHARES where the equity securities to be issued exceed 15% The rights and liabilities attaching to ownership of SGH Shares of existing equity securities and otherwise without arise from a combination of the SGH Constitution, statute, the shareholder approval, subject to certain exceptions. Listing Rules and general law. The SGH Constitution does not otherwise impose any A summary of the significant rights attaching to the SGH Shares restrictions on the SGH Board’s ability to issue shares. and a description of other material provisions of the SGH • Ownership restrictions: under the Broadcasting Services Constitution are set out below. This summary is not exhaustive Act, certain persons are not eligible to be a holder of a SGH nor does it constitute a definitive statement of the rights and Share where that person’s shareholding would contravene liabilities of SGH Shareholders. The summary assumes that certain ownership and control restrictions under Part 5 of SGH is admitted to the official list of the ASX. the Broadcasting Services Act. The SGH Board will have the power to require such an ineligible shareholder to divest

Section 3 73 SGH SHARES LIQUIDATION Each SGH Share gives the holder the right to: In the event of a liquidation of SGH, and after payment of all • attend and vote at a meeting of SGH including the right outstanding debts and subject to the rights attaching to shares to cast one vote per SGH Share on a poll on any resolution from time to time ranking in priority to the SGH Shares, the including but not limited to a resolution to: remaining assets of SGH would be distributed to the holders of – appoint a SGH Director (at a meeting where a SGH SGH Shares, in the proportions which the amount paid on the Director retires or otherwise vacates office) or remove SGH Shares of a SGH Shareholder is of the total issue price of all a SGH Director or auditor; SGH Shares. – adopt or alter the SGH Constitution; (F) RIGHTS ATTACHING TO TELYS4 – wind up SGH (this requires a special resolution); The rights and liabilities attaching to ownership of TELYS4 arise • dividends paid by SGH in respect of that SGH Share; from a combination of their Terms of Issue, the constitution of • an equal share with other ordinary shares in the distribution SGH, statute, the Listing Rules and general law. of surplus assets in any liquidation of SGH; A summary of the significant rights attaching to the TELYS4 • be sent certain SGH information; and securities is set out below. This summary is not exhaustive • the other rights as a shareholder conferred by the nor does it constitute a definitive statement of the rights and Corporations Act and the SGH Constitution. liabilities of TELYS4 holders. The summary assumes that TELYS4 The principal company law rules affecting SGH are set out are admitted to the official list of ASX. in the Corporations Act and in the SGH Constitution. The TELYS3 Holders should refer to Part A of this Scheme Booklet and following is a summary of material rights, privileges, restrictions the TELYS4 Prospectus for further details regarding the rights and conditions attaching to SGH Shares. This summary is not attaching to TELYS4 (including a copy of their Terms of Issue). exhaustive nor does it constitute a definitive statement of the rights and liabilities of SGH Shareholders. The summary TELYS4 assumes that SGH is admitted to the official list of ASX. TELYS4 are redeemable, convertible preference shares issued by SGH with a face value of $100. TELYS4 carry an entitlement DIVIDENDS AND OTHER DISTRIBUTIONS to a preferred, non-cumulative, floating rate dividend payable The authorisation and payment of distributions (which includes half yearly. The dividends are paid at the discretion of the SGH dividends) are subject to certain procedural preconditions Directors and are subject to the funds being legally available. prescribed in the Corporations Act and the SGH Constitution. If the SGH Directors are satisfied on reasonable grounds that CONVERSION OR EXCHANGE SGH will, immediately after the distribution, satisfy the tests TELYS4 are perpetual securities and have no maturity. SGH may prescribed in the legislation as to solvency of SGH, they may at its election convert some or all of the TELYS4 for SGH Shares authorise such distribution at a time, and of an amount, as (Conversion) or exchange some or all of the TELYS4 for $100 the directors think fit. If, after a distribution is authorised and in cash for each TELYS4 (Exchange) on the half yearly dividend before it is paid, the SGH Directors cease to be so satisfied, payment date. the distribution is deemed not to have been authorised. The SGH Directors may also Convert or Exchange some Details of SGH’s intended dividend policy are set out in section or all of the TELYS4: 3.6 of Part B of this Scheme Booklet. No assurance can be given • if a takeover bid or scheme of arrangement is made that dividends will be paid. in respect of SGH; and • in other certain circumstances. VOTING ENTITLEMENTS Each of the SGH Shares confers on holders the right to vote at Where there has been a breach of the Dividend and Capital meetings of shareholders of SGH. On a vote by voices or show of Stopper, TELYS4 holders can demand Exchange or Conversion hands, every holder of SGH Shares present in person or by proxy, (at SGH’s election) of their TELYS4, but otherwise TELYS4 by attorney or by their representative, is entitled to one vote. holders do not have the right to Convert TELYS4 or have them Exchanged for cash. On a poll, every member (or his or her proxy, attorney or representative) is entitled to: DIVIDENDS AND OTHER DISTRIBUTIONS (a) one vote for each fully paid SGH Share held; and TELYS4 rank equally amongst themselves in all respects, but in (b) a fraction of one vote for each partly paid up SGH priority to SGH Shares for payment of dividends. The dividend Share held by that member. The fraction is equal to the rate will be on a floating rate and will be calculated as: proportion which the amount paid up bears to the total Dividend Rate = (Market Rate + Margin) x (1 – T) issue price of the SGH Share.

74 Seven Network Limited Scheme Booklet – Part B where: Consistent with the existing arrangements for his employment as an executive with ACE, Peter Gammell will initially not be Market Rate means the Bank Bill Swap Rate for 180 day bills employed under a formal employment contract although he applying on the first Business Day of each dividend period will be an employee of SGH. expressed as a percentage per annum; Peter Gammell’s remuneration will be determined by the Margin means 4.75% per annum; and SGH Board when the full board is constituted after the T means the Australian corporate tax rate applicable to the implementation of the Share Scheme, with reference to an franking account of SGH as at the relevant dividend payment independent remuneration report that has been prepared by date, expressed as a decimal. Ernst & Young. Details of Peter Gammell’s remuneration, and the terms of his employment will be announced by SGH when If for any reason a dividend has not been paid in full within they are determined. 20 Business Days after its scheduled dividend payment date, the Dividend and Capital Stopper will come into effect. The Consistent with the existing arrangements, Jim Walker will Dividend and Capital Stopper mandates that SGH must not, initially not be employed under a formal employment contract, without approval of a special resolution passed at a separate although he will be an employee of SGH. Jim Walker is meeting of TELYS4 holders, resolve to pay, or pay, a cash therefore employed on the following terms: dividend or make any distribution on any share capital over • fixed total compensation, which includes fixed cash which TELYS4 rank in priority (including SGH Shares) for remuneration and superannuation contributions of participation in profits, or redeem, reduce, cancel, or acquire for $1.5 million p.a.; any consideration any share capital of SGH (other than TELYS4), • short term incentives of up to 50% of his salary; until such time as: • statutory leave entitlements, notice and termination • two consecutive dividends on TELYS4 thereafter have been periods. paid in full; (H) AGREEMENTS OR ARRANGEMENTS WITH SGH • an optional dividend has been paid to the TELYS4 holders DIRECTORS IN CONNECTION WITH PROPOSAL equal to the unpaid amount (if any) of the two immediately preceding dividends to which they were entitled but which Other than as stated in this document and as previously were unpaid prior to the date of payment of the optional disclosed by Seven, no agreements or arrangements have dividend; or been entered into with SGH Directors in connection with the Recommended Proposal. • all TELYS4 have been Converted or Exchanged. (I) PAYMENTS OR OTHER BENEFITS TO SGH DIRECTORS, If the Dividend and Capital Stopper is breached, a TELYS4 SECRETARIES OR EXECUTIVE OFFICERS holder will have the right, but not the obligation to demand Conversion or Exchange (at SGH’s election) of his or her entire Other than as stated in this document, or as previously holding by issuing a notice to SGH within 25 Business Days disclosed by Seven, no amount has been paid or agreed to of becoming aware of the breach. be paid and no benefit has been given or agreed to be given to a SGH Director, or a proposed SGH director to induce them VOTING ENTITLEMENTS to become or qualify as a director. TELYS4 do not carry a right to speak or to vote at general Other than as stated in this document, no SGH Director, meetings of SGH, except in limited circumstances. In these secretary or executive officer holds or has held at any time cases, TELYS4 holders will have one vote per TELYS4 held. in the two years before the lodgement of this document an LIQUIDATION interest in: In the event of a liquidation of SGH, TELYS4 holders rank in • the formation or promotion of SGH; or priority to SGH Shares if there is a return of capital on winding • the implementation of the Recommended Proposal; or up of SGH. • property acquired or proposed to be acquired by PARTICIPATION SGH in connection with the implementation of the Recommended Proposal. TELYS4 confer no rights to subscribe for new securities in SGH or to participate in any bonus issues. (J) SGH SECURITIES HELD BY SGH DIRECTORS (G) REMUNERATION AND COMPENSATION FOR The interests of SGH Directors in SGH securities are set out SENIOR EXECUTIVES in section 9.4 of this Part B. The terms of the existing employment arrangements, other than in relation to remuneration and compensation, for each of the senior executives of SGH will remain unchanged.

Section 3 75 (K) INTENTIONS OF SGH DIRECTORS CONCERNING – the pro forma historical balance sheet of SGH, excluding THE BUSINESS OF SEVEN AND EMPLOYMENT OF National Hire, as at 31 December 2009 as outlined above; SEVEN EMPLOYEES – National Hire publicly reported historical balance sheet Except for the changes and intentions set out in this document, as at 31 December 2009; and SGH intends, based on the information presently known to it: – relevant consolidation adjustments to present the • to continue the business of Seven; consolidated merged group, including National Hire. • not to make any major changes to the business of Seven No consolidated pro forma historical statement of or the deployment of Seven’s assets; and comprehensive income is provided. • to continue the employment of Seven’s employees. The SGH Pro Forma Forecast Financial Information SGH will have a material cash balance following the comprises the: implementation of the Recommended Proposal. SGH intends • consolidated pro forma forecast income statements of SGH to continue Seven’s current policy of holding this in cash and for the years ending 30 June 2010 and 30 June 2011 which other liquid investments until the SGH Board determines have been prepared by aggregating: the appropriate use for this cash balance, having regard to – Seven pro forma income statements for the same the interests of SGH and its shareholders. SGH’s conservative financial periods; capital structure will permit SGH to pursue value accretive – WesTrac Group pro forma income statements for the opportunities as they arise. The directors may also elect same financial periods, excluding National Hire; and to partially offset some of the borrowings of SGH with the company’s cash reserves. – relevant pro forma adjustments to present the consolidated merged group, excluding National Hire. 3.11 SGH FINANCIAL INFORMATION • consolidated pro forma forecast abridged cash flow (A) OVERVIEW statements of SGH for the years ending 30 June 2010 and 30 June 2011 which has been prepared by aggregating: This section contains a summary of the following historical and – Seven pro forma abridged cash flow statement for the forecast financial information of SGH (SGH Financial Information) same financial periods; and sensitivity analysis on the key forecast assumptions. – WesTrac Group pro forma abridged cash flow statement for The SGH Pro Forma Historical Financial Information comprises the: the same financial periods, excluding National Hire; and • consolidated pro forma income statements of SGH, excluding – relevant pro forma adjustments to present the National Hire, for the years ended 30 June 2007, 30 June 2008 consolidated merged group, excluding National Hire. and 30 June 2009, and the half year ended 31 December 2009 which have been prepared by consolidating: No consolidated pro forma forecast statements of comprehensive income are provided as there are no forecast – Seven pro forma income statements for the financial other comprehensive income items. periods ending 30 June 2007, 28 June 2008, 27 June 2009 and the half year ended 26 December 2009; The SGH Financial Information, excluding National Hire, – WesTrac Group pro forma income statements for the has been reviewed by the Investigating Accountant, whose same financial periods, excluding National Hire; and Investigating Accountant’s Report is contained in section 7 of – relevant pro forma and consolidation adjustments Part B of this Scheme Booklet. The Investigating Accountant has to present the consolidated merged group; not reviewed the National Hire publicly available information • consolidated pro forma historical balance sheet of SGH, but has reviewed the compilation of the consolidated pro excluding National Hire, as at 31 December 2009 which has forma historical balance sheets of SGH (excluding National Hire) been prepared by consolidating: and National Hire as at 31 December 2009. – Seven pro forma balance sheet as at 26 December 2009; The information in this section should also be read in – WesTrac Group pro forma historical balance sheet, conjunction with the information elsewhere in this Scheme excluding National Hire except for the historical cost Booklet including the risk factors set out in section 5 of of the investment, as at 31 December 2009; and Part B and the sensitivity of the forecasts to changes in key – relevant pro forma and consolidation adjustments assumptions, set out in sections 1.2(I), 2.6(I) and 3.11(F) of to present the consolidated merged group, Part B of this Scheme Booklet. excluding National Hire except for the historical All amounts disclosed in the tables are presented in Australian cost of the investment; dollars and, unless otherwise noted, are rounded to the nearest • consolidated pro forma historical balance sheet of SGH, thousand dollars. including National Hire, as at 31 December 2009 which has been prepared by consolidating:

76 Seven Network Limited Scheme Booklet – Part B (B) BASIS OF PREPARATION AND PRESENTATION OF THE CMH and WAN are non-controlled businesses. Whilst the SGH SGH FINANCIAL INFORMATION Directors have prepared forecast information by reference to The SGH Financial Information has been prepared in their knowledge of these businesses, the forecasts are those of accordance with the recognition and measurement principles SGH and not the underlying businesses. In respect of SMG, the of Australian Accounting Standards as at 31 December 2009, forecast information reflects the views of Seven, not SMG, and although it is presented in an abbreviated form insofar as it does is presented on the basis of publicly available information. not include all of the disclosures, statements or comparative The SGH Pro Forma Forecast Financial Information has been information as required by the Australian Accounting Standards prepared on the basis that SGH will continue to have access to applicable to annual financial reports prepared in accordance all tax losses generated from existing members of the WesTrac with the Corporations Act. A summary of SGH’s detailed Group and Seven tax consolidated groups on terms and accounting policies are contained in Appendix 1 to Part B conditions materially the same as existing terms and conditions. of this Scheme Booklet. The SGH Pro Forma Forecast Financial Information has been PREPARATION OF THE SGH HISTORICAL prepared on the basis that all existing TELYS3 issued by Seven are FINANCIAL INFORMATION replaced by TELYS4 issued by SGH pursuant to the TELYS3 Scheme. The SGH Pro Forma Historical Financial Information is provided for illustrative purposes and is prepared on the assumption that Investors should be aware that the timing of actual events and the Schemes had been implemented on 1 July 2006. This is not the magnitude of their impact might differ from that assumed intended to reflect the financial performance or the financial in preparing the SGH Pro Forma Forecast Financial Information, position that would have actually resulted had the Schemes and that this may have a materially positive or negative effect been implemented on this date, or the results that may be on SGH’s actual financial performance or financial position. obtained in the future. If the transaction had occurred in the Accordingly, neither ACE nor the SGH Directors can give past, SGH’s financial position and financial performance would any assurance that the forecasts will be achieved. Events likely have been different from that presented in the SGH Pro and outcomes might differ in quantum and timing from the Forma Historical Financial Information. Due to the nature of assumptions, with material consequential impact on the SGH pro forma information, it may not give a true picture of SGH’s Pro Forma Forecast Financial Information. Investors are advised financial position and financial performance. The SGH Pro to review the key best estimate assumptions set out in sections Forma Historical Financial Information is not represented as 1.2(H) and 2.6(H) of Part B, in conjunction with the sensitivity being indicative of SGH’s views on its future financial position analysis set out in sections 1.2(I), 2.6(I) and 3.11(F) of Part B or future financial performance. and the risk factors set out in section 5 of Part B of this Scheme Booklet, together with the other information set out elsewhere PREPARATION OF SGH PRO FORMA FORECAST in this Scheme Booklet. FINANCIAL INFORMATION The ACE directors believe they have prepared the SGH STATUTORY FORECAST Pro Forma Forecast Financial Information with due care and A statutory forecast for SGH would assume that the Share attention, and consider all best estimate assumptions when Scheme is implemented during May 2010 and as such would taken as a whole to be reasonable at the time of preparing only represent two months of trading for the new consolidated this information. entity less transaction costs and transaction accounting impacts. This forecast has not been prepared for the purposes of The SGH Pro Forma Forecast Financial Information has been this Scheme Booklet as it would not be meaningful to forecast prepared on the basis of certain assumptions, including the two months of trading less transaction costs. Thus a pro forma key best estimate assumptions set out in section 1.2(H) of forecast has been prepared for the year ending 30 June 2010, Part B for Seven and section 2.6(H) of Part B of this Scheme which includes six months of actual performance, and assumes Booklet for WesTrac Group. This information is intended to that the Share Scheme is implemented on 1 July 2009. assist investors in assessing the reasonableness and likelihood of the assumptions occurring, and is not intended to be a (C) SUMMARY OF PRO FORMA CONSOLIDATED representation that the assumptions will occur. HISTORICAL AND FORECAST INCOME STATEMENTS (EXCLUDING NATIONAL HIRE) The SGH pro forma consolidated income statement for the year Set out below is a summary of SGH’s pro forma consolidated ending 30 June 2010 comprises the pro forma actual results historical income statements for the years ended 30 June for the six months ended 31 December 2009 and pro forma 2007, 30 June 2008, 30 June 2009 and the half year ended consolidated forecast income statement for the six months 31 December 2009 (excluding National Hire) and the pro forma ending 30 June 2010. consolidated forecast income statements for the years ending 30 June 2010 and 30 June 2011 (excluding National Hire).

Section 3 77 Table 3.11.1: SGH pro forma consolidated historical and forecast income statements (excluding National Hire) Pro forma historical Pro forma forecast Six months Year ended Year ended Year ended ended Year ending Year ending $000 30-Jun-07(1) 30-Jun-08 30-Jun-09 31-Dec-09 30-Jun-10 30-Jun-11 Revenue 2,871,481 2,388,528 2,542,715 1,090,454 2,350,704 2,830,596 Other income 3,816 23,912 13,039 6,922 6,862 2,500 Share of results and impairment 4,151 53,125 44,354 17,362 24,778 77,357 from equity accounted investees Operating costs (2,425,432) (2,146,297) (2,291,505) (990,603) (2,158,464) (2,593,118) SGH costs2 – – – – – (5,000) EBITDA 454,016 319,268 308,603 124,135 223,880 312,335 Depreciation and amortisation (56,053) (47,871) (72,586) (30,153) (63,402) (73,903) EBIT 397,963 271,397 236,017 93,982 160,478 238,432 Finance costs (155,540) (77,494) (107,424) (43,732) (85,485) (91,506) Finance income 99,516 137,553 88,130 25,290 52,719 53,093 Interest synergy3 – – – – – 4,157 Profit/(loss) before income tax 341,939 331,456 216,723 75,540 127,712 204,176 Income tax expense4 (16,918) Net profit after tax for the period 187,258 Attributed to: SGH ordinary shareholders 153,507 Minority interests 581 TELYS holders 33,170

Basic profit per share 50.3 (cents per share)

Notes: 1 The significant decrease in FY2007 revenue and operating costs is due to Seven effectively selling a 53% share of SMG to form a joint venture with KKR, which resulted in this entity being deconsolidated from Seven from 4 April 2007. This investment was then treated as an equity accounted investment. Refer to table 1.2.1 of Part B of this Scheme Booklet for further discussion of changes in status of this and other investments during each financial period. 2 Additional SGH costs relate to executive compensation costs and other head office costs of SGH. 3 Interest synergy reflects the saving in interest expense that is expected to arise in FY2011 when the $600.0 million WesTrac loan facility is paid down using Seven cash assets. The synergy represents the margin difference between borrowings and cash deposit rates. 4 As SGH is expected to be formed in May 2010, reporting historical income tax expense and pro forma forecast income tax expense for the year ending 30 June 2010 or prior periods is not considered to be meaningful or appropriate (as indicated by the shaded areas) due to merger impacts on the SGH tax profile.

78 Seven Network Limited Scheme Booklet – Part B (D) PRO FORMA CONSOLIDATED BALANCE SHEET Set out below is SGH’s pro forma consolidated balance sheet as at 31 December 2009.

Table 3.11.2: SGH pro forma consolidated balance sheet at 31 December 2009 SGH Pro forma pro forma National Hire WesTrac and (excluding unaudited SGH Seven Group consolidation National public pro forma $000 pro forma pro forma Note adjustments Hire) information1 consolidated2 Note Current assets Cash and cash equivalents 1,041,856 45,623 (8) (590,000) 497,479 9,866 507,345 Trade and other receivables 16,161 288,000 – 304,161 20,652 324,812 Inventories 1,724 495,732 – 497,456 34,870 532,326 Assets classified as held 23,251 – – 23,251 – 23,251 for sale Total current assets 1,082,992 829,355 (590,000) 1,322,347 65,388 1,387,734 Non-current assets Receivables 7,518 4,100 – 11,618 42 11,660 Property, plant and 43,727 127,488 – 171,215 1,602 172,817 equipment Intangible assets 90,262 448,945 – 539,207 21,978 559,774 (2) Investments accounted for 1,246,340 8,990 (3) 8,950 1,264,280 312,072 1,573,401 (2) using the equity method Investment in controlled – 197,351 – 197,351 – – (2) entity (National Hire) Deferred tax assets – 2,728 (2,728) – 33,861 33,861 Other investments 428,559 3,162 – 431,721 – 431,721 Total non-current assets 1,816,406 792,764 6,222 2,615,392 369,555 2,783,234 Total assets 2,899,398 1,622,119 (583,778) 3,937,739 434,943 4,170,968 Current liabilities Trade and other payables 43,703 220,731 (4) 41,342 305,776 43,906 349,682 Provisions 953 32,273 – 33,226 295 33,521 Interest bearing loans 702 97,717 – 98,419 – 98,419 and liabilities Current tax liabilities – 1,143 – 1,143 – 1,143 Derivative financial – 2,396 – 2,396 22 2,419 instruments Deferred revenue – 37,343 – 37,343 – 37,343 Total current liabilities 45,358 391,603 41,342 478,303 44,223 522,527

Section 3 79 SGH pro forma National Hire WesTrac Pro forma and (excluding unaudited SGH Seven Group consolidation National public pro forma $000 pro forma pro forma Note adjustments Hire) information1 consolidated2 Note Non-current liabilities Interest bearing loans and 5,369 995,883 (8) (600,000) 401,252 – 401,252 liabilities Provisions 1,975 83 – 2,058 186 2,244 Trade and other payables 5,625 – – 5,625 – 5,625 Deferred income 7,321 9,520 – 16,841 – 16,841 Deferred tax liabilities 607,131 – (5) (186,627) 420,504 16,043 436,529 (2) Derivative financial – 29,877 – 29,877 – 29,877 instruments Total non-current liabilities 627,421 1,035,363 (786,627) 876,157 16,229 892,368 Total liabilities 672,779 1,426,966 (745,285) 1,354,460 60,452 1,414,895 Net assets 2,226,619 195,153 161,507 2,583,279 374,491 2,756,073 Equity Issued capital 551,834 21,500 (6) 2,434,927 3,008,261 293,771 3,008,261 (2) Reserves 1,672,286 168,435 (7) (2,273,420) (432,699) 80,720 (386,332) (2) Total equity attributable 2,224,120 189,935 161,507 2,575,562 374,491 2,621,929 (2) to equity holders of the company Minority interest 2,499 5,218 – 7,717 – 134,144 Total Equity 2,226,619 195,153 161,507 2,583,279 374,491 2,756,073 (2)

Notes: Explanations for adjustments: 1 National Hire balance sheet information has been extracted from the National Hire unaudited public information for the half year to 31 December 2009. The National Hire unaudited public information can be accessed at National Hire’s website (www.nationalhire.com.au) or from the ASX website (www.asx.com.au). 2 Adjustments required to consolidate National Hire into the SGH pro forma consolidated position have been made in the “SGH pro forma consolidated” column. The consolidated position is not the aggregate of the ”SGH pro forma (excluding National Hire)” and “National Hire unaudited public information” columns. 3 Adjustment to values of Seven’s investments accounted for using the equity method upon business combination to reflect fair value. 4 Represents the accrual raised for transaction fees incurred in relation to this proposed transaction, the after tax effect of which is recognised as a pro forma adjustment in equity. In the event that the Share Scheme is not implemented, Seven will incur transaction fees of approximately $10.8 million. 5 Represents the net expected impact on deferred taxes from the resetting of tax cost bases in Seven and WesTrac Group plus deferred tax assets relating to transaction costs that arise as a result of this proposed transaction. Specifically this amount is derived from: • the expected reduction in deferred tax liability relating to SMG investment ($304 million); • other reductions in Seven’s existing deferred tax liabilities as a result of expected tax cost base changes ($23 million); • increases in deferred tax liabilities due to potential reduction to tax cost bases of SGH assets as a result of transaction assumptions ($116 million); • other increases to deferred tax liabilities of WesTrac Group due to resetting of tax cost bases (net impact of $37 million); and • a reduction in deferred tax liabilities due to costs of this transaction ($12 million). 6 The issued capital of SGH reflects the issue of 115 million SGH Shares on formation and for the acquisition of WesTrac Holdings, and 190.3 million SGH Shares for the acquisition of Seven pursuant to the Share Scheme. The latter two transactions are assumed to occur at $8.25 per SGH Share. This will change depending upon the actual Seven share price at date of completion or implementation of the relevant transaction. 7 The acquisition of WesTrac Group is a common control transaction that gives rise to a common control reserve of $782.2 million representing the difference between the fair value of equity instruments issued and the book value of assets acquired. Offsetting this is a discount on consolidation of $378.5 million relating to the acquisition of Seven representing the difference between the fair value of equity instruments issued and the fair value of assets acquired. Transaction costs, net of tax, are also included in pro forma reserves. The share issues assume an $8.25 share price for SGH Shares, but this may change depending upon the actual issue price. 8 Adjustment represents an assumed repayment of the WesTrac Group Facility of $600 million which is expected to be repaid subsequent to implementation of the Share Scheme. As the above pro forma balance sheet presents the pro forma financial position as if the Share Scheme was implemented on 31 December 2009, the reduction of gross debt and cash has been reflected above as well as the receipt of $10 million arising on initial issuance of equity on formation of SGH. The cost synergy resulting from this repayment has been assumed to take effect from 1 July 2010 for the purposes of the forecast income statement in section 3.12(C) of Part B of this Scheme Booklet.

80 Seven Network Limited Scheme Booklet – Part B (E) PRO FORMA FORECAST ABRIDGED STATEMENTS OF CASH FLOWS (EXCLUDING NATIONAL HIRE) Set out below are SGH’s consolidated pro forma abridged statements of cash flows for the years ending 30 June 2010 and 30 June 2011 (excluding National Hire). Historical cash flows have been excluded from this analysis on the basis that if the Share Scheme had been implemented in the past, SGH’s cash flows would likely have been different from that in any pro forma statement of cash flows, and thus would be unlikely to give a true picture of SGH’s hypothetical historical cash flows had the Share Scheme been implemented in the past.

Table 3.11.3: SGH pro forma abridged statements of cash flows (excluding National Hire) Pro forma forecast Pro forma forecast $000 30-Jun-10 30-Jun-11 EBITDA 223,880 312,335 Working capital movements 31,967 (106,960) Share of associates profit/(loss) (22,278) (74,857) Other non-cash items (2,500) (2,500) Dividends received/receivable from equity accounted investees 16,478 16,478 Net cash flows from operating activities pre interest and income tax 247,547 144,496 Cash flows from other activities Income tax (payable)/receivable 14,695 (41,797) Interest receivable1 52,474 24,333 Interest payable1 (79,194) (52,186) Payment for property, plant and equipment (78,004) (56,608) Proceeds from sale of property, plant and equipment 460 – Dividends paid to ordinary shareholders2 (64,688) (109,894) Dividends paid to holders of TELYS3/TELYS4 (23,273) (33,170) Net (repayment of)/proceeds from borrowings3 (44,622) 48,819 Net cash flows from other activities (222,152) (220,503) Total4 25,395 (76,007)

Notes: 1 Interest receivable and interest payable have been adjusted to show the impact of the $600 million debt repayment – being a reduction in cash interest paid and a reduction in cash interest received as a result of lower borrowings and lower cash deposits. 2 Dividends payable to ACE in relation to the period prior to the acquisition by SGH, including the $76 million for dividends in relation to the period to 31 December 2009 and dividends payable to “Completion” under the Purchase Agreement, have been excluded on the basis they are not representative of SGH’s dividends going forward. 3 The forecast net (repayment of)/proceeds from borrowings cash flows do not reflect the repayment of the $600 million debt facility. 4 The forecast cash flows exclude historical payments for listed investments of $323.8 million and repayment of non-share equity of $87.2 million from the 30 June 2010 pro forma forecast on the basis that they are non-recurring items.

WORKING CAPITAL MOVEMENTS Working capital movements in the forecast period to 30 June 2010 primarily comprise cash in flows of $204.2 million in the six months to 31 December 2009 and $163.2 million cash outflow in the six months to 30 June 2010 relating to WesTrac Group. This primarily relates to working capital levels of WesTrac Group falling heavily in the first half of the financial year and being expected to rise rapidly in the second half of the financial year as the GFC-related destocking/restocking cycle completes.

(F) SENSITIVITY ANALYSIS The SGH Pro Forma Forecast Financial Information is based on a number of estimates and assumptions that are subject to business, economic and competitive uncertainties and contingencies, many of which are beyond the control of SGH, the SGH Directors and management, and upon assumptions with respect to future business decisions, which are subject to change.

Sensitivity analysis specific to Seven and the WesTrac Group is considered in sections 1.2(I) and 2.6(I) of Part B of this Scheme Booklet, respectively. These sensitivities are broadly expected to impact SGH to a similar extent. Further sensitivity analysis is set out below to demonstrate the impact of movements in interest rates which have an offsetting impact when considered at the SGH level. The changes in the interest rates as set out below are not intended to be indicative of the complete range of variations that may be experienced.

Section 3 81 Table 3.11.4: Sensitivity analysis Half year Full year 30 June 2010 30 June 2011 $000 Increase/(decrease) PBT impact PBT impact Assumption Effective interest rate1 + 1.0%/(1.0%) 1,038/(1,038) 1,381/(1,381)

Note: 1 This sensitivity shows the net impact on interest income and interest expense if interest rates were to increase or decrease by 1%. The interest income sensitivity is calculated on the cash balance held in Seven and the interest expense on all floating interest rate debt affected by interest rate variability. The FY2011 calculation assumes that approximately $600 million of WesTrac Group loan facility is repaid on 1 July 2010 using Seven’s cash.

TELYS3 SCHEME SENSITIVITY DISCLOSURE Off-setting this reduced Profit After Tax would be a reduction of The SGH Pro Forma Forecast Financial Information assumes $16.6 million in Profit Attributable to TELYS3 Holders. that all of the 4,963,640 existing TELY3 issued by Seven will be There would be no overall impact on Profit Attributable acquired by WesTrac Holdings and replaced with TELYS4 issued to Ordinary SGH Share Holders which would remain at by SGH pursuant to the TELYS3 Scheme. $153.5 million. Consequently there would be no impact on The replacement of TELYS3 with TELYS4 is subject to approval Earnings per Share of Ordinary SGH Shareholders. of the Share Scheme and approval by the TELYS3 Holders as As a consequent of the change in nature of TELYS3 there will envisaged by the TELYS3 Scheme. Should the TELYS3 Scheme be changes to the amount of tax paid by SGH as a result of the not achieve the required approval levels, TELYS3 Holders will be adjustments outlined above. These changes are not considered offered the opportunity to individually exchange their TELYS3 material to the pro forma forecast cash flow statements of SGH for TELYS4. for the years ending 30 June 2010 or 30 June 2011. For any remaining TELYS3 on issue, changes to their terms and conditions will have the effect of making them debt instruments for accounting and tax purposes. The impact of such an outcome on the SGH Pro Forma Forecast Financial Information is illustrated below.

The impact of the SGH Pro Forma Forecast Financial Information for the year-ended 30 June 2011, assuming 50% of TELYS3 remain is as follows: • an increase in Interest Expense of $23.7 million; • a decrease in Income Tax Expense of $7.1 million; • a resulting decrease in Profit After Tax of $16.6 million.

82 Seven Network Limited Scheme Booklet – Part B 4 IMPLEMENTATION OF THE RECOMMENDED PROPOSAL

Section 4 83 4.1 ELEMENTS OF THE RECOMMENDED PROPOSAL The key terms of the Share Scheme, if approved and implemented, will involve: The Recommended Proposal involves the following elements: • the acquisition by WesTrac Holdings, a wholly-owned • the proposed Share Scheme, pursuant to which SGH will subsidiary of SGH, of all Seven Shares; and indirectly acquire all of the Seven Shares; • the payment of the Share Scheme Consideration to Seven • the proposed TELYS3 Scheme, pursuant to which SGH will Shareholders who hold Seven Shares at the Share Scheme indirectly acquire all of the TELYS3; and Record Date (currently expected to be 7.00pm on Thursday • the listing of SGH on the ASX. 6 May, 2010). Before the Recommended Proposal is implemented, the ACE A copy of the Share Scheme is set out in full in section 11 corporate group will be restructured. As part of this restructure, of Part B of this Scheme Booklet. Section 4.2 of Part B of this SGH will acquire WesTrac Holdings (and WesTrac Group, which Scheme Booklet explains the steps involved in implementing it owns) under the Purchase Agreement. the Share Scheme (and the TELYS3 Scheme). (A) RESTRUCTURE OF THE ACE CORPORATE GROUP The Share Scheme is subject to the satisfaction or waiver On 21 February 2010, SGH and ACE entered into the Purchase of a number of conditions, which are described in section Agreement, pursuant to which SGH will acquire all of the shares 4.3 of Part B of this Scheme Booklet. The Share Scheme is in WesTrac Holdings from ACE in exchange for further shares not conditional on the TELYS3 Scheme being approved and in SGH being issued to ACE. After “Completion” of the Purchase implemented – if approved, the Share Scheme will proceed Agreement occurs: irrespective of the outcome of the TELYS3 Scheme. • WesTrac Holdings will be a wholly-owned subsidiary of SGH in consideration for ACE ultimately receiving 115,000,000 The SGH capital structure after the implementation of the SGH Shares (less the number of SGH Shares already on Share Scheme is described in section 3.5 of Part B of this issue) on the “Completion Date” under the Purchase Scheme Booklet. Agreement; (C) TELYS3 SCHEME • through WesTrac Holdings, SGH will own WesTrac Group; and The TELYS3 Scheme is a scheme of arrangement under the • ACE will transfer its SGH Shares to North Aston. Corporations Act. The key terms of the TELYS3 Scheme, if “Completion” of the Purchase Agreement is subject to several approved and implemented, will involve: conditions precedent, including that the conditions precedent • the acquisition by WesTrac Holdings, a wholly-owned to the Share Scheme are satisfied or waived. If these conditions subsidiary of SGH, of all TELYS3; and precedent are satisfied, “Completion” of the Purchase • the payment of the TELYS3 Scheme Consideration to Agreement will occur after the Second Court Hearing, but Scheme TELYS3 Holders who hold TELYS3 at the TELYS3 before the Effective Date of the Share Scheme. Further details Scheme Record Date (currently expected to be 7.00pm about the Purchase Agreement, including the warranties on 6 May 2010). given by ACE to SGH in respect of WesTrac Group, are set out A copy of the TELYS3 Scheme is set out in full in section 12 in section 9.14(F)(1) of Part B of this Scheme Booklet. of Part B of this Scheme Booklet. Section 4.2 of Part B of this ACE and its subsidiaries have entered into several other Scheme Booklet explains the steps involved in implementing agreements in relation to the restructure, including the transfer the TELYS3 Scheme (and the Share Scheme). of unrelated investments and non-core assets of WesTrac TELYS3 Scheme is subject to the satisfaction or waiver of a Holdings that are not intended to be owned by SGH to ACE and number of conditions, which are described in section 4.3 its associates. Further details in relation to these agreements of Part B of this Scheme Booklet. The TELYS3 Scheme is are set out in section 9.14 of Part B of this Scheme Book. also conditional on the Share Scheme being approved and ACE has also entered into the WesTrac China Tax Indemnity implemented – the TELYS3 Scheme will not proceed unless Deed in favour of SGH with respect to specified foreign tax the Share Scheme is approved by Seven Shareholders and the matters. Further details about this deed are set out in section Court, and implemented. 9.14 of Part B of this Scheme Booklet. If the TELYS3 Scheme is approved and implemented, 4,963,640 (B) SHARE SCHEME TELYS4 will be issued as TELYS3 Scheme Consideration. As at The Share Scheme is a scheme of arrangement under the the Implementation Date of the TELYS3 Scheme, these will be Corporations Act. Schemes of arrangement are commonly the only TELYS4 on issue. ACE and the Related Holders do not usedto give effect to the acquisition of one company by currently hold any TELYS3 and accordingly, will not be issued another company. any TELYS4 pursuant to the TELYS3 Scheme, unless they acquire TELYS3 before the TELYS3 Scheme Record Date.

84 Seven Network Limited Scheme Booklet – Part B (D) ASX LISTING OF SGH • determining what information was to be provided to ACE Within 7 days of the date of this Scheme Booklet, SGH will and when; apply to ASX for admission to the official list and for quotation • preparing and reviewing documents in connection with of the SGH Shares and TELYS4 that will be issued if the Share the implementation of the Schemes; and Scheme and TELYS3 Scheme are approved and implemented, • reporting to the board. respectively. The application for admission to the official list The IBC consisted of the Independent Seven Directors of and for quotation of the SGH Shares will be conditional on the Seven, being Ms Dulcie Boling, Mr Peter D Ritchie AO and approval and implementation of the Share Scheme. Professor Murray C Wells. The Implementation Deed is conditional on SGH being Mr Kerry Stokes, Mr Ryan Stokes and Mr Peter Gammell admitted to the official list of ASX and quotation being (together, ACE directors) were not members of the IBC due to approved for the SGH Shares to be issued under the Share their directorship of ACE companies and their employment by, Scheme (subject to appropriate conditions). There is a similar or financial interest, in ACE. condition in the Implementation Deed (which applies only to the TELYS3 Scheme) in relation to the TELYS4 to be issued Executive directors of Seven, Mr David Leckie and Mr Bruce under the TELYS3 Scheme. McWilliam (Executive Directors), were not members of the IBC.

Accordingly, if the Share Scheme is approved and implemented, Under the Protocols: Seven Shareholders on the Share Scheme Record Date will be • the IBC was to make decisions in relation to the Schemes issued the Share Scheme Consideration comprising SGH Shares. on behalf of Seven; These shares will be quoted on the ASX. Similarly, any TELYS4 • the IBC was to consider all aspects of the Schemes issued under the TELYS3 Scheme (or, if the TELYS3 Scheme is separately from Seven’s non-independent directors, except not implemented as a result of TELYS3 Holders electing on an to the extent that the IBC elected to include the Executive individual basis to exchange their TELYS3 for TELYS4) will also Directors in discussions and considerations (but not part be quoted on the ASX. of a decision making quorum) or required them to provide management support; 4.2 STEPS IN IMPLEMENTING THE SHARE SCHEME AND THE TELYS3 SCHEME • directors and managers of Seven could not communicate with any ACE member in relation to Seven’s business or There are a number of steps involved in the implementation affairs except: of the Recommended Proposal, some of which have already – in the ordinary course of business; or occurred. The first step was for the Seven Board of Directors to – where an ACE director was entitled to have access to establish an Independent Board Committee (IBC) in accordance that information in his capacity as a Seven director; or with management protocols adopted by the board (Protocols). – where such disclosure or access was provided pursuant The IBC was established to ensure that: to a pre-existing resolution of the Seven Board of • Seven Shareholders’ best interests were advanced by the Directors, provided that information did not relate proper consideration, negotiation and implementation of directly or indirectly to the Schemes; or the Schemes; and – with the IBC’s approval; • the Seven board and management were free from any • before disclosing information to any ACE member, actual undue influence or appearance of undue influence appropriate confidentiality arrangements were required; when considering the Schemes. • the IBC was to seek to ensure that ACE did not have To facilitate these objectives, the Seven Board of Directors an advantage over shareholders in relation to material delegated the following responsibilities to the IBC in relation to information about Seven; and the Schemes: • all Seven dealings with ACE were to be conducted in the • considering and (if applicable) implementing the Schemes; ordinary course and on arm’s length terms. • engaging advisers to assist Seven in the consideration, (A) EXECUTION OF THE IMPLEMENTATION DEED negotiation and implementation of the Schemes; On 21 February 2010, Seven, SGH and ACE entered into the • engaging the Independent Expert to consider if the Implementation Deed under which: Schemes were fair and reasonable and in the best interests of Unrelated Seven Shareholders and TELYS3 Holders; • Seven agreed to propose the Schemes to Seven Shareholders and TELYS3 Holders; and • approving processes to be adopted for communication anddealings between ACE, its management and advisers • Seven, SGH and ACE agreed to take appropriate steps and Seven and its management and advisers in respect necessary to implement the Schemes. of the Schemes;

Section 4 85 A summary of the Implementation Deed is set out in section to Ineligible Foreign Holders in accordance with the 4.3 of Part B of this Scheme Booklet. Share Scheme; and • subject to both the Share Scheme and the TELYS3 Scheme (B) INDEPENDENT SEVEN DIRECTORS’ becoming Effective and completion of the Purchase RECOMMENDATION Agreement, to provide to each Scheme TELYS3 Holder the The Independent Seven Directors are of the opinion that the TELYS3 Scheme Consideration to which that person is entitled Share Scheme and the TELYS3 Scheme are in the best interests under the TELYS3 Scheme and to issue to the Nominee such of Seven Shareholders and TELYS3 Holders, respectively. number of TELYS4 as are attributable to Ineligible Foreign The Independent Seven Directors unanimously recommend Holders in accordance with the TELYS3 Scheme. that Seven Shareholders vote in favour of the Share Scheme and that TELYS3 Holders vote in favour of the TELYS3 Scheme, A copy of the Deed Poll for each of the Share Scheme and in the absence of a superior proposal. the TELYS3 Scheme is included in sections 13 and 14 of Part B of this Scheme Booklet respectively. Each Seven Director intends to vote, or procure the voting of, all their Seven Director Shares and Seven Director TELYS3 in Details of the Share Scheme Consideration and TELYS3 Scheme favour of the Schemes, in the absence of a superior proposal. Consideration are set out in section 5.1 of Part A of this Scheme Booklet. In making their recommendation, the Independent Seven Directors have considered: (E) SCHEME MEETINGS • the advantages of, and the reasons for voting in favour of, the On 16 March 2010, the Court ordered that Seven convene Schemes set out in section 3 of Part A of this Scheme Booklet; the Scheme Meetings. • the potential uncertainties and disadvantages of the SHARE SCHEME MEETINGS Schemes described in section 4 of Part A of this Scheme There are two classes of Seven Shareholders for the purposes Booklet; and of the Share Scheme, namely Related Holders and Unrelated • the other relevant considerations noted in section 5 Seven Shareholders (being all other Seven Shareholders). of Part A of this Scheme Booklet. Accordingly, there will be two Share Scheme Meetings, the The interests of the Seven Directors in the Schemes are Unrelated Seven Shareholder Class Meeting (for Unrelated disclosed in section 9.4 of Part B of this Scheme Booklet. Seven Shareholders) and the Related Holder Class Meeting (for Related Holders). Each of these Share Scheme Meetings (C) APPOINTMENT OF THE INDEPENDENT EXPERT will be held at The Grand Ballroom, The Westin Sydney, Before the announcement of the Recommended Proposal, No. 1 Martin Place, Sydney, NSW 2000 on 20 April 2010. Seven commissioned the Independent Expert to prepare a The Related Holder Class Meeting will commence at 11.00am report on whether the Share Scheme and the TELYS3 Scheme (Sydney time), while the Unrelated Seven Shareholder Meeting are in the best interests of Seven Shareholders and TELYS3 will commence at 10.00am (Sydney time). Holders, respectively. For the Share Scheme to proceed, the Share Scheme Resolution The Independent Expert has concluded that: must be passed at both the Share Scheme Meetings. • the Share Scheme is fair and reasonable, and therefore in The required approval thresholds are set out in Part A of the best interests of Unrelated Seven Shareholders; and this Scheme Booklet. ACE has agreed to use all reasonable • the TELYS3 Scheme is fair and reasonable, and therefore endeavours to procure that the Related Holders vote in favour in the best interests of TELYS3 Holders. of the Share Scheme at the Related Holder Class Meeting.

A copy of the Independent Expert’s Report is set out in section The vote at the Share Scheme Meeting will be conducted by 6 of Part B of this Scheme Booklet. You are advised to read poll. All Seven Shareholders who are on the Share Register it carefully. as at 7.00pm (Sydney time) on 18 April 2010 will be entitled to vote at the relevant Share Scheme Meeting. (D) EXECUTION OF THE DEED POLL On 11 March 2010, SGH executed the Deed Poll pursuant to TELYS3 SCHEME MEETING which SGH agrees: There is only one class of TELYS3 Holders for the purposes of • subject to the Share Scheme becoming Effective and the TELYS3 Scheme, since no Related Holders hold any TELYS3. completion of the Purchase Agreement, to provide to The TELYS3 Scheme Meeting will be held at The Grand Ballroom, each Seven Shareholder on the Share Scheme Record Date The Westin Sydney, No. 1 Martin Place, Sydney, NSW 2000 on the Share Scheme Consideration to which that person 20 April 2010, commencing at 11.30am (Sydney time). is entitled under the Share Scheme and to issue to the For the TELYS3 Scheme to proceed, the TELYS3 Scheme Nominee such number of SGH Shares as are attributable Resolution must be passed at the TELYS3 Scheme Meeting.

86 Seven Network Limited Scheme Booklet – Part B The required approval thresholds are set out in of Part A of this the TELYS3 Scheme becoming Effective, it will bind Seven and Scheme Booklet. all of the TELYS3 Holders (including those who do not attend the TELYS3 Scheme Meeting or who do not vote at that meeting The vote at the TELYS3 Scheme Meetings will be conducted by or who vote against the TELYS3 Scheme at that meeting). poll. All TELYS3 Holders who are on the TELYS3 Register as at 7.00pm (Sydney time) on 18 April 2010 will be entitled to vote Seven will notify the ASX of the lodgement of the Court orders at the TELYS3 Scheme Meeting. in respect of either Scheme. It is expected that trading in Seven Shares on the ASX will be suspended from the close of trading NOTICES OF MEETING on the Effective Date for the Share Scheme and similarly, that The notice of meeting for the relevant Scheme Meeting is trading in TELYS3 on the ASX will be suspended from the close contained in Annexure 1 to Part A of this Scheme Booklet. of trading on the Effective Date for the TELYS3 Scheme.

(F) COURT ORDER APPROVING THE SCHEMES (H) APPOINTMENTS TO THE SGH BOARD In order to become Effective, each Scheme must be approved Following the Effective Date of the Share Scheme, but by the Court at the Second Court Hearing. Seven will: before it is implemented on the Implementation Date, all • apply to the Court for an order approving the Share Scheme Seven Directors who are not already directors of SGH will be if the Share Scheme is approved by the requisite majorities appointed to the SGH Board, so that the SGH Board comprises of Seven Shareholders voting at both the Unrelated Seven all existing Seven Directors plus Jim Walker. Shareholder Class Meeting and the Related Holder Class Meeting, and all other conditions precedent to the (I) COMPLETION OF ACQUISITION OF WESTRAC HOLDINGS Share Scheme (other than approval of the Court) have As set out in section 9.14(F)(1) of Part B of this Scheme Booklet, been satisfied or waived; and on 21 February 2010 SGH and ACE entered into the Purchase • apply to the Court for an order approving the TELYS3 Agreement in relation to the acquisition by SGH of all of the Scheme if the TELYS3 Scheme is approved by the requisite shares in WesTrac Holdings. That Purchase Agreement is subject majorities of TELYS3 Holders voting at the TELYS3 Scheme to a number of conditions precedent, including the conditions Meeting, and all other conditions precedent to the TELYS3 precedent to the Share Scheme being satisfied or waived. Scheme (other than approval of the Court) have been After the Second Court Hearing for the Share Scheme, but satisfied or waived. before the Effective Date, the transactions contemplated by the Each Seven Shareholder and TELYS3 Holder has the right to Purchase Agreement will come into effect. As a result of this, seek leave to appear at the Second Court Hearing and be heard WesTrac Holdings will become a wholly-owned subsidiary of in respect of the relevant Scheme. SGH. Further details about the Purchase Agreement are set out in section 9.4 of Part B of this Scheme Booklet. The Court may refuse to approve either or both of the Share Scheme and the TELYS3 Scheme, even if that Scheme has been (J) IMPLEMENTATION DATE OF EACH SCHEME approved by the requisite majorities of Seven Shareholders or The Implementation Date of the Share Scheme is the date which TELYS3 Holders, as appropriate. is 10 Business Days after the Effective Date of that Scheme. On the Implementation Date of the Share Scheme, SGH will issue (G) EFFECTIVE DATE OF EACH SCHEME the Share Scheme Consideration (being New SGH Shares) to If the Court approves the Share Scheme, Seven will lodge a persons who are Seven Shareholders on the Share Scheme copy of the orders of the Court approving the Share Scheme Record Date and all of the Seven Shares will be transferred with ASIC. The Share Scheme will become Effective on the date to WesTrac Holdings without any further action by Seven that lodgement occurs. This date is the Effective Date of the Shareholders. Seven will enter the name of WesTrac Holdings Share Scheme. Upon the Share Scheme becoming Effective, it in the Share Register in respect of all of those Seven Shares. will bind Seven and all of the Seven Shareholders (including those who do not attend the relevant Share Scheme Meeting Similarly, the Implementation Date of the TELYS3 Scheme is or who do not vote at that meeting or who vote against the the date which is 10 Business Days after the Effective Date Share Scheme at that meeting). of that Scheme. Assuming that there are no changes to the timetable for either Scheme, it is anticipated that the Similarly, if the Court approves the TELYS3 Scheme, Seven Implementation Date for both Schemes will be the same. On will lodge a copy of the orders of the Court approving the the Implementation Date for the TELYS3 Scheme, SGH will issue TELYS3 Scheme with ASIC and the TELYS3 Scheme will become the TELYS3 Scheme Consideration (being TELYS4) to TELYS3 Effective on the date that lodgement occurs. This date is the Holders on the TELYS3 Record Date and all of the TELYS3 will be Effective Date of the TELYS3 Scheme. Assuming that there are transferred to WesTrac Holdings without any further action by no changes to the timetable for either Scheme, it is anticipated TELYS3 Holders. Seven will enter the name of WesTrac Holdings that the Effective Date for both Schemes will be the same. Upon in the TELYS3 Register in respect of all of those TELYS3.

Section 4 87 (K) COMMENCEMENT OF TRADING OF SGH SHARES (A) CONDITIONS PRECEDENT TO THE SHARE SCHEME AND TELYS4 The following conditions precedent must be satisfied or waived SGH Shares and TELYS4 are expected to commence trading on at or before the Second Court Hearing. the ASX on a deferred settlement basis on 30 April 2010, with (1) CONDITIONS PRECEDENT FOR THE BENEFIT OF BOTH trading on a normal settlement basis expected to commence SEVEN AND ACE on 14 May 2010. Waiver of any breach or non-fulfilment of the following Seven Shareholders who trade in SGH Shares, or TELYS3 Holders condition requires the agreement in writing of both the IBC, who trade in TELYS4, during the deferred settlement period acting on behalf of Seven, and ACE: and prior to them receiving holding statements do so at their • Restraints: no temporary restraining order, preliminary or own risk. permanent injunction or other order issued by any court (L) DELISTING OF SEVEN of competent jurisdiction or Government Agency, or other material legal restraint or prohibition preventing the Share If both the Share Scheme and the TELYS3 Scheme are approved Scheme being in effect at 8.00am on the Second Court Date. and implemented, Seven will request the ASX to end official quotation of Seven Shares and TELYS3, and remove Seven from Any breach or non-fulfilment of the following conditions the official list of the ASX. cannot be waived:

If only the Share Scheme is approved and implemented, Seven • Regulatory approvals: the ASX issues or provides such will request the ASX to end official quotation of Seven Shares consents or approvals, or does such other acts, which but TELYS3 will remain quoted for trading on the ASX. Seven are necessary to implement the Share Scheme and will not be delisted. any Government Agency approvals that are necessary to implement the Share Scheme are obtained, either 4.3 SUMMARY OF THE IMPLEMENTATION DEED unconditionally or on terms acceptable to Seven and ACE, each acting reasonably, before 5.00pm on the Business Day The following is a summary of key terms of the Implementation before the Second Court Date; Deed. A full consolidated copy of the Implementation Deed • Court approval: the Court approves the Share Scheme in may be obtained by contacting the Seven Network Limited accordance with section 411(4)(b) of the Corporations Act; Information Line on 1300 656 831 (from within Australia, for the and cost of a local call) or +61 2 8986 9358 (from outside Australia). • Shareholder approval: Unrelated Seven Shareholders and Seven, SGH and ACE entered into the Implementation Deed Related Holder agree to the Share Scheme at the Unrelated on 21 February 2010, which was amended on 12 March 2010. Seven Shareholder Class Meeting and Related Holder Class The Implementation Deed sets out each party’s obligations in Meeting, respectively. connection with the implementation of the Recommended Proposal (including the Schemes). (2) CONDITIONS PRECEDENT FOR THE BENEFIT OF ACE ONLY The following conditions were included in the Implementation The Share Scheme is subject to: Deed for the sole benefit of ACE. Only ACE can waive any • conditions precedent that must be satisfied or waived breach or non-fulfilment of these conditions: at or before the Second Court Hearing; and • Seven Material Adverse Change: no Seven Material • conditions subsequent that must be satisfied or waived Adverse Change occurs, is announced or is otherwise after the Second Court Hearing in order for it to become discovered by SGH (whether or not it becomes public) Effective and be implemented. between the date of the Implementation Deed and 8.00am on the Second Court Date; The TELYS3 Scheme is also subject to conditions precedent and conditions subsequent, including that all of the conditions • Seven Prescribed Occurrence: no Seven Prescribed precedent to the Share Scheme are satisfied or waived. Occurrence occurs between the date of the Implementation Deed and 8.00am on the Second Court Date; and The following is a summary of the conditions to the Share • Seven Regulated Event: no Seven Regulated Event occurs Scheme and the TELYS3 Scheme. between the date of the Implementation Deed and 8.00am on the Second Court Date.

88 Seven Network Limited Scheme Booklet – Part B (3) CONDITIONS PRECEDENT FOR THE BENEFIT OF Second Court Date, such that the characterisation of the SEVEN ONLY TELYS3 cannot reasonably be altered from equity to debt The following conditions were included in the Implementation for tax purposes prior to the Implementation Date, provided Deed for the sole benefit of Seven. Only the IBC, acting on that this event will not constitute an SNL Regulated Event behalf of Seven, can waive any breach or non-fulfilment of if all the conditions precedent to the TELYS3 Scheme are these conditions: satisfied, provided that: • SGH Material Adverse Change: no SGH Material Adverse – SNL and ACE have, during a period of 30 days after Change occurs, is announced or is otherwise discovered the receipt of the draft ruling, guidance or letter from by Seven between the date of the Implementation Deed the Australian Taxation Office or such lesser period as and 8.00am on the Second Court Date; exists between receipt and the day before the court • SGH Prescribed Occurrence: no SGH Prescribed hearing, not agreed an alternative which will deliver a Occurrence occurs between the date of the Implementation comparable outcome; and Deed and 8.00am on the Second Court Date; – the conditions precedent to the TELYS3 Scheme, other • SGH Regulated Event: no SGH Regulated Event occurs than the condition precedent in clause 3.2(c) (relating between the date of the Implementation Deed and 8.00am to Court approval of the TELYS3 Scheme) and this clause on the Second Court Date; 3.1(p), have not been satisfied. • Caterpillar consent: before 5.00pm on the Business Day (B) CONDITIONS PRECEDENT TO THE TELYS3 SCHEME before the Second Court Date, Caterpillar S.A.R.L., Singapore The TELYS3 Scheme is conditional on the Share Scheme being Branch and Caterpillar China has confirmed to ACE that approved by Seven Shareholders and the Court. If the Share it consents under the Caterpillar dealer agreements to Scheme is not approved, the TELYS3 Scheme will not be the transactions which take place pursuant to the Share implemented irrespective of whether it is approved by TELYS3 Scheme and the Purchase Agreement; Holders or the Court. • ACE certificate: before 5.00pm on the Business Day before the Second Court Date, ACE has given a certificate to The following conditions precedent must be satisfied or waived Seven confirming that all conditions to the consent from at or before the Second Court Hearing. Caterpillar S.A.R.L., Singapore Branch and Caterpillar China (1) CONDITIONS PRECEDENT FOR THE BENEFIT OF BOTH (referred to above) have been satisfied; SEVEN AND ACE • Transaction documents: none of the Purchase Agreement, Waiver of any breach or non-fulfilment of the following China Tax Indemnity or National Hire Market Value Deed conditions requires the agreement in writing of both the IBC, is terminated, amended, varied, assigned or novated, or acting on behalf of Seven, and ACE: otherwise terminated, ceases to have legal effect or is • Restraints: no temporary restraining order, preliminary or becomes unenforceable (wholly or partly), between or permanent injunction or other order issued by any the date of the Implementation Deed and 8.00am on the court of competent jurisdiction or other legal restraint or Second Court Date; prohibition preventing the TELYS3 Scheme being in effect • Tax ruling: the ATO gazettes applicable rulings before as at 8.00am on the Second Court Date; and 8.00am on the Second Court Date confirming that capital • Conditional listing: before 5.00pm on the Business Day gains tax rollover relief will be available for Australian before the Second Court Date the TELYS4 to be issued resident Scheme Shareholders in relation to the Share under the TELYS3 Scheme have been approved for official Scheme Consideration; and quotation on the ASX (subject only to the issue of the • Conditional listing: before 5.00pm on the Business Day TELYS4 and the submission of all information required by before the Second Court Date, SGH has been approved Appendix 3B of the Listing Rules), which approval may be for admission to the official list of the ASX and the SGH subject to customary conditions. Shares to be issued to Scheme Shareholders under the Share Scheme and the SGH Shares to be issued pursuant Any breach or non-fulfilment of the following conditions to the Purchase Agreement have been approved for official cannot be waived: quotation on the ASX (subject only to the issue of the SGH • Share Scheme conditions: each of the conditions Shares on implementation of the Share Scheme and the precedent to the Share Scheme (see section 4.3(A) of Part B submission of all information required by Appendix 3B of this Scheme Booklet) have been satisfied or waived; of the Listing Rules), which approval may be subject to • Regulatory approvals: the ASX issues or provides such customary conditions. consents or approvals, or does such other acts, which • TELYS3 tax ruling: a draft ruling is (or draft rulings are), are necessary to implement the TELYS3 Scheme and administrative guidance or a letter is not provided by the any Government Agency approvals that are necessary Australian Taxation Office to SNL before 8.00am on the to implement the TELYS3 Scheme are obtained, either

Section 4 89 unconditionally or on terms acceptable to Seven acting Scheme arises from a failure to satisfy or waive one of the reasonably before 5.00pm on the Business Day before the conditions to the Share Scheme). Second Court Date; As at the date of this Scheme Booklet, neither Seven nor SGH is • Court approval: the Court approves the TELYS3 Scheme in aware of any circumstances which would cause the outstanding accordance with section 411(4)(b) of the Corporations Act; and conditions not to be satisfied or waived in accordance with the • TELYS3 Holder approval: TELYS3 Holders agree to the terms of the Implementation Deed. TELYS3 Scheme at the TELYS3 Scheme Meeting by the requisite majorities under the Corporations Act. (E) TERMINATION OF THE SCHEMES Either Seven, SGH or ACE may terminate the Implementation (2) CONDITION PRECEDENT FOR THE BENEFIT OF Deed by notice in writing to the other parties: SEVEN ONLY The following condition was included in the Implementation (1) before 8.00am on the Second Court Date, if: Deed for the sole benefit of Seven. Only the IBC, acting on (A) in the case of termination by Seven, SGH or ACE or behalf of Seven, can waive any breach or non-fulfilment of both is in material breach of any provision of the this condition: Implementation Deed; or • Tax ruling: the ATO gazettes applicable rulings before (B) in the case of termination by SGH or ACE, Seven 8.00am on the Second Court Date confirming that capital has materially breached any provision of the gains tax rollover relief will be available for Australian Implementation Deed, resident Scheme TELYS3 Holders in relation to the TELYS3 and the non-defaulting party has given prompt Scheme Consideration. written notice to the defaulting party setting out the circumstances and stating an intention to terminate (C) CONDITIONS SUBSEQUENT TO THE SHARE SCHEME and the relevant circumstances continue to exist for 10 AND THE TELYS3 SCHEME Business Days (or such shorter period ending at 5.00pm In addition to the satisfaction of the conditions precedent on the day before the Second Court Date) from the time above, the following condition subsequent must be satisfied or the notice is given; waived in order for the Share Scheme and the TELYS3 Scheme (2) before 8.00am on the Second Court Date if a Court or to become Effective and be implemented. Government Agency has taken any action permanently • Each of: restraining or otherwise prohibiting the Share Scheme, or – “Completion” (as defined in the Purchase Agreement) has refused to do anything necessary to permit the Share having occurred; and Scheme, and the action or refusal has become final and – before “Completion” the Purchase Agreement not cannot be appealed; having been amended, varied, assigned or novated, and (3) if the Share Scheme is not approved by the requisite SGH not having waived any right or entitlement under majorities of Seven Shareholders required under the the Purchase Agreement, in each case without the prior Corporations Act; written approval of the IBC, acting on behalf of Seven. (4) if at least a majority of the Independent Seven Directors (D) STATUS OF CONDITIONS changes or withdraws their recommendation; or As at the date of this Scheme Booklet, the conditions have not (5) if the Share Scheme has not become effective by the End yet been satisfied. Date (30 September 2010) or any event occurs which would or does prevent a condition preceding being satisfied and it If any of the remaining conditions to the Share Scheme are not is not waived; satisfied or waived by the time specified for their satisfaction (6) before 8.00am on the Second Court Date: or if there is an omission or occurrence which will prevent a (A) SGH or ACE may terminate if Seven is in breach of a condition from being satisfied by the time so specified or, if no representation or warranty and Seven has been given date is specified, by the End Date, Seven or SGH may terminate written notice setting out the relevant circumstances and the Implementation Deed and the Schemes will not proceed. the intention to terminate, the loss that could reasonably If any of the remaining conditions to the TELYS3 Scheme be expected to flow from such breach would exceed are not satisfied or waived by the time specified for their $50 million in aggregate and the breach continues to satisfaction or if there is an omission or occurrence which exist five Business Days (or such shorter period ending will prevent a condition from being satisfied by the time so at 5.00pm on the Business Day before the Second Court specified or, if no date is specified, by the End Date, the TELYS3 Date) from the time the notice is given; and Scheme will not proceed, but Seven or SGH will not be entitled (B) Seven may terminate if ACE is in breach of a to terminate the Implementation Deed on this basis (unless the representation or warranty and ACE and SGH have failure to satisfy or waive a condition precedent to the TELYS3 been given written notice setting out the relevant

90 Seven Network Limited Scheme Booklet – Part B circumstances and the intention to terminate, the loss that a Released Party) of its rights, and agrees with those other could reasonably be expected to flow from such breach parties that it will not make a claim, against any director, would exceed $50 million in aggregate and the breach officer or employee of the Released Party or any related body continues to exist five Business Days (or such shorter corporate of the Released Party (Released Party Group) as at period ending at 5.00pm on the Business Day before the the date of the Implementation Deed in connection with: Second Court Date) from the time the notice is given. (1) any breach of any representations, covenants and Further, SGH or ACE may terminate the Implementation Deed warranties of the Released Party or any other member by notice in writing to Seven if at any time before 8.00am of the Released Party Group); or on the Second Court Date any Independent Seven Director (2) any disclosures containing any statement which is false changes or withdraws their recommendation that Seven or misleading whether in content or by omission, Shareholders vote in favour of the Share Scheme or makes a except where the relevant director, officer or employee has not public statement indicating that they no longer support the acted in good faith or has engaged in wilful misconduct. Recommended Proposal or support another transaction. (3) CONSULTATION REGARDING TELYS3 TAX RULING Seven may also terminate the Implementation Deed by seven Seven is obliged to keep ACE informed and consult with ACE in days’ notice in writing to SGH and ACE if at any time before the relation to the TELYS3 tax ruling application the subject of the Share Scheme Meetings, any one of the Independent Seven condition precedent in clause 3.1(p). Directors changes or withdraws their recommendations because: (1) the Independent Expert provides a report to Seven that (4) GOOD FAITH ALTERNATIVE concludes that the Share Scheme or the TELYS3 Scheme If, before the date of the Scheme Meetings, the ATO gives any is not in the best interests of Unrelated Seven Shareholders indication that it may not grant the tax ruling the condition or TELYS3 Holders; precedent in clause 3.1(p) before the scheduled Scheme (2) Seven receives a proposal that is a “Superior Proposal” Meeting: (as defined in the Implementation Deed) that is publicly • Seven may, after consultation with ACE and if Seven announced; or considers it necessary, adjourn the Scheme Meetings to (3) the Independent Seven Directors determine, in good faith, allow additional time for this condition to be satisfied and supported by written advice from the IBC’s financial and legal for alternatives to be considered. If the Scheme Meeting advisers, that their fiduciary duties require them to do so, date is extended, the later dates in the timetable will be and by the end of that seven day period the extended correspondingly, to as late as a deadline of 30 recommendation(s) have not been reinstated. June 2010 for the Implementation Date; and • Seven will use its reasonable endeavours and work with Seven may also terminate the Implementation Deed if the ACE in good faith to agree an alternative which would Purchase Agreement is terminated. deliver a comparable outcome.

(F) OTHER TERMS OF THE IMPLEMENTATION DEED (5) SEVEN DIRECTORS’ RECOMMENDATIONS (1) IMPLEMENTATION The Independent Seven Directors will recommend Seven Each of Seven, SGH and ACE is obliged to take all steps Shareholders vote in favour of the Share Scheme and TELYS3 necessary to implement the Scheme in accordance with the Holders vote in favour of the TELYS3 Scheme, but their applicable timetable, including the provision of information recommendation may be altered or withdrawn if: and the seeking of regulatory and court approvals. Further, • the Independent Expert provides a report to Seven that each of Seven and SGH are obliged to carry on their respective concludes that the Share Scheme or the TELYS Scheme businesses in the ordinary and proper course that is generally is not in the best interests of the Unrelated Seven consistent with the manner in which each of those businesses Shareholders or the TELYS3 Holders (as appropriate); or have previously been conducted. • Seven has received a “Superior Proposal” that is publicly (2) REPRESENTATIONS AND WARRANTIES announced; or Each of Seven and ACE give representations and warranties • the Independent Seven Directors determine that their fiduciary that are normal for a transaction such as the Recommended duties require them to change their recommendation. Proposal, including representations and warranties as to If Seven receives a “Superior Proposal”, it must not accept or information to be contained in this Scheme Booklet and recommend that proposal until it has informed SGH and ACE compliance with disclosure obligations. of reasonable details of that proposal and given them the Subject to any Corporations Act restriction, each party to the opportunity to match it. Scheme Implementation Deed (Releasing Party) releases directors, officers and employees of the other parties (each

Section 4 91 (6) GENERAL Share Scheme Record Date, and each entry on the TELYS3 The Implementation Deed contains specific provisions dealing Register at the TELYS3 Scheme Record Date, will cease to have with transitional issues, including the appointment of Seven any effect other than as evidence of entitlement to the Share Directors to the board of SGH, and obtaining the agreement of Scheme Consideration or TELYS3 Scheme Consideration (as option holders to the cancellation of their existing Seven Options appropriate). in consideration for new options over unissued SGH Shares. On the Implementation Date for the Share Scheme, Scheme Shareholders entitled to New SGH Shares will be issued those 4.4 DETERMINATION OF ENTITLEMENTS UNDER shares and have their name and address entered into the THE SCHEMES register of holders of SGH Shares. Holding statements for the Only Seven Shareholders whose names appear on the Share New SGH Shares will be despatched within 10 Business Days Register at the Share Scheme Record Date will be entitled to of the Implementation Date for the Share Scheme. receive the Share Scheme Consideration. The Share Scheme Record Date is currently expected to be 6 May 2010. Similarly, on the Implementation Date for the TELYS3 Scheme, Scheme TELYS3 Holders entitled to TELYS4 will be issued those Similarly, only TELYS3 Holders whose names appear on the shares and have their name and address entered into the TELYS3 Register at the TELYS3 Scheme Record Date will be register of holders of TELYS4. Holding statements for TELYS4 will entitled to receive the TELYS3 Scheme Consideration. The be despatched within 10 Business Days of the Implementation TELYS3 Scheme Record Date is currently expected to be Date for the TELYS3 Scheme. 7.00pm, Sunday 18 April 2010. It is anticipated that absent a delay in respect of either Scheme, the Share Scheme Record In the case of each Seven Shareholder or TELYS3 Holder entitled Date and the TELYS3 Scheme Record Date will be the same. to SGH Shares or TELYS4: • if they held their Seven securities on the CHESS For the purposes of establishing which Seven Shareholders subregister, the New SGH Shares or TELYS4 to which they and TELYS3 Holders are entitled to receive the Share Scheme are entitled will be held on the CHESS subregister on the Consideration and the TELYS3 Scheme Consideration, Implementation Date for the relevant Scheme; and respectively, dealings in Seven Shares and TELYS3 will only • if they held their Seven securities on the issuer sponsored be recognised if: subregister, the New SGH Shares or TELYS4 to which they (1) in the case of dealings of the type to be effected using are entitled will be held on the issuer sponsored subregister CHESS, the transferee is registered in the Share Register or on the Implementation Date for the relevant Scheme. the TELYS3 Register (as appropriate) as the holder of the relevant Seven Shares or TELYS3 by the Scheme Record In the case of Scheme Shareholders or Scheme TELYS3 Holders Date for the relevant Scheme; and who hold their Seven securities in joint names, the New SGH (2) in all other cases, registrable transfers or transmission Shares or TELYS4 to be issued to them under the Share Scheme applications in respect of those dealings are received at will be issued to, and registered in the name of, the joint the place where the Share Register or the TELYS3 Register holders, and the holding statement will be sent to the holder (as appropriate) is kept by 5.00pm (Sydney time) on the day whose name appeared first on the Share Register or TELYS3 on which the relevant Scheme Record Date occurs (in which Register on the relevant Scheme Record Date. case Seven must register such transfers before the relevant It is the responsibility of Scheme Shareholders and Scheme Scheme Record Date). TELYS3 Holders to confirm their holdings of SGH Shares or Subject only to subparagraph 1 above, Seven will not accept for TELYS4 (as appropriate) before trading in those securities to registration, or recognise for the purpose of establishing who avoid the risk of selling securities that they do not own. Scheme is entitled to Share Scheme Consideration or TELYS3 Scheme Shareholders who sell New SGH Shares, and Scheme TELYS3 Consideration, any transfer or transmission application in Holders who sell TELYS4, before they receive their holding respect of Seven Shares or TELYS3 received after these times. statement do so at their own risk. Seven, SGH and the Seven Registry disclaim all liability (to the maximum extent permitted All certificates and statements of holding for Seven Shares by law) to persons who trade New SGH Shares or TELYS4 before held by Seven Shareholders on the Share Scheme Record receiving their holding statements. Date and all certificates and statements of holding for TELYS3 held by TELYS3 Holders on the TELYS3 Scheme Record Date Further information about the Share Scheme Consideration and will, following the relevant Scheme Record Date, cease to the TELYS3 Scheme Consideration (including details of when it have any effect as documents of title in respect of such Seven will be provided) is set out in Part A of this Scheme Booklet. Shares or TELYS3. Each entry on the Share Register at the

92 Seven Network Limited Scheme Booklet – Part B 4.5 FOREIGN SEVEN SHAREHOLDERS AND in accordance with the Securities Act (Overseas Companies) TELYS3 HOLDERS Exemption Notice 2002 (New Zealand) (Exemption Notice). GENERAL Under the terms of the Exemption Notice, this Scheme Booklet is not required to be, and has not been, registered in New Restrictions in certain foreign countries may make it impractical Zealand under or in accordance with the Securities Act 1978 or unlawful for SGH Shares or TELYS4 to be offered or issued (New Zealand). Under the offer of New SGH Shares and TELSY4 under the Schemes to Seven Shareholders and TELYS3 under this Scheme Booklet, other than to the extent permitted Holders, respectively, located in those countries, or for Seven by the Exemption Notice, no securities may be offered or sold Shareholders or TELYS3 Holders located in those countries to to the public within New Zealand or allotted with a view to receive SGH Shares or TELYS4 under the Schemes. being offered for sale in New Zealand, and no member of the Any Seven Shareholder whose address in the Share Register is public in New Zealand may accept the offer of New SGH Shares outside of Australia and its external territories, New Zealand, and TELSY4 under this Scheme Booklet, other than Seven Hong Kong, the UK, the US and Canada will be an “Ineligible Shareholders and TELSY3 Holders with registered addresses Foreign Holder” for the purposes of the Share Scheme, unless in New Zealand. ACE determines that it is lawful and not unduly onerous or NOTICE TO SEVEN SHAREHOLDERS IN THE UNITED impractical to issue SGH shares to that person. STATES OF AMERICA Any TELYS3 Holder whose address in the TELYS3 Register is The New SGH Shares to be issued pursuant to the Share outside of Australia and its external territories, New Zealand Scheme have not been, and will not be, registered under the or Hong Kong will be an “Ineligible Foreign Holder” for the United States Securities Act of 1933, as amended (Securities Act), purposes of the TELYS3 Scheme and the TELYS4 Offer. or the securities laws of any other US jurisdiction, and may not be offered or sold in the United States absent registration or an Seven Shareholders and TELYS3 Holders who are Ineligible exemption from registration under the Securities Act. Foreign Holders will not be issued with SGH Shares or TELYS4 under the Schemes, but will instead receive a cash payment Any New SGH Shares issued pursuant to the Schemes will following the sale of those securities by the Nominee. For further be issued in reliance on the exemption from the registration details about the sale of SGH Shares and TELYS4 by the Nominee requirements of the Securities Act provided in section 3(a)(10) on behalf of Ineligible Foreign Holders, see Part A of this Scheme of the Securities Act. Booklet. If you are an Ineligible Foreign Holder and do not wish If the Court approves the Share Scheme, its approval will that the Nominee sell your New SGH Shares or TELYS4 if the constitute the basis for the New SGH Shares to be issued under Schemes are approved and implemented, you can choose to the relevant Scheme in reliance on the exemption from the not participate in the Schemes by selling your Seven Shares and registration requirements of the Securities Act provided by TELYS3 before the Effective Date for the relevant Scheme. section 3(a)(10). Subject to the foregoing, this Scheme Booklet, the Schemes Persons who are not, who have not been for the 90 days and the Recommended Proposal do not, either individually or preceding implementation of the Schemes and who will not be in combination, constitute any offer or invitation to issue or sell following the implementation of the Schemes, affiliates of SGH, any securities in Seven or SGH to any person in any jurisdiction may resell their New SGH Shares in the US without restriction outside of Australia and its external territories, New Zealand, under the Securities Act. the UK, the US and Canada. SGH Shares received pursuant to the Share Scheme by any This Scheme Booklet has been prepared having regard to person who may be deemed to be an “affiliate” (as defined Australian disclosure requirements and Australian accounting in Rule 144 of the Securities Act) of SGH, including, without standards. These disclosure requirements and accounting limitation, directors and certain executive officers, may not standards may be different from those in other countries. be resold in the United States except in accordance with It is important that Seven Shareholders and TELYS3 Holders the provisions of Rule 144 under the Securities Act, outside who are not Australian resident taxpayers or who are liable for the United States in reliance upon Regulation S under the tax outside Australia seek specific tax advice in relation to the Securities Act, or as otherwise permitted under the Securities Australian and overseas tax consequences of the relevant Scheme. Act. No representation is made as to the availability of the exemption provided by Rule 144 of the Securities Act. NOTICE TO SEVEN SHAREHOLDERS AND TELYS3 HOLDERS IN NEW ZEALAND It may be difficult for you two enforce your rights and any claim The New SGH Shares and TELYS4 to be issued pursuant to the you may have arising under United States federal securities laws, Schemes are also being offered to Seven Shareholders and because SGH is located in Australia, and some or all of its officers TELSY3 Holders with registered addresses in New Zealand and directors are residents of Australia. You may not be able to

Section 4 93 sue SGH or its officers or directors in Australia for violations of The contents of this Scheme Booklet have not been reviewed United States securities laws. It may be difficult to compel SGH by any regulatory authority in Hong Kong. You are advised to and its affiliates to subject themselves to a United States court’s exercise caution in relation to its contents. If you are in any judgement or the jurisdiction of a United States Court. doubt about any of the contents of the Scheme Booklet, you should obtain independent professional advice. This Scheme Booklet has not been filed with or reviewed by the United States Securities and Exchange Commission or any This Scheme Booklet is being distributed by Seven only to, and United States state securities authority and none of them has is directed at Seven Shareholders and TELYS3 Holders falling passed upon or endorsed the merits of the Scheme or the within Article 43 of the Financial Services and Markets Act 2000 accuracy, adequacy or completeness of this Scheme Booklet. (Financial Promotion) Order 2005 and other persons to whom Any representation to the contrary is a criminal offence. it may otherwise be lawfully communicated (all such persons together being referred to as “relevant persons”). The TELYS4 NOTICE TO SEVEN SHAREHOLDERS IN HONG KONG are available only to relevant persons, and any invitation, offer AND UNITED KINGDOM or agreement to subscribe, purchase or otherwise acquire the This Scheme Booklet is for the exclusive use of Seven TELYS4 will be engaged in only with relevant persons. Any Shareholders in connection with the Schemes. Accordingly, person who is not a relevant person should not act or rely on this Scheme Booklet must not be distributed, published, this Scheme Booklet or any of its contents. reproduced or disclosed (in whole or in part) by Seven Shareholders to any other person in Hong Kong or the United NOTICE FOR SEVEN SHAREHOLDERS IN CANADA Kingdom or used for any purpose in Hong Kong or the United This Scheme Booklet is not, and under no circumstances is Kingdom other than in connection with Seven Shareholders’ to be construed as, an advertisement or a public offering consideration of the relevant Scheme. This Scheme Booklet of securities in Canada or any province or territory thereof. does not constitute an offer or invitation for the subscription, This Scheme Booklet is not a qualified prospectus for purposes sale or purchase of securities in Hong Kong or the United of applicable Canadian provincial securities laws. No securities Kingdom and shall not form the basis of any contract. commission or similar regulatory authority in Canada has reviewed or in any way passed upon this Scheme Booklet or The contents of this Scheme Booklet have not been reviewed by the merits of these securities, and any representation to the any regulatory authority in Hong Kong or the United Kingdom. contrary is an offence. You are advised to exercise caution in relation to its contents. If you are in any doubt about any of the contents of the Scheme The New SGH Shares to be delivered to shareholders resident Booklet, you should obtain independent professional advice. in Canada under the Share Scheme have not been qualified for distribution to the public in Canada and may not be resold This Scheme Booklet is being distributed by Seven only to, in Canada except pursuant to a prospectus filed with the and is directed at Seven Shareholders falling within Article relevant Canadian securities regulatory authorities, or under 43 of the Financial Services and Markets Act 2000 (Financial an exemption from the prospectus requirements of applicable Promotion) Order 2005 and other persons to whom it may Canadian securities laws. Seven Shareholders resident in Canada otherwise be lawfully communicated (all such persons together should consult their own advisers prior to any resale of the New being referred to as “relevant persons”). The New SGH Shares SGH Shares they receive in connection with the Share Schemes. are available only to relevant persons, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire the 4.6 EFFECT OF THE SCHEMES New SGH Shares will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely (A) SEVEN SHAREHOLDERS on this Scheme Booklet or any of its contents. If the Share Scheme becomes Effective, each Seven Shareholder as at the Share Scheme Record Date: NOTICE TO TELYS3 HOLDERS IN HONG KONG • agrees to transfer their Seven Shares to WesTrac Holdings in This Scheme Booklet is for the exclusive use of TELYS3 Holders accordance with the Share Scheme; in connection with the TELYS3 Scheme and the TELYS4 Offer. • agrees to any variation, cancellation or modification of the Accordingly, this Scheme Booklet must not be distributed, rights attached to their Seven Shares constituted by, or published, reproduced or disclosed (in whole or in part) by resulting from, the Share Scheme; TELYS3 Holders to any other person in Hong Kong or used • who is issued New SGH Shares under the Share Scheme, for any purpose in Hong Kong other than in connection with agrees to become a shareholder of SGH and to be bound TELYS3 Holders’ consideration of the TELYS3 Scheme or the by the SGH Constitution; and TELYS4 Offer. This Scheme Booklet does not constitute an offer • who is an Ineligible Foreign Holder, agrees and acknowledges or invitation for the subscription, sale or purchase of securities that the payment to it of its pro rata share of the proceeds in Hong Kong and shall not form the basis of any contract. of the sale of all New SGH Shares attributable to Ineligible

94 Seven Network Limited Scheme Booklet – Part B Foreign Holders constitutes the satisfaction in full of its • agrees to transfer their TELYS3 to WesTrac Holdings in entitlement in and to any Share Scheme Consideration, accordance with the TELYS3 Scheme; • agrees to any variation, cancellation or modification of the and on the Implementation Date for that Scheme: rights attached to their TELYS3 constituted by, or resulting • the Seven Shares held by Scheme Shareholders will be from, the TELYS3 Scheme; transferred to WesTrac Holdings without the need for any • who is issued TELYS4 under the TELYS3 Scheme, agrees to further action by Scheme Shareholders; become a shareholder of SGH and to be bound by the SGH • Seven will enter the name of WesTrac Holdings in the Share Constitution and the TELYS4 Terms of Issue; and Register in respect of all the Seven Shares; • who is an Ineligible Foreign Holder, agrees and • save as set out in section 4.5 of Part B of this Scheme acknowledges that the payment to it of its pro rata share Booklet with respect to Ineligible Foreign Holders, SGH will of the proceeds of the sale of all TELYS4 attributable to issue one New SGH Share to each Scheme Shareholder for Ineligible Foreign Holders constitutes the satisfaction each Seven Share held by the Scheme Shareholder as at the in full of its entitlement in and to any TELYS3 Scheme Scheme Record Date; Consideration, • save as set out in section 4.5 of Part B of this Scheme Booklet with respect to Ineligible Foreign Holders, SGH will and on the Implementation Date for that Scheme: enter the name of each Scheme Shareholder in its register • the TELYS3 held by Scheme TELYS3 Holders will be transferred of members as the holder of the New SGH Shares issued to to WesTrac Holdings without the need for any further action it pursuant to the Share Scheme; and by Scheme TELYS3 Holders; • within 10 Business Days of the Implementation Date, • Seven will enter the name of WesTrac Holdings in the SGH will send, or procure the despatch, to each Scheme TELYS3 Register in respect of all the TELYS3; Shareholder by pre-paid post to the person’s address • save as set out in section 4.5 of Part B of this Scheme as shown in the Share Register at the Record Date, Booklet with respect to Ineligible Foreign Holders, SGH will uncertificated holding statements for the New SGH Shares issue one TELYS4 to each Scheme TELYS3 Holder for each issued to them under the Share Scheme. In the case of joint TELYS3 held by the Scheme TELYS3 Holder as at the TELYS3 shareholders, the holding statement will be sent to the Scheme Record Date; address of the Scheme Shareholder whose name appears • save as set out in section 4.5 of Part B of this Scheme first in the Share Register. Booklet with respect to Ineligible Foreign Holders, SGH will The TELYS3 Scheme will not, of itself, affect Seven Shareholders enter the name of each Scheme TELYS3 Holder in its register since the TELYS3 Scheme is conditional upon the Share Scheme of members as the holder of the TELYS4 issued to them being approved and implemented, which will have the effects pursuant to the TELYS3 Scheme; and described above. • within 10 Business Days of the TELYS3 Implementation Date, SGH will send, or procure the despatch, to each (B) TELYS3 HOLDERS Scheme TELYS3 Holder by pre-paid post to the person’s If the Share Scheme is approved and implemented, Seven will address as shown in the TELYS3 Register at the TELYS3 become a wholly-owned subsidiary of WesTrac Holdings and, Record Date, uncertificated holding statements for the indirectly, SGH. TELYS4 issued to them under the TELYS3 Scheme. In the case of joint shareholders, the holding statement will be If the TELYS3 Scheme is also approved and implemented, sent to the address of the Scheme TELYS3 Holder whose TELYS3 Holders will in effect exchange their TELYS3 for TELYS4 name appears first in the TELYS3 Register. and thereby become holders of preference shares issued by Seven’s new ultimate parent, SGH. On the other hand, if the If the TELYS3 Scheme is not approved and implemented, the TELYS3 Scheme is not implemented, all TELYS3 will not be TELYS3 Undertaking will become effective on the date of acquired by WesTrac Holdings and TELYS3 Holders will remain completion of the Purchase Agreement. the holders of preference shares issued by Seven once it is a wholly-owned subsidiary of SGH. (C) INELIGIBLE FOREIGN HOLDERS Seven Shareholders who are Ineligible Foreign Holders will not The TELYS3 Terms of Issue do not confer any rights of be issued with New SGH Shares but will instead receive a cash redemption, conversion or similar on TELSY3 Holders as a payment. Similarly, TELYS3 Holders who are Ineligible Foreign result of the Recommended Proposal or the approval or Holders will not be issued with TELYS4 but will instead receive implementation of the TELYS3 Scheme. a cash payment.

If the TELYS3 Scheme becomes Effective, each TELYS3 Holder as The New SGH Shares that would have been issued to Scheme at the TELYS3 Scheme Record Date: Shareholders under the Share Scheme, and the TELYS4 that

Section 4 95 would have been issued to Scheme TELYS3 Holders under the If the Recommended Proposal is implemented, it will be a matter TELYS3 Scheme, will be issued to the Nominee who will, as for the reconstituted SGH Board to determine its intentions soon as possible after the Implementation Date: in relation to matters including the future utilisation of these • in the ordinary course of trading on the ASX, sell the persons services and the employment of the present employees SGH Shares and TELYS4 allotted to it as Nominee for the of subsidiaries of Seven. However, SGH’s current intention is to benefit of the Ineligible Foreign Holders on the ASX in retain all or almost all of Seven’s current employees. such manner, at such price and on such other terms as the Certain Seven executives may be re-employed by SGH after the Nominee thinks fit in its absolute discretion (and at the risk Recommended Proposal. of the relevant Ineligible Foreign Holder); and • account to Ineligible Foreign Holders the net proceeds of sale Accordingly, the Recommended Proposal should have a (on an averaged basis so that all Ineligible Foreign Holders minimal impact on Seven employees. who would otherwise have been issued New SGH Shares The statements of intention contained in this section (F) are receive the same price per SGH Share, and all Ineligible Foreign based on information concerning Seven, its business and Holders who would otherwise have been issued TELYS4 receive the Seven employees that is known to SGH as at the date of the same price per TELYS4, in each case subject to rounding this Scheme Booklet. They are statements of SGH’s current down to the nearest whole cent), and any income referable to intentions only, which may change as new information those SGH Shares or TELYS4, after deduction of any applicable becomes available or circumstances change. brokerage, stamp duty and other costs, taxes and charges.

SGH will procure the payment of the relevant fraction of the net 4.7 WARRANTIES FROM SEVEN SHAREHOLDERS proceeds of sale referred to above to each Ineligible Foreign AND TELYS3 HOLDERS Holder by pre-paid post to that person’s registered address at The Share Scheme provides that each Seven Shareholder is the Record Date for the relevant Scheme. This will be paid by deemed to have warranted to Seven and SGH to the extent way of a cheque in the name of that Ineligible Foreign Holder permitted by law, that: for the relevant amount (denominated in Australian currency) a. all their Seven Shares (including any rights attaching to in full satisfaction of their right to Share Scheme Consideration those shares) which are transferred under the Share Scheme or TELYS3 Scheme Consideration, as appropriate. will, at the date of transfer, be fully paid and free from all mortgages, charges, liens, encumbrances and interests of There is no assurance as to the average price the Nominee third parties of any kind, whether legal or otherwise, and will receive for New SGH Shares or TELYS4 sold on behalf any restrictions on transfer of any kind; and of Ineligible Foreign Holders. The average price received will depend on prevailing market conditions (including b. they have full power and capacity to transfer their Seven the prevailing market price of SGH Shares and TELYS4), the Shares together with any rights attaching to those shares. prevailing market demand for SGH Shares and TELYS4, and The TELYS3 Scheme contains a warranty, given by each Scheme maintaining an orderly market in SGH Shares and TELYS4. TELYS3 Holder to Seven and SGH in the same terms with respect (D) SEVEN OPTION HOLDERS to the Scheme TELYS3 transferred under the TELYS3 Scheme. Details in respect of Seven Option Holders are set out in Seven Shareholders and TELYS3 Holders should note these section 9.9 of Part B of this Scheme Booklet. warranties that they will be deemed to have given under (E) CREDITORS OF SEVEN clause 7.3 of the Share Scheme and clause 7.3 of the TELYS3 Scheme, respectively. Copies of the Schemes are set out in The Schemes, if implemented, will not materially prejudice sections 11 and 12 of Part B of this Scheme Booklet. Seven’s ability to pay its creditors as it involves the acquisition of the Seven Shares and TELYS3 rather than Seven’s underlying In addition, under the terms of the TELYS4 Offer, a TELYS3 assets. No material new liability (other than transaction costs) Holder who accepts the TELYS4 Offer gives a warranty to Seven is expected to be incurred by Seven as a consequence of the and SGH that at the time of acceptance and at the time of the implementation of the Schemes. Seven has paid and is paying transfer of TELYS3 to WesTrac Holdings, WesTrac Holdings will all its creditors within normal terms of trade, is solvent and is acquire good title to the TELYS3 and full beneficial ownership trading in an ordinary commercial manner. of them free from all mortgages, charges, liens, encumbrances and interests of third parties of any kind, whether legal or (F) EMPLOYEES OF SEVEN otherwise, and any restrictions on transfer of any kind and the The personnel whose services are used by Seven are employees TELYS3 Holder will have full power and capacity to transfer their of SMG. Their services are supplied to Seven under re-charge TELYS3 together with any rights attaching to those TELYS3. arrangements agreed by KKR.

96 Seven Network Limited Scheme Booklet – Part B 5 RISK FACTORS ASSOCIATED WITH THE RECOMMENDED PROPOSAL

Section 5 97 Under the Recommended Proposal, Seven Shareholders and 5.1 RISK FACTORS ASSOCIATED WITH SEVEN TELYS3 Holders are entitled to elect to receive SGH Shares and The business activities of Seven are subject to various risks TELYS4 (respectively) under the Schemes. The value of SGH and there are many factors which may impact on the future Shares and TELYS4 will be influenced by a range of factors, performance and position of Seven. These risks are both many of which are beyond the control of SGH. The risk factors specific to Seven and also relate to general commercial in this section 5 describe some key risks that may adversely and economic risks. These risks may, either individually or affect an investment in SGH. These risk factors are divided into in combination, affect the future operating and financial risks associated with: performance of Seven and the value of Seven Shares. • share ownership in general (including both SGH Shares and TELYS4); The risk factors include, but are not limited to, the risks set • the media business, and other investments, currently out in this section 5. They are a summary and should not be held by Seven; regarded as exhaustive. The risks in this section 5 have been presented as key risks for each of Seven, SMG and Wireless • the equipment business currently held by ACE; and Broadband Australia and other risks based on an assessment of • implementing the Schemes. the likelihood of the risk occurring and the impact of the risk if There are also risk factors specific to TELYS4 and the it did occur. TELYS3 Scheme. (A) KEY SEVEN RISKS Some of these risks are related to media companies generally (1) RELIANCE ON KEY PERSONNEL or already relate to the Seven businesses and investments that Seven’s operating and financial success will depend partly upon will be acquired by SGH and are therefore risks to which Seven the performance, efforts and expertise of its personnel. There Shareholders and TELYS3 Holders already have some exposure. can be no assurance that Seven will be successful in attracting However, a number of them will be new or potentially greater and retaining key management and operating personnel. in impact than is currently the case in relation to Seven. (2) INVESTMENT RISK These risk factors do not take into account the investment The financial performance of Seven and the returns available objectives, financial situation, taxation position or particular to Seven Shareholders will be affected by the recognition and needs of Seven Shareholders or TELYS3 Holders. Additional availability of suitable investment opportunities in the future. risks and uncertainties not currently known to SGH or Seven, Investment opportunities are subject to market conditions or which SGH or Seven currently believe to be immaterial, may and other factors largely outside of the control of Seven. also have an adverse effect on the value of SGH Shares, TELYS4 Seven’s ability to divest its investments will also be subject or both. to these factors.

In addition to the risks described below, a number of (3) IMPLEMENTATION OF CORPORATE STRATEGY transaction execution risks exist which could prevent SGH from Seven’s corporate strategy includes growth through the realising the benefits anticipated from the Recommended acquisition of or investment in complementary businesses Proposal, or cause SGH to suffer adverse impacts as a result and divestment of some assets. Difficulty in integrating new of the Recommended Proposal. These could include parties businesses acquired, or poor performance of investments such as suppliers, customers or financiers whose consent in other businesses, could adversely affect Seven’s financial or continued business is desirable refusing to, or imposing performance. No assurance can be given as to the effect of onerous or unacceptable conditions on their, consent or acquisitions, investments or divestments on Seven’s overall decreasing their levels of business with WesTrac Group or SMG financial performance. following the transaction, management disruption caused by the pursuit and implementation of the Recommended Proposal (4) MINORITY INVESTMENT RISK or an adverse response from employees of any of Seven, SMG, Seven holds minority interests in a number of listed companies WesTrac Group or subsidiaries who may not be in favour of including WAN and PRT. Where Seven holds an investment and the Recommended Proposal. These may also include risks is limited in its ability to exert control over the investee entity, it arising from the restructure of WesTrac Group in anticipation of may become subject to the operational control of other parties implementation of the Recommended Proposal, such as stamp and the financial performance this may entail. Additionally, Seven duty, tax and regulatory risks. will be exposed to the risks inherent in minority shareholdings and may not be able to achieve an easy or profitable exit from The information set out below does not purport to be, nor its investments. This could lead to a reduction in the financial should it be construed as representing, an exhaustive summary performance of Seven. Listed equity markets fluctuate with time, of all possible risks. which leads to the risk that the value of Seven’s significant listed investment portfolio will also fluctuate.

98 Seven Network Limited Scheme Booklet – Part B (5) INTEREST RATE, LIQUIDITY AND BANK DEFAULT RISK and outlook, inflation rates, interest rates, employment, taxation Seven has substantial cash reserves on deposit with a number and changes to government policy, legislation or regulation. of major financial institutions. These reserves are invested in (9) SMG JOINT VENTURE EXIT RISK both cash call and term deposit accounts. Cash call accounts In November 2006, Seven executed a co-investment agreement are immediately available to Seven but offer lower yields. with KKR to form SMG. Pleiades Media ULC (Pleiades), a Conversely, term deposits lock up Seven’s cash reserves for company associated with KKR, was issued convertible notes by a specified period of time but earn higher yields. The use of SMG and currently holds an economic stake of approximately term deposits exposes Seven to liquidity risk and Seven may 47% in the joint venture. Seven holds all of the ordinary shares be unable to access its cash reserves to fund an immediately in SMG and also has an economic interest of approximately available investment opportunity if the reserves are invested 47%. Other financial investors and SMG management hold the for a specified period of time. remaining interest in SMG. Seven manages the proportion of its cash reserves held in each Under the co-investment agreement, either investor is type of account, seeking to maximise the return on its cash permitted to appoint an investment bank or stockbroker to and cash equivalents. The rate of return available to Seven make a recommendation on whether to: is largely outside of its control and is a function of both the Reserve Bank of Australia’s overnight cash rate and the spreads • proceed with an initial public offering of SMG; offered by deposit-taking institutions. Seven is exposed to • proceed with a “trade sale” (that is, an auction or managed risk that the interest rates offered for both cash call and term sale of some of the SMG securities); or deposit accounts could materially fluctuate which may affect • commence preparations for both options concurrently. the financial and operating performance of the company. After giving notice, the investor can proceed with an initial Additionally, Seven is exposed to the risk of default by one or public offering or after complying with the pre-emptive rights all of the deposit-taking institutions with which Seven banks. regime, a trade sale and dispose of its securities to a third party. (6) LITIGATION The other investor can, but does not have to, participate in the The media industry in which Seven operates involves particular initial public offering or trade sale on the same terms. The other risks associated with defamation litigation and litigation to investor must cooperate in the implementation of the initial protect media and intellectual property rights. Seven could public offering or trade sale. become exposed to litigation from employees, regulators or In addition, if an investor gives a notice to proceed with an third parties. As with all litigation, there are risks involved. initial offering, the investors must discuss the optimal amount An adverse outcome in litigation or the cost of responding to debt which SMG should retain. If the investors cannot agree, to potential or actual litigation may have a material adverse SMG may be directed to repay its existing debt facilities. impact on the financial performance of Seven. There is a risk that, after implementation of the Share Scheme, (7) INSURANCE Pleiades will seek to liquidate its investment in SMG. Pleiades Seven has insurance covering its significant assets and can seek to liquidate its investment by way of an initial public operations at limits customarily carried for similar assets and offering or trade sale. In the case of an initial public offering, operating activities. However, investors should be aware that there is also a risk that SMG will be require to repay its existing this insurance does not cover certain acts of terrorism and debt facilities. Certain third parties are excluded from acquiring other specific risks such as defamation. An act of terrorism SMG securities under a trade sale but, beyond that, Seven has or other catastrophic event may have an adverse impact on no control over the identity of the third party/parties that could Seven’s financial position. acquire an interest in SMG in the future. Ultimately the maximum financial risk to SGH if this risk factor emerges is the recorded (8) INVESTMENT PORTFOLIO value of the investment, being $385 million as at 31 December Seven has investments in a number of ASX listed, and unlisted, 2010. In addition there is the potential of crystallising of the companies that it does not control including CMH and PRT. deferred tax liabilities. The current best estimate would be There are price, liquidity, and other risks associated with $607 million as stated in Seven’s pro forma accounts. any investment in such companies, including the risk that distributions paid to security holders will be reduced, adversely There is a risk that a trade sale or IPO of SMG triggered by impacting on the yield of the broader portfolio. The price of Pleiades (or by Seven) may not reflect, or if Seven participates shares in Seven’s portfolio may rise or fall due to numerous realise, the same value for Seven as is attributed in the factors which may affect the market performance of Seven and, Independent Expert Report or otherwise reflected in the after implementation of the Share Scheme, SGH. These include market price of SGH Shares or, if applicable, Seven Shares changes in Australian and international stock markets and at the time. investor sentiment, domestic and world economic conditions

Section 5 99 (B) KEY SMG RISKS are outside the control of SMG. Accordingly, SMG’s operating (1) RELIANCE ON KEY PERSONNEL and financial performance will rely in part on the continued SMG’s operating and financial success will depend partly upon ability to meet consumer preferences through Pacific Magazines. the performance, efforts and expertise of its personnel. There (5) MAGAZINE CONTENT LICENSING can be no assurance that SMG will be successful in attracting Australian magazine publishers, including Pacific Magazines, and retaining key management and operating personnel. licence content from overseas and domestic companies for (2) COMPETITION FROM OTHER TELEVISION BROADCASTERS use in their publications. For example, Pacific Magazines has a The Australian free-to-air television market is highly long-standing relationship with Rodale International, the owner competitive. SMG competes directly with other established of Men’s Health and Women’s Health. SMG’s ability to meet commercial and government-owned television broadcasters consumer preferences through Pacific Magazines relies in part for audience ratings and advertising revenues. on the continuation of these relationships on terms which are financially viable. The loss of a content licensing agreement, Ratings are the key driver of advertising pricing and revenue. inability to secure contracts on competitive terms or the The revenue and profitability of SMG will depend upon renegotiation of existing contracts may impact upon SMG’s its ability to produce and purchase superior television operating and financial performance. programming and maintain strong audience ratings vis-à-vis its competitors. SMG’s operating and financial performance (6) CHANGES IN BROADCASTING TECHNOLOGY could be adversely affected by new programming initiatives The television broadcasting industry is characterised by rapidly or increased promotional activities by its competitors. changing technology, evolving industry standards and the emergence of new technologies. Technology plays an increasingly While SMG has strategies in place to help it maintain a strong important role in the delivery of media content to customers competitive position, there can be no assurance that the action in a cost-effective manner. One example of a new technology of competitors will not have material adverse effects on SMG’s currently under development in the free-to-air television market operating and financial performance. is digital broadcasting, which enables multi-channelling and more (3) COMPETITION FROM OTHER MAGAZINE PUBLISHERS efficient delivery of content. SMG is committed to developing its digital broadcasting capabilities, and has constructed a state-of- The Australian magazine market is highly concentrated and the-art broadcast centre in Melbourne to provide the architecture competitive. Pacific Magazines competes directly with other for this development. established commercial magazine publishers for circulation market share and advertising revenues. A change in the SMG’s ability to compete effectively in the future may be competitive landscape such as a new entrant to the market impacted by its ability to maintain or develop appropriate could result in increased competition for Pacific Magazines technology platforms for the efficient delivery of its services. and subsequently affect SMG’s financial performance. No assurance can be given that SMG will have the resources to acquire or the ability to develop new competitive technologies. The ability of Pacific Magazines and its competitors to continue In addition, maintaining or developing appropriate technologies to provide content in their magazines that is informative, may require significant capital investment by SMG. attractive and entertaining to a well defined market, niche or demographic at the right price and through the correct (7) NEW BROADCASTING LICENCES distribution channel will affect magazine circulation, circulation ACMA is the regulatory authority overseeing the procedural revenues and advertising revenues. allocation and regulation of commercial free-to-air television (4) THE AUSTRALIAN MAGAZINE MARKET licences under the Broadcasting Services Act. That Act requires the Minister to conduct a review, including wide public SMG operates in the Australian magazine market through consultation before 1 January 2012, to determine whether its subsidiary, Pacific Magazines. It primarily depends upon any new licences should be issued. Any issue of new licences revenue from magazine circulation and advertising spend would increase the level of competition faced by SMG, and may in its publications. As such, SMG’s profitability and revenue adversely impact on Seven’s ratings and advertising revenue. are correlated with the popularity of consumer magazines and SMG’s ability to retain market share in the Australian While SMG is currently not in breach of any conditions required magazine market. under its commercial television licences, there is no guarantee that ACMA will not choose to exercise its power to suspend Magazine circulation will be impacted by a number of factors one or more of SMG’s commercial television licences in the including the evolving interests, tastes and preferences of future. In addition there is no guarantee that SMG’s television consumers. For example, circulation in women’s interest broadcasting licences will be renewed at expiry by ACMA. magazines has demonstrated a movement towards coverage of The suspension or non-renewal of one or more of SMG’s celebrities and personal growth issues. In general, these factors commercial television licences may impact adversely on SMG’s

100 Seven Network Limited Scheme Booklet – Part B operating and financial performance and its standing in the Broadband Australia’s broadband spectrum licences will be Australian free-to-air television market. renewed by regulatory bodies, or if they are renewed, as to the cost and conditions that may apply to renewal. It is more (8) PROGRAMMING CONTRACTS likely that regulatory bodies will choose not to renew these SMG’s ability to generate advertising revenues is a factor licences where broadband spectrum provided under the of its programming and audience ratings. Some of SMG’s licences remains unapplied. Application of licenced spectrum programming is sourced from external content suppliers under through the timely deployment of a broadband network existing contracts. There is a risk that SMG is unable to secure is likely to mitigate the risk of non-renewal of broadband competitive programming, through new contracts or the spectrum licences. renewal of existing contracts, on terms favourable to SMG. (2) CHANGES IN BROADBAND TECHNOLOGY There is also a risk that programming costs may increase. A 4G WiMAX wireless broadband network has never been Programming costs represent a significant component of built in Australia. Given 4G WiMAX is relatively untested in SMG’s overall costs, and are to a certain extent beyond the commercial environments, the challenges of building a large control of SMG. An increase in programming costs would be scale mobile data network of this nature are likely to be greater likely to impact adversely on SMG’s profitability. SMG actively than those associated with Wireless Broadband Australia’s manages its programming portfolio to ensure that a significant existing network. proportion of its purchased program inventory does not need to be renewed in any given year. The evolution of wireless broadband in Australia has demonstrated that broadband technology could rapidly (9) COMPETITION FROM OTHER FORMS OF MEDIA change in the future. While Wireless Broadband Australia SMG competes for audience share and advertising revenues is well placed to occupy a pre-eminent position in WiMAX with all forms of media such as free-to-air television, business in Australia, future developments in wireless newspapers, magazines, radio, outdoor advertising, broadband technology, other wireless broadband technologies pay television, direct mail, cinema and the internet. The such as 3G/HSDPA and other communication technologies introduction and development of new and innovative forms present a competitive risk to the ultimate success of any of media has the capacity to fragment audiences and reduce WiMAX network. In addition, no assurance can be given that advertising spend directed to traditional media. Alternative Wireless Broadband Australia will have the resources to acquire forms of media could become more attractive for advertisers, or the ability to develop new competitive technologies. In as a result of cost reductions, improvement in ease of addition, maintaining or developing appropriate technologies production or improvement in ability to target audiences. may require significant capital investment by Wireless Any of these circumstances related to the development of Broadband Australia. other forms of media could adversely impact the television and (3) COMPETITION FROM OTHER INTERNET PROVIDERS magazine advertising market as a whole, and in turn SMG’s and The Australian broadband market is highly competitive and Seven’s revenue and profitability. served by a number of larger telecommunications companies. (10) REFINANCING RISK The ability of Wireless Broadband Australia to maintain and SMG will need to refinance debt facilities that mature in the grow its existing subscriber base is subject to the activities of future. An inability to secure new debt facilities at similar these larger telecommunication companies, including Telstra, quantum and costs to existing debt facilities may adversely Vodafone and SingTel Optus and also competition from the affect the financial performance of SMG. Seven may have to National Broadband Network. contribute funds to capitalise SMG should it fail to refinance (4) WIRELESS BROADBAND ROLLOUT RISK the debt facilities that mature in the future. A recapitalisation The ability of Wireless Broadband Australia to maintain and of SMG by Seven may adversely affect the financial position grow its existing subscriber base is subject to the activities of of Seven in the future. As all of SMG’s debt facilities are non- much larger telecommunication companies such as Telstra, recourse to Seven, Seven has no obligation to recapitalise Vodafone and SingTel Optus and also competition from the SMG but may choose to do so in the future. National Broadband Network. SMG proposes to commence refinancing negotiations with its (D) OTHER RISKS financiers well in advance of any debt maturity. (1) THE AUSTRALIAN ADVERTISING MARKET (C) KEY WIRELESS BROADBAND AUSTRALIA RISKS The demand for advertising and the price at which advertising (1) BROADBAND SPECTRUM LICENCES can be sold by Seven is dictated by the overall demand for While there is no precedent for non-renewal of spectrum advertising. Since businesses generally reduce or relocate their licences in Australia, there is no guarantee that Wireless advertising budgets during economic recessions or downturns,

Section 5 101 the strong reliance upon advertising revenue by Seven makes in combination, affect the future operating performance of its operating results susceptible to prevailing economic WesTrac Group and the value of an investment in SGH. conditions. There can be no assurance that advertising spend The risk factors include, but are not limited to, the risks set out in the media industries in Australia will not contract in the in this section. They are a summary and should not be regarded future. Any contraction in advertising spend in Australia could as exhaustive. The risks in this section have been presented have a material adverse effect on the television and magazine under key risks and other risks based on an assessment of the advertising market as a whole, and in turn the operating and likelihood of the risk occurring and the impact of the risk if it financial performance of Seven. did occur. (2) CHANGE IN GOVERNMENT POLICY AND REGULATION Investors should carefully consider the risks in this section Seven may be adversely affected by changes in government in conjunction with the other information contained in this policy, regulation or legislation applying to companies in the Scheme Booklet. They should also consider their personal media industry or to Australian companies in general. This circumstances, including financial and taxation circumstances, includes policies such as applicable accounting standards and seek appropriate professional advice from their accountant, or legislation such as the Broadcasting Services Act that stockbroker or other professional adviser before making any regulates ownership interests and control of Australian media investment decision in relation to your Seven Shares and how organisations. Additionally, the media industry is subject you should vote at the Scheme Meetings. to restrictions on intellectual property, defamation and contempt, obscene material and advertising and marketing (B) KEY RISKS standards. There can be no assurance that government policy (1) DEPENDENCE ON CATERPILLAR or regulation will not be changed to the detriment of Seven WesTrac Group is dependent on Caterpillar to maintain its and its businesses. authorisation as an authorised dealer of Caterpillar equipment and parts in its Western Australia, New South Wales/ACT (3) CHANGE IN MACROECONOMIC CONDITIONS and North Eastern China Service Territories. WesTrac Group’s Seven’s revenue and profitability are highly correlated to predecessor companies have been associated with Caterpillar spending levels by Australian and overseas businesses, which since 1925 and WesTrac’s association with Caterpillar has been in turn could be affected by changes in macroeconomic since 1990. WesTrac Group has maintained a strong relationship conditions in Australia and internationally. Changes in the with Caterpillar and although WesTrac Group expects this macroeconomic environment are beyond the control of Seven relationship to continue, as is customary in dealer agreements and include, but are not limited to: with Caterpillar, the dealer agreements with Caterpillar can be • changes in inflation, interest rates and foreign currency terminated by either party upon 90 days notice at any time. exchange rates; The dealer agreements also contain provisions for automatic • changes in employment levels and labour costs, which will or accelerated termination in certain circumstances, such as affect the cost structure of Seven; material breach, insolvency events, and changes in control • changes in aggregate investment and economic output; and without Caterpillar consent, and are not exclusive. The • other changes in economic conditions which may affect the Caterpillar dealer agreements are not, however, subject to revenue or costs of Seven. periodic renewal requirements and are perpetual in nature (subject to the termination right noted above). In the event In particular, Seven directly or indirectly generates the majority Caterpillar terminates or appoints another dealer or deals of its revenue from advertising, and is dependent upon the directly in the territories in which WesTrac Group operates, strength of the overall advertising market in Australia. it would have a material adverse effect on WesTrac Group’s Advertising expenditure is closely tied to consumer confidence, business, financial condition and results of operations. the level of GDP growth and the performance of the economy as a whole. Deterioration in macroeconomic conditions in Australia WesTrac Group is dependent on Caterpillar for timely supply could adversely impact the financial performance of Seven. of equipment and parts from their global manufacturing factories and distribution warehouses. During periods of 5.2 RISK FACTORS ASSOCIATED WITH intense demand or in the event of disruption to Caterpillar’s WESTRAC GROUP business there may be delays in the supply of equipment and (A) INTRODUCTION parts to WesTrac Group. This has not in the past proven to The business activities of WesTrac Group are subject to risks be an impediment to WesTrac. In the event that Caterpillar is and there are many factors which may impact on the future unable to supply its products in the quantities and timeframes performance of WesTrac Group. These risks are both specific required by WesTrac Group’s customers, it may have a material to WesTrac Group and also relate to the general business and adverse effect on WesTrac Group’s business, financial condition economic climate. These risks might, either individually or and results of operations. WesTrac is also dependent on

102 Seven Network Limited Scheme Booklet – Part B Caterpillar to maintain product development and innovation to industry continues to experience growth. There can be no ensure that it has a quality product offering for its customers. assurance that WesTrac Group will be successful in attracting and retaining the personnel it requires to grow its business. (2) DECLINE IN DEMAND FROM MINING OR Loss of the services of any one or more of WesTrac Group’s CONSTRUCTION INDUSTRIES senior management or key employees, or failure to recruit WesTrac Group’s customer base consists primarily of companies additional managerial and technical personnel, could have a in the mining and civil construction industries. Demand for material adverse effect on WesTrac Group’s business, financial WesTrac Group’s products and services in these industries is condition and results of operations. driven by the volume of earth and material moved. This is in turn driven by demand for commodities, stripping ratios in (6) FOREIGN EXCHANGE mining, demand for construction materials and the number WesTrac Group is exposed to foreign exchange risk with the and scale of infrastructure projects. If these are negatively purchase of equipment and inventory which is denominated impacted, WesTrac Group’s business, financial condition and in USD and also from the derivation of revenues from WesTrac results of operations could be materially adversely affected. Group China which is denominated in Yuan and USD. As part of its pricing of equipment globally, Caterpillar generally resets (3) INCREASED COMPETITION FROM OTHER pricing annually for heavy equipment which is denominated in EQUIPMENT SUPPLIERS USD. Movements in the pricing of equipment impacts WesTrac WesTrac Group operates in a competitive environment in Group’s cost of machines and may also affect the overall each of its business sectors. Many of its competitors are well- profit earned on the sale of equipment to customers which is established companies. WesTrac Group’s range and quality denominated in either AUD, USD or both. of products and services, its ability to meet sophisticated customer requirements and its extensive dealer network Fluctuations in the AUD/USD, AUD/Yuan and AUD/HK$ enhance its competitive position. However, during periods exchange rates could have an adverse impact on WesTrac of low demand, price competition can increase and this may Group’s business, financial condition and results of operations have a material adverse effect on WesTrac’s business, financial which are reported in Australian dollars. condition and results of operations. (7) VARIATION IN PRICING (4) CUSTOMER CONTRACTS Generally, Caterpillar resets pricing annually for equipment and WesTrac’s alliance agreements for equipment supply exist reviews its parts pricing twice a year, with any Caterpillar parts with select customers only. However, where they exist they pricing changes implemented in January and July. Usually, are underpinned by global customer alliances with Caterpillar. at least two months notice is given of equipment pricing The routine supply agreements which make up the majority of changes. WesTrac may have committed to sell equipment to WesTrac Group’s customer contracts, relate to specific pieces a customer at a certain price when the new Caterpillar prices of equipment and are therefore short to medium term in are issued. That customer may then demand a sale at the nature. The maintenance and repair agreements are medium lower price. If the lower price is the agreed sale price and the to long term in duration but, whilst material in value, are fewer equipment is in WesTrac’s inventory having been purchased in number. As there are very few contracts tying customers to at the higher price, or if the lower price is the contracted price WesTrac for terms in excess of five years, although viewed as but WesTrac does not yet have the equipment in its inventory, unlikely, an event such as a strong competitor entering the and must purchase at the higher price, if significant volumes of market or Caterpillar authorising another dealer in the service equipment are sold under these conditions, the price variation territories in which WesTrac Group operates, WesTrac Group’s could have a material adverse effect on WesTrac’s business, territories service business, financial condition and results of financial condition and results of operations. WesTrac manages operations could be materially adversely affected. this risk through flexibility in the terms and conditions of sale and Caterpillar usually offers price protection policies to (5) DEPENDENCE UPON KEY PERSONNEL AND INABILITY mitigate this risk. TO RECRUIT AND RETAIN SKILLED STAFF WesTrac Group is dependent upon the continued service of (8) CHINA OPERATING RISKS the members of its senior management team. In addition, in WesTrac’s operations in China were established in 2001 WesTrac Group’s dealer agreements with Caterpillar, certain and WesTrac Group is seeking to grow its business in China members of senior management are listed by name and significantly through the rollout of branches and developing position, a change to which gives rise to a right of termination a deeper product range, including the expansion of the SEM for Caterpillar. WesTrac Group’s future success will also be product range. dependent upon its ability to attract and retain highly skilled WesTrac Group’s operations in China and its ability to grow the managerial, technical and marketing personnel. Demand for business are exposed to a variety of risks which could have a highly skilled personnel is currently high as the global mining

Section 5 103 material adverse impact on the business, financial condition those future agreements or extensions of agreements will not and results of operations of WesTrac Group. eventuate during the timeframe considered by the forecast.

These risks include, but are not limited to, changes in political, (3) INVENTORY MANAGEMENT regulatory, competitive or economic conditions, changes to WesTrac Group manages its equipment and parts inventory by trade protection measures and the institution of price controls, closely tracking sales, the equipment needs of its customers economic downturns, nationalisation of assets, terrorism, civil and the useful lives of equipment under maintenance and disturbances or political instability, new or differing labour service contracts. The inventory primarily consists of multiple standards and changes in tax laws. An adverse change in the units of equipment at the lighter end of the heavy equipment prevailing political attitude to foreign multinationals operating line for which there is broad demand across WesTrac Group’s in China may have a material adverse effect on WesTrac customers. If WesTrac Group’s equipment and parts inventory is China’s business. not effectively managed, the increased investment and holding costs to WesTrac Group may have an adverse effect on WesTrac WesTrac Group’s financial performance is leveraged to the level Group’s business, financial condition and results of operations. of economic activity in China. There is a risk that increased competition may reduce WesTrac Group’s market share as (4) CREDIT RISK Caterpillar is still an emerging brand in the region with local WesTrac Group has a large diversified customer base and is brands collectively having a strong presence. not dependent on any single customer or group of customers. (C) OTHER RISK FACTORS However, WesTrac Group’s customers may default due to bankruptcy or other reasons. A customer’s termination of, or (1) BUSINESS CYCLE default under, a contract with WesTrac Group, could result in a Expenditures on capital goods have historically been cyclical, loss of expected revenues from the sale or rental of equipment reflecting a variety of factors including interest rates, consumer and the provision of parts and maintenance, and additional and business confidence, commodity prices, corporate profits, expenses for WesTrac Group. Accordingly, the termination of, or credit conditions and the availability of capital. WesTrac Group’s default under, a contract by any of WesTrac Group’s customers customers are typically affected, to varying degrees, by trends could have an adverse effect on WesTrac Group’s business, in the general business cycle within their respective markets. financial condition and results of operations. WesTrac Group’s parts and service business moderates business cycle impacts on equipment supply activities as customers (5) ENVIRONMENTAL REGULATION delay purchasing new equipment and instead repair their WesTrac Group’s business is subject to environmental laws existing equipment and extend its useful life. However, not and regulations. Future changes to environmental laws and all business cycle risks can be mitigated and, as a result, the regulations that impose additional requirements or costs on impact of such business cycles on WesTrac Group’s customer WesTrac Group could have an adverse impact on WesTrac base may have an adverse effect on WesTrac Group’s business, Group’s business, financial condition and results of operations. financial condition and results of operations. (6) DISRUPTION OF BUSINESS OPERATIONS (2) VARIABILITY OF TIMING OF SALES AND The operations of WesTrac Group, its customers and suppliers RENTAL REVENUES are exposed to a range of operational risks including The timing of equipment sales and rentals associated with equipment failures, information technology system failures, certain projects cannot be predicted with certainty by WesTrac industrial action or disputes and natural events such as Group as customers may decide to cancel or delay the purchase earthquakes, tsunamis, hurricanes, floods, fires and poor or rental of equipment. As orders of equipment and parts need weather. WesTrac Group endeavours to take appropriate action to be made from Caterpillar, WesTrac Group could be left with to mitigate these operational risks or to insure against them; a large inventory. If WesTrac Group is not able to substitute a however, WesTrac Group cannot completely remove these terminated or delayed contract with another contract, this is risks to its business or control the risks to which its customers likely to have an adverse impact on WesTrac Group’s business, and suppliers are exposed. Under WesTrac Group’s dealer financial condition and results of operations. agreements with Caterpillar, Caterpillar excludes its liability for failure to or a delay in delivering products due to force The forecast in section 2.6 of Part B of this Scheme Booklet majeure events; however, this provision is not mirrored in all includes an assumption regarding revenues from entering of WesTrac Group’s customer agreements. If one or more of certain sales contracts for the supply of equipment and parts these risks occur and the provision for the event is not mirrored and the provision of maintenance services and the extension in a customer agreement, it may have an adverse impact on of maintenance contracts. While the SGH Directors inclusion the business, financial condition and results of operations of of future agreements and the assumed extension of existing WesTrac Group. contracts in the forecast is reasonable, it is possible that

104 Seven Network Limited Scheme Booklet – Part B (7) CONSOLIDATION OF CUSTOMERS • drag-along rights under which, subject to certain Consolidation in the industries of WesTrac Group’s customers conditions, either investor can require the other investor to may lead to the loss of such customers or reduce WesTrac sell all of its interest in Coates Group Holdings Pty Limited Group’s bargaining power with those customers, which could to a third party on the same price and terms as the investor adversely affect WesTrac Group’s business, financial condition has obtained for its interest in Coates Group Holdings and results of operations. Pty Limited; and • tag-along rights under which, subject to certain conditions, (8) WARRANTY CLAIMS AND MAINTENANCE CONTRACTS an investor can insist on selling all of its interest in Coates WesTrac Group provides warranties for most of the equipment Group Holdings Pty Limited to a third party buyer on the and parts it sells, typically for a period of 12 months and six same terms and price as the other investor has negotiated. months following sale, respectively. WesTrac Group’s liability is generally limited to the service component of the warranty There is therefore a risk that, after implementation of the Share claim, while the manufacturer is responsible for providing the Scheme, National Hire’s interest (and thereby SGH’s interest) required components and parts. WesTrac Group is also obliged in Coates Group Holdings Pty Limited and Coates Hire will to service Caterpillar equipment in the service territories increase or decrease and that this increase or decrease will not in which it operates regardless of who originally sold the be within National Hire’s control. equipment, for which it receives a service fee from the selling There is a risk that the transaction by which National Hire’s dealer. The occurrence of one or more material warranty claims investment decreases or increases does not realise or attribute on equipment and part sales may have an adverse impact on the same value as National Hire attributes to that investment the business, financial condition and results of operations of or is reflected in the market price of National Hire shares at WesTrac Group. the time and that the National Hire Market Value Deed may WesTrac Group also enters into maintenance and service not operate to compensate for the loss for example if the contracts under which it maintains equipment for its transaction occurs after 30 June 2011 (see section 9.14(D) customers. The length of these contracts varies generally from of Part B of this Scheme Booklet). two to five years and the contracts are typically fixed price with provisions for pricing adjustments. Due to the length of these 5.3 RISK FACTORS FOR SGH contracts, there is a risk that maintenance costs may exceed In addition to the risks associated with Seven and the WesTrac contract revenue, thereby resulting in a loss on the contract. Group set out in sections 5.1 and 5.2 of Part B of this Scheme In certain circumstances, the manufacturer shares in the cost Booklet, SGH may be subject to risk factors which include, but overruns if profitability falls below a certain threshold. Cost are not limited to, the risks set out in this section. overruns on maintenance and service contracts may have an (A) KEY RISKS adverse impact on the business, financial condition and results of operations of WesTrac Group. (1) SHARE PRICE VARIATIONS There are price, liquidity, and other risks associated with any (9) COATES HIRE JOINT VENTURE EXIT RISK investment in a company listed on a stock market. The price of If the Share Scheme is Implemented, WesTrac Group will SGH Shares on the ASX may rise or fall due to numerous factors become a wholly-owned subsidiary of SGH. WesTrac Group which may affect the market performance of SGH, including holds 66% of the shares in National Hire. Accordingly, if the changes in Australian and international stock markets and Share Scheme is implemented, Seven Shareholders will be investor sentiment, domestic and world economic conditions exposed to risks associated with National Hire. and outlook, inflation rates, interest rates, employment, taxation In 2007, all Coates Hire fully paid ordinary shares were acquired and changes to government policy, legislation or regulation. by Coates Group Holdings Pty Limited and its subsidiaries (2) ECONOMIC CONDITIONS pursuant to a scheme of arrangement. Each of Carlyle and The market price for SGH Shares could fluctuate in response National Hire hold a 46% economic interest in Coates Group to a wide range of factors and actual or anticipated events, Holdings Pty Limited. including variations in SGH’s prospects or operating results, the Under the co-investment arrangements with Carlyle, National outlook for the Australian and global resources sectors and civil Hire or Carlyle may seek to sell their investment in Coates Group construction markets, changes in domestic or overseas demand Holdings Pty Limited in the future. These arrangements include: for resources, changes in market valuations of other companies • pre-emptive, call option or purchase rights so that if either that sell, rent or distribute heavy earth moving equipment investor wants to sell its interest in Coates Group Holdings Pty and other events or factors affecting the operations, financial Limited to a third party or list it on a stock exchange, it must performance or actual or perceived value of SGH. first offer the interest to the other investor;

Section 5 105 (3) PAYMENT OF DIVIDENDS 5.4 TELYS4 SGH intends to maintain a dividend policy outlined in section In addition to the risks associated with Seven and the WesTrac 3.6 of Part B of this Scheme Booklet, with an interim dividend Group set out in sections 5.1 and 5.2 of Part B of this Scheme expected to be payable annually in April, with a final dividend Booklet, and the risks associated with SGH set out in section payable annually in October. While SGH has indicated that an 5.3 of Part B of this Scheme Booklet, holders of TELYS4 may objective after the Recommended Proposal will be to grow be subject to TELYS4-specific risk factors which include, but dividends over time in line with earnings growth performance, are not limited to, the risks set out in this section. no guarantee can be given about future dividends, or the level of franking or imputation of such dividends. This is because (1) MARKET PRICE AND LIQUIDITY this will depend on factors including the future profits of SGH, SGH is not able to predict the market price or liquidity of its financial and taxation position, the SGH Board’s view of TELYS4 when they are quoted on the ASX. The market on the the appropriate dividend levels in light of circumstances at ASX for TELYS4 may be less liquid than the market on the ASX the time, the availability of franking credits, ongoing capital for SGH Shares or the current market for TELYS3, which may expenditure commitments and the availability of funding, impact the market price of TELYS4. which in turn may be affected by trading and general economic (2) FINANCIAL MARKET CONDITIONS conditions. Accordingly, no assurance can be given as to the The market price of TELYS4 may fluctuate due to various timing, extent and payment of dividends or the extent to which factors, including general movements in the Australian and dividends will be franked. international equity markets, investor perceptions, worldwide (4) INCREASED DEBT LEVELS AND ABILITY TO REFINANCE economic conditions, interest rate movements, movements in Even though it is intended that Seven’s cash reserves be the market price of SGH Shares and other factors beyond the applied shortly after implementation of the Share Scheme control of SGH and its directors. towards the repayment of part of ACE Holdings’ debt facilities, The market price of TELYS4 may be more sensitive than SGH SGH will have more debt than Seven which in turn will increase Shares to changes in interest rates (although the floating its financial risk. Increases in the level of debt could result in, rate nature of TELYS4 reduces this exposure to the extent of but is not limited to, higher interest costs, restrictions on the fluctuations in the Market Rate) and it is possible that TELYS4 ability to borrow further funds, increased risk of incapacity to may trade below Face Value. Increases in relevant interest rates service debt and restrictions on the ability to pay dividends. may adversely affect the market value of TELYS4. SGH will be debt funded predominantly by bank debt in The SGH Shares held as a result of any Conversion would, Australia and China and US private placement notes. Should following Conversion, rank equally with existing SGH Shares. WesTrac be required to refinance its debt, it may result in higher Accordingly, their value after Conversion will depend on the interest costs, upfront fees and reduced facilities. There is no market price of SGH Shares. certainty that SGH will be able to refinance its debt in the future. (3) DIVIDENDS (5) S&P INDEX INCLUSION TELYS4 are not debt instruments and dividends are not the SGH will have a concentrated share register with interests same as interest payments. Payment of dividends on TELYS4 associated with Mr Kerry Stokes AC holding approximately will be at the discretion of SGH Directors. Currently, dividends 67.9% of all SGH Shares. Although Seven on a standalone basis are only able to be paid out of current year or retained profits is currently included in S&P indices, there is a risk that SGH of SGH. There is a risk that SGH may not have retained profits or may not qualify for index inclusion once it commences trading generate a profit after tax in the future. Therefore, there is a risk on the ASX. The criteria for index inclusion includes, but is that a TELYS4 dividend may not be paid. Dividends on TELYS4 not limited to, free float, weighting, market capitalisation and are non-cumulative, and therefore if a dividend is not paid in liquidity. The impact of potential index removal include less any period it need not be made up in any subsequent periods. liquidity in the stock, reduced broker coverage and possible If a dividend is not paid, then the Dividend and Capital Stopper downward price pressure on SGH Shares due to institutional will come into effect and SGH will be unable to pay a dividend investor disposals. to holders of SGH Shares (or return capital) otherwise than in (6) FOREIGN OPERATIONS RISK specified circumstances (as set out in the Terms of Issue) and Following implementation of the Recommended Proposal, SGH holders of TELYS4 will have the right to demand Conversion will operate in jurisdictions including China and will therefore be or Exchange (at SGH’s election) if the Dividend and Capital exposed to the usual risks with any sovereign nation including Stopper is breached. currency, repatriation of funds and foreign legal requirements.

106 Seven Network Limited Scheme Booklet – Part B Otherwise than in respect of the first dividend (if the SGH is entitled to issue further TELYS4 that rank equally with Implementation Date for the TELYS3 Scheme is on or before the TELYS4 issued under the TELYS3 Scheme without the 14 May 2010, the Dividend Rate on TELYS4 is calculated for approval of the holders of TELYS4. In addition, SGH may also each Dividend Period on the basis of the Market Rate and issue other securities that rank equally with or behind TELYS4 the fixed Margin of 4.75% per annum. A floating rate may be for dividends or payment in a winding up of SGH. No prediction influenced by a number of factors and may fluctuate over time can be made as to the effect, if any, that such future issues of causing the Dividend Rate to fluctuate with a movement in the securities by SGH or other SGH entities may have on the market relevant floating Market Rate. price of TELYS4.

(4) FRANKING (7) TAX Dividends on TELYS4 are expected to be fully franked, but they A general description of the Australian taxation consequences may not be fully franked. If a dividend does not have attached of investing in TELYS4 is set out in the Tax Letters in section 8 the maximum franking credit allowed (that is, it is not fully of Part B of this Scheme Booklet. This discussion is in general franked), that dividend will be adjusted in accordance with clause terms and is not intended to provide specific advice in relation 2.3 of the Terms of Issue in Annexure 3 to Part A of this Scheme to the circumstances of any particular investor. Accordingly, Booklet (sent to TELYS3 Holders only) to compensate holders for you should seek independent advice in relation to your own the reduced amount of franking credits. The amount of franking taxation circumstances. TELYS4 should be classified as equity credit that may be attached to a TELYS4 dividend is dependent interests for taxation purposes and hence be able to pay upon the Australian corporate tax rate, which may change. franked dividends. If a change is made to the Australian tax system and that change materially increases the net cost to (5) CONVERSION OR EXCHANGE SGH of having TELYS4 on issue, SGH is entitled to Convert or SGH has the right to Convert or Exchange all or some TELYS4 Exchange TELYS4. on any Dividend Payment Date and other dates as determined in accordance with clauses 3.3 and 3.4 of the Terms of Issue in Annexure 3 to Part A of this Scheme Booklet if certain events with certain cost, regulatory, accounting, taxation or other specified implications occur.

If SGH is entitled to Convert or Exchange TELYS4, there are a number of methods by which this may occur. The timing, the decision to Convert or Exchange and the method by which SGH elects to do so may not accord with the preference of individual holders of TELYS4.

(6) RANKING TELYS4 are not debt instruments. Consequently, upon any winding up of SGH, holders of TELYS4 will rank behind creditors of SGH, but in priority to holders of SGH Shares to the amount of the Face Value of TELYS4 and any dividend on TELYS4 (whether or not declared), calculated on a daily basis (assuming a 365 day year) throughout the period from and including the date of the preceding dividend payment date up to the date of commencement of the winding up. Dividends are not cumulative. On a winding up, TELYS4 Holders will not be entitled to any dividends in respect of any previous dividend periods. In the event of a shortfall of funds on a winding up, there is a risk that holders of TELYS4 will not receive a full return of capital or any TELYS4 dividend declared and unpaid at that time.

Section 5 107 THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK

108 Seven Network Limited Scheme Booklet – Part B 6 INDEPENDENT EXPERT’S REPORT

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Seven Network Limited Independent expert’s report 16 March 2010

Section 6 111 Deloitte Corporate Finance Pty Limited A.B.N. 19 003 833 127 AFSL 241457 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia Financial services guide

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112 Seven Network Limited Scheme Booklet – Part B

Deloitte Corporate Finance Pty Limited A.B.N. 19 003 833 127 AFSL 241457

Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia Independent Directors Seven Network Limited DX 10307SSE Tel: +61 (0) 2 9322 7000 Level 4 Fax: +61 (0) 2 9322 7001 38-42 Pirrama Road www.deloitte.com.au PYRMONT NSW 2009

Attention: Professor Murray Wells

16 March 2010

Dear Directors Independent expert’s report Introduction On 22 February 2010, Seven Network Limited (Seven Network or the Company), together with Australian Capital Equity Pty Limited (ACE), announced a proposal under which Seven Network and the WesTrac Group will merge their investments and businesses. This transaction will be effected by WesTrac Holdings Pty Limited (WesTrac Holdings), a wholly owned subsidiary of Seven Group Holdings Limited (SGH) (a newly created company), acquiring all the ordinary shares (Seven Network Shares) and preference shares (TELYS3) issued by Seven Network via two schemes of arrangement (the “Share Scheme” and “TELYS3 Scheme”, together “the Proposed Schemes”). If the Proposed Schemes are approved, holders of Seven Network Shares (Shareholders) and TELYS3 (TELYS3 Holders, together the “Securityholders”) will receive:  1 SGH share for every one share held in Seven Network  1 TELYS4 preference share (TELYS4) issued by SGH for every one TELYS3 held in Seven Network The TELYS3 Scheme is conditional on approval of the Share Scheme but the Share Scheme is not conditional on the approval of the TELYS3 Scheme. Upon completion of the Share Scheme, Seven Network would become a wholly owned subsidiary of SGH and would subsequently be delisted from the Australian Securities Exchange Limited (ASX). The board of Seven Network has prepared a scheme booklet containing the detailed terms of the Proposed Schemes (the Scheme Booklet) and an overview of the Proposed Schemes is provided in Section 1 of our detailed report. The directors of Seven Network that are unrelated to Mr Kerry Stokes associated companies (the Independent Directors) have requested that Deloitte Corporate Finance Pty Limited (Deloitte) provide an independent expert’s report advising whether, in our opinion, the Share Scheme is fair and reasonable to, and in the best interests of, Shareholders not associated with Mr Kerry Stokes associated companies (Unrelated Shareholders).

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Section 6 113

This independent expert’s report on the proposed Share Scheme is required pursuant to Part 3 of Schedule 8 of the Corporations Regulations 2001 (Cth) (Part 3) to assist Unrelated Shareholders in their consideration of the proposed Share Scheme. We have prepared this report having regard to Part 3 and the relevant Australian Securities and Investments Commission (ASIC) Regulatory Guides. With regard to the TELYS3 Scheme, whilst an independent expert’s report is not required to meet any statutory obligations, the Independent Directors have requested that Deloitte provide an opinion advising whether the proposed TELYS3 Scheme is in the best interests of TELYS3 Holders. This report is to be included in the Scheme Booklet to be sent to Securityholders and has been prepared for the exclusive purpose of assisting Securityholders in their consideration of the Proposed Schemes. We are not responsible to you, or anyone else, whether for our negligence or otherwise, if the report is used by any other person for any other purpose. Basis of evaluation Schemes of arrangement can include many different types of transactions, including being used as an alternative to a Chapter 6 takeover bid. The basis of evaluation selected by the expert must be appropriate for the nature of each specific transaction. Section 640 of the Corporations Act 2001 (Section 640) requires an independent expert’s report in connection with a takeover offer to state whether, in the expert’s opinion, the takeover offer is fair and reasonable. Where the scheme of arrangement has the same effect as a takeover, the form of analysis used by the expert should be substantially the same as for a takeover bid, however, the opinion reached should be whether the proposed scheme is ‘in the best interests of the members of the company’. Accordingly, if an expert were to conclude that a proposal was ‘fair and reasonable’ if it was in the form of a takeover bid, it will also be able to conclude that the proposed scheme is in the best interests of the members of the company. Under ASIC Regulatory Guide 111 (RG111), which provides guidance in respect of the content of expert reports, a control transaction (which under the RG 111 definition includes the Share Scheme) is:  fair, when the value of the consideration is equal to or greater than the value of the securities subject to the proposed scheme. The comparison must be made assuming 100% ownership of the target company  reasonable, if it is fair, or despite not being fair, after considering other significant factors, securityholders should accept the offer under the proposed scheme, in the absence of any higher bids. To assess whether the Share Scheme is in the best interests of Unrelated Shareholders, we have adopted the test of whether the Share Scheme is either fair and reasonable, not fair but reasonable, or neither fair nor reasonable, as set out in RG111. To assess whether the TELYS3 Scheme is in the best interests of TELYS3 Holders, we have adopted the test of whether the TELYS3 Scheme is either fair and reasonable, not fair but reasonable, or neither fair nor reasonable, as set out in RG111.

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114 Seven Network Limited Scheme Booklet – Part B

Summary and conclusion – Share Scheme In our opinion the Share Scheme is fair and reasonable and therefore in the best interests of Unrelated Shareholders. In arriving at this opinion, we have had regard to the following factors. The proposed Share Scheme is fair Set out in the table below is a comparison of our assessment of the fair market value of a Seven Network Share with the fair market value of the Share Scheme consideration which comprises an SGH Share.

Table 1: Evaluation of fairness

Low Mid High Section ($) point ($) ($)

Fair market value of a Seven Network Share on a control basis1 8 7.63 8.57 9.51 Fair market value of an SGH Share – Share Scheme consideration 10 7.09 7.83 8.57

Source: Deloitte analysis Note: 1. Value is exclusive of 17 cents per share (cps) Interim Dividend payable prior to the Share Scheme completion date

These valuation ranges are illustrated in the figure below.

Figure 1: Evaluation of fairness

Value of SevenValue per Network share Share - SNL (control basis ex dividend) $7.63 $9.51

ValueValue ofper SGH share Share Seven Group (minority basis ex dividend) $7.09 $8.57

$6.50 $7.50 $8.50 $9.50 $10.50

Source: Deloitte analysis

The value of the Share Scheme consideration, represented by our estimate of the fair market value of a share in SGH on a listed minority basis, overlaps the range of our assessed value of a Seven Network Share. Accordingly, in our opinion the Share Scheme is fair. We note that there is a 50% overlap between our value range for an SGH Share and the value range for a Seven Network Share which we consider is sufficient overlap to conclude that the Share Scheme is fair notwithstanding that the mid-point of our valuation of an SGH Share of $7.83 is 8.6% below the mid-point of our valuation of a Seven Network Share. However, if Seven Network Shareholders formed the view that the value of their shares was above $8.57 which represents the upper 50% of our valuation range they may not consider the Share Scheme to be fair.

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Section 6 115

Valuation of a Seven Network Share We have estimated the fair market value of Seven Network on a control basis by aggregating the fair market value of its underlying assets and liabilities on a sum of the parts (SOTP) basis. In undertaking the sum of the parts analysis we have estimated the fair market value of each of the assets separately based on the following approaches:

Table 2: Valuation methodologies – Seven Network

Primary Valuation Approach

Seven Media Group (SMG), Seven Network corporate overheads Capitalisation of maintainable earnings Wireless Broadband Australia (WBA) Discounted cash flow CMJ, WAN, other listed investments Recent share trading Other unlisted investments Net assets Source: Deloitte analysis

Further details on the valuation methodologies are provided in Section 7. We have also had regard to recent trading in Seven Network Shares as a cross-check to our valuation. Set out below is a summary of our assessed value for a Seven Network Share on a control basis. We have also set out our valuation of Seven Network on a minority basis as this value has been utilised as a component of our valuation of SGH and also for crosscheck purposes against Seven Network’s recent share trading.

Table 3: Summary – fair market value of Seven Network Seven Network’s Fair market value Fair market value interest Minority basis Control basis (%) Low High Low High Section ($’m) ($’m) ($’m) ($’m) SMG 47.0% 8.2 277 448 305 493 CMJ 22.1% 8.3 398 439 398 439 WAN 23.4% 8.4 350 385 350 385 Other investments1 Various 8.5 439 482 439 482 WBA 100.0% 8.6 48 54 62 70 Fair market value of investments 1,512 1,808 1,554 1,869 Less: value of corporate overhead 8.7 (77) (85) (77) (85) Less: deferred tax liabilities 8.8 (510) (460) (510) (460) Plus: net cash position2 8.9 1,024 1,024 1,024 1,024 Less: TELYS33 8.10 (506) (506) (506) (506) Equity value 1,443 1,781 1,485 1,842 Less: Interim Dividend (32) (32) (32) (32) Equity value (excluding Interim Dividend) 1,411 1,749 1,453 1,810

Number of shares outstanding (‘000)3 190,410 190,410 190,410 190,410 Assessed value per share ($)4 7.41 9.19 7.63 9.51 Source: Deloitte analysis Notes: n/a = not available; n/m = not meaningful 1. Other investments comprise Seven Network’s interests in other listed securities, unlisted securities and property holdings 2. As at 26 December 2009 3. Based on the number of ordinary shares outstanding as at 10 March 2010 4. Value is exclusive of the 17 cps Interim Dividend payable prior to Share Scheme completion date and before any applicable holding company discount

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116 Seven Network Limited Scheme Booklet – Part B

Valuation range The valuation range for a Seven Network Share on a control basis of $7.63 to $9.51 is a relatively wide range of approximately 25% from low to high. We consider the width of this range to be appropriate considering the nature of Seven Network’s assets. In particular, within the equity value range of $1,453 million to $1,810 million, which represents a range of $357 million, is a range in the value of SMG of $188 million. This relatively wide range in values of SMG at the equity level is a consequence of the very high level of financial leverage associated with this investment. In Section 8.2 we estimated the enterprise value for a 100% interest in SMG to be $2,700 million to $3,000 million (being an 11% range) whereas primarily due to net debt of $2,292 million the equity value range is $649 million to $1,048 million on a 100% basis (being a 61% range) which translates into a similar range in equity values for Seven Network’s 47% interest. The range in values of Seven Network’s other assets and liabilities are generally in the order of 10% or less.

Consideration of Strategic Portfolio Control Premium In deriving our control value of Seven Network on a SOTP basis, we have not considered it necessary to add an additional control premium over and above the sum of the values derived for each of Seven Network’s individual assets and investments to reflect any potential strategic value which may be attributed to owning the portfolio of assets as a whole. In forming this view we considered the following factors:  a significant proportion of Seven Network’s equity value is represented by a net cash holding  based on our discussions with management and analysis of each of Seven Network’s investments, there does not appear to be any material opportunity to realise direct or indirect financial benefits through holding the diverse range of investments in the media sector currently held by Seven Network. Further, to the extent that any of these investee companies transact with each other they do so on an arm’s length basis subject to the corporate governance requirements of each company  Seven Network shares have consistently traded at a relatively deep discount to the underlying value of its assets. Whilst we have considered this “holding company” discount to be due to a range of factors outlined in Section 10 of this report, such a large discount is not supportive of applying a strategic portfolio control premium over and above our SOTP valuation. However, we note that Seven Network’s assets do include a relatively unique collection of media based investments which are not easily replicable. Accordingly, it is possible that a special purchaser may consider paying a premium for the scarcity value of these assets. Notwithstanding this possibility we do not consider it appropriate to add an additional strategic portfolio control premium to the value of Seven Network’s assets due to the factors mentioned above.

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Section 6 117

Analysis of Seven Network recent share trading The table below sets out a comparison of recent trading in Seven Network ordinary shares to our assessed fair market value of a Seven Network share on a minority basis.

Table 4: Seven Network valuation – recent share market trading ($)

VWAP discount (%)

VWAP ($) Low High

Assessed fair value of a Seven Network share (on a minority basis) $7.41 $9.19 Interim Dividend $0.17 $0.17 Assessed fair value of a Seven Network share (on a minority basis and $7.58 $9.36 including the Interim Dividend)1

Share price at one day prior to announcement Date - 19 February 2010 $7.37 (2.7%) (21.2%)

Last one week trading - 13 February 2010 to 19 February 2010 $7.25 (4.4%) (22.6%) Last one month share trading - 20 January 2010 to 19 February 2010) $6.93 (8.6%) (26.0%) Last three months share trading - 20 November 2009 to 19 February 2010) $6.68 (11.8%) (28.6%) Last six months trading - 20 August 2009 to 19 February 2010 $6.46 (14.8%) (31.0%)

Source: Bloomberg, Deloitte analysis

Note 1: Value is inclusive of the 17cps Interim Dividend payable prior to Share Scheme completion date to make this value comparable to recent share trading which is on a cum dividend basis

Seven Network shares have been trading at a significant discount to our estimated fair market value due to a number of specific circumstances, which are outlined below:

Access to non-public information The majority of Seven Network’s assets consist of interests held in associates and JVs, and other investments held at fair value. Since a large proportion of these interests are in unlisted entities and/or undisclosed to the capital markets, it may be difficult for market participants to fully assess the ongoing profitability and future prospects of these investments. In addition, Deloitte has had access to the preliminary reviewed financial results of Seven Network for the six months ended 26 December 2009. In particular, we note that the following two material adjustments which may have a significant impact on Seven Network share price have not been communicated to the market one day prior to the announcement date of the transaction:  the reversal of impairment of Seven Network’s investment in SMG (equity accounted) of $390 million  the additional DTL arising from the Tax Laws Amendment (2010 Measures No 1) Bill 2010 which was introduced into the House of Representatives on 10 February 2010 which would, potentially increase the deferred tax liabilities as at 26 December 2009 by approximately $207 million ($1.09 per share).

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118 Seven Network Limited Scheme Booklet – Part B

Reinvestment risk associated with the surplus cash balance of Seven Network As at the 26 December 2009, Seven Network had cash and cash equivalents of $1,041.9 million. Analysts covering the Seven Network stock have expressed concerned that this surplus cash may be used on risky or low return investments given the lack of immediate investment opportunities in the media sector.

Holding company structure of Seven Network Seven Network is an investment holding company with a wide range of investments, most of which have been made on a minority basis. In general, investment holding companies trade at a discount to their underlying net asset values to reflect the lack of liquidity and/or control associated with the underlying investments. This discount also often reflects the fact that the underlying net asset value may not be realised until the investments are sold and the company’s assets are distributed to shareholders. Accordingly, shareholders have no direct access to the value of these investments other than through dividends distributed over time. Our analysis for the 2009 calendar year of the holding company discount used by the brokers following Seven Network shares suggests discounts of between 20% and 35% were applied to their assessed underlying value with an average discount of 26%.

Existence of a controlling shareholder In light of Kerry Stokes AC’s 48.7% stake in Seven Network, it would be very unlikely for a control premium to be realised except through a transaction supported by Kerry Stokes AC. Listed companies with a significant shareholder are also likely to trade at a discounted trading price when compared to a company with a widespread shareholder base to reflect the lack of liquidity and potential conflict of interest between the major shareholder and minority shareholders.

After consideration of the above factors, we consider our assessed value of a Seven Network share on a minority basis and including the Interim Dividend is not inconsistent with the recent share trading of Seven Network shares pre-announcement of the Proposed Schemes.

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Section 6 119

Valuation of an SGH share We have estimated the fair market value of an SGH share on a minority basis by aggregating the fair market values of Seven Network and WesTrac Holdings on a minority interest basis, and adjusting for the financial impact of the merger. In undertaking our valuation of WesTrac Holdings we have estimated the fair market value of each component of the group based on the following approaches.

Table 5: Valuation methodologies – WesTrac Holdings

Primary Valuation Approach

WesTrac Australia, National Hire (including the Coates Group) Capitalisation of maintainable earnings WesTrac China Discounted cash flow Source: Deloitte analysis

Set out below is a summary of our assessed value for an SGH share. This valuation has been performed on a minority interest basis since Seven Network Shareholders will become minority holders of shares in SGH if the Share Scheme proceeds.

Table 6: Summary – Share Scheme consideration

Fair market value WesTrac Minority basis Holdings’ interest Low High Investments (%) Section ($’m) ($’m) Equity value of Seven Network on a minority basis 1,411 1,749 WesTrac Holdings WesTrac Australia 100% 9.2 973 1,058 WesTrac China 100% 9.3 272 351 Other WesTrac operating investments Various 9.4 10 10 National Hire (incl the Coates Group)1 66.2% 9.5 220 260 Less: Net debt 9.6 (597) (597) Less: value of corporate overheads 9.7 (45) (48)

Equity value of WesTrac Holdings 833 1,034 Merger Adjustments Reduction in deferred tax liabilities 10 260 240 Transaction costs 10 (31) (31) Total value before holding company discount 2,473 2,992 Less: holding company discount at 12.5% 10 (309) (374) Equity value of SGH 2,164 2,618

Number of shares outstanding (‘000) 2 305,410 305,410 Assessed value per SGH share ($) 7.09 8.57 Source: Deloitte analysis Notes: 1. WesTrac Holdings has a 66.2% interest in the ordinary equity of National Hire. National Hire holds a 46.1% economic interest in the Coates Group, providing WesTrac Holdings with an indirect 30.5% economic interest in the Coates Group 2. The number of shares in the merged entity is made up of 115 million shares issued as consideration for the acquisition of WesTrac Holdings and the proposed issue of 190.41 million shares to Seven Network Shareholders as consideration for the acquisition of all the ordinary shares of Seven Network under the terms of the Share Scheme

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120 Seven Network Limited Scheme Booklet – Part B

Valuation range The valuation range for an SGH share of $7.09 to $8.57 is a relatively wide range of approximately 21% from low to high. We consider the width of this range to be appropriate considering the nature of SGH’s assets. In particular, the width of the range is primarily driven by the range of values for Seven Network discussed above as well as the relatively wide range of values selected for WesTrac China as a consequence of the early stage of development of this business, where a wider range of future growth scenarios was considered in our valuation. Our assessed value which has been derived on a fundamental basis may not necessarily correspond to the trading price of an SGH share which will be influenced by a range of other factors such as short term share market trading conditions, investor demand for shares in SGH and investor sentiment toward the shares.

Holding company discount The valuation of an SGH share summarised in Table 6 incorporates a holding company discount estimated at 12.5% being the mid-point of the range of 10% to 15% as set out in Section 10. Seven Network shares have historically traded at a significant discount to the underlying value of its assets which has largely been attributed to a holding company discount. Should the Share Scheme be approved, SGH will represent a company with a substantially different balance of assets, operations and strategy compared to Seven Network on a standalone basis. We set out below an analysis of the factors that have contributed to the holding company discount for Seven Network and compared them to the situation for SGH if the Share Scheme is implemented.

Table 7: Impact of the proposed Share Scheme on the potential holding company discount

Holding company discount factors SGH Potential re-rating

Dominant shareholder Kerry Stokes AC will increase his shareholding Neutral given large existing from 48.7% to 67.9% holding already regarded as conferring control

Assets mostly comprise SGH’s assets will rebalance to have a much Mildly positive as there may be investment holdings greater proportion of operating businesses some offsetting view that a ‘conglomerate’ discount may apply due to operations being across very diverse sectors. Lack of transparency of Much clearer strategy and transparency Positive strategy and operations Lack of operating cash Large increase in operating cash flows Positive flow Excess cash and sub- SGH intends to use the cash reserves of Seven Positive optimal capital structure Network to repay approximately $600 million of WesTrac Holdings debt

Cash may also be utilised for future investment opportunities in the WesTrac business

Source: Deloitte analysis

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Section 6 121

Based on the above analysis we have concluded that the holding company discount applicable to SGH should reduce to the range of 10.0% to 15.0% and have applied the midpoint of this range of 12.5% in our valuation analysis. Providing an estimate of the likely holding company discount the market may factor into SGH’s share trading after the implementation of the Share Scheme is inherently uncertain and is likely to change over time as a consequence of future developments with SGH and the general market.

Sensitivity analysis – Share Scheme fairness assessment Since our assessment of the fair market value of the Share Scheme consideration is sensitive to our assumption regarding the holding company discount applicable to SGH shares, we have presented a sensitivity analysis based on a holding company discount ranging from 0% to 25% in the figure below.

Figure 2: Sensitivity analysis

25.0%

22.5%

20.0%

17.5%

15.0%

12.5%

10.0%

7.5%

5.0%

2.5%

0.0%

$5.00 $6.00 $7.00 $8.00 $9.00 $10.00 $11.00 $12.00 $13.00

Assessed value of a Seven Network share (control basis) Share Scheme consideration Source: Deloitte analysis

We note that if the holding company discount is above 22.0%, the value of the Share Scheme consideration falls below our valuation range for a Seven Network Share on a control basis (all other factors being equal). The proposed Share Scheme is reasonable In accordance with RG 111 an offer is reasonable if it is fair. On this basis, in our opinion the Share Scheme is reasonable. We have also considered the following factors in assessing the reasonableness of the Share Scheme. We have formed our opinion on the reasonableness of the Share Scheme based on an analysis of the likely advantages and disadvantages to Unrelated Shareholders of approving the Share Scheme.

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122 Seven Network Limited Scheme Booklet – Part B

Advantages of the Share Scheme

Consideration represents a premium to recent share trading Based on our valuation of SGH shares the consideration offered represents a premium to recent trading in Seven Network Shares. The following table summarises the premium to recent Seven Network share trading after adjusting the consideration to a cum dividend basis to make it consistent with the basis upon which a Seven Network Share trades.

Table 8: Premium to recent share market trading ($)

VWAP Low High

Scheme consideration per Seven Network Share $7.09 $8.57 Adjustment for Interim dividend $0.17 $0.17 Scheme consideration per Seven Network Share (cum dividend basis) $7.26 $8.74 Premium to Seven Network share trading price One day prior to announcement $7.37 (1.5)% 18.6% One month prior to announcement $6.93 4.8% 26.1% Three months prior to announcement $6.68 8.6% 30.8%

Source: Deloitte analysis

Whilst we have estimated the market value of shares in SGH assuming completion of the Share Scheme the price at which SGH shares will actually trade in the future is uncertain. The share trading prices will be influenced by a range of external factors which are unpredictable including the level of any notional “holding company discount” applied to SGH. Accordingly the ultimate premium to the recent trading prices in Seven Network Shares at which SGH Shares will trade is uncertain. We also note that at the date of the announcement of the Proposed Schemes, the market was not informed of the large increase in Seven Network’s deferred tax liabilities (DTL) as a consequence of the recently announced proposed tax laws, the revaluation of SMG and other matters disclosed in the half yearly results presentation. However, our valuation of SGH shares already takes account of this information. In light of the existing 48.7% stake in Seven Network held by Kerry Stokes associated companies (Kerry Stokes AC), it is highly unlikely that a control premium could be realised for Seven Network except through a transaction supported by Kerry Stokes AC. Accordingly, in the absence of the Share Scheme, there are limited alternative opportunities through which Seven Network Shareholders will be able to realise a premium to the share trading value of Seven Network Shares.

Enhanced financial metrics per share The earnings per share (EPS) for Seven Network Shareholders are forecast to increase if the Share Scheme proceeds. This should provide the potential for higher dividends over time. Based on the pro-forma SGH forecasts:  EPS accretion is in excess of 22% in the first full financial year following the transaction  an increased dividend coverage ratio will provide the potential for the directors to increase dividends over time. The transformation of Seven Network into an operating business will also enhance its ability to frank dividends.

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Section 6 123

Table 9: Summary – Pro-forma financial metrics per share

Financial metrics – Year ending June 2011 Seven Network SGH Change

EPS ($) 0.41 0.50 +22% Dividend per share ($) 0.34 0.36 +6% Dividend coverage ratio 1.2x 1.4x +16% Source: Scheme Booklet – Part A

Favourable relative underlying value contribution to SGH Unrelated Shareholders will contribute 29.6% of the underlying value of SGH and will receive 32.1% of shares in SGH after implementation of the Share Scheme. This contribution to underlying value has been calculated with reference to the mid-point of our valuation of Seven Network and SGH on a minority basis before any allowance for holding company discount. Accordingly, the proposed merger ratio appears favourable to Unrelated Shareholders on an underlying value basis. The underlying value contribution of Unrelated Shareholders is illustrated in the figures below.

Figure 3: Underlying value contributed Figure 4: Shareholding Interest Post Transaction

Unrelated shareholders, Unrelated 29.6% shareholders, 32.1%

Related Related shareholders, shareholders, 67.9% 70.4%

Source: Deloitte analysis Source: Deloitte analysis

Financial and potential operational synergies There are financial synergies arising from the repayment of WesTrac Holdings $600 million debt upon completion of the Share Scheme. The expected pre-tax interest savings arising from the repayment of WesTrac Holdings debt is $4.2 million in 2011 (on a pro-forma basis). In addition, we understand that management of both Seven Network and WesTrac Holdings have identified but not quantified a number of operational synergies such as reduction in internal and external professional advice costs and procurement savings. There may be upside to our assessment of the value of an SGH share to the extent that these potential operational synergies are realised, however, there is no certainty that any cost savings will be realised. We note that the estimated additional $5 million per annum in group costs which will be incurred in SGH have been taken into account in our valuation of an SGH share, as set out in Section 9.7.

Consolidation of Kerry Stokes AC’s interests into one single corporate structure If the Share Scheme is approved, Kerry Stokes AC will own approximately 67.9% of SGH which will consolidate his major investments into a single corporate structure. Seven Network Shareholders will benefit from the continued tenure of existing WesTrac Holdings and Seven Network management teams. Accordingly, to the extent that the consolidation of the major

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124 Seven Network Limited Scheme Booklet – Part B

shareholder’s significant investments within the one group is seen to improve the alignment of interests and focus on SGH this may be considered positive by investors in SGH.

Disadvantages of the Share Scheme

Change in nature of the investment held by Seven Network Shareholders Seven Network Shareholders who receive SGH Shares will have their interest in Seven Network’s existing assets diluted and will be exposed to different businesses which have a different risk and earnings profile. These include risks associated with the mining and construction sectors in Australia and China, foreign exchange currency risks as well as Caterpillar’s ability to terminate the dealership licences on short notice. These changes to the underlying nature of their investments may not be compatible with the investment preferences of some Seven Network Shareholders

Uncertainty over the value of scrip in SGH The future price at which securities in SGH will trade on the ASX is uncertain. Given the contrasting businesses of WesTrac Holdings and Seven Network, it is possible that the varying risk/return profile of the mix of businesses within SGH will no longer correspond to the investment preferences of some Shareholders. This may put downward pressure on the SGH share price in the short term to the extent Shareholders decide to sell their shares.

Dilution of interest in Seven Network’s existing assets Although Unrelated Shareholders will receive one share in SGH for every share held in Seven Network, the greater number of securities outstanding in SGH means that the proportionate interests of Unrelated Shareholders in Seven Network’s existing assets will be diluted and the interest of the Kerry Stokes AC will increase from 48.7% to 67.9%. This dilution will further reduce the relative influence of Unrelated Shareholders over the activities of SGH and the likelihood of future takeover offers for SGH other than by way of a transaction supported by Kerry Stokes AC. Whilst the proportionate free float will decrease, the total value of the free float will remain comparable.

Other considerations

Taxation implications Most of Seven Network’s Australian shareholders are expected to be eligible for scrip for scrip rollover relief in relation to the SGH shares that they receive under the Share Scheme. Seven Network has applied for a class ruling to confirm this. Capital gains tax roll over relief may be attractive to some shareholders notwithstanding that it only defers and does not eliminate the ultimate capital gains tax liability. Approval of the Share Scheme may crystallise tax liabilities for individual Shareholders. The Australian tax implications of the Share Scheme are outlined in Section 8 of Part B of the Scheme Booklet. Shareholders should consult their tax adviser regarding their personal circumstances.

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Section 6 125

Restrictions in certain foreign countries may make it impractical or unlawful for SGH shares to be offered or issued under the Share Scheme to Seven Network Shareholders in those countries or for Seven Network shareholders located in those countries to receive SGH shares under the Share Scheme. Foreign shareholders may instead receive a cash payment following the sale of their securities by a nominee. Shareholders who are not Australian resident taxpayers or who are liable for tax outside Australia should seek specific tax advice in relation to the Australian and overseas tax consequences of the Share Scheme. Summary and conclusion – TELYS3 Scheme In our opinion the TELYS3 Scheme is fair and reasonable and therefore in the best interests of TELYS3 Holders. In arriving at this opinion, we have had regard to the following factors. The proposed TELYS3 Scheme is fair If the Share Scheme is approved and the TELYS3 Scheme is not, Seven Network will enter into a deed poll committing to deal with the TELYS3 as if they had been amended in certain respects (the Amended TELYS3). The deed poll will become effective immediately, although Seven Network’s constitution will need to be amended to give full effect to all the provisions. Seven Network has undertaken to use its best endeavours (including putting any necessary resolution to Seven Network Shareholders at any subsequent meeting of shareholders) to ensure that it is able to give full effect to the deed poll. As SGH will own all the ordinary shares of Seven Network, Seven Network is expected to be able to amend its constitution. Accordingly, we have assessed the fairness of the TELYS3 Scheme by comparing the fair market value of an Amended TELYS3 with the fair market value of the TELYS3 Scheme consideration which comprises a TELYS4 security.

Table 10: Evaluation of fairness

Mid Low point High ($) ($) ($)

Fair market value of an Amended TELYS3 81.90 87.03 92.15 Fair market value of a TELYS4 – TELYS3 Scheme consideration 91.00 94.00 97.00

Source: Deloitte analysis

The value of the TELYS3 Scheme consideration, represented by our estimate of the value of a TELYS4 on a minority basis, overlaps the range of our assessed value of an Amended TELYS3. Accordingly, in our opinion the TELYS3 Scheme is fair.

Valuation of an Amended TELYS3 We have estimated the fair market value of an Amended TELYS3 on a minority basis based on the historical trading price of TELYS3 prior to the announcement of the Proposed Schemes and after consideration of any applicable premium or discount to reflect the amendments made to the TELYS3 terms. As the TELYS3 Scheme is not a control transaction, the fair market value of an Amended TELYS3 has been assessed on a minority basis with no premium for control.

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126 Seven Network Limited Scheme Booklet – Part B

We consider the recent trading in TELYS3 securities to be a reasonable indicator of the estimated fair market value of the securities on a minority basis for the following reasons:  Seven Network has significant coverage from research analysts including Deutsche Bank Securities, Goldman Sachs JBWere, JP Morgan, Macquarie Research, Morgan Stanley and RBS Securities, who provide up to date coverage of Seven Network securities including TELYS3 for investors on a regular basis  over the six month period ended 31 December 2009, 13.0% of the total number of TELYS3 securities changed hands  there has not been significant volatility in the recent trading of TELYS3 securities (prior to the announcement of the Proposed Schemes) that would limit the applicability of this approach  recent trading prices may also have been impacted by expectations from the TELYS3 Holders that TELYS3 would be redeemed on the Step Up date.

Historical TELYS3 price performance The following table sets out the recent share market trading in TELYS3 securities up to one day prior to the announcement of the Proposed Schemes.

Table 11: TELYS3 valuation – recent share market trading

Daily VWAP

VWAP ($) Low ($) High ($)

One day prior to announcement - 19 February 2010 95.77 95.10 96.40

One week prior to announcement 95.78 95.76 95.82 One month prior to announcement 95.66 95.04 96.08 Three months prior to announcement 94.68 93.07 96.08 Six months prior to announcement 94.47 91.41 96.97

Source: Bloomberg, Deloitte analysis

Further analysis of the recent trading in TELYS3 securities is provided in Section 4.1.2. Given the improved economic conditions and the expected turnaround in the advertising market, we have placed greater reliance on the more recent trading in securities to estimate the fair market value of a minority holding in TELYS3. Having regard to this, we have estimated the current fair market value of a TELYS3 security on a minority basis to be in the range of $91.00 to $97.00 per security which largely corresponds with the range in trading of these securities in the six months prior to announcement of the Proposed Schemes.

Consideration of applicable discount/premium In estimating the fair market value of an Amended TELYS3 we have considered whether it is appropriate to apply a discount or a premium to reflect the impacts on TELYS3 securities should the Share Scheme be approved.

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Factors which would support a discount to the TELYS3 trading price  Amended TELYS3 will remain listed but become a hybrid security in a company in which the ordinary shares are unlisted, making it potentially less attractive to outside investors  TELYS3 Holders may no longer derive as much benefit from the TELYS3 dividend and capital stopper which is limited to Seven Network and does not extend to SGH  Notwithstanding its other obligations under the TELYS3 Undertaking, Seven Network directors may defer paying dividends on TELYS3 while any dividends on TELYS4 are unpaid  Amended TELYS3 Holders will no longer receive the benefit of the commitment by Seven Network to use reasonable endeavours to procure an offer for TELYS3 Holders in the event of a takeover or scheme should there be a takeover bid or scheme of arrangement in relation to Seven Network, because a takeover bid or scheme of arrangement for Seven Network would then be very unlikely. Amended TELYS3 Holders will have no such right in relation to a takeover bid or scheme of arrangement for SGH  Amended TELYS3 will no longer have the prospect of being converted into ordinary shares in Seven Network  Amended TELYS3 will continue to provide exposure to Seven Network and include a dividend and capital stopper limited to Seven Network, however, holders will not benefit from the enhanced income profile and capital base of the merged group  If the TELYS3 Scheme is not implemented, TELYS3 Holders may still elect to exchange their TELYS3 for TELYS4 on an individual basis. Any such changes will reduce the number of TELYS3 on issue, potentially reducing the TELYS3 free float and the secondary market liquidity of the Amended TELYS3.

Factors which would support a premium to the TELYS3 trading price  Amended TELYS3 Holders will receive additional income protection by way of distributions which will, in effect, be cumulative although they are deferrable in certain circumstances for up to 80 years  the Amended TELYS3 will be exchanged for cash in 80 years unless Seven Network is unable to change its constitution to allow it to fulfil this proposed undertaking, in which case Amended TELYS3 will be exchanged for cash on 1 December 2014 but without any entitlement to unpaid dividends beyond that provided for in the TELYS3 terms of issue. After considering the factors in favour of recognising a notional premium balanced against the potential for a notional discount, we have considered a notional discount to the TELYS3 recent share market trading to be appropriate and have selected a discount between 5% and 10%.

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128 Seven Network Limited Scheme Booklet – Part B

Conclusion Set out below is a summary of our assessed value of an Amended TELYS3 on a minority basis.

Table 12: Fair market value of an amended TELYS3

Low High ($) ($)

Fair market value of a TELYS3 91.00 97.00 Notional discount to reflect amended terms 10% 5% Fair market value of an Amended TELYS3 81.90 92.15

Source: Deloitte analysis

Valuation of a TELYS4 We have estimated the fair market value of a TELYS4 to be between $91.00 and $97.00 which is in line with our assessment of the fair market value of a TELYS3 on a minority basis. TELYS3 and TELYS4 terms are equivalent in all respect with the exception of the following:  TELYS4 Holders may request conversion upon breach of the dividend and capital stopper while TELYS3 Holders cannot.  TELYS4 will provide exposure to SGH as opposed to Seven Network only for the TELYS3 Holders. The enhanced income profile and capital base of SGH may be considered positively by investors although this may be somehow offset by the lower net cash position of SGH compared to Seven Network. We are of the opinion that the above differences, albeit positive for the TELYS4 Holders, would not have a material impact on the fair market value of TELYS4. Accordingly, we conclude that our assessment of the fair market value of a TELYS3 represents a reasonable basis for the assessment of the fair market value of a TELYS4. Further details on the comparison between TELYS3 and TELYS4 are provided in Appendix 2. The proposed TELYS3 Scheme is reasonable In accordance with RG 111 an offer is reasonable if it is fair. On this basis, in our opinion the TELYS3 Scheme is reasonable. We have also considered the following factors in assessing the reasonableness of the TELYS3 Scheme. We have formed our opinion on the reasonableness of the TELYS3 Scheme based on an analysis of the likely advantages and disadvantages to TELYS3 Holders of approving the TELYS3 Scheme.

Advantages of the TELYS3 Scheme

Enhanced conversion mechanism TELYS4 Holders may request conversion or exchange (at the election of SGH) should the dividend and capital stopper be breached as opposed to taking legal action for breach of contract as required under TELYS3.

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Improved terms for dividend and capital stopper TELYS4 holders may benefit from the broader capital base and income profile of SGH whereas TELYS3 Holders are only able to benefit from growth or capital improvements in Seven Network. TELYS3 will also be structurally subordinated to TELYS4 and any other hybrid securities within SGH.

Disadvantages of the TELYS3 Scheme The likely disadvantages to TELYS3 Holders if the TELYS3 Scheme is approved include:

Non-cumulative distributions If Seven Network successfully changes its constitution, TELYS3 Holders may prefer to receive additional income protection by way of distributions which will, in effect, be cumulative although they are deferrable in certain circumstances for up to 80 years.

Redemption and/conversion TELYS3 Holders may retain their securities with the expectation that Seven Network will redeem or convert any amended TELYS3 after the TELYS3 Scheme. Amended TELYS3 will be exchanged for cash in 80 years unless Seven Network is unable to change its constitution to allow it to pay interest on dividends, in which case Amended TELYS3 will be exchanged for cash on 1 December 2014.

Other considerations

TELYS3 and TELYS4 offer identical cash flow streams TELYS4 will be issued on similar terms to TELYS3. TELYS4 will pay distributions at a rate equal to the rate in respect of TELYS3 at the relevant time and will be redeemable on any dividend payment date.

Taxation implications Most TELYS3 Holders are expected to be eligible for scrip for scrip rollover relief in relation to the TELYS4 preference shares that they receive under the TELYS3 Scheme. Seven Network has applied for a class ruling to confirm this. Capital gains tax roll over relief may be attractive to some TELYS3 Holders notwithstanding that it only defers and does not eliminate the ultimate capital gains tax liability. Approval of the TELYS3 Scheme may crystallise tax liabilities for individual Securityholders. The Australian tax implications of investing in the TELYS4 preference shares pursuant to the TELYS3 Scheme are outlined in Section 8 of Part B of the Scheme Booklet. TELYS3 Holders should consult their tax adviser regarding their personal circumstances. Restrictions in certain foreign countries may make it impractical or unlawful for TELYS4 preference shares to be offered or issued under the TELYS3 Scheme to TELYS3 Holders in those countries, or for TELYS3 Holders located in those countries to receive TELYS4 preference shares under the TELYS3 Scheme. Foreign TELYS3 Holders may instead receive a cash payment following the sale of their securities by a nominee. TELYS3 Holders who are not Australian resident taxpayers or who are liable for tax outside Australia should seek specific tax advice in relation to the Australian and overseas tax consequences of the TELYS3 Scheme.

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130 Seven Network Limited Scheme Booklet – Part B

Opinion on the Proposed Schemes

Share Scheme In our opinion, the Share Scheme is fair and reasonable to Unrelated Shareholders. It is therefore in the best interests of Unrelated Shareholders. An individual shareholder’s decision in relation to the Share Scheme may be influenced by his or her particular circumstances. If in doubt Unrelated Shareholders should consult an independent adviser.

TELYS3 Scheme In our opinion, theTELYS3 Scheme is fair and reasonable to TELYS3 Holders. It is therefore in the best interests of TELYS3 Holders. An individual TELYS3 Holder’s decision in relation to the TELYS3 Scheme may be influenced by his or her particular circumstances. If in doubt TELYS3 Holders should consult an independent adviser. This opinion should be read in conjunction with our detailed report which sets out our scope and findings.

Yours faithfully DELOITTE CORPORATE FINANCE PTY LIMITED

Mark Pittorino Stephen Ferris Director Director

Note: all amounts stated in this report are $ unless otherwise stated, and may be subject to rounding.

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Section 6 131

Contents

1 Terms of the Proposed Schemes 25 1.1 Summary 25 1.2 SGH’s intentions 26 2 Scope of the report 27 2.1 Purpose of the report 27 2.2 Basis of evaluation 27 2.3 Limitations and reliance on information 30 3 The Australian media and related industries 32 3.1 Overview 32 3.2 National Broadband Network 33 3.3 Regulatory environment 34 3.4 Advertising and general trends 36 3.5 Television broadcasting 39 3.6 Magazine and newspaper publishing 44 3.7 Online 48 3.8 ISP 51 4 Profile of Seven Network 58 4.1 Background 58 4.2 Seven Media Group 65 4.3 Wireless Broadband Australia 74 4.4 CMJ investment 77 4.5 WAN investment 80 4.6 Other investments 82 5 Profile of WesTrac Holdings 85 5.1 Background 85 5.2 Industry drivers 86 5.3 WesTrac Group operations 94 5.4 National Hire operations 108 5.5 Coates Group operations 114 6 Profile of SGH 121 6.1 Background 121 6.2 Capital structure and shareholders 122 22 Deloitte: Seven Network Limited – Independent expert’s report

132 Seven Network Limited Scheme Booklet – Part B

6.3 Financial performance 123 6.4 Financial position 124 7 Valuation methodology 125 7.1 Valuation methodologies 125 7.2 Selection of valuation methodologies 126 8 Valuation of Seven Network 128 8.1 Summary 128 8.2 Valuation of SMG 129 8.3 Valuation of CMJ 137 8.4 Valuation of WAN 143 8.5 Valuation of other investments 148 8.6 Valuation of Wireless Broadband Australia 153 8.7 Corporate costs 158 8.8 Surplus assets and liabilities 159 8.9 Net cash position 160 8.10 TELYS3 160 8.11 Seven Network valuation crosscheck 161 9 Valuation of WesTrac Holdings 163 9.1 Summary 163 9.2 Valuation of WesTrac Australia 163 9.3 Valuation of WesTrac China 175 9.4 Valuation of other assets 181 9.5 Valuation of National Hire 181 9.6 WesTrac Holdings net debt 191 9.7 WesTrac Holdings corporate costs 191 10 Valuation of SGH 192

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Section 6 133

Appendices Appendix 1: Glossary 196 Appendix 2: Summary of TELYS3 and TELYS4 201 Appendix 3: Premium for control 205 Appendix 4: Discount rate 207 Appendix 5: Comparable company multiples 220 Appendix 6: Comparable company descriptions 227 Appendix 7: Comparable transactions 241 Appendix 8: Sources of information 251 Appendix 9: Qualifications, declarations and consents 253

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134 Seven Network Limited Scheme Booklet – Part B

1 Terms of the Proposed Schemes 1.1 Summary On 22 February 2010, Seven Network Limited (Seven Network or the Company), together with Australian Capital Equity Pty Limited (ACE), announced a proposal under which Seven Network and the WesTrac Group will merge their investments and businesses. This transaction will be effected by WesTrac Holdings Pty Limited (WesTrac Holdings), a wholly owned subsidiary of Seven Group Holdings Limited (SGH) (a newly created company), acquiring all the ordinary shares (Seven Network Shares) and preference shares (TELYS3) issued by Seven Network via two schemes of arrangement (the “Share Scheme” and “TELYS3 Scheme”, together “the Proposed Schemes”). Under the Share Scheme, Seven Network Shareholders will receive one share in SGH for each share held in Seven Network. The Share Scheme is conditional upon the satisfaction of a number of conditions precedent including the following:  approval by the Seven Network Shareholders at the Share Scheme meeting (75% by shares voting and 50% by number voting)  regulatory and court approval  no material adverse changes  tax rulings  reconfirmation of Caterpillar consent to the merger. In addition to the Share Scheme, the directors of Seven Network announced a proposal under which the TELYS3 Holders will be offered the opportunity to exchange their TELYS3 securities for TELYS4 to be issued by SGH. TELYS4 are redeemable, convertible preference shares that entitle holders to non-cumulative floating rate dividends and will be issued on similar terms to TELYS3. The TELYS3 Scheme is conditional upon the satisfaction of a number of conditions precedent including the following:  approval by the TELYS3 Holders at the TELYS3 scheme meeting (75% by holding and 50% by number voting)  approval of the Share Scheme  regulatory and court approval. If the Share Scheme is approved but the TELYS3 Scheme is not approved, TELYS3 Holders will still be given the opportunity to exchange their TELYS3 for TELYS4 (subject to a minimum acceptance level in aggregate of $100 million).

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Section 6 135

In the event any TELYS3 remain outstanding:  Seven Network will enter into a deed poll under which it will commit to dealing with the TELYS3 as if their terms had been amended prior to the implementation of the Share Scheme. Subject to Seven Network changing its constitution, which it has committed to use its best endeavours to do, the TELYS3 will (if they have not already been exchanged) be exchanged for cash in 80 years and the TELYS3 holder will have a right to the amount of any unpaid dividends but deferrable for up to 80 years  TELYS3 will continue to provide recourse to Seven Network and include a dividend and capital stopper limited to Seven Network, however, TELYS3 Holders will not benefit from the enhanced income profile and capital base of the merged group. The board of Seven Network has prepared a scheme booklet containing the detailed terms of the Proposed Schemes (the Scheme Booklet). Appendix 2 to this report contains further details of TELYS3and TELYS4. 1.2 SGH’s intentions Following implementation of the Share Scheme, the SGH board of directors (SGH Board) will consist of the current Seven Network directors, with the addition of Jim Walker, Chief Executive Officer of WesTrac. Peter Gammell, an experienced executive, will become Chief Executive Officer of SGH. SGH intends to invite two additional independent directors to join the SGH Board to further strengthen the Board. It is anticipated that the additional two independent directors will be nominated for election at SGH’s first annual general meeting to be held in late 2010. Due to the contrasting nature of the two divisions which will be owned by SGH (i.e. businesses operating across diverse industries such as media, online and supply of heavy equipment), it is expected that the businesses will continue to be managed as separate operating divisions. It is therefore envisaged that the majority of the corporate functions for each division will remain largely separate. However, the management of SGH plans to integrate certain administrative and finance functions which should lead to some cost savings. From a financing perspective, it is expected that SGH will use the cash reserves of Seven Network to repay the WesTrac Group syndicated senior debt facility of approximately $600 million. As at 31 December 2009 the balance owing on the facility was $600 million. This debt currently matures in December 2012. It is SGH’s intention to renew the facility with a reduced limit. It is intended that this renewed facility will remain undrawn in the immediate term. Subject to the financial forecasts being achieved and other relevant factors, the SGH Board expects to declare a final dividend of 36 cents for the full year ending 30 June 2011. Dividends are expected to be fully franked. During the forecast period, the SGH Board is committed to maintaining and growing dividends above the current 34 cents per share (cps) paid by Seven Network, subject to earnings performance and the extent to which dividends can be franked. In respect of future years, subject to available profits and the financial position of the SGH, an interim dividend is expected to be payable annually in April, with a final dividend payable annually in October.

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136 Seven Network Limited Scheme Booklet – Part B

2 Scope of the report 2.1 Purpose of the report Section 411 of the Corporations Act 2001 (Section 411) regulates schemes of arrangement between companies and their shareholders. Part 3 prescribes the information to be provided to shareholders in relation to schemes of arrangement. These provisions require the preparation of a report by an independent expert stating whether or not, in the expert’s opinion, the proposed scheme is in the best interests of the shareholders of the company subject to the scheme where either:  the corporation which is party to the scheme (SGH) has a director in common with the company subject to the scheme of arrangement (Seven Network)  the corporation which is the other party to the scheme is entitled to more than 30% of the voting shares in the company subject to the scheme. As SGH has directors in common with Seven Network and has more than 30% of the voting shares in Seven Network, there is a legal requirement for an independent expert’s report under Part 3. With regard to the TELYS3 Scheme, whilst an independent expert’s report is not required to meet any statutory obligations, the Independent Directors have requested that Deloitte provides an opinion advising whether the proposed TELYS3 Scheme is in the best interests of TELYS3 Holders. This report is to be included in the Scheme Booklet to be sent to Seven Network Shareholders and TELYS3 Holders and has been prepared for the exclusive purpose of assisting Securityholders in their consideration of the Proposed Schemes. We are not responsible to you, or anyone else, whether for our negligence or otherwise, if the report is used by any other person for any other purpose. 2.2 Basis of evaluation

2.2.1 Guidance Schemes of arrangement can include many different types of transactions, including being used as an alternative to a Chapter 6 takeover bid. The basis of evaluation selected by the expert must be appropriate for the nature of each specific transaction. Section 640 of the Corporations Act 2001 (Section 640) requires an independent expert’s report in connection with a takeover offer to state whether, in the expert’s opinion, the takeover offer is fair and reasonable. Where a scheme of arrangement has the same effect as a takeover, the form of analysis used by the expert should be substantially the same as for a takeover bid, however, the opinion reached should be whether the proposed scheme is ‘in the best interests of the members of the company’. Accordingly, if an expert were to conclude that a proposal was ‘fair and reasonable’ if it was in the form of a takeover bid, they will also be able to conclude that the proposed scheme is in the best interests of the members of the company.

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Section 6 137

In our determination as to whether the Proposed Schemes are fair and reasonable and therefore in the best interests of the members of the company, we have had regard to common market practice, RG111 issued by ASIC in relation to the content of independent expert’s reports and Regulatory Guide 74 (RG74) issued by ASIC in relation to acquisitions agreed to by shareholders.

RG111 This regulatory guide provides guidance in relation to the content of independent expert’s reports prepared for transactions under Chapters 5, 6 and 6A of the Corporations Act, including:  takeover bids  schemes of arrangement  compulsory acquisitions or buy-outs  acquisitions approved by security holders under item 7 of Section 611 of the Corporations Act 2001 (Section 611)  selective capital reductions  related party transactions  transactions with persons in a position of influence  demergers and demutualisations of financial institutions  buy-backs. RG111 refers to a ‘control transaction’ as being the acquisition (or increase) of a controlling stake in a company that could be achieved, for example, by way of a takeover offer, scheme of arrangement, approval of an issue of shares using item 7 of Section 611, a selective capital reduction or selective buy back. In respect of control transactions, under RG111 an offer is:  fair, when the value of the consideration is equal to or greater than the value of the securities subject to the proposed scheme. The comparison must be made assuming 100% ownership of the target company (i.e. including a control premium)  reasonable, if it is fair, or, despite not being fair, after considering other significant factors, securityholders should accept the offer under the proposed scheme, in the absence of any higher bids before the close of the offer.

RG74 RG 74, relating to acquisitions agreed to by shareholders, provides that the evaluation of whether a proposed scheme is fair and reasonable for non-associated shareholders should:  be judged in all circumstances of the proposal  compare the likely advantages and disadvantages for the non-associated shareholders if the proposal is agreed to, with the advantages and disadvantages to those shareholders if it is not  compare the value of the shares to be acquired under the proposal with the value of the consideration to be paid, but this should not be the sole factor in evaluating the proposal.

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138 Seven Network Limited Scheme Booklet – Part B

The regulatory guide also requires the expert to consider whether the proposed scheme, if agreed to, could deter the making of a takeover bid for the company.

Interpretation Schemes of arrangement frequently have the same effect as a takeover offer and are commonly evaluated as such. In these circumstances, the expression “in the best interests” is commonly treated as being equivalent to “fair and reasonable” as defined in RG111. In this case the Share Scheme has the same effect as a takeover offer for Seven Network. To assess whether the Share Scheme is in the best interests of Unrelated Shareholders, we have adopted the test of whether the Share Scheme is either fair and reasonable, not fair but reasonable, or neither fair nor reasonable, as set out in RG111. To assess whether the TELYS3 Scheme is in the best interests of TELYS3 Holders, we have adopted the test of whether the TELYS3 Scheme is either fair and reasonable, not fair but reasonable, or neither fair nor reasonable as set out in RG111 .

2.2.2 Fairness RG111 defines an offer as being fair if the value of the offer price is equal to or greater than the value of the securities the subject of the offer. The comparison must be made assuming 100% ownership of the target company. Accordingly we have assessed whether the Share Scheme is fair by comparing the value of the consideration being offered pursuant to the Share Scheme with the value of a Seven Network ordinary share on a control basis. A Seven Network ordinary share has been valued at fair market value, which we have defined as the amount at which an ordinary share would be expected to change hands between a knowledgeable willing buyer and a knowledgeable willing seller, neither of whom is under any compulsion to buy or sell. Special purchasers may be willing to pay higher prices to reduce or eliminate competition, to ensure a source of material supply or sales, or to achieve cost savings or other synergies arising on business combinations, which could only be enjoyed by the special purchaser. Our valuation of a Seven Network ordinary share has not been premised on the existence of a special purchaser. We have assessed whether the Share Scheme is fair by comparing the value of a Seven Network ordinary share with the value of the consideration to be received from SGH. We have assessed the value of each Seven Network ordinary share by estimating the current value of Seven Network on a control basis and dividing this value by the number of shares on issue. We have assessed the value of each SGH ordinary share by estimating the current value of SGH on a minority basis and dividing this value by the number of shares to be issued.

2.2.3 Reasonableness RG111 considers an offer in respect of a control transaction to be reasonable if either:  the offer is fair  despite not being fair, but considering other significant factors, security holders should accept the offer in the absence of any higher bid before the close of the offer.

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Section 6 139

To assess the reasonableness of the Share Scheme we considered the following significant factors in addition to determining whether the Share Scheme is fair:  the existing shareholding of Kerry Stokes AC (through ACE and its related entities) in Seven Network  any significant shareholdings in Seven Network  the likely market price and liquidity of Seven Network securities in the absence of the Share Scheme  carry forward tax losses, cash flows or other benefits available to SGH upon achieving 100% ownership of Seven Network  any special value of Seven Network to SGH  the value to an alternative bidder and the likelihood of an alternative offer being made  other implications associated with Shareholders not approving the Share Scheme.

To assess the reasonableness of the TELYS3 Scheme we considered the following factors:  the terms of the TELYS4 being offered compared to the terms of the existing TELYS3  the likely market price and liquidity of TELYS3 securities following implementation of the Share Scheme  the likelihood of an alternative offer being made  other implications associated with TELYS3 Holders not approving the TELYS3 Scheme.

2.2.4 Individual circumstances We have evaluated the Proposed Schemes for each class of Securityholders as a whole and have not considered the effect of the Proposed Schemes on the particular circumstances of individual investors. Due to their particular circumstances, individual investors may place a different emphasis on various aspects of the Proposed Schemes from the one adopted in this report. Accordingly, individuals may reach different conclusions to ours on whether the Share Scheme is in the best interests of Unrelated Shareholders or the TELYS3 Scheme is in the best interests of TELYS3 Holders. If in doubt investors should consult an independent adviser. 2.3 Limitations and reliance on information The opinion of Deloitte is based on economic, market and other conditions prevailing at the date of this report. Such conditions can change significantly over relatively short periods of time. This report should be read in conjunction with the declarations outlined in Appendix 9. We would specifically draw to the attention of Securityholders that recent volatility in capital markets and the current economic outlook has created significant uncertainty with respect to the valuation of assets. Recognising these factors, we consider that our opinions may be more susceptible to change than would normally be the case. This engagement has been conducted in accordance with professional standard APES 225 Valuation Services issued by the Accounting Professional and Ethical Standards Board Limited (APESB).

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140 Seven Network Limited Scheme Booklet – Part B

Our procedures and enquiries do not include verification work nor constitute an audit or a review engagement in accordance with standards issued by the Auditing and Assurance Standards Board.

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Section 6 141

3 The Australian media and related industries 3.1 Overview Australia contains one of Asia-Pacific’s most mature, advanced and established media industries catering to over 20 million people nationally. The Australian media and related industries, as is relevant to Seven Network, comprise the following four key segments:  Broadcast: free-to-air (FTA) television, pay television and radio  Print: books, journals, magazines, newspapers and periodicals  Online: publishing of media and entertainment content such as news, sports results, music, movies and weather reports online or via mobile devices  Internet service provider (ISP): broadband and dial up service providers. Other areas of the wider media and entertainment industry such as music, films and gaming are not relevant to Seven Network and thus have not been analysed in this report. Australian media industry revenue has historically been fuelled by advertising spend (adspend) which in turn is influenced by demographic trends, economic activity and also the government (federal and state) election cycles. However, more recently, consumer spending rather than adspend is expected to drive growth in this sector as a consequence of increased spending on the internet, interactive games and pay TV. Further details on the prospects and trends for each segment Seven Network operates in are set out in Sections 3.5 to 3.8. Australia’s media landscape is experiencing a period of transformation driven by advances in communications technology that are redefining how media is produced and consumed as well as other initiatives such as digital switchover (DSO) and the national broadband network (NBN). For the last 50 years, media companies have been operating under a vertically integrated business model incorporating content production and distribution. Until recently, distribution (broadcast licence), legal (foreign and cross media ownership rules) and technology barriers allowed incumbents to benefit from stable oligopolistic positions. With the emergence of broadband internet backed by the Australian Government’s commitment to the roll out of a high speed NBN, barriers to the distribution of media content are declining rapidly and as a result, competition from global telecommunication companies, ISPs and online media companies is rising substantially. Further details on the NBN are provided in Section 3.2.

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142 Seven Network Limited Scheme Booklet – Part B

The open nature of the internet and the success of companies such as Google, Apple and Yahoo may point to more open access business models in the future compared to the traditional media adspend-supported and/or subscription based closed access models as illustrated in the figure below:

Figure 5: Media industry business models

Source: Deloitte analysis

This phenomenon of convergence and change in business models is most apparent in the TV broadcasting industry and is illustrated in the figure below:

Figure 6: New and traditional media value chain – TV broadcasting

Source: Deloitte analysis

3.2 National Broadband Network In April 2009, the Australian Government announced that it would invest in the construction of a NBN, a national fibre optic network to deliver superfast broadband to businesses and households across Australia. The NBN is designed as a solution for inadequate access to broadband infrastructure in regional and rural areas. The Government’s objective is to deliver accessibility to internet services to approximately 98% of the population, with 90% coverage to be delivered using Fibre to the Premises (FTTP) technology and the remaining coverage to be delivered to remote parts of rural Australia using next generation wireless and satellite technologies.

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Section 6 143

The NBN is likely to take up to eight years to construct and roll out and as such, the likely impact of the network on existing broadband internet technology is still subject to uncertainty. Some analysts are also predicting that the NBN will not be connected to 90% of homes until 2025. 3.3 Regulatory environment On 14 September 2006, legislation that makes up the Federal Government’s media reform package was introduced in Federal Parliament. The legislation was subsequently passed by Parliament on 18 October 2006 and commenced 4 April 2007. The three key pieces of the media reform package are:  Broadcasting Services Amendment (Media Ownership) Act 2006  Broadcasting Legislation Amendment (Digital Television) Act 2006  Communications Legislation Amendment (Enforcement Powers) Act 2006. The most pivotal changes stemming from these reforms were:  the removal of all restrictions on foreign media ownership in both the Foreign Acquisitions and Takeovers Act 1975 and the Broadcasting Services Act 1992 (the Act) although media was retained as a ‘sensitive sector’ under the Foreign Investment Policy (i.e. any proposal by foreign interests to directly invest within the Australian media sector needs to be approved by the Federal Treasurer)  the easing of restrictions on cross media ownership subject to the following two safeguards: o there remain no fewer than five independent players in metropolitan markets and no fewer than four independent players in regional markets o a prohibition on owning more than two out of three types of business, being a commercial television licence, radio licence or newspaper, in the same market. To ensure that the levels of competition and regional coverage were not compromised as a result of the reforms, the Federal Government maintained the role of the Australian Competition and Consumer Commission (ACCC) and provided additional regulatory powers to the Australian Communications and Media Authority (ACMA). In addition, on 1 January 2008, the Government introduced protections for regional news and local coverage through two additional broadcasting licence conditions which impose minimum levels of content on matters of local significance. More recently, in order to protect Australian content on commercial television, the Federal Government announced on 7 February 2010 its intention to rebate licence fees paid by the networks to the Government (currently 9% of gross advertising revenues) by 33% in 2010 and 50% in 2011.

34 Deloitte: Seven Network Limited – Independent expert’s report

144 Seven Network Limited Scheme Booklet – Part B

Other relevant legislation is the anti-siphoning provisions contained in section 115 of the Act which empower the Minister for Broadband, Communications and the Digital Economy (the Minister), to list events (mainly sporting) that should be available on FTA TV, to maximise viewing by the general public. The most recent anti-siphoning list took effect on 1 January 2006 and expires on 31 December 2010 and comprises domestic and international sporting events in 12 categories including cricket, tennis, golf, motor sports and the football codes. Although currently under review, no significant changes are expected as the Minister commented on 30 August 2009:1 "The anti-siphoning scheme was introduced in 1994 to ensure that events of national importance and cultural significance were made freely available to the Australian public, and the Government remains committed to that objective". Under the anti-siphoning provisions, pay TV licensees are prevented from acquiring a right to televise a listed event until a right is offered first to the Australian Broadcasting Corporation (ABC) or the Special Broadcasting Service Corporation (SBS) or to commercial FTA broadcasters reaching more than 50% of the Australian population. The provisions aim to give FTA broadcasters priority over pay TV licensees in acquiring rights to listed events. The Minister may remove an event from the anti-siphoning list in certain circumstances, for example, where FTA broadcasters have had a real opportunity to acquire the right to televise an event but none has done so within a reasonable time. Events are automatically de-listed 12 weeks before they commence. In addition, anti-hoarding provisions require commercial TV licensees who acquire the right to televise a designated event, but who do not propose to fully use that right, to offer the unused portion to the ABC and SBS for a nominal charge within a specified offer time. The emergence of new media rights in the coverage of sporting events and the announcement of the Australian Government’s $43 billion NBN has prompted discussion as to whether the anti-siphoning provisions should be extended to include new media platforms. At present, internet protocol TV (IPTV) and internet video content of sporting events are not considered a ‘broadcasting service’ under the Act and as such are not regulated by the Act. Sporting content carried on mobile phones is also not specifically regulated by the Act. Further, the provision of sporting content via internet video hosted on international websites is not regulated by Australian law. An extension of the anti-siphoning provisions to new media platforms would reduce the risk around access and pricing of premium content for FTA operators although the Minister acknowledged in a discussion paper on sport on television dated August 2009 that, “to date, there is little evidence that sporting events are being exclusively ‘siphoned’ to new technology platforms”2. In terms of spectrum, the Australian Government recently released a Green Paper in relation to the migration from analogue to digital television and how the spectrum currently used for analogue TV broadcasting might be used post-DSO. This is explored further in Section 3.8.5.

1 Department of Broadband, Communications and the Digital Economy (DBCDE) media release dated 30 August 2009 2 DBCDE discussion paper on sport on television: a review of the anti-siphoning scheme in the contemporary digital environment dated August 2009 (DBCDE anti-siphoning discussion paper) 35 Deloitte: Seven Network Limited – Independent expert’s report

Section 6 145

3.4 Advertising and general trends

3.4.1 Advertising trend Set out below is a brief overview of the outlook for the Australian adspend market since it remains, at present, a critical revenue source for the media and entertainment industry. The Australian adspend market generated revenues of $10.7 billion3 for the year ended 30 June 2008 (FY08) and declined substantially in FY09 to $9.8 billion. In FY09, many companies were forced to reduce media budgets and/or placed pricing pressures on advertising agencies as a result of the recent economic downturn, the tightening credit markets and the inability to refinance debt. In line with previous economic recessions, the adspend market is expected to be the first to rebound driven by the recovery in household consumption and corporate profitability. Historical adspend levels grew at a nominal compound annual growth rate (CAGR) of 5.3% from 1 July 1991 to 30 June 2008. In recent research notes, brokers have estimated that adspend for the total media industry will grow at a CAGR of 4.3% from 1 July 2009 to 30 June 2012, reaching $11.24 billion.

Figure 7: Australian historical and forecast adspend (FY91A to FY12F)

12,000 Forecast CAGR : 4.3% 1 July 2009 - 30 June 2012 11,000

10,000 Historical CAGR : 5.3% 1 July 1991 - 30 June 2008 long cycle 9,000

8,000

7,000

6,000 Advertising spend ($million) Advertising

5,000

4,000

3,000

Source: Commercial Economic Advisory Service of Australia (CEASA) report dated 30 June 2009 (CEASA Report), Brokers’ forecast consensus, Deloitte analysis

3 CEASA Report, Brokers’ forecast consensus, Deloitte analysis 4 Ibid 36 Deloitte: Seven Network Limited – Independent expert’s report

146 Seven Network Limited Scheme Booklet – Part B

The three traditional forms of media being print, television and radio, all compete against each other for advertising revenues. The introduction of online classifieds in the early 1990s has seen the emergence of a low cost advertising medium and whilst newsprint and television hold the dominant market shares in Australia, online adspend is expected to continue capturing market share over the next few years as set out in the table below. However, we note that absolute spend on traditional media has not declined in aggregate over the period.

Table 13: Australian adspend market by advertising medium (FY06A to FY12F)

Advertising media FY2006A FY2007A FY2008A FY09A CY2010F CY2011F CY2012F

Newspapers 36.5% 36.1% 35.0% 31.8% 31.1% 30.9% 30.6% Television1 32.4% 31.5% 30.2% 30.0% 31.3% 30.9% 29.7% Online 8.5% 11.3% 13.7% 17.0% 17.5% 18.6% 19.5% Radio 8.9% 8.2% 8.3% 8.6% 8.4% 8.3% 8.1% Magazines 6.9% 6.4% 6.3% 6.3% 6.5% 5.8% 5.7% Other2 6.8% 6.5% 6.5% 6.3% 5.2% 5.7% 6.4%

Source: CEASA Report, Deutsche Bank Australia media industry research report dated 9 September 2009 (DB Report) Notes: 1. Includes FTA and Pay TV 2. Includes other print cinema and outdoor media.

3.4.2 General trends The emergence of digital media is a global trend and evidence of the impact on traditional media can be seen in countries such as the United States, the United Kingdom (UK), Japan and France where penetration of high-speed broadband is significantly greater than in Australia Some of the observed trends include:  ongoing telecommunications and media convergence with widespread adoption of ‘triple play’ offers due to integrated media, communication and access  in some markets a decline in linear scheduling and an increase in on-demand viewing of television programming  unbundling of content packaging and pricing  increasingly interactive, user-driven and often user-created media content  increased convergence between television and personal computer screens although television picture quality is expected to remain the benchmark for video based entertainment  rise of niche media advertising to the detriment of mass media advertising  continued shift from print news to online news  increased use of mobile and wireless technologies to access media content. However, the following technical, legal and regulatory uncertainties remain which are expected to affect the timing and impact of the above trends on traditional media companies in Australia:  How will the regulatory model evolve and in particular the anti-siphoning provisions? 37 Deloitte: Seven Network Limited – Independent expert’s report

Section 6 147

 Will the proprietary closed access or open access media business models prevail?  What mix of advertising-funded, subscriptions-based, pay per view-based, pirated content-based media patterns will emerge?  Where in the value chain will ownership of the customer relationship sit?  Where will advertising sales and insertion take place – content creation, content aggregation, and/or content distribution?  Who will be the winners – those businesses which own the content or those which own the consumer relationship?  How will content development be funded in the future? The above uncertainties are likely to remain for some time and competition between telecommunication, internet and traditional media companies will be fierce to create the right business model as evidenced by the number of recent investments made by these companies outside of their traditional field to keep their strategic options open. An analysis of Seven Network’s market position in each of the segments in which it operates is provided below.

38 Deloitte: Seven Network Limited – Independent expert’s report

148 Seven Network Limited Scheme Booklet – Part B

3.5 Television broadcasting

3.5.1 Overview Television is a dominant force in Australian mass media with an average of 2.4 televisions per household.5 The Australian FTA television (analogue and digital6) and pay television industries are expected to have generated revenues of $6.4 billion7 and $3.1 billion8, respectively in FY09. Australian FTA television is delivered on a broadcast basis by terrestrial and satellite infrastructure and pay television is delivered by satellite and cable. The FTA network has close to 99.7%9 penetration in Australian households (50% through the digital network) compared to 30% via pay television.10 Over 90% of total FTA television revenue is generated from advertising and the remaining income is generally derived from the sale of in-house productions and, for the large networks, from affiliation agreements whereby programming is sold to regional networks. Audience ratings, which are monitored by independent research companies, are a primary driver of advertising revenues. At present, over 86% of pay television revenues are generated through subscriber fees and the remaining income is generally derived from advertising. 11 Advertising revenues are affected by Government prohibitions which limit advertising to six minutes per hour on pay television compared to 13 minutes per hour for FTA television12.

Market share Market share analysis for the FTA and pay television broadcast industries are set out in the figures below:

Figure 9: Australian commercial FTA TV market Figure 8: Australian FTA TV broadcasting market share (based on metro adspend revenue for the share (based on revenue estimates – FY10) six months to December 2009)

Seven, 14.2%

Ten , 28.3% Other, 31.8%

Seven, 38.5% Ten , 12.3%

PBL Media , 11.2% SBS, 2.5%

Win, 8.2%

Southern Cross, ABC, 9.5% Nine , 33.2% 5.7% Prime Media, 4.6% Source: IBIS World FTA Report Free TV Australia media release dated 29 January 2009

5 Buddecomm report titled Broadcasting and Pay TV dated March 2009 (Buddecomm Broadcasting Report) 6 All FTA television broadcasters will complete the switch from analogue to digital-only transmission by the end of 2013 7 IBIS World industry report on Free to Air Television Services in Australia dated 30 November 2009 (IBIS World FTA Report) 8 IBIS World industry report on Pay Television in Australia dated 14 December 2009 (IBIS World Pay TV Report) 9 FreeTV Australia industry report titled ‘2009 Year In Review’ and dated June 2009. Penetration refers to the household penetration of FTA technology (i.e. Australian households with a FTA television set). 10 DBCDE anti-siphoning discussion paper 11 IBIS World Pay TV Report 12 Ibid, between 6 pm and midnight outside of election periods 39 Deloitte: Seven Network Limited – Independent expert’s report

Section 6 149

Figure 10: Australian Pay TV broadcasting market share (based on revenue estimates – FY10)

Other, 8.9%

Austar , 21.7%

Foxtel , 69.4%

Source: IBIS World Pay TV Report Note: Foxtel includes the market share of Telstra and Optus since both are bundled wholesalers of Foxtel pay TV services

There are approximately 55 FTA broadcasting television stations in Australia, however, there are five national players to which most stations are affiliated. These national participants are Network Ten, Seven Network (Channel Seven), Nine Network and the non- profit, Government funded television broadcasters SBS and the ABC. The pay television market is dominated by Foxtel (national) and Austar (regional) with a small number of pay television providers such as Neighbourhood Cable, TransACT and SelectTV serving regional areas and niche interests. Foxtel and Austar control the bulk of their programming through ownership or distribution agreements and both are transmitted in capital cities through cable and satellite networks.

3.5.2 Key demand drivers and critical success factors Key demand drivers for the television broadcasting industry include:  advertising trends: commercial FTA players derive more than 90% of their revenues from adspend with pay television broadcasters seeking to increase their share of adspend. FTA’s share has been steadily decreasing over the last ten years to the benefit of online media and is expected to fall to 29.7%13 of total adspend in FY12 as set out in Table 13  economic conditions: advertising spend and subscriber growth are highly sensitive to economic conditions which in turn influence consumer and business confidence  population and demographic trends: the specific population and demographic characteristics that affect the industry include population growth rates, age structure, educational qualifications, and occupation and leisure patterns. Variations in these characteristics affect the level and type of advertising and also advertising rates The critical success factors for the television broadcasting networks include:  ability to attract and maintain a dedicated audience: the establishment and maintenance of a dedicated audience and, in particular, the broadcaster’s ability to constantly monitor changes in this audience’s tastes and adjust the mix of programming accordingly  ability to produce and access premium content: access to sports rights and international production from US studios is critical

13 Includes Pay and FTA TV 40 Deloitte: Seven Network Limited – Independent expert’s report

150 Seven Network Limited Scheme Booklet – Part B

 ability to quickly adopt new technology: technology is advancing rapidly and television networks are increasingly competing on the basis of the convenience of technologies such as the useability of electronic program guides and digital video recorders (DVRs)  highly skilled workforce: a sales force adept at identifying advertising opportunities for direct and agency advertisers together with experienced content writers and on- television media personalities contribute to the success of a television network  ongoing strategy: ensuring an appropriate competitive response to advertising spend on other media sources and new technology through, for example, cross-selling advertising contributes to the success of media players.

3.5.3 Current and future expectations As illustrated in Figure 11 below, FTA television industry revenue is forecast to grow at a CAGR of 4.0% from FY09 to FY14 compared to the revenue of the pay television industry which is forecast to grow at a nominal CAGR of 5.8% over the same period. The growth in revenue in the pay TV industry is based on it being able to achieve a household penetration rate of 43% by FY14 compared to 30% as estimated at June 2009. 14

Figure 11: FTA and pay television revenue growth rates 18%

15%

12%

9%

6%

3%

0%

-3% Historical Forecast

-6% FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

FTA television Pay Television FTA television CAGR Pay Television CAGR

Source: IBIS World FTA Report, IBIS World Pay TV Report, Deloitte analysis

FTA television As set out in Figure 11, forecast CAGR from FY09 to FY14 is expected to be largely in line with the historical CAGR from FY06 to FY09 of 5.0%.

14 IBISWorld Pay TV Report 41 Deloitte: Seven Network Limited – Independent expert’s report

Section 6 151

Steady growth levels are expected to benefit from the recovery in the adspend market and also from incremental Government election adspend of which FTA has historically captured a high share. Despite an increasingly competitive operating environment, steady growth is expected as a consequence of the continuing convergence of FTA TV with digital format technologies such as mobile phones and internet sites as well as podcasts. DVRs, through enabling on demand viewing and advertisement-skipping, could potentially change the relationships between viewers and broadcasters and consequently the relevance of FTA TV for the advertising market. However, the closed access nature of the current products (products are designed and sold by broadcasters) and the limited value added functions currently available to viewers is expected to prevent DVRs becoming a mass market product for FTA TV viewing at least in the short term. User generated content and social networking sites are increasingly regarded as threats to FTA as viewers are spending more time on the internet and less time watching television. Australians on average spend 13.3 hours a week watching television and 13.7 hours surfing the internet and 58% of Australian internet users have watched IP TV while online15. In order to combat the threat of new channels such as IPTV, Australian FTA networks are expected to continue protecting their market share and related revenues by utilising hybrid revenue models, sharing more content with new media companies Yahoo!7 Pty Ltd (Yahoo!7) and Ninemsn and creating micro-sites like those set up by Network Ten. Network Ten has also outlined plans to expand its digital offering targeting IPTV and online social networking, and has a strategy of interactive websites linked to its television shows. New multi-channelling services available to FTA broadcasters are expected to appeal to different viewers and may expand the overall FTA audience which in turn would expand their share of the advertising market, although audience fragmentation resulting from multi- channelling may reduce the mass-market appeal of FTA to advertisers. Finally, the regulatory environment and in particular, the revision of the anti-siphoning provisions, will have a major bearing on the timing and impact of the structural shift towards digital televisions and services. Pay television As set out in Figure 11, forecast CAGR from FY09 to FY14 of 5.8% is substantially lower than the historical CAGR from FY06 to FY09 of 12.5%. Historical growth levels in the industry have been strong due to a substantial increase in subscribers, introduction of digital services at a higher subscription price and more value-added services. Beyond FY09, pay television is expected to experience more subdued growth mainly due to a less favourable economic environment and increased competition from FTA digital channels. Steady forecast annual growth levels between 6.0% and 8.0% p.a. from FY11 to FY14 are expected to be driven by the pay television segment continuing to capture an increasing share of advertising expenditure. It is expected that pay TV subscriber numbers will increase as a greater number of households migrate to the higher priced digital services at higher average prices per subscriber. In the medium term, advertising is not likely to be a major source of industry revenue compared to subscriber revenue.

15 IBISWorld Pay TV Report 42 Deloitte: Seven Network Limited – Independent expert’s report

152 Seven Network Limited Scheme Booklet – Part B

The introduction of new standard definition channels by the FTA broadcasters totalling approximately 15 channels at the end of the forecast period in FY14 is not expected to have a significant impact in the medium term on the pay television industry. Over the outlook period to FY14, the pay TV industry is expected to achieve a household penetration rate of 43% compared to an existing rate of 30%, which is equivalent to what many other western countries achieved by FY0016. This is partly due to the later start of the industry in Australia and lack of competition but more likely due to the anti-siphoning provisions which prevented pay TV participants from accessing exclusive premium sport content which had been the major driver of pay TV penetration in international markets.

16 Ibid 43 Deloitte: Seven Network Limited – Independent expert’s report

Section 6 153

3.6 Magazine and newspaper publishing

3.6.1 Overview The Australian magazine publishing industry is expected to generate revenue of $2.0 billion for the financial year ending 30 June 201017. Approximately 60% of revenues are derived from consumers and 40% are derived from advertising companies. According to the Magazine Publishers of Australia (MPA)18, around 90% of magazine sales are made at retail outlets, with the residual coming from subscriptions. This is low by world standards as in the United States and Canada approximately 85% of revenues are derived from subscriptions. The Australian newspaper publishing industry is expected to generate $6.8 billion in revenues for the year ending 30 June 201019. Approximately 45% of revenues are generated from private advertisers (e.g. classifieds), 30% from consumers and 25% from advertising companies. Market share Market share analysis for both the magazine and newspaper publishing industries is detailed in the figures below.

Figure 12: Magazine industry 2010 market share Figure 13: Newspaper industry 2010 market share PBL Media Other, 14.8% News Australia Holdings, 40.4% Holdings, 45.0% Other, 21.3% Telstra Corporation, 1.3% APN News & Media, 4.0%

Reader's Digest West Australian (Australia), 5.4% Newspapers, 5.9% News Australia Holdings, 7.0%

Fairfax Media, Fairfax Media, 29.0% 10.8% Seven Media Group, 15.1%

Source: IBIS World, Deloitte analysis Source: IBIS World, Deloitte analysis

3.6.2 Key demand drivers and critical success factors Key demand drivers for the magazine and newspaper publishing industries include:  circulation metrics: cover prices and subscription rates affect circulation levels. Both of these metrics have been globally trending downwards globally due to competitive pressures from other forms of media

17 IBISWorld 18 The Magazine Publishers of Australia is an industry body that represents Australian publishers of consumer, cover-priced and nationally distributed magazines. 19 IBISWorld 44 Deloitte: Seven Network Limited – Independent expert’s report

154 Seven Network Limited Scheme Booklet – Part B

 economic conditions: adspend is highly sensitive to economic conditions. Furthermore, different types of advertising are affected by different factors, for example, retail advertising is influenced by the levels of consumer spending and real estate advertising is affected by the strength of the residential property market  level of household income: publications, especially magazines, are somewhat discretionary items  development of new competing media: advertising demand is influenced by the perception among businesses and advertising agents of the impact of newspaper and magazine advertising relative to other media. The internet and magazines are perceived to allow advertisers to reach more specific markets than newspapers. The critical success factors for the magazine and newspaper publishing industries include:  highly skilled workforce: journalism and editorial talent is essential. Strong advertising staff can help drive sales  establishment of brand names: quality brand names have a direct impact on readership levels and advertising rates  access to niche markets and control of distribution networks: a superior understanding of markets assists with positioning publications to promote an increase in readership, circulation (via distribution networks) and advertising levels  production of premium goods and services: high quality paper and graphics bolster readership levels, average cover prices and advertising rates  automation and new technology: it is important to be aware of changes in the media environment and to adopt new technologies that improve financial performance  optimum capacity utilisation: given the high fixed costs associated with publishing, high capacity utilisation assists in the reduction of unit costs  effective cost controls: as publishing is a cyclical business it is important to have controls over input costs such as journalists, printing, distribution and promotional expenses.

3.6.3 Current and future expectations The magazine and newspaper publishing industries have recently performed poorly. This may be attributed to the cyclical nature of these industries which were adversely affected recently by the downturn in adspend for the whole media industry combined with intense pressure from other forms of media.

45 Deloitte: Seven Network Limited – Independent expert’s report

Section 6 155

As illustrated in Figure 14 below, the magazine and newspaper industries are forecast to grow at a nominal CAGR of 3.7% and 1.9% from FY09 to FY14, respectively.

Figure 14: Magazine and newspaper revenue growth rates 6%

3%

0%

-3%

-6%

-9%

Historical Forecast

-12%

-15% FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

Magazines Newspapers Magazine CAGR Newspaper CAGR

Source: IBIS World, Deloitte analysis

Growth in the magazine and newspaper publishing industries will be underpinned by adspend in Australia which is expected to increase in line with the level of economic activity. The forecast increase in adspend is expected to lead both industries back to positive growth. However, the impact of the economic recovery will be somewhat offset by:  readers shifting to digital media: as a result, the online advertising market will gain market share at the expense of traditional media. This structural change will place pressure on circulation, readership levels and therefore advertising revenue.  rising input and distribution costs: in particular, paper, energy and distribution costs.

Magazine publishing In spite of the abovementioned trends, magazine industry revenue growth is expected to be stronger than in the recent past and greater than newspaper publishing growth given:  the targeted nature of magazine advertising relative to mass-market newspaper advertising  magazines are more complementary to the internet: a recent MPA Matchmaker Study / Roy Morgan study showed that magazine advertising works in synergy with the internet (i.e. prompts more website visits than any other advertising medium) and therefore is less likely to be negatively affected by the internet

46 Deloitte: Seven Network Limited – Independent expert’s report

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 younger generations make up the majority of magazine readership: generations X and Y made up over 50% of magazine readership in 200720 and are less likely to read magazines online than newspapers  it is less easy to replicate the experience of reading a magazine on the internet than that of reading a newspaper.

Newspaper publishing Growth in newspaper revenue will be limited and lower than magazine revenue growth due to structural pressures including:  pressure from alternate sources of news and information and from alternative advertising platforms. An example of this is a job advertisement previously published in a newspaper may now be on an online platform such as seek.com.au  decline in readership amongst young adults, which is expected to continue as the younger generations become increasingly technology savvy and prefer to read the news online or via other media  environmental concerns will likely have some impact on the demand for printed newspapers, as some consumers will aim to reduce their paper consumption. Newspaper websites can cannibalise the circulation of, and advertising in, traditional printed newspapers. Australian newspapers have been reluctant to charge for online content due to the resulting negative effects on website visitors and website advertising revenue. However, there may be an increasing trend for charging for online content. Rupert Murdoch was quoted in 2009 as saying “Quality journalism is not cheap, and an industry that gives away its content is simply cannibalising its ability to produce good reporting". Consumers see breaking news as commodities but there should always be a market for value adding online content such as business articles. This can be seen in Australia, in particular, where the Australian Financial Review is the only major newspaper that charges for online content. However we note that the real time business news website, called Business Spectator21 is currently provided free of charge and is monetized through advertising although another publication from the same company, a specialist advice magazine for investors titled Eureka is monetised through subscription. Going forward, the leading newspaper publishers are likely to be able to successfully monetise their online media content whether through advertising, subscription, pay per view or a mix of the three. From a cost perspective, under the current Norske Skog newsprint supply contract, all Australian newspaper publishers face a 7% rise in their domestic newsprint rates in FY10. Beyond FY10, each publisher will form its own sourcing strategy with individually negotiated supply contracts. Consequently, Australian publishers may benefit from the continued strength of the Australian dollar, the increasing competition from Asian suppliers and the depressed outlook for northern hemisphere newspaper demand.

20 Roy Morgan research (July 2007 – June 2008) 21 Owned by Australian Independent Business Media Pty Limited 47 Deloitte: Seven Network Limited – Independent expert’s report

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3.7 Online

3.7.1 Overview The online industry is a wide and diverse sector which includes online portals. The online portal segment comprises digital media portals, search portals, government web portals, corporate web portals, domain-specific portals (realestate.com.au), personal portals such as those designed to encourage collaboration in workplaces and regional portals which contain local information such as weather forecasts, street maps and local business information. Similar to a search portal (Google), a digital media portal (Yahoo!7) presents information from diverse sources in a unified way providing a consistent look and feel with access control and procedures for multiple applications and databases. Apart from the standard search engine feature, digital media portals offer other services such as email, news, stock prices, information, databases and entertainment. Online digital media portals generate revenues primarily from advertising (search and display). Display advertising is an audited service, meaning that advertisers know exactly how many people look at the relevant internet sites and they buy advertising based on the internet traffic. The online portal industry comprises either online portals that are supported by traditional media or personalised online portals such as iGoogle that are not supported by traditional print media. The latter category is quickly gaining market share driven by its ability to offer a global, lower cost advertising platform and greater value-for-money for advertisers given the increasing usage of the internet. Market share Market share analysis for the Australian online portal industry is detailed in the figure below:

Figure 15: Online portal industry (search and directories market) (FY08)

Sensis , 2.0% Other , 1.0% NineMSN, 3.0% Yahoo!7 , 5.0%

iGoogle , 89.0%

Source: Buddecomm report titled Australia – Digital Media – Advertising, Statistics, Revenues, Forecasts dated March 2009

3.7.2 Key demand drivers and critical success factors Key demand drivers for the online portal industry include:  economic activity: online portals are reliant on the general market outlook for macroeconomic indicators, such as economic growth and interest rates. Online employment and real estate classified volumes and yields are positively related to changes in economic growth

48 Deloitte: Seven Network Limited – Independent expert’s report

158 Seven Network Limited Scheme Booklet – Part B

 level of internet usage and access to broadband services: research has shown that broadband users spend a greater amount of time online than dial up users, visited more websites and purchase more products online  population and demographic trends: in addition to increases in the proportion of the population using computers and the internet, an increasing proportion of people look to the internet to purchase goods and services and in particular online real estate, employment and car sales portals as the first point of contact in their search for accommodation, employment and automobiles, respectively  growth in online advertising expenditure: broadband has improved the quality of online advertising and other trends contributing to growth of online expenditure include sponsored keyword searches and rich media advertising22  the relative attractiveness of online viewers: this is important from the perspective of advertisers as it directly influences the level of advertising dollars spent on online sites. The critical success factors of the online portal industry include:  unique media content: unique media content is essential to attract traffic and therefore advertising revenues  react to changes in the competitive environment: online classifieds and news information services are highly competitive with new and existing competitors seeking to increase their market share through innovative offerings and providing value-for- money propositions  provide incentives for users: media companies are increasingly providing integrated media access to users with related incentives such as cheaper and more convenient combined advertising packages  reach a leading market position quickly: this provides significant ongoing benefits as economies of scale are achieved and a particular site becomes more relevant to all users (both buyers and sellers). Overall, companies with an existing brand such as local and national newspapers, FTA TV broadcasters and pay television channels, are likely to have a distinct advantage over start-up companies in the online portal industry, regardless of the quality of the technology as they have an existing customer base from which to leverage their growth.

22 Rich media is an internet advertising term for web page advertisements that use advanced technology such as streaming video or download applets that interact instantly with the user and advertisements that change when the user’s mouse passes over them. 49 Deloitte: Seven Network Limited – Independent expert’s report

Section 6 159

3.7.3 Current and future expectations As illustrated in Figure 16 below, the online advertising market is forecast to grow at a nominal CAGR of 11.9% from 1 July 2009 to 30 June 2012. The total media advertising market is forecast to grow at a nominal CAGR of 4.3% over the same period23.

Figure 16: Online and total adspend revenue growth rates 40% 37% 34% 31% 28% 25% 22% 19% 16% 13% 10% 7% 4% 1% -2% -5% -8% Historical Forecast -11% FY07 FY08 FY09 FY10 FY11 FY12

Online adspend Total media adspend Online adspend CAGR Total media CAGR

Source: CEASA Report, Brokers’ forecast consensus, Deloitte analysis

Historical growth in online adspend was 21.2% from 1 July 2006 to 30 June 2009 driven primarily by the success of Google in FY07 and the increasing penetration of broadband in Australia. Australian demographics show an increase in general internet usage which is expected to drive further growth in this sector. Growth in the internet adspend is expected to occur through both taking market share from traditional media channels as well as expanding the market in certain categories. In FY12, online display and classified advertising is forecast to account for approximately 20% of total media adspend.24

23 CEASA Report, Brokers’ forecast consensus, Deloitte analysis 24 Ibid 50 Deloitte: Seven Network Limited – Independent expert’s report

160 Seven Network Limited Scheme Booklet – Part B

3.8 ISP

3.8.1 Overview The Australian internet service provider (ISP) industry is comprised of firms that provide services to enable customers to access the internet. Currently, internet access is provided through dial up25 or broadband26 application protocols, with broadband services representing over 80% of the ISP market27. IBIS World estimates that the ISP industry generated revenues of $6.6 billion in FY09, an increase of 7.8% from FY08. Broadband internet access is primarily provided through digital subscriber line (DSL) connections, although access can also be gained through cable, satellite services and, increasingly, wireless broadband services. The subscriber base of the ISP industry by connection type is illustrated in the figure below.

Figure 17: Internet subscriber base by connection type 100% 11% 12% 13% 12% 90% 2% 4% 80% 11% 25% 70% 40% 60% 52% 50% 54% 40%

Subscribers 50% 30% 47% 20% 33% 10% 22% 13% 0% 2006 2007 2008 2009 Dial up DSL Wireless Other (cable, satellite, etc.) Source: Internet Activity, Australia, Australian Bureau of Statistics, June 2009

Note:

1. Data is for ISPs with more than 10,000 subscribers 2. Data excludes connections to the internet via mobile phones

The Australian Bureau of Statistics (ABS) estimates that in FY09, there were approximately 8.4 million internet subscribers in Australia. DSL connections accounted for 50% of internet connections, or 4.2 million subscribers. However, this percentage share has decreased since FY08 while wireless broadband has experienced significant growth. As Wireless Broadband Australia Limited (Wireless Broadband Australia), formerly known as Unwired Group Limited, is a provider of wireless broadband services, we have described the wireless broadband market in further detail.

3.8.2 Wireless broadband market Wireless broadband services involve the provision of internet access via networks of communications towers connected to physical telecommunications infrastructure. It includes high speed internet and data network access and can deliver voice, data and content services

25 Dial up services require customers to dial in to the internet network through their telephone for the cost of a local call and generally have download speeds of up to 256kbps 26 Broadband access refers to connections with download speeds of 256kbps or greater 27 Internet Service Providers in Australia, IBISWorld, April 2009 51 Deloitte: Seven Network Limited – Independent expert’s report

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to subscribers without the need for fixed telephone line access or cables. At June 2009, there were approximately 287 wireless broadband service providers in Australia. Wireless internet subscriptions are also growing significantly, accounting for 25% of subscribers at June 2009 compared with 11% at June 200828. Despite this growth, the monthly average revenue per user (ARPU) has been declining from $76 in FY06 to $67 in FY09. The current network infrastructure in Australia is based on third generation (3G) technology. 3G technology is provided by three carrier networks with coverage extending to 99.1% of the Australian population at June 200929. In order to cope with the increased take-up of 3G services, 3G networks were upgraded during 2008 and 2009 with high-speed downlink packet access (HSDPA) protocols to increase download speed capabilities. Network costs of service for wireless broadband providers are generally fixed with low incremental costs for additional subscribers. As such, to the extent that wireless broadband providers can maintain or increase their subscriber bases, the majority of revenue earned from these subscribers has a direct positive impact on margins. Wireless broadband services are typically provided through mobile wireless platforms and fixed wireless platforms. Fixed wireless broadband, such as Wireless Broadband Australia, uses a wireless modem which plugs into a computer’s Ethernet port to deliver internet access to subscribers. The fixed wireless market, however, is showing only modest growth with the Australian Bureau of Statistics (ABS) estimating that only approximately two per cent of total broadband subscriptions are provided using fixed wireless connections. Mobile wireless broadband services, such as vividwireless, involve accessing the internet via mobile wireless data cards (for PCs or laptops) or USB modems and in the current market are almost exclusively used for internet and email due to the slower download speeds compared to fixed wireless and fixed cable access. Mobile wireless internet is currently the fastest-growing internet technology in Australia. At June 2009, there were approximately 54 mobile wireless broadband providers in Australia with mobile wireless subscribers accounting for 23% of all internet subscriptions, compared with approximately 10% in 200830. This substantial increase has been driven by the upgrade of mobile subscribers to 3G services as well as by the reduced prices of plans and increased data transmission speeds available through mobile wireless broadband access plans. Mobile wireless services are currently provided through 3G technology, however, in order to increase utilisation of these services, fourth generation (4G) networks are now under development and are expected to provide higher download speeds. Wireless Broadband Australia currently provides services through the 3G network and is in the process of rolling out a 4G network. 4G networks will theoretically be able to deliver speeds of up to 100 Megabits per second (versus 14 Megabits for 3G), however, real speeds will be lower as they depend on a number of factors including the number of people sharing the available bandwidth, the distance of the subscriber from the base station and the frequency of the bandwidth used. Technologies that could be used for 4G networks include long term evolution (LTE) and WiMAX standards. Wireless Broadband Australia is currently in the process of rolling out a 4G network using the WiMAX technology.

28 Internet Activity, Australia, Australian Bureau of Statistics, June 2009 29 ACMA Communications Report 2008-09, ACMA

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3.8.3 Market share The ISP industry is highly fragmented, characterised by a few large players which hold the majority of market share and numerous small to medium-sized ISPs. Telstra is currently the dominant market player with an estimated 44% market share. Revenue in the ISP industry is primarily generated from household subscriptions rather than from business and government subscriptions. The customer segmentation and market share analyses for the ISP industry are outlined below.

Figure 18: Customer segmentation in FY09 Figure 19: Market share analysis in FY09

Business and iiNet Limited Government Primus Telecom 3% 15% Holdings Pty Ltd 4% SingTel Optus Pty Limited Other 7% 42%

Telstra Corporation Households Limited 44% 85% Source: IBIS World, Deloitte analysis Source: IBIS World, Deloitte analysis

There are approximately 640 ISPs in Australia31 and approximately 75% of Australian households are connected to the internet. With 87% of these households using broadband, the scope for significant revenue growth through the provision of internet access alone is increasingly limited. This is expected to drive consolidation in the sector. In order to preserve market position, many ISPs have turned their commercial focus to reducing subscriber turnover by offering bundled subscription packages and other incentives to improve customer loyalty. Bundled subscription packages offer discounts to customers for subscribing to additional services. Service offerings typically comprise voice, data, television and mobile telephone services and are offered in triple-play (three services) and quad-play (four services) packages. A number of telecommunications providers are also offering account holders discounts for subscribing to multiple services.

3.8.4 Key demand drivers and critical success factors Key demand drivers for the ISP industry include:  household computer penetration: as the rate of household penetration increases, the size of the potential subscriber market also increases. The level of household computer penetration is in turn affected by the price of computers. IBIS World estimates that in FY09, approximately 77% of Australian households had a computer, while ACMA estimates that approximately 75% of all households had internet access

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 pricing: many consumers are price sensitive and as such prices for internet services have an impact on demand. Increased competition in the ISP industry in recent years has, however, led to a decrease in wholesale and retail prices and an increase in subscriber numbers  availability of internet services: internet services are not available in all areas of Australia due to the high costs associated with building the required infrastructure, in turn limiting the potential subscriber market and acting as a constraint on industry revenue  technological innovation: many consumers are willing to pay a premium for ‘superfast’ broadband services facilitating the use of programs such as video and music- on-demand, teleconferencing and online gaming  government assistance: as the government increases funding to make internet access available in rural areas of Australia, the subscriber market and thus the demand for internet services increases  general economic conditions: consumer demand for internet services from individuals is influenced by household levels of disposable income and growth in the housing industry, whilst demand from businesses is affected by the general level of economic activity and the reliance of individual industries on telecommunication services. Factors that are critical to the success of entities in the ISP industry include:  level of competition in the market: as the ISP market is characterised by a large number of firms, with IBIS World estimating that over 90% of ISPs have less than 10,000 subscribers, the ability to operate profitably while offering low prices is essential. The NBN is expected to have a significant impact on competition through the separation of network providers and retail service providers  access to required infrastructure: in order to be successful, ISPs require access to bandwidth and generally need access to carriers’ networks. The NBN is expected to have a significant impact on access to infrastructure and reduce barriers to entry  marketing of differentiated products: as there are a large number of ISPs offering essentially the same product, firms that are able to differentiate products are generally more successful  ability to adopt new technology: given the high level of technological development in the ISP industry, businesses must be able to adapt new technology in order to stay competitive.

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3.8.5 Current and future expectations The ISP industry has experienced significant growth historically, driven by increasing subscriber numbers, falling prices and significant improvements in internet services. The ISP industry is forecast to grow from $6.6 billion in revenue in FY09 to $8.9 billion in FY15, an increase of 34% over the period. However, as illustrated in Figure 20 below, the industry is expected to experience a slowdown in growth from a CAGR of 12.3% over the five years to FY09 to a CAGR of 5.0% over the period to FY15 as subscriber growth rates slow.

Figure 20: ISP revenue growth Historical Forecast 21%

18%

15%

12%

9%

6%

3%

0% FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

ISP Industry growth rate ISP Industry CAGR

Source: Internet Service Providers in Australia, IBIS World, April 2009, Deloitte analysis

Despite a slowdown in growth rates over the outlook period, the ISP industry is expected to remain one of the fastest-growing industries within the wider telecommunications industry with growth forecast to be driven by increased internet penetration and access and service migration. Specifically:  ISPs are providing subscribers with lower prices and higher download limits in order to remain competitive. This increase in value will boost internet penetration as households on lower income levels will be able to subscribe to entry level broadband services  the continued migration from dial up to broadband internet services will increase revenue in the industry as broadband plans have higher price points generating higher average revenues per user relative to dial up plans. Paul Budde Communication Pty Ltd, a telecommunications research and consulting firm (Buddecomm), estimates that by 2015, 99% of internet subscriptions will be through broadband connections  although the migration from dial up to entry level broadband services is forecast to slow by FY1232, subscriber growth and revenue are expected to pick up again after this as

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subscribers on lower-priced entry level broadband plans migrate to faster speeds and thus higher-priced plans as a result of increasing demand for services such as video and music downloading, file sharing and online gaming services  increased competition in the ISP industry will open up the market to additional services such as mobile wireless broadband and naked DSL (a DSL broadband service that does not require a fixed telephone line), which will further drive demand, as companies begin to differentiate themselves in order to gain market share  IBIS World forecasts that growth in broadband services will largely be driven by fixed subscriptions such as Asymmetric Digital Subscriber Line (ADSL), naked DSL and mobile wireless services. Technology will play a key role in shaping the ISP industry for the next product life cycle of superfast broadband services, which will deliver speeds of up to 100 Megabits per second. This superfast network requires a fibre optics network as data intensity on the internet increases and consumers require faster download speeds. The ISP industry is also forecast to undergo consolidation, with many small to medium-sized ISPs being acquired by the large players. However, with a corresponding increase in the number of internet subscribers, consolidation is expected to further enhance economies of scale which, with falling prices, are key to survival for ISPs in the future. ISPs are also likely to develop strategic alliances and cross-industry partnerships (including in banking, entertainment, media, travel, gambling, etc.) in line with increased penetration and continued coverage in order to deliver additional value-adding services (including voice over internet protocol (VoIP)) and to create a differentiated product to remain competitive. Increased bundling of services (for example, mobile, voice and data) will also be a continuing trend.

Wireless broadband services According to Buddecomm, by FY15, fixed broadband services will account for approximately 75% of market share followed by wireless broadband services at 20% and satellite-based services at 5%. Current voice-based telecommunications services such as VoIP and free-to-air television are also expected to be incorporated into the overall broadband model. Wireless internet subscriptions are expected to increase as laptop prices fall and consumers become more mobile and reliant on various data services. Wireless providers are also able to offer more competitive prices due to the lower capital cost required to establish wireless networks. Subscribers may also save on phone line rental charges as wireless broadband services do not require a fixed telephone line. Wireless broadband services are likely to gain penetration in rural and regional areas and among frequent business travellers and young consumers who live in inner-city areas. Growth in the wireless broadband market is expected to be driven almost exclusively by mobile wireless subscriptions. According to Buddecomm, 3G mobile wireless subscribers are expected to increase from 50,000 in 2006 to 2.5 million in 2010 and are also expected to account for 95% of all wireless broadband users by 2010. It is expected that as wireless ISPs reach economies of scale in the provision of mobile wireless broadband, in turn pushing down prices further, mobile wireless subscriptions will begin to shift from being complementary to being a substitute to fixed line internet subscriptions. The advent of a 4G network offering higher data transmission speeds is also expected to have an impact on the take-up of mobile wireless subscriptions. 56 Deloitte: Seven Network Limited – Independent expert’s report

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The fixed wireless market is showing only modest growth. Fixed wireless subscribers are expected to increase from 90,000 in FY06 to 108,000 in FY10, representing a CAGR of 5% and are expected to account for only 4% of wireless broadband users in FY10. In January 2010, the Australian Government released a Green Paper announcing that it intends to release approximately 126MHz of spare digital spectrum capacity over the period to FY13 as a result of the migration from analogue to digital television (referred to as the digital dividend). The availability of additional spectrum is likely to open the wireless broadband industry to increased competition and also support further development in the market. This digital dividend is expected to be used to develop a range of new communications services including high speed wireless broadband.

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4 Profile of Seven Network 4.1 Background Seven Network Limited (Seven Network) is one of Australia’s largest media holding companies with significant investments in television broadcasting, publishing and online assets. Through its joint venture (JV) investment in Seven Media Group (SMG), Seven Network is exposed to Australia’s largest commercial television network (Channel Seven), one of the two largest publishers of magazines in Australia (Pacific Magazines) as well as online media through Yahoo!7. Seven Network also has a significant presence in online and new communications technologies through its ownership of Wireless Broadband Australia (wireless broadband) and Engin Limited (Engin) (VoIP). An overview of the company history is provided in Figure 21 below:

Figure 21: Seven Network history

1956  Seven Network established in 1956 1993  Seven Network lists on the ASX

2005  Seven Network and Yahoo! Inc combined their online, mobile and IPTV businesses in Australia (Yahoo!7) and New Zealand (Yahoo!Xtra) 2006  October 2006 – Seven Network acquired 14.9% shareholding in West Australian Newspaper Holdings (WAN)  November 2006 – Seven Network recapitalised and consolidated its media assets for a JV with Kohlberg Kravis Roberts & Co (KKR) 2007  Seven Network acquired a further 4.5% of the shares in WAN on market  Seven Network and Hybrid Television Services (ANZ) Pty Limited (HTS) signed a strategic partnership agreement to distribute TiVo products and services in Australia and New Zealand  In December 2007, Seven Network acquired 100% of Wireless Broadband Australia 2008  Seven Network acquired a further 2.9% of the shares in WAN on market. Two Seven Network directors were appointed to the board  April 2008 – Seven Network gained control of Engin  Pacific Magazines completed the acquisition of four Australian magazine titles from Time Inc. in July 2008 2009  Seven Network acquired 0.9% of the shares in WAN on market  Seven Network took up a 12.5% placement of shares in Prime Media Group Limited (Prime) which subsequently reduced to 11.4%.  During the year Seven Network disclosed it had 22.12% of the shares in Consolidated Media Holdings Limited (CMJ) and two Seven Network directors were appointed to the CMJ board

Source: Seven Network company announcements and presentation and Deloitte analysis

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Seven Network’s key unlisted and listed investments are broadly within the media sector as set out in Table 14 together with Seven Network’s ownership interest as at 31 December 2009.

Table 14: Investments held by Seven Network Seven Network’s ownership Section interest Listed Accounting Board Investment (%) (Yes/No) treatment position

Media and ISP industries SMG 4.2 47.0% No Equity1 Yes Wireless Broadband Australia 4.3 100.0% No Consolidated Yes CMJ 4.4 22.1% Yes Equity1 Yes WAN 4.5 23.4% Yes Equity1 Yes Prime Media 4.6 11.4% Yes MTM2 No Engin 4.6 58.1% No Consolidated Yes

Property industry Flagship Property Holdings 4.6 46.8% No Equity1 Yes Premier Capital Development 4.6 25.0% No Equity1 Yes REVY Investments Trust 4.6 25.0% No Equity1 Yes Sydney Broadcast Property Trust 4.6 40.0% No Equity1 No Perth Entertainment Centre 4.6 100.0% No Consolidated Yes Perth Land 4.6 100.0% No Consolidated Yes

Source: Seven Network company announcements and presentation and Deloitte analysis Notes: 1. Seven Network accounts for its investment in these associate companies (between 20% and 50% of the outstanding equity is owned by Seven Network) under the equity method of accounting where the proportionate share of the associate company’s net income increases the investment and a proportionate payment of dividends decreases it. 2. MTM: marked to market

The principal operations of each of the key investments held by Seven Network are discussed in Sections 4.2 to 4.6.

4.1.1 Capital structure and shareholders Seven Network currently has the following securities on issue:  190.4 million ordinary shares listed on the ASX under the SEV ticker at the date of our valuation  4.96 million transferable extendable listed yield shares (TELYS3) listed on the ASX under the SEVPC ticker Under various employee schemes, the company has issued 6.9 million options, all of which have been granted to executives of Seven Network as part of their remuneration and are exercisable in exchange for ordinary shares in Seven Network.

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Ordinary shares The largest shareholders of Seven Network comprise institutional and retail investors as set out below.

Table 15: Top ten Seven Network shareholders as at 22 January 2010

Number of shares Percentage of total (000) issued shares

Kerry Stokes and associated companies 92,814 48.8%1 Ausbil Dexia Ltd. 12,867 6.8% IOOF 10,481 5.5% DFA Australia Ltd. 7,504 3.9% Millgate Capital, Inc. 5,832 3.1% Credit Suisse Private Clients 5,429 2.9% Power Financial 4,013 2.1% Vanguard Investment 3,352 1.8% AMP Capital Investors 3,238 1.7% Schroder Investment Management 3,237 1.7% Top 10 total 148,768 78.2%

Other shareholders 41,493 21.8% Total securities outstanding 190,2601 100.0%

Source: Seven Network company announcements and presentation and Deloitte analysis Notes: 1. On 10 March 2010 150,000 share options were exercised increasing the total number of ordinary shares from 190,260,281 to 190,410,281 and decreasing the percentage of shares held by Kerry Stokes and associates companies from 48.8% to 48.7%.

TELYS3 TELYS3 were issued on 1 June 2005 as part of a Seven Network reinvestment opportunity and under the TELYS3 offer prospectus, the original price of each security was $100. An additional 49,910 TELYS3 securities were issued during 2005 at a price of $100 each. TELYS3 are widely held with no holders owning above 4%. Holders of TELYS3 are entitled to a preferential non-cumulative floating rate dividend, which is based on the 180- day Bank Bill Swap Rate (BBSW) plus a margin. The margin is set at 2.5% per annum until 31 May 2010 (Step up Date) and will step up to 4.75% per annum after that date subject to the company’s right of conversion and exchange. There are no voting rights attached to the TELYS3 except in limited circumstances in which case holders will have one vote per TELYS3 held. A summary of the key terms of the TELYS3 is provided in Appendix 2.

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4.1.2 Share price performance

Seven Network The share price movement and trading volume for Seven Network from 1 January 2008 until 5 March 2010 is presented below.

Figure 22: Seven Network share price performance

14.0 6 27 Feb 2008: Release 22 February 2010: Announcement of of half yearly results July 2009: SNL the proposed Schemes acquires 20% of CMJ 12.0 shares on market 7 February 2010: The Minister 5 announced the licence fee rebate 24 March 2009: SNL for FTA TV broadcasters 10.0 took up a 12.5% placement of shares 9 September 2009: 4 in Prime vividwireless announces 8.0 4G Perth Launch $ expected in March 2010 3 April 2008: SNL gained 6.0 control of Engin Limited millions 2 4.0

1 2.0

0.0 - Jul-08 Jul-09 Jan-08 Jan-09 Jan-10 Mar-08 Mar-09 Mar-10 Sep-08 Sep-09 Nov-08 Nov-09 May-08 May-09

Volume Seven Network

Source: Seven Network company announcements and presentation, Bloomberg and Deloitte analysis

Between 1 January 2009 and 31 December 2009, 122 million Seven Network shares were traded representing approximately 59.8% of total weighted ordinary shares outstanding compared to 103% of total share volume being traded between 1 January 2008 and 31 December 2008. Since 1 January 2008, the Seven Network share price has fluctuated between $5.05 and $13.01. Key factors impacting the Seven Network share price include the global financial crisis which adversely affected adspend levels and the associated revenues of SMG and WAN in FY09 as well as the limited disclosure and transparency provided by the company on the nature and composition of Seven Network’s investments. Since 1 January 2010, Seven Network’s share price has been relatively stable and has traded above $6.50 per share benefiting from the increase in confidence in the Australian market in recent months which has positively impacted the media sector. This increase has been somewhat offset by concerns over Seven Network’s sizable cash position and the negative market perception that it may be used on risky or low return investments. Since 7 February 2009 following the Minister’s licence rebate announcement for FTA television broadcasters until the announcement of the Proposed Schemes, the Seven Network share price has traded between a daily VWAP of $6.81 per share and $7.37 per share.

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Subsequent to the announcement of the Proposed Schemes and up to 5 March 2010, the Seven Network share price has trended upwards trading between a daily VWAP of $7.04 and $7.78 per share.

TELYS3 The following figure sets out the recent security market trading in TELYS3 securities up to 5 March 2010.

Figure 23: TELYS3 – recent share market trading ($)

98.0 Announcement of the Proposed Schemes 20.0 96.0

94.0 15.0 $

92.0 '000 10.0

90.0

5.0 88.0

86.0 0.0 Oct-09 Oct-09 Jan-10 Jan-10 Jan-10 Feb-10 Mar-10 Dec-09 Sep-09 Dec-09 Sep-09 Nov-09 Nov-09 Aug-09

Volume TELYS3

Source: Seven Network company announcements and presentation, Bloomberg and Deloitte analysis

In the six months to the announcement of the proposed Scheme, the TELYS3 security price has been relatively stable and has traded in a range of $92.00 to $97.00 per TELYS3 benefiting from the increase in confidence in the Australian market in recent months which has positively impacted the media sector and may also have been impacted by expectations from the TELYS3 Holders that TELYS3 would be redeemed on the Step Up date. As illustrated in Figure 23, subsequent to the announcement of the Proposed Schemes, the price of the TELYS3 securities has been volatile and trended lower to range between $89.80 and $91.60. Average volumes traded over this period represented 2.8% of the total weighted ordinary securities outstanding. This decline in the TELYS3 security price may be due to investor perceptions regarding the assumed redemption profile of these securities.

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4.1.3 Financial performance The audited income statements of Seven Network for the years ended 30 June 2007 to 30 June 2009 are summarised in the table below.

Table 16: Financial performance

Actual Actual Actual 2007 2008 2009 ($million) ($million) ($million)

Trading revenue 1,008.5 33.3 67.3 Other income1 10.2 57.0 56.9 Share of net profit from equity accounted investees 2.6 50.7 42.5 Total revenue 1,021.3 141.0 166.7 Total revenue growth (%) (21%) n/m n/m

EBITDA (before significant and non recurring items) 282.4 97.9 92.4 Margin (%) 28% 69% 55%

Depreciation and amortisation (34.8) (18.7) (33.6) Significant and non-recurring items 1,512.1 (41.0) 33.8 Net interest income/(expense) (14.3) 129.3 75.5 NPBT (after significant and non recurring items) 1,745.4 167.5 168.1 Margin (%) n/m n/m n/m

Source: Seven Network company announcements and presentation and Deloitte analysis

Note: n/a = not available; n/m = not meaningful

1. Other income represents income associated with asset sales and dividends 2. EBITDA excludes the impact of significant and non-recurring items such as the gains and losses from asset sales, impairment expenses and foreign exchange differences

We note the following in respect of Seven Network’s financial performance:  prior to FY08, trading revenues comprised the revenues associated with the underlying television broadcasting, magazines and online operations of Seven Network. From FY08 onwards, trading revenues primarily comprise share of net profits from equity accounted investees such as Seven Media Group and broadband and telephony income from Engin  other income represents dividends from Seven Network’s investments  significant items include the following: o impairment expenses including those related to equity accounted investees such as SMG and WAN, spectrum licences and goodwill. In particular, in 2009, Seven Network recognised $160.8 million of impairment losses to listed equity securities, $793.9 million to SMG, $312.8 million to other equity investees, $35.2 million to spectrum licences and $5.3 million to goodwill and other non-current assets o gains arising from investment in equity following the deconsolidation of SMG, in particular, Seven Network recognised $1,509.9 million of these gains in FY07 and deferred gains of $19.2 million in FY08 and $1,363.9 million in FY09.

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4.1.4 Financial position The audited statements of financial position of Seven Network as at 30 June 2008 and 30 June 2009 and the unaudited statement of financial position as at 26 December 2009 are summarised in the table below.

Table 17: Financial position

30 June 08 30 June 09 26 Dec 09 audited audited unaudited ($million) ($million) ($million) Cash 1,236 1,375 1,042 Receivables 22 16 14 Inventory 1 - 2 Investments 26 23 23 Other 2 2 2 Total current assets 1,286 1,417 1,083 Receivables 17 11 7 Investments 1,246 703 1,675 Property, plant and equipment 48 32 44 Intangibles 158 99 90 Total non-current assets 1,468 845 1,816 Payables 59 38 44 Borrowings 58 1 1 Other 5 1 1 Total current liabilities 122 40 45 Payables 6 6 6 Borrowings 6 5 5 Other 644 246 410 Total non-current liabilities 656 257 421 Net assets 1,977 1,964 2,433 Source: Seven Network company announcements and presentation and Deloitte analysis

We note the following in respect of Seven Network’s statement of financial position:  Seven Network had a minimal debt balance and a net cash position at 26 December 2009 of approximately $1.0 billion  current receivables comprise trade and interest receivables whereas non-current receivables include amounts due from associates  investments represent those accounted for using the equity and mark to market method such as SMG, CMJ, WAN and other investments in listed and unlisted securities. The carrying value of investments declined in FY09 mainly as a result of an impairment charge for SMG of $794 million. At 26 December 2009, $386 million of the impairment loss recognised at 31 December 2008 was reversed due to a significant improvement in the advertising market and in the market value of media companies.  intangible assets represent spectrum licences (98%) and software (2%)  other liabilities comprise deferred tax liabilities (DTL) (97%), employee provisions (1%) and deferred income (2%) .

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4.2 Seven Media Group

4.2.1 Background SMG is a JV between Seven Network and Pleiades Media International ULC which is an affiliated entity of KKR. The JV was established on 29 December 2006 and proceeds of $3.2 billion were received by Seven Network and used partially to repay existing debt with the balance held as cash at bank. The principal activities of SMG are the operation of commercial broadcast, magazine publishing and digital media activities through four key investments including Seven television broadcasting (Channel Seven), Pacific Magazines, Yahoo!7, Australian News and HTS.

Figure 24: SMG simplified group structure

Source: Seven Network and SMG company announcements and presentation and Deloitte analysis

Channel Seven Channel Seven is Australia’s leading FTA network of channels including five metropolitan channels, one regional channel and associated multi-channels, and is broadcast through Channel 7 analogue (Channel 7), and more recently, Channel 7 high definition (HD) (Channel 7HD) and Channel 7 standard definition (SD) (Channel 7TWO). Channel Seven’s revenues and associated earnings are strongly correlated to the size and growth of the adspend market and Channel Seven’s share of that market with the operating cost structure being largely fixed. For the six months to December 2009, amongst the three primary metro FTA networks, Channel Seven had a 38.0% share of the Australian commercial metro adspend compared to 31.9% for Network Nine and 30.1% for Ten Network33. Channel Seven continues to maintain a high market share due to its focus on originating, producing and broadcasting localised quality programming content as discussed in detail below.

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Channel Seven is broadcast in 5 metropolitan areas including Sydney and Melbourne and regional Queensland through a number of SMG owned and operated stations and is also transmitted to regional Australia by locally-branded affiliate networks such as Southern Cross Television (Darwin) and Prime TV. For the period between 2001 and 2003, Seven Network restructured Channel Seven which included a network-wide upgrade of production and transmission processes from analogue to digital technology. This was followed by the gradual introduction of widescreen and HD programming with SMG’s first new digital channel, Channel 7HD, being launched in October 2007. On 14 February 2008, SMG and Foxtel officially signed an agreement allowing Channel Seven’s digital signal, Channel 7HD, to be transmitted from Foxtel’s cable and satellite services and this became available on the Foxtel pay television network from 2009 onwards. Prior to this, Channel Seven was transmitted via cable on Foxtel in an analogue format. Channel Seven is also available on Austar’s satellite services via the ‘Mystar’ personal video recorder (PVR). On 23 October 2009, SMG launched its SD digital multichannel Channel 7TWO together with its new online catch-up TV service, ‘PLUS7’. The new HD and SD channels, Channel 7HD and Channel 7TWO, are available to households who have televisions with an HD tuner or an HD set top box. Whilst the smaller HD audience (51% of Australian households34) makes it harder to justify creating exclusive programs, such channels may provide the FTA networks, such as Channel Seven, with an ability to utilise more advertising and generate more adspend revenues although this may be offset by an increased risk of audience fragmentation. Channel Seven’s television broadcasting strategy is to originate, produce and own its programming which primarily includes the following key genres:  local drama series such as Packed to the Rafters, Find My Family, and Home and Away. In this category, Channel Seven scored six of the top ten new programmes for 2008 as determined by Free TV Australia35  news and public affairs programming such as Seven News – Monday to Friday and Sunday, and Today Tonight. Channel Seven remained the most watched network for total viewers, those aged 18-49 and 25-54, across the six am to midnight broadcast day in 200936  local entertainment programming such as Thank God You’re Here, Dancing With The Stars and Australia’s Got Talent and more recently, My Kitchen Rules, all of which appear to have added depth to Channel Seven’s audience profile in key demographics such as younger audiences and/or audiences with teenage children  information and factual programming such as Better Homes and Gardens, RSPCA Animal Rescue, Border Security, The Force, Air Ways, Surf Patrol, Medical Emergency and Triple Zero Heroes. Channel Seven, through its output deal arrangements with American production studios such as ABC Studios37 and NBC Universal Studios has secured a number of programs including the highly anticipated new Stephen Spielberg-Tom Hanks series, The Pacific, a World War II television drama mini-series filmed mostly in Australia.

34 Buddecomm Broadcasting Report 35 SMG company announcements and presentations 36 Free TV Australia 37 The TV production company of Disney-ABC Television Group 66 Deloitte: Seven Network Limited – Independent expert’s report

176 Seven Network Limited Scheme Booklet – Part B

Other imported programming is primarily from the US and includes the new season series of 24, The Amazing Race, Grey’s Anatomy, Brothers and Sisters, Criminal Minds, Desperate Housewives and Bones, shows such as Flash Forward and Castle already launched in 2009 and the new show, Cougar Town launched in early 2010. Channel Seven’s major sports commitments include the Melbourne Cup and the Australian Open tennis tournament as well as long-term agreements for coverage of the V8 Supercar Championship. Channel Seven also shares the FTA rights to the Australian Football League (AFL) premiership and season final series. Channel 7TWO complements the existing programming on Channel 7 and premieres seasons of existing Channel 7 shows together with a mix of new and classic programming and movies from the NBC and ABC Studios. Channel 7TWO is targeted towards a broader range of viewers, broadcasting programs from the US, UK, New Zealand and Australia.

Pacific Magazines Pacific Magazines publishes more than one in four magazines sold in Australia. Two of its major titles, New Idea and That's Life!, are two of the three biggest selling weekly magazines. Pacific Magazines has an approximate 30% share of readership in the Australian magazine industry38. Its magazine brands also include: FAMOUS, Who, marie claire, In Style, Better Homes and Gardens, Home Beautiful, Your Garden, Monument, Family Circle, Diabetic Living, Weight Watchers, Women’s Health, Men's Health, Voyeur, Practical Parenting, Bride to Be, Girlfriend, K-Zone, Total Girls and TV Hits. The primary revenue drivers of Pacific Magazines include circulation revenues and advertising revenues. On 28 September 2001, Seven Network paid PMP Limited (PMP) $65 million for a 50% interest in its Australian and New Zealand magazine businesses. At this time a magazines JV was established between the parties. On 13 June 2002, Seven Network announced it would acquire PMP’s 50% interest in the JV for $65 million. In 12 July 2004, Seven Network’s magazine business, at the time known as Pacific Publications, purchased Murdoch Magazines for $77 million. The acquisition strengthened the company’s exposure to lifestyle/homemaker, women’s fashion and men’s lifestyle categories. On 2 July 2007, Pacific Magazines acquired several magazines from Time Inc for $78 million. The titles acquired were Who, Practical Parenting, Bride to Be and included a long- term licence agreement with Time Inc. for the publication of In Style in Australia and New Zealand.

38 Seven Network and SMG company announcements and presentation 67 Deloitte: Seven Network Limited – Independent expert’s report

Section 6 177

Other investments

Table 18: Other investments of SMG

SMG’s Investment interest Description

Yahoo!7 Pty Ltd (Yahoo!7) 50.0% Online portal operator Australian News Channel Pty Limited (Australian News) 33.3% Pay TV channel operator Hybrid Television Services (ANZ) Pty Limited 66.7% Digital video recorder TX Australia Pty Limited 33.3% Transmitter facilities provider Coventary Street Properties Pty Limited 50.0% Property management Oztam Pty Limited 33.3% Rating services provider Perth Translator Facility Pty Limited 33.3% Transmitter facilities provider

Source: Seven Network and SMG company announcements and presentation and Deloitte analysis

A short description of the most significant investments is provided below.

Yahoo!7 Yahoo!7 is a leading entertainment, media, information and communications platform for users in Australia and New Zealand and owned by Yahoo! Australia & NZ (Holdings) Pty Limited (YANZH), an equally owned JV between Yahoo! Inc (Yahoo) and SMG. The Yahoo!7 JV brought together Yahoo’s Australian internet business, Yahoo! Australia & NZ and the online assets and television and magazine content of Seven Network. Seven Network and Yahoo continue to use the Yahoo!7 vehicle as their exclusive online and mobile platform in Australian and New Zealand.

Australian News Australian News owns and operates Sky News Australia, a 24-hour news channel on pay television networks such as Foxtel and Austar. Sky News Australia was established in 1996 and remains a three way JV between Publishing and Broadcasting, Seven Network and British Sky Broadcasting.

HTS Hybrid Television Services (ANZ) Pty Limited is TiVo Inc's exclusive licensee in Australia and New Zealand. Founded in 1997, TiVo Inc. is a provider of technology and services for DVRs. TiVo delivers digital, interactive television and broadband services for its customers. The Australian version of TiVo, launched in early 2008, allows the user to essentially control live TV and record 60 hours of programs (30 hours in HD) including two programs at once. TiVo currently features 11 free-to-air channels including HD services from Seven, Nine and Ten. TiVo was launched in New Zealand in November 2009 as part of a broad partnership between SMG and Television New Zealand (TVNZ).

68 Deloitte: Seven Network Limited – Independent expert’s report

178 Seven Network Limited Scheme Booklet – Part B

4.2.2 Capital structure and shareholders The following table sets out the capital structure of SMG.

Table 19: SMG capital structure

ordinary convertible equity notes Company ownership ownership

Seven Network 100.0% 47.0% KKR 0.0% 47.0% Banks 0.0% 5.0% Management 0.0% 1.0%1

Source: Seven Network and SMG company announcements and presentation and Deloitte analysis Note 1: Part of a Management Equity Plan (MEP) established in December 2007

We make the following comment in relation to the above table:  SMG currently has ten ordinary shares and 371.7 million Convertible Notes (CNs) on issue. The CNs are treated as ordinary equity and are convertible at any time on a one for one basis into fully paid ordinary shares in SMG  in the event of a wind up, CN holders rank after creditors and are fully entitled to share in any proceeds on liquidation  under the MEP employee scheme, SMG has issued the management team with options over 1.0% of the outstanding equity of the company  SMG is subject to various shareholder agreements and certain bank debt covenants which restrict the distribution of excess cash and dividends.

69 Deloitte: Seven Network Limited – Independent expert’s report

Section 6 179

4.2.3 Historical and forecast financial performance The table below sets out the audited historical financial performance of SMG (on a 100% basis) for the 12 months ended 30 June 2008 and 30 June 2009 together with the forecast financial performance as approved by the Seven Network board for the 12 months ending 30 June 2010 and 30 June 2011.

Table 20: Historical and forecast financial performance

Actual Actual Forecast Forecast 2008 2009 2010 2011 ($million) ($million) ($million) ($million)

Channel Seven n/a n/a 1,090.4 1,161.0 Pacific Magazines n/a n/a 321.0 329.3 Trading revenue 1,509.1 1,483.6 1,411.3 1,490.3 Growth (%) n/m (2%) (5%) 6%

Channel Seven n/a n/a 238.9 241.7 Pacific Magazines n/a n/a 57.0 58.4 Other 2 n/a n/a (6.0) (6.1) EBITDA (before significant and non 390.5 280.2 289.9 294.0 recurring items) EBITDA margin 26% 19% 21% 20%

Depreciation and amortisation (49.5) (58.3) (44.2) (44.2) Share of net profit from equity accounted 7.5 9.0 9.9 11.4 investees Significant and non recurring items - (1,969.1) 34.1 34.1 Net interest income/(expense) (406.8) (399.2) (384.3) (385.1) NPBT (after significant and non recurring (58.3) (2,137.4) (94.6) (89.8) items) Margin (%) n/m n/m n/m n/m

Source: Seven Network company announcements and presentation and Deloitte analysis Note: n/a = not available; n/m = not meaningful 1. EBITDA excludes the impact of significant and non-recurring items such as impairment expenses. The difference from the pro-forma accounts is due to the non-recurring items. 2. Other represents the corporate overhead costs of SMG.

We note the following in respect of SMG’s historical and forecast financial performance:  significant items for FY09 included $1,969 million of impairment losses to intangible assets, goodwill, onerous contracts relating to program rights and other assets. Of this, $1,954 million related to Channel Seven  profit margins at the EBITDA level declined in FY09 due to the global financial crisis which impacted the media adspend levels, in particular, television broadcasting and print media. Despite the fall in revenues, operating expenses rose by 8.0% reflecting the increased costs associated with the Olympics and additional Australian produced programs particularly investment in drama  forecast EBITDA (before significant items) for SMG is expected increase slightly by 3% in 2010 and by 1% in 2011 as a result of the improvement in the adspend market, in particular, the FTA television metropolitan advertising market. Forecast EBITDA for Pacific Magazines is also expected to rise in 2011 following an expansion in the net sales circulation and display advertising revenues

70 Deloitte: Seven Network Limited – Independent expert’s report

180 Seven Network Limited Scheme Booklet – Part B

 Yahoo!7 is forecast to remain the largest contributor to NPAT compared to other equity accounted investments such as Australian News and HTS.

4.2.4 Financial position The table below sets out the audited financial position for SMG (on a 100% basis) as at 30 June 2007, 30 June 2008 and 30 June 2009.

Table 21: Financial position of SMG

30 June 07 30 June 08 30 June 09 audited audited audited ($million) ($million) ($million)

Cash and cash equivalents 94 122 123 Trade and other receivables 283 263 245 Other current assets 108 225 121 Total current assets 486 609 489

Plant and equipment 125 106 77 Intangible assets 4,289 4,268 2,431 Other assets 92 76 17 Other financial assets 18 25 34 Total non-current assets 4,524 4,475 2,559 Trade and other payables 342 369 397 Interest-bearing liabilities - 1 - Provisions 39 43 45 Other liabilities 33 116 35 Total current liabilities 414 530 476 Interest-bearing liabilities 3,512 3,495 3,490 Deferred tax liabilities 567 460 166 Provisions 11 12 13 Other liabilities 255 337 577 Total non-current liabilities 4,345 4,304 4,246 Net assets/(liabilities) 252 250 (1,674)

Source: Seven Network and SMG company announcements and presentation and Deloitte analysis

We note the following in respect of SMG’s financial position:  other current assets comprise program rights, inventories and prepayments  other non-current assets predominantly comprise derivative financial assets, loans to key management personnel and program rights and inventories  intangible assets, which predominantly include television licences and goodwill, decreased substantially from 2008 to 2009 as SMG recognised an impairment loss of $1,969 million  other current liabilities represent deferred income  interest bearing liabilities are discussed in more detail in the debt profile section below

71 Deloitte: Seven Network Limited – Independent expert’s report

Section 6 181

 other non-current liabilities relate to accruals, derivatives, interest payable to related parties, television program liabilities and deferred income.

Debt profile The debt profile of SMG as at 30 June 2009 is summarised in the following table.

Table 22: SMG debt profile

Book value June 09 Item ($million) Rate Maturity

Bank loans 1,995 Facility A (term loan) Bank Bill Rate (BBR) + 2.375% p.a. Dec-12 Facility C (acquisition facility) BBR + 1.375% p.a. Secured notes 313 Fixed rate increasing annually from 10.2% p.a. to 12.3% p.a. Dec-13 Zero coupon notes 106 Fixed rate of 12% p.a. Dec-13 Subordinated equity 1,075 Fixed rate of 15% p.a. Jun-16 notes Total 3,489

Source: Seven Network and SMG company announcements and presentation and Deloitte analysis Notes: 1. The bank loans rank in priority to the secured notes 2. The zero coupon notes and SENs are unsecured We note the following in respect of SMG’s debt profile:  bank loans (Senior Debt) are all secured, subject to floating rates and maturing in December 2012. A majority of loan balances are effectively subject to fixed rates through hedging  secured notes (Mezzanine Debt) are subject to a fixed but annually adjusted rate of interest and mature in December 2013  zero coupon notes (Mezzanine Debt) are unsecured, subject to a fixed interest rate of 12% p.a. (with interest being capitalised) and mature in December 2013  subordinated equity notes (SENs) of $1,075 million. The SENs are treated as debt by SMG for accounting purposes and are interest bearing at a fixed rate of interest of 15% pa (a non cash interest expense of $161 million was booked in the FY09 profit and loss account). The SENs are held in the same proportion by the JV partners, SMG and KKR, as the ordinary shares and can be converted to equity at any time before they mature in June 2016.

72 Deloitte: Seven Network Limited – Independent expert’s report

182 Seven Network Limited Scheme Booklet – Part B

4.2.5 Future expectations The future expectations of SMG’s key assets are summarised below:

Channel Seven FTA television networks are expected to face intense competition for viewers and advertising in 2010 and beyond. This is expected to impact their margins as in order to maintain television ratings, networks may have to invest more resources and capital in program content and marketing efforts. Channel Seven has attempted to meet these challenges through its digital strategy including the joint online initiative with Yahoo!7 which as discussed above is aggressively targeting the online advertising market with its new cross-platform initiatives. Channel Seven’s digital strategy is centred around the multimedia opportunities of television through using it as a launching platform and then drawing upon the unique element of other media to link them with its own specific applications and services (such as Yahoo!7). At present, Channel Seven’s digital strategy already encompasses the TiVo online entertainment system and its Yahoo!7 content JV as well as the Engin broadband and VoIP business (58.1% owned by Seven Network). Channel Seven also continues to pursue digital multicasting options that allow the network to feed content to TiVo boxes at reduced cost.

Pacific Magazines Given the increasing competition from other forms of media, the magazine publishing industry seems to face limited growth prospects. Despite this, Pacific Magazines has identified a number of opportunities that may sustain profitability over the medium term including utilising the Yahoo!7 portal and its existing users as a starting point for internet distribution. Furthermore, Pacific Magazines has identified the healthy lifestyle segment as a growth opportunity as evidenced by last year’s launch of Prevention, which is in addition to the already successful Men’s Health and Women’s Health magazines.

Other investments The performance of the other investments is mainly driven by Yahoo!7 and Australian News. Yahoo!7 is an amalgamation of consumer applications such as search, email and instant messaging and a digital media outlet for Channel Seven and Pacific Magazines with an ability to both produce and aggregate content that covers news, finance, sports, movies, travel, music and video from a variety of sources. This integrated digital media access model provides Yahoo!7 with an ability to integrate sales offerings across three media platforms. This combination of online, television and magazines is expected to drive growth for Yahoo!7 in the online media industry39. Yahoo!7 intends to offer access to its services as new distribution routes and devices emerge including the integration of mobile applications. Both JV partners Yahoo! and SMG are committed to developing and rolling out online products with a focus on enhanced video services, which are common across both media platforms. Content formats which are being

39 Buddecomm report on Global Digital Media Entertainment and Statistics dated September 2009. 73 Deloitte: Seven Network Limited – Independent expert’s report

Section 6 183

explored and enhanced by Seven Network include IP TV, mobile content and online streaming video40. 4.3 Wireless Broadband Australia

4.3.1 Background Wireless Broadband Australia is an ISP specialising in wireless broadband services which owns 2.3GHz and 3.5GHz spectrum licences that cover approximately 65% of the Australian population, predominantly the major metropolitan centres. Wireless Broadband Australia provides high-speed internet access free of cables and telephone lines through a network of towers located around Sydney and Melbourne. With the deployment of its new 4G Network in Perth in March 2010 based on WiMAX technology, the company will also offer a number of complementary products including VoIP services. Wireless Broadband Australia currently has a subscriber base of approximately 55,000 households, home businesses and small businesses. The company generated most of its revenues of $33.6 million for FY09 from the sale of services (subscriptions) with the remainder from the sale of hardware (primarily wireless modems). In September 2009, Seven Network announced that it would allocate $50 million to fund the roll out of the 4G Network in Perth under the vividwireless brand name. The 4G Network will operate on the 2.3GHz spectrum and management states that it will significantly increase data transmission speeds, providing fixed wireless, portable and mobile broadband internet access to subscribers. Pending the outcome of the launch in Perth, the 4G Network will subsequently be rolled out in other capital cities. On 10 February 2010, Mr. Ryan Stokes announced that soon after vividwireless’ Perth launch in March, Wireless Broadband Australia will commence deployment of services in Sydney, Melbourne, Brisbane, Adelaide and Canberra. Mr. Stokes further indicated that “these networks will be ‘Metro Extension Networks’ established to serve major university sites and surrounding communities in these cities. While centered in the high density urban areas, the networks are the starting point for future deployments. We are finalising our plans and expect to have them operating within 12 months. The foundations of our national network will be in place.”

4.3.2 Capital structure Seven Network, through its wholly-owned subsidiary Network Investment Holdings Pty Limited (NIH), took control of Wireless Broadband Australia in November 2007 and achieved 100% ownership in February 2008 for a total consideration of $136 million. The debt profile of Wireless Broadband Australia is discussed below.

40 Ibid 74 Deloitte: Seven Network Limited – Independent expert’s report

184 Seven Network Limited Scheme Booklet – Part B

4.3.3 Financial performance The table below sets out the audited financial performance of Wireless Broadband Australia for the 12 months ended 30 June 2008 and 30 June 2009 together with the unaudited financial performance for the six months ended 31 December 2009.

Table 23: Financial performance of Wireless Broadband Australia

Actual Actual Actual 2008 2009 HY2010 ($million) ($million) ($million)

Services 34.4 32.0 12.2 Hardware 3.2 1.4 0.4 Other revenue 0.3 0.3 0.2 Total revenue 37.9 33.6 12.8 Revenue growth 14.1% (11.3%) n/a

Operating expenses (42.8) (32.5) (13.1) Operating EBITDA (4.9) 1.2 (0.3)

Depreciation and amortisation (17.6) (25.3) (12.0) Operating EBIT (22.5) (24.1) (12.3) EBIT margin (59.2%) (71.8%) (96.9%)

Net interest expense (9.9) (3.8) (1.8) Other income/(expense) (17.5) 0.4 - Loss before tax (49.9) (27.6) (14.1)

Income tax benefit/(expense) (1.5) 13.5 (11.9) Net loss after tax (51.4) (14.1) (26.0)

Source: Wireless Broadband Australia annual financial statements, Deloitte analysis

We note the following in respect of Wireless Broadband Australia’s financial performance:  revenue largely comprises monthly service subscriptions (service revenue) and wireless modem sales (hardware revenue). Revenue contracted 11.3% in FY09 as a result of a reduction in new and existing subscriber numbers and modem sales  Wireless Broadband Australia generated operating losses in both 2007 and 2008 and a small profit at the EBITDA level in 2009. This positive EBITDA resulted from a cost management program, which resulted in operating costs reducing by approximately $10 million in that year  depreciation and amortisation includes depreciation on hardware and the amortisation of spectrum licences which are due to expire in 2015. The 43.8% increase between 2008 and 2009 reflects additional amortisation charges on the 2.3GHz spectrum as the 4G Network is rolled out  other expenses in FY08 largely relate to the payment of an early redemption premium on convertible loan notes following the acquisition of Wireless Broadband Australia by NIH.

75 Deloitte: Seven Network Limited – Independent expert’s report

Section 6 185

4.3.4 Financial position The table below sets out the audited financial position for Wireless Broadband Australia as at 30 June 2008 and 30 June 2009 together with the unaudited balance sheet of Wireless Broadband Australia as at 31 December 2009.

Table 24: Financial position of Wireless Broadband Australia

30 Jun 08 30 Jun 09 31 Dec 09 Audited Audited Unaudited ($million) ($million) ($million)

Cash and cash equivalents 6.9 3.4 3.2 Trade and other receivables 0.5 2.4 0.5 Inventory 0.4 0.2 1.5 Current tax receivables 0.9 12.0 13.8 Other 1.6 1.5 3.7 Investments 0.2 0.2 6.4 Total current assets 10.5 19.7 29.1 Plant and equipment 26.6 19.2 32.2 Intangible assets 109.0 92.5 84.4 Total non-current assets 135.5 111.7 116.6 Trade and other payables 8.0 6.2 11.4 Interest-bearing liabilities 1.4 2.2 3.1 Provisions 0.1 0.1 - Other current liabilities 0.1 0.1 - Total current liabilities 9.7 8.5 14.5 Interest-bearing liabilities 62.0 64.7 85.4 Deferred tax liabilities 2.4 - - Provisions 0.4 0.6 0.6 Total non-current liabilities 64.8 65.4 86.0 Net assets 71.5 57.5 45.2

Source: Wireless Broadband Australia annual reports, Deloitte analysis

We note the following in respect of Wireless Broadband Australia’s financial position:  the largest asset categories on the balance sheet are intangible assets and plant and equipment. Intangible assets represent the company’s investment in spectrum licences and capitalised IT development and software costs. These are amortised on a straight- line basis over their expected useful life, largely accounting for the overall decline in net assets between 2008 and 2009  the majority of borrowings are with Seven Network group companies and are on commercial terms  the current tax receivables as at 30 June 2009 relate to the utilisation of tax losses by other companies in the Seven Network tax consolidation group.

76 Deloitte: Seven Network Limited – Independent expert’s report

186 Seven Network Limited Scheme Booklet – Part B

4.3.5 Future expectations The key opportunities for Wireless Broadband Australia are as follows:  as Wireless Broadband Australia is currently one of the largest service providers of non line-of-sight wireless broadband in Australia, it is well-positioned to take advantage of the lower cost base of wireless services as users migrate from fixed-line to wireless broadband  Wireless Broadband Australia has first mover advantage in the 4G market which will assist in maintaining market share in wireless broadband as competitors enter this market  Wireless Broadband Australia has Australia-wide spectrum licences which could facilitate the roll-out of services in other geographic locations in the future. Wireless Broadband Australia is exposed to a number of risks which could result in a deterioration in its earnings. The key risks are summarised below:  the high level of market penetration by major mobile telecommunications providers poses a significant barrier to Wireless Broadband Australia gaining market share and recovering the costs of investment in the 4G Network. These full service providers also offer the ability for customers to bundle products with their broadband subscription  Wireless Broadband Australia may incur unforeseen costs or technical issues in rolling out the 4G Network, with limited certainty as to potential future returns  there are limited examples of commercial implementations of the 4G Network which have successfully competed against incumbent telecommunications providers  price-based competition is likely to increase as speed and penetration of fixed-line broadband increases (particularly following the roll-out of the NBN)  the cost of renewing existing spectrum licences when they expire in 2015 may place financial pressure on the company  uncertainty caused by the NBN and the impact that this will have on the telecommunications industry as a whole. 4.4 CMJ investment

4.4.1 Background Founded in 1994, CMJ is an ASX listed holding company with minority interests in new media assets. CMJ’s portfolio of businesses includes a 25% interest in subscription television business Foxtel and a 50% interest in subscription television content provider Premier Media Group. The company generated profit after tax of $83.6 million in FY09. Seven Network currently holds a 22.1% interest in CMJ acquired at an average entry price per share of $2.72 as follows:  8 July 2009: Seven Network disclosed a substantial shareholding in CMJ of 18.3%  15 July 2009: Seven Network acquired a further 1.6% equity interest in CMJ through an on-market purchase  Seven Network subsequently increased its equity interest in CMJ to 21.0% on 12 October 2009 and 22.1% on 30 November 2009 as a result of CMJ’s on-market share buyback program. 77 Deloitte: Seven Network Limited – Independent expert’s report

Section 6 187

A brief description of the operations of CMJ’s investments is outlined below.

Foxtel Foxtel is Australia’s largest subscription television provider with approximately 1.6 million direct and wholesale subscribers at the end of FY09, across Australian capital cities and Western Australia. The company is 50% owned by Telstra Corporation, 25% by News Corporation Limited and 25% by CMJ. Foxtel’s key product offerings include the following:  Foxtel Digital: provides customers in excess of 150 channels covering news, sport, general entertainment, movies, documentaries, music and children’s programming  Foxtel HD: provides customers with five channels in high definition, comprising BBC HD, Discovery HD, National Geographic Channel HD, FOX SPORTS HD and ESPN HD, in addition to Foxtel Box Office HD movies on demand  Foxtel Download: a service which allows customers to access Foxtel content via their computer  Foxtel Mobile: a service which allows customers to watch Foxtel channels on their mobile telephone  Foxtel on demand: a digital recorder service offered to subscribers via the iQ set top box.

Premier Media Group A producer and broadcaster, Premier Media Group owns and operates nine television channels which it provides to Foxtel, Austar and Optus, in addition to providing mobile content to telecommunications companies and other online partners. Premier Media Group is jointly owned by CMJ and News Limited. The main products and services produced by Premier Media Group are as follows:  Fox Sports: produces sports programs which are available to approximately 2.25 million homes across Australia on subscription television. Fox Sports is additionally available in licensed venues including hotels, clubs, bars and restaurants. Fox Sports provides coverage of sports in SD and HD via Fox Sports 1, Fox Sports 2 and Fox Sports 3  Fox Sports News: provides 24 hour coverage of sports news, results, opinions, comments and analysis in both Australia and internationally  Fuel TV: is an action sports channel with coverage of surf, skate, snow, BMX and FMX in addition to lifestyle and entertainment programs  How to channel: provides coverage of travel, home renovations, design, weekend projects and gardening. Premier Media Group also offers a range of video, text and statistical content for television, mobile phone and online delivery, as well as the website foxsports.com.au, on which a range of long form video sports can be viewed.

78 Deloitte: Seven Network Limited – Independent expert’s report

188 Seven Network Limited Scheme Booklet – Part B

4.4.2 Capital structure and shareholders As at 27 January 2010, CMJ had 620.7 million ordinary shares on issue. The following table summarises the substantial shareholders of CMJ and their respective shareholdings.

Table 25: CMJ substantial shareholders as at 27 January 2010

Number of shares held Percentage of total issued (000’s) shares

Consolidated Press Holdings Limited group 281,176 45.3% Seven Network and/or its associates 137,312 22.1% Substantial shareholders 418,488 67.4%

Other shareholders 202,221 32.6% Total shareholders 620,709 100.0%

Source: Bloomberg

4.4.3 Share price performance The market price of CMJ securities has fluctuated in response to factors such as the release of financial reports and analysts’ forecasts, changes in market sentiment, the sale of investments, the acquisition of CMJ shares by Seven Network and the CMJ buy-back. A summary of CMJ’s share price movements and trading volumes over the period from 1 January 2008 to 5 March 2010 is presented graphically in the figure below.

Figure 25: CMJ’s recent share trading

5.0 90 26 August 2009: Sale of 26% holding 4.5 in SEEK for $440.6 million, release of 23 February 2010: the full year 2009 financial results, Interim 2010 earnings 80 announcement of a 10% on-market release 4.0 share buy back 70 3.5 8 July 2009: 60 Seven Network acquires 3.0 an18.3% equity interest 50 2.5 2 December 40 2.0 10 September 2009: 2009: 10% millions Appointment of three on-market Over the period August 2008 to new directors, two of share buy- 30

Share price ($) 1.5 November 2008, the ASX 200 which were appointed back declined by 18% and CMJ's by Seven Network complete, share price by 47% 20 1.0 SNL equity interest increases to 0.5 22.1% 10

0.0 0 Jul-09 Jul-08 Oct-09 Oct-08 Jan-09 Jan-10 Jan-08 Apr-09 Apr-08 Feb-09 Mar-09 Jun-09 Feb-10 Jun-08 Feb-08 Mar-08 Sep-09 Dec-08 Sep-08 Dec-09 Nov-09 Nov-08 Aug-09 Aug-08 May-09 May-08 Volume Consolidated Media share price

Source: Bloomberg, Deloitte analysis Since 1 January 2008, the share price for CMJ has ranged between a low of $1.76 in the quarter ended 31 March 2009 and a high of $4.51 in the quarter ended 31 March 2008. 79 Deloitte: Seven Network Limited – Independent expert’s report

Section 6 189

The shares of CMJ have been generally liquid with total turnover for the six month period until 5 March 2010 of approximately 33.3% of the total outstanding securities and average daily volume of 1.7 million securities. 4.5 WAN investment

4.5.1 Background Established in 1833, WAN is an ASX listed publishing company whose portfolio of businesses comprise newspaper and digital publishing, commercial printing and radio broadcasting services in Western Australia. The company generated revenues of $418.0 million and profit after tax of $87.2 million in FY09. Seven Network currently holds a 23.4% interest in WAN which was acquired as follows:  in October 2006, Seven Network acquired a 14.9% equity interest in WAN  in April 2007, Seven Network increased its shareholding in WAN to 19.4%, which was further increased to 22.3% in the 2008 financial year  as a result of WAN’s dividend reinvestment plan, Seven Network’s equity stake increased to 23.4%. WAN publishes newspapers in the metropolitan and regional areas of Western Australia. The West Australian daily newspaper is the company’s largest publication and a key driver of earnings for the group, accounting for approximately 74% of total revenue in FY2009. In addition, the company publishes 23 regional newspapers and magazines, contributing a further 11% of the total revenue. The company’s other publishing interests include:  thewest.com.au, a digital news and information service  business directories across Western Australia  the Streetsmart and Travellers Atlas street directory  the Quokka, a Perth based weekly free to advertise classified newspaper  ColourPress, the group’s commercial printing operation. WAN also operates a regional radio network in the northern half of Western Australia covering Broome, Port Hedland and Geraldton and holds a 49.9% interest in Community Newspaper Group, a company which distributes in excess of 700,000 free suburban newspaper publications per week.

80 Deloitte: Seven Network Limited – Independent expert’s report

190 Seven Network Limited Scheme Booklet – Part B

The figures below illustrate the revenue contributions from the major sources of revenue for the business and EBIT contributions by the operating divisions in FY09.

Figure 26: WAN FY09 revenue Figure 27: WAN FY09 EBIT1 Other,2 0.6% Services, 2.4% Other, 1.4% Regionals, 7.3% Printing, 2.3% Magazines, 3.2%

Circulation, 19.4%

Advertising, 74.5% The West Australian, 88.8%

Source: WAN 2009 annual report Source: WAN 2009 annual report Note 1: Continuing operations before exceptional items

4.5.2 Capital structure and shareholders As at 27 January 2010, WAN had approximately 213.7 million ordinary shares on issue. The following table summarises the substantial shareholders of WAN and their respective shareholdings.

Table 26: WAN substantial shareholders as at 27 January 2010

Number of shares held Percentage of total (000’s) issued shares

Seven Network and/or its associates 50,072 23.4% Blackrock Investment management LLC 17,303 8.1% Substantial shareholders 67,375 31.5%

Other shareholders 146,298 68.5% Total shareholders 213,673 100.0%

Source: Bloomberg

4.5.3 Share price performance The market price of WAN securities has fluctuated in response to factors such as the release of financial reports and analysts’ forecasts, increases in the holding of Seven Network, change in the market’s sentiment to the media industry and overall share market movements.

81 Deloitte: Seven Network Limited – Independent expert’s report

Section 6 191

A summary of WAN’s share price movements and trading volumes over the period from 01 January 2008 to 5 March 2010 is presented graphically in the figure below.

Figure 28: WAN’s recent share trading

14.0 5 24 July 2008: Seven Network increased 15 February 2010: its holding to 22.3% via an on-market Interim 2010 earnings purchase release 4.5 12.0 7 August 2009: 4 Full year results released to market 10.0 3.5 25 September 2008: Appointment of two Seven Network board representatives 3 8.0 2.5

6.0 millions 2

Share price ($) 4.0 1.5

1 2.0 0.5

0.0 0 Jul-08 Jul-09 Oct-08 Oct-09 Apr-08 Apr-09 Jan-10 Jan-09 Jan-08 Feb-10 Jun-08 Feb-08 Feb-09 Jun-09 Mar-08 Mar-09 Dec-09 Sep-08 Dec-08 Sep-09 Nov-09 Nov-08 May-08 Aug-08 May-09 Aug-09 Volume West Australian Newspapers share price

Source: Bloomberg, Deloitte analysis

Since 1 January 2008, the share price for WAN has ranged between a low of $3.79 in the quarter ended 31 March 2009 and a high of $12.5 in the quarter ended 31 March 2008. The shares of WAN have been generally liquid with total turnover for the six month period until 5 March 2010 of approximately 29.2% of the total outstanding securities and average daily volume of 0.5 million shares. 4.6 Other investments In addition to the assets outlined above, Seven Network has holdings in a number of investments, including listed securities, unlisted securities and direct property holdings. An overview of these investments is provided below.

4.6.1 Listed securities

Prime Media Group Limited (Prime) Seven Network, through its investment vehicle Network Investment Holdings Pty Limited, acquired a 12.5% shareholding in Prime on 7 April 2009 for total consideration of circa $20 million, which was diluted to 11.42% in November 2009 as a result of the issue of additional shares by Prime. Seven Network’s original average entry price was $0.48 per share.

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Prime operates commercial television and radio stations in regional areas of Australia and New Zealand. It provides free-to-air television broadcasting services in New South Wales (NSW), Victoria (VIC), Queensland (QLD) and Western Australia (WA) and radio broadcasting services in QLD through 10 radio stations. A significant portion of Prime’s programming is provided by SMG through an affiliation agreement (due to expire in 2016), giving Prime access to Australian and international television shows as well as news and current affairs programs. Alongside its television and radio operations, Prime also provides broadcast production, digital advertising, online and on-site broadcasting services. Prime generates the majority of its revenue from advertising and advertisement production for its television broadcasting services, which contributed $220 million in revenue in FY09 or 83.1% of Prime’s total revenue. Remaining revenues in FY09 were generated from broadcast production services ($34 million), advertising for its radio broadcasting services ($20 million) and other items ($5 million).

Engin Limited (Engin) Seven Network, through its investment vehicle Seven Digital Media (Investments) Pty Limited, has a 58.1% interest in Engin. In October 2006, Seven Network acquired a 34.3% shareholding in Engin for total consideration of $26.5 million. In April 2008, Seven Network increased its interest to 58.4% following a further investment of $7.5 million. However, this was subsequently diluted to the current holding of 58.1%. Engin is a provider of broadband internet and VoIP telephone services and related hardware to homes and small businesses throughout Australia. The company offers customers stand- alone VoIP plans or bundled broadband and VoIP plans as well as VoIP telephones, broadband networking devices and voice boxes. Engin generated $20 million in revenue in FY09, a slight increase of 2.2% on the prior year. The company is currently in a loss-making position, making a net loss of $6.8 million in FY09.

Other listed investment portfolio Seven Network’s remaining listed investment portfolio consists of equity investments in high yield, highly liquid entities. Further detail is provided in Section 8.5.1

4.6.2 Unlisted securities

Flagship Property Holdings Pty Limited (Flagship) Flagship holds the title to a number of property assets, including properties formerly owned by certain Seven Network group entities. In September 2008, Seven Network sold 53.2% of its shareholding in Flagship in return for the contribution of interests in a number of properties into Flagship. All properties were contributed at market value, with the carrying value of Seven Network’s 46.8% interest in Flagship at 31 December 2009 being $27.1 million.

Other unlisted securities Seven Network’s other unlisted securities comprise minority interests in Premier Capital Development (25% shareholding), REVY Investment Trust (25% shareholding) and Sydney Broadcast Property Trust (40% shareholding). Each of these entities provides property management services.

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4.6.3 Direct property holdings

Perth Entertainment Centre The Perth Entertainment Centre (PEC) is an indoor arena located in Perth, Western Australia. PEC was officially closed in August 2002 and a new entertainment centre is currently being built on the car park site of the existing centre, due for completion in 2011. Seven Network is currently seeking development approval for the redevelopment of the site into commercial and residential properties. The book value of PEC at 30 June 2009 was $23.3 million.

Perth Land Perth Land is a television broadcasting site located in a residential area in Perth, Western Australia. Seven Network is currently seeking development approval for the redevelopment of the site. The book value of Perth Land at 30 June 2009 was $7.4 million.

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5 Profile of WesTrac Holdings 5.1 Background WesTrac Holdings Pty Limited (WesTrac Holdings) is wholly owned by Australian Capital Equity Pty Limited (ACE), a privately held investment company. WesTrac Holdings is primarily a holding company with investments that include:  WesTrac Pty Limited and WesTrac Fleet Pty Limited (WesTrac Fleet) (together WesTrac Australia)  WesTrac China Pty Limited and WesTrac (China) Machinery Equipment Limited (WCMEL) (together WesTrac China) ( collectively the WesTrac Group), and  a 66.2% interest in National Hire Group Limited (National Hire) which in turn holds a 46.1% economic interest in Coates Group Holdings Pty Limited (Coates Group). Figure 29 below, sets out a simplified group structure for the WesTrac Holdings group.

Figure 29: WesTrac Holdings simplified group structure (post restructure)

Source: Deloitte analysis

The operating activities of each of the WesTrac Holdings investments are summarised as follows:  WesTrac Group: the WesTrac Group is the sole authorised Caterpillar Inc (Caterpillar) dealer in WA, NSW and the ACT in Australia and in eight provinces and municipalities in North Eastern China. WesTrac Group supplies new and used Caterpillar machinery and provides equipment servicing and support, predominantly to the mining and construction sectors. The group has an branch network of 25 locations across its Australian regions and 20 in its China regions ensuring sales and service technicians are in close proximity to the group’s customer base  National Hire: owns and operates the Allight business, which manufactures, assembles, distributes and supports a range of mobile lighting towers, power generation and dewatering systems predominantly to the mining and construction sectors and to rental companies in Australia.  Coates Group: the Coates Group is Australia’s largest general equipment hire company providing a broad range of general hire products across a number of sectors. The 85 Deloitte: Seven Network Limited – Independent expert’s report

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majority of the Coates Group’s revenue is generated in Australia and is predominantly derived from the mining and construction industries. The principal operations of each of the companies in the WesTrac Holdings group are discussed in Sections 5.3 below. WesTrac Holdings has syndicated senior debt facility of $600 million. The facility matures in December 2012 but will be paid out if the Share Scheme is approved. Interest and asset value covenants on senior debt facilities have been met by WesTrac Holdings. Debt attributable to WesTrac Australia and WesTrac China is discussed in Section 5.3 below. Debt attributable to the Coates Group is discussed in Section 5.5 below. 5.2 Industry drivers WesTrac Australia generates the majority of its revenue from customers operating projects in the mining and construction sectors, in particular coal projects in NSW and iron ore projects in WA. WesTrac Group generates income from the initial sale of equipment to mining projects, but generates most of its profit from service and support of the equipment used in these projects, which extends through the useful life of the equipment. WesTrac Group also provides a complete rebuild service of all machines and components as well as offering fleet management technology, remote monitoring of equipment, precision guidance and on site management capabilities. WesTrac Group also deals in used machines and used parts. The Coates Group operates in the general equipment hire industry and National Hire, through its Allight equipment and support business, predominantly services the construction and mining industries across Australia. We have considered the key factors affecting these markets below.

5.2.1 Australian mining industry WesTrac Australia services both the NSW/ACT and WA mining industries which have a significant focus on coal and iron ore mining, respectively. WesTrac’s Australian territories also have significant mining activity in other metals and minerals, including bauxite, nickel and gold. Miners in both states employ heavy plant and earth-moving equipment in mining operations as well as related infrastructure construction. Transport/heavy equipment capital costs typically comprise approximately 10% of initial capital costs of a mine41.

Western Australian iron ore industry Western Australia produces approximately 35% of total iron ore exports globally, which amounted to 310 million tonnes (mt) in 2008. China (60%), Japan (25%) and South Korea (11%) are the main destinations of Western Australia’s iron ore exports42 with China expected to increase its proportion in coming years.

41 Source: The Mining Valuation Handbook, V. Rudenno 42 ABARE, Australian Commodity Statistics 2009 86 Deloitte: Seven Network Limited – Independent expert’s report

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Iron ore production in Australia has increased significantly in recent years, primarily driven by China’s urbanisation which has led to very large increases in the demand for iron ore due to the steel intensity of associated construction activity.

Figure 30: Australian iron ore production and export (Mt) Figure 31: China steel production and iron ore imports 600 500

450 500 Forecast 400 Production CAGR 8% 350 400 300

300 250

200 200 150

100 100 50

0 - 2011 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2013 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Production Export Crude Steel Production Iron Ore Imports Source: ABARE Source: Department of Western Australia, Department of Mines and Petroleum

Over 95% of Australia’s iron ore is produced in Western Australia. The Western Australian iron ore industry is dominated by two main players being BHP Billiton Limited (BHP) and Rio Tinto Limited (Rio Tinto), who together produce 90% of the state’s output43. The remainder of production is attributable to Fortescue Metals Group and a number of smaller operators. Both BHP and Rio Tinto and their predecessor companies have operated in the region and been major producers for over 50 years. They have established significant operations including ports, rail and associated infrastructure over this period. Combined production was in excess of 300 mt in 2008 and both companies have conceptual plans to produce in excess of 300 mtpa each within five years implying a CAGR of 15%. More recently the two companies have announced the formation of a production JV of their respective WA iron ore operations. Both companies have announced a plan to realise synergies of up to US$10 billion (on a net present value basis) anticipated to come from consolidating existing mines and projects, sharing infrastructure and optimising production and expansion plans. The longer term impact on the sector of the proposed JV, which has not yet been approved by international regulators, remains uncertain. However, equipment providers to BHP Billiton and Rio Tinto (such as WesTrac Australia) may benefit from an acceleration of production volumes and increased capacity which would result in higher demand for earth-moving equipment. Future demand for Western Australian iron ore exports is expected to be underpinned by the steel intensive urbanisation of China which is discussed in further detail in Section 5.2.4 below. McKinsey & Company estimate that China’s annual demand for steel will rise by nearly 90% in 2025 when compared with 2005. To support this forecast growth in demand for iron ore the Western Australia Department of Mineral and Petroleum estimates that capital expenditure in the region of $20 billion will be made in the next five years with additional investment likely to be required over this period. Capital works are set to cover not just greenfield and brownfield mine development but associated port, road and rail infrastructure.

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NSW coal industry NSW is the second largest producer of coal in Australia behind Queensland and predominantly produces thermal coal for the export market. Thermal coal is used as an energy source for coal fired power plants which generate approximately 40% of the world’s electricity output. According to the NSW Government, the state’s recoverable coal reserves total over 12 billion tonnes (bt)44. This compares to the state’s 2009 annual estimated production of around 180 million tonnes roughly split 70:30 in favour of exports over domestic consumption. Over 90% of the world’s imported thermal coal is represented by seaborne trade, with Australia contributing approximately one fifth of global exports. The main countries that Australian coal is currently exported to are Japan and Taiwan which account for up to 40% and 20% of annual export volumes, respectively. The coal industry, both domestically and internationally, has in recent times experienced supply disruptions which have lead to higher market prices. As Australia exports the majority of its coal production, access to rail and port infrastructure (the coal supply chain) is critical for producers in the coal industry. In NSW, increasing in export volumes to match demand has been hampered by capacity restrictions at the coal loading terminals at the main ports of Newcastle and Port Kembla. In moves to alleviate these constraints, an upgrade of the Port Waratah coal loading terminals in Newcastle has recently been completed, increasing capacity from 89 mtpa to 113 mtpa in 2010. Further expansion is being implemented to meet expected producer demand of 123.6 mtpa by 2012. In addition the Newcastle Coal Infrastructure Group (NCIG) has received approval to construct a new coal loading terminal at the Port of Newcastle. Construction of the terminal began in February 2008 and is expected to be completed in a three stage process. Total capacity on completion of the first stage in early 2010 is expected to be 30 mtpa with a further capacity expansion to 66 mtpa planned at a later date. The long term view of the NSW Government is to increase coal export capacity to 300 mtpa. The Australian Rail Track Corporation Ltd (ARTC) projects that approximately $2.3 billion will be invested in coal related rail infrastructure projects in NSW from FY 2007 to FY 2017 in order to reach this target capacity. The International Energy Agency forecasts a continued dominance of coal and other fossil fuels in supplying energy and a rising share of emerging economies in global energy consumption. The key drivers of growth in NSW thermal coal exports are economic growth and the associated growth in demand for electricity in the Asia Pacific region, together with accessibility to the Asia Pacific region. In the medium to longer term the U.S. Energy Information Administration forecasts Australia to continue to be a leading exporter of coal and to gradually increase its share of import requirements of the Asian region. This will require NSW coal production to keep pace with coal demand from Asia which is forecast to grow at a compound annual growth rate of 3% from 2010 to 2030. The majority of the growth in Asia is expected to come from Japan, South Korea, India, Taiwan and China.

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Figure 32: Asian coal imports 1995 – 2030 (forecast) (bt) Figure 33: Forecast combined NSW coal exports (mt) 20 160

18 Asian imports CAGR 3% 140 16 120 14 CAGR 5.3% 12 100 10 80 8

6 60 Global coal consumption CAGR 2% 4 40 2 20 0 0 2011 1995 1997 1999 2001 2003 2005 2007 2009 2013 2015 2017 2019 2021 2023 2025 2027 2029 2011 Global coal consumption (rebased) Asian coal imports 2009 2010 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Source: U.S. Energy Information Administration Source: Wood Mackenzie Limited – June 2009

To maintain this level of growth, further greenfield and brownfield developments and infrastructure upgrades will need to be commissioned to ensure sufficient saleable production is available for exports to keep pace with global demand. Furthermore, higher coal prices in recent years, due to the supply constraints mentioned above, and increased demand from Asia, have stimulated further investment in coal projects in NSW with the state government recently approving close to $1 billion of new mining developments. Management expect additional investment in equipment spend in the sector of approximately $1.3 billion up to 2014 due to significant coal projects being undertaken by companies including BHP, Coal & Allied Industries Ltd (Coal & Allied), Xstrata Plc (Xstrata) and Newcrest Mining Limited (Newcrest).

5.2.2 Australian construction industry The construction industry consists of civil engineering, commercial buildings, industrial plants, infrastructure, mining construction and residential buildings. These projects (and the associated equipment and infrastructure) can be funded by either the public or private sector. Heavy industry is the largest category of engineering construction and encompasses the construction of mines, refineries and other industrial processing plants. Heavy industry contributed $26 billion to the construction sector for the year ended 30 June 2009, almost as large as all other categories combined, according to the Construction Forecasting Council. Australian construction activity, similar to other markets, declined significantly over 2009 due to the global financial crisis which resulted in many capital projects being deferred or abandoned. Since that time, an improvement in economic conditions globally, and the impact of the Australian Government’s $41 billion Nation Building Economic Stimulus Plan, has resulted in an increase in forecast construction and infrastructure expenditure. In NSW and WA, on average, the principal sub-sectors of the construction industry are expected to increase spending at an average compound annual growth rate of 4% until 2018.

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Figure 34: Forecast construction spend NSW and WA – principal industry sectors ($’billion) 18

16

14

12

10

8

6

4

2

0 2010-11 2011-12 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 Roads Bridges railways harbours Electricity pipelines Water and sewerage Telecommunications Heavy industry incl. mining Source: Construction Forecasting Council of Australia – January 2010

The industry that experienced the most significant downturn over 2008 to 2010 was heavy industry including mining construction, which is forecast to have an annual growth of 5% per annum over the period 2010 to 2018. This mining construction sub-sector represents a significant driver of WesTrac Australia’s operations. Going forward, the construction sector (and the supply of heavy machinery to service this sector), should be positively influenced by:  a general increase in economic activity as real gross domestic product (GDP) is forecast to grow at a compound annual growth rate of 2.8% over the next four years according to the Economist Intelligence Unit  the impact of the remaining infrastructure spending as a consequence of the Australian Government stimulus package  a recovery in the global mining sector and the construction and development of further greenfield and brownfield projects, in particular in Australia, underpinned by a significant increase in demand for resources from China as it continues its urbanisation trend.

5.2.3 Australian equipment hire industry The hire of general equipment includes items such as access equipment, air compressors, bulldozers, cranes, excavation equipment, forklifts, lighting towers, power generators, portable toilets, pumps, scaffolding, storage containers, traffic management equipment and welders. The industry provides end users with the benefit of being able to hire equipment as opposed to purchasing it outright and as such benefit from pooled assets allowing for greater utilisation and efficiency. Maintenance costs and equipment obsolescence are reduced or eliminated for the hirer as they are only charged for the usage they require. However, the industry is relatively capital intensive for market participants as large capital outlays are typically required for the acquisition of plant and equipment to be made available for hire. General maintenance costs associated with the plant are typically borne by the market participant with hire pricing structured to recoup this from individual hirers. The construction and mining segment accounts for the majority of the general hire equipment market (approximately 70%).

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IBIS World notes that the industry has a low degree of concentration. Coates Group is the dominant market participant and the three largest participants generate approximately 38% of industry revenues. The balance of the industry is made up of numerous small participants. Key trends expected to impact the general equipment hire sector include:  increased spending on hire equipment as part of the Australian Government’s Nation Building Economic Stimulus Plan  a recovery in spending in the mining industry as general commodity prices continue to recover.

5.2.4 WesTrac China’s industry drivers WesTrac China’s Caterpillar dealership covers eight north eastern provinces and municipalities of China representing approximately 25% of China’s land area. This coverage area also includes a significant portion of China’s unmined mineral and energy deposits. According to Caterpillar, China currently represents 27% of the global equipment sector, with current machine demand of approximately 235,000 machines. A key driver that will impact WesTrac China’s operations is general economic conditions in China including the trend towards population urbanisation and the associated commodity and construction requirements. The United Nations estimates that greater than 70% of China’s population will be living in urban cities by 2050 as set out below.

Figure 35: China real GDP growth (CNY) Figure 36: Urbanisation of Chinese population 40,000 100% 90% 35,000 80% CAGR 8% 70% 30,000 60% 50% 25,000 40% 30% 20,000 20%

15,000 10% 0% 10,000 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2005 2006 2007 2008 2011f 2009f 2010f 2012f 2013f 2014f Percentage urban (%) Percentage rural (%) Source: Economist Intelligence Unit – January 2010 Source: United Nations - Department of Economic and Social Affairs, ‘The 2007 Revision Population Database’, 11 May 2009 The Economist predicts that in 2010 China will overtake Japan as the second largest economy and may overtake the United States within 20 years. McKinsey & Company, as part of a report on the urbanisation of China45, predicts that by 2025:  China will have 221 cities with a population greater than one million residents  five billion square metres of road will be paved  40 billion square metres of floor space will be built in five million buildings.

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This urbanisation process is also expected to contribute to a period of economic growth as China’s GDP is forecast to grow at an annual compound rate of 8% over 2010 to 2014 according to the Economist Intelligence Unit. This growth in GDP will also fuel a rise in the general standard of living, resulting in a higher mineral consumption level per capita and increased demand for heavy machines as mining and infrastructure projects are executed. In the more immediate term, the country’s economic growth is expected to be underpinned by the Chinese Government’s economic stimulus package, whereby the government has pledged CNY4 trillion (US$580 billion) in economic stimulus, a large proportion of which has been earmarked for large scale infrastructure and construction projects. This stimulus initiative was developed in addition to China’s traditional five year plan structure that is used to set national social and economic goals. One initiative of the five year plan is that the government has expressed an intention to consolidate smaller coal miners to establish five to seven large producers capable of producing 75% of China’s mined coal. This action is aimed at increasing domestic coal production to 2.45 bt per annum by 2010 from 2.26 bt in 200546.

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WesTrac operates in a number of provinces within China. A summary of the key economic statistics and growth prospects for each relevant region are set out below:

Table 27: Economic snapshot for relevant provinces for WesTrac China

GDP 2007 (% of Population Region China) (million) Province industries and outlook

Heilongjiang 2.6 38  Construction and manufacturing account for 56% of the province’s GDP  The province has coal and iron ore reserves  Current projects: o USD 15 billion highway construction plan o Railway and hydro power and airport projects to the value of USD 28 billion Jilin 1.9 27  Construction and manufacturing account for 50.1% of the province’s GDP  The province has significant oil, gas and coal reserves  Current projects: o 2005-2030 highway construction plan for the construction and renovation of 6,800km of roads and highways o Railway and hydro power and airport projects to the value of USD 20 billion Shanxi 2.1 33  The province has coal, bauxitic clay and iron ore resources  Current projects: o Planned fixed asset investment in the coal industry to the value of USD 26 billion o 26 highway construction projects to the value of USD 14 billion o Railway and hydro power and airport projects to the value of USD 38 billion Inner 2.2 24  Estimated mineral reserves to the value of USD 1.9 trillion Mongolia (excluding petroleum and natural gas)  Current projects: o USD 4 billion highway construction plan o Railway and hydro power and airport projects to the value of USD 31 billion Liaoning 4.0 42  The province has resources including magnesium, boron, iron, diamond, talcum and jade  Current projects: o USD 4 billion highway construction plan o Railway and hydro power and airport projects to the value USD 19 billion Hebei 10.2 91  Iron ore resources (including  Current projects: Beijing and o USD 10 billion highway construction plan Tianjin) o Railway and hydro power and airport projects to the value of USD 31 billion o USD 40 billion construction of seven subways and 28 roads within Beijing city

Source: WesTrac Group Management, China Statistical Yearbook 2008 (National Bureau of Statistics of China) Notes: All values have been converted from CNY to USD at a rate of 0.14626.

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5.3 WesTrac Group operations

5.3.1 Overview Set out below is a brief summary of the WesTrac Group. Further details are set out in Section 2.5 of Part B of the Scheme Booklet.

Background WesTrac Group was established in 1989 and the principal operating entities are wholly owned subsidiaries of WesTrac Holdings. WesTrac Group is the sole authorised Caterpillar dealer for WA, NSW/ACT and eight provinces and municipalities in North East China. The figures below illustrate WesTrac Group’s Australian and Chinese territories.

Figure 37: WesTrac Group’s dealership territories

2009 revenue: A$1,332m 2009 revenue: A$758 2009 revenue: A$448

No. of branches: 10 No. of branches: 15 No. of branches: 38

No. MARC sites: 5 No. MARC sites: 5 No. MARC sites: -

No. port depots: - No. port depots: 2 No. port depots: -

No. of employees: 1,621 No. of employees: 1,026 No. of employees: 1,392

Total no. machines installed: 15,844 Total no. machines installed: 15,631 Total no. machines installed: 9,743

2009 no. machines sold: 597 2009 no. machines sold: 529 2009 no. machines sold: 1,709

Source: WesTrac Group Management

Caterpillar is the world’s largest manufacturer of heavy equipment and is listed on the New York Stock Exchange with a market capitalisation of US$33 billion. The company has a network of 182 dealers globally and specialises in the provision of equipment for such industries as mining, construction and forestry. Caterpillar manufactures capital equipment from design to point of sale for distribution to its dealership network, which provides benefits in the form of additional network reach and local relationships. Caterpillar’s offering is also unique compared to its competitors in that it produces the engines for its own machinery, as well as supplying to competitors. A Caterpillar dealership agreement grants the holder the position of distributor of Caterpillar products within the specified territory and is generally initially awarded at no cost. The dealership contract is typically standard across dealers and provides each party with a 90 day notice period to terminate without cause. Historically, the average tenure of Caterpillar dealers has been approximately 40 years and it is generally perceived that Caterpillar will maintain its dealership network rather than switch to a factory owned operations model employed by some of its competitors.

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WesTrac Group and its predecessor companies have a long history with Caterpillar dating back to 1925 when Caterpillar established its Western Australian dealership. WesTrac Group is one of Caterpillar’s five largest equipment dealers worldwide by sales. It is also one of 14 dealers on Caterpillar’s Worldwide Mining Dealer Council, which provides input on Caterpillar product development and strategy for its mining equipment and support services.

WesTrac Group revenue and activities WesTrac Group’s core business is equipment management solutions which involves capital equipment sales, being the supply of new and used Caterpillar machinery engines and power generation systems, after-sales product support and equipment rentals. WesTrac Group generated revenue in excess of $2 billion in 2009. WesTrac Australia currently generates the majority of WesTrac Group’s revenues, however, WesTrac China is expected to contribute significantly to the future growth of the group. The revenue breakdown by business segment and geography is set out below.

Figure 38: Revenue by business segment (FY09) Figure 39: Revenue by geography (FY09)

China, 18%

Product Support, 40%

WA, 52% Capital Sales, 58% NSW/ACT, 30%

Rentals, 2%

Source: WesTrac Group Management

Business segments are discussed in further detail below.

 Capital Sales: WesTrac Group supplies new and used Caterpillar machinery, engine and power generation systems primarily to the construction and mining sectors. In the year to June 2009, WesTrac Australia and WesTrac China sold 1,126 and 1,709 machines, respectively, and at 31 January 2010 had a maintenance base of 31,475 and 9,743 machines, respectively WesTrac Group offers a 12 month warranty on new capital equipment and repairs and bears associated labour costs, while Caterpillar funds any parts requirements. The company engages in a number of other service offerings aimed at assisting customers in overcoming any issues in the event of machinery breakdown and avoiding or minimising disruptions to operations

 Product Support: WesTrac Group supports equipment sales through its after-sales service offering, which accounts for 40% of total revenues. The service capability is an integral offering to support the market share of new equipment sales through being able to offer customers an integrated offering at point of sale. Maintenance contracts account for 15% of these revenues or 6% of total revenues. The company repairs and rebuilds equipment at a cost significantly below new equipment prices, with a useful life equivalent to 90% of the useful life of new machinery. This product support service protects the earnings of WesTrac Group to a certain extent during periods of depressed 95 Deloitte: Seven Network Limited – Independent expert’s report

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economic conditions, when heavy equipment owners look to defer capital spending, thus extending their useful life of existing equipment. Owners need to invest in new parts and rebuild services in order to prolong the useful lives of the equipment Product support currently represents a small portion of revenues for WesTrac China as the installed asset base is relatively immature since this business only commenced in 2000. WesTrac China has built a dedicated facility in the Tianjin Free Trade Zone to focus on equipment rebuilds and major equipment servicing that can take advantage of labour cost efficiencies as well as a central location

Chinese customers have traditionally tended to focus on upfront capital costs and less on service requirements than the more mature Australian mining and construction customers. However, WesTrac China’s management expects a shift away from this view as Chinese customers begin to assess capital equipment in terms of total lifetime cost and the customer base moves to larger, consolidated mining operators

WesTrac Group offers a preventative maintenance service to its customers in both Australia and China. The service involves diagnostic testing of items such as oil samples to aid in the identification of mechanical problems and allows for clients to schedule preventative maintenance work accordingly. WesTrac has the capability to remotely monitor equipment to anticipate equipment servicing requirements.

 Rental: WesTrac Group has over $110 million (at original equipment cost) invested in its own equipment rental operations, which comprise the rental and leasing of 65 large Caterpillar machines in WA and 45 in NSW/ACT. The rental market in China is also growing, with WesTrac China currently operating a rental fleet of over 112 units. Unlike WesTrac Australia, WesTrac China typically provides rental equipment inclusive of a machine operator. In addition, WesTrac Group holds the licence to operate ‘The CAT Rental Store’, Caterpillar’s equipment rental brand in its distribution territories in Australia and China. In Australia, WesTrac Australia sublicenses the CAT Rental Store business to the Coates Group (via National Hire), and conducts its own heavy equipment rental business to provide larger equipment not provided by the Coates Group

Revenue drivers WesTrac Group’s revenues are primarily derived from customers operating in or supporting the construction and mining industries as illustrated in the figures below.

Figure 40: WesTrac Australia revenue (FY09) by market Figure 41: WesTrac China revenue (FY09) by market

Other, 13% Other, 18%

Mining, 32%

Construction, 25%

Mining, 62%

Construction, 50%

Source: WesTrac Group Management Source: WesTrac Group Management

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The product mix in WA has traditionally been weighted towards larger, more expensive mining equipment as this region is heavily dependent on large-scale iron ore projects, in contrast to NSW/ACT and China which has typically sold a more balanced range. More recently, WesTrac China’s revenue base has been skewed toward the construction market as a result of the Chinese government’s stimulus plan. Going forward, however, WesTrac China’s management expects revenue from mining to make up a greater percentage of overall sales.

WesTrac Australia’s commodity exposure is illustrated in the following figures.

Figure 42: WA 2009 key commodity exposure Figure 43: NSW 2009 key commodity exposure Others, 3% Base metals, Coal, 3% 3% Bauxite, 8% Gold, 14%

Nickel, 17%

Iron ore, 58%

Gold, 11%

Coal, 83%

Source: WesTrac Group Management Source: WesTrac Group Management

As set out above, the principal commodity exposure for WA is iron ore and for NSW it is coal.

5.3.2 WesTrac Australia

Background Caterpillar began its Australian operations in 1925 with the establishment of a dealership in WA, which was subsequently awarded to US based Morgan Equipment. In 1990 the dealership name changed to WesTrac Equipment Pty Ltd. WesTrac Equipment Pty Ltd was acquired by WesTrac Holdings in 1990. In 2003, WesTrac Group was awarded the NSW/ACT Caterpillar dealerships and commenced its operations in these territories the following year. The remaining Australian states and territories are covered by three Caterpillar dealers independent of the WesTrac Group.

WesTrac Australia currently has approximately 25 branches across Australia which provides localised support and on site services for major projects.

WesTrac Australia has expansion programs planned for its two main operating centres as follows:  Newcastle, NSW: a greenfields facility to be located at Tomago, near Newcastle in NSW. The total project cost is estimated to be in the region of $121 million, of which WesTrac Australia contributions are expected to be $21 million with the landlord funding the remainder  South Guildford, WA: a staged redevelopment and expansion of WesTrac Australia’s main site in WA with total project cost estimated to be in the region of $117 million. WesTrac Australia anticipates contributing $51 million (mainly for fitout). The landlord 97 Deloitte: Seven Network Limited – Independent expert’s report

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will fund the remainder for the expansion of the dealership facilities, process automation and refurbishment of existing office facilities.

Competitive environment WesTrac Australia’s dealerships in WA and NSW/ACT are estimated to be the third and seventh largest Caterpillar mining dealers globally, respectively, based on sales revenue. The WA and NSW dealerships both have leading positions in their respective markets. Competitors include Komatsu, the Volvo group, Bobcat and Emeco. Komatsu is the most significant competitor in Australia.

Revenue and customers The WesTrac Australia Caterpillar product offering includes a diverse range of equipment principally to service the construction, mining and forestry industries. It no longer services the agricultural industry following Caterpillar’s exit from this market in 2000. WesTrac Australia has long standing relationships with a number of large scale mining and construction companies as illustrated in the following table.

Table 28: WesTrac Group’s long term customer relationships

Relationship Customer (Years)

BHP Billiton 20+ Rio Tinto 20+ Leighton Holdings 20+ Xstrata 5+ Fortescue Metals Group 4

Source: WesTrac Group Management Notes: Table relates to WesTrac Group and predecessor companies

WesTrac Australia has a number of supply contracts and agreements with major customers which confer preferred supplier status on WesTrac Australia and some contracts pursuant to which minimum annual capital sales or support commitments have been made by customers. These agreements are sometimes negotiated by Caterpillar globally on behalf of its distributors. Caterpillar is currently in negotiations with BHP and Rio Tinto about supplying their iron ore JV in Western Australia. Both companies have indicated they are targeting equipment procurement as an area for cost synergies in the future. It is likely that as a consequence of production synergies arising from this JV there will be an increase in ore production which should translate to additional equipment requirements.

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Financial performance The pro-forma historical income statement of WesTrac Australia’s operations for the years ended 30 June 2008 and 30 June 2009 and the pro-forma forecast income statement for the years ending 30 June 2010 and 30 June 2011 are summarised in the table below.

Table 29: Financial performance – WesTrac Australia

Pro-forma Pro-forma Pro-forma Pro-forma forecast forecast 2008 2009 2010 2011 ($’m) ($’m) ($’m) ($’m)

Trading revenue 1,859.2 1,876.1 1,610.8 1,904.9 Revenue growth 17.0% 0.9% (14.1)% 18.3%

EBITDA 191.8 183.9 162.0 196.6 Margin (%) 10.3% 9.8% 10.1% 10.3%

EBIT 166.6 151.2 134.8 167.5 Margin (%) 9.0% 8.1% 8.4% 8.8%

Source: Deloitte analysis, Scheme Booklet

We note the following in respect of WesTrac Australia’s financial performance:  the WA territory has generated the majority of WesTrac Australia’s revenues primarily due to the size and volume of mining equipment sold  in FY09, WA generated approximately 64% of total revenues and approximately 36% was generated in NSW/ACT  capital sales (including rental operations) contributed approximately 60% of WesTrac Australia’s revenues in FY09  the impact of the global financial crisis and the deferral of capital projects is expected to continue to adversely impact the 30 June 2010 forecast revenues. Revenues are forecast to recover and exceed 2009 levels in 2011 in light of a forecast improvement in general economic conditions and the expectation that a number of mining projects will commence  as part of the Share Scheme, WesTrac Australia will enter into a sale and lease back of some of its property, plant and equipment (discussed below), adjustments for which are reflected in the pro-forma financial forecasts for FY10 and FY11.

Future expectations WesTrac Australia’s future performance is expected to be influenced by:  the expected increase in Western Australian iron ore production to satisfy China’s import demands  the success of Caterpillar’s future global alliance negotiations with BHP and Rio Tinto  increase in the existing Caterpillar machine population which will result in future growth in product service revenues with subsequent machine rebuilds and maintenance repairs

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 construction of the greenfield Tomago NSW site and expansion of the South Guildford WA facilities which will provide operational efficiencies and capacity to deal with increased sales volumes  future distribution of Caterpillar’s expanded product range including Shandong SEM Machinery (SEM) range (discussed below) and road construction equipment  potential to increase operating margins due to leveraging existing infrastructure including expansion of South Guilford and Newcastle facilities  expansion of capacity in NSW coal export infrastructure to allow further greenfield and brownfield mine expansion to satisfy global export demands. However, potential risks include:  any deterioration in economic conditions, in particular in key iron ore and coal export markets  ability for government stimulus to resolve current capacity constraints in rail and port infrastructure in WA and NSW  potential loss of market share to major competition or other emerging manufacturers or domestic Chinese manufacturers entering the Australian market  reliance on Caterpillar for continuation of dealership agreements, manufacturing quality, supply, technical support, product development, pricing and global alliance negotiations with key customers  currency exchange rate fluctuations.

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Financial position The audited balance sheets of the WesTrac Pty Limited as at 30 June 2008 and 30 June 2009, and the management balance sheet as at 31 December 2009 are summarised in the table below.

Table 30: Financial position (excludes WesTrac Fleet 1)

June 2008 June 2009 December 2009 audited audited unaudited ($’m) ($’m) ($’m)

Cash 13.3 27.2 45.1 Trade and other receivables 283.6 254.0 162.8 Inventories 472.7 513.9 358.7 Other 0.9 6.4 - Total current assets 770.5 801.5 566.6

Receivables 3.3 4.9 4.1 Other financial assets2 207.3 631.5 634.2 Property, plant and equipment 80.1 80.3 81.5 Intangibles 37.9 37.9 37.9 Derivative financial instruments - 8.2 - Other - 2.8 1.4 Total non-current assets 328.6 765.6 759.1

Trade and other payables 235.5 168.0 112.0 Interest bearing liabilities 73.1 54.3 - Provisions 21.4 28.6 21.1 Derivative financial instruments 3.0 - - Other 23.9 35.7 2.4 Total current liabilities 356.9 286.6 135.5

Interest bearing liabilities 343.5 483.0 369.0 Derivative financial instruments 38.5 1.1 27.7 Other 16.8 9.4 20.3 Total non-current liabilities 398.8 493.5 417.0

Net assets 343.4 787.0 773.2

Source: WesTrac Pty Ltd annual report for years ended 30 June 2008 and 30 June 2009, WesTrac Group board paper for the period ended 31 December 2009 Note: 1. WesTrac Fleet makes an immaterial contribution to WesTrac Australia’s net asset position 2. Other financial assets at 31 December 2009 represent the cost of WesTrac Pty Limited’s investment in National Hire ($198 million), WesTrac China ($412 million), and the remainder represents the cost of investment in other subsidiaries and equity accounted entities

We note the following in respect of WesTrac Australia’s financial position:  equipment and parts inventory are purchased from Caterpillar in both Australian dollars and US dollars. Typically larger machines are purchased from Caterpillar in US dollars and sold to customers in US dollars. WesTrac Australia limits its currency exposure by only placing orders once a firm order is received and then enters into forward currency agreements to limit currency exposure from the period of ordering to receipt of customer 101 Deloitte: Seven Network Limited – Independent expert’s report

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payment. Spare part lines are ordered in Australian dollars and repriced by Caterpillar on a semi annual basis based on movements in the USD relative to the AUD. This parts pricing policy exposes WesTrac Australia’s spare parts inventory holdings, pricing and margins to exchange rate currency fluctuations  property, plant and equipment relates to WesTrac Australia’s buildings, improvements and support equipment located at its facilities in WA and NSW. As part of the Proposed Scheme WesTrac Australia will sell approximately $35 million (cost value) of property, plant and equipment to Property West Fund (PWF), a special purpose property vehicle owned by ACE. This will result in higher rental charges going forward, but will simplify WesTrac’s balance sheet, improve the ratio of current assets to total assets, and transfer most of the cost of redeveloping WA properties to PWF  intangible assets primarily relate to WesTrac Australia’s right to distribute Caterpillar products in WA and NSW/ACT. $30 million of the intangible asset balance relates to the acquisition of the NSW/ACT dealership in 2003 with the remainder relating to the acquisition of the WA dealership in approximately 1990. The history of WesTrac Australia’s dealership acquisitions are discussed in Section 5.3.2 above  the majority of WesTrac Australia’s debt is in the form of fixed interest senior notes issued in the United States to the value of US$332 million, with the maturity of these notes presented in the figure below. The first significant repayment is due in the year ending 30 June 2013.

Figure 44: WesTrac Australia USPP note maturity (USD million) 90 85 80 75

70

60 55 55

50

40

30 30

20 17 15

10

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: WesTrac Group Management

 key covenants attached to the notes include compliance with the following: o Indebtedness ratio: of not more than 4.0 times EBITDA to WesTrac Australia’s total indebtedness o Interest coverage ratio: maintenance of an EBITDA to net interest expense for any 12 month period to be greater than 2.5 to 1 o Consolidated net worth: to be greater than $167.2 million as at 30 June 2009, plus 25% of net profit after tax for each subsequent reporting period. WesTrac Australia was in compliance with these key covenants as at 31 December 2009  WesTrac Australia also has a facility with Caterpillar Financial Australia Limited to the value of $184 million which is currently drawn to $38.8 million.

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5.3.3 WesTrac China

Background WesTrac China is a wholly owned foreign entity and was established in Hong Kong in 1999 and commenced operations in 2001 and has been awarded the Caterpillar dealerships covering six provinces and two municipalities in north eastern China being the provinces of Hebei, Liaoning, Heilongjiang, Jilin, Shanxi, Inner Mongolia and the municipalities of Beijing and Tianjin. WesTrac Group’s management estimates that 60% of Chinese mining opportunities fall within its dealership territories. WesTrac China includes WCMEL, which provides rebuild and light manufacturing services in China.

The shares in WesTrac China Limited were transferred from White City Pty Ltd to WesTrac Australia effective 1 July 2008 to bring all of the WesTrac businesses under the ownership of WesTrac Holdings. As part of this transaction WesTrac Australia paid approximately $411 million for the shares in WesTrac China Limited based on an independent valuation. Chinese regulations and the WesTrac China business licence conditions require WesTrac China to supply certain equipment with a high component of locally manufactured content. Operations WesTrac China has over 1,300 employees working across its 38 branches, with an additional 14 branches expected to be opened by the end of the 2010 calendar year. As part of its operations, WesTrac China operates the largest rebuild centre for Caterpillar products in China. In addition to the Caterpillar dealerships, WesTrac China sells Caterpillar’s SEM product range, a lower price point product which is sold in many countries around the world. Caterpillar is in the process of transitioning the distribution of SEM products to existing distributors of Caterpillar products in China. It is expected that by 2012 WesTrac will be the sole dealer of SEM products in these territories. Caterpillar’s SEM range of plant and machinery is developed for applications requiring lower operating hours per day than Caterpillar machines but offer a useful life of approximately 5-10% longer than the current leaders of the lower price point market segment. However, it is not envisaged that SEM machines will undergo rebuilds to increase their useful lives further, as is the case with Caterpillar equipment. The SEM product is targeted at the mid tier, price sensitive market and does currently not compete directly with Caterpillar.

The majority of WesTrac China’s equipment sales are sales of hydraulic excavators, power systems and wheel loaders. Wheel loaders comprise the majority of SEM’s product range, with SEM units comprising 1,665 units of approximately 35,000 units sold in WesTrac China’s territories. There is an opportunity to increase market share beyond existing levels both in wheel loaders and excavators, which together make up 90% of the Chinese heavy equipment machinery market, however the market is getting increasingly competitive as local manufactures have entered the market and have narrowed the technology gap. Caterpillar has indicated that the SEM product offering will be broadened over time.

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During 2009 WesTrac China has had a focus on serving the large state owned mining companies as evident in the sale and delivery of a number large off highway trucks, the first such delivery in five years. The vision of WesTrac China’s management is for smaller customers to purchase SEM products and as their operations expand, to upgrade to Caterpillar. It is envisaged that the SEM product range will also be launched in Australia within the next three years. Competitive environment In China, Caterpillar is one of the top six international brands but the market is reasonably fragmented amongst Japanese (Komatsu, Hitachi and Kobelco) and Korean (Doosan and Hyundai) manufacturers which have a sizable market share of the equipment industry in China. Caterpillar has recently introduced a broader range of products to compete in all market sectors and the SEM range is aimed at more cost conscious buyers. Local Chinese manufacturers have consistently increased market share in the excavator market since FY04. Revenue and customers State owned enterprises make up the majority of WesTrac China’s customer base. However, unlike the Australian market, the Chinese market for capital equipment comprises a large number of smaller scale players. At present only 10% of WesTrac China’s customers are repeat customers compared to Australia where the market is more concentrated and dominated by large mining and construction companies with whom WesTrac has ongoing relationships. WesTrac China’s top five customers made up 19% of total revenues for the year to June 2009. However, similar to WesTrac Australia, the majority of WesTrac China’s revenue is derived from the mining and construction sectors and these two markets generated over 80% of WesTrac China’s revenue for FY09. The construction sector is the predominant revenue driver and is expected to remain so, although WesTrac China’s management expects higher growth from mining customers.

Financial performance The income statement of WesTrac China’s operations for the years ended 31 December 2008 and 31 December 2009 and the forecast income statement for the years ending 31 December 2010 and 31 December 2011 are summarised in the table below.

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Table 31: Financial performance

Pro-forma Pro forma Pro-forma Pro-forma forecast forecast 2008 2009 2010 2011 (US$’m) (US$’m) (US$’m) (US$’m)

Trading revenue 400.5 416.6 594.5 749.1 Revenue growth (%) n/a 4.0% 42.7% 26.0%

EBITDA 26.6 24.2 21.3 30.5 Margin (%) 6.6% 5.8% 3.6% 4.1%

EBIT 23.0 19.5 16.2 22.4 Margin (%) 5.7% 4.7% 2.7% 3.0%

Source: Deloitte analysis, Scheme Booklet Note: 1. Scheme Booklet figures converted to US$ at historical rate

With respect to the above statements of financial performance we note the following:  WesTrac China’s functional currency is the US dollar with a large proportion of sales and cost of sales based on US dollar prices  capital sales (new machinery and engines) are forecast to contribute approximately 85% of WesTrac China’s revenues in 2010, however, over time maintenance and parts are forecast to contribute a greater share of revenue as the market penetration of used Caterpillar products in China increases  revenue growth in 2010 is forecast to come from all product lines and services. In particular, significant growth is expected due to the Chinese Government’s financial stimulus package, as well as the ongoing infrastructure requirements of China’s current five year plan. Product support sales growth is expected to supported by the service and supply of parts to Caterpillar power machines servicing the coal mine methane plants within WesTrac China’s territories  WesTrac China’s 2009 margins were adversely impacted by the relatively large portion of construction business driven by government stimulus spending which achieved lower margins than typical equipment sales due to the large number of sub-contractors often involved in bidding for these contracts. WesTrac China also temporarily lowered margins on some lines in the first part of 2009 to clear aged inventory. Margins are expected to recover in 2011 as these temporary factors diminish.

Future expectations Going forward WesTrac China is expected to benefit from:  continued growth in the Chinese economy, as urbanisation and domestic demand continue to gather pace, combined with ongoing growth in demand for Chinese exports globally  Caterpillar’s strategy of distributing the SEM branded range through existing China dealerships  Caterpillar further extending its product range distributed in China, in accordance with its stated aims to materially grow revenues in China

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 the continuation of spending associated with the Chinese government’s stimulus plan particularly in resources and infrastructure in WesTrac China’s provinces  further margin improvement as operations and scale develop, increased contribution from product support and total equipment population increases  increased mining activity in Shanxi and Inner Mongolia to satisfy domestic demand. However, potential risks to this growth include:  a general economic slowdown in the period post the government’s stimulus package  an increase in competition in WesTrac’s product offering, in particular since the Caterpillar brand is still an emerging brand in the region and has lost market share in recent years  reliance on Caterpillar for continuation of dealership agreements, manufacturing quality, supply, technical support, product development, pricing, global alliance negotiations with key customers and continued commitment to manufacturing in China  increasing sophistication of the Chinese domestic manufacturers  currency exchange rate fluctuations.

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Financial position The audited balance sheet of WesTrac China’s operations as at 30 June 2009 and unaudited balance sheet as at 31 December 2009 are summarised in the table below.

Table 32: Financial position of WesTrac China Limited (excluding WCMEL)

June December 2009 2009 Audited Unaudited Company (US$’m)1 (US$’m)

Cash 0.5 1.0 Receivables 85.8 56.6 Inventory 147.4 104.8 Other - 15.7 Total current assets 233.7 178.1

Property, plant and equipment 19.6 21.6 Investments 0.3 2.8 Total non-current assets 19.9 24.4

Payables 103.2 66.2 Interest bearing liabilities 101.1 59.5 Provisions 2.7 28.1 Total liabilities 207.0 153.8

Net assets 46.6 48.7

Net debt 100.6 58.5 Working capital2 130.1 95.2

Source: WesTrac China Limited 2009 audited financial statements, WesTrac Group management accounts December 2009 Notes: 1. Converted based on 30 June 2009 and 31 December 2009 HKD:USD exchange rates 2. Working capital comprises receivables, inventory and payables

We note the following in respect of the financial position of WesTrac China:  receivables include trade receivables and prepayments on forward purchases  inventory relates to machinery on hand and is carried at the lower of cost and realisable value  WesTrac China’s property, plant and equipment primarily comprises machinery equipment and leasehold improvements  payables are primarily trade related and also include payments received in advance from WesTrac China customers. Also included as payables are amounts payable to Caterpillar for machinery and parts purchases that are subject to predefined financing criteria  bank loans from Standard Chartered Bank and ANZ China, and loans from Caterpillar China Finance and Leasing (CCFL), are denominated in both US dollars and Renminbi. Loans from ANZ China are guaranteed by ACE, although removal of this guarantee will be sought as part of the Share Scheme

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 provisions relate to new and used warranties offered to customers on purchases and repairs, the balance of which is based on past history of the level of repairs and replacement  WesTrac China incurs contingent liabilities under risk sharing agreements with CCFL, in respect of finance provided by CCFL to purchaser equipment from WesTrac China. A provision is carried on WesTrac China’s balance sheet against the possibility of risk sharing payments needed to be made to CCFL  facilities provided by CCFL to WesTrac China are guaranteed by White City Pty Limited, a director related company of ACE. Removal of this guarantee will be sought as part of the Share Scheme. 5.4 National Hire operations

5.4.1 Overview National Hire Group Limited (National Hire) is an Australian listed company which operates a wholly owned equipment sales and support business under the name of Allight. National Hire also has a 46.1% economic interest in Coates Group, following the acquisition of Coates Hire Limited (Coates) in January 2008. The Coates Group and the acquisition of Coates (Coates Acquisition) are discussed in Section 5.5 below. National Hire Group also operates the Cat Rental Store business in WesTrac Australia’s territories.

5.4.2 Allight Allight manufactures its own proprietary range of mobile lighting towers and is the authorised distributor of certain brands of power generation and dewatering equipment, Perkins diesel engines and FG Wilson power generation sets. Allight has approximately 220 employees in offices across Australia and in Virgina, US. In 2009, over 90% of Allight revenue was generated in Australia. National Hire and Allight are parties to a preferred supplier agreement with the Coates Group relating to equipment in Allight’s product range, including lighting towers, generators, engines and pumps. The agreement has a term of five years from 9 January 2008, the date of the Coates Acquisition.

5.4.3 Capital structure and securityholders National Hire is publicly listed in Australia (ASX code: NHR) with a market capitalisation of approximately $297 million (as at 5 March 2010) and 148.4 million ordinary shares outstanding at the date of this report.

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The shares in National Hire are tightly held with WesTrac and Elph Pty Ltd (Elph) holding over 88% of the ordinary share capital as set out in the table below:

Table 33: National Hire substantial shareholders Number of % of shares shares Company held issued

WesTrac Pty Ltd 98,300,404 66.2 Elph Pty Ltd 32,529,745 21.9 Stephen Donnelley 1,991,877 1.3

Source: Bloomberg

5.4.4 Share price performance The share price movement and trading volume for National Hire over the period from January 2008 to March 2010, reflecting trading since the Coates Acquisition, are presented below.

Figure 45: National Hire Share Price Performance

$3.00 14 Jan 2008: Acquisition of Sep-Dec 2009: Feb 2010: Seven Coates Hire Limited Increase in Elph Pty Network & WesTrac Ltd share holdings merger announced 12 $2.50

10 $2.00

8 $1.50 Millions May 2008: WesTrac 6 increases ownership Feb 2010: Half year $1.00 interest from 53.7% to 65.3% performance Jul 2009: Beginning reported 4 of general upwards Aug 2009: Full year $0.50 trend in ASX200 Index performance 2 reported

$0.00 0 Jul-08 Jul-09 Oct-09 Oct-08 Jan-08 Jan-09 Jan-10 Apr-08 Apr-09 Volume National Hire Linear (Volume)

Source: Deloitte Analysis

Between 1 January 2009 and 31 December 2009, 3,545,709 shares were traded representing approximately 2.4% of total ordinary shares outstanding (17.8% between 1 January 2008 and 31 December 2008). Further, during this period, there were 102 days upon which no shares changed hands rendering the National Hire shares relatively illiquid.

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Elph subscribed for 19.9% of the share capital in National Hire in January 2008 at the time of the acquisition of Coates, and in 2008 and 2009 made a number of further acquisitions. From September to December 2009, Elph acquired 975,656 additional shares at a weighted average price of $2.03/share representing 68% of all shares traded in this period. Should the acquisitions by WesTrac and Elph be disregarded, between 1 January 2009 and 31 December 2009, 1,712,495 shares were traded representing only 1.1% of total shares on issue. Since the Coates Acquisition, National Hire has traded between $1.25 and $2.60 and has traded around $2.05 per share in the months leading to February 2010, trading downward from this level around the half yearly financial reporting date in February 2010. Noting the illiquidity of the shares, the main drivers of changes in the share price were:  the global financial crisis and the subsequent decrease in mining and construction activity which reduced hire demand  the increase in mining and construction activity in recent months which positively impacted the share price  sell-out in the lead up to the release of the results for the six months to 31 December 2009. We note that there has been limited volumes of shares traded over this period so the recent share prices are not likely to be reflective of a fair market value due to the lack of trading depth. Since 1 February 2010, the share price of National Hire decreased significantly to $1.50 per share, before recovering to trade at $2.00 per share on 5 March 2010.

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5.4.5 Financial performance The audited income statements of National Hire for the years ended 30 June 2008 and 30 June 2009 and the half year ended 31 December 2009 and the unaudited pro forma income statement for the year ended 30 June 2007 are summarised in the table below.

Table 34: Financial performance (excluding Coates)

Pro forma Actual Actual Actual 20071 2008 2009 HYDec09 ($m) ($m) ($m) ($m)

Trading revenue n/a 82.3 104.4 41.5 Other revenue n/a 0.9 1.6 - Total revenue 75.5 83.3 106.0 41.5 Trading revenue growth (%) n/a 10% 27% 27%

EBITDA (reported) 3.4 5.2 6.8 0.8 EBITDA (normalised) 3.4 5.2 6.7 0.8 Margin (%) 5% 6% 6% 2%

Depreciation and amortisation (0.6) (0.7) (0.6) (0.3) EBIT (normalised) 2.8 4.5 6.1 0.5 Margin (%) 4% 6% 6% 1%

Net interest income/(expense) 2.1 0.9 0.3 0.8 Profit before tax excluding discontinued 4.9 5.4 6.4 1.3 operations Profit before tax from discontinued operations2 n/a 58.2 0 - Profit before tax including discontinued n/a 63.6 6.4 1.3 operations

Source: National Hire FY08 and FY09 Annual Reports, National Hire half yearly announcement for the 6 months ended 31 December 2009, and National Hire Notice of Annual General Meeting and Scheme Booklet, October 2007 Note: n/a = not available; n/m = not meaningful 1. 2007 excludes the equity accounted profit or loss from National Hire’s investment in the Coates Group at the time to illustrate the impact on the financial performance of National Hire’s retained operations following the transfer of its rental services business to the Coates Group as if the transfer had occurred on 1 July 2006. 2. Discontinued operations represents the rental services business of National Hire

We note the following in respect of National Hire’s statements of financial performance:  the rental business of National Hire was merged with the rental business of Coates in January 2008. EBIT margins for the Allight business have remained constant at 6% from FY08 to FY09  increased equipment sales and support revenue in FY09 resulted from the release of two mobile lighting products to cater for the growth in the domestic mining sector and in the overseas distribution network. International sales of mobile lighting towers grew from 14.8% to 20.0% of total revenue in FY09. The growth in demand for power generation in the Pacific Islands also contributed to the growth in sales and support revenue  the earnings for the half year ended 31 December 2009 was affected by poor general trading conditions with equipment sales and support revenue down 27% on the comparable prior year period

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 since integration of National Hire’s rental business with Coates as part of the acquisition of Coates in January 2008, Allight’s revenue increased as a result of a preferred supplier agreement with the Coates Group.

5.4.6 Future expectations National Hire’s reported financial performance includes its share of the Coates Group’s net profit after tax and consequently the reported earnings will continue to be heavily influenced by the financial performance of the Coates Group. The future performance of National Hire’s Allight business is expected to continue to be influenced by the impact of the global financial crisis, and the deferral of capital projects is likely to continue to adversely impact revenue in the year ending 30 June 2010. In the longer term Allight’s financial performance is likely to be influenced by building and construction to be undertaken as a consequence of the Australian Government’s economic stimulus plan and the expected recovery in private sector activity in the mining and construction sectors. However, potential risks include:  deterioration in economic conditions, in particular in key commodity export and domestic building and construction markets  changes to the Australian Government’s economic stimulus policies.

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5.4.7 Financial position The audited balance sheets of National Hire as at 30 June 2008, 30 June 2009 and 31 December 2009 are summarised in the table below.

Table 35: Financial position (excludes Coates)

June 2008 June 2009 December audited audited 2009 audited ($m) ($m) ($m)

Cash 18.5 5.7 9.9 Receivables 26.6 19.1 20.7 Inventories 29.3 41.5 34.9 Derivative financial instruments 0.4 - - Total current assets 74.8 66.3 65.5

Property, plant and equipment 1.6 1.4 1.6 Intangibles assets 21.3 21.1 22.0 Deferred tax assets - 5.0 33.9 Total non-current assets 22.9 27.5 57.5

Payables 20.8 16.4 43.9 Current tax liabilities 8.9 - - Provisions - 0.3 0.3 Derivative financial instruments - 0.1 - Total current liabilities 29.7 16.8 44.2

Deferred tax liabilities 16.6 15.9 16.0 Provisions 0.2 0.2 0.2 Total non-current liabilities 16.8 16.1 16.2

Net assets 51.2 61.0 62.6 Net tangible assets 29.9 39.8 40.6

Source: National Hire FY08 and FY09 Annual Reports, National Hire half yearly announcement for the 6 months ended 31 December 2009

We note the following in respect of National Hire’s balance sheet:  National Hire had no debt and a net cash position at 31 December 2009 of approximately $9.9 million with access to undrawn bank loan facilities of $25 million  inventory increased over the year to 30 June 2009 reflecting the increase in sales volumes, investment in the manufacture of mobile lighting towers in China and higher purchasing costs due to the weakening of the Australian dollar over the period to March 2009  intangible assets as at 30 June 2009 are comprised of goodwill of $12.4 million (58%), distribution agreements of $8.0 million (38%) and research & development (4%).

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5.5 Coates Group operations

5.5.1 Overview Coates Group provides a broad range of general hire products across industries including mining, construction, offshore mining, the Government, industrial maintenance, event services, tradespeople and the home handyman market. The Coates Group was formed in January 2008 when National Hire and the Carlyle Group jointly acquired the majority economic interest in Coates and subsequently merged it with the National Hire rental business. Coates was acquired by the Coates Group for approximately $1.66 billion, funded with a combination of debt and equity. National Hire and the Carlyle Group each contributed approximately $338.6 million for a 47% economic interest each. Senior and subordinated debt was raised to fund the balance of the purchase consideration. National Hire funded its economic equity interest in the group in part by the transfer of its rental business to the Coates Group for approximately $282 million. The Coates Group now has approximately 2,000 employees and over 200 branches and satellite locations across Australia with its own maintenance and transport capability. In 2009, over 90% of the Coates Group revenue was generated in Australia. Coates Group has a 26% share of the plant hire and leasing market in Australia47. Coates Offshore and Coates Hire Indonesia generate revenue from outside of Australia. The Coates Group in Australia (Coates Australia) manages over 1 million individual assets across 30 different product categories and is the biggest general equipment hire company in the country, with operations across every state and territory. The Australian markets serviced by Coates are shown in the table below.

Table 36: Coates Australia Market Sectors

Markets Civil construction Exhibitions & Expos Commercial Government Contractors Industrial Shutdown and Maintenance Education & training Mining & Resources Engineering and Building construction Road Works Events & leisure Small contractors

Source: www.coateshire.com.au

Coates Australia operates predominantly in the mining, construction and event sectors providing products such as excavation equipment, access equipment, power generation, lighting, air compressors, specialist pumps, portable buildings and toilets and traffic management equipment. In addition, Coates Australia specialises in industrial services providing shutdown equipment and services to support planned maintenance programs. Other specialised services include equipment training and tool store equipment management services.

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The Coates Group holds a sub-licence from WesTrac to operate the Cat Rental Stores. There are approximately 68 Coates branded Cat Rental stores in WA, NSW and the ACT leasing small to mid-sized Caterpillar equipment including skid steer loaders, excavators, motor graders, wheel loaders and work tools. The larger Caterpillar equipment is leased by WesTrac. The sub-licence is contingent on WesTrac maintaining minimum levels of ownership interest and voting power in National Hire and National Hire maintaining minimum levels of ownership interest in the Coates Group.

5.5.2 Capital structure and securityholders The ownership structure of the Coates Group is presented in the table below:

Table 37: Coates Group Economic Ownership

Legal Economic Company Ownership Interest

National Hire 100% 46.1% The Carlyle Group - 46.1% Financial investors - 6.0% Management - 1.8%

Source: Deloitte analysis The equity capital of the Coates Group comprises 100 ordinary shares held by National Hire and 737,900,482 convertible notes issued at $1 each.

Convertible notes In order to fund the acquisition of Coates in January 2008, National Hire and the Carlyle Group each subscribed for approximately $338.6 million of convertible notes (Convertible Notes). In the event of conversion of the Convertible Notes, National Hire and the Carlyle Group would hold an equal number of ordinary shares. The Convertible Notes are classified as equity in the financial statements of the Coates Group. There is no requirement to pay interest on the Convertible Notes and neither National Hire nor the Carlyle Group are obliged to provide any further funding, whether by debt or equity, to the Coates Group. Financial investors also subscribed for Subscriber Convertible Notes, representing approximately 6% of the economic interest in the Coates Group. Subscriber Convertible Notes may be converted into non-voting ordinary shares in the Coates Group on maturity.

Investment deed Prior to the acquisition of Coates in January 2008, National Hire, the Carlyle Group and the Coates Group became party to the Investment Deed that records the parties’ agreement in relation to the operation, control and management of the Coates Group (Investment Deed). As a consequence of the terms of the issue of the Convertible Notes and the Investment Deed, National Hire and the Carlyle Group each hold a 50% effective voting interest in the Coates Group and each holds an equal 46.1% economic interest.

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The Investment Deed provides that, while National Hire holds at least 33.3% of the ordinary and convertible securities issued by the Coates Group and retained collectively by National Hire and the Carlyle Group:  National Hire will have the right to appoint the chairman of the Coates Group  certain matters (e.g. changing the capital structure or merger or re-organisation of the Coates Group) require the approval of National Hire and the Carlyle Group  certain other matters require approval by at least one of the director nominees (e.g. acquisition, termination or closure of a material business, incurring material debts, or materially changing employee remuneration). The Investment Deed provides for a standstill period of approximately three years from the acquisition, during which time neither National Hire nor the Carlyle Group is permitted to sell or transfer its interest in Coates Group to a third party. After the standstill period, provisions exist for either party wishing to exit its investment. Under the exit provisions, National Hire and Carlyle have a first right of refusal and tag-along and drag-along rights in respect of any offers from third parties. Financial investors can also participate in the tag-along rights but have no pre-emptive rights. Following the expiry of the standstill period either National Hire or the Carlyle Group may seek to initiate a process in which the Coates Group may be listed on the ASX or another recognised investment exchange, subject to various conditions and restrictions including final approval by a nominee of each of National Hire and the Carlyle Group. The terms of the Convertible Notes and the Investment Deed outlined above effectively give each of the two parties veto power over operational matters and capital structuring and effectively equal rights in respect of the financial and operational affairs of the Coates Group. In order to fund the acquisition, the Coates Group procured senior debt facilities totalling $2.26 billion (Senior Facilities) including a senior term loan of $2.025 billion (Senior Term Loan) and capital expenditure and working capital facilities totalling $235 million. The Proposed Schemes financing also included $150 million of unlisted subordinated notes (Subordinated Notes). The Senior Term Loan and the Subordinated Notes were arranged for the purpose of funding the acquisition of Coates ($1.66 billion) and the National Hire rental business as well as refinancing existing Coates borrowings. The key terms of the Senior Facilities at the time of acquisition of Coates were:  the duration of the agreement is six years with a bullet repayment required at maturity in December 2013  guarantees are provided by each of the subsidiaries of National Hire from time to time.

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5.5.3 Financial performance The audited income statements of the Coates Group consolidated operations for the period ended 30 June 2008 and the year ended 30 June 2009 and the unaudited pro forma income statement for the year ended 30 June 2007 are summarised in the table below.

Table 38: Financial performance

Pro Forma Actual Actual 20071 20082 2009 ($million) ($million) ($million)

Trading revenue n/a 504.3 972.6 Other revenue n/a 0.3 0.2 Total revenue 991.1 504.6 972.8 Trading revenue growth (%) n/a n/a nmf

EBITDA (reported) 411.5 201.1 427.7 EBITDA (normalised) 411.5 225.1 439.2 Margin (%) 42% 45% 45%

Depreciation and amortisation (193.9) (90.9) (180.5) EBIT (normalised) 217.6 134.3 258.6 Margin (%) 22% 27% 27%

Net interest income/(expense) (216.8) (108.9) (204.8) Profit before tax excluding discontinued n/a 25.4 53.8 operations Profit before tax from discontinued operations3 n/a 2.6 15.1 Profit before tax including discontinued 0.8 28.0 69.0 operations

Source: Coates Group financial statements lodged with ASIC, and Deloitte analysis and National Hire Notice of Annual General Meeting and Scheme Booklet, October 2007

Note: n/a = not available; nmf = not meaningful 1. the pro-forma 2007 financial performance excludes the effect of any synergies, revenue loss or changes to the fair value of assets or liabilities upon integration of the National Hire and Coates rental operations 2. the results for the 2008 financial year include the trading profit and loss for the period from 9 January 2008 to 30 June 2008, the period of trading since Coates Group acquired Coates and the National Hire rental business. 3. the Coates Group is in the process of selling the Allied Equipment business assets. The Allied Equipment business generated revenue of $110.8 million for the year ended 30 June 2009 and $34.8 million for the period from 9 January 2008 to 30 June 2008. The sale of the remaining business assets is expected to be completed by 30 June 2010

We note the following in respect of the Coates Group’s statement of financial performance:  the trading revenue is generated predominantly from the hire of goods, with less than 1% of revenue generated from the sale of goods  the 2008 and 2009 results reflected one-off costs associated with the integration of the Coates Group and National Hire rental businesses including costs of restructuring, redundancies, debt restructuring, branch integration and other consulting fees. The normalised EBITDA and normalised EBIT exclude these costs  depreciation and amortisation predominantly relates to plant held for hire

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 bank loans of the group bare interest at an average variable rate of 6.6% in 2009 and 10.7% in 2008. The Coates Group enters into interest rate swap contracts and interest rate cap contracts to hedge exposure to fluctuations in interest rates  for the six months to 31 December 2009 National Hire announcements state that the Coates Group profit was affected by revenues declining 19% compared to the corresponding prior year period and by losses incurred in the divestment of its Allied Equipment business.

5.5.4 Future expectations Coates Group has completed the integration of the National Hire rental business and is continuing to focus on revenue enhancement initiatives, including capturing a share of Government stimulus initiatives and the increased opportunity in the oil & gas sector. The future performance of the Coates Group is expected to continue to be influenced by the impact of the global financial crisis, and the deferral of capital projects is likely to continue to adversely impact revenue in the year ending 30 June 2010. In the longer term financial performance is likely to be influenced by building and construction to be undertaken as a consequence of the Australian Government’s economic stimulus plan and the expected recovery in private sector activity in the mining and construction sectors. However, potential risks include:  deterioration in economic conditions, in particular in key commodity export and domestic building and construction markets  changes to the Australian Government’s economic stimulus policies. National Hire management have reported it is unlikely Coates Group will pay dividends until debt levels within the Coates Group are substantially reduced.

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5.5.5 Financial position The audited balance sheets of the Coates Group’s consolidated operations as at 30 June 2008 and 30 June 2009 are summarised in the table below.

Table 39: Financial position

June 2008 June 2009 audited audited ($million) ($million)

Cash 142.6 268.3 Receivables 200.0 181.1 Inventories 6.0 5.2 Current tax assets - 6.4 Derivative financial instruments 2.4 - Assets of disposal group classified as held for sale (Allied 215.8 68.1 Equipment) Total current assets 566.9 529.1

Property, plant and equipment 1,134.8 997.1 Deferred tax assets 36.3 55.0 Intangibles assets 1,272.6 1,337.7 Derivative financial instruments - 3.4 Total non-current assets 2,443.7 2,393.2

Payables 135.4 129.4 Interest bearing liabilities 3.9 6.9 Current tax liabilities 0.9 - Provisions 17.1 14.4 Derivative financial instruments - 27.3 Liabilities directly associated with assets of a disposal group 8.8 6.3 classified as held for sale (Allied Equipment) Total current liabilities 166.0 184.2

Other payables - 5.5 Interest bearing liabilities 2,105.7 1,968.1 Provisions 4.4 4.6 Derivative financial instruments 1.6 13.6 Total non-current liabilities 2,111.7 1,991.7

Net assets 732.8 746.4 Net tangible assets (539.8) (591.2)

Source: Coates Group financial statements lodged with ASIC

We note the following in respect of the Coates Group balance sheets:  tangible assets predominantly comprises the Coates Group’s equipment hire fleet  derivative financial instruments relate to: - interest rate swap contracts entered to hedge exposure to fluctuations in interest rates. Swaps in place covered approximately 34% of the variable loan principal outstanding in 2009 (75% coverage in 2008) 119 Deloitte: Seven Network Limited – Independent expert’s report

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- interest rate cap contracts to hedge exposure to fluctuations in interest rates. Interest rate caps currently in place cover approximately 49% of the variable loan principal outstanding (no contracts existed in 2008)  assets classified as held for sale relate to the sale of the Allied Equipment business. There is $16.4 million of hire fleet and $38.1 million of inventory held for sale remaining to be sold. The sale of the remaining assets is expected to be completed by 30 June 2010  deferred tax assets relate predominantly to capital and tax losses carried forward and losses on cash flow hedges recognised directly in equity  intangible assets predominantly relate to goodwill recorded following the acquisition of Coates by the Coates Group.

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6 Profile of SGH 6.1 Background If the proposed Share Scheme is approved, it will create a large diversified media and mining services business. The SGH will have:  pro-forma revenues of $2.8 billion and EBITDA of $330 million for the year ending 30 June 2011  wholly owned operating businesses with associated cash flows  exposure to the fast growing mining sector as well as the Chinese economy while retaining exposure to key Australian media assets  drawn debt facilities and borrowing of approximately $499 million and $507 million in cash compared to Seven Network which currently has no debt and $1 billion in cash. The organisational structure of SGH is presented below.

Figure 46: SGH organisational structure Seven Group

Industrial division Media division Other

100% 100% 66% 47% 100 % 58%

National Hire Seven Media Listed Other listed Westrac Australia Westrac China Unwired Engin Group Limited Group Pty Limited investments investments

46% Other unlisted Coates Group Consolidated investments Holdings Pty 7 Network 100 % Media Holdings 22% Limited

Cash and cash Pacific West Australian equivalents Magazines 100% Newspapers 23%

50% Prime Media Yahoo!7 11% Group

Source: Seven Network, Scheme Booklet As stated in the Scheme Booklet, due to the different nature of the SGH’s two divisions, the directors are of the view that the businesses will continue to be managed as separate operating divisions. As such, it is envisaged that the majority of the corporate functions for both divisions will remain largely separate. However, the management of SGH plans to integrate certain treasury and administrative functions.

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6.2 Capital structure and shareholders As at 10 March 2010, Seven Network had the following securities on issue:  190,410,281 ordinary shares  4,963,640 TELYS3  6.9 million options issued to management under the employee schemes expiring between 30 June 2010 to 1 June 2015 at an exercise price between $7.00 and $11.00. We have considered the value of these options or potential dilution to be negligible based on the current share price. The number of shares to be issued by SGH as part of the consideration is set out in the following table:

Table 40: Number of shares in SGH

Number of Seven Network Shares – Related Shareholders 92,814,349 Number of Seven Network Shares – unrelated shareholders 97,595,932 Total number of Seven Network Shares 190,410,281

Shares in SGH to be issued as consideration for each Seven Network Share 190,410,281 Existing number of SGH ordinary shares – Related Shareholders 114,490,000 Existing number of SGH ordinary shares – unrelated shareholders 510,000 Total number of SGH ordinary shares 305,410,281

unrelated shareholders 32.1% Related Shareholders 67.9%

Source: Seven Network, Scheme Booklet

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6.3 Financial performance The table below sets out the historical pro-forma financial performance of SGH (on a 100% basis) for the 12 months ended 30 June 2007, 30 June 2008 and 30 June 2009 together with the forecast financial performance as approved by the board for the 12 months ending 30 June 2010 and 30 June 2011.

Table 41: Financial performance

Actual Actual Actual Forecast Forecast 2007 2008 2009 2010 2011 ($’m) ($’m) ($’m) ($’m) ($’m)

Trading revenue 2,875 2,412 2,556 2,358 2,833 Share of net profit from equity accounted investees 4 53 44 25 77 Total revenue 2,880 2,466 2,600 2,383 2,911 Total revenue growth (%) n/a -14% 5% (8%) 23%

EBITDA 454 319 309 224 312 Margin (%) n/a (29%) (5%) (26%) 43%

Depreciation and amortisation (56) (48) (73) (63) (74) Net interest income/(expense) (56) 60 (19) (33) (34) NPBT 342 331 217 128 204 Margin (%) n/a (2%) (35%) (39%) 66%

Source: Scheme Booklet and Deloitte analysis

Note: n/a = not available; n/m = not meaningful

The pro-forma results of SGH were calculated by aggregating the separate line items for Seven Network and WesTrac holdings, net of any adjustments. For further information on the pro-forma statement of financial performance for SGH, please refer to section 3.11 of Part B of the Scheme Booklet.

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6.4 Financial position The pro-forma statement of financial position for SGH as at 31 December 2009 are summarised in the table below.

Table 42: Financial position

December 2009 Pro-forma ($million) Cash 507 Receivables 325 Inventory 532 Assets classified as held for sale 23 Total current assets 1,388 Receivables 12 Investments 2,005 Property, plant and equipment 173 Intangibles 560 Deferred tax assets 34 Total non-current assets 2,783 Payables 350 Borrowings 98 Other 74 Total current liabilities 522 Payables 6 Borrowings 401 Other 486 Total non-current liabilities 892 Net assets 2,756 Source: Scheme Booklet and Deloitte analysis

For further information on the pro-forma statement of financial position for SGH, please refer to section 3.11 of the Scheme Booklet.

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7 Valuation methodology 7.1 Valuation methodologies To estimate the fair market value of the securities in Seven Network and WesTrac Holdings, we have considered common market practice and the valuation methodologies recommended by RG111. These are discussed below.

7.1.1 Market based methods Market based methods estimate a company’s fair market value by considering the market price of transactions in its securities or the market value of comparable companies. Market based methods include:  capitalisation of maintainable earnings (CME)  analysis of a company’s recent security trading history  industry specific methods. The capitalisation of maintainable earnings method estimates fair market value based on the company’s future maintainable earnings and an appropriate earnings multiple. An appropriate earnings multiple is derived from market transactions involving comparable companies. The capitalisation of maintainable earnings method is appropriate where the company’s earnings are relatively stable. The most recent security trading history provides evidence of the fair market value of the securities in a company where they are publicly traded in an informed and liquid market. Industry specific methods estimate market value using rules of thumb for a particular industry. Generally rules of thumb provide less persuasive evidence of the market value of a company than other valuation methods because they may not account for company specific factors.

7.1.2 Discounted cash flow methods Discounted cash flow (DCF) methods estimate market value by discounting a company’s future cash flows to a net present value. These methods are appropriate where a projection of future cash flows can be made with a reasonable degree of confidence. Discounted cash flow methods are commonly used to value early stage companies or projects with a finite life.

7.1.3 Asset based methods Asset based methods estimate the market value of a company’s securities based on the realisable value of its identifiable net assets. Asset based methods include:  orderly realisation of assets method  liquidation of assets method  net assets on a going concern basis.

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The orderly realisation of assets method estimates fair market value by determining the amount that would be distributed to securityholders, after payment of all liabilities including realisation costs and taxation charges that arise, assuming the company is wound up in an orderly manner. The liquidation method is similar to the orderly realisation of assets method except the liquidation method assumes the assets are sold in a shorter time frame. Since wind up or liquidation of the company may not be contemplated, these methods in their strictest form may not necessarily be appropriate. The net assets on a going concern basis method estimates the market values of the net assets of a company but does not take account of realisation costs. These asset based methods ignore the possibility that the company’s value could exceed the realisable value of its assets as they ignore the value of intangible assets such as customer lists, management, supply arrangements and goodwill. Asset based methods are appropriate when companies are not profitable, a significant proportion of a company’s assets are liquid, or for asset holding companies. 7.2 Selection of valuation methodologies We have estimated the fair market value of Seven Network and WesTrac Holdings by aggregating the fair market value of their underlying assets on a sum of the parts (SOTP) basis. For the purpose of our opinion, fair market value is defined as the amount at which the securities would be expected to change hands between a knowledgeable willing buyer and a knowledgeable willing seller, neither being under a compulsion to buy or sell. We have not considered special value in this assessment. In undertaking the sum-of-the parts analysis, we have estimated the fair market value of each of the assets separately based on the following approaches:

Table 43: Selected valuation methodologies

Primary Valuation Approach

Seven Network SMG Capitalisation of maintainable earnings Wireless Broadband Australia Discounted cash flow CMJ Recent share trading WAN Recent share trading Other listed investments Recent share trading Other unlisted investments Net assets Corporate overhead Capitalisation of maintainable earnings WesTrac Holdings WesTrac Australia Capitalisation of maintainable earnings WesTrac China Discounted cash flow National Hire (including the Coates Group) Capitalisation of maintainable earnings

TELYS securities Recent share trading

Source: Deloitte analysis

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We are of the opinion that the most appropriate methodology to value SMG, WesTrac Australia, National Hire (Allight) and the Coates Group is the CME method due to the following factors:  these companies have shown a consistent pattern of historical earnings which is expected to continue in future  there is an adequate number of publicly listed companies with operations sufficiently similar to SMG, WesTrac Australia, National Hire (Allight) and the Coates Group to provide meaningful analysis  these companies do not have a finite lifespan nor are they required to undertake significant capital expenditure in the near future  there are no reliable long-term cash flow forecasts thus the DCF method is not appropriate as a primary valuation methodology. We are of the opinion that the most appropriate methodology to value Wireless Broadband Australia is the DCF method taking into account the early stage nature of its business model and that significant capital expenditure may be required in the near future. We have also used the DCF method to value WesTrac China taking into account its relatively recent entry into the Chinese market, the expected growth in the Chinese market, management’s expectation of an increase in market share and the availability of long-term cash flow forecasts. Since CMJ, WAN and the other listed securities are publicly traded in an informed and liquid market, we are of the opinion that the most appropriate evidence of their fair market value is their respective share price on a cum dividend basis after consideration of any appropriate discount or premium to reflect the respective size and liquidity of each holding. Due to the asset based nature of the other unlisted assets we are of the opinion that the most appropriate methodology is the net assets on a going concern basis method. In addition, we have had regard to Seven Network’s recent share trading history as it provides evidence of the fair market value of the shares in Seven Network. We have also had regard to the recent trading history of National Hire as it provides evidence of the fair market value of the shares in National Hire, which reflects the value of the Allight business and National Hire’s interest in the Coates Group although we note trading in National Hire’s shares has been illiquid. For the Amended TELYS3 and TELYS4, we have had regard to the recent trading price of the existing TELYS3 securities after consideration of any appropriate discount or premium to reflect any differences in terms between the existing and new securities.

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8 Valuation of Seven Network 8.1 Summary Deloitte has estimated the fair market value of a Seven Network ordinary share excluding the declared interim dividend for the six months to 26 December 2009 (the Interim Dividend) before the Proposed Schemes to be in the range of $7.63 to $9.51 on a control basis. In determining this range, we estimated the fair market value of Seven Network by aggregating the fair market value of its underlying investments on a sum-of-the-parts basis and considered corporate costs as a separate operating business of Seven Network. As set out in the table below, we have also presented the fair value of a Seven Network ordinary share on a minority basis (excluding and including the Interim Dividend) for the purposes of both estimating Seven Network’s contribution to the merged entity and comparing the recent trading in Seven Network ordinary shares to our assessed fair market value.

Table 44: Summary – fair market value of Seven Network Seven Network’s Fair market value Fair market value interest Minority basis Control basis (%) Low High Low High Section ($’m) ($’m) ($’m) ($’m) SMG 47.0% 8.2 277 448 305 493 CMJ 22.1% 8.3 398 439 398 439 WAN 23.4% 8.4 350 385 350 385 Other investments1 Various 8.5 439 482 439 482 WBA 100.0% 8.6 48 54 62 70 Fair market value of 1,512 1,808 1,554 1,869 investments

Less: value of corporate overhead 8.7 (77) (85) (77) (85) Less deferred tax liabilities 8.8 (510) (460) (510) (460) Plus: net cash position2 8.9 1,024 1,024 1,024 1,024 Less: TELYS32 8.10 (506) (506) (506) (506) Equity value 1,443 1,781 1,485 1,842 Less: Interim Dividend (32) (32) (32) (32) Equity value (excluding Interim Dividend) 1,411 1,749 1,453 1,810

Number of shares outstanding (‘000)3 190,410 190,410 190,410 190,410 Assessed value per share ($)4 7.41 9.19 7.63 9.51

Source: Deloitte analysis Notes: n/a = not available; n/m = not meaningful 1. Other investments comprise Seven Network’s interests in other listed securities, unlisted securities and property holdings 2. As at 26 December 2009 3. Based on the number of ordinary shares outstanding as at 10 March 2010 4. Value is exclusive of the 17 cps Interim Dividend payable prior to Share Scheme completion date and before any applicable holding company discount

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8.2 Valuation of SMG

8.2.1 Summary Deloitte has estimated the fair market value of Seven Network’s 47.0% interest in the equity in SMG to be in the range of $277 million to $448 million on a minority basis and between $305 million to $493 million on a control basis. We have estimated the fair market value of SMG by aggregating the fair market value of the operating assets and the equity accounted investments using the capitalisation of future maintainable earnings method which included consideration of the following:  an estimate of future maintainable earnings attributable to SMG’s key operating assets (Channel Seven and Pacific Magazines) and equity accounted investments  an estimate of appropriate earnings multiples for SMG’s key operating assets and equity accounted investments  fair market value of any surplus assets or liabilities which are not otherwise included within the above analysis  fair market value of the net debt attributable to SMG  an estimate of an appropriate premium for control. Our considerations on each of these are discussed separately below.

8.2.2 Future maintainable earnings Future maintainable earnings represent the level of maintainable earnings that the existing operations could reasonably be expected to generate. We have selected EBITDA as an appropriate measure of earnings for SMG since earnings multiples based on EBITDA are less sensitive to different financing structures, depreciation and amortisation accounting policies and effective tax rates than multiples based on EBIT or NPAT. For the equity accounted investments, we have relied on SMG’s forecast share of NPAT. We have estimated the future maintainable EBITDA of SMG to be $300.0 million and the future maintainable NPAT for its equity accounted investments to be $11.4 million. In determining future maintainable earnings, we have had regard to the following:  actual trading results for SMG for the fiscal years 2008 and 2009 as set out in Section 4.2  SNL’s forecast results for SMG for the years ending 30 June 2010 and 30 June 2011 approved by the independent board committee (IBC) of Seven Network and reviewed by KPMG as set out in Section 4.2  available brokers’ consensus on SMG’s forecast EBITDA for the years ending 30 June 2010 and 30 June 2011  significant and non-recurring items affecting the actual and forecast earnings  the cyclical nature of the advertising and wider media industry and the recent recovery in the Australian adspend market which is expected to continue beyond the explicit forecast period.

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8.2.3 SMG’s operating assets earnings multiples In determining earnings multiples for SMG we have had regard to the following:  earnings multiples derived from share market prices of comparable listed companies  prices achieved in mergers and acquisitions of comparable companies.

Market trading multiples The market valuation of listed companies provides evidence of an appropriate earnings multiple for SMG. The security price of a listed company represents the market value of a minority interest in that company. We have compiled security market trading multiples for companies comparable to the key operating assets (Channel Seven and Pacific Magazines) of SMG. Table 45: Earnings trading multiples – SMG key operating assets

EBITDA growth EBITDA margin EBITDA Multiple EV Gearing 2010 2011 2010 2011 2010 2011 Company Name ($'m)1 (%)2 (%) (%) (%) (%) (x) (x)

FTA television broadcasters Ten Network Holdings Ltd 2,188 18% 27% 29% 20% 24% 11.4x 8.8x Southern Cross Media Group 1,136 33% 69% 17% 27% 30% 8.3x 7.1x Prime Media 451 40% 11% 15% 22% 24% 7.8x 6.8x Average – Australia 1,258 30% 36% 20% 23% 26% 9.2x 7.6x Median – Australia 1,136 33% 27% 17% 22% 24% 8.3x 7.1x Magazine and newspaper publishers Fairfax Media Ltd 5,619 28% -48% 15% 25% 27% 9.2x 8.0x APN News & Media Ltd 2,412 33% 27% 11% 24% 26% 9.0x 8.1x WAN 1,843 15% 3% 13% 43% 45% 10.4x 9.2x Average –Australia 3,291 25% -6% 13% 31% 33% 9.5x 8.4x Median – Australia 2,412 28% 3% 13% 25% 27% 9.2x 8.1x

Gannett Co Inc 7,863 42% 6% 2% 21% 21% 6.1x 6.0x Sanoma OYJ 5,412 27% 13% 7% 15% 15% 8.6x 8.1x Informa PLC 5,307 28% -4% 6% 26% 27% 9.7x 9.2x Daily Mail & General Trust PLC 4,855 36% n/m 8% 18% 18% 8.0x 7.5x Axel Springer AG 4,563 6% 9% 12% 15% 16% 7.8x 6.9x RCS Media Group SpA 3,438 54% 222% 20% 9% 11% 10.8x 9.0x New York Times Co/The 2,721 30% 29% 8% 14% 15% 7.1x 6.6x Meredith Corp 2,024 18% -11% 10% 16% 17% 8.5x 7.7x Arnoldo Mondadori Editore SpA 1,823 36% 34% 15% 10% 11% 7.9x 6.9x Roularta Media Group NV 508 35% 41% 14% 8% 9% 5.2x 4.6x Average – International 3,851 31% 38% 10% 15% 16% 8.0x 7.2x Median – International 4,001 32% 13% 9% 15% 16% 8.0x 7.2x

Source: Deloitte analysis, Bloomberg, Capital IQ, broker reports, company annual reports Notes: n/a: not available n/m: non meaningful 1. All EV/EBITDA multiples were calculated based on parameters in the relevant domestic currencies 2. Gearing is estimated as net debt/EV Further details regarding the calculation of the earnings multiples are provided in Appendix 5. 130 Deloitte: Seven Network Limited – Independent expert’s report

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Enterprise values were calculated by summing the total of the net borrowings at each company’s most recent reporting date and the market capitalisation at 5 March 2010. Gearing was estimated as net debt as a proportion of enterprise value as at 5 March 2010. Forecast earnings were taken based on an average of estimates from selected brokers as at 5 March 2010. FTA television broadcasting – Australia  Ten Network is the only listed ‘pure play’ Australian metropolitan commercial TV broadcaster and therefore the most comparable to Channel Seven. Nine Network, the remaining FTA commercial TV broadcaster, is privately owned by PBL Media Holdings Pty Limited, a wholly owned subsidiary of CVC Asia Pacific, a private equity consortium.  Southern Cross is a regional TV broadcaster and an affiliate of Ten Network. Southern Cross has the most diversified operations and generated over 50% of its actual 2009 EBITDA from commercial radio broadcasting in Australia and magazine publishing operations in the United States. The projected earnings growth profile of Southern Cross is similar to Prime Media, however, Southern Cross is substantially larger (in terms of EV) and has higher forecast EBITDA margins compared to its peers.  Prime Media is a regional TV broadcaster and an affiliate of Channel Seven servicing regional NSW, Victoria, WA and the Gold Coast with 3.6% market share of the FTA industry48. Prime Media generated over 95% of its EBITDA from TV broadcasting and the remaining 5% from its six radio stations in regional Queensland. The lower EV/EBITDA multiple for Prime Media reflects the smaller size and lower growth prospects of the company compared to its peers as well as its limited free float.  From a top line perspective, it is important to note that these affiliates (Prime Media and Southern Cross) do not generate the same adspend revenues as commercial metro channels (such as Channel Seven and Ten Network) due to underlying factors such as the smaller size of the market in regional Australia and the smaller scale of audiences. Moreover, the variability in regional television advertising tends to be less cyclical compared to the metro advertising cycle and therefore less exposed to the expected recovery in the advertising market over the next two years. Magazine and newspaper publishing – Australia and International  Fairfax Media Limited (Fairfax) and APN News and Media Ltd (APN) are the two largest Australian national publishers and derive more than 75% of their revenue from metropolitan and regional newspapers.  Fairfax is exposed to the online sector (14% of 2009 revenue) through major transaction and classified websites and in particular, www.trademe.co.nz, the leading auctions and classified site in New Zealand, which should have a positive impact on its overall earnings multiples.  APN has significant exposure to the outdoor advertising market (21% of 2009 revenue) which may have a negative impact on its earnings multiples given the lower margins and perceived growth prospects of this segment.  WAN was considered less directly comparable given its exposure to the fast recovering economy of WA and its monopoly position, which translates into higher margins and multiples relative to its peers.

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 The comparable international publishing businesses generally tend to have lower multiples than the comparable Australian publishing businesses, possibly because of the following factors: - higher forecast growth of the Australian economy compared to those of the countries where the peers are located - relative consolidation of the Australian publishing industry with a smaller number of larger players that tend to operate in their individual niche markets and do not infringe on each other’s niches to the same extent as is experienced in the international market.  Amongst international peers, Meredith, Mondadori and Sanoma are considered to be most comparable to Pacific Magazines due to their similar operations and product focus. The average EV/EBITDA multiples for these companies is 8.4x and 7.6x for 2010 and 2011, respectively. Merger and acquisition multiples There have been very few recent comparable transactions but we have identified the following transactions for FTA TV and magazine publishing which provide high level guidance as to appropriate earnings multiples on a control basis.

Table 46: Merger and acquisition multiples – SMG key operating assets

EV/EBITDA EV % Historical Forecast Target Acquirer Date5 Country ($'m) Acquired multiple1 multiple1

FTA television broadcasting Ten Network Various2 Sep-09 AU 1,804 50.1% 11.9x 10.0x Southern Cross MMG4 Jul-07 AU 1,350 86.2% 12.8x 7.9x PBL Media CVC Asia Jun-07 AU 5,988 25.0% 12.2x n/a Channel 9 SA Win Corporation May-07 AU 105 100.0% 40.6x 22.4x NBN television assets PBL Media May-07 AU 250 100.0% 13.8x 13.9x SMG KKR Nov-06 AU 4,000 50.0% 37.4x 12.4x PBL Media CVC Asia Oct-06 AU 5,500 50.0% 11.6x 11.2x

Average 20.1x 13.0x Median 12.8x 12.1x Magazine and newspaper publishing SPG Media Group Ltd Michael Danson Oct-08 UK 22 80% 7.4x n/a Hjemmet Mortensen EIG3 Jun-08 Norway 490 40%3 8.1x n/a AS Emap Consumer Media Heinrich Bauer Dec-07 UK 2,642 100% n/a 10.5x Ltd; Emap Radio Ltd Verlag KG Emap plc Eden Bidco Dec-07 UK 5,475 100% 12.5x n/a Eaglemoss Publishing Aurenis Group May-07 UK 28 100% 13.9x n/a Group Limited

Average 10.5x 10.5x Median 10.3x 10.5x Source: Deloitte analysis, Bloomberg, SDC platinum, Capital IQ Notes: n/a: not applicable n/m: non meaningful 1. Calculated as EV/EBITDA 2. Sale of shares to Macquarie Capital Advisers Limited (MCAL) (underwriters) via a block deal, then on-sold to a broad range of institutional and sophisticated investors 3. Egmont International Holding A/S (EIG) already owned 60% of the outstanding equity in Hjemmet Mortensen AS 4. Macquarie Media Group (MMG) 5. Announcement date 132 Deloitte: Seven Network Limited – Independent expert’s report

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Further details regarding the calculation of the merger and acquisition earnings multiples are provided in Appendix 7. In determining the enterprise values, we considered the net debt of the target company at each company’s most recent reporting prior to announcement date. Forecast earnings were taken based on an average of estimates from selected brokers as at the transaction announcement date. General comments regarding the transaction multiples are listed below.

FTA television broadcasting  The Ten Network transaction at 10.0x forecast EBITDA was the most recent and related to the divestment of a 50.1% interest in the company by a substantial shareholder, CanWest Global Communications Corporation (CanWest), a Canadian diversified media company, to a broad range of institutional and sophisticated investors. Although a controlling stake was sold, the price paid is unlikely to have included any premium for control since it was sold via a block deal to a broad range of investors and therefore should represent an earnings multiple on a minority basis.  The private equity transactions involving SMG and PBL Media are comparable but may be considered too old to provide a reasonable view of prices which could be achieved in the current market.  The sale of Channel 9 Adelaide to WIN was completed at very high multiples of earnings. The multiples reflect the modest performance of Channel 9 Adelaide prior to the renegotiation in 2007 of the program supply agreement with the Nine Network and the potential for a substantial improvement in earnings through the realisation of significant synergies.  The acquisition of SP Telemedia’s media assets (including NBN Television and its outside broadcasting and production operations) by PBL Media was subject to a competitive process between WIN and PBL Media, as reflected in the reasonably high forecast EBITDA multiple implied by the transaction.

Magazine and newspaper publishing  Forecast earnings multiples are limited to the acquisition of Emap plc’s (Emap) consumer media and radio businesses by Heinrich Bauer, a German based consumer magazine publisher at 10.5x EBITDA. Emap’s consumer media business comprised UK magazine publishing operations across magazine categories similar to those of Pacific Magazines such as celebrity, fashion, lifestyle and health magazines and contributed more than 70% of total revenues of the target company.  Amongst the other comparable transactions, the historical earnings multiples vary widely and provide limited indication of appropriate multiples for Pacific Magazines.

Conclusion Based on the above analysis, we have selected an EV/EBITDA multiple in the range of 9.0 to 10.0 times for SMG on a minority basis. In selecting the earnings multiples for SMG, we have had particular regard to the following:  the forecast proportion of SMG’s earnings derived from Channel Seven and from Pacific Magazines as set out in Section 4.2

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 the respective expected growth of the FTA television broadcasting and magazine and newspaper publishing industries as set out in Sections 3.5 and 3.6 above  the 2010 and 2011forecast earnings growth and margins for Channel Seven and Pacific Magazines compared to the comparable companies  the most recent divestment of Ten Network shares by CanWest and the forecast trading multiples of Ten Network since these are comparable to Channel Seven  the forecast trading multiples of APN and Fairfax as well as those of Meredith, Mondadori and Sanoma.

8.2.4 SMG’s equity accounted investments earnings multiples Deloitte has estimated the Price/NPAT multiple of the equity accounted investments of SMG to be in the range of 16.0x to 18.0x. In determining the Price/NPAT multiple, we have had regard to the earnings multiples derived from share market prices of listed companies comparable to Australian News and Yahoo!7 since these two investments contribute almost all of the net profit of SMG’s equity accounted investments.

Table 47: Price/NPAT trading multiples – SMG equity accounted investments

Price/NPAT Market NPAT growth NPAT margin Multiple cap Gearing 2010 2011 2010 2011 2010 2011 Company Name ($'m)1 (%)2 (%) (%) (%) (%) (x) (x)

Online media – classifieds Average – Australia 1,353 -3% 36% 27% 31% 34% 26.5x 20.7x Median – Australia 1,336 -5% 36% 26% 29% 34% 27.6x 22.3x

Online media - portal and search Average – International 68,219 -58% 37% 25% 22% 24% 25.3x 20.2x Median – International 22,487 -17% 37% 19% 17% 19% 25.9x 21.3x

Pay television broadcasting Average – Australia/NZ 1,221 9% -31% 10% 11% 12% 19.8x 18.3x Median – Australia/NZ 1,494 13% -31% 22% 11% 12% 19.5x 18.8x

Source: Deloitte analysis, Bloomberg, Capital IQ, broker reports, company annual reports

Notes: n/a: not available n/m: not meaningful 1. All Price/NPAT multiples were calculated based on parameters in the relevant domestic currencies 2. Gearing is estimated as net debt/EV

Further details regarding the calculation of the earnings multiples are provided in Appendix 5.

Online Media – Australia and International  Unlike the online media peers referred to in Section 3.7, Yahoo!7 has access to SMG content including Channel Seven and Pacific Magazines. The key driver of growth for Yahoo!7 is display advertising compared to Australian online media peers which generate revenues from sector-specific classified advertising and primarily focus on a particular sector such as employment, travel and real estate. International portal and search companies generate revenues from global search and/or display advertising

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 Yahoo!7’s operations are more comparable to international portal and search companies (namely Google Inc and Yahoo! Inc) although these companies are considerably larger and more diversified. In general, larger and more diversified companies trade at a premium to smaller companies.

Pay television broadcasting – Australia and New Zealand  Through its investment in Australian News and HTS, SMG has exposure to some key growth drivers of the Australian Pay TV industry.  Austar operates primarily in regional Australia with interests in the New Zealand pay television industry whereas Sky’s operations are limited to New Zealand. Sky, in particular, has been impacted by the weaker economic environment in New Zealand, which has slowed the rate of subscriber growth and price increases in 2010 resulting in lower earnings multiples for the company.  Pay television broadcasting derives most of its revenues through subscriptions and therefore has less cyclical upside than other media stocks which have greater exposure to the advertising cycles. This may explain the lower earnings multiples of these pay television broadcasting companies compared to FTA TV operators.

Conclusion Since the earnings contribution of Yahoo!7 is substantially higher than that of Australian News, we have placed greater weight on the online media peers and selected a Price/NPAT multiple in the range of 16.0 to 18.0 times, on a minority basis. We did not find any meaningful Price/NPAT multiples from recent control transactions in the online media and pay TV industry.

8.2.5 Surplus assets We have treated the FTA broadcasting licence fee rebate announced on 7 February 2010 by the Minister as a surplus asset to take account of its non-recurring nature. We have assessed the fair value of these tax-effected rebates to be nil to $39.4 million based on the revenue forecast for Channel Seven approved by the IBC and discounted at our estimated weighted average cost of capital (WACC) for Channel Seven of 11.0% as set out in Appendix 4. This valuation range reflects the risk that these rebates may not eventuate at the low end whilst the high end value reflects the full impact of the announced rebates being realised in 2010 and 2011.

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8.2.6 Net debt There is no publicly available information on SMG’s net debt position as at 31 December 2009. In the absence of any externally available information and following discussions with Seven Network we have used SMG’s net debt position as at 30 June 2009 as a proxy for the net debt position at the date of our valuation as set out in the following table:

Table 48: SMG - net debt

30 June 2009 audited ($m)

Current interest bearing liabilities - Non-current interest bearing liabilities Bank loans 1,995 Secured notes 313 Zero coupon notes 106 Total 2,415 Cash and cash equivalents (123) Net debt 2,292

Source: Deloitte analysis, Seven Network and SMG company announcements and presentation, Seven Network management

In determining the fair market value of SMG, we consider the SENs equally owned by the SMG JV parties to be equity instruments.

8.2.7 Premium for control Earnings multiples derived from market trading do not reflect the market value for control of a company as they are for portfolio holdings. Control premiums for Australian companies generally range from 20% to 40% and reflect the ability of an owner of a controlling interest to influence the key strategic, operating and financial decisions of a company. Our recent analysis of control premiums in Australia is presented in Appendix 3. We consider Seven Network and KKR to have joint control over the strategies and cash flows of SMG including the dividend policy, capital expenditures and compensation for directors. In addition, Seven Network management is responsible for the day-to-day operations of the SMG JV which may indicate a higher degree of influence that its shareholding alone would confer. However, Seven Network equity accounts for its interest in SMG to recognise both the lack of full control and the restrictions that apply to its ability to readily crystallise its holding in SMG. In essence, for Seven Network to exit its investment in SMG, consultation would have to be had with the owner of the other 47% of SMG, which may have implications for the timing and pricing at which Seven Network could exit. As Seven Network does not have full control of SMG and cannot readily crystallise its investment, we believe that a premium of 10%, being lower than the observed range for full control premiums, is appropriate.

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8.2.8 Equity value of SMG The fair market value of the outstanding equity of SMG on both a minority basis and a control basis derived using the capitalisation of future maintainable earnings method is summarised below.

Table 49: Summary – fair market value of SMG Capitalisation multiple Fair market value Maintainable earnings contribution Low High Low High ($million) ($m) ($m) ($m) ($m)

SMG1 300.0 9.0x 10.0x 2,700 3,000 2 3 3 Equity accounted associates 11.4 16.0x 18.0x 182 205 Enterprise value of SMG 2,882 3,205

Surplus assets3 - 39 Net debt4 (2,292) (2,292) Equity value (on a minority basis) 590 953 Premium for control 10% 10% Equity value (on a control basis) 649 1,048

Equity value attributable to Seven Network – 47% (on a minority basis) 277 448 Equity value attributable to Seven Network – 47% (on a control basis) 305 493

Source: Deloitte analysis Note: n/a = not available; n/m = not meaningful 1. Maintainable earnings are determined on an EBITDA basis and the capitalisation multiple represents the EV/EBITDA multiple 2. Equity accounted associates comprise investments in unlisted securities such as Australian News, Yahoo!7, HTS and Oztam and property holdings such as TX Australia, Coventry Street and the Perth translator 3. Represents the discounted value of the Channel Seven licence fee rebates for 2010 and 2011 4. Based on the average positions at 30 June 2009 and the forecast for 30 June 2010

In the absence of long term cash flows, we have not been able to perform a crosscheck based on a discounted cash flow approach and have not identified any other valuation approach which would provide a reasonable crosscheck to our assessed fair market value. 8.3 Valuation of CMJ

8.3.1 Summary We have estimated the fair market value of Seven Network’s 22.1% shareholding in CMJ to be in the range of $398 million to $439 million. In determining this amount, we have estimated the fair market value of CMJ on a cum dividend basis using the market approach having reference to its share trading price. We have also had regard to earnings multiples implied by our valuation of CMJ as a cross-check to support our primary analysis.

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8.3.2 Share trading analysis The share market can be expected to provide an objective assessment of the fair market value of a listed entity where the market is well informed and liquid. In these circumstances, market prices incorporate the influence of all publicly available information relevant to the value of an entity’s shares. Seven Network owns 22.1% of CMJ’s issued capital and entered into a standstill agreement on 10 September 2009 whereby Seven Network agreed to refrain from purchasing additional CMJ shares for a period of up to 12 months in exchange for board representation. Seven Network’s interest in CMJ was acquired at an average price of approximately $2.72 per share.

Liquidity of the shares We consider the shares in CMJ to be highly liquid and the recent trading in CMJ securities to be a reasonable indicator of the estimated fair market value of shares on a minority basis for the following reasons:  CMJ’s full year results for FY09 and half year results for FY10 were released to the market on 26 August 2009 and 23 February 2010, respectively, providing a recent update regarding CMJ’s financial performance  CMJ, an ASX 200 listed company, has significant coverage from research analysts including Deutsche Bank Securities, JP Morgan, Macquarie Research and RBS Securities, who provide up to date coverage of CMJ for investors on a regular basis  over the six month period ended 31 December 2009, 25% (227 million) of CMJ’s total free float has changed hands (the free float excludes major strategic shareholdings and share buyback volume)  there has not been significant volatility in the recent trading of CMJ’s securities that would limit the applicability of this approach.

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Historical price performance The following table sets out the recent share market trading in CMJ shares up to 5 March 2010.

Table 50: CMJ valuation – recent share market trading ($)

Daily VWAP

Low ($) High ($) VWAP ($)

Share price at 5 March 2010 3.13 3.21 3.18 Last one week trading - 26 February 2010 to 5 March 2010 3.12 3.18 3.14 Last one month share trading - 5 February 2010 to 5 March 2010 3.01 3.23 3.11 Last three months share trading - 4 December 2010 to 5 March 2010 3.01 3.23 3.07 Last six months share trading - 4 September 2010 to 5 March 2010 2.96 3.37 3.07 Share trading since announcement of FY09 results to 5 March 2010 2.96 3.37 3.08

Source: Bloomberg, Deloitte analysis Further analysis of the recent share trading in CMJ shares is provided in Section 4.4. Given the recently improved economic outlook and the expected turnaround in the wider Australian economy, we have placed greater reliance on the more recent trading in securities to estimate the fair market value of a minority shareholding in CMJ. We are of the view that share trading subsequent to the announcement of the FY09 results, in particular the more recent trading in the securities, to be the most suitable benchmark as it reflects the most recent disclosures regarding the company’s financial performance, the 10% on-market share buy-back and the sale of CMJ’s 26% equity interest in Seek Limited. Taking this into account, we have estimated the current fair market value of a CMJ security on a minority interest basis to be in the range of $2.90 to $3.20 per security. We also note that this valuation range is not inconsistent with the average cost of Seven Network’s investment in CMJ which was acquired during the past 12 months.

Blockage discount and strategic shareholding premium considerations A blockage discount refers to an amount or percentage deducted from the current market price of a publicly traded security to reflect the decrease in the per share value of a block of those securities required to attract a willing buyer where the interest held in a company is of a size that could not be sold in a reasonable period of time given normal trading volume (Blockage Discount). Separate and distinct from the potential for a Blockage Discount, there will be a point at which a significant minority interest will confer on the holder strategic or partial control benefits. Share prices from market trading do not reflect the market value for strategic benefits or control of a company as they are for portfolio holdings. The difference between the market value of a controlling interest and a minority interest is referred to as the premium for control.

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The owner of a controlling interest has the ability to do many things that the owner of a minority interest does not. These include:  control of the cash flows of the company, such as dividends, capital expenditure and compensation for directors  determine the strategy and policy of the company  make acquisitions or divest operations  control the composition of the board of directors. Australian studies indicate the premiums required to obtain control of companies range between 20% and 40% of the portfolio holding values (refer to Appendix 3). The premium which could be achieved for strategic benefits associated with a significant minority interest is likely to be less than 20% being the low end of the full control premium range, and depends upon the following:  concentration of the shareholding base  shareholdings of other significant investors and the relationships between these investors  representation on the board and the ability to influence the strategic direction of the company  the likelihood of a takeover offer for the company which may place a premium on a strategic shareholding. We have taken into consideration the following factors in determining whether to apply a strategic shareholding premium to Seven Network’s interest in CMJ:  Seven Network has a 22.1% shareholding in CMJ and has two seats on the CMJ board. Although not a controlling stake, the size of the shareholding and access to the board and financial information confers Seven Network a certain degree of influence over the strategic direction of CMJ  despite the board representation, the Seven Network appointed directors have restricted access to information where there may be a conflict of interest between Seven Network and CMJ  while the 22.1% interest in CMJ held by Seven Network represents a significant holding, Consolidated Press Holdings Limited (Consolidated Press) currently holds approximately 45.3% of the issued capital of CMJ and could be considered to have de facto control (i.e. operational control), albeit not legal control. This holding by Consolidated Press could allow them to potentially block any decisions by the company requiring a special resolution. Accordingly, if Seven Network wished to make a successful takeover for CMJ, they would require the co-operation of Consolidated Press  any takeover by Seven Network of CMJ should not breach the cross-media ownership restrictions nor is it likely to give rise to major regulatory issues, as CMJ does not directly control any businesses and the pay television industry is subject to limited regulatory controls  the possibility that the CMJ share price may already reflect a partial control premium as a consequence of the concentration of ownership, particularly where market participants consider that substantial shareholders may be actively seeking a controlling interest. Based on the above factors, we consider a strategic shareholding premium of less than 20% would likely apply to Seven Network’s interest in CMJ.

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The size of a Blockage Discount will be affected primarily by the liquidity of the trading in its shares and the size of the company’s free float of shares, but also by other factors such as the characteristics of the company, the size and liquidity of the market in which it trades, volatility of the share price, the economic environment at the time and the potential number of other buyers for their shares. A Blockage Discount has characteristics that are similar to but not the same as marketability discounts, particularly restricted stock discounts, in that there are characteristics that prevent an immediate conversion into cash at the prevailing market price observed in a liquid market. Marketability discounts arise as a consequence of the difficulty in selling due to regulatory or contractual constraints, while securities with a Blockage Discount are not affected by these factors and instead are predominantly affected by the size of the block relative to the market. Recent restrictive stock studies have shown average discounts in the range of 20% to 35%. Discounts for blockage are likely to be considerably less49, particularly for large listed securities, because of their greater liquidity than restricted stocks. In addition, we are of the opinion that there are a number of potential acquirers for Seven Network’s shareholding in CMJ, including other companies in the media and telecommunications industry and private equity firms, as an acquisition is unlikely to breach any cross-media or foreign ownership restrictions. After considering the factors in favour of recognising a strategic shareholding premium against the likelihood of a liquidity discount for blockage, we have not found any reasonable basis to suggest one is more probable, or would have a greater impact on value, than the other. Accordingly we have not made any explicit adjustment to our valuation of CMJ, which is based on recent share market trading, to reflect a net premium or discount as a consequence of the effects of a strategic premium or a Blockage Discount. We also note that we have provided a 10% range for the value of CMJ, which is likely to capture the effect of any net premium or discount that an investor may place on the value of CMJ.

8.3.3 Conclusion Based on the above analysis, we have estimated the current fair market value of Seven Network’s shareholding in CMJ to be in the range of $398 million to $439 million as set out in the table below.

Table 51: Assessed value of Seven Network’s interest in CMJ

Low High

Assessed share price based on recent share trading (minority basis) $2.90 $3.20 Total shares owned by Seven Network (million) 137.3 137.3 Estimated fair market value of Seven Network’s equity interest (22.1%) ($’m) 398 439

Source: Deloitte analysis

49 Lonergan, W. (2003): “The Value of Businesses, Shares and Other Equity”, 4th Edition, p.589 states that a broad guide for blockage would be in the range of 2.5% to 10%. Pratt, S. (2001): “Business Valuation Discounts and Premiums”, p.251 states that blockage discounts are usually considerably less than restricted stock discounts and are typically less than 15%. 141 Deloitte: Seven Network Limited – Independent expert’s report

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8.3.4 Valuation cross check – earnings multiples As a cross-check to the valuation range of CMJ determined using recent share trading, we have compared the EBITDA multiples implied by our estimate of the fair market value of CMJ to trading multiples of companies comparable to CMJ. The EBITDA multiples implied by our assessed valuation range of a CMJ security on a minority interest basis are set out below.

Table 52: EBITDA multiples implied by our valuation of CMJ (on a minority basis)

Low High

Fair market value of a CMJ security ($) 2.90 3.20 Current securities outstanding (millions) 620.7 620.7 Equity value implied by our valuation of CMJ ($million) 1,800 1,986 Net cash position 306.9 306.9 Minority interests - - Enterprise value implied by our valuation of CMJ 1,493 1,679

FY10 implied EBITDA multiple (current)1 7.6x 8.5x FY11 implied EBITDA multiple (forecast)1 7.1x 8.0x

Source: Deloitte analysis, CMJ Annual Report, Bloomberg Note 1: Earnings forecasts based on broker consensus estimates sourced from Bloomberg

A comparison of the current and forecast multiples implied by our valuation of CMJ with the EBITDA multiples of listed companies comparable to CMJ is set out below.

Table 53: Analysis of EBITDA multiples from listed comparable companies

EBITDA EBITDA EBITDA EBITDA Enterprise margin margin multiple multiple value1 Gearing2 2010 2011 20103 20113 Company ($’m) (%) (%) (%) (x) (x)

CMJ 1,5863 n/a 27% 27% 8.1x3 7.5x3 Austar United 2,160 33% 34% 36% 8.8x 7.9x Communications Sky Network Television Ltd 1,725 13% 38% 40% 7.8x 7.0x

Average4 23% 36% 38% 8.3x 7.5x

Source: Deloitte analysis, Bloomberg, company annual reports, broker reports

Notes: 1. Enterprise value is calculated as market capitalisation (at 5 March 2010) plus net cash per the most recently available financial statements 2. Gearing is calculated as net debt divided by enterprise value 3. Based on Deloitte assessed mid point value 4. Average excludes CMJ

The current and forecast EBITDA multiples implied by our assessed midpoint value of a CMJ security of 8.1 times and 7.5 times, respectively are in line with the multiples of Austar and Sky Network.

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8.4 Valuation of WAN

8.4.1 Summary We have estimated the fair market value of Seven Network’s 23.4% shareholding in WAN, to be in the range of $350 million to $385 million. In determining this amount, we have estimated the fair market value of WAN on a cum dividend basis using the market approach having reference to its share trading price. We have also had regard to earnings multiples implied by our valuation of WAN as a cross- check to support our primary analysis.

8.4.2 Share trading analysis Although Seven Network owns 23.4% of WAN’s issued capital and has board representation, Seven Network does not actively trade in the shares of WAN. Consequently, we do not consider that the traded market price of WAN is significantly influenced by the interest held by Seven Network.

Liquidity of the shares We consider the shares in WAN to be relatively liquid and the recent trading in WAN securities to be a reasonable indicator of the estimated fair market value of shares on a minority basis for the following reasons:  WAN’s full year results for FY09 and half year results for FY10 were released to the market on 7 August 2009 and 15 February 2010, respectively, providing recent updates regarding WAN’s financial performance. For the six months ended 31 December 2009, the NPAT was below analyst expectations due to a fall in sales revenues as a result of declining circulation rates despite the recent recovery in the adspend market  the latest quarterly performance review, which details financial performance against prior periods, was released on 3 November 2009  WAN, an ASX 200 listed company, has significant coverage from research analysts including Deutsche Bank Securities, Hartley’s Limited, JP Morgan, Macquarie Research, Morgan Stanley and RBS Securities, who provide up to date coverage of WAN for investors on a regular basis  over the six month period ending 31 December 2009, 30% (68 million) of WAN’s free float has changed hands (free float excludes major strategic shareholdings and share buyback volume)  there has not been significant volatility in the recent trading of WAN’s securities that would limit the applicability of this approach.

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Historical price performance The following table sets out the recent share market trading in WAN shares up to 5 March 2010.

Table 54: WAN valuation – recent share market trading ($)

Daily VWAP Low High VWAP

Share price 5 March 2010 7.25 7.38 7.32 Last one week trading - 26 February 2010 to 5 March 2010 7.25 7.44 7.32 Last one month share trading - 5 February 2010 to 5 March 2010 6.95 7.69 7.33 Last three months share trading - 4 December 2010 to 5 March 2010 6.95 8.18 7.56 Last six months share trading - 4 September 2010 to 5 March 2010 6.39 8.26 7.52 Share trading since announcement of FY09 results to 5 March 2010 6.01 8.26 7.35

Source: Bloomberg Further analysis of the recent trading in WAN securities is provided in Section 4.5. Given the improved economic conditions and the expected turnaround in the advertising market, in particular in WA, we have placed greater reliance on the more recent trading in securities to estimate the fair market value of a minority shareholding in WAN. We are of the view that share trading subsequent to the announcement of the company’s financial results for the six months ended 31 December 2009 on 5 March 2010, in particular the more recent trading in the securities, to be the most suitable benchmark. Having regard to this, we have estimated the current fair market value of a WAN security on a minority interest basis to be in the range of $7.00 to $7.70 per security.

Blockage discount and strategic shareholding premium considerations Blockage Discount refers to the amount or percentage deducted from the current market price of a publicly traded security to reflect the decrease in the per share value of a block of those securities required to attract a willing buyer where the interest held in a company is of a size that could not be sold in a reasonable period of time given normal trading volume. Separate and distinct from the potential for a Blockage Discount, there will be a point at which a significant minority interest will confer on the holder strategic or partial control benefits. In determining the fair market value of Seven Network’s interest in WAN we have considered whether it is appropriate to apply a strategic shareholding premium to WAN. The premium which could be achieved for strategic benefits associated with a significant minority interest is likely to be less than 20% being the low end of the control premium range. In this regard, we have taken into consideration the following factors:  Seven Network is the largest single shareholder in WAN. Despite this strategic stake, Seven Network does not have the ability to block decisions by the company that require a special resolution in their own right. The second largest shareholder in WAN is Blackrock Investment Management Limited, with an 8.1% shareholding

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 Seven Network has two representatives on WAN’s board, with one of the representatives being the current chairman of WAN. Although this board representation does not give control, the size of Seven Network’s holding coupled with access to the board and financial information confers on Seven Network a certain degree of influence over the strategic direction of WAN  any takeover by Seven Network of WAN may be subject to the cross-media ownership restrictions outlined in Section 3.3.  the possibility that the WAN share price may already reflect a partial control premium as a consequence of the concentration of ownership, particularly where market participants consider that substantial shareholders may be actively seeking a controlling interest. Based on the above factors, we consider a strategic shareholding premium of less than 20% would likely apply to Seven Network’s interest in WAN. The size of a Blockage Discount will be affected primarily by the liquidity of the trading in its shares and the size of the company’s free float of shares but also by other factors such as the characteristics of the company, the size and liquidity of the market in which it trades, volatility of the share price, the economic environment at the time and the potential number of other buyers for their shares. Recent restrictive stock studies have shown average discounts in the range of 20% to 35%. Discounts for blockage are likely to be considerably less, particularly for large listed securities, because of their greater liquidity than restricted stocks. In addition, we are of the opinion that that there are potential acquirers for Seven Network’s shareholding in WAN, including other companies in the wider media and entertainment industry and private equity firms, as an acquisition is unlikely to breach any cross-media or foreign ownership restrictions. After considering the factors in favour of recognising a strategic shareholding premium against the likelihood of a liquidity discount for blockage, we have not found any reasonable basis to suggest one is more probable, or would have a greater impact on value, than the other. Accordingly we have not made any explicit adjustment to our valuation of WAN, which is based on recent share market trading, to reflect a net premium or discount as a consequence of the effects of a strategic premium or a Blockage Discount. We also note that we have provided a 10% range for the value of WAN, which is likely to capture the effect of any net premium or discount that an investor may place on the value of WAN.

8.4.3 Conclusion Based on the above analysis, we have estimated the current fair market value of Seven Network’s shareholding in WAN to be in the range of $350 million to $385 million as set out in Table 55.

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Table 55: Assessed value of Seven Network’s interest in WAN

Low High

Assessed share price based on recent share trading (minority basis) $7.00 $7.70 Total shares owned by Seven Network (million) 50.1 50.1 Estimated fair market value of Seven Network’s equity interest (23.4%) 350 385 ($’m)

Source: Deloitte analysis

8.4.4 Valuation cross check – earnings multiples As a cross-check to the valuation range of WAN determined using recent share trading, we have compared the EBITDA multiples implied by our estimate of the fair market value of WAN to trading multiples of companies comparable to WAN. The EBITDA multiples implied by our assessed valuation range of a WAN security on a minority interest basis are set out below.

Table 56: EBITDA multiples implied by our valuation of WAN

Low High

Fair market value of a WAN security $7.00 $7.70 Current securities outstanding (millions) 213.7 213.7 Equity value implied by our valuation of WAN 1,496 1,645 Net debt 275 275 Minority interests - - Enterprise value implied by our valuation of WAN (million) 1,770 1,920

FY10 implied EBITDA multiple (current)1 10.0x 10.9x FY11 implied EBITDA multiple (forecast)1 8.8x 9.6x

Source: Deloitte analysis, WAN Annual Report, Bloomberg

Note 1: Earnings forecasts based on broker consensus estimates sourced from Bloomberg

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A comparison of the current and forecast multiples implied by our valuation of WAN with the EBITDA multiples of listed companies comparable to WAN is set out below.

Table 57: Analysis of EBITDA multiples from listed comparable companies

EBITDA EBITDA EBITDA EBITDA Enterprise margin margin multiple multiple value1 Gearing2 2010 2011 2010 2011 Company ($’m) (%) (%) (%) (x) (x)

WAN 1,8453 15% 43% 45% 10.4x3 9.2x3 Australian magazine and newspaper publishing Fairfax 5,619 28% 25% 27% 9.2x 8.0x APN 2,412 33% 24% 26% 9.0x 8.1x Average4 31% 24% 26% 9.1x 8.0x International newspaper publishing Gannett Co Inc 7,863 42% 21% 21% 6.1x 6.0x Daily Mail & General Trust 4,855 36% 18% 18% 8.0x 7.5x PLC New York Times company 2,721 30% 14% 15% 7.1x 6.6x RCS Media Group S.p.A 3,438 54% 9% 11% 10.8x 9.0x

Average4 41% 16% 16% 8.0x 7.3x

Source: Deloitte analysis, Bloomberg, company annual reports, broker reports

Notes: 1. Enterprise value is calculated as market capitalisation (at 5 March 2010) plus net debt per the most recently available financial statements 2. Gearing is calculated as net debt divided by enterprise value 3. Based on Deloitte assessed midpoint value 4. Average excludes WAN

The current and forecast EBITDA multiples implied by our assessed midpoint value of a WAN security are 10.4 times and 9.2 times, respectively. These multiples are higher than, but not inconsistent with, the average multiples of the comparable Australian companies, and to a lesser extent, to international peers. We note the following in relation to the multiples:  WAN has significantly higher earnings margins than the comparable companies  WAN has lower gearing than the comparable companies with no major concerns regarding its liquidity and funding commitments  approximately 74% of WAN’s FY09 revenue was generated by the metropolitan newspaper, The West Australian, which holds a monopoly position in the Perth/WA newspaper publishing sector  a faster advertising recovery is expected in WA since its economic growth is expected to benefit from large new resource projects which is likely to increase longer term growth prospects for WAN. Taking into account these considerations, our valuation range for WAN determined using recent share trading is supported by our analysis of earnings multiples of comparable listed companies.

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8.5 Valuation of other investments In addition to the assets identified above, Seven Network has holdings in a number of investments, including listed securities, unlisted securities and direct property holdings. Deloitte has estimated the fair market value of the other investments to be in the range of $439 million to $482 million, as summarised in the following table.

Table 58: Other Investments held by Seven Network

Fair market Fair market value value Low High Investment $m $m

Listed securities 379.0 421.6 Unlisted securities 29.2 29.2 Direct property holdings 30.7 30.7

Total other investments 438.9 481.5

Source: Deloitte analysis Each of these investments is discussed further below.

8.5.1 Listed securities In assessing the fair market value of the listed securities we have considered separately the recent share trading prices of Engin and Prime given Seven Network’s significant shareholding in each. We have valued the other listed investments on a portfolio basis having regard to their recent share trading. While the listed securities have varying degrees of liquidity and information publicly available, we consider that all of the securities have adequate liquidity to perform a meaningful analysis, as their share price appears to respond to relevant market developments and announcements. As the securities with the least liquidity are likely to have higher volatility in the share price, we have taken this into consideration in reaching our valuation conclusions. On this basis, we consider that the recent share price provides a reasonable indicator of the fair market value of the shares on a minority basis.

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In assessing the valuation range, we have considered the trading prices of each of the securities over the three month period to 5 March 2010 as well as any applicable strategic premium or marketability discount due to the size of the shareholding. Given the sensitivity of securities to market events, we have placed more reliance on recent share trading in forming a view on an appropriate value range. Recent share trading of Prime Media and Engin is summarised in the following table.

Table 59: Recent share trading of Engin and Prime

1 month 3 month Spot price Low High VWAP Low High VWAP Investment $ $ $ $ $ $ $

Prime Media 0.74 0.74 0.82 0.81 0.72 0.82 0.78 Engin 0.65 0.61 0.65 0.63 0.61 0.81 0.69

Source: Deloitte analysis Our assessment of the fair market value of the listed securities is summarised below.

Table 60: Fair market value of listed securities

Selected Fair Fair Shares share price market market Shareholding held range value value Investment (%) (’000s) $ Low $m High $m

Prime 11.4% 41,702 0.75-0.85 31.3 35.4 Engin 58.1% 7,380 0.60-0.90 4.4 6.6 Other listed investments Various n/m n/m 343.3 379.5

Total listed securities 379.0 421.6

Source: Seven Network, Deloitte analysis

Prime While Seven Network has a significant interest in Prime, an unrelated party (Paul Ramsay Holdings Limited) currently holds c.30% of the issued capital of Prime and could be considered to have de facto control (i.e. operational control), albeit not legal control. Furthermore, given the size of Seven Network’s shareholding in Prime, Seven Network is unlikely to be able to impact the strategic direction of Prime nor would Seven Network be able to block any decisions by the company requiring a special resolution. Although a significant shareholding may attract a premium, it may equally attract a marketability discount to reflect the difficulty of selling such a large volume of shares without placing downward pressure on their price. Over the past 12 months, Prime’s share trading as a percentage of free float placed it in the sixth decile of the most traded stocks on the ASX. Accordingly, there is likely to be increased volatility in the share price if Seven Network attempted to exit its shareholding in Prime. Given the above, we have not made any adjustments to the share price for a control premium as we consider the equity stake held could equally attract a premium for significant influence or a marketability discount. Furthermore, given that any sale by Seven Network of its investment may place downward pressure on the share price of Prime, we have taken this into consideration in selecting the share price range. 149 Deloitte: Seven Network Limited – Independent expert’s report

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Engin Limited Seven Network has effective control of Engin with a 58.1% equity holding in the company. Australian studies indicate that premiums required to obtain control of companies range between 20% and 40% of the portfolio holding values (as summarised in Appendix 3). However, while Seven Network does have effective control of Engin, it does not have full control, and Seven Network still requires the support of other shareholders to make any decisions about the company that require a special resolution. Although a significant shareholding may attract a premium, it may equally attract a marketability discount to reflect the difficulty of selling such a large volume of shares without placing downward pressure on their price. Engin is a thinly traded stock which is not followed by any brokers. Accordingly, any attempt by Seven Network to exit this investment is likely to be at a discount to the recent trading range for Engin. Given the above, we believe that a premium for control at the lower end of the range observed in Australian studies is appropriate. Furthermore, we are of the opinion that any sale by Seven Network of its investment would place downward pressure on the share price of Engin. Accordingly, we have taken these factors into consideration in our selected share price range.

Other listed investments Seven Network’s remaining listed investment portfolio consists of equity investments in high yield liquid securities with 92% of the value of this portfolio invested in shares that are included in the ASX 200 index. Our valuation is based on recent share trading in the period up to 5 March 2010. These holdings represent portfolio interests with all shareholdings representing less than a 3% interest in each company. The average liquidity of this portfolio is high with the weighted average turnover of the portfolio being 1.0 times on an annual basis. These investments are expected to generate a dividend yield of 7.3% and 7.2% in fiscal years 2010 and 201150, respectively, and generate significant franking credits which Seven Network intends to utilise to pay fully franked dividends to Seven Network Securityholders.

8.5.2 Unlisted securities Our assessment of the fair market value of the unlisted securities is summarised below.

Table 61: Fair market value of unlisted securities

Fair market value Investment Shareholding ($m)

Flagship Property Holdings Pty Limited 46.8% 27.1 Premier Capital Development 25.0% 0.3 REVY Investment Trust 25.0% 0.8 Sydney Broadcast Property Trust 40.0% 1.0

Total unlisted securities 29.2

Source: Seven Network, Deloitte analysis

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Each of these is discussed in further detail below.

Flagship Property Holdings Limited As at 30 June 2009, the carrying value of Seven Network’s 46.8% interest in Flagship Property Holdings Limited (Flagship) was $42.1 million. In December 2009, the management of Seven Network undertook a review of the carrying value of the investment in Flagship for financial reporting purposes. As a result of this review, the carrying value of Seven Network’s investment in Flagship has been written down to $27.1 million. Given that the review has only been recently undertaken, we have adopted the book value as a proxy for the fair market value.

Other unlisted securities Other unlisted securities comprise minority interests in Premier Capital Development, REVY Investment Trust and Sydney Broadcast Property Trust. Each of these entities provides property management services. We understand that property held in Sydney Broadcast Property Trust is currently being reviewed for possible redevelopment and sale, which may result in a significant uplift in value. However, given that the redevelopment and sale is at an early stage, with development approval still pending, we have not attributed any further value to the carrying value of this investment. Furthermore, given the relative value of these investments, we have adopted the book value as a proxy for fair market value.

8.5.3 Direct property holdings Seven Network has direct interests in a number of properties. These are recorded in the accounts of Seven Network at cost. Our assessment of the fair market value of the direct property holdings of Seven Network is summarised below.

Table 62: Fair market value of direct property holdings

Fair market value Investment ($m)

Perth Entertainment Centre 23.3 Perth Land 7.4

Total direct property holdings 30.7

Source: Seven Network, Deloitte analysis

Each of these is discussed in further detail below

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Perth Entertainment Centre As outlined in Section 4.6, the Perth Entertainment Centre (PEC) was closed in August 2002 and remains unoccupied. In March 2009, Colliers International was engaged to prepare an independent valuation of PEC assuming the redevelopment of the site into commercial and residential properties. We understand that development approval has not yet been received, and accordingly, this valuation is not reflective of the current state of the property and cannot be relied upon for valuation purposes. Given that there has been no recent valuation of PEC, we have adopted the book value of $23.3 million as at 30 June 2009 as a proxy for the fair market value. Furthermore, management of Seven Network has advised that they do not expect the current market value of PEC in its current form to be materially different to the carrying value at 30 June 2009.

Perth Land Given the relative value of this investment, we have adopted the book value as a proxy for fair market value. Furthermore, management of Seven Network has advised that they do not expect the current market value of the Perth Land in its current form to be materially different to the carrying value at 30 June 2009.

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8.6 Valuation of Wireless Broadband Australia

8.6.1 Summary Deloitte has estimated the fair market value of Wireless Broadband Australia to be in the range of $62.0 million to $70.0 million on a control basis and $48.0 million to $54.0 million on a minority basis. In determining the fair market value on a control basis, we estimated the fair market value of Wireless Broadband Australia using the DCF method. The discounted cash flow method estimates market value by discounting a company’s future cash flows to their net present value. To value Wireless Broadband Australia using the discounted cash flow method requires the determination of the following:  future cash flows  an appropriate discount rate to be applied to the cash flows  an estimate of the terminal value  the value of any surplus assets or liabilities not incorporated in the cash flow model  consideration of any premiums or discounts appropriate to apply to the fair market value of Wireless Broadband Australia. Our considerations on each of these factors are presented below.

8.6.2 Future cash flows The management of Wireless Broadband Australia have prepared detailed business plans which include projections of nominal after tax cash flows for the period to 30 June 2019. The business plans reflect the operations of Wireless Broadband Australia at a consolidated level and form the basis of our valuation. We have performed an analysis of Wireless Broadband Australia’s projections that has included:  high level checks of the business plan provided by Wireless Broadband Australia management, including limited procedures regarding the mathematical accuracy of the business plan (but neither a review nor an audit of the model)  a broad review of the underlying assumptions such as revenue growth and pricing assumptions to ensure that the projections do not appear unreasonable  holding discussions with management concerning the preparation of the projections, and their views regarding the assumptions on which they are based. Our procedures and enquiries will not include verification work nor constitute an audit or a review engagement in accordance with standards issued by the Auditing and Assurance Standards Board (AUASB) Standards and accordingly we do not express any opinion as to the reliability of the projections or the reasonableness of the underlying assumptions. However, nothing has come to our attention as a result of our analysis that suggests that the assumptions on which the projections are based have not been prepared on a reasonable basis. The key assumptions underlying the preparation of the cash flow model are as follows:  the 4G Network will commence operation in Perth in March 2010 under the

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vividwireless name. The existing modem network in Sydney and Melbourne will be phased out over the period to 2012 and replaced by a 4G Network as part of the limited metropolitan extension plan, however, full roll out of the 4G Network beyond Perth has not yet been approved by the Board of Wireless Broadband Australia.  total revenue for the 2010 financial year is forecast to decline by 22% as customer churn in Sydney and Melbourne increases with the winding down of operations in those cities, including reductions in marketing and advertising spend  revenue is forecast to grow at a CAGR of 13% over the period 2010 to 2019, mainly driven by growth in customer numbers in Perth. Over this period, average revenue per user (ARPU) is forecast to remain flat in nominal terms  customer growth is forecast to peak in the 2014 financial year, declining to more maintainable levels as the market approaches maturity  revenue on the sale of hardware is expected to increase to c.20% of total revenue in 2011 as new customers sign up to the 4G Network. While total revenue from sale of hardware is forecast to remain relatively flat beyond this time, it is forecast to decline as a portion of total revenue to 7.6% by 2019  EBITDA margins are projected to break even in the 2012 financial year, increasing to c.40% by 2015 as a result of the increased utilisation of existing network infrastructure and a reduction in operating costs. Margins are forecast to grow only marginally for the remainder of the forecast period  existing spectrum licences expire in 2015, at which time it is assumed that Wireless Broadband Australia will retain access to the 2.3GHz and 3.5GHz spectrum in Perth, paying an annual licence fee linked to subscription revenue  capital expenditure of approximately $44.1 million has been forecast for FY10 to facilitate the roll-out of the 4G Network in Perth and the metropolitan extension network. It has been assumed that only maintenance capital expenditure will be required for the remainder of the forecast period  all operating cash flows and capital expenditure will be funded through equity investment. We have considered the following factors in our assessment of the operating cash flow projections:  revenue growth is largely dependent upon the successful roll-out of the 4G Network, the first commercial offering of such technology in Australia. Any delays in the roll-out of the 4G Network will affect/reduce Wireless Broadband Australia’s first player advantage  from 2012, Wireless Broadband Australia’s coverage is restricted to Perth with a limited extension to metropolitan areas, making it difficult to compete with telecommunications providers who offer national coverage. Furthermore, as speed and penetration of fixed- line broadband increases (particularly following the roll-out of the NBN), increased price-based competition is likely to result  the digital dividend will increase the spectrum available for wireless data services, which is likely to open the market to increased competition  while the business plan assumes taxation expense is nil, Wireless Broadband Australia is part of the Seven Network tax consolidation group and losses incurred by Wireless Broadband Australia can be used to offset profits generated by other activities of Seven Network. As we have not valued the tax losses separately, for the purposes of our 154 Deloitte: Seven Network Limited – Independent expert’s report

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valuation we have assumed that Wireless Broadband Australia is able to utilise these tax losses in the year they are incurred at the corporate tax rate of 30%. Since projections relate to the future, they may be affected by unforeseen events and they depend, in part, on the effectiveness of management’s actions in implementing the projections. Accordingly, actual results are likely to be different from those projected because events and circumstances frequently do not occur as expected and those differences may be material.

8.6.3 Discount rates The discount rate used to equate the future cash flows to a present value reflects the risk adjusted rate of return demanded by a hypothetical investor. For the purpose of valuing Wireless Broadband Australia, we have used a discount rate of 20% based on our estimate of:  the cost of equity applicable to the existing business of Wireless Broadband Australia  an appropriate rate of return for the 4G Network roll out in Perth and limited metropolitan expansion. In Appendix 4 we have calculated a nominal cost of equity discount rate of 15.0% to discount the future cash flows of the existing operations of Wireless Broadband Australia to their present value. In selecting this discount rate we considered the following:  the required rates of returns on listed companies in a similar business  the specific business risks of Wireless Broadband Australia  analysis of factors impacting Wireless Broadband Australia’s market risk (i.e. the sensitivity of its core earnings/cash flows to broader market movements). However, the cash flow projections for Wireless Broadband Australia assume that the existing modem network in Sydney and Melbourne will be phased out over the period to 2012. Accordingly, revenue is largely dependent upon the successful roll-out of the 4G Network. The risks involved with this roll-out are akin to those of an early stage company. Investors in early stage companies require higher rates of return than investors in mature companies. Venture capitalists and private equity firms are a common source of equity capital for early stage investments. The Australian Venture Capital Guide provides the following indicative guidelines for their required rate of return.

Table 63: Venture capital required rates of return

Methodology Required rate of return

Starting a new business 30.0% to 40.0% Expanding a business, MBOs or MBIs 20.0% to 30.0%

Source: Australian Venture Capital Guide 2006

These rates of return are significantly higher than those required for mature listed companies. The reason that the discount rate required for an early stage company is different to that required for a mature company is because the relationship between business risks, finance risks and the cost of equity changes as a company progresses from an early stage company to a mature company. 155 Deloitte: Seven Network Limited – Independent expert’s report

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The relationship between business risk, finance risk and cost of equity is illustrated in the following figure.

Figure 47: Business risks, finance risks and cost of equity

Funding Business Finance Cost of Phase requirements risk risk equity

Pre-build Low/Zero High High (but low debt) High

Build Peak High High

Consolidation Medium

Stabilise Low Low Low Low

Source: Adapted from The Valuation of Businesses, Shares and Other Equity, Third edition, Wayne Lonergan

As the majority of Wireless Broadband Australia’s earnings throughout the forecast period are from the roll-out of the 4G Network, we consider a blended discount rate of 20% to be an appropriate discount rate to apply to the total future cash flows of Wireless Broadband Australia. This discount rate accounts for the significant risks associated with the successful roll-out of the 4G Network.

8.6.4 Terminal value The terminal value estimates the value of the ongoing cash flows after the forecast period. We have estimated the terminal value based on the forecast cash flows in the 2019 financial year, the discount rate and an estimate of the long-term cash flow growth rate. We have estimated a nominal long-term growth rate of 3.0%. In selecting this amount we had regard to:  forecast growth in the ISP industry over the period 2010 to 2015 of 4.2%  the Reserve Bank of Australia’s long-term target inflation rate of 2.0% to 3.0%  Economist Intelligence Unit’s current forecasts for real gross domestic product growth in Australia over the period 2009 to 2014 of 2.4%.

8.6.5 Surplus assets and liabilities Based on our discussions with management, we have identified $10.0 million of surplus assets which represents 7.0 megahertz of Wireless Broadband Australia’s 2.3 gigahertz spectrum sold to Energy Australia on 2 March 2010.

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8.6.6 Premium for control and marketability discounts We have determined the fair market value of Wireless Broadband Australia using the DCF method which estimates the fair market value of equity by discounting the estimated future cash flows to their present value. Generally, investors are willing to pay a premium in order to have control over the cash flows of a company. This is referred to as a premium for control. As the DCF method discounts all projected future cash flows of an entity on a controlling interest basis, a premium for control (excluding buyer synergies) is implicitly incorporated within the value. Accordingly, a separate premium for control has not been incorporated in our assessment of the fair market value of Wireless Broadband Australia on a control basis. To determine the fair market value of Wireless Broadband Australia on a minority basis, we have had regard to studies of premiums required to obtain control of companies in Australia. It is our opinion that control premiums generally range between 20% and 40% of the portfolio holding values, which implies minority discounts in the order of 17% to 29%. In the absence of any factors which would indicate a control premium at the low or high end of the range, we have considered an average control premium of 30% to be appropriate which implies a minority discount of 23%. Where two investments are relatively comparable, investors tend to place more value on the investment which is more liquid and/or more marketable. Accordingly, it is common to apply a discount to the value of an investment where there is likely to be restrictions upon its sale. In practice, liquidity discounts generally range between 10% and 30%. We have not made any allowance for lack of liquidity or marketability in our valuation of Wireless Broadband Australia.

8.6.7 Fair market value of Wireless Broadband Australia The value of Wireless Broadband Australia on a control basis derived from the DCF method together with the value on a minority basis are summarised below.

Table 64: Summary – fair market value of Wireless Broadband Australia

Value Section ($million) Present value of forecast cash flows 8.6.2 30 Present value of terminal value 8.6.4 26 Surplus assets 8.6.5 10 Equity value (on a control basis) 66 Selected valuation range (on a control basis) 62 – 70 Minority interest discount 8.6.6 23% Selected valuation range (on minority basis) 48 – 54

Source: Deloitte analysis

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The above values of Wireless Broadband Australia on a control basis are sensitive to the discount rate and long-term growth rate assumed in the DCF valuation of Wireless Broadband Australia. The equity value on a control basis applying higher and lower discount and long term growth rates to Wireless Broadband Australia is summarised in the table below.

Table 65: Sensitivity of equity value of WBA on a control basis to changes in assumptions ($m)

Terminal growth rate Discount rate 1.0% 2.0% 3.0% 4.0% 5.0% 18.0% 58 57 55 54 53 19.0% 64 62 60 59 58 20.0% 70 68 66 64 62 21.0% 77 74 72 70 68 22.0% 85 82 79 76 74

Source: Deloitte analysis

In the absence of relevant comparable transactions and given the early stage nature of the asset, we have concluded that the DCF approach is the most relevant and have not identified any valuation approach which would provide a reasonable crosscheck to our assessed fair market value. 8.7 Corporate costs Seven Network has advised that they anticipate incurring corporate overheads of $8.5 million at the EBITDA level for the financial year ending 30 June 2010. These costs include administrative overheads, such as directors’ fees, salaries and wages, preparation of annual reports, audit fees and listing costs, in addition to costs associated with providing centralised functions of Seven Network and are net of SMG’s monitoring fees. These corporate costs have not been taken into account when considering the specific earnings at the EBITDA level estimated to be generated by the Seven Network investments, and need to be considered when assessing the fair market value of Seven Network a going concern basis. We have capitalised the corporate overheads at an earnings multiple ranging from 9.0x of 10.0x, having regard to the earnings multiples applied to the various investments of Seven Network and other listed companies comparable to the investments in which Seven Network has an interest.

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8.8 Surplus assets and liabilities Based on our discussion with management, we have identified the following surplus assets and liabilities.

Table 66: Seven Network: surplus assets and liabilities

Low value High value ($’million) ($’million)

Surplus assets - - Deferred tax liability (510) (460)

Source: Deloitte analysis

Deferred tax liability The proforma accounting book value of the DTL for Seven Network prior to the Share Scheme is $607 million. We have estimated the valuation impact of this DTL by reference to the following factors:  the DTL includes $555 million in relation to tax liabilities which would crystallise as a consequence of Seven Network selling its interest in SMG for its current carrying value giving rise to an exit of SMG from the Seven Network tax consolidated group. An exit of SMG from the Seven Network tax consolidated group without any sale by Seven Network of its SMG interest would crystallise a lower portion of the DTL than would a sale by Seven Network of its SMG interest. SMG would exit the Seven Network tax consolidated group without any sale by Seven Network of its SMG interest if, for example, KKR were to convert its convertible notes in SMG. The balance of the DTL relates to general accounting timing differences  the component of the DTL most likely to result in a direct cash outflow for Seven Network is the balance of $555 million relating to Seven Network’s interest in SMG  we have discounted the gross value of this liability to reflect: - the probability of the potential events that would give rise to a crystallisation of this liability occurring - the potential timeframe in which this liability is likely to become payable. Based on the above considerations, we have selected a range of $460 million to $510 million for the DTL in our valuation of Seven Network.

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8.9 Net cash position Seven Network’s net cash position at 26 December 2009 was as follows:

Table 67: Seven Network - net cash position

($’million)

Current interest bearing liabilities (0.7) Non-current interest bearing liabilities (5.4) Cash and cash equivalents 1,041.9 Adjustment for third party share of Engin net cash proceeds1 (1.7) Adjustment for the transaction costs to be incurred by Seven Network (10.8) Adjustment for 150,000 options issued 10 March 2010 1.1 Net cash position 1,024.4

Source: Deloitte analysis, Seven Network, company announcements and presentation, Seven Network management Note 1: Adjustment relates to Engin whereby Seven Network owns 58.1% of the outstanding equity of the company as a result of which the financial results including the net debt are consolidated

8.10 TELYS3 As set out in Section 4.1, TELYS3 are the preference securities issued by Seven Network. TELYS3 exhibit debt-like characteristics such as limited participation and voting rights and the priority ranking of these securities relative to ordinary Seven Network shareholders. TELYS3 rank equally amongst themselves in all respects, however, are subordinated to all creditors of Seven Network. TELYS3 are perpetual securities and have a face value of $100. For the purposes of determining the fair market value of the outstanding equity of Seven Network both on a minority basis and a control basis, we have treated TELYS3 as debt instruments. We have estimated the fair market value of TELYS3 securities to be $506 million. In determining this amount, we have estimated the fair market value of TELYS3 based on the face value of these securities plus any accrued dividend until the TELYS3 Scheme record date for determining entitlements to the TELYS3 Scheme consideration.

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8.11 Seven Network valuation crosscheck The table below sets out a comparison of recent trading in Seven Network ordinary shares to our assessed fair market value of a Seven Network share on a minority basis.

Table 68: Seven Network valuation – recent share market trading ($)

VWAP discount (%)

VWAP ($) Low High

Assessed fair value of a Seven Network share (on a minority basis $7.41 $9.19 Interim Dividend $0.17 $0.17 Assessed fair value of a Seven Network share (on a minority basis $7.58 $9.36 and including the Interim Dividend)1

Share price at one day prior to Announcement Date - 19 February 2010 $7.37 (2.7%) (21.2%)

Last one week trading - 13 February 2010 to 19 February 2010 $7.25 (4.4%) (22.6%) Last one month share trading - 20 January 2010 to 19 February 2010) $6.93 (8.6%) (26.0%) Last three months share trading - 20 November 2009 to $6.68 (11.8%) (28.6%) 19 February 2010) Last six months trading - 20 August 2009 to 19 February 2010 $6.46 (14.8%) (31.0%)

Source: Bloomberg, Deloitte analysis

Note 1: Value is inclusive of the 17cps Interim Dividend payable prior to Share Scheme completion date to make this value comparable to recent share trading which is on a cum dividend basis

Seven Network shares have been trading at a significant discount to our estimated fair market value due to a number of specific circumstances, which are outlined below:

Access to non-public information The majority of Seven Network’s assets consist of interests held in associates and JVs, and other investments held at fair value. Since a large proportion of these interests are in unlisted entities and/or undisclosed to the capital markets, it may be difficult for market participants to fully assess the ongoing profitability and future prospects of these investments. In addition, Deloitte has had access to the preliminary reviewed financial results of Seven Network for the six months ended 26 December 2009. In particular, we note that the following two material adjustments which may have a significant impact on Seven Network share price have not been communicated to the market one day prior to the Announcement Date:  the reversal of impairment of Seven Network’s investment in SMG (equity accounted) of $390 million  the additional DTL arising from the Tax Laws Amendment (2010 Measures No 1) Bill 2010 which was introduced into the House of Representatives on 10 February 2010 which would, potentially increase the deferred tax liabilities as at 26 December 2009 by approximately $207 million ($1.09 per share).

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Reinvestment risk associated with the surplus cash balance of Seven Network As at the 26 December 2009, Seven Network had cash and cash equivalents of $1,041.9 million. Analysts covering the Seven Network stock have expressed concerned that this surplus cash may be used on risky or low return investments given the lack of immediate investment opportunities in the media sector.

Holding company structure of Seven Network Seven Network is an investment holding company with a wide range of investments, most of which have been made on a minority basis. In general, investment holding companies trade at a discount to their underlying net asset values to reflect the lack of liquidity and/or control associated with the underlying investments. This discount also often reflects the fact that the underlying net asset value may not be realised until the investments are sold and the company’s assets are distributed to shareholders. Accordingly, shareholders have no direct access to the value of these investments other than through dividends distributed over time. Our analysis for the 2009 calendar year of the holding company discount used by the brokers following Seven Network shares suggests discounts of between 20% and 35% were applied to their assessed underlying value with an average discount of 26%.

Existence of a controlling shareholder In light of Kerry Stokes AC’s 48.7% stake in Seven Network, it would be very unlikely for a control premium to be realised except through a transaction supported by Kerry Stokes AC. Listed companies with a significant shareholder are also likely to trade at a discounted trading price when compared to a company with a widespread shareholder base to reflect the lack of liquidity and potential conflict of interest between the major shareholder and minority shareholders.

Based on the above, we consider our assessed value of a Seven Network share on a minority basis and including Interim Dividend is not inconsistent with the recent share trading of Seven Network shares pre-announcement of the Proposed Schemes.

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9 Valuation of WesTrac Holdings 9.1 Summary Deloitte has estimated the fair market value of WesTrac Holdings on a minority interest basis to be in the range of $833 million to $1,034 million. In determining this amount, we estimated the fair market value of WesTrac Holdings by aggregating the fair market value of its underlying assets on a sum-of-the-parts basis. The following table sets out a summary of our assessment of the fair market value of an ordinary share in WesTrac Holdings.

Table 69: Summary – fair market value of WesTrac Holdings Fair market value Minority Basis WesTrac Holdings’ interest Low High Investments (%) Section ($’m) ($’m)

WesTrac Australia 100% 9.2 973 1,058 WesTrac China 100% 9.3 272 351 Other WesTrac operating investments1 Various 9.4 10 10 National Hire 2 66.2% 9.5 220 260 Less: Net debt 9.6 (597) (597) Less: Corporate overhead costs 9.7 (45) (48)

Equity value of WesTrac Holdings 833 1,034

Source: Deloitte analysis Note: 1. Other WesTrac operating investments is Energy Power Systems Australia Pty Limited, an associated company that has not been included in the financial forecasts of WesTrac Australia or WesTrac China 2. WesTrac Holdings has a 66.2% interest in the ordinary equity of National Hire. National Hire holds a 46.1% economic interest in the Coates Group, providing WesTrac Holdings with an indirect 30.5% economic interest in the Coates Group 9.2 Valuation of WesTrac Australia

9.2.1 Summary Deloitte has estimated the fair market value of WesTrac Australia on a minority basis to be in the range of $973.3 million to $1,058.3 million. This valuation range has been derived by applying the CME valuation method which we have cross-checked with a DCF analysis. Our analysis using each of these methods is discussed separately below.

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9.2.2 CME method

Future maintainable earnings Future maintainable earnings represent the level of maintainable earnings that the existing operations could reasonably be expected to generate. We have selected EBIT as the appropriate measure of earnings for WesTrac Australia since earnings multiples based on EBIT take into account the relative level of asset or capital intensity of a business as it is a measure of earnings after depreciation charges. This is relevant since a number of comparable companies, and to a lesser extent, WesTrac Australia are capital intensive businesses. In determining future maintainable earnings we have had regard to recent trading results for WesTrac Australia, WesTrac Australia’s forecast results for the years ending 30 June 2010 and 30 June 2011 and other industry and comparable company growth rates. The table below sets out the adjusted historical earnings, forecast earnings and the selected future maintainable earnings for WesTrac Australia.

Table 70: Future maintainable earnings – EBIT

Pro-forma Pro-forma Actual Actual Forecast Forecast 2008 2009 2010 2011 ($m) ($m) ($m) ($m)

WesTrac Australia EBIT 166.6 151.2 134.8 167.5 EBIT margin 9.0% 8.1% 8.4% 8.8%

Selected maintainable earnings 170.0

Source: Deloitte analysis

We have selected maintainable EBIT of $170 million. In selecting this level of maintainable earnings we have had regard to the following:  the average total adjusted EBIT over the 2008 to 2011 period of $155 million  a large proportion of companies with similar earnings drivers as WesTrac Australia (identified below) are forecast to experience depressed earnings in 2010 before a recovery in 2011  earnings are expected to revert to 2008 levels by 2011, indicating an expectation of a general recovery from the global financial crisis to be realised in 2011 and beyond  the 20% growth in adjusted EBIT expected between 2010 and 2011 is consistent with the comparable companies identified, in particular Finning and Toromont which have large Caterpillar distribution territories which are exposed to the mining sector  the historical earnings set out in Table 70 do not include earnings attributable to non- wholly owned entities (Sitech, MES and EMT), however the earnings contribution by these entities is not significant (approximately $2 million for FY11)  potential earnings upside as a consequence of: o additional growth from the on-road trucking product which Caterpillar is launching globally. Only a minimal contribution to earnings has been included in the FY11 164 Deloitte: Seven Network Limited – Independent expert’s report

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forecasts and there is the potential for additional market penetration to occur post 2011 o the eventual launch of Caterpillar’s SEM product in Australia (assuming that existing Caterpillar dealers will be awarded similar distribution territories for SEM products). The Australian launch is expected to occur within the next three years, however, the ultimate size of the market in Australia and the extent of any cannibalisation of existing Caterpillar products in the Australian market is uncertain o any net efficiency gains from the expansion of the South Guilford facility o the potential to improve margins over time through leveraged exposure to larger projects and other initiatives o as discussed above, Caterpillar sells parts to WesTrac Australia in Australian dollars, however, parts prices are reset every six months and have a high degree of correlation with A$/US$ exchange rates. The FY11 forecast assumes an exchange rate of A$0.85/US$. If the actual exchange rate falls below this level (ie. if the US dollar further appreciates relative to the Australian dollar), there could be uplift in WesTrac Australia’s profit.  potential earnings downside as a consequence of: o an unexpected downturn and/or a more prolonged recovery period in WesTrac Australia’s key markets. In particular any reduction in the demand for iron ore or coal exports or delays in project execution could materially reduce the capital spend associated with these types of projects o the WesTrac Australia forecasts include an element of efficiency gains from the expansion at the Newcastle facility. Additional downside risk exists to the extent that these efficiencies are not fully achieved or are achieved but at a higher cost o if the actual exchange rate is above the assumed A$0.85/US$ level (i.e. if the US dollar further depreciates relative to the Australian dollar), there could be a negative impact on WesTrac Australia’s profit. After considering the above, we have placed most emphasis on FY11 earnings in our selection of maintainable earnings, as this period reflects the likely cyclical recovery in earnings for the business and is more in line with historical results. Further, approximately 60% of 2011 revenue is underpinned by either firm orders or forecast expenditure from alliance customers.

Earnings multiple We have selected an earnings multiple in the range of 9.0 to 9.5 times EBIT, on a minority basis. In selecting this earnings multiple range we have considered:  earnings multiples derived from market prices of comparable listed companies  multiples implied in mergers and acquisitions of comparable companies. These are discussed separately below.

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Market trading multiples The market valuation of listed companies provides evidence of an appropriate earnings multiple for WesTrac Australia. The security price of a listed company represents the market value of a minority interest in that company. We have compiled security market trading multiples for companies comparable to WesTrac Australia. A summary of this analysis by industry is presented in the following table.

Table 71: Earnings trading multiples – WesTrac Australia

EBIT Growth (%) EBIT Margin (%) EBIT Multiple (times)3

Company FY10 FY11 FY12 FY10 FY11 FY12 FY10 FY11 FY12

Caterpillar distributors (4.9%) 21.8% 21.0% 11.1% 11.7% 8.8% 14.0x 11.3x 9.5x Heavy machinery (20.4%) 20.0% 21.3% 9.2% 9.5% 10.3% 10.5x 8.8x 7.3x distributors Mining services companies 107.9% 18.9% 18.3% 14.3% 14.0% 14.7% 10.0x 8.5x 7.2x Heavy machinery (41.7%) 30.0% 61.8% 6.3% 7.5% 8.6% 26.5x 19.0x 12.7x manufacturers

Average (excluding 43.6% 20.1% 19.8% 12.2% 12.2% 11.9% 11.4x 9.4x 7.9x manufacturers) Median (excluding 14.7% 15.2% 17.7% 10.8% 11.3% 9.5% 10.7x 8.9x 7.2x manufacturers)

Source: Bloomberg, Deloitte analysis Notes: 1. In calculating EBIT multiples, enterprise values have been calculated as the sum of the net borrowings at each company’s most recent reporting date or forecast net debt if significantly different and the market capitalisation at 5 March 2010. Forecast earnings are based on the average of selected broker estimates as at 5 March 2010

2. Gearing - net debt/enterprise value as at 5 March 2010 Specific details regarding the companies constituting the above benchmarks and the calculation of the earnings multiples are provided at Appendix 5. General comments regarding the multiples, together with the historical growth, margins and operations of the comparable companies, are listed below:  a number of the selected comparable companies are considerably larger than WesTrac Australia. In particular the median enterprise value of heavy machinery manufacturers was in excess of $8.7 billion. In general, larger companies have higher earnings multiples than smaller companies  approximately half of the identified comparable companies’ earnings forecasts are characterised by a depression in 2010 before recovering in 2011 and 2012, the majority of which are machinery distributors or manufacturers based outside of Australia. Whilst the general commodities market, a key driver for a majority of the identified comparable companies, is forecast to continue to recover faster than most sectors in the wake of the global financial crisis, it is still experiencing depressed conditions, particularly in markets outside of Australia. Similar to our selection of maintainable earnings we have had more regard to earnings multiples for 2011. For companies with exposure to markets outside of Australia or where the EBIT growth suggests strong recovery in 2012 (for example Finning and Toromont), we have also considered earnings multiples for 2012.

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Caterpillar and other heavy machinery distributors  both Toromont and Finning have similar business models to WesTrac Australia, supplying Caterpillar products in exclusive territories, with Finning having a broader distribution territory (Canada, United Kingdom and South America). Again, like WesTrac Australia, Caterpillar is a key, and in some cases the sole supplier to these businesses. At present, Finning is trading at a higher EBIT multiple than Toromont, reflecting Finning’s relatively greater exposure to the high growth mining segment (Canada and South America) and oil sand (Canada) and improved margins from a cost rationalisation exercise. This compares to Toromont’s exposure to compression equipment (60% of forecast sales revenue) that serves the natural gas industry  Finning’s main growth drivers are Canadian mining, Canadian oil sands and South American mining and these three segments are expected to expand resource production considerably in the medium term. In particular, the global financial crisis has had limited impact on Finning’s South American business for which copper mining is a significant revenue driver. Internationally, Finning has engaged in a cost rationalisation exercise that is expected to deliver improved margins going forward. In particular, Finning is targeting improving EBIT margins in Canada and South America from 9% to 11% which is expected to provide significant EBIT growth  Toromont’s revenues are derived equally from compression equipment distribution and heavy machinery (including Caterpillar) distribution and following the company’s acquisition of Enerflex it is expected that this will become more heavily weighted towards compression equipment. Analysts have noted that this product mix is a contributing factor to a depressed earnings multiple in 2010 and 2011 before a pickup in the compression group which is a key supplier to the natural gas industry in Canada  we have placed less emphasis on Sime Darby and Barloworld as these companies are significantly more diversified than Toromont and Finning, with Caterpillar and equipment distribution contributing 25% and 40% of total revenue, respectively. A large proportion of Sime Darby’s earnings are sourced from palm oil plantations and approximately 40% of Barloworld’s revenues are derived from automotive rental and retail sales  Tutt Bryant is primarily engaged in providing heavy machinery to the Australian construction industry. Short-term growth prospects are expected to be limited by the slowdown in the Australian construction sector. The company has similar exposure to WesTrac Australia’s construction product offerings, however, we note that the company’s shares are thinly traded  United Tractors distributes heavy mining and construction equipment under the Komatsu brand and provides contract mining services as well as proprietary mining. This integrated sector exposure contributes to United Tractors maintaining a higher margin than that of its peers. The recovery of global coal prices in late 2009 and consensus forecasts for a continuation of this trend have seen United Tractors’ earnings estimates increase in 2010 and 2011. The company’s exposure to primary production (approximately 14% of total 2009 revenue) makes it less comparable to WesTrac Australia  Wajax Income Funds’ earnings have been impacted by a combination of a decrease in sales volumes and a shift in its product mix towards lower margin segments such as components and power systems and away from the higher margin equipment market. Growth is forecast to come from an increase in equipment provided to oil sands projects.

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Mining services companies - Australia We have considered companies providing services to the construction and mining sectors in Australia, however, we note that:  the companies identified have a wide range of earnings and margin growth due to various product mixes and geographical and commodity exposure  McMahon Holdings Limited has a similar sector exposure to that of WesTrac Australia with 43% of revenues derived predominantly from the Australian mining industry and the balance from the Australian infrastructure construction sector. However, the company’s recent margins have been impacted by a slowdown in the mining sector as some contracts have a variable revenue component whilst also having a high fixed cost base  Mineral Resources Limited’s operations are heavily focused on WA iron ore production, processing and delivery of resources to end customers, in particular the Chinese steel market. Consensus estimates are that 2010 will be a year of investment for Mineral Resources before an increase in production and consequently earnings in 2011 and beyond  Sedgman Limited derives a majority of its revenue from services and contracting to the Australian coal industry and its earnings are predominantly driven by the coal pricing expectations and the associated volumes. To this extent it has a similar commodity exposure to that of WesTrac Australia’s NSW operations Heavy machinery manufacturers - International  the observed heavy industry manufacturers have a relatively higher fixed cost base and more asset intensive businesses than WesTrac Australia, which has resulted in a more significant decline in earnings over the last two years. These companies should be more heavily levered to the cyclical recovery in the global economy. In addition each company has a relatively high current or forecast exposure to the Chinese construction market which analysts are expecting will support higher earnings over the next five years. On the basis of these companies having a significantly more geographically diverse business model and the comparative fixed asset intensity, we have placed limited weighting on these companies in selecting our EBIT multiple range for WesTrac Australia. In general, the mining services companies and the Caterpillar distributors exhibit earnings drivers most similar to that of WesTrac Australia. McMahon, Sedgman and Mineral Resources have similar market exposure as WesTrac Australia. The Caterpillar distributors have similarities to WesTrac Australia to the extent that they are dependent on a sole supplier and serve both the resources sector and construction industries.

Merger and acquisition multiples The price achieved in mergers or acquisitions of comparable companies provides evidence of an appropriate earnings multiple for WesTrac Australia. The acquisition price of a company represents the market value of a controlling interest in that company. The difference between the market value of a controlling interest and a minority interest is referred to as a premium for control.

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We compiled merger and acquisition multiples for companies comparable to WesTrac Australia. A summary of this analysis by industry is presented in the following table.

Table 72: Earnings multiples – mergers and acquisitions

Implied control premium One One One EV/EBIT EV/EBITDA day week month Industry sector Historic Historic prior1 prior1 prior1

Heavy equipment distributors no transactions identified

Mining services Average 14.3x 3.5x 44% 49% n/m Median 14.3x 3.5x 44% 49% n/m

Equipment manufacturing Average 10.3x 7.2x 48% 40% 37% Median 9.4x 7.2x 48% 40% 37%

Overall average 11.9x 5.4x 47% 43% 37% Overall median 13.2x 5.5x 44% 42% 37%

Source: Mergermarket, company announcements, company annual reports, Deloitte analysis Notes: 1. Prior to announcement date of transaction

2. n/m: not meaningful Specific details regarding the above transactions are provided in Appendix 7. General comments regarding the multiples are listed below:  there were no recent transactions observed involving companies directly comparable to WesTrac Australia in terms of operations and industries served, in particular heavy equipment distribution in Australia. Accordingly we have performed a boarder search encompassing mining services and heavy equipment manufacturing  of the observed mining services transactions, the transaction involving Brandrill (EBIT multiple of 13.6 times) is most relevant based on its prominent exposure to both the WA iron ore region and NSW coal mining sectors through its fleet of drilling rigs. These regions correspond to WesTrac Australia’s main mining exposure  most of the transactions observed are in relation to the acquisition of a majority stake of the target company’s share capital and therefore their implied multiples incorporate a premium for control. Of the transactions identified, three involved the acquisition of a listed company. Over one day, one week and one month, control premiums paid ranged from 37% to 49%.

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Conclusion on earnings multiple Based on the above analysis of comparable trading and transaction multiples we have selected a multiple in the range of 9.0 to 9.5 times maintainable EBIT on a non-controlling basis. In selecting this range we have considered the following:  the trading multiples for listed Caterpillar dealers, in particular Finning and Toromont which have and average 2011 and 2012 EBIT multiple of 12.1 times and 9.8 times, respectively. Whilst we have placed most emphasis on the observed multiples for Finning and Toromont we note the following: o whilst these companies have similar margin and long term growth expectations as WesTrac Australia, these companies are larger and more diversified by geography and by product line which may be perceived to provide a relatively more stable earnings profile relative to WesTrac Australia over the longer term o 2011 earnings for Finning are not likely to be at a normalised level due to the significant EBIT growth expected from infrastructure and mining activity in its key markets (South America and Canada) as well as continued margin improvement from specific cost initiatives o recent trading in Toromont has been impacted by the recent acquisition of Enerflex Systems which completed in January 2010.  whilst we have placed most emphasis on the multiples observed for Finning and Toromont, we have also considered the following multiples in our selection due to the small sample size of pure play listed Caterpillar dealers, in particular: o the average 2011 and 2012 multiples observed for other companies with Caterpillar distribution operations (Barloworld and Sime Darby) of 9.7 times and 8.5 times o the average 2011 and 2012 multiples observed for other heavy machinery distributors of 8.7 times and 7.4 times in particular Tutt Bryant, which is exposed to similar earnings drivers as WesTrac Australia’s construction offering, noting that the company’s shares are thinly traded o the average multiple for the most comparable mining services companies, in particular Mineral Resources, McMahon and Sedgman which are exposed to similar markets and commodities as WesTrac Australia. The average 2010 and 2011 multiples for the identified mining services companies are 9.6 times and 7.9 times, respectively.  positive attributes of WesTrac Australia relative to the comparable companies which include: o WesTrac is significantly leveraged to sectors with favourable long term growth prospects. In particular, Australian iron ore production, which as discussed in Section 5.2.1 is expected to benefit from a predicted rise in Chinese import requirements over the long term as well as expanded port capacity in NSW which should provide the NSW coal sector the ability to meet latent coal demand in Asia o a large portion of WesTrac Australia’s revenues are already contracted. In particular 90% of 2010 and 61% of 2011 revenues are underpinned by either firm orders or expected expenditure from alliance customers.  potential downside risks for WesTrac Australia relative to the comparable companies which include:

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o Whilst Caterpillar has the ability to terminate the distribution arrangements with 90 days notice, WesTrac Australia’s status as one of the largest distributors within the Caterpillar network, as a contributor to Caterpillar’s Worldwide Mining Dealer Council, and past history of providing significant returns to Caterpillar should mitigate the risk of losing any territory over the long term. Furthermore, we note that an element of any risk or opportunity in relation to the existing territories (or other risks associated with the Caterpillar relationship) would be reflected in the multiples for other listed Caterpillar and other distributors o a potential key person risk in relation to Kerry Stokes’ established relationship with Caterpillar which may not be able to fully transitioned to a potential buyer of the business o potential key customer risk as WesTrac’s customer base is concentrated on a small number of large iron ore and coal mining companies operating in WA and NSW respectively.  the average historical EBIT multiple achieved in recent control transactions of 11.9 times although we note that these transactions are of limited comparability.

Conclusion on CME valuation The enterprise value of WesTrac Australia derived from the capitalisation of maintainable earnings method is summarised below.

Table 73: Summary – capitalisation of maintainable earnings method

Low value High value

Maintainable earnings ($m) 170.0 170.0 Earnings multiple times 9.0x 9.5x Enterprise value ($m) 1,530.0 1,615.0

Source: Deloitte analysis

9.2.3 DCF method cross-check We have also considered the value of WesTrac Australia using the DCF approach. WesTrac Australia management has developed and provided detailed projections for WesTrac Australia for the years ending 30 June 2010 to 30 June 2015 (the WTA Projections). Based on the WTA Projections, we have prepared a detailed cash flow model for WesTrac Australia which includes projections of nominal, ungeared, A$ after-tax cash flows for WesTrac Australia from 1 January 2010 until 30 June 2015 (WTA Model). In preparing the WTA Model we have undertaken an analysis that has included:  analysing the reasonableness of assumptions including revenue growth, margins, capital expenditure, operating costs, depreciation and tax assumptions included in the WTA Projections  analysis of relevant business and operational plans for WesTrac Australia  discussions with WesTrac Australia’s management concerning the preparation of the projections and their views regarding the assumptions on which they are based. 171 Deloitte: Seven Network Limited – Independent expert’s report

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Our work did not constitute an audit or review of the WTA Projections in accordance with the Auditing and Assurance Standards Board (AUASB) Standards and accordingly we do not express any opinion as to the reliability of the WTA Projections or the reasonableness of the underlying assumptions. However, nothing has come to our attention as a result of our analysis that suggests that the assumptions on which the WTA Projections are based have not been prepared on a reasonable basis. Since projections relate to the future, they may be affected by unforeseen events and they depend, in part, on the effectiveness of management’s actions in implementing the projections. Accordingly, actual results are likely to be different from those projected because events and circumstances frequently do not occur as expected, and those differences may be material.

Key assumptions The key assumptions underpinning the WTA Model include:  revenue growth at a CAGR of 15% until 2015 primarily underpinned by: o a general market increase stemming from the depressed sales volume as a consequence of the recent global economic recession as mining and infrastructure projects previously delayed become active o an expectation of a significant increase in large mining and infrastructure projects in Australia to support both government infrastructure requirements and commodity exports. Increasing commodity exports is expected in order to support infrastructure and other construction projects to support the urbanisation and industrialisation of China over the longer term and energy demand from Asia o projected capital sales of Caterpillar branded trucks from FY10.  EBIT margin improvement from 7.7% to 9.4% which results in the business restoring margins to levels which have been achieved historically as well as an increase in parts pricing as exchange rates move towards longer term expectations  significant working capital release in the year to 30 June 2010 due to the depressed level of sales. Investment in working capital averaging 27% of sales revenue from 2011, consistent with historical averages  an increase in capital expenditure, specifically over 2012 to 2015, corresponding with the expansion of WesTrac Australia’s South Guildford facility and the development of the Newcastle facilities  an average tax rate of 30%. Other assumptions included in our DCF analysis include the following:  a nominal post-tax WACC in the range of 11.0% to 11.5% to discount the future cash flows of WesTrac Australia to their present value. Further details of the underlying assumptions used to derive this discount rate are set out in Appendix 4  a nominal long-term growth rate of 3.0% having regard to the Reserve Bank of Australia’s long-term target inflation rate of 2.0% to 3.0%, the Economist Intelligence Unit’s current forecasts for real gross domestic product growth in Australia over the period to 2009 to 2014 of 2.4% and discussions with WesTrac Australia management on future outlook for the industry and the company.

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Minority discount The value of WesTrac Australia, derived by using the DCF method, assumes full control of WesTrac Australia’s operations. As discussed above, we consider it appropriate to value WesTrac Australia’s contribution to the SGH on a minority basis. Studies indicate the premiums required to obtain control of companies range between 20% and 40% of the portfolio holding values. The minority discount can be derived numerically from the control premium using the following formula: Minority Discount = 1 - 1/(1+ Control Premium) This implies a general minority discount in the range of 17% to 29% for Australian companies. In determining an appropriate minority discount for WesTrac Australia we have taken into consideration the minority discount implied in the above studies as well as the average control premium paid in the mergers and acquisitions of comparable companies in the sector and the likely control and synergy benefits available to a potential acquirer of WesTrac Australia. Based on these considerations, we believe that a minority discount of 17% to 20% is appropriate to apply to determine the fair market value of the equity of WesTrac Australia which equates to a minority discount of 11% to 13% to the enterprise value on a control basis.

DCF summary The table below sets out the results of our DCF analysis.

Table 74: Discounted cash flow analysis – cross-check

Low value High value $ million $ million

Present value of forecast period 294.1 298.4 Present value of terminal value 1,403.8 1,525.5 Enterprise Value (control basis) 1,697.9 1,823.9

Minority discount (enterprise level)1 13% 11%

Enterprise Value (minority basis) 1,473.6 1,616.2

Source: Deloitte analysis Notes: 1. estimated based on the implied enterprise level minority discount assuming interest bearing debt and financial derivatives of $460 million as discussed below and a minority discount of 17% to 20% to the fair market value of equity

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Set out below is a summary of the enterprise value of WesTrac Australia under the CME and DCF approaches:

Figure 48: WesTrac Australia valuation comparison (minority enterprise value)

DCF approach

EBIT multiple approach

1000 1200 1400 1600 1800 2000

Source: Deloitte analysis

We note that the DCF value (on a minority basis) is broadly consistent with the CME valuation as set out above.

9.2.4 Conclusion After considering the above we have estimated the enterprise value of WesTrac Australia on a minority basis to be $1,530 million to $1,615 million.

9.2.5 Surplus assets and contingent liabilities WesTrac Group management has indicated that WesTrac Australia does not have any material surplus assets nor any material contingent liabilities.

9.2.6 Net financial debt WesTrac Australia’s net financial debt at 31 December 2009 was as follows:

Table 75: Net debt for WesTrac Australia as at 31 December 2009

($m)

Derivative financial instruments (net liability) 30.1 Interest bearing liabilities 429.4 Additional investment in working capital 97.2

Net debt 556.7

Source: WesTrac Group management, Deloitte analysis Note: Net debt for WesTrac Australia includes net debt of WesTrac Fleet. The net debt does not agree to the balance sheet in Table 30 as the balance sheet excludes WesTrac Fleet and WesTrac Australia subsidiaries. 174 Deloitte: Seven Network Limited – Independent expert’s report

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The main components of the net financial debt of WesTrac Australia include:  interest bearing liability balances are as at 31 December 2009. We understand that there have been no material movements in these balances subsequent to 31 December 2009  WesTrac Australia is party to derivative financial instruments to hedge the company’s US dollar-denominated debt and coupon obligations and was in a net liability position as at 31 December 2009  the working capital balance for WesTrac Australia as at 31 December 2009 was abnormally low due to the significant decline in inventory levels as sales declined. In order to return inventory to levels required to support our assumed level of maintainable earnings will require an investment in additional working capital of approximately $97 million. We understand that any cash within WesTrac Australia will not be transferred as part of the Share Scheme.

9.2.7 Equity value of WesTrac Australia The estimated equity value of WesTrac Australia on a minority basis is summarised below.

Table 76: Summary – equity value WesTrac Australia (inclusive of WesTrac Fleet)

Low value High value Section ($m) ($m) Enterprise value 9.2.4 1,530.0 1,615.0 Net debt 9.2.6 556.7 556.7 Equity value (on a minority basis) 973.3 1,058.3

Source: Deloitte analysis

9.3 Valuation of WesTrac China

9.3.1 Summary Deloitte has estimated the fair market value of WesTrac China on a minority basis to be in the range of $271.6 million to $350.7 million. We estimated the fair market value of WesTrac China using the DCF approach. Our DCF valuation analysis is presented below.

9.3.2 WesTrac China future expectations WesTrac China’s management has prepared a detailed business plan (WTC Business Plan) which includes projections of nominal after-tax cash flows up to and including the year ending 30 June 2025 (WTC Projections). The WTC Projections cover the consolidated operations of WesTrac China Limited. We have undertaken a similar analysis of the WTC Projections as for the WTA Projections as set out in Section 9.2.3.

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The key assumptions adopted in the preparation of the WTC Projections are discussed below:

Revenues Revenues are projected to increase at a compound annual growth rate of 17% over the 10 years 2010 to 2020. Key drivers of this growth include:  general growth in WesTrac China’s markets, in particular: o China’s GDP is expected to grow at a CAGR of 8% over the years 2009 to 2014, part of which will be underpinned by mining and infrastructure projects o China’s construction machinery market is expected to grow in excess of 10% per annum until FY14 according to industry analysts o FY12 will be the second year of the Chinese Government’s five year plan and historically significant execution of infrastructure and construction projects occurs during this period (although there could be other drivers to this trend historically)  an expansion of existing product lines, in particular the expectation that WesTrac China will assume SEM distribution rights for all of its Caterpillar territories in China by 2013. By FY15, SEM products are expected to contribute approximately 9% of WesTrac China’s gross profit  increasing market share for equipment sales, in particular in the mining sector.

Margins EBIT margins are projected to expand from 3% in 2010 to 7% in 2020. This growth is driven by a number of factors including:  a trend over time to higher margin product lines such as parts and service as well as an expansion in margins for equipment sales once the impact of recent discounting of excess inventory diminishes  employee expenses are forecast to trend in line with sales growth which incorporates both an increase in staff levels and wage increases over the forecast period. General operating and occupancy expenses are expected to grow over the period to 2015 in line with WesTrac China’s business expansion before growing at 5% per annum in the period post 2015  EBIT margins are expected to average 6.8% between 2016 and 2025. EBIT margins are lower than those observed for WesTrac Australia reflecting a different product and service mix and more competitive environment for WesTrac China.

Other assumptions Other assumptions incorporated in the WTC Projections include:  capital expenditure on WesTrac China’s rental range is expected to grow at a rate which is consistent with forecast sales growth in the rental business  non-rental capital expenditure averages 1% of non-rental sales over the period 2010 to 2015 largely driven by WesTrac China’s investment in new facilities within its existing territories. Post 2015 non-rental capital expenditure averages approximately 0.3% of sales revenue reflecting a maintenance or ongoing capital position

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 net working capital is estimated to be between 21% and 30% of sales over the term of the WTC Projections. Over the longer term working capital requirements are expected to average 22% of sales  ungeared post tax cash flows have been calculated based on WesTrac China’s expected blended tax rate of 24% based on a Hong Kong tax rate of 16.5% and a Chinese tax rate of 25% assuming approximately 75% of income is sourced within China over the life of the projections and the remainder is sourced in Hong Kong.

9.3.3 Valuation scenarios Based on the WTC Projections, we have prepared a detailed cash flow model for WesTrac China which includes projections of nominal, ungeared, US dollar denominated after-tax cash flows for WesTrac China from 1 January 2010 until 30 June 2025. In order to recognise the inherent uncertainty of preparing long term forecasts for WesTrac China we have considered a number of scenarios in estimating the fair market value of WesTrac China. In particular, we have considered a scenario which largely reflects the first 10 years of the WTC Projections (CAGR of 17%) and then revenue growth aligns to expected longer term nominal GDP growth in China of 6% to 7% (WTC Business Plan Scenario). Whilst the short to medium term growth prospects for WesTrac China are robust, there remains significant execution and other risks facing WesTrac China, in particular:  WesTrac China is expected to be cash flow negative until FY13  the SEM product range currently has limited market share and the wheel loader market in China is price sensitive and highly competitive  the technology gap between local manufacturers and established global manufacturers such as Caterpillar is narrowing. As a consequence local manufacturers are able to provide competitive products at relatively lower price points which has resulted in some market share erosion for Caterpillar and other global manufacturers in recent years. There is a risk that WesTrac China may lose market share over time or that there may be adverse pricing pressures which could diminish the margins achieved. Consequently we have also considered an alternative scenario which adopts some lower growth assumptions to analyse the consequent impact on the valuation (WTC Scenario 2). In particular, WTC Scenario 2 adopts the following assumptions:  the WTC Business Plan scenario is followed over the period to FY12 implying a modest market share increase of approximately 1% with a large portion of revenues underpinned by known or reasonably expected projects. The risk associated with achieving the growth assumptions adopted in the WTC Business Plan beyond this period increases due to the uncertain competitive and pricing environment. We have therefore considered the impact if WesTrac China were to achieve more modest growth levels post FY15 in line with nominal GDP growth in China of approximately 9%, declining to 6% in the long run  average EBIT margins to remain consistent at 2015 levels for the years 2016 to 2025.

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9.3.4 Discount rates The discount rate used to equate the future cash flows to a present value reflects the risk adjusted rate of return demanded by a hypothetical investor. We have selected a nominal after-tax discount rate in the range of 11.5% to 12.5% to discount the future cash flows of WesTrac China to their present value. A detailed consideration of these matters is provided in Appendix 4.

9.3.5 Terminal value The terminal value estimates the value of the ongoing cash flows after the forecast period. We have estimated the terminal value based on the forecast cash flows in the 2025 financial year, the discount rate and an estimate of the long-term cash flow growth rate. We have estimated a long-term growth rate of 4% to 5% to apply to WesTrac China. In selecting this amount we have had regard to longer term forecasts of real GDP growth and inflation in China as well as market practice for research analysts and valuation practitioners. Our selected long term growth rate is in excess of the long term growth rate assumed for the Australian businesses and is reflective of the longer term growth prospects of China relative to Australia underpinned by the longer term industrialisation and urbanisation of China and the potential impact it will have on the construction, infrastructure and resource sectors.

9.3.6 Summary of DCF The table below sets out the results of our DCF analysis under both the WTC Business Plan Scenario and the WTC Scenario 2.

Table 77: Summary – DCF enterprise value (control basis) US$m

WTC Business Plan Scenario WTC Scenario 2 Long growth rate Long term growth rate

4.0% 4.5% 5.0% 4.0% 4.5% 5.0%

11.0% 539.7 562.4 588.7 335.7 347.8 361.8 11.5% 477.4 495.2 515.7 295.6 304.9 315.6 12.0% 423.9 438.0 454.1 261.1 268.3 276.5

WACC 12.5% 377.6 388.9 401.6 231.2 236.9 243.2 13.0% 337.2 346.3 356.4 205.1 209.5 214.4

Source: Deloitte analysis

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The value of WesTrac China is highly sensitive to a number of inputs including gross margin, sales growth and working capital requirements. The sensitivity of the valuation to these inputs based on a relative 10% movement is summarised in the figure below.

Figure 49: Sensitivity of enterprise value to changes in key assumptions (US$’m)

Gross Margin (44)% 44%

Sales Growth (17)% 20%

Working (11)% 11% Capital

0 100 200 300 400 500 600 700

Source: Deloitte analysis Note: Sensitivity is measured on the midpoint value of the WTC Business Plan and the lower end of our long term growth estimate

Due to the early stage of operations of WesTrac China and the range of potential outcomes in respect of market growth and market share for the sector, our selection of the value range for WesTrac China is a relatively subjective judgement. Balancing the valuation based on the WTC Business Plan Scenario and the more conservative WTC Scenario 2 we have judgementally selected a valuation range of US$350.0 million to US$450.0 million.

9.3.7 Net financial debt As at 31 December 2009 WesTrac China had interest bearing liabilities of US$60.2 million. We understand that any cash within WesTrac China will not be transferred as part of the Share Scheme.

9.3.8 Minority discount As for WesTrac Australia (see Section 9.2), we have applied a minority discount in the range of 17% to 20% to our calculated equity value to take into consideration WesTrac China’s contribution to the value of the SGH.

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9.3.9 Valuation: discounted cash flow method The equity value of WesTrac China on a minority basis derived from the discounted cash flow method is summarised below.

Table 78: Summary – discounted cash flow method

Currency Low High

Selected enterprise value (control basis) US$’m 350.0 450.0

Surplus assets1 US$’m 0.3 0.3 Net debt2 US$’m 60.2 60.2 Equity value (on a control basis) US$’m 290.1 390.1 Minority interest discount 17% 20% Equity value (on a minority basis) US$’m 241.8 312.1 A$/US$ exchange rate3 0.89 0.89 Equity value (on a minority basis) $’m 271.6 350.7

Source: Deloitte analysis, Bloomberg Notes: 1. relates to a minority investment in Apac Energy Rental Pte Ltd (Singapore)

2. net debt for WesTrac China includes net debt of WCMEL. The net debt does not agree to the balance sheet in Table 32 as the balance sheet excludes WCMEL 3. based on A$/US$ exchange rate as at 15 February 2010

9.3.10 WesTrac China valuation cross check To assesses the reasonableness of our estimated fair market value of WesTrac China derived from our primary valuation methodology, we have considered both the implied EBIT multiple from our primary methodology and the price in the recent acquisition of WesTrac China.

WesTrac China transaction In July 2008 WesTrac China’s operations were transferred to the WesTrac Group as part of a restructure within the ACE group of companies. This transaction was priced at an approximate enterprise value of approximately US$435 million. The transaction price was derived by ACE group management with reference to internal negotiations, supported by an independent valuation. Since this transaction the following has occurred which we expect to have a positive impact on the value of the WesTrac China business:  significant investment in infrastructure by the Chinese government stemming from the stimulus package which has contributed to stronger sales growth  increased visibility of Caterpillar’s SEM strategy and further understanding of the expectations in respect of the allocation of the SEM distribution rights  Caterpillar has increased its presence in the Chinese market, which has included the addition of local manufacturing capability and additional analysis of the market which has increased long term market share expectations. 180 Deloitte: Seven Network Limited – Independent expert’s report

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Conversely, we expect the following factors will have had a negative impact on the value of the WesTrac China business since the acquisition date:  Caterpillar as a brand has lost market share in some of its key product ranges in China including the dominant excavator market  the impact of the global financial crisis has been prolonged to a degree which has delayed WesTrac China’s forecast growth Our selected valuation range at the high end is consistent with the value it was transferred from ACE, which does not appear unreasonable after considering the above factors.

Implied EBIT multiple We have also considered the EBIT multiples implied by our estimate of the fair market value of WesTrac China. The 2010 and 2011 multiples implied by the midpoint of our estimated fair market value range are approximately 21 times and 15 times EBIT respectively, which are in excess of the multiples of the comparable companies due largely to the early stage that WesTrac China is at in its lifecycle. We note that the implied multiple in 2013 is broadly consistent with the equivalent multiple for WesTrac Australia which is when WesTrac China is expected to be at a more mature stage of development. 9.4 Valuation of other assets WesTrac owns 40% of Energy Power Systems Australia Pty Limited (EPSA) which sells Caterpillar engines for the power generation, marine, on-highway truck and industrial markets in Australia and Papua New Guinea. We have estimated the fair market value of EPSA to be $10 million having regard to the carrying value of this investment as well as the expected earnings of EPSA and the earnings multiple applied to WesTrac Australia. 9.5 Valuation of National Hire

9.5.1 Summary Deloitte has estimated the fair market value of WesTrac Holding’s 66.2% interest in National Hire (including National Hire’s 46.1% economic interest in the Coates Group) on a minority basis to be in the range of $220 million to $260 million. In performing our valuation the information available has been limited to only publicly available historical information for the Coates Group. For National Hire we have had access to publicly available financial information and company announcements. As a consequence our valuation relies mainly on financial information, particularly in respect of the Coates Group current as at 30 June 2009. In addition, as the Coates Group is an Australian proprietary company it is not subject to the same level of disclosure of financial information as a listed public company. Accordingly, the financial information upon which we have relied for the Coates Group is more limited, particularly in respect of earnings expectations and terms of existing debt facilities. Due to these limitations the vendor (ACE) has undertaken to provide a mechanism to support a minimum value for National Hire as set out in Section 9.5.7. In determining the value of WesTrac Holdings’ interest in National Hire we have had regard to recent trading in National Hire shares as well as the estimated fair market value of National Hire using an earnings multiple based valuation methodology. We estimated the 181 Deloitte: Seven Network Limited – Independent expert’s report

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fair market value of National Hire by aggregating the fair market value of its underlying assets on a sum-of-the-parts basis using the CME method. Our valuation considerations for National Hire are discussed below.

9.5.2 Future maintainable earnings We have selected EBIT as an appropriate measure of earnings for National Hire since earnings multiples based on EBIT take into account the capital intensive nature of the Allight and Coates Group businesses in which National Hire has an interest. We have estimated the future maintainable EBIT of the Allight and Coates Group businesses attributable to National Hire to be $90.7 million. In determining future maintainable earnings we have had regard to the following:  actual trading results for the year ended 30 June 2009  National Hire’s results for the half year ended 31 December 2009  non-recurring items affecting the earnings including the financial effect of discontinued businesses on the 2009 trading results  the downturn in the construction and mining industries experienced in 2009 and forecast to continue through 2010 to which the Allight and Coates Group businesses are exposed, and the cyclical nature of the construction and mining industries and the sustained recovery expected in these sectors. The table below sets out the historical and estimates FY10 earnings and the selected future maintainable earnings for each of National Hire’s operating assets.

Table 79: National Hire – EBIT

Pro forma Actual Actual Estimate 20071 2008 2009 2010 Maintainable Attributable ($’m) ($’m) ($’m) ($’m) ($’m) EBIT4 Adjusted EBIT Allight 2.8 4.5 6.1 7.2 7.9 5.2 Coates Group 217.6 n/m2 258.6 224.83 280.0 85.5

Total adjusted EBIT 220.4 n/m 264.7 232.0 287.9 90.7

EBIT margin (%) 21.7% 25.9% 26.1% 25.5% 27.5%

Source: Coates Group financial statements lodged with ASIC, National Hire notice of Annual General Meeting and Explanatory Memorandum, October 2007 and Deloitte analysis Note: n/a = not available; n/m = not meaningful 1. Pro Forma Financial information was obtained from National Hire’s Annual General Meeting and Explanatory Memorandum, October 2007. The FY07 results include the Allied business, contributing $15.9 million to EBIT, but exclude the financial effect of the acquisition of Prime by Coates Hire, expected to contribute $6 million to EBIT.

2. Coates Group financial results for FY2008 are for the period from the date of acquisition of Coates Limited on 9 January 2008 to 30 June 2008

3. The FY10 estimate for National Hire and the Coates Group are Deloitte indicative estimates based on National Hire’s half yearly results including its share of Coates Group’s net profit after-tax reported for the half year ended 31 December 2009, National Hire’s announcement relating to the 19% reduction in Coates Group revenue for the half year ended 31 December 2009 relative to the corresponding prior period, and 2010 comparable companies. Growth rates for Australian comparable companies are set out in Appendix 5

4. WesTrac Holdings has a 66.2% interest in the ordinary equity of National Hire. National Hire holds a 46.1% economic interest in the Coates Group, giving WesTrac Holdings an indirect 30.5% economic interest in the Coates Group. 182 Deloitte: Seven Network Limited – Independent expert’s report

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The selected maintainable earnings reflects:  the depressed level of earnings expected for 2010 as the business recovers from the low point of the industry cycle  the exposure that the Coates Group has to high growth sectors of the Australian economy  the potential for operational cost savings identified in the strategic review of Coates prior to its acquisition by the Coates Group and the full realisation of synergies following completion of the integration of National Hire and Coates  earnings growth of 25% over the 2010 forecast and 8% over the 2009 actual, which is conservative relative to industry peers.

9.5.3 Earnings multiple We have determined an earnings multiple in the range of 8.0 to 8.5 times EBIT, on a minority basis. In selecting these earnings multiples we have considered:  earnings multiples derived from security market prices of comparable listed companies  prices achieved in mergers and acquisitions of comparable companies. These are discussed separately below. In selecting an appropriate multiple we have also considered the financial structure of the Coates Group, particularly its gearing level. Financial debt is set out in 9.5.5.

Market trading multiples We have compiled security market trading multiples for companies comparable to the businesses in which National Hire has an interest. A summary of this analysis by industry, domestically and internationally, is presented in the following table.

Table 80: Earnings trading multiples – Mining services and Equipment Hire

Gearing FY10 EBIT FY11 EBIT FY10 EBIT FY11 EBIT Company (%) growth growth times times

Equipment and Machine Hire – 46.5% (33.1%) 43.1% 11.5x 8.0x Australia Equipment and Machine Hire – 50.3% (43.4%) 33.2% 20.8x 14.9x International Mining services companies - 10.5% 107.9% 18.9% 10.0x 8.5x Australia

Source: Bloomberg

Enterprise values were calculated by summing the total of the net borrowings at each company’s most recent reporting date and the market capitalisation at 5 March 2010. Forecast earnings were taken based on an average of estimates from selected brokers as at 5 March 2010. Specific details regarding the calculation of the earnings multiples are provided in Appendix 5.

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General comments regarding the multiples, together with the historical growth, margins and operations of the above companies, are listed below:  the majority of the Australian companies are smaller than the Coates Group while international companies are of similar size, on average. In general, smaller companies have lower earnings multiples than larger companies  National Hire’s Allight business is significantly smaller than the Coates Group and is exposed to similar industry sectors. Allight is also a preferred supplier to the Coates Group and generates a large proportion of its revenue from supplying equipment to the Coates Group. Accordingly, for the purpose of this analysis we have primarily focussed on the comparability of listed companies to the activities of the Coates Group. Equipment and machine hire - Australia  There are three equipment and machine hire companies listed in Australia, reflecting a small proportion of the overall industry, with the non-listed Coates being the dominant market participant and the remainder of the industry being highly fragmented  Each of these companies experienced a downturn in 2009 and brokers are expecting continued depression in the market in 2010, similar to the Coates Group business, and a strong economic recovery in 2011, moderating in 2012. Each company has very similar geographic and industry exposure but some are levered more significantly toward heavy machinery rental in the civil construction and/or mining industries where, in the short term, growth may be higher relative to some of the Coates Group business segments. Equipment and machine hire - International  The listed equipment and machine hire companies operate predominantly in North America and the UK. Accordingly, these companies face a number of different opportunities and risks compared to companies operating in Australia. Speedy Hire in particular has a large proportion of its revenue derived from tool hire and is significantly smaller than the other competitors in the UK market  For US and UK listed companies, brokers are expecting depressed earnings in 2010 and a significant recovery with strong earnings growth by 2012 and in some cases by 2011. Accordingly, the recovery in international equipment and machine hire companies is expected to lag that of their Australian counterparts, making the 2010 EBIT and in some cases the 2011 EBIT less representative of future earnings, and may explain why the international companies are trading on relatively higher 2010 and 2011 multiples than the Australian companies.

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Mining services companies - Australia  The listed mining services companies are typically weighted toward the mining sector where the growth expectations are higher. The companies that are wholly exposed to the mining industry face a number of different opportunities and risks compared to National Hire’s businesses  Leighton is significantly larger and more diversified in its operations. In general, larger companies have higher earnings multiples than smaller companies The selection of the appropriate EBIT multiple from comparable listed company observations is a matter of judgement. The Australian listed companies have a greater degree of comparability due to their exposure to the most similar economic drivers. We place less emphasis on the Australian mining services companies because they are generally more weighted to the mining industry and have different capital intensity and financial gearing. In respect of the international listed equipment hire companies, we have less regard for their 2011 earnings multiples because their growth expectations are not consistent with the economic recovery expected in the Australian market.

Merger and acquisition multiples We compiled merger and acquisition multiples for companies comparable to the businesses in which National Hire has an interest. A summary of this analysis by industry and by country/region is presented in the following table.

Table 81: Earnings multiples – mergers and acquisitions

Number of transactions Enterprise Current Historical over the last value EBIT EBIT Control 3 years ($’m) margin multiple Premium

Equipment and machine hire Average - Australia1 6 402 20% 10.9 45% Average - International2 5 497 19% 13.0 n/a

Other Average - Mining service 3 38.1 n/m 13.9 n/m

Source: Mergermarket, company announcements, company annual reports, Capital IQ, Deloitte analysis Notes: n/m = not meaningful; n/a = not available 1. PCH Group has been excluded from this analysis as the current EBIT at the date of the transaction was depressed.

2. NES Rentals Holdings has been excluded from this analysis as the current EBIT at the date of the transaction was depressed. Specific details regarding the companies constituting the above benchmark and the calculation of the merger and acquisition earnings multiples are provided at Appendix 7. General comments regarding the multiples are listed below:  there are a number of recent transactions observed in the Australian market involving companies operating in industries directly comparable to the operations of the Coates Group, however, the majority of Australian transactions are for companies or businesses that are significantly smaller than the Coates Group. The smaller transactions, both Australian and international, have typically occurred at lower earnings multiples than larger transactions

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 in January 2008 the acquisitions of Coates Hire Limited and the rental services business of National Hire by the Coates Group were completed. The Coates Group is jointly controlled by National Hire and the Carlyle Group. The two businesses acquired substantially make up the current operations of the Coates Group (the assets of Allied Equipment, a heavy equipment hire division of the Coates Group is in the process of being divested). Accordingly, these two transactions are the most comparable Australian transactions in terms of size, the nature of the businesses and the financial structure under which they operate. Coates Hire Limited was acquired at a multiple of 12.4 times historical EBIT, reflecting a control premium of 24%. The National Hire rental services business was acquired at a multiple of 12.2 times historical EBIT  the majority of Australian and international transactions occurred in 2006 and 2007 which was prior to the global financial crisis and arguably represent a different transaction pricing environment  all of the transactions relate to the acquisition of a majority of the share capital or of a business unit of the target company and therefore the implied multiples arguably incorporate a premium for control. Of the transactions summarised in Section 9.5.3, four involved the acquisition of a listed company. Over the one month period prior to the announcements, observed premiums ranged from 24% to 67%. Based on the above analysis of comparable trading and transaction multiples we have selected an EBIT multiple in range of 8.0 to 8.5 times current EBIT on a non-controlling basis to apply to the National Hire businesses. In selecting this multiple we have had primary regard to the following:  the average 2011 EBIT multiples of Australian comparable equipment hire companies of 8.9  the acquisition price for Coates Hire and the control premium paid  Coates Group’s strong market position  the high gearing levels of the Coates Group and the uncertainty regarding refinancing risk and the likelihood of any near term covenant breaches  National Hire’s exposure to an element of key supplier risk in its relationship with WesTrac Australia in respect of the Cat Rental Stores

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9.5.4 Surplus assets Surplus assets are those assets owned by a company that are surplus to its main operating activities, such as unused property, loans or investments. Such assets should be valued separately from the main operating activities of the company, after adjusting operating results to remove the net income or expense provided by the surplus assets. We have identified the following surplus assets held by businesses in which National Hire has an interest:

Table 82: Attributable surplus assets

Low value High value ($’m) ($’m)

Coates Group Allied Equipment 50.0 60.0 Tax losses - 5.0 Total Coates Group 50.0 65.0

Economic interest 30.5% 30.5%

Attributable surplus assets 15.3 19.8

Source: Deloitte analysis

Allied Equipment In 2008 the Coates Group commenced the sale of the assets of the Allied Group business. As at 30 June 2009 there was $54.4 million worth of hire fleet and inventory remaining for sale. There were also trade receivables (net of trade payables) of $7.5 million that are expected to be released from transactions relating to the Allied Equipment business. Due to the uncertainty in respect of the timing and quantum of any net proceeds received (including the tax consequences of selling the assets) we have applied a discount to the carrying value of those assets and selected a value range of $50 million to $60 million.

Tax losses The value of tax losses includes $7.6 million attributable to revenue losses and a further $4.6 million attributable to capital losses. Tax losses are typically subject to the risk that the losses will not be recoverable in full and/or will be recoverable over a number of years. The value of tax losses has not been included in the assessment of maintainable earnings and accordingly we have included the value as a surplus asset. Due to the uncertainty in respect of the utilisation of these losses we have applied a discount to the carrying value and have selected a range of between nil and $5 million.

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9.5.5 Net financial debt National Hire’s estimated attributable net financial debt at 31 December 2009 was as follows:

Table 83: Attributable Net debt

Total Economic Attributable ($’m) interest ($’m)

National Hire Deferred tax liability (net liability) 9.2 Cash (9.9) Net debt (0.7) 66.2% (0.5)

Coates Group Interest bearing liabilities 1,967.1 Derivative financial instruments (net liability) 37.4 Hire purchase and lease liabilities 7.8 Cash (268.3) Estimated free cash flow from July 2009 to December 2009 (18.7) Net debt 1,725.3 30.5% 526.2

Total 525.7

Source: Deloitte analysis Notes: 1. Includes senior debt and subordinated debt 2. National Hire disclosed a net debt position for Coates Hire of $1.635 billion as at 31 December 2009. Our estimated net debt position excluding the derivative liability ($37.4 million) and including the expected cash generated from the sale of Allied of ($50 million to $60 million as set out in Section 9.5.4) is between $1,628 million to $1,638 million which is consistent with the disclosed net debt position

We note the following in relation to the net debt position of the National Hire Group:  Coates Group is party to derivative financial instruments to hedge its exposure to fluctuations in variable interest rates. The derivative financial instruments primarily hedge the company’s A$ denominated senior debt obligations. The net position of the derivative instruments as at 30 June 2009 has been considered in the above calculation of net debt, given its direct association with the financial obligation that is to be settled at a future date. We have adopted this as an estimate of the fair value of the derivative liability as at 31 December 2009  in FY2009 the Coates Group disclosed that interest on bank loans was at an average variable interest rate of 6.6%. The current financing arrangements for the Coates Group were negotiated leading up to the offer for the acquisition of Coates Hire Limited by the Coates Group made in early October 2007. We have assumed the terms of the senior debt facilities remain in place until December 2013 when repayment is due and that there are no events that would cause a review of the facilities. The Coates Group was likely to have been able to negotiate favourable gearing levels and interest rates compared to the arrangements that are likely to be negotiated in the current market, as a consequence of the deterioration in the global economic outlook and the tightening of debt capital markets. When the senior debt facilities are subject to review, the Coates Group may not be able to obtain the same terms and, subject to their debt amortisation capacity prior to

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review, may be required to undertake capital management initiatives to reduce debt, which may adversely affect the value of the Coates Group  in order to estimate the current net debt position for the Coates Group, we have estimated the net free cash flow from the most recently available balance sheet date (30 June 2009) until 31 December 2009. The calculation of free cash flow excludes cash generated from the sale of Allied Equipment business assets.

9.5.6 Equity value of National Hire The value of WesTrac Holding’s economic interest in National Hire derived from the capitalisation of maintainable earnings method is summarised below.

Table 84: Summary – capitalisation of maintainable earnings method

Low High ($’m) ($’m)

Share of maintainable EBIT 90.7 90.7 EBIT multiple 8.0 8.5 Enterprise value 725.6 771.0 Attributable surplus assets 15.3 19.8 Attributable net debt (525.7) (525.7) Equity value (on a minority basis) 215.2 265.1

Selected value 220 260 Number of shares (‘m) 98.3 98.3 Value per share (on a minority basis) ($) 2.24 2.64

Source: Deloitte analysis Note: n/m = not meaningful 1. WesTrac Holdings holds a 66.2% interest in the ordinary equity of National Hire. National Hire holds a 46.1% economic interest in the Coates Group, giving WesTrac Holdings an indirect 30.5% economic interest in the Coates Group.

9.5.7 Valuation cross check

Share price The market price of National Hire’s shares reflects the market’s view of the value of National Hire’s Allight business and National Hire’s interest in the Coates Group. As discussed, National Hire shares are tightly held and relatively illiquid. National Hire has a market capitalisation of approximately $280 million and 148.4 million ordinary shares outstanding at the date of this report and until early February 2010 the share price traded between $2.00 and $2.10. However, since 1 February 2010, the share price of National Hire has decreased significantly to $1.50 per share (at 16 February 2010) largely due to an expected deterioration in operational results, before recovering to trade at over $1.85 per share.

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Section 6 299

However we do not consider recent trading in National Hire shares to be reflective of the fair market value of the shares since:  trading in the free float of shares in recent months (between September and December 2009) has been dominated by a related party, Elph Pty Limited  only small parcels of shares have been traded over this period.

Valuation Support mechanism The vendor (ACE) is providing a Valuation Support mechanism which guarantees the purchase price of the 98.3 million National Hire shares held by the WesTrac Group. Details of the Valuation Support mechanism are set out below:  following the release of National Hire’s audited financial statements for the year ending 30 June 2011, the SGH appoints an independent expert to provide an opinion of the value of the investment in National Hire  to the extent the independent expert’s valuation is less than $2.50 per share at 30 June 2011, ACE settles the difference, subject to adjustments to reflect the impact of changes to the capital structure of National Hire prior to 30 June 2011, and subject to the impact of certain events including a change of control of National Hire. The value of ACE Holding’s economic interest in National Hire based on the Valuation Support is summarised below.

Table 85: Summary – analysis of recent share trading and Valuation Support

Valuation Support Value

Share price ($) 2.50 Number of shares (‘m) 98.3

Equity value (minority basis) ($’m) 245.8

Source: Deloitte analysis

We consider the present value of the Valuation Support value provides evidence supporting the low end of our valuation range for WesTrac Holdings interest in National Hire and its interest in the Coates Group.

190 Deloitte: Seven Network Limited – Independent expert’s report

300 Seven Network Limited Scheme Booklet – Part B

9.6 WesTrac Holdings net debt The components of the net financial debt of WesTrac Holdings are shown in the table below.

Table 86: WesTrac Holdings – net debt

($m)

Cash - Senior debt facility 594.7 Derivative financial instruments 2.2

Net debt 596.9

We note that WesTrac Holdings:  has a syndicated senior debt facility of A$600 million. This debt currently matures in December 2012. As at 31 December 2009 the outstanding balance on the syndicated senior debt facility was $600 million, offset by prepaid borrowing costs giving a net carrying balance of $594.7 million. Following implementation of the Share Scheme the SGH will use the cash reserves of Seven Network to repay all amounts outstanding under the WesTrac Holdings facility. The SGH will seek to renew the facility with a reduced limit  is also party to derivative financial instruments used to hedge exposure to interest rate fluctuations and was in a net debt liability position of $2.2 million as at 31 December 2009. 9.7 WesTrac Holdings corporate costs WesTrac Holdings currently incurs corporate overheads of approximately $5.0 million at the EBIT level. These costs include executive salary costs and other head office costs referred to in section 3.4(c) of Part B of the Scheme Booklet. These corporate costs have not been taken into account in the earnings or cash flows attributable to WesTrac Australia, WesTrac China or National Hire, however, these costs will continue to be incurred on a going concern basis. We have capitalised the corporate overheads using an earnings multiple ranging from 9.0 times to 9.5 times, having regard to the earnings multiples incorporated in our valuations of WesTrac Australia, WesTrac China and National Hire. On this basis we have estimated the fair value of the corporate costs of WesTrac Holdings to be $45.0 to $47.5 million.

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Section 6 301

10 Valuation of SGH

In this section we have estimated the fair market value of the shares in SGH. This valuation has been performed on a minority interest basis since Seven Network Shareholders will become minority holders of shares in SGH if the Share Scheme proceeds. We have valued a share in SGH by aggregating our valuations of Seven Network and WesTrac Holdings on a minority basis, adjusted for the financial impact of the merger. In the table below we have set out our assessed range for the value of shares in SGH.

Table 87: Valuation of the shares in SGH

Low value High value Section ($ m) ($ m)

Equity value of WesTrac Holdings (minority basis) 9 833 1,034 Equity value of Seven Network (minority basis) 8 1,411 1,749 Merger Adjustments: Reduction in deferred tax liabilities1 260 240 Transaction costs2 (31) (31)

Total before holding company discount 2,473 2,992 Less: holding company discount at 12.5%1 (309) (374)

Equity value of SGH (minority basis) 2,164 2,618

Number of shares3 305,410,281 305,410,281

Value of a share in SGH (non control basis) ($) 7.09 8.57

Source: Deloitte analysis Notes: 1. The deferred tax liability adjustment and holding company discount are discussed below 2. Based on a total transaction cost of $41.3 million net of transaction costs already taken account of in the Seven Network valuation 3. The number of shares in the merged entity is made up of 115 million shares issued for the acquisition of ACE Holdings and the proposed issue of 190.41 million shares to Seven Network Shareholders as consideration for the acquisition of all the ordinary shares of Seven Network under the terms of the Share Scheme

Deferred tax liability adjustment The book value of the deferred tax liability for SGH following implementation of the Share Scheme set out in the pro-forma consolidated balance sheets is $434 million.

192 Deloitte: Seven Network Limited – Independent expert’s report

302 Seven Network Limited Scheme Booklet – Part B

We have estimated the valuation impact of this DTL by reference to the following factors:  the deferred tax liability includes $252 million in relation to tax liabilities which would crystallise as a consequence of Seven Network selling its interest in SMG for its current carrying value giving rise to the exit of SMG from the Seven Network tax consolidated group. An exit of SMG from the SGH tax consolidated group without any sale by Seven Network of its SMG interest would crystallise a lower portion of the DTL than would a sale by Seven Network of its SMG interest. SMG would exit the Seven Network tax consolidated group without any sale by Seven Network of its interest in SMG if, for example, KKR were to convert its convertible notes in SMG. The balance of the DTL relates to general accounting timing differences  the component of the deferred tax liability most likely to result in a direct cash outflow for SGH is the balance of $252 million relating to Seven Network’s interest in SMG  we have discounted the gross value of this liability to reflect: - the probability of the potential events that would give rise to a crystallisation of this liability occurring - the potential timeframe in which this liability is likely to become payable. Based on the above considerations, we have selected a range of $220 million to $250 million for the deferred tax liability in our valuation of SGH which represents a reduction of $240 million to $260 million in the deferred tax liability included in our valuation of Seven Network. This large reduction in the valuation impact of the deferred tax liability compared to Seven Network on a standalone basis arises primarily as a consequence of the re-setting of tax cost bases throughout the SGH Group following the implementation of the proposed Share Scheme. The net reduction in the DTL shown in the pro-forma consolidated balance sheet is $189.5 million. Our valuation adjustment of $240 million to $260 million exceeds this accounting adjustment since the gross reduction in the DTL in relation to the component of the DTL relating to Seven Network’s interest in SMG was larger and it is the movement in this component which formed the primary basis for our valuation adjustment.

Holding company discount As discussed in Section 8.11, Seven Network’s share price has historically traded at a discount to its underlying value. The factors that have caused this discount cannot be definitively identified or quantified. However, based on our analysis of the nature of Seven Network’s operations, broker commentary on the value of Seven Network and discussion with Seven Network management, we understand the principal reasons for this discount are likely to include:  dominant shareholder - the existence of a shareholder who owns 48.7% of ordinary shares and is perceived to control Seven Network  assets mostly comprise investment holdings - the nature of Seven Network’s assets which predominantly comprise a range of investments and a large cash holding rather than operating businesses  lack of transparency of strategy and operations - the strategy of the group and the nature of its assets which include a major co-investment with a private equity partner in SMG are seen to be less transparent than for many other companies

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 lack of operating cash flow - Seven Network does not generate significant cash flows through wholly-owned operating businesses with prospects for future growth  excess cash and sub-optimal capital structure - the group’s capital structure is not seen as optimal as there is cash on the balance sheet of over $1.0 billion. In addition, there is uncertainty as to how the excess cash may be deployed and/or concern it may be required to provide capital to SMG. The current trading in Seven Network shares reflects a discount to our assessed value of a Seven Network share on a minority basis51 in the range of 8.6% and 26.0%, as set out in Section 8.11. This discount is lower than it has been historically as a consequence of the increase in the DTL resulting from the recently announced change to tax laws reflected in our valuation which was not disclosed by Seven Network until its half yearly results were announced to the market on 22 February 2010 which is subsequent to the date of our share trading analysis. Further, an analysis for the 2009 calendar year of the holding company discount used by the brokers following Seven Network shares suggests discounts of between 20% and 35% were applied to their assessed underlying value with an average discount of 26%. Should the Share Scheme be approved, SGH will represent a company with a substantially different balance of assets, operations and strategy compared to Seven Network on a standalone basis. Providing an estimate of the likely holding company discount the market may factor into SGH’s share trading after the implementation of the Share Scheme is inherently uncertain and is likely to change over time as a consequence of future developments with SGH and the general market. We set out below an analysis of the factors that have contributed to the holding company discount for Seven Network and compared them to the situation for SGH if the Share Scheme is implemented.

51 Based on the one-month VWAP range as at the one day prior to the announcement date 194 Deloitte: Seven Network Limited – Independent expert’s report

304 Seven Network Limited Scheme Booklet – Part B

Table 88: Impact of the proposed Share Scheme on the potential holding company discount

Holding company discount factors SGH Potential re-rating

Dominant shareholder Kerry Stokes AC will increase his Neutral given large existing shareholding from 48.7% to 67.9% holding already regarded as conferring control

Assets mostly comprise investment SGH’s assets will rebalance to Mildly positive as there may be holdings have a much greater proportion of some offsetting view that a operating businesses ‘conglomerate’ discount may apply due to operations being across very diverse sectors.

Lack of transparency of strategy and Much clearer strategy and Positive operations transparency

Lack of operating cash flow Large increase in operating cash Positive flows

Excess cash and sub-optimal capital SGH intends to use the cash Positive structure reserves of Seven Network to repay approximately $600 million of WesTrac Holdings debt

Cash may also be utilised for future investment opportunities in the WesTrac business

Source: Deloitte analysis

Based on the above analysis we have concluded that the holding company discount applicable to SGH should reduce to the range of 10.0% to 15.0% and have applied the midpoint of this range of 12.5% in our valuation analysis.

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Section 6 305

Appendix 1: Glossary

Reference Definition

$ Australian dollars 2G Second generation 3G Third generation 4G Fourth generation ABC Australian Broadcasting Corporation ABS Australian Bureau of Statistics ACCC Australian Competition and Consumer Commission ACE Australian Capital Equity Pty Limited ACE Holdings ACE Holdings Pty Limited ACMA Australian Communications and Media Authority ACT Australian Capital Territory Act, the Broadcasting Services Act 1992 Adspend Advertising spend AFL Australian Football League AFSL Australian Financial Services Licence AGM Annual general meeting AGSM Australian Graduate School of Management Amended TELYS3 TELYS3 amended in certain respects, in the event the Share Scheme is approved and the TELYS3 Scheme is not APESB Accounting Professional and Ethical Standards Board Limited APN APN News and Media Ltd ARPU Average revenue per user ARTC Australian Rail Track Corporation Ltd ASIC Australian Securities and Investments Commission AU Australia AUD Australian dollars RG111 ASIC Regulatory Guide 111 ASX Australian Securities Exchange Limited AUASB Auditing and Assurance Standards Board BBSW Bank Bill Swap Rate Beta BHP BHP Billiton Limited Bill, the Government’s Telecommunications Legislation Amendment Competition and Consumer Safeguards Blockage Discount An amount or percentage deducted from the current market price of a publicly traded security to reflect the decrease in the per share value of a block of those securities required to attract a willing buyer where the interest held in a company is of a size that could not be sold in a reasonable period of time given normal trading volume bps Basis points bt Billion tonnes Buddecomm Paul Budde Communication Pty Ltd CA Canada CAGR Compound average growth rate CanWest CanWest Global Communications Corporation CanWest NZ CanWest MediaWorks (NZ) Ltd CAPEX Capital expenditure

196 Deloitte: Seven Network Limited – Independent expert’s report

306 Seven Network Limited Scheme Booklet – Part B

Reference Definition

CAPM Capital Asset Pricing Model Caterpillar Caterpillar Inc CCFL Caterpillar China Finance and Leasing CH China Channel Seven National and regional FTA television under Channel 7 analogue Channel 7HD Channel 7 high definition Channel 7SD Channel 7 standard definition CME Capitalisation of maintainable earnings CMJ Consolidated Media Holdings Limited CNs Convertible notes Coal & Allied Coal & Allied Industries Ltd Coates Coates Hire Limited Coates Acquisition Acquisition of Coates by National Hire Coates Australia Coates Group in Australia Coates Group Coates Group Holdings Pty Limited Consolidated Press Consolidated Press Holdings Limited Convertible Notes Convertible notes subscribed to by National Hire and the Carlyle Group to fund the Coates Acquisition CSP Carriage service provider Cwlth Commonwealth DCF Discounted cash flow Deloitte Deloitte Corporate Finance Pty Limited DSL Digital subscriber line DSO Digital switchover DTL Deferred tax liabilities DVR Digital video recorder EBIT Earnings before interest and tax EBITDA Earnings before interest, tax, depreciation and amortisation EIG Egmont International Holding A/S Elph Elph Pty Ltd Emap Emap plc EMRP Equity Market Risk Premium Engin Engin Limited EV Enterprise value EPG Electronic Program Guide EPS Earnings per share EPSA Energy Power Systems Australia Fairfax Fairfax Media Limited FICS Financial Industry Complaints Service Flagship Flagship Property Holdings Limited FOS Financial Ombudsman Service FSG Financial Services Guide FTA Free-to-air FTTN Fibre to the Node FTTP Fibre to the Premises FY Financial year GDP Gross domestic product HD High definition HK Hong Kong

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Section 6 307

Reference Definition

HSDPA High-speed downlink packet access HTS Hybrid Television Services HVRS Hunter Valley rail system HY2010 Six months ended 31 December 2009 IAR Investigating Accountant Report IBC Independent board committee of Seven Network IBIS World IBIS World Pty Ltd ICAA Institute of Chartered Accountants in Australia ID Indonesia Independent Directors Directors of Seven Network that are unrelated to SGH Interim Dividend The interim dividend declared for the half year to 26 December 2009 Investment Deed Agreement in relation to the operation, control and management of the Coates Group IPTV Internet protocol television ISP Internet service provider JN Japan JV Joint venture

Kd Cost of debt capital

Ke Cost of equity capital Kerry Stokes AC Mr Kerry Stokes associated companies KKR Kohlberg Kravis Roberts & Co LTE Long term evolution MA Malaysia Market Valuation Section C4-1, Market Valuation of the Consolidation Reference Guidelines Manual MCAL Macquarie Capital Advisers Limited MEP Management Equity Plan Minister, the Minister for Broadband, Communications and the Digital Economy MMG Macquarie Media Group MPA Magazine Publishers of Australia mt Million tonnes National Hire National Hire Group Limited NBN National Broadband Network NCIG Newcastle Coal Infrastructure Group Newcrest Newcrest Mining Limited NIH Network Investment Holdings Pty Limited NPAT Net profit after tax NPBT Net profit before tax NSW New South Wales NTA Net tangible assets NZX` New Zealand Stock Exchange PC Personal computer PDS Product Disclosure Statement PEC Perth Entertainment Centre PMP PMP Limited Prime Prime Media Group Limited Proposed Schemes The Share Scheme and the TELYS3 Scheme Proposed merged entity SGH Limited PSTN Public-switched telephone network

198 Deloitte: Seven Network Limited – Independent expert’s report

308 Seven Network Limited Scheme Booklet – Part B

Reference Definition

PVR Personal video recorder PWF Property West Fund

Rf Risk free rate of return Related Shareholders Shareholders associated with Mr Kerry Stokes AC RG74 Regulatory Guide 74 RG 111 Regulatory Guide 111: Content of expert reports Rio Tinto Rio Tinto Limited

Rm Expected return on the market portfolio SA South Africa SBS Special Broadcasting Services Corporation Scheme Booklet The scheme booklet containing the detailed terms of the Proposed Schemes SD Standard definition Section 411 Section 411 of the Corporations Act 2001 Section 640 Section 640 of the Corporations Act 2001 Section 611 Section 611 of the Corporations Act 2001 Seek Seek Limited SEM Shandong SEM Machinery Co Ltd SEN Subordinated Equity Note Senior Debt Facilities Senior debt facilities procured by the Coates Group to fund the Coates Acquisition Senior Term Loan Senior term loan, forming part of the Senior Facilities SGH Seven Group Holdings Seven Network Seven Network Limited Shareholders Holders of Seven Network Shares Securityholders Shareholders and TELYS3 Holders Seven Network Shares Ordinary shares in Seven Network Share Scheme SGH’s offer to acquire all of Seven Network ordinary shares SK South Korea SMG Seven Media Group Step Up date 31 May 2010 Subordinated Notes Subordinated notes forming part of the financing of the Coates Acquisition TELYS3 Transferable extendable listed yield shares TELYS3 Scheme SGH’s offer to acquire all of Seven Network TELYS3 shares TELYS3 Holders Holder of TELYS3 TELYS4 TELYS4 preference share TVNZ Television New Zealand US United States Unrelated Shareholders Shareholders not associated with Mr Kerry Stokes AC USD US Dollars VoIP Voice over internet protocol VWAP Volume weighted average price WA Western Australia WACC Weighted average cost of capital WCMEL WesTrac (China) Machinery Equipment Limited WesTrac Australia WesTrac Pty Limited WesTrac China WesTrac China Pty Limited WesTrac Group WesTrac Australia and WesTrac China WesTrac Holdings WesTrac Holdings Pty Limited 199 Deloitte: Seven Network Limited – Independent expert’s report

Section 6 309

Reference Definition

WTA Model Detailed cash flow model for WesTrac Australia from 1 January 2010 until 30 June 2015, prepared on the basis of the WTA Projections WTA Projections Detailed management projections for WesTrac Australia for the years ending 30 June 2010 to 30 June 2015 WTC Business Plan Management’s detailed business plan for WesTrac China, that includes the WTC Projections WTC Business Plan A scenario largely reflecting the first 10 years of the WTC Projections Scenario WTC Projections Management projections for WesTrac China of nominal after-tax cash flows up to and including the year ending 30 June 2025 and beyond WTC Scenario 2 An alternative WesTrac China scenario which adopts some lower growth assumptions Xstrata Xstrata Plc Yahoo Yahoo! Inc Yahoo!7 Yahoo!7 Pty Ltd YANZ Yahoo! Australia and New Zealand (NZ) YANZH Yahoo! Australia & NZ (Holdings) Pty Limited

200 Deloitte: Seven Network Limited – Independent expert’s report

310 Seven Network Limited Scheme Booklet – Part B

Appendix 2: Summary of TELYS3 and TELYS4

TELYS3 are listed on the ASX. A summary of the key terms is provided below.

Issuer Seven Network Face value $100 per TELYS3 Dividend Dividend Rate = (Market Rate + Margin) x (1 – corporate tax rate) rate where:  Market Rate means the bank bill swap rate for 180 day bills applying on the first business day of each dividend period expressed as a percentage per annum.  Margin expressed as a percentage per annum is for the period up to 31 May 2010 and has been set at 2.50% per annum (on a grossed up basis).  At 31 May 2010, unless TELYS3 are converted or exchanged by the Company, the Margin will be increased by the step-up margin of 2.25% per annum (on a grossed up basis). Franking Seven Network expects the dividends paid on TELYS3 to be fully franked. If a dividend is not fully franked, the dividend will be grossed up to compensate for the unfranked component.

Conversion TELYS3 are perpetual securities and have no maturity. Seven Network may exchange some or or Exchange all of the TELYS3 for $100 in cash for each TELYS3 or convert some or all of the TELYS3 to by Seven Ordinary Shares at its election on the Step-up Date and on each Dividend Payment Date Network thereafter. Seven Network also has the right to:  convert or exchange TELYS3 in certain circumstances including where the Directors resolve that there has been a change or proposed change in a law, interpretation, governmental ruling or accounting standard which will: o materially increase Seven Network’s costs in retaining TELYS3 on issue; o affect the franking and availability of franking credits in respect of TELYS3; o affect whether TELYS3 are classified entirely as equity for accounting purposes; or o impose additional, unacceptable requirements on Seven Network; or  convert or exchange TELYS3 if a takeover bid or scheme of arrangement is made in respect of Seven Network. Seven Network cannot elect to Convert or Exchange only some TELYS3 if such Conversion or Exchange would result in there being less than $100 million in aggregate Face Value of TELYS3 on issue. Ranking TELYS3 rank equally amongst themselves in all respects and are subordinated to all creditors but rank in priority to Ordinary Shares. Participation TELYS3 confer no rights to subscribe for new securities in Seven Network or to participate in any bonus issues. Voting TELYS3 do not carry a right to speak or to vote at general meetings of Seven Network, except Rights in limited circumstances, in which case TELYS3 Holders will have one vote per TELYS3 held.

Source: Seven Network company announcements and presentation and Deloitte analysis

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TELYS4 are to be listed on the ASX. A summary of the key terms is provided below.

Issuer Seven Group Holdings Face value $100 per TELYS4 Dividend rate Dividend Rate = (Market Rate + Margin) x (1 – corporate tax rate) where:  Market Rate means the bank bill swap rate for 180 day bills applying on the first business day of each dividend period expressed as a percentage per annum.  Margin expressed as a percentage per annum is 2.50% per annum (on a grossed up basis) prior to 31 May 2010 or 4.75% per annum (on a grossed up basis) thereafter. Franking Dividends paid on TELYS4 are expected to be fully franked. If a dividend is not fully franked, the dividend will be grossed up to compensate for the unfranked component.

Conversion or TELYS4 are perpetual securities and have no maturity. SGH may exchange some or all of the Exchange by TELYS4 in exchange for $100 in cash for each TELYS4 or convert some or all of the SGH TELYS4 to Ordinary Shares at its election on any Dividend Payment Date. SGH also has the right to convert or exchange TELYS4 following:  where the Directors resolve that there has been a change or proposed change in a law, interpretation, governmental ruling or accounting standard which will: o materially increase SGH’s costs in retaining TELYS4 on issue; o affect the franking and availability of franking credits in respect of TELYS4; o affect whether TELYS4 are classified entirely as equity for accounting purposes; or o impose additional, unacceptable requirements on SGH; or  if a takeover bid or scheme of arrangement is made in respect of Seven Group  SGH cannot elect to Convert or Exchange only some TELYS4 if such Conversion or Exchange would result in there being less than $100 million in aggregate Face Value of TELYS4 on issue. Ranking TELYS4 are to rank equally amongst themselves in all respects and are subordinated to all creditors and senior obligations of SGH but rank in priority to SGH’s Ordinary Shares. Participation TELYS4 confer no rights to subscribe for new securities in SGH or to participate in any bonus issues. Voting Rights TELYS4 do not carry a right to speak or to vote at general meetings of Seven Network, except in limited circumstances, in which case TELYS4 Holders will have one vote per TELYS4 held. Exit Rights Holders of TELYS4 may request conversion or exchange (at the election of SGH) upon the breach of the dividend and capital stopper where SGH may elect to convert or exchange TELYS 4. Holders may not request redemption of TELYS4 securities.

Source: Deloitte analysis

202 Deloitte: Seven Network Limited – Independent expert’s report

312 Seven Network Limited Scheme Booklet – Part B any dividend payment date non-cumulative 2.50% p.a. on a grossed up basis prior to 31 May 2010 100%, grossed up if not fully franked if a dividend has not been paid in full, dividend and capital stopper will apply to SGH SGH may pay an optional dividend equal to any unpaid dividends in the prior 12 months, to clear the dividend stopper in certain circumstances only holders may request conversion upon breach of the dividend and capital stopper SGH must use reasonable endeavours to procure that equivalent takeover offers are made to TELYS4 or that participate in the scheme of arrangement floating rate 4.75% p.a. on a grossed up basis from 31 May 2010

           TELYS4 Step-up Date (31 May 2010) any subsequent dividend payment date De-facto cumulative (deferrable up to 80 years) floating rate initial margin of 2.50% p.a. on a grossed up basis step-up margin of 2.25% p.a. on a grossed up basis Unfranked and therefore grossed up if a dividend has not been paid in full, and capital stopper will apply to Seven Network only Seven Network will no longer have its ordinary shares listed but TELYS3 will remain should the Share Scheme proceed and TELYS3 not proceed Seven Network may pay an optional dividend equal to any unpaid dividends in the prior 12 months, to clear the dividend stopper no holders may not request conversion Seven Network must use reasonable endeavours to procure that equivalent takeover offers in relation to Seven Network only are made TELYS3 or that TELYS3 securityholders participate in any

             Amended TELYS3 Step-up Date (31 May 2010) any subsequent dividend payment date non-cumulative floating rate initial margin of 2.50% p.a. on a grossed up basis step-up margin of 2.25% p.a. on a grossed up basis 100%, grossed up if not fully franked if a dividend has not been paid in full, and capital stopper will apply to Seven Network only Seven Network may pay an optional dividend equal to any unpaid dividends in the prior 12 months, to clear the dividend stopper in certain circumstances only holders may not request conversion Seven Network must use reasonable endeavours to procure that equivalent takeover offers are made to TELYS3 securityholders or that TELYS3 securityholders participate in the

            Perpetual 80 years Perpetual Existing TELYS3 Seven Network Preference shares Perpetual 80 Seven Network Preference shares SGH Preference shares Seven Network Limited – Independent expert’s report

A comparison of TELYS3, the amended TELYS3 and TELYS4 is provided below. Legal form Issuer Maturity Redmption Dividends Rate Assumed franking Dividend and capital stopper Optional dividend Issuer conversion Conversion at the holders request Change of control protections 203 Deloitte:

Section 6 313 SGH may issue additional preference shares with equal ranking to TELYS4 SGH may not issue shares of a higher ranking to TELYS4 without seeking approval

  TELYS4 any takeover offer or scheme of arrangement related to SGH may not be extended TELYS3 Seven Network may issue additional preference shares with equal ranking to TELYS3 Seven Network may not issue shares of a higher ranking to TELYS3 without seeking approval

   Amended TELYS3 Proposed Scheme Seven Network scheme of arrangement Seven Network may issue additional preference shares with equal ranking to TELYS3 Seven Network may not issue shares of a higher ranking to TELYS3 without seeking approval

  Existing TELYS3 Seven Network Limited – Independent expert’s report

Other restrictions 204 Deloitte:

314 Seven Network Limited Scheme Booklet – Part B

Appendix 3: Premium for control

We summarise below the empirical data and evidence available in respect of control premiums.

Deloitte study We conducted a study of premiums paid in Australian transactions completed between 1 January 2000 and 21 January 2010. This study was conducted by Deloitte staff for internal research purposes. Our merger and acquisition data was sourced from Bloomberg and yielded 546 transactions that were completed during the period under review. We excluded 78 transactions from our analysis where there was insufficient data. As a result, our data set was refined to 468 transactions where an acquiring company increased its shareholding in a target company from a minority interest to a majority stake or acquired a majority stake in the target company. We assessed the premiums by comparing the offer price to the closing trading price of the target company one month prior to the date of the announcement of the offer. Where the consideration included shares in the acquiring company, we used the closing share price of the acquiring company on the day prior to the date of the offer.

Summary of findings As the following figure shows, premiums paid in Australian transactions between 1 January 2000 and 21 January 2010 are widely distributed with a long ‘tail’ of transactions with high premiums.

Figure 50: Distribution of data

100

90

80

70

60

50

40

30 Number of of Number deals 20

10

0 >100% <(100%) 1.%-<=20% >10.1% - <=30% >20.1% - <=40% >30.1% - <=60% >50.1% - <=70% >60.1% - <=80% >70.1% - <=90% >80.1% - (0% <=(90%) >(100%) - <=0% >(9.9%) - 9.%-<=100% >90.1% - 01 <=10% >0.1% - (99)-<=(80%) - >(89.9%) <=(70%) >(79.9%) - <=(60%) - >(69.9%) <=(50%) >(59.9%) - <=(40%) - >(49.9%) <=(30%) >(39.9%) - <=(20%) >(29.9%) - <=(10%) >(19.9%) - 4.-<=50% >40.1-

Source: Deloitte analysis

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The following table details our findings.

Table 89: Premium analysis - findings

Control premiums

Average 31% Median 25% Upper quartile 43% Lower quartile 11%

Source: Deloitte analysis

Notwithstanding the relatively wide dispersion of control premiums observed in our study we consider the control premium range of 20% to 40% to be representative of general market practice for the following reasons. Many of the observed control premiums below 20% are likely to have been instances where the market has either been provided with information or anticipated a takeover offer in advance of the offer being announced. Accordingly, the pre-bid share trading price may already reflect some price appreciation in advance of a bid being received, which creates a downward bias on some of the observed control premiums in our study. Many of the observed control premiums above 40% are likely to have been influenced by the following factors which create an upward bias on some of the observed control premiums in our study:  some acquirers are prepared to pay above fair market value to realise ‘special purchaser’ value which is only available to very few buyers. Such ‘special purchaser’ value would include the ability to access very high levels of synergistic benefits in the form of cost and revenue synergies or the ability to gain a significant strategic benefit  abnormally high control premiums are often paid in contested takeovers where there are multiple bidders for a target company. In such cases, bidders may be prepared to pay away a greater proportion of their synergy benefits from a transaction than in a non-contested situation  some of the observations of very high premiums are for relatively small listed companies where there is typically less trading liquidity in their shares and they are not closely followed by major broking analysts. In such situations, the traded price is more likely to trade at a deeper discount to fair market value on a control basis. Accordingly, the observed control premiums to share trading prices for such stocks will tend to be higher.

206 Deloitte: Seven Network Limited – Independent expert’s report

316 Seven Network Limited Scheme Booklet – Part B

Appendix 4: Discount rate

The discount rate used to equate the future cash flows to their present value reflects the risk adjusted rate of return demanded by a hypothetical investor for the asset or business being valued. Selecting an appropriate discount rate is a matter of judgement having regard to relevant available market pricing data and the risks and circumstances specific to the asset or business being valued. Whilst the discount rate is in practice normally estimated based on a fundamental ground up analysis using one of the available models for estimating the cost of capital (such as the Capital Asset Pricing Model (CAPM)), market participants often use less precise methods for determining the cost of capital such as hurdle rates or target internal rates of return and often do not distinguish between investment type or region or variations over economic cycles. Since our definition of fair market value is premised on the estimated value that a knowledgeable willing buyer would attribute to the asset or business, our selection of an appropriate discount rate needs to consider that buyers incorporate other alternatives to the typical CAPM approach in estimating the cost of capital. For ungeared cash flows, discount rates are determined based on the cost of an entity’s debt and equity weighted by the proportion of debt and equity used. This is commonly referred to as the WACC. The WACC can be derived using the following formula: The components of the formula are: E D WACC  **()K  K 1 t  V e V d c

Ke = cost of equity capital

Kd = cost of debt tc = corporate tax rate E/V = proportion of enterprise funded by equity D/V = proportion of enterprise funded by debt

The adjustment of Kd by (1- tc) reflects the tax deductibility of interest payments on debt funding.

Cost of equity capital (Ke)

The cost of equity, Ke, is the rate of return that investors require to make an equity investment in a firm. CAPM calculates the minimum rate of return that the company must earn on the equity-financed portion of its capital to leave the market price of its shares unchanged. The CAPM is the most widely accepted and used methodology for determining the cost of equity capital. Since the majority of the cash flows for WesTrac China are denominated in US dollars and due to the practical limitations of accurately determining certain CAPM parameters for the Chinese market (such as EMRP) we have estimated a US dollar cost of equity (adjusted for sovereign risk) for WesTrac China.

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The cost of equity capital under CAPM is determined using the following formula:

Ke  Rf   (Rm  Rf )  a

The components of the formula are:

Ke = required return on equity

Rf = the risk free rate of return

Rm = the expected return on the market portfolio = beta, the systematic risk of a stock = specific company risk premium Each of the components in the above equation is discussed below.

Risk free rate (Rf) The risk free rate compensates the investor for the time value of money and the expected inflation rate over the investment period. The frequently adopted proxy for the risk free rate is the long-term government bond rate. In theory, a risk free rate can be observed or determined (through interpolation) for each period of the cash flow forecast. Whilst this could more accurately reflect different levels of risk free returns over the forecast period, in practice, a common risk free return is generally used for the duration of the forecast period. WesTrac China In most countries (other than the US) the longest term government bond with sufficient liquidity is 10 years. In the US the 30 year government bond rate is a widely, but not exclusively, used benchmark for the risk free rate as there is sufficient liquidity in this security. In recent months, the spread between the yield to maturity on the 10 year and 30 year US Government bonds has widened with the yield on 30 year bonds exceeding 10 year bonds by a premium of up to 100 bps. The yield to maturity on a 30 year US Government bond as at 5 March 2010 was 5.0%. The yield to maturity on a 10 year US Government bond as at 5 March 2010 was 4.2%. After considering the above factors we have selected a risk free rate of 4.7% for the purpose of our valuation. In determining this Rf we have placed more weight on the 30-year US Government bond rate as it is a widely used and accepted benchmark for the risk free rate in the US and we have assumed an indefinite life for valuation purposes. WesTrac Australia, Wireless Broadband Australia (existing operations) and Channel Seven In determining Rf we have taken into account the five-day average zero-coupon yield on the 10-year Australian Government Bond on 5 March 2010 of 5.6%. This rate represents a nominal rate and thus includes inflation.

Equity market risk premium (EMRP)

The EMRP (Rm – Rf) represents the risk associated with holding a market portfolio of investments, that is, the excess return a shareholder can expect to receive for the uncertainty of investing in equities as opposed to investing in a risk free alternative. The size of the EMRP is dictated by the risk

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aversion of investors – the lower (higher) an investor’s risk aversion, the smaller (larger) the equity risk premium. The EMRP is not readily observable in the market and therefore represents an estimate based on available data. There are generally two main approaches used to estimate the EMRP, the historical approach and the prospective approach, neither of which is theoretically more correct or without limitations. The former approach relies on historical share market returns relative to the returns on a risk free security; the latter is a forward looking approach which derives an estimated EMRP based on current share market values and assumptions regarding future dividends and growth. In evaluating the EMRP, we have considered both the historically observed and prospective estimates of EMRP.

Historical approach The historical approach is applied by comparing the historical returns on equities against the returns on risk free assets such as Government bonds, or in some cases, Treasury bills. The historical EMRP has the benefit of being capable of estimation from reliable data; however, it is possible that historical returns achieved on stocks were different from those that were expected by investors when making investment decisions in the past and thus the use of historical market returns to estimate the EMRP would be inappropriate. It is also likely that the EMRP is not constant over time as investors’ perceptions of the relative riskiness of investing in equities change. Investor perceptions will be influenced by several factors such as current economic conditions, inflation, interest rates and market trends. The historical risk premium assumes the EMRP is unaffected by any variation in these factors in the short to medium term. Historical estimates are sensitive to the following:  the time period chosen for measuring the average  the use of arithmetic or geometric averaging for historical data  selection of an appropriate benchmark risk free rate  the impact of franking tax credits  exclusion or inclusion of extreme observations. The EMRP is highly sensitive to the different choices associated with the measurement period, risk free rate and averaging approach used and as a result estimates of the EMRP can vary substantially. We have considered the most recent studies undertaken by the Centre for Research in Finance at the Australian Graduate School of Management (AGSM), Morningstar Inc (Morningstar), ABN AMRO/London Business School and Aswath Damodaran (Damodaran). These studies generally calculate the EMRP for the US to be in the range of 5% to 8%.

Prospective approach The prospective approach is a forward looking approach that is current, market driven and does not rely on historical information. It attempts to estimate a forward looking premium based on either surveys or an implied premium approach. The survey approach is based on investors, managers and academics providing their long term expectations of equity returns. Survey evidence suggests that the EMRP is generally expected to be in the range of 6% to 8%.

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The implied approach is based on either expected future cash flows or observed bond default spreads and therefore changes over time as share prices, earnings, inflation and interest rates change. The implied premium may be calculated from the market’s total capitalisation and the level of expected future earnings and growth.

Selected EMRP We have considered both the historically observed EMRP and the prospective approach in determining the appropriate EMRP to use in this report. Studies (both historical and prospective) indicate that the US EMRP would be in the range of 4% to 9%. Having considered the various approaches and their limitations, we consider a US EMRP of 6.0% to be appropriate for the purpose of our estimate of the fair market value of WesTrac China. In recent years it has been common market practice in Australia in expert’s reports and regulatory decisions to adopt an EMRP in the range of 6% to 7%. Having considered the various approaches and their limitations, we consider an Australian EMRP of 6.5% to be appropriate for WesTrac Australia, Wireless Broadband Australia and Channel Seven.

Beta estimate ()

Description The beta coefficient measures the systematic risk or non-diversifiable risk of a company in comparison to the market as a whole. Systematic risk, as separate from specific risk as discussed below, measures the extent to which the return on the business or investment is correlated to market returns. A beta of 1.0 indicates that an equity investor can expect to earn the market return (i.e. the risk free rate plus the EMRP) from this investment (assuming no specific risks). A beta of greater than one indicates greater market related risk than average (and therefore higher required returns), while a beta of less than one indicates less risk than average (and therefore lower required returns). Betas will primarily be affected by three factors which include:  the degree of operating leverage employed by the firm. Companies with a relatively high fixed cost base will be more exposed to economic cycles and therefore have higher systematic risk compared to those with a more variable cost base  the degree of financial leverage employed by a firm. Equity investors will demand a higher return to compensate for increased systematic risk associated with higher levels of debt  correlation of revenues and cash flows to economic cycles. Companies that are more exposed to economic cycles (such as retailers), will generally have higher levels of systemic risk (i.e. higher betas) relative to companies that are less exposed to economic cycles (such as regulated utilities). The geared or equity beta can be estimated by regressing the returns of the business or investment against the returns of an index used as a representation of the market portfolio, over a reasonable time period. However, there are a number of issues that arise in measuring historical betas that can result in differences, sometimes significant, in the betas observed depending on the time period utilised, the benchmark index and the source of the beta estimate. It is often preferable to have regard to sector averages or a pool of comparable companies rather than any single company’s beta estimate due to the above measurement difficulties.

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Market evidence – WesTrac  in order to estimate an appropriate range of betas, we have considered current and historical two year weekly and four year monthly levered and unlevered betas calculated with reference to the relevant countries’ local index as the benchmark market portfolio. This is set out in the table below  based on WesTrac China and WesTrac Australia having similar asset profiles and market exposure we have considered comparable betas on a combined basis. Table 90: Analysis of betas for listed companies with comparable operations to WesTrac China and WesTrac Australia Net debt / EV1 Levered Beta Unlevered Beta2 2 Year 4 Year 2 year 4 year 2 year 4 year Company Country Average Average local local local local Caterpillar distributors - International Sime Darby Bhd MA 3% 3% 1.06 1.06 1.04 1.04 Finning International Inc CA 31% 28% 0.82 0.91 0.65 0.73 Barloworld Ltd SA 45% 37% 0.94 1.04 0.60 0.73 Toromont Industries Ltd CA 3% 7% 0.82 0.75 0.80 0.71 Average 21% 19% 0.91 0.94 0.77 0.80 Median 17% 17% 0.88 0.97 0.72 0.73 Heavy machinery distribution companies – Australia & International United Tractors Tbk PT ID 7% 10% 1.52 1.28 1.43 1.18 Wajax Income Fund CA 22% 17% 0.90 1.05 0.76 0.93 Tutt Bryant Group Ltd AU 35% 27% 1.17 1.70 0.86 1.36 Average 21% 18% 1.20 1.34 1.02 1.16 Median 22% 17% 1.17 1.28 0.86 1.18 Mining services companies - Australia Leighton Holdings Ltd AU 7% 1% 1.40 1.55 1.33 1.54 Mineral Resources Ltd AU -2% 0% 1.10 1.90 1.10 1.90 Ausdrill Ltd AU 32% 26% 0.93 1.53 0.70 1.22 Industrea Ltd AU 41% 28% 1.60 2.43 1.06 1.89 Macmahon Holdings Ltd AU 4% 7% 1.38 1.86 1.33 1.76 Sedgman Ltd AU 11% 9% 1.36 2.09 1.23 1.93 Average 16% 12% 1.30 1.89 1.12 1.70 Median 9% 8% 1.37 1.88 1.17 1.82 Heavy machinery manufacturing companies - International Caterpillar Inc US 52% 46% 1.28 1.49 0.79 0.98 Komatsu Ltd JN 20% 16% 1.25 1.38 1.09 1.24 Doosan Heavy Industries and Construction Co Ltd SK 17% 20% 1.31 1.57 1.15 1.32 Hitachi Construction Machinery Co JN 30% 24% 1.47 1.62 1.16 1.35 Terex Corp US 32% 23% 1.99 1.98 1.55 1.68 Lonking Holdings Ltd HK 24% 17% 1.03 1.16 0.81 0.99 Shantui Construction Machinery Co CH 0% 2% 1.18 1.06 1.18 1.04 Average 25% 21% 1.36 1.47 1.10 1.23 Median 24% 20% 1.28 1.49 1.15 1.24

Overall average 21% 17% 1.23 1.47 1.03 1.28 Overall median 21% 17% 1.21 1.51 1.07 1.23 Source: Bloomberg and Deloitte analysis Note: n/a: not available n/m: non- meaningful 1. Enterprise value as at 5 March 2010 2. Gearing - net debt/enterprise value as at 5 March 2010. Beta has been unlevered using the Hamada equation using net debt / equity value over the estimation period (assuming any net cash position is short-term in nature)

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Market evidence – Wireless Broadband Australia (existing operations) In estimating an appropriate beta for Wireless Broadband Australia we have considered the betas of listed companies that are comparable to Wireless Broadband Australia. These betas, which are presented below, have been calculated based on weekly returns, over a two year period and monthly returns, over a four year period, compared to the ASX All Ordinaries Index.

Table 91: Analysis of betas for listed companies with comparable operations to Wireless Broadband Australia Net debt / EV1 Levered Beta Unlevered Beta2

2 Year 4 Year 2 year 4 year 2 year 4 year Company Country Average Average local local local local

ISPs TPG Telecom Ltd AU 33% 25% 1.36 n/m 1.01 1.34 iiNET Ltd AU 5% 13% 0.62 1.04 0.60 0.94 M2 Telecommunications AU 4% 0% 0.89 1.01 0.87 1.01 Eftel Ltd AU 26% 14% 0.43 0.90 0.35 0.81 BigAir Group Ltd AU 0% 0% 0.82 0.71 0.82 0.71 Clever Communications AU 6% 3% 0.74 1.28 0.71 1.26 Average 12% 9% 0.81 0.99 0.73 1.01 Median 5% 8% 0.78 1.01 0.77 0.98

Source: Bloomberg, Deloitte analysis Note: 1. EV as at 5 March 2010 2. Gearing - net debt/EV as at 5 March 2010 3. n/m – not meaningful. Market evidence – Channel Seven In estimating an appropriate beta for Channel Seven we have considered the betas of listed companies that are comparable to Channel Seven. These betas, which are presented below, have been calculated based on weekly returns, over a two year period and monthly returns, over a four year period, compared to the ASX All Ordinaries Index. Overviews of the comparable companies are provided in Appendix 6 below.

Table 92: Analysis of betas for listed companies comparable to Channel Seven Net debt / EV1 Levered Beta Unlevered Beta2

2 Year 4 Year 2 year 4 year 2 year 4 year Company Country Average Average local local local local

FTA Television Ten Network Holdings AU 30% 28% 1.11 1.24 0.86 0.98 Southern Cross Media AU 69% 62% 1.36 2.05 0.53 0.95 Prime Media Group Ltd AU 57% 47% 0.56 0.93 0.29 0.58 Average 52% 46% 1.01 1.41 0.56 0.84 Median 57% 47% 1.11 1.24 0.53 0.95

Source: Bloomberg, Deloitte analysis Note: 1. Enterprise value as at 5 March 2010 2. Gearing – average net debt/EV over a two year and a four year period to 5 March 2010 3. n/m – not meaningful. 212 Deloitte: Seven Network Limited – Independent expert’s report

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The observed beta is a function of the underlying risk of the cash flows of the company, together with the capital structure and tax position of that company. This is described as the levered beta. The capital structure and tax position of the entities in Table 92 may not be the same as those of WesTrac, Wireless Broadband Australia and the Channel Seven. The levered beta is often adjusted for the effect of the capital structure and tax position. This adjusted beta is referred to as the unlevered beta. The unlevered beta is a reflection of the underlying risk of the pre-financing cash flows of the entity. Descriptions for each of the above companies are provided in Appendix 6.

Selected beta () WesTrac China and WesTrac Australia In selecting an appropriate beta for WesTrac China and WesTrac Australia we have considered the following:  we consider the four listed Caterpillar dealers to be comparable to WesTrac China and WesTrac Australia due to the similar product portfolio. The average two year and four year unlevered beta for these companies is 0.77 and 0.80, respectively  the heavy machinery distributors have an average two year and four year unlevered beta of 1.02 and 1.16, respectively. We consider these companies to have relatively similar operations to WesTrac China and WesTrac Australia as each is a distributor of heavy machinery to the mining, oil and gas, forestry and construction industries  the average two year and four year unlevered beta for Australian mining services companies, which are exposed to broadly similar supply and demand dynamics as WesTrac China and WesTrac Australia, is 1.12 and 1.70, respectively. We understand this higher average beta may be attributable to more capital intensive operations, thus requiring a higher fixed cost base increasing the exposure to market volatility  heavy machinery manufacturing companies have an average two year and four year unlevered beta of 1.10 and 1.23, respectively. Generally, these companies also have high betas due to high fixed cost profiles (i.e. manufacturing plant lease costs, machinery expenditure and depreciation, wages, manufacturing equipment lease, etc.)  many of the comparable companies have significant operations in developing countries (i.e. Doosan Heavy Industries and Lonking Holdings). As a result the returns observed are likely to include an element of sovereign risk (which we have estimated separately)  the overall two and four year unlevered beta is 1.03 and 1.28, respectively  assuming an unlevered beta in the range of 0.8 to 0.9, the relevant corporate tax rates for WesTrac Australia (30%) and WesTrac China (22.5%) and the debt to equity mixes set out below results in a relevered beta in the range of 1.04 to 1.07 for WesTrac Australia and 0.94 to 1.06 for WesTrac China On this basis we have selected a levered beta of 1.05 and 1.15 for WesTrac Australia and 1.00 and 1.10 for WesTrac China. These relevered betas are in line with the levered betas observed for the comparable companies above.

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Wireless Broadband Australia (existing operations) In selecting an appropriate beta for Wireless Broadband Australia we have considered the average unlevered betas for comparable companies in the ISP industry calculated using weekly returns over a two year period and monthly returns over a four year period of 0.73 and 1.01, respectively. As Wireless Broadband Australia is expected to be funded entirely by equity capital, we have used an unlevered beta in the range of 0.90 to 1.00 in the determination of the cost of equity capital for Wireless Broadband Australia. Channel Seven In selecting an appropriate beta for Channel Seven, we have considered the average unlevered betas for Australian companies with comparable broadcasting operations calculated using weekly returns over a two year period and monthly returns over a four year period of 0.56 and 0.84, respectively. As the broadcasting industry in Australia is a stable, mature industry, we have placed greater emphasis on the four year beta. Assuming an unlevered beta in the range of 0.80 to 1.00, a corporate tax rate of 30% and a gearing ratio of 30% (outlined below), we consider a re-levered beta in the range of 1.00 to 1.30 to be appropriate for Channel Seven.

Specific company risk premium () The specific company risk premium adjusts the cost of equity for company specific factors, including unsystematic risk factors, such as size, key customer/person/supplier, asymmetric cash flows, etc. The CAPM assumes, amongst other things, that rational investors seek to hold efficient portfolios, that is, portfolios that are fully diversified. One of the major conclusions of the CAPM is that investors do not have regard to specific company risks (often referred to as unsystematic risk). There are several empirical studies that demonstrate that the investment market does not ignore specific company risks. In particular, studies show that on average, smaller companies have higher rates of return than larger companies (often referred to as the size premium). However, most of the above specific risk factors have been incorporated into the cash flow scenarios and these have been probability weighted either explicitly or implicitly through our selection of value. Accordingly, we have only identified sovereign risk as a key company specific risk for WesTrac China (discussed below). We note, however, that the company and its associated historical and future growth relies on Caterpillar as its only supplier. If this relationship were to change it may significantly impact WesTrac China’s operations. However, any downside risk is largely mitigated since WesTrac China provides significant economic returns to Caterpillar as well as input into its global strategy. In addition, some of these distribution arrangements have been in place for over 40 years and WesTrac China forecasts do not allow for the upside opportunity to expand the portfolio of distributorships. Sovereign risk Sovereign risk is the risk arising from an unpredictable change in government policy or behaviour of a regulatory agency and other risks associated with an unstable civil or political environment within a country. Investors may consider applying a sovereign risk premium which adjusts the cost of equity for country specific risk that cannot be diversified by the global marginal investor. In our opinion WesTrac China, located in the People’s Republic of China, has additional risk which is not captured within the estimated beta and EMRP.

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Market perception of country risk is subjective and conclusions drawn require the exercise of professional judgement. To arrive at a reasonable estimate of the additional return required to compensate for sovereign risk inherent in investing in certain countries, we have had regard to a variety of external evidence, including:  OECD country risk rating52 of 2 as at 23 October 2009  Standard and Poors (S&P) Country Rating of A+ as at 30 June 2009  the differential between US Government bonds and US$ denominated government bonds issued by the People’s Republic of China of 1.22% as at 5 March 2010 and consideration of relative volatility of bonds compared to equities  International CAPM differential as compared to the United States as at 31 December 2008 of 1.02% as set out in the ‘International Cost of Capital Report’53  the country risk premium attributed in January 2009 by Damodaran54 for China of 2.1%.

Size premium The following table summarises the returns for different size categories from 1926 to 2008 for companies on the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX) and the National Association of Securities Dealers Automated Quotation System (NASDAQ).

Table 93: Evidence of size premium

Summary statistics of annual returns Market capitalisation Arithmetic mean Size premium (return of largest company in return3 in excess of CAPM)1 Decile group2 (US $ million) (%) (%)

Largest (1st decile) 465,652 10.75 (0.36) Large (2nd decile) 18,503 12.51 0.62 Mid-cap (3rd – 5th decile) 7,360 13.37 0.94 Low-cap (6th – 8th decile) 1,849 14.86 1.74 Micro-cap (9th – 10th decile) 453 17.72 3.74 Smallest (10th decile)4 219 20.13 5.81

Source: Market Results for Stocks, Bonds, Bills, and Inflation 2009 Yearbook, Ibbotson SBBI Notes: 1. Size premium was calculated as the difference between the actual return and the return calculated using the CAPM 2. Market capitalisation was calculated as at 31 December 2008 3. Ibbotson use the 20 year government bond rate in determining the risk free rate 4. Ibbotson provide a further breakdown of the 10th decile, noting that the size premium for the upper half of the 10th decile (decile 10a) was 4.11%, whereas the size premium for the lower half of the 10th decile (decile 10b) was 9.53%. However care must be taken in considering decile 10b due to the volatility of companies in this segment of the market

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The size premia summarised in Table 93 relate to companies listed on US exchanges, which are typically of a significantly larger size than companies listed in Australia. Accordingly, in assessing a size premium to apply to Wireless Broadband Australia, we have considered the following:  the market for ISP services in Australia is dominated by domestic telecommunications carriers and large ISPs  Wireless Broadband Australia is a small ISP operating within this market, with operations restricted to Sydney, Melbourne and shortly Perth  the value of Wireless Broadband Australia is likely to be at the smaller end of the range of market capitalisations.

Conclusion on company specific risk Taking the above into consideration we have selected the following specific company risk premiums:  2.0% to 2.5% for WesTrac China largely reflecting the sovereign risk associated with investing in China in addition to the fact that: - WesTrac China is in a significant growth phase and there may be some asymmetric risk in the cash flow forecasts - potential for revaluation of the Chinese currency relative to the US dollar. Due to the uncertainty regarding the further path of inflation and interest rates in China this risk has not been included in the cash flow forecast - a greater level of competition from Chinese manufacturers.  a specific company risk premium 3% to apply to the existing operation of Wireless Broadband Australia, largely reflecting the smaller size of Wireless Broadband Australia  no specific risk premium was added to WesTrac Australia given its respective size and market position.

Cost of debt capital (Kd) WesTrac China and WesTrac Australia In calculating the cost of debt, we have considered a number of factors including the current and historic cost of debt of WesTrac China and WesTrac Australia as well as credit margins and short and long term funding rates in the market. In estimating the current cost of debt we have considered the following:  the current risk-free rate of 4.7% in the US and 5.6% in Australia as a proxy for the base rate for corporate funding over the life of both companies  the current weighted average pre-tax cost of debt for WesTrac China of 7.5%  our assessed target gearing for WesTrac China and WesTrac Australia  debt margins implied by the current yield spread for long US$ BBB and BBB- rated and A$ corporate bonds over 10 year sovereign bonds which indicate approximately 350 bps to 400 bps as at 5 March 2010  the effective tax rate of WesTrac China and WesTrac Australia.

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Based on the above factors we have applied a credit margin of 300 bps to 400 bps in estimating the cost of debt for WesTrac Australia. We have applied an additional margin of 100 bps in estimated the cost of debt for WesTrac China to reflect that the business is still in a high growth phase and is therefore relatively more risky from a lender’s perspective. Whilst this is a relatively wide range we consider it to be appropriate due to the significant uncertainty in the availability and pricing of debt financing in the current environment. The assessed after tax cost of debt for WesTrac China and WesTrac Australia as shown in the table below.

Table 94: Cost of debt

WesTrac Australia WesTrac China

Low High Low High

Base rate nominal (%) 5.6% 5.6% 4.7% 4.7% Credit margin (%) 3.0% 4.0% 4.0% 5.0% Calculated pre tax cost of debt (%) 8.6% 9.6% 8.7% 9.7% Tax rate (%) 30.0% 30.0% 22.5% 22.5% After tax cost of debt (%) 6.0% 6.7% 6.7% 7.5%

Source: Deloitte analysis In estimating the appropriate tax rate for the purpose of calculating the tax shield benefit on the optimal debt funding of WesTrac China we have considered the company’s current effective tax rate as well as the statutory corporate tax rate in the jurisdictions in which the operations are located (approximately 70% of earnings are generated in the People’s Republic of China at a tax rate of 25% and 30% are generated in Hong Kong at a tax rate of 16.5%). We have assessed the appropriate tax rate for this purpose to be 22.5%. We note that our assessed discount rate is not very sensitive to this assumption.

Channel Seven In calculating the cost of debt for Channel Seven, we have considered:  the weighted average cost of debt of SMG at 30 June 2011 of 9.1% based on the IBC forecasts  the current risk free rate of 5.6% in Australia as a proxy for the long term base rate for corporate funding over the forecast period  debt margins implied by the current yield spread for long A$ BBB and BBB- rated corporate bonds over 10 year sovereign bonds which indicate approximately 300 bps to 400 bps as at 5 March 2010

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Based on the above factors we have applied a credit margin of 300 bps to 400 bps in estimating the cost of debt. The assessed after tax cost of debt for Channel Seven is set out below.

Table 95: Cost of debt

Channel Seven

Low High

Base rate nominal (%) 5.6% 5.6% Credit margin (%) 3.0% 4.0% Calculated pre tax cost of debt (%) 8.6% 9.6% Tax rate (%) 30.0% 30.0% After tax cost of debt (%) 6.0% 6.7%

Source: Deloitte analysis

Net debt to enterprise value ratio WesTrac China and WesTrac Australia Selecting an appropriate ratio is a subjective judgement having regard to the quality of the cash flows of the business and the nature of the industry. In selecting an appropriate net debt to enterprise value ratio for WesTrac China and WesTrac Australia, we have had regard to companies operating across relevant segments, as well as the long term nature and quality of the future cash flows of WesTrac China and WesTrac Australia. After considering the above factors, in particular, the specific attributes of WesTrac China and WesTrac Australia, we have assumed a debt to enterprise value ratio of 30.0% for WesTrac Australia. We have assumed a lower debt to enterprise value ratio of 20.0% for WesTrac China since this business is in a significant growth phase and has a less favourable market position relative to WesTrac Australia which would result in a less secure cash flow stream.

Channel Seven We have considered the two year average net debt to enterprise value ratio of comparable companies operating in the FTA TV broadcasting industry in Australia of 48% and the current gearing level of Ten Network, which we consider to have operations most comparable to Channel Seven, of 27%. On this basis, we consider a net debt to enterprise value of 30% to be appropriate for the FTA TV broadcasting operations.

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Calculation of WACC Based on the above we have assessed the nominal post-tax WACC for WesTrac China, WesTrac Australia and Channel Seven and a cost of equity for Wireless Broadband Australia as follows.

Table 96: WACC applied to valuation of WesTrac China and WesTrac China

WesTrac Australia WesTrac China Channel Seven Wireless Broadband Australia (existing operations)

Input Low High Low High Low High Low High

Risk free rate 5.6% 5.6% 4.7% 4.7% 5.6% 5.6% 5.6% 5.6% EMRP 6.5% 6.5% 6.0% 6.0% 6.5% 6.5% 6.5% 6.5% Beta 1.05 1.15 1.00 1.10 1.00 1.30 0.90 1.00

Specific company risk 0.0% 0.0% 2.0% 2.5% 0.0% 0.0% 3.0% 3.0% premium

Cost of equity capital (Ke) 12.4% 13.1% 12.7% 13.8% 12.1% 14.1% 14.5% 15.1%

After-tax cost of debt capital 6.0% 6.7% 6.7% 7.5% 6.0% 6.7% (Kd) Debt to enterprise value ratio 30.0% 30.0% 20.0% 20.0% 30.0% 30.0% Tax rate 30.0% 30.0% 22.5% 22.5% 30.0% 30.0% WACC - calculated 10.5% 11.2% 11.5% 12.5% 10.3% 11.9%

Selected WACC 11.0% 11.5% 11.5% 12.5% 10.0% 12.0% 15.0% 15.0%

Source: Deloitte analysis

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3 2011

3 EBITDA multiple 2010 2011 EBITDA margin 2010

7% 27% 27% 8.4x 7.8x 8.4x 27% 7% 27% 2011

rch 2010. EBITDA growth n/m 2010

2

Current Gearing

1 451 40% 11% 15% 22% 24% 6.8x 7.8x 2,188 18% 27% 29% 20% 24% 11.4x 8.8x 2,188 18% 27% 29% 20% 24% 11.4x 1,136 33% 69% 17% 27% 30% 7.1x 8.3x EV 2,160 33% 15% 36% 12% 2,160 33% 34% 8.8x 7.9x 1,642 -19% 1,725 13% 9% 40% 13% 38% 7.8x 7.0x ($'m) Year end

Australia 31-Aug Country Australia 30-Jun Australia 30-Jun Australia 31-Dec Australia 30-Jun Australia 30-Jun

Seven Network Limited – Independent expert’s report Gearing is calculated as net debt over EV. Due to high cash positions, gearing is negative for CMJ and not meaningful. Gearing is calculated as net debt over EV. Due to high cash In calculating EV net debt is taken as at the most recently available financial statements and market capitalisation as at 5 Ma In calculating EV net debt is taken as at the most recently available Calculated as EV over EBITDA. EBITDA margins for CMJ are considered to be non-meaningful since all income is derived from investments associates non-meaningful since all income is derived EBITDA margins for CMJ are considered to be

2. 1. 3. 4.

Ten Network Holdings Ltd FTA television broadcasting Company Name Southern Cross Media Group Prime Media Group Ltd (Prime) Average Average Median Pay television broadcasting Austar United Communications Ltd (Austar) 1,258 30% 36% 20% 23% 26% 7.6x 9.2x 1,136 33% 27% 17% 22% 24% 7.1x 8.3x Consolidated Media Holdings Ltd (CMJ) Sky Network Television Ltd (Sky) Median 1,725 13% 12% 12% 34% 36% 8.4x 7.8x 8.4x 36% 34% 12% 12% 13% Average Median 1,725 7.5x 34% 8.3x 33% 11% 12% 1,842 9% Appendix 5: Comparable company multiples The following table provides an analysis of companies with television broadcasting operations: Table 97: Television broadcasting earnings multiples – market trading Source : Bloomberg, Capital IQ, Deloitte analysis Notes : n/a: not applicable n/m: non-meaningful 220 Deloitte: Television broadcasting

330 Seven Network Limited Scheme Booklet – Part B

3 2011

3 Price/NPAT multiple 14.6x 19.9x 2010

n/m 2011

NPAT margin 2010 2011 NPAT growth 2010

2 9% -31% 10% 11% 12% 19.8x 18.3x (%) 33% n/a 33% 8% 18.8x 25.1x 10% 13% 6% 22% 13% 16.0x 15% 19.5x 13% -31% 22% 11% 12% 19.5x 18.8x -19% -69% -26% n/m Current Gearing

1 1,441 1,949 1,494 1,494 1,221 ($'m) Market capitalisation Year end

Country Seven Network Limited – Independent expert’s report Market capitalisation as at 5 March 2010. Gearing is calculated as net debt over EV Calculated as Market Capitalisation / Net Income

1. 2. 3.

Company Name Pay television broadcasting Austar United Communications Ltd Australia Consolidated Media Holdings Ltd 31-Dec Australia 30-Jun Median Sky Network Television Ltd Australia 30-Jun Average Table 98: Television broadcasting earnings multiples – market trading Price/NPAT multiples Source : Bloomberg, annual financial statements, Capital IQ, Deloitte analysis Notes : n/a: not applicable n/m: non- meaningful 221 Deloitte:

Section 6 331

3 2011

3 EBITDA multiple 2010 e companies: 2011 EBITDA margin 2010 2011 EBITDA growth 2010

2 (%) Current Gearing

1 EV 3,851 31% 38% 10% 15% 16% 8.0x 7.2x 38% 31% 3,851 13% 9% 32% 15% 16% 8.0x 7.2x 4,001 ($'m) Year end Country

Company Name

Seven Network Limited – Independent expert’s report

Publishers – Australian Fairfax Media Ltd APN News & Media Ltd West Australian Newspapers Holdings Ltd Average Australia Median 30-Jun AG Publishers – International PLC Gannett Co Inc 1,843 Sanoma OYJ Australia Springer Australia 31-Dec Informa 6% 6.9x 4,563 9% 12% 15% 16% 7.8x 31-Dec 30-Jun 15% Daily Mail & General Trust PLC Axel 2,412 Germany 5,619 RCS Media Group SpA 2.6% 28% -4% 5,307 6% Corp 26% 31-Dec New York Times Co/The 27% 9.7x 9.2x U.K 33% Arnoldo Mondadori Editore SpA U.K 28% 13% Meredith U.S 27% Roularta Media Group NV 30-Sep -48% Average Finland 43% Median 31-Dec Italy 11% 31-Dec Italy 4,855 15% 13% 31% 33% 9.5x 8.4x -6% U.S 25% 10% -11% 30-Jun 2,024 18% U.S 3,291 16% 17% 45% 8.5x 7,863 7.7x 28% 3% 13% 25% 27% 31-Dec 9.2x 8.1x 2,412 31-Dec 5,412 24% 36% 31-Dec 25% Belgium 10.4x 1,823 42% 3,438 31-Dec 27% n/m 26% 2,721 27% 9.2x 36% 6% 54% 508 13% 30% 9.0x 8% 9.2x 34% 222% 2% 35% 7% 29% 8.1x 18% 8.0x 15% 20% 41% 21% 15% 8% 18% 10% 9% 14% 21% 15% 14% 8.0x 11% 11% 8% 6.1x 8.6x 15% 7.5x 7.9x 10.8x 6.0x 9% 8.1x 7.1x 6.9x 9.0x 5.2x 6.6x 4.6x Deloitte: The following table provides an analysis of companies with comparable activities to newspaper and magazine publishing comparabl Table 99: Newspaper and magazine company earnings multiples – market trading Source : Bloomberg, annual financial statements, Capital IQ, Deloitte analysis Notes: Refer to Table 97 222 Publishing

332 Seven Network Limited Scheme Booklet – Part B 2011 2010 Price/NPAT multiple 2011 NPAT margin 2010 2011 NPAT growth 2010

2

(%) -21% -9% 37% 22% -21% -9% 37% 22% 15% 24.8x 15.0% 15% 24.8x 15.0% Current Gearing

178 -6% 42% 19% 29% 28% 16.4x 13.8x 19% 29% 42% 16.4x 28% 178 -6% ($'m) 2,512 2% 40% 46% 40% 28% 2,512 2% 22.3x 34% 32.5x 20% 29% 1,551 -8% 39% 23.1x 1,336 -5% 40% n/m 26% 27.6x 26% 26% 33% 34% 1,187 0% 21.4x 28% 23.1x 26.9x 36% 29.1x 2,762 -142% 28% 2,762 -142% 39% 6% 8% 29.7x 21.3x 22,487 -17% 45% 19% 17% 19% 25.9x 21.8x 57,306 -7% 80% 32% 5% 5% 26.6x 35.2x 31,995 -11% -7% 11% 24% 25% 14.5x 13.0x 179,407 -16% 37% 16% 43% 43% 20.2x 17.3x Market cap end Year Country United 31 Dec Dec United 31 United 31 United 31 Dec United 31 United 31 Dec United 31 United 31 Dec United 31 Seven Network Limited – Independent expert’s report

Company Name Online classifieds - Australia Seek Ltd Australia 30-Jun Wotif.com Holdings Ltd REA Group Ltd Carsales.com.au Ltd Australia Webjet Ltd 31-Dec Australia Australia 30-Jun 31-Dec Australia 31-Dec Average 1,353 -3% 36% 27% 31% 33% 26.5x 20.7x 26.5x 33% 31% 27% 36% -3% Average 1,353 Median Global portal and search Google Inc 1,336 -5% 36% 26% 29% 34% 27.6x 22.3x Yahoo! Inc IAC/InterActiveCorp Median 22,487 -17% 37% 19% 17% 19% 25.9x 21.3x 20.2x 25.9x 25.3x 19% 24% 22% 17% 25% 19% 37% 37% -58% -17% Average 68,219 Median 22,487 E-commerce retailers Amazon.com Inc eBay Inc Average 44,651 Median 44,651 Deloitte: The following table provides analysis of companies with comparable activities to Yahoo!7: Table 100: Online comparable companies earnings multiples – market trading Price/NPAT Source : Bloomberg, annual financial statements, Capital IQ, Deloitte analysis Notes: Refer to Table 98 223 Yahoo!7

Section 6 333 2012

4 2011 EBITDA multiple 2010

2012

3 2011 EBIT multiple

2010

2012 2011 EBIT margin 2010 2012 2011 EBIT growth

2010

2 15.2% -30.7% 11.6% 17.7% 7.0% 7.4% 8.3% 10.7x 8.6x 8.3% 7.4% 7.3x 6.7x 5.5x 7.0% 17.7% 11.6% -30.7% 15.2% 20.7% -20.4% 20.0% 21.3% 9.2% 9.5% 10.3% 10.5x 8.8x 10.3% 7.3x 6.8x 5.8x 5.0x 9.5% 9.2% 21.3% 20.0% -20.4% 20.7% 14.4% -5.7% 16.3% 23.8% 10.5% 11.3% 8.4% 13.6x 11.6x 9.8x 9.3x 7.7x 6.6x 17.6% -4.9% 21.8% 21.0% 11.1% 11.7% 8.8% 14.0x 11.3x 9.5x 8.7x 7.6x 6.6x Gearing Current

1

EV (A$ m)

Year end

Country

CA 31-Dec 2,941 -2.2% 2.0% 18.0% 23.1% 10.8% 11.5% 9.5% 13.4x 11.1x 9.3x 10.0x 8.3x 7.2x 5

Seven Network Limited – Independent expert’s report

Median

Tutt Bryant Group Ltd AU 31-Mar 165 45.0% -45.3% 11.6% 17.7% 7.0% 7.4% 8.3% 9.6x 8.6x PT 8.3% 7.4% 7.0% 17.7% 7.3x 3.9x 3.8x 3.5x Ltd 11.6% 11.2x 8.1x -45.3% 6.6% Tbk Fund 5.3% ID 6.1x 9.2x 7.0x 5.5x 4.2% 45.0% 31.8% 31-Mar AU 31-Dec 165 38.5% 6,835 Group 14.7% 10.0% 14.3% 16.3% 15.6% 15.8% 1.7% -30.7% 10.7x Tractors 9.7x 15.2% 31-Dec CA Income 493 8.5x Bryant United 7.3x 6.7x Wajax 6.1x Tutt Average Heavy machinery distribution companies – Australia & International Caterpillar distributors - International Median Average

Sime Darby Bhd Inc Darby 13.8x 12.0x 13.2% 14.9% CA 14.3% MA International 14.6% 8.0% 11.1x 11.4x 10.3x 17,897 25.9% 31-Dec 30-Jun 4.6% 9.6x -34.3% 43.3% 28.4% 10.2% 11.1% Ltd 4,340 Sime 24.2% 7.3% 19.0x 13.3x 9.9x 8.9x 5.2% 9.2% 9.2% Finning 24.4% 7.2x 4.9x 4.4x 3.7x 10.3x 11.3% 8.6x -13.3% Barloworld 7.2x 6.0x 43.9% 2,723 Toromont Industries Ltd SA 30-Sep

The following table provides analysis of companies with comparable activities to WesTrac Australia. Table 101: Earnings trading multiples – WesTrac Australia 224 Deloitte: WesTrac Australia

334 Seven Network Limited Scheme Booklet – Part B

2012

4 2011 EBITDA multiple

2010

2012

3 2011 EBIT multiple

2010

2012 2011 EBIT margin ion as at 5 March 2010 2010

2012

2011 EBIT growth 2010

2

2.1% 51.7% 17.0% 11.1% 11.4% 11.8% 11.9% 2.1% 8.9x 51.7% 17.0% 7.7x 6.6x 5.5x 4.8x 4.6x 10.5% 107.9% 18.9% 18.3% 14.3% 14.0% 14.7% 10.0x 8.5x 7.2x 14.7% 6.4x 5.5x 4.8x 14.0% 14.3% 18.3% 18.9% 107.9% 10.5% Gearing Current 24.2% -41.7% 30.0% 61.8% 6.3% 7.5% 8.6% 26.5x 19.0x 12.7x 61.8% 6.3% 7.5% 8.6% 30.0% -41.7% 14.6x 11.8x 9.2x 24.2%

1

EV (A$ m)

27.9x 18.3x 12.9x 35.8% 5.7% 7.3% 8.7% 40.7% -34.8% 13.6x 10.6x 8.6x 24.1%

Year end

Country

Seven Network Limited – Independent expert’s report Gearing is calculated as net debt over enterprise value (EV) Calculated as EV over EBIT Calculated as EV over EBITDA Systems Income Fund completed on 20 January 2010 Toromont Industries’ multiples adjusted for acquisition of Enerflex In calculating enterprise value net debt is taken as at the most recently available financial statements and market capitalisat

2. 3. 4. 5. 1.

Median Caterpillar Inc Industries Heavy machinery manufacturing companies – International Ltd 28.7% 6.5% 25.7% 7.3% 23.3x 18.5x 14.4x 8.3% 10.5% 16.1% SK 11,267 31-Dec Caterpillar 12.2x 19.5x 15.6x 12.6x 16.8x 15.1x Heavy 32.5x 21.3x 39.3x 38.1% 3.7% 6.6% 8.2% 40.9% 4.5% 7.3% 9.0% 12.4x 12.6x 93.0% 16.6x 84.5% 9.4x 9.8x -55.2% 7.8x -34.8% Komatsu Construction 34.3% JN 41.6% 8,772 31-Mar 13.7x 71,217 18.3x US 34.3x Ltd 33.6% 4.9% 8.3% 9.9% 31-Dec 10.6x Doosan 14.5x 87.8% 8.9x Corp -54.0% 23.2% 29,422 Hitachi JN 31-Mar Holdings HK Terex 31-Dec 2,062 20.8% 40.7% 12.8% 10.2% 11.8% 10.9% 24.1% 15.0x 10.6x Lonking 9.4x 216.5% Shantui Construction 12.6x n/m -150% 1.8% 5.1% US -197% 9.2x 31-Dec 29.4% n/m 36.0x 11.4x 3,894 Average 8.2x n/a 16.5x 8.1x CH 31-Dec 1,480 0.5% 18.4% 28.3% n/a 8.2% 9.2% n/a 14.5x 11.3x n/a 11.8x 9.0x n/a

Leighton Holdings Ltd 11.7x 12.6x 13.7x 8.0% 5.0% 5.1% 5.2% Ltd AU 12,447 7.3x 5.5% 214.8% 8.2% Holdings 6.8x 30-Jun 6.4x Resources AU Ltd Leighton Ltd 30-Jun 1,133 52.2% 30.2% 26.3% 27.5% -2.3% 13.1x 14.1% 4.4% 4.6% 4.9% Ltd Mineral 10.0x 9.1x 8.1x 8.2x 6.4x 6.0x 43.6% 31.1% 12.7% AU 7.1x 6.6x 30-Jun 12.3% 7.4x 6.4x 5.4x 26.7% 13.0% 4.4x 3.6x 3.4x -5.3% Ausdrill 295.5% 519 Holdings 11.5% 24.6% 5.0x 10.9x 5.1x 4.6x 4.4x 4.6x 4.2x 7.9% 23.7% 8.2x Ltd Industrea 19.5% 5.6x 27.3% 31.1% AU 30-Jun 59.8% Macmahon 613 15.2% 8.6x 7.2x 6.7x 11.2% 35.3% AU 30-Jun 28.9% 569 11.3% 5.9x 5.0x 4.7x Sedgman 11.2% 8.0% Average AU 18.8% -1.3% 30-Jun 320 4.9% Median Mining services companies - Australia Source : Bloomberg, Capital IQ, Deloitte analysis Notes : n/a: not applicable n/m: non- meaningful 225 Deloitte:

Section 6 335 2012

4 2011 EBITDA multiple 2010 2012

3 2011 EBIT multiple 2010

2012 2011 EBIT margin

2010

2012 2011 EBIT growth 2010

2

45.3% -45.3% 27.1% 12.2% 7.0% 9.1% 9.6% 9.6x 8.4x 7.3x 4.0x 3.8x 3.5x 9.1% 7.0% 12.2% 27.1% -45.3% 45.3% 12.0% 19.2x 17.9x 11.3x -43.4% 33.2% 36.8% 10.7% 11.6% 13.7% 50.3% 5.5x 43.1% 8.2% 9.6% 20.8x 5.2x 15.3% 14.9x 4.4x -59.1% 10.7x 61.5% 5.5x 5.3x 4.6x Current Gearing

1

EV (A$ m)

Year end

Country

Seven Network Limited – Independent expert’s report

Equipment and machine hire companies - Australia Emeco Holdings Ltd AU 30-Jun 773 45.3% -8.6% 27.1% 12.2% 18.9% 21.8% 22.4% 8.8x 6.9x 6.2x 4.0x 3.5x 3.2x 8.3% 9.6x 8.6x 7.3x 3.9x 3.8x 3.5x 7.4% 21.8% 7.0% 17.7% Ltd Ltd 18.9% 11.6% 12.2% 16.1x 8.4x 7.6x 5.7x 4.2x 3.9x AU -45.3% Ltd 9.6% 27.1% AU 9.1% 5.1% 45.0% 31-Mar -8.6% 11.4% Holdings 45.3% 30-Jun Group 90.6% 165 AU -45.3% 773 Logistics 49.2% 30-Jun 286 Emeco Bryant Boom Tutt Average Median -33.1% 43.1% 13.8% 10.3% 12.8% 13.4% 46.5% 11.5x 8.0x 7.0x 4.5x 3.8x 3.5x PLC Inc 10.1x 9.1x 8.6x 2.9x 3.6x 3.5x Equipment and machine hire companies - International 14.6% PLC 14.2% 10.2x 8.7x 6.8x 6.3x 5.4x 4.8x Aggreko 18.1% 13.2% PLC Holdings 16.1% 5.5% 12.5x 17.9x 11.0% US 19.2x 5.0x 12.0% 16.5% 30.3x 18.7x 12.3x 14.7% 5.1x United Rentals Inc UK UK 11.8% 43.1% 8.0% 8.8% 4.4x -13.4% 51.4% 7.2x 8.2% Group 62.0% Ltd 27.3% -66.8% 7.1% 6.4x -59.1% 31-Dec 31-Dec UK 30-Apr 5.3x 61.5% 17.1% 65.7% 73.4% SI RSC Group 3,278 2,286 -31.2% 517 31-Dec PLC 31-Mar 20.7% Ashtead Holdings 5,101 600 5.8% 18.4% -6.0% 11.9% 26.4% 23.3% 23.7% 11.1x 11.8x Lavendon 10.6x 12.0x Hire 20.0x US 3.8x 43.7x 66.5% 1.8% 3.8% 6.1% 7.4x UK 3.8x 118.8% 3.4x H&E Equipment Services Inc 7.4x Hong 31-Mar -85.1% 6.8x 49.1% Speedy US 477 31-Dec Tat Average 31-Dec Median 3,786 85.4% 681 -42.6% 40.7% 15.3% -67.6% 30.6% 40.5% 9.3% 58.0% 9.6% 4.0% 11.4% 5.0% 17.0x 6.9% 14.8x 25.1x 11.3x 17.9x 5.5x 11.3x 5.2x 5.9x 4.4x 5.4x 4.3x Source: Deloitte analysis, Bloomberg, Capital IQ, broker reports, company annual reports Notes: Refer to Table 101 The following table provides analysis of companies with comparable activities to Coates Hire. Table 102: Earnings trading multiples – Coates Hire 226 Deloitte: Coates Hire

336 Seven Network Limited Scheme Booklet – Part B

Appendix 6: Comparable company descriptions

Descriptions of comparable companies are provided below.

Television broadcasting

Table 103: Overview of selected comparable companies

Revenue segmentation (last reported year) Company Product Geographic Description

Ten Network Out of home Ten primarily has an investment in The Ten Group Pty Holdings Limited adverstising Limited and controlled entities which operates as 17% (Ten) Channel 10 in Australia. Ten Group operates free to air commercial television licences in Sydney, Melbourne, Brisbane, Adelaide and Perth. Ten also owns Eye

Broadcast Group which is an out-of-home advertising businesses. television 83% Australia, 100%

Southern Cross Other, Southern Cross, previously Macquarie Media Group, Publishing Broadcast 4% 25% television Media Group U.S, 24% invests in a range of media assets which provide free to (Southern Cross) 47% air broadcasting, comprising commercial radio and television broadcast licences held throughout regional Australia. Southern Cross also operates community Broadcast newspapers located in the United States. radio Australia, 28% 72%

Prime Media Broadcast 7% Other, Prime primarily operates regional free to air radio 2% Group Limited commercial television and radio stations; outside Production (Prime) television broadcast production; film exhibition under the 12% Moonlight Cinema brand, and television program production throughout Australia.

Broadcast television Australia, 100% 79%

Austar United Austar United Communications Limited (Austar) Communications operates subscription television services in Australia. Limited (Austar) Austar offers digital satellite services to customers in regional and rural areas. It also provides dial-up Internet and mobile phone services.

Pay television Australia, 100% 100%

Consolidated Consolidated Media Holdings Limited (CMH) has Media Holdings investments in subscription television, with CMH Limited (CMH) holding a 25% interest in FOXTEL; and a 50% shareholding in Premier Media Group Pty Limited which owns Foxsports.

Investment holding Australia, 100% 100%

227 Deloitte: Seven Network Limited – Independent expert’s report

Section 6 337

Revenue segmentation (last reported year) Company Product Geographic Description

Sky Network Other, Sky Network Television Limited (SKY) operates as a Broadcast 2% Television television provider of multi-channel, pay television and free-to- Limited (SKY) 8% air television services in New Zealand. Sky offers a range of sports, movies, music, on-demand and general content across more than 100 channels. Pay television New 90% Zealand, 100%

Publishing

Table 104: Overview of selected comparable companies

Revenue segmentation (last reported year) Company Product Geographic Description

Fairfax Media Online Magazines NZ, 19% Fairfax is an Australian based diversified media company 18% 7% Limited Production which primarily engages in publishing of news, (Fairfax) 2% information and entertainment, advertising sales in newspaper, magazine and online formats, and radio broadcasting. Fairfax's revenues are primarily generated Radio Broadcasting through circulation sales, printing and the sale of 4% Newspapers advertising in its publications. 69% Australia, 81%

APN News & Outdoor Other, Asia, 6% APN is an Australian based news and media company advertising 3% Media Limited 21% which operates predominantly in Australia and New (APN) Zealand. APN publishes and prints regional newspapers Australia, and other publications (including directories and other 49% NZ, 45% specialist publications). APN also specialises in various Radio Broadcasting outdoor advertising categories. 19% Newspapers 57%

West Australian Other, WAN is an Australian based provider of newspaper and 5% Newspapers digital publishing, commercial printing, and radio Holdings broadcasting services. It publishes The West Australian Limited (WAN) daily and weekend newspaper, magazines, thewest.com.au and 23 regional newspapers and Australia, magazines. WAN also operates a radio network which Newspapers 100% 95% covers half of Western Australia.

Gannett Co Inc TV Other, Gannet was founded in 1906 and is based in the US. 4% International Broadcasting 15% (Gannett) 11% Gannett primarily operates in the United States and publishes 85 daily newspapers, including USA TODAY, and nearly 850 non-daily publications.

Publishing 85% U.S, 85%

228 Deloitte: Seven Network Limited – Independent expert’s report

338 Seven Network Limited Scheme Booklet – Part B

Revenue segmentation (last reported year) Company Product Geographic Description

Daily Mail & Other, Other, DMGT was founded in 1896 and is based in the UK. General Trust 17% 10% DMGT is a diversified international media business PLC (DMGT) North primarily publishing newspapers and magazines. America, 25% Additionally, it provides business to business information services, technology and services for management of risk, Magazines U.K, 65% 23% educational products and services and operates a radio 60% Newspapers network in Australia.

The New York Other, NYT was founded in 1896 and is based in the US. NYT 4% Times Co is a diversified media company, including newspapers, (NYT) internet businesses, a radio station, investments in paper mills and other investments. The majority of NYT's revenues are from the The New York Times Media Group consisting of The New York Times; U.S, Newspapers 100% 96% NYTimes.com; the International Herald Tribune; and IHT.com.

RCS Other, Newspapers Other, RCS is based in Italy and operates in the fields of daily 12% 7% MediaGroup 50% newspapers, magazines and books, radio broadcasting, SpA (RCS) Spain, new media and digital and satellite television. It is also Books, 25% engaged in advertisement sales and distribution markets. 26%

France, Italy, 59% Magazines 9% 12%

Axel Springer Other, Newspapers Axel was founded in 1946 and is based in Germany. AG (Axel) 16% 63% Other, Axel is a media company that is engaged in publishing 22% newspapers and magazines, as well as the operation of digital sales channels. Axel publishes magazines and newspapers across a range of countries in Europe. Magazines 21% Germany, 78%

Arnoldo Other, Mondadori was founded in 1907 and is based in Italy. Other, 5% Mondadori 39% Mondadori is a publisher and printer which operates in

Editore SpA France, creation of products, printing, marketing and distribution. (Mondadori) 20% Mondadori publishes various magazines and newspapers primarily in Italy

Magazines 42% Books, Italy, 75% 19%

Roularta Media Other, Roularta is a publishing and media company based in 3% Other, Group NV 22% Belgium. Roularta operates in news, niche magazines, (Roularta) freesheets, newspapers, radio and television broadcasting, electronic publishing, internet portals, event management France, and printing. 32% Belgium, Publishing 65% 78%

229 Deloitte: Seven Network Limited – Independent expert’s report

Section 6 339

Revenue segmentation (last reported year) Company Product Geographic Description

Sanoma OYJ Other, Sanoma is based in Finland and primarily publishes Other, Magazines 6% (Sanoma) 28% 40% magazines. Sanoma also operates free-to-air television and pay television channels, commercial radio channels Finland, and broadband internet. 48% Education 12% Rest of Europe, Broadcasting 46% 20%

Informa PLC Academic U.K, 13% Informa was founded in 1734 and is based in the UK. Consultancy publishing Rest of (Informa) World, Informa provides specialist information to academic, 36% 31% 20% scientific, professional and commercial markets via publishing, events and performance improvement worldwide.

Europe, Financial North 30% news, America, 37% 33%

Meredith Meredith was founded in 1902 and is based in the U.S. Broadcasting Publishing Corporation 20% Meredith is a diversified media company primarily (Meredith) 80% focused on publishing and broadcasting. Meredith's publishing segment includes magazine and book publishing and other related operations. Meredith also operates network-affiliated television stations and U.S, 100% markets and develops syndicated television programs.

230 Deloitte: Seven Network Limited – Independent expert’s report

340 Seven Network Limited Scheme Booklet – Part B

Yahoo!7

Table 105: Overview of selected comparable companies

Revenue segmentation (last reported year) Company Product Geographic Description

Seek Ltd. Other, Seek was founded in 1997 and is based in Melbourne, Education, 2% 19% New Zealand, Victoria. The company provides online employment and 7% educational classifieds services. Alongside its main website, Seek also runs employment classifieds tailored to the executive market, IT industry, small businesses and

Employment Australia, volunteer organisations. The company primarily operates 81% 91% in Australia and New Zealand, with smaller operations in the United Kingdom.

Carsales.com Data and Carsales.com is based in Hawthorn, Victoria. The research, Ltd. 14% company operates carsales.com.au, an online automotive classifieds website with additional offerings including bikes, boats, trucks, machinery and other equipment and accessories. The company predominantly operates in

Online Australia, Australia, with smaller businesses in New Zealand and advertising, 100% Asia. 86%

Wotif.com Other, Rest of Wotif.com was founded in 2000 and is headquartered in 2% Accomodation world, Holdings Ltd. 90% 3% Milton, New South Wales. The company provides Flights, 8% Asia, online travel booking services for accommodation, 13% flights, car rental, cruises, insurance, travel packages and tours through its main website, Wotif.com and a number Australia 84% of smaller websites. Wotif.com primarily operates in Australia, with smaller operations in Asia and other international locations.

REA Group Other, REA Group was founded in 1995 and is headquartered in 3% Ltd. Luxembourg, Richmond, Victoria. The group operates the 3% realestate.com.au website and specialises in the online Italy, 5% advertising of residential and commercial properties for sale and rent across Australia. REA Group also offers Australia Advertising 89% other services including online advertising, website services, 100% development services and real estate print publication services. The group operates in Australia, Italy and other international locations.

Webjet Ltd. Webjet provides online travel booking services and is based in Melbourne, Victoria. The company operates the webjet.com.au website and provides booking services for flights, accommodation as well as travel guide Online information, online assistance and car rental and travel services, insurance services. Webjet operates throughout 100% Australia, 100% Australia.

Google, Inc. Google was founded in 1998 and is headquartered in Rest of world, Mountain View, California. The company provides 37% access to its index of websites and other online content through use of its search engine service. Aside from its Google.com website (and localised versions), Google United Online United States, owns and operates Youtube.com, an online video and advertising Kingdom, 49% audio sharing website. Google’s advertising base is 14% 100% primarily concentrated in the United States, followed by the United Kingdom and the rest of the world. 231 Deloitte: Seven Network Limited – Independent expert’s report

Section 6 341

Revenue segmentation (last reported year) Company Product Geographic Description

Yahoo!, Inc. Yahoo! was founded in 1994 and is headquartered in International, Sunnyvale, California. The company is operates a 28% Online number of websites globally, including its own self-titled advertising Yahoo! website, through which it provides marketing and search services to advertisers including display, search and marketing 100% listing advertising. Yahoo! has operations in the United United States and other countries around the world. States, 72%

IAC, Inc. Emerging IAC was founded in 1986 and is headquartered in New businesses International, 13% 19% York, New York. The company operates a number of ServiceMagic online businesses including dictionary.com, ask.com, 9% citysearch.com and match.com which offer media and advertising services as well as search capabilities. IAC United Media and has operations in the United States, United Kingdom and Match, States, advertising 25% 81% other countries around the world. 53%

Amazon.com, Amazon.com, Inc. was founded in 1994 and is E-commerce Inc. retailing, International, headquartered in Seattle, Washington. The company is a 100% 47% multinational online retailer of goods and services

North including books, music, games, toys and electronics. America, Alongside its American website, Amazon has established 53% separate websites in a number of countries including Canada, the United Kingdom, Germany and France and also has interests in a number of other e-commerce businesses including shopbop.com and zappos.com.

eBay, Inc. Communications, eBay, Inc. was founded in 1995 and is headquartered in 7% Marketplaces International, San Jose, California. The company manages the 65% 54% eBay.com website, an online auction and shopping website; Paypal, an online payments system; and Skype, Payments, 28% a VoIP service as well as other online e-commerce businesses. eBay is based in the United States and has United States, 46% localised websites in approximately 30 countries globally.

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Wireless Broadband Australia Group Limited

Table 106: Overview of selected comparable companies to Wireless Broadband Australia

Revenue segmentation (last reported year) Company Product Geographic Description

TPG Telecom Ltd Telecommunications TPG Telecom is an Australian internet Services, 100% service provider. The company provides internet services including ADSL and ADSL2+ broadband access, dial-up internet access, VoIP telephony services and website Australia, 100% hosting and design services to residential, business and government customers across Australia.

iiNet Ltd Telecommunications iiNet was founded in 1993 and is based in Services, 100% Perth and is a provider of internet services including naked DSL, dial up, mobile broadband and WiFi services as well as VoIP telephony. iiNet services residential Australia, 100% and business customers across Australia.

M2 International, M2 was founded in 1999 and is headquartered in Wholesale, 1% Telecommunications 45% Southbank, Victoria. The company provides high Group Ltd speed broadband internet including ADSL and mobile broadband, fixed line voice and mobile voice Retail, and data services to small and medium sized 55% businesses in Australia and New Zealand. Australia, 99%

Eftel Ltd Telecommunications Eftel was founded in 1999 and is based in Perth, Services, 100% Western Australia. The company is primarily an internet service, however, Eftel also offers internet access, web hosting, VoIP telephony and internet infrastructure services. Eftel services corporate, Australia, 100% retail and wholesale customers across Australia.

BigAir Group Ltd Mobile BigAir Group was founded in 2002 and is wireless, 23% based in Sydney, New South Wales. The group provides wireless broadband services to residential and business customers through its fixed WiMAX broadband Australia, 100% network. BigAir services the metropolitan Fixed markets of Sydney, Melbourne, Brisbane, wireless, 77% the Gold Coast, Adelaide and Perth.

Clever Telecommunications Clever Communications is a Services, Communications 100% telecommunications carrier based in Australia Ltd Melbourne, Victoria. The company provides fixed broadband and fixed wireless broadband services, in particular, ADSL, Australia, 100% ADSL+2, SHDSL and fibre and Ethernet services as well as business voice and inbound services to business customers throughout Australia.

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Section 6 343

WesTrac Australia

Table 107: Overview of selected comparable companies Revenue segmentation (last reported year) Company Product Geographic Description

Caterpillar dealers - International

Sime Darby was founded in 1910 and is headquartered in Sime Darby Energy Health Other 2% Plant- 17% Kuala Lumpur, Malaysia. The company’s original core Bhd 10% Malay. ation 31% business activity is plantation, however, it’s now a (Sime Darby) 34% Manuf. conglomerate involved in the motor vehicle, heavy engines 24% Aust. equipment, property and energy & utilities industries. The 20% Sale & company has exclusive Caterpillar distribution rights for the rental Prop. Indo. sale and rental of Caterpillar heavy equipment, parts and heavy 5% equip. depvt. China Sing. service support in Malaysia, Singapore, Hong Kong SAR, 5% 25% 16% 11% Brunei, The People's Republic of China (7 provinces), the states of QLD and NT of Australia, Papua New Guinea, New Caledonia, the Solomon Islands, Nauru, the Republic of Maldives and Christmas Island

Finning Services, UK, 21% Finning was founded in 1933 and is headquartered in International 12% Vancouver, Canada. Finning engages in the sales, service (Finning) and rental of Caterpillar equipment, engines and Support, complementary equipment to Canada, the United 32% Canada, Kingdom and South America. The company primarily Sales, 54% 66% South serves the mining, construction and power generation America, industries. 25%

\

Barloworld Services Other Barloworld was founded in 1902 and is based in Sandton, 10% Australia 8% Limited 7% South Africa. The company operates as a distributor of Europe international brands that provide integrated rental, fleet 18% management, product support and logistics solutions in South Africa and internationally. The core divisions are

Sth equipment, which houses the Caterpillar business; America automotive, consisting of vehicle retail, car rental and Sale 67% 90% leasing; handling, housing the Hyster lift truck dealerships; and logistics, the smallest component of the restructured group.

Toromont Product Rental Intrn. Toromont was founded in 1961 and is based in Concord, support 5% 3% Industries 11% Canada. The company provides capital equipment and US (Toromont) 29% product support services in Canada and the US. It sells, Capital rents and services construction equipment and industrial sales 17% engines under the Caterpillar brand. Included in Toromont’s dealership territory are gold, nickel, copper, Comp. Canada zinc, salt and diamond mines which combine in making it sales 68% 67% the largest North American dealer of underground Caterpillar equipment. In addition, Toromont designs, engineers and installs natural gas compression units and other industrial and recreational refrigeration systems.

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Revenue segmentation (last reported year) Company Product Geographic Description

Heavy machinery distribution companies – Australia and International

PT United Coal Singap. United Tractors was founded in 1972 and is headquartered mining 2% Tractors 12% in Jakarta, Indonesia. United Tractors engages in the sale (United and rental of heavy equipment and related after sales Tractors) services in Indonesia and Singapore. Additionally, it is Sale and involved in coal mining and provides mining services on Mining rental services 52% contract basis. 36% Indonesia 98%

Wajax Income Wajax Income Fund was founded in 1869 and is Fund Limited headquartered in Mississauga, Canada. The company operates as an open-ended limited purpose trust. It engages in distribution operations through the sale and after-sales parts and service support of mobile equipment, Dist. and services Canada power systems and industrial components. The company 100% 100% serves the mining, oil and gas, forestry, construction, manufacturing, industrial processing, transportation and utilities sectors.

General hire Tutt Bryant 28% Tutt Bryant was founded in 1938 and is based in South Limited Australia. The company engages in the distribution and Sale sale of earthmoving and construction equipment with 46% associated spare parts and service, crane hire to the construction and mining industry and general hire Crane Australia, operations, which involves its general equipment rental hire 100% 26% business.

Mining services companies - Australia

Property Asia Leighton Holdings was founded in 1949 and is 15% 14% Leighton headquartered in NSW. The company provides a range of Holdings project development, contracting services and skills to public and private sector clients. The company’s activities Infrast. 50% include building, civil engineering construction, contract Mining mining, telecommunications, environmental services, Australia/ services Pacific property development and project management. 35% 86%

Mineral Resources is based in WA. The company provides Mineral mining and contracting services primarily to the oil and gas, Resources utilities, civil contracting and mining industries in Limited Australia. It is engaged in contract crushing, general mine services infrastructure provision and recovery of metal Mining Australia, concentrate. services, 100% 100%

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Section 6 345

Revenue segmentation (last reported year) Company Product Geographic Description

Ausdrill Logistics Other UK Ausdrill was founded in 1987 and is based in WA. The services services 1% Limited 9% 3% company is a diversified mining and services company, provides a range of services in mining, drill and blast, Africa exploration, procurement and logistics, manufacturing, 45% Australia telecommunications and automotive industries 54%

contract mining 88%

Industrea Industrea Limited is headquartered in QLD. The company Limited operates as a diversified mining products and services group providing integrated mining products and services, including open cut earthmoving and equipment hire, asset management, contracting and engineering services. Mining services, Australia, 100% 100%

Sth east Const. Asia MacMahon 53% 1% MacMahon Holdings was founded in 1963 and is Holdings headquartered in WA. The company undertakes key infrastructure projects, including roads, bridges, railroads, ports and dams. Additionally, its mining business provides service for open cut and underground operations, managing Mining Australia/ 47% NZ mines for customers in Australia, New Zealand and 99% Malaysia.

Sedgman Sedgman is headquartered in QLD. The company provides Limited engineering, project delivery, and operations services to the resources industry in Australia. Specifically, it engages in the design, construction, operation and commissioning of coal handling and preparation plants, minerals processing Mining Australia, plants and related equipment. services, 100% 100%

Heavy machinery manufacturing companies - International

Caterpillar Inc. Finance US Caterpillar was founded in 1925 and is headquartered in and 34% insurance Illinois, United States. The company manufactures and 5% sells construction and mining equipment, engines and industrial gas turbines worldwide. Its machinery business engages in the design, manufacture, marketing and sale of construction, mining and forestry machinery. It also has a Manuf. & Outside financial products business which provides various dist. US 95% 66% financing alternatives to customers and dealers for the company’s machinery and engines.

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Revenue segmentation (last reported year) Company Product Geographic Description

Komatsu Other Komatsu was founded in 1884 and is headquartered in Limited 19% Tokyo, Japan. The company engages in the manufacture, development, marketing and sale of industrial-use products

Europe Japan and services worldwide. The company operates in two 12% 49% segments, Construction, Mining and Utility Equipment and Industrial Machinery and Others. Manuf. & dist. America 20% 100%

Doosan Heavy Finance Doosan Heavy Industries & Construction was founded in & Overseas Industries and insurance 21% 1962 and is headquartered in Changwon, South Korea. The Construction 2% company engages in designing and building power and water plant technology worldwide. The company builds nuclear, thermal, combined cycle and hydro power plants. The company also manufactures material handling Manuf. & Sth. equipment, including container handling cranes, bulk dist Korea 98% 79% material handling systems, electric overhead travelling cranes, general cargo handling equipment and equipment parts and service for the container and bulk handling industries.

Other Americas 8% Hitachi 6% Hitachi was founded in 1970 and is headquartered in Construction Europe Tokyo, Japan. Hitachi engages in the manufacture, sale and Machinery 14% service of construction machinery, transportation machinery Company Japan and other machinery and devices. The company operates in Limited 56% three segments: Construction Machinery, Industrial Manuf. & Asia (Hitachi) dist. 16% Vehicles and Semiconductor Production Equipment. 100%

US Terex Corp. All others 30% Terex was founded in 1925 and is based in Connecticut, 34% United States. The company operates as a diversified global manufacturer. The company manufactures a range of equipment for use in various industries, including the UK construction, infrastructure, quarrying, surface mining, Manuf. & Others - 6% shipping, transportation, refining and utility industries. dist. Europe Germany 100% 23% 7% Additionally, it also offers a line of financial products and services to assist in the acquisition of Terex equipment through Terex Financial Services.

Lonking Finance lease Holdings 1% Lonking Holdings is headquartered in Shanghai, the People’s Republic of China. The company engages in the manufacture, distribution and sale of construction machinery in the People’s Republic of China. The company also offers lease financing for wheel loader and Manuf. & other machinery. It sells its products through sales and dist. China 99% 100% distribution agents.

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Section 6 347

Coates Hire

Table 108: Overview of selected comparable companies Revenue segmentation (last reported year) Company Product Geographic Description

Equipment and machine hire - Australia

Parts North Europe 5% America 3% 18% Emeco Sales Emeco Holdings was founded in 1972 and is headquartered Holdings 23% in WA. The company engages in the rental and sale of Limited heavy earthmoving equipment in Australia, Indonesia, Asia Canada, the United States and the Netherlands. It also 10% provides maintenance services and procures and supplies Rental Aust. 72% 69% used and reconditioned parts. The company rents and sells its products to civil construction and mining industries.

Boom Logistic Boom Logistics Limited was incorporated in 2000 and is Limited headquartered in QLD. The company engages in the provision of lifting solutions and after sales services, and the sale of mobile cranes and associated spare parts in Australia. Boom Logistics’ products and services are used Rental Australia, in various applications, including industrial maintenance, 100% 100% commercial construction, resources and petro chemical industry, civil works and heavy lifting.

General hire Tutt Bryant 28% Tutt Bryant was founded in 1938 and is based in South Limited Australia. The company engages in the distribution and Sale sale of earthmoving and construction equipment with 46% associated spare parts and service, crane hire to the construction and mining industry and general hire Crane Australia, operations, which involves its general equipment rental hire 100% 26% business.

Equipment and machine hire - International

Aggreko Plc Middle Europe Aggreko is headquartered in Glasgow, the United Kingdom East 11% 20% and engages in the rental of power generators, temperature control equipment and compressed air systems worldwide. Northern Its power generation rental solutions include generators, Europe 9% North transformers, fuel tanks, electrical distribution equipment America 22% and power accessories. The company’s temperature control Rental equipment comprises chillers, cooling towers, air 100% Intrn. 38% conditioners, spot coolers, air handlers, heaters, heat exchangers and temperature accessories.

United Rentals United Rentals was founded in 1997 and is headquartered Inc. in Connecticut, United States. The company operates as a rental equipment company in the United States, Canada and Mexico. It offers an extensive range of rental equipment, including general construction and industrial equipment, material handling equipment, aerial work platforms and general tools and light equipment.

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Revenue segmentation (last reported year) Company Product Geographic Description Foreign 13%

Rental US 100% 87%

RSC Holdings, Foreign RSC Holdings is headquartered in Scottsdale, Arizona. The 6% Inc. company engages in the rental of various construction and industrial equipment in North America. It provides products primarily to industrial or non-construction related companies and non-residential construction companies.

Rental US 100% 94%

Ashtead Group UK Ashtead Group was founded in 1947 and is based in 20% London, the United Kingdom. The company provides equipment rental and rental-related services in the United States and the United Kingdom. It provides equipment on hire that lifts, powers, generates, moves, digs, supports, scrubs, pumps, directs and ventilates. It serves the Rental North construction industry and facilities management markets, as 100% America 80% well as disaster relief agencies, sport and music event organisers, governments, local authorities and homeowners.

Lavendon Belgium Lavendon Group is headquartered in Lutterworth, the & France Group Plc Middle 12% United Kingdom. The company engages in the rental of East 9% powered access equipment in the United Kingdom, Spain Germany, Belgium, France, Spain and the Middle East. Its 5% products include scissor lifts, telescopic and articulating

UK booms, truck mounted platforms, trailers, forklifts and Rental 53% telehandlers. 100% Germany 21%

H&E Other H&E Equipment Services was founded in 1961 and is 11% Equipment headquartered in Louisiana, United States. The company Services, Inc. provides heavy construction and industrial equipment in the United States. It rents, sells and provides parts and service Hire 28% support for four categories of specialised equipment, Sales 61% including hi-lift or aerial platform equipment, cranes, earthmoving equipment and industrial lift trucks. US 100%

Speedy Hire Plc Speedy Hire was founded in 1977 and is headquartered in the United Kingdom. The company is a business-to- business support services company which provides tool and equipment hire. It also provides a range of products for hire to the construction market, specialist industries, their supply chains and the public sector. In addition to its supply of Rental UK and hire services, it has also developed additional services, such 100% Ireland, 100% as facilities management services, regulatory testing and inspection, maintenance and asset management and training. 239 Deloitte: Seven Network Limited – Independent expert’s report

Section 6 349

Revenue segmentation (last reported year) Company Product Geographic Description

Services China Other 4% 4% 3% Tat Hong Tat Hong Holdings Ltd is headquartered in Singapore. Tat Sales ASEAN Limited 41% 35% Hong Holdings Ltd operates as a crane rental company in Malaysia, Hong Kong, Thailand, Indonesia, the People’s Republic of China, Japan, Vietnam and Australia. It Rental engages in the sale and rental of cranes, tower cranes, heavy 55% Australia equipment, general equipment and spare parts. 58%

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2 multiple Forecast

2 EV/EBITDA 20.1x 13.0x 12.8x 12.1x multiple Historical $335 million new equity into PBL Media via a recapitalisation as result of % Acquired

institutional and sophisticated investors

1 e Enterprise value (A'm)

Country

date Announcement

Sep-09 AU 1,804 50.1% 11.9x 10.0x 11.9x 50.1% 1,804 AU Sep-09 3 Acquirer KKR Nov-06 AU 4,000 50.0% 37.4x 12.4x 37.4x 50.0% 4,000 AU Macquarie Media Group CVC Asia Win Corporation Pty Ltd Jul-07 PBL Media KKR Nov-06 May-07 CVC Asia AU AU Jun-07 May-07 1,350 AU 86.2% Oct-06 105 AU 100.0% 12.8x 5,988 AU 40.6x 7.9x 250 25.0% 22.4x 100.0% 12.2x 5,714 13.8x 50.0% n/a 13.9x 12.0x 11.7x Various

Seven Network Limited – Independent expert’s report Calculated as enterprise value over EBITDA In calculating enterprise value net debt is taken as at the most recently available financial statements announcement dat We understand that CVC Asia currently holds 99.93% of the outstanding equity in PBL Media. In December 2008, CVC Asia injected We understand that CVC Asia currently holds which the PBL Media Holdings’ interest in outstanding capital of was almost wholly diluted. Sale of shares to Macquarie Capital Advisers Limited (MCAL) ( underwriters) via a block deal, then on sold broad range

2. 1. 4. 3.

Southern Cross PBL Media Channel 9 South Australia SP Telemedia (Media assets) SMG PBL Media Average Median Target Ten Network Appendix 7: Comparable transactions The following table provides details of comparable market transactions, listed by target company: Table 109: Television broadcasting – Comparable transactions (controlling interest only) Source : Bloomberg, SDC platinum, Capital IQ, Deloitte analysis Notes : n/a: not applicable n/m: non meaningful 241 Deloitte: Television broadcasting

Section 6 351

The following table provides comparable market transaction descriptions:

Table 110: Comparable market transaction descriptions

Target / Acquirer Description

Ten Network / Various55 In September 2009, Canwest MediaWorks Ireland Holdings (CanWest), a subsidiary of Canadian diversified media company CanWest Global Communications Corporation, sold their 50.06% interest in TEN Network, an Australian metro FTA TV broadcaster and out- of-home advertiser. The proceeds from the deal were used by CanWest to repay debt and maintain general working capital. MCAL underwrote and managed this sale to a broad range of institutional and sophisticated investors at a price of $1.30 per share. No new Ten Network shares were issued as part of this sale process.

Southern Cross/Macquarie In July 2007, MMG, a regional radio broadcaster with a 13.8% in Southern Cross, acquired the Media Group (MMG) remaining 86.2% interest, which it did not already own, in Southern Cross, a regional television and radio broadcasting station owner and operator, via a scheme of arrangement (the Scheme). Separately, MMG entered into an agreement with Fairfax Media Limited (Fairfax) which contemplated, following implementation of the Scheme, the sale of certain Southern Cross business units including metropolitan radio operations to Fairfax.

PBL Media / CVC Asia Further to the transaction below, in June 2007, CVC acquired a further 25% interest in Pacific (CVC) PBL Media. CVC’s overall ownership in PBL Media increased to 75%, with PBL Media retaining a 25% share.

Channel 9 South Australia Pty In May 2007, Win, a privately-owned regional TV broadcaster in South Australia Ltd (Channel 9 SA)/Win announced the proposed acquisition of the issued capital in Channel 9 SA, the holder of a Corporation Pty Ltd (Win) commercial television broadcasting licence for the Adelaide TV1 commercial television broadcast area. Southern Cross, the parent company of Channel 9 SA accepted the offer.

SP Telemedia Limited (SP In May 2007, SP Telemedia, an Australian media and telecommunications company Telemedia)/ Publishing & announced that it had entered into an agreement with PBL Media, one of the largest Broadcasting Media Pty Australian media companies with interests in FTA TV broadcasting (Nine Network Limited (PBL Media) Australia), magazine publishing (ACP Magazines), and live entertainment ticketing (Ticketek), to sell SP Telemedia’s media assets including NBN Television and its outside broadcasting and production operations (trading as One80 Digital Post).

SMG / KKR In November 2006, KKR, a global private equity provider announced the proposed acquisition of 47.7% of SMG, a JV between KKR and Seven Network comprising Seven Network’s interest in television, magazine publishing and online interests. The gross proceeds to Seven Network were approximately $4.0 billion which net of its interest in SMG were approximately $3.2 billion.

PBL Media / CVC Asia In October 2006, some PBL media interests including ACP magazines, Nine Network Pacific (CVC) (including its interest in Sky News), a 50% interest in ninemsn and its 41% shareholding in carsales.com.au, were transferred to a new company, PBL Media, in which PBL and CVC each held a 50% economic interest.

55 Sale of shares to Macquarie Capital Advisers Limited (MCAL) (underwriters) via a block deal, then on sold to a broad range of institutional and sophisticated investors 242 Deloitte: Seven Network Limited – Independent expert’s report

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2 Forecast multiple

2 EV/EBITDA 11.8x 10.5x 12.5x 10.5x multiple Historical % Acquired

1 value (A'mil) Enterprise te. Emap Consumer Media Ltd and Radio transaction is a Bear Stearns estimate. Country date Announcement Acquirer

Seven Network Limited – Independent expert’s report Calculated as enterprise value over EBITDA In calculating enterprise value net debt is taken as at the most recently available financial statements as at announcement da In calculating enterprise value net debt is taken as at the most

1. 2.

Median Target SPG Media Group Limited Economica SGPS Hjemmet Mortensen AS Emap Consumer Media Ltd; Radio Ltd Emap plc Heinrich Bauer Verlag KG Eaglemoss Publishing Group Limited Michael Danson Average Dec-07 Aurenis Group Egmont International Holding A/S Ongoing Strategy Investments Jun-08 UK Jun-08 Oct-08 Norway 2,642 May-07 Eden Bidco Portugal UK 100% 490 UK 40% 45 n/a 22 100% 10.5x 8.1x Dec-07 28 80% 17.2x n/a 100% 7.4x n/a UK 13.9x n/a n/a 5,475 100% 12.5x n/a The following table provides details of comparable market transactions, listed by target company: Table 111: Magazine and newspaper publishing – Comparable transactions Source : Bloomberg, SDC platinum, Capital IQ, Deloitte analysis Notes : n/a: not applicable n/m: non- meaningful 243 Deloitte: Magazine and newspaper publishing

Section 6 353

The following table provides comparable market transaction descriptions:

Table 112: Comparable market transaction descriptions

Target / Acquirer Description

SPG Media / Michael Danson In October 2008, Michael Danson’s Progressive Capital made a tender offer to acquire the remaining 80% stake in SPG Media Group plc (SPG), the UK based media company providing business conferences and summits, controlled-circulation magazines and internet reference portals for top company executives and senior management. At the time of the acquisition , SPG’s publishing business comprised 25% of total revenue. The acquisition completed in November 2008.

Economica SGPS / Ongoing In June 2008, Ongoing Strategy Investments, the Portugal based investment vehicle agreed Strategy Investments to acquire Economica SGPS, the Portugal based economics focused editorial group, which publishes the weekly magazines Semanrio Economico and the newspaper Diario Economico. The acquisition completed in August 2008.

Hjemmet Mortensen / In June 2008, Egmont International Holding AS, the Danish based media company, acquired the Egmont International Holding remaining 40% that it did not own in Hjemmet Mortensen AS, the Norwegian based publisher of magazines and weeklies. The rationale for the transaction was for Egmont to strengthen its position in the Nordic magazine market.

Emap Consumer Media, In December 2007, Heinrich Bauer, a German based consumer magazine publisher Emap Radio / Heinrich Bauer purchased Emap plc’s (Emap) consumer media and radio businesses. This transaction took place following an Emap internal strategic review. The consumer media business comprises consumer magazines. After this transaction, Emap became a pure play business- to-business media company.

Emap Plc / Eden Bidco Following the above-mentioned transaction, in December 2007, Eden Bidco, a newly incorporated company formed by funds advised by Apax Partners Worldwide LLP and by Guardian Media Group plc, agreed to acquire Emap plc, the listed UK based media group. Eden Bidco was to focus on being a business-to-business media company, comprising Emap Communications. Emap Communications' activities include events (including trade exhibitions, festivals, conferences and awards), information products and professional publications.

Eaglemoss Publishing / In May 2007, Aurenis Group, the UK based publishing group, acquired Eaglemoss Auerenis Publishing Group Ltd., the UK based publisher of magazines. Eaglemoss specialises in producing informative, highly illustrated magazines in both adult and children's areas on subjects ranging from home decorating and childcare to computing and popular science.

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4 prior One month

4 prior One week Control premium

4 prior One day

(x) 3 11.9 47% 43% 72% 13.2 44% 42% 37% EV/EBIT Historic

(%) Acquired rate one day before announcement ate

2

EV (A$ m)

1

Date

Doosan Infracore Jul-07 5724.3 100.0% 13.2 n/a n/a n/a

Acquired by Seven Network Limited – Independent expert’s report Announcement date date and converted to Australian dollars at the exchange Enterprise value based on transaction specifics as at the announcement Historical multiples are based on the most recent publicly available full year earnings prior to transaction announcement d One day, one week and month prior to announcement date, respectively

Average Average Median Median Metplant Engineering Services Central Exploration Drilling Brandrill Limited Equipment manufacturing Enerflex Systems Income Fund Nippei Toyama Corporation Bateman Engineering Moxy Engineering AS Bobcat Company; Ingersoll-Rand (Utility Every Day Mine Jul-07 Equipment and Attachments business) 19.6 Toromont Industries Jan-08 Ausdrill Ltd Komatsu Ltd Dec-09 100.0% 6.5 Doosan Infracore 770.2 Aug-09 15.0 100.0% Jan-08 91.2% Aug-08 88.2 877.1 n/a n/a 91.1 100.0% 9.4 64.4% 100.0% n/a n/a 13.6 42% 8.3 n/m n/a n/a 44% 42% 54% n/a 49% n/a 36% 37% 144% n/a 37% n/a

Target company Mining services Notes: n/a: not available n/m: non- meaningful Notes: n/a: not available 1. 2. 3. 4. Below are the details of comparable market transactions. Table 113: WesTrac earnings multiples – mergers and acquisitions 245 Deloitte: WesTrac Australia

Section 6 355

The following table provides comparable market transaction descriptions:

Table 114: Comparable market transaction descriptions

Target / Acquirer Description

Metplant Engineering In July 2007, Bateman, the listed Netherlands based technology-driven engineering project house, Services Pty Ltd / Bateman acquired Metplant, the Australian based engineering processing design and project management Engineering NV business. Metplant is a WA based company, servicing the mining industry, specialising in mineral processing, process control and materials handling. Metplant has a broad range of overseas clients and projects across a range of commodities.

Central Exploration Drilling In January 2008, EDMS, the listed Australian based mining services company, acquired CED, the (CED) / Every Day Mine Australian based company providing drilling and related services to mining companies. In the year Services Ltd (EDMS) to 30 June 2007, CED derived its revenues from the operation of three drilling rigs and at acquisition owned a fleet of support vehicles and equipment and had just acquired a fourth drilling rig.

Brandrill Limited / Ausdrill In August 2009, Brandrill, the listed Australian drilling and blasting solutions provider, agreed to Limited be acquired by Ausdrill, the Australian based mining services group. Brandrill generates the majority of its revenues in Australia with a small proportion generated in the USA. Brandrill’s contracting segment in Australia represents 94% of total revenues. Contracting includes open cut and civil drilling and blasting services and reverse circulation and exploration drilling. The remainder of revenues are generated from the DT-Hi Load business which provides lightweight haul truck trays and the RockTek segment whose operations centred on new rock-breaking technologies.

Enerflex Systems Income In October 2009, Toromont, the Canadian based Caterpillar distributor specialising in construction Fund / Toromont Industries equipment, power generation, refrigeration and process systems, made an offer to acquire the Ltd remaining 91.2% stake in Enerflex, the Canadian based provider of natural gas compression and power generation equipment, hydrocarbon production and processing facilities, electrical, instrumentation and controls services. Enerflex operates in three segments: Engineered Systems, Service, and Production Services; which, as at 30 September 2009, generated 62%, 35% and 3% of the Fund’s revenues, respectively. The Engineered Systems segment engineers, fabricates and assembles standard and custom- designed compression packages, production processing equipment and facilities, CHP systems and power generation systems; the Service segment provides Mechanical and EI&C services to the oil and gas industry through an international branch network; and Production Services provides compression, power generation and natural gas processing equipment rentals, primarily in Canada.

Nippei Toyama Corporation / In January 2009, Komatsu Ltd, the Japanese manufacturer of construction and mining equipment, Komatsu Ltd launched a tender offer to obtain all issued shares of Nippei Toyama, the manufacturer of transfer machines and various kinds of grinding machines. At the time, Komatsu already held 29.3% of the equity in Nippei Toyama and increased its equity holding to 93.7% through the tender offer. Nippei Toyama has three production facilities in Japan and one in China. The major customers of Nippei Toyama and the industrial machinery business of Komatsu are in the industries related to automobiles and semiconductors and the two have a complementary product mix.

Moxy Engineering / Doosan In August 2008, Doosan, the South Korean manufacturer of industrial equipment and machinery, Infracore Co Ltd acquired Moxy Engineering, the Norway based dump truck manufacturer, with networks for 61 dealers in Europe and North America.

Bobcat Company / Doosan In July 2007, Doosan, the South Korean manufacturer of industrial equipment and machinery, Infracore Co Ltd agreed to acquire Bobcat, the US based company engaged in the compact construction equipment business, and the Utility Equipment and Attachment businesses of Ingersoll-Rand Company Ltd. With operations in China, Belgium, France, the Czech Republic and across the Unites States, the acquisitions enhance Doosan’s product lines beyond its existing medium and large-scale construction equipment business. 246 Deloitte: Seven Network Limited – Independent expert’s report

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5 6 7

4 prior One month 67% 24% 39% 5 6 7

4 prior One week Control premium

4 prior One day 12.2 15% 34% 42% 12.9 13% 40% 44% (x) 3 EV/EBIT Historic

Acquired (%)

2 EV (A$m)

1

Date Jun-07 724.0 85.0% 15.9 n/a n/a 724.0 Jun-07 Sep-07 126.5 100.0% 126.5 12.2 24% 29% 44% Sep-07 Mar-08 152.3 100.0% 9.5 n/a n/a 152.3 Mar-08 Nov-06 142.5 100.0% 12.1 n/a n/a 142.5 Nov-06

GC

iid iid iid

Acquired by On Site Australia Group Jul-07 109.0 60.0% 12.2 n/a n/a n/a Seven Network Limited – Independent expert’s report

NES Rentals Holdings, Inc Diamond Castle Holdings LLC May-06 1,028.5 100.0% 17.5 -1% 39% Coates Hire Limited National Hire Rental Services Coates Group International Coates Group NationsRent Companies Inc. Hirequip New Zealand Limited Sunbelt Rentals Inc Pacific Equipment Solutions Jan-08 Oct-07 Jul-06 507.7 2,177.8 1,330.3 100.0% 100.0% 100.0% 12.2 12.4 16.8 n/a 8% n/a n/a 24% n/a n/a n/a Median Concept Hire Limited Cape Australia Investments Pty HSS Hire Service Group Limited Aurigo; Och-Ziff Capital Target company Australia Si d i l l A li Allplant Pty Limited North Sheridan Pty Ltd On Site Australia Pty Ltd; Coates Hire Limited Tutt Bryant Group Limited Dec-06 Nov-06 50.7 70.0 100.0% 100.0% 9.2 7.0 n/a n/a n/a n/a n/a n/a Average DK Rental Belgium; The Platform Company Lavendon Group plc Lavendon Access Services (UK) Nov-07 195.4 100.0% 10.8 n/a n/a n/a PCH Group Limited Cape Plc Sep-07 293.3 100.0% 19.9 22% 67% Table 115: Coates Hire earnings multiples – mergers and acquisitions 247 Deloitte: Coates Hire

Section 6 357 lated one day before this date a number of preliminary approaches from interested parties. Control premium cquisition or other transaction. Control premium calculated one day before this date rate one day before announcement ate Seven Network Limited – Independent expert’s report Announcement date Enterprise value based on transaction specifics as at the announcement date and converted to Australian dollars at the exchange Enterprise value based on transaction specifics as at the announcement Historical multiples are based on the most recent publicly available full year earnings prior to transaction announcement d One day, one week and month prior to announcement date, respectively On 1 May 2007, Coates Hire Limited announced a strategic review considering both corporate and operational strategies following calculated one day before this date On 12 January 2006, NES Rentals Holdings Inc announced a strategic review of alternatives, including sale company, merger, On 21 June 2007, PCH Group Limited announced the recommencement of take-over discussions with Cape Plc. Control premiums calcu

Notes: n/a: not available n/m: non- meaningful Notes: n/a: not available 1. 2. 3. 4. 6. 5. 7. Source: Deloitte analysis, Bloomberg, Capital IQ, broker reports, company annual reports 248 Deloitte:

358 Seven Network Limited Scheme Booklet – Part B

The following table provides comparable market transaction descriptions:

Table 116: Comparable market transaction descriptions

Target / Acquirer Description

Allplant Pty Ltd / Coates Hire In November 2006, Coates Hire Limited, a listed Australian equipment hire company, acquired all Limited the issued shares in the equipment hire company, Allplant, from Macmahon Holdings Limited, a listed Australian construction and contract mining company. Allplant provides large earth moving equipment hire to mine operators and civil construction contractors predominantly in the states of WA, QLD and NSW. The division’s fleet of 130 units included drills, dozers, dump trucks, excavators, graders, scrapers, tool carriers, water trucks and wheel loaders.

North Sheridan Pty Ltd/ Tutt In December 2006, Tutt Bryant Group, a listed Australian heavy equipment rental company, Bryant Group Limited acquired North Sheridan, trading as Paramount Hire Services and Pump Hire Services in Queensland Australia, by way of a cash consideration and the assumption of North Sheridan’s debt. Paramount Hire Services provides the hire of equipment to local government, the construction industry, the military, mining and industrial companies in Queensland. Pump Hire Services provides pumping systems and water management solutions in the dewatering of land, sludge, tunnels and trenches.

On Site Australia; On Site In July 2007, the management of On Site Australia Pty Ltd and On Site Industrial Rentals Industrial / On Site Australia Australia Pty Ltd, acquired the companies in a buy in/management buyout transaction Group (via Next Capital) backed by Next Capital, the Australian private equity firm. Next Capital acquired a 60% interest in the group, with the remaining interest owned by vendors and senior management. On Site Australia provided portable accommodation and portable rest rooms for rent to the construction, industrial and special events industries predominately in the states of QLD, WA, NSW, and VIC. On Site Industrials engaged in the rental of access equipment including boom lifts, forklifts and scissor lifts, together with the rental of scaffolding equipment.

Concept Hire Limited / Cape In September 2007, Cape Australia Investments Pty Limited, a subsidiary of Cape Plc (a listed UK Australia Investments Pty energy support services provider), acquired all the issued shares in Concept Hire Limited. Concept Limited Hire provides scaffold hire and sales to the commercial construction, civil engineering, mining and petrochemical industries across Australia.

PCH Group Limited / Cape In September 2007, Cape Plc, a UK listed oil and gas service provider, made an initial offer to Plc acquire all the issued shares of PCH Group. Cape increased its offer in October 2007 and completed the transaction in December 2007. PCH Group was a listed Australian company providing equipment for sale or hire with products and services such as aluminium light access, formwork & shoring, materials hoists project management, temporary fencing and scaffolding to the construction and maintenance industries. The PCH Group had operations in Australia, the Caspian Sea Region, the Middle East and South East Asia.

Coates Hire Limited / Coates In October 2007, the Coates Group, an Australian consortium formed by National Hire and The Group (National Hire & The Carlyle Group, acquired all the issued shares in Coates Hire Limited and merged it with the rental Carlyle Group) services business acquired concurrently from National Hire. Coates Hire had over 190 branches across Australia and serviced sectors including engineering, civil construction, building construction and maintenance, mining and resources, manufacturing, Government, industrial shutdowns and events. The company also had operations overseas including provision of specialised equipment to the offshore oil and gas industry in the UK and Coates Indonesia providing equipment hire and to mining resource and offshore sectors.

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Target / Acquirer Description National Hire / Coates Group In January 2008, the Coates Group, an Australian consortium formed by National Hire and The (National Hire & The Carlyle Carlyle Group finalised the acquisition of Coates Hire Limited and concurrently acquired the Group) rental services business of National Hire Limited, an Australian based equipment hire business. National Hire rental services had operations in the states of QLD, VIC, SA and NT and also traded as ‘National Hire The Cat Rental Store’ in NSW, ACT and WA. The company provided the hire of general equipment, access equipment, temporary site accommodation and toilets to the construction, industrial, infrastructure, civil and engineering markets.

NES Rentals Holdings / In May 2006, Diamond Castle Holdings, a New York based private equity firm, acquired all the Diamond Castle Holdings issues shares of NES Rentals Holdings, a US based tool and equipment hire company. NES LLC Rentals provided aerial and general equipment rental to industrial and construction clients including forklifts and truck-mounted cranes to hand tools from 120 locations across 34 states in the USA.

NationsRent Companies / In July 2006, Sunbelt Rentals Inc, a US based equipment rental company, acquired Sunbelt Rentals NationsRent Companies Inc from Baupost Group LLC (a US based investment advisor). NationsRent provided rental equipment to the construction and industrial markets from 269 locations in 26 states in the USA. Rental inventory included aerial lifts and work platforms, air compressors, backhoes, boom lifts, bulldozers, ditch equipment, excavators, forklifts, generators, lawn and garden tools, light towers, pressure washers, pumps, saws, scissor lifts, skid loaders, storage containers and wheel loaders.

Hirequip New Zealand In November 2006, Pacific Equipment Solutions Limited, a company associated with Limited / Pacific Equipment Nikko Principal Investments Ltd (a Japanese private equity firm), acquired the equipment Solutions Limited hire business of Hirequip New Zealand Limited. The Hirequip business provides hire products for access, events, general equipment, generation, heavy machinery and used equipment sales in over 50 branches across New Zealand.

HSS Hire Service Group In June 2007, Aurigo, a UK based investment vehicle and Och-Ziff Capital Management Limited / Aurigo; Och-Ziff Group LLC, a USA institutional asset management firm, acquired HSS Hire Service Capital Management Group Group Ltd from 3i Group Plc a UK based private equity firm. As a result of the LLC transaction, the management of HSS Hire Service Group held a 15% interest in the company with the remaining 85% held by the Aurigo and Och-Ziff consortium. HSS Hire Service Group rents tools and equipment mostly to corporate clients in the construction and facilities management industries across the UK and Ireland, and also provides training in the use of certain equipment DK Rentals Spain, Belgium In November 2007, Lavendon Group Plc, a listed UK based equipment rental company, & France / Lavendon Group acquired DK Rental Spain, DK Rental Belgium and DK Rental France. DK Rental Plc provides powered access rental and equipment sale with four branches in Belgium (1,400 machines), operations in France (350 machines) and Spain (950 machines). DK Rentals products include aerial work platforms, articulating and telescopic booms, forklifts, material lifts, scaffolding and scissor lifts for use in construction and industrial applications.

The Platform Company In March 2008, Lavendon Access Services Limited, a UK based subsidiary of Lavendon Limited / Lavendon Access Group plc, a listed UK equipment rental company, acquired The Platform Company Services Limited Limited, a UK based supplier of powered access rental equipment. The Platform Company operated a fleet of around 4,000 machines through a network of ten depots across the UK.

250 Deloitte: Seven Network Limited – Independent expert’s report

360 Seven Network Limited Scheme Booklet – Part B

Appendix 8: Sources of information

In preparing this report we have had access to the following principal sources of information:  the Scheme Booklet  financial results presentations, analysts briefings and annual financial reports for Seven Network for the financial years ended 30 June 2006, 30 June 2007, 30 June 2008, 30 June 2009 and for the six months ending 31 December 2009  annual financial reports for SMG for the financial years ended 30 June 2006, 30 June 2007, 30 June 2008 and 30 June 2009  annual and half year financial reports for WesTrac Holdings and its subsidiary companies  annual and half year financial reports for National Hire and its subsidiary companies  annual financial reports for Coates and Coates Group  financial results presentations and analysts briefings for National Hire for the three year period between 30 June 2006 and 30 June 2009  management presentations on WesTrac Holdings and its subsidiary companies  management forecasts for WesTrac Holdings and its subsidiary companies  internal management reports of Seven Network, Wireless Broadband Australia and the SMG and Wireless Broadband Australia financial models (in particular forecast earnings for the 2010 and 2011 financial years)  notice of Annual General Meeting and Explanatory Memorandum for National Hire the financial year ended 30 June 2007  DBCD discussion papers  Wireless Broadband Australia/VividWireless 10-year business plan  Wireless Broadband Australia internal management accounts  Wireless Broadband Australia financial statements and annual reports (2007, 2008 and 2009)  Wireless Broadband Australia Target Statement dated 8 October 2007  various news releases and reports on the Australian media sector  ASX announcements and company presentations for Seven Network and comparable companies  financial statements of Seven Network’s and SMG’s associates and JVs  IBIS World industry reports  Buddecomm industry reports  publicly available information and market reports on the Chinese construction and mining industries, WA iron ore mining and construction industries and the NSW coal mining and construction industries  other publicly available information including information published by ASIC, Thompson research, Economic Intelligence Unit, Bloomberg Financial markets, Capital IQ, SDC Platinum and Mergermarket, IBIS World, the Australian Bureau of Statistics, Buddecomm and broker reports.

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In addition, we have had discussions with the Independent Directors and various members of the management teams of Seven Network and WesTrac Holding in relation to the above information and to current operations and prospects.

252 Deloitte: Seven Network Limited – Independent expert’s report

362 Seven Network Limited Scheme Booklet – Part B

Appendix 9: Qualifications, declarations and consents

The report has been prepared at the request of the Independent Directors and is to be included in the Scheme Booklet to be sent to Securityholders for approval of the Proposed Schemes. Accordingly, it has been prepared only for the benefit of the Independent Directors and those persons entitled to receive the Scheme Booklet in their assessment of the Proposed Schemes outlined in the report and should not be used for any other purpose. We are not responsible to you, or anyone else, whether for our negligence or otherwise, if the report is used by any other person for any other purpose. Further, recipients of this report should be aware that it has been prepared without taking account of their individual objectives, financial situation or needs. Accordingly, each recipient should consider these factors before acting on the Proposed Schemes. This engagement has been conducted in accordance with professional standard APES 225 Valuation Services issued by the APESB. Statements and opinions contained in this report are given in good faith but, in the preparation of this report, Deloitte has relied upon the completeness of the information provided by the directors and executives of WesTrac Holdings and Seven Network and their officers, employees, agents or advisors which Deloitte believes, on reasonable grounds, to be reliable, complete and not misleading. Deloitte does not imply, nor should it be construed, that it has carried out any form of audit or verification on the information and records supplied to us. Drafts of our report were issued to WesTrac Holdings and Seven Network management for confirmation of factual accuracy. In recognition that Deloitte may rely on information provided by WesTrac Holdings and Seven Network and its officers, employees, agents or advisors, WesTrac Holdings and Seven Network have agreed that it will not make any claim against Deloitte to recover any loss or damage which WesTrac Holdings and Seven Network may suffer as a result of that reliance and that it will indemnify Deloitte against any liability that arises out of either Deloitte’s reliance on the information provided by WesTrac Holdings and Seven Network and its officers, employees, agents or advisors or the failure by WesTrac Holdings and Seven Network and its officers, employees, agents or advisors to provide Deloitte with any material information relating to the Proposed Schemes. To the extent that this report refers to prospective financial information we have considered the prospective financial information and the basis of the underlying assumptions. The procedures involved in Deloitte’s consideration of this information consisted of enquiries of WesTrac Holdings and Seven Network personnel and analytical procedures applied to the financial data. These procedures and enquiries did not include verification work nor constitute an audit or a review engagement in accordance with standards issued by the Auditing and Assurance Standards Board. Based on these procedures and enquiries, Deloitte considers that there are reasonable grounds to believe that the prospective financial information for WesTrac Holdings and Seven Network included in this report has been prepared on a reasonable basis. In relation to the prospective financial information, actual results may be different from the prospective financial information of WesTrac Holdings and Seven Network referred to in this report since anticipated events frequently do not occur as expected and the variation may be material. The achievement of the prospective financial information is dependent on the outcome of the assumptions. Accordingly, we express no opinion as to whether the prospective financial information will be achieved.

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Section 6 363

Deloitte holds the appropriate Australian Financial Services licence to issue this report and is owned by the Australian Partnership Deloitte Touche Tohmatsu. The employees of Deloitte principally involved in the preparation of this report were Mark Pittorino, Director, BComm, MAppFin, CA, Stephen Ferris, Director, B.Ec, F.Fin, CA, Christophe Bergeron, Associate Director, MAppFin, Dave Pearson, Associate Director, B.Comm., CBV, CFA, CA, Andrew Steere, Associate Director, B.Bus, M.Comm, F.Fin, CA and Andrew Robinson, Associate Director, B.Bus, CA. Each has many years experience in the provision of corporate financial advice, including specific advice on valuations, mergers and acquisitions, as well as the preparation of expert reports. We have considered these relationships and regard ourselves as independent of WesTrac Holdings and Seven Network and for the purpose of the preparation of an independent expert’s report for the Proposed Schemes in accordance with RG 112. Neither Deloitte, Deloitte Touche Tohmatsu, nor any partner or executive or employee thereof has any financial interest in the outcome of the Proposed Schemes which could be considered to affect our ability to render an unbiased opinion in this report. Deloitte will receive a fee of $1.5 million exclusive of GST in relation to the preparation of this report. This fee is based upon time spent at our normal hourly rates and is not contingent upon the success or otherwise of the Proposed Schemes.

About Deloitte In Australia, Deloitte has 12 offices and over 4,500 people and provides audit, tax, consulting, and financial advisory services to public and private clients across the country. Known as an employer of choice for innovative human resources programs, we are committed to helping our clients and our people excel. Deloitte's professionals are dedicated to strengthening corporate responsibility, building public trust, and making a positive impact in their communities. For more information, please visit Deloitte’s web site at www.deloitte.com.au Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/au/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms. © Deloitte Touche Tohmatsu. March, 2010. All rights reserved.

254 Deloitte: Seven Network Limited – Independent expert’s report

364 Seven Network Limited Scheme Booklet – Part B 7 INVESTIGATING ACCOUNTANT’S REPORT

Section 7 365 THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK

366 Seven Network Limited Scheme Booklet – Part B  KPMG Transaction Services (Australia) Pty Limited ABN: 65 003 891 718 Australian Financial Services Licence No. 245402 Telephone: +61 2 9335 7000 10 Shelley Street Facsimile: +61 2 9335 7001 Sydney NSW 2000 DX: 1056 Sydney www.kpmg.com.au P O Box H67 Australia Square 1213 Australia

The Directors Seven Network Limited 38-42 Pirrama Road Pyrmont NSW 2009

The Directors WesTrac Holdings Pty Limited Level 3 30 Kings Park Road West Perth WA 6005

16 March 2010

Dear Directors

Investigating Accountant’s Report and Financial Services Guide

Investigating Accountant’s Report

Introduction KPMG Transaction Services (Australia) Pty Limited (“KPMG Transaction Services”) has been jointly engaged by Seven Network Limited (“Seven”) and WesTrac Holdings Pty Limited (“WesTrac Group”) to prepare this report for inclusion in the scheme booklet to be dated 16 March 2010 (“Scheme Booklet”), and to be issued by Seven, in respect of the proposed merger with WesTrac Group (“Transaction”) to form a new entity Seven Group Holdings Limited (“SGH”).

Expressions defined in the Scheme Booklet have the same meaning in this report.

Scope KPMG Transaction Services has been requested to prepare a report covering the pro forma historical and forecast financial information described below and disclosed in the Scheme Booklet.

The financial information is presented in an abbreviated form in the Scheme Booklet insofar as it does not include all of the disclosures required by the Australian Accounting Standards applicable to annual financial reports prepared in accordance with the Corporations Act 2001.

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Review of SGH Pro Forma Historical Financial Information (excluding National Hire) The pro forma historical financial information, as set out in section 3.11(c), table 3.11.1 and section 3.11(d), table 3.11.2 (SGH pro forma (excluding National Hire) only) of Part B of the Scheme Booklet, comprises the pro forma unaudited income statements of SGH for the years ended 30 June 2007, 30 June 2008 and 30 June 2009 and the six months ended 31 December 2009 and the pro forma balance sheet of SGH as at 31 December 2009 (the “SGH Pro Forma Historical Financial Information”).

The SGH Pro Forma Historical Financial Information (excluding National Hire) has been derived from the following sources:

• Historical Financial Information of Seven which was extracted from the audited financial statements of Seven for the 52 weeks ended 30 June 2007, 28 June 2008 and 27 June 2009 and the reviewed financial statements of Seven for the half-year ended 26 December 2009, after adjusting for the pro forma transactions and adjustments described in sections 1.2(c) and 1.2(d) of Part B of the Scheme Booklet; and

• Historical Financial Information of WesTrac Group which was extracted from the audited financial statements of WesTrac Group for the years ended 30 June 2007, 30 June 2008 and 30 June 2009 and the reviewed financial statements of WesTrac Group for the six months ended 31 December 2009, after adjusting for the pro forma transactions and adjustments described in sections 2.6(c) and 2.6(d) of Part B of the Scheme Booklet, including the removal of National Hire Group Limited (“National Hire”).

For the purposes of preparing this report, we have reviewed the SGH Pro Forma Historical Financial Information in order to state whether, on the basis of the procedures described, anything has come to our attention that causes us to believe that the SGH Pro Forma Historical Financial Information is not prepared, in all material respects, on the basis of the pro forma transactions and adjustments described in sections 3.11(c) and 3.11(d) of Part B of the Scheme Booklet, and in accordance with the recognition and measurement principles prescribed in Accounting Australian Accounting Standards (including the Australian Accounting Interpretations), and accounting policies adopted by SGH disclosed in Appendix 1 to Part B of the Scheme Booklet.

We have conducted our review in accordance with Australian Auditing Standards applicable to review engagements. We made such enquiries and performed such procedures as we, in our professional judgement, considered reasonable in the circumstances, including:

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• a review of the extraction of Historical Financial Information of Seven and WesTrac Group from the KPMG audited financial statements of Seven for the 52 weeks ended 30 June 2007, 28 June 2008 and 27 June 2009, the audited financial statements of WesTrac Group for the years ended 30 June 2007, 30 June 2008 and 30 June 2009 (which were audited by a firm other than KPMG) and the KPMG reviewed financial statements of Seven and WesTrac Group for the six months ended 31 December 2009;

• analytical procedures on the SGH Pro Forma Historical Financial Information;

• review of the pro forma transactions and/or adjustments made to the Historical Financial Information of Seven and WesTrac Group;

• a review of Seven and WesTrac Group work papers, accounting records and other documents;

• a comparison of consistency in application of the recognition and measurement principles in Australian Accounting Standards (including the Australian Accounting Interpretations), and the accounting policies adopted by SGH disclosed in Appendix 1 to Part B of the Scheme Booklet; and

• enquiry of directors, management and others.

The procedures do not provide all the evidence that would be required in an audit, thus the level of assurance provided is less than given in an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

Review of compilation of the Consolidated SGH and National Hire Pro Forma Historical Financial Information The consolidated pro forma historical financial information, as set out in section 3.11(d) (table 3.11.2) of Part B of the Scheme Booklet, comprises the consolidated pro forma balance sheet of SGH and National Hire as at 31 December 2009 (the “Consolidated SGH and National Hire Pro Forma Historical Financial Information”).

The Consolidated SGH and National Hire Pro Forma Historical Financial Information has been prepared by SGH management with access to publicly available financial information of National Hire only. Consequently, neither SGH management nor KPMG Transaction Services has had an opportunity to:

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• verify that the information provided by National Hire, or sourced from publicly available information, has been prepared in accordance with Australian accounting standards; or

• assess the fair values of the assets and liabilities of National Hire, and therefore has not been able to ensure that the acquisition has been accounted for in accordance with AASB 3 “Business Combinations”. As a consequence of these circumstances, KPMG Transactions Services has reported, in this report, on the compilation of the Consolidated SGH and National Hire Pro Forma Historical Financial Information from various sources, but is not able to report on the compliance of that pro forma historical balance sheet with the requirements of Australian accounting standards or accuracy of the publicly reported information. The Consolidated SGH and National Hire Pro Forma Historical Financial Information has been derived from the:

• SGH pro forma balance sheet as at 31 December 2009 (excluding National Hire);

• historical financial information of National Hire, extracted from the public financial information of National Hire for the half year ended 31 December 2009 which was reviewed by another auditor (the “National Hire Historical Financial Information”); and

• the directors’ consolidation adjustments related to the consolidation of NHG with the rest of the WesTrac Group.

The National Hire Historical Financial Information was reviewed by National Hire’s external auditor in accordance with Australian Auditing Standards. The review opinion issued to the members of National Hire relating to the National Hire Historical Financial Information was unqualified. KPMG is not National Hire’s external auditor and we have had no access to any non-public National Hire information or National Hire management.

For the purposes of preparing this report we have reviewed the Consolidated SGH and National Hire Pro Forma Historical Financial Information in order to state whether, on the basis of the procedures described, anything has come to our attention that causes us to believe that the Consolidated SGH and National Hire Pro Forma Historical Financial Information has not been compiled on the basis of:

• the SGH pro forma balance sheet as set out in section 3.11(d) (table 3.11.2) of Part B of the Scheme Booklet as at 31 December 2009; and

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• the National Hire Historical Financial Information extracted from the reviewed public financial information of National Hire for the half year ended 31 December 2009. We have conducted our review in accordance with Australian Auditing Standards applicable to review engagements. We made such enquiries and performed such procedures as we, in our professional judgement, considered reasonable in the circumstances, which were limited to a review of the extraction of the National Hire Historical Financial Information from the reviewed public financial information of National Hire for the half year ended 31 December 2009.

Our review of the compilation of the Consolidated SGH and National Hire Pro Forma Historical Financial Information is substantially less in scope than an audit examination conducted in accordance with Australian Auditing Standards. A review of this nature provides less assurance than an audit. We have not performed an audit and we do not express an audit opinion on the compilation of the Consolidated SGH and National Hire Pro Forma Historical Financial Information.

We have not audited or reviewed the National Hire Historical Financial Information and we do not express any opinion, or make any statement of negative assurance, as to whether the Consolidated SGH and National Hire Pro Forma Historical Financial Information is prepared, in all material respects, in accordance with the recognition and measurement principles prescribed in Australian Accounting Standards (including the Australian Accounting Interpretations), and accounting policies adopted by SGH and National Hire.

Review of SGH Pro Forma Forecasts, and directors’ best-estimate assumptions underlying the SGH Pro Forma Forecast The SGH pro forma forecast is set out in section 3.11(c), table 3.11.1 and section 3.11(e), table 3.11.3 of Part B of the Scheme Booklet and comprises the combined pro forma forecast income statements and statements of cash flows of SGH, excluding National Hire, for the years ending 30 June 2010 and 30 June 2011 (the “SGH Pro Forma Forecast”).

The SGH Pro Forma Forecast has been prepared by the directors to provide investors with a guide to SGH’s potential future financial performance based upon the achievement of certain economic, operating, developmental and trading assumptions about future events and actions that have not yet occurred and may not necessarily occur. The directors’ best-estimate assumptions underlying the SGH Pro Forma Forecast are set out in section 1.2(h) of Part B for Seven and section 2.6(h) of Part B of the Scheme Booklet for WesTrac Group.

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There is a considerable degree of judgement involved in the preparation of any forecast. Consequently, the actual results of SGH during the forecast period may vary materially from the SGH Pro Forma Forecast, and those variations may be materially positive or negative.

The sensitivity of the SGH Pro Forma Forecast to changes in key assumptions is set out in sections 1.2(i), 2.6(i) and 3.11(f) of Part B of the Scheme Booklet, and the risks to which the businesses of SGH are exposed are set out in section 5 of Part B of the Scheme Booklet. Investors should consider the SGH Pro Forma Forecast in conjunction with the analysis in those sections.

We have reviewed the:

• SGH Pro Forma Forecast, set out in section 3.11(c), table 3.11.1 and section 3.11(e), table 3.11.3 of Part B of the Scheme Booklet; and

• directors’ best-estimate assumptions underlying the SGH Pro Forma Forecast, set out in section 1.2(h) of Part B for Seven and section 2.6(h) of Part B of the Scheme Booklet for WesTrac Group;

in order to state whether, on the basis of the procedures described, anything has come to our attention that causes us to believe that:

• the directors’ best-estimate assumptions, when taken as a whole for SGH, do not provide reasonable grounds for the preparation of the SGH Pro Forma Forecast; and

• the SGH Pro Forma Forecast is not properly compiled on the basis of the directors’ best-estimate assumptions underlying the SGH Pro Forma Forecast or prepared, in all material respects, in accordance with the recognition and measurement principles prescribed in Australian Accounting Standards (including the Australian Accounting Interpretations), and the accounting policies adopted by SGH disclosed in Appendix 1 to Part B of the Scheme Booklet.

We have conducted our review in accordance with Australian Auditing Standards applicable to review engagements. Our procedures consisted primarily of enquiry and comparison and other such analytical review procedures we considered necessary.

Our review of the SGH Pro Forma Forecast and the directors’ best-estimate assumptions underlying the SGH Pro Forma Forecast is substantially less in scope than an audit examination conducted in accordance with Australian Auditing Standards. A review of this nature provides less assurance than an audit. We have not performed an audit and

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we do not express an audit opinion on the SGH Pro Forma Forecast or the directors’ best-estimate assumptions underlying the SGH Pro Forma Forecast.

Directors’ responsibilities The directors of SGH are responsible for the preparation and presentation of:

• the SGH Pro Forma Historical Financial Information, including the determination of the pro forma transactions and adjustments;

• the Consolidated SGH and National Hire Pro Forma Historical Financial Information, including the determination of the consolidation adjustments; and

• the SGH Pro Forma Forecast, including the directors’ best-estimate assumptions on which those forecasts are based and the sensitivity of the SGH Pro Forma Forecast to changes in key assumptions.

The directors’ responsibility includes establishing and maintaining internal controls relevant to the preparation of the financial information in the Scheme Booklet that is free from material misstatement, whether due to fraud or error.

Review statements Review statement on the SGH Pro Forma Historical Financial Information Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that the SGH Pro Forma Historical Financial Information, as set out in section 3.11(c), table 3.11.1 and section 3.11(d), table 3.11.2 (SGH pro forma (excluding National Hire) only) of Part B of the Scheme Booklet and comprising:

• the pro forma historical income statements of SGH, excluding National Hire, for the years ended 30 June 2007, 30 June 2008 and 30 June 2009 and the six months ended 31 December 2009; and

• the historical balance sheet of SGH, excluding National Hire, as at 31 December 2009, is not prepared, in all material respects, on the basis of the pro forma transactions and adjustments described in sections 3.11(c) and 3.11(d) of Part B of the Scheme Booklet, and in accordance with the recognition and measurement principles prescribed in Australian Accounting Standards (including the Australian Accounting Interpretations), and accounting policies adopted by SGH disclosed in Appendix 1 to Part B of the Scheme Booklet.

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Review statement on the compilation of the Consolidated SGH and National Hire Pro Forma Historical Financial Information Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that the Consolidated SGH and National Hire Pro Forma Historical Financial Information, as set out in section 3.11(d) (table 3.11.2) of Part B of the Scheme Booklet, has not been compiled on the basis of the:

• SGH pro forma balance sheet as at 31 December 2009 as defined above;

• National Hire Historical Financial Information, extracted from the reviewed public financial information of National Hire for the half year ended 31 December 2009; and

• the directors’ consolidation adjustments related to the consolidation of NHG with the rest of the WesTrac Group.

Review statement on the SGH Pro Forma Forecast and the directors’ best-estimate assumptions Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that:

• the directors’ best-estimate assumptions, set out in sections 1.2(h) and 2.6(h) of Part B of the Scheme Booklet, when taken as a whole, do not provide reasonable grounds for the preparation of the SGH Pro Forma Forecast; and

• the SGH Pro Forma Forecast, set out in section 3.11(c), table 3.11.1 and section 3.11(e), table 3.11.3 of Part B of the Scheme Booklet, is not properly compiled on the basis of the directors’ best-estimate assumptions or prepared, in all material respects, in accordance with the recognition and measurement principles prescribed in Australian Accounting Standards (including the Australian Accounting Interpretations), and the accounting policies adopted by SGH disclosed in Appendix 1 to Part B of the Scheme Booklet.

The underlying assumptions are subject to significant uncertainties and contingencies, often outside the control of SGH. If events do not occur as assumed, actual results achieved by SGH may vary significantly from the SGH Pro Forma Forecast. Accordingly, we do not confirm or guarantee the achievement of the SGH Pro Forma Forecast, as future events, by their very nature, are not capable of independent substantiation.

374 Seven Network Limited Scheme Booklet – Part B 

Investigating Accountant’s Report and Financial Services Guide 16 March 2010

Independence KPMG Transaction Services does not have any interest in the outcome of the proposed scheme of arrangement, other than in connection with the preparation of this report and participation in due diligence procedures for which professional fees will be received. KPMG is the auditor of Seven and from time to time, KPMG also provides Seven and WesTrac Group with certain other professional services for which normal professional fees are received.

General advice warning This report has been prepared, and included in the Scheme Booklet, to provide investors with general information only and does not take into account the objectives, financial situation or needs of any specific investor. It is not intended to take the place of professional advice and investors should not make specific investment decisions in reliance on the information contained in this report. Before acting or relying on any information, an investor should consider whether it is appropriate for their circumstances having regard to their objectives, financial situation or needs.

KPMG Transaction Services has consented to the inclusion of this Investigating Accountant’s Report in the Scheme Booklet in the form and context in which it is so included, but has not authorised the issue of the Scheme Booklet. Accordingly, KPMG Transaction Services makes no representation regarding, and takes no responsibility for, any other statements, or material in, or omissions from, the Scheme Booklet.

Yours faithfully

Andrew T Thompson Director

Section 7 375  KPMG Transaction Services (Australia) Pty Limited ABN: 65 003 891 718 Australian Financial Services Licence No. 245402 Telephone: +61 2 9335 7000 10 Shelley Street Facsimile: +61 2 9335 7001 Sydney NSW 2000 DX: 1056 Sydney www.kpmg.com.au P O Box H67 Australia Square 1213 Australia

Financial Services Guide

Dated 16 March 2010 KPMG Transaction Services (Australia) Pty Limited ABN 65 003 891 718, Australian Financial Services Licence Number 245402 (KPMG or we or us or our as appropriate) has been engaged by Seven and WesTrac Group (Issuers) to provide an Investigating Accountant’s Report (Report) in relation to the proposed merger between Seven and WesTrac Group to form SGH (Transaction) for inclusion in the Scheme Booklet dated 16 March 2010 (Document) prepared by the Issuers.

Purpose of this Guide

This Guide is designed to help retail clients to decide how to use our Report. It includes information about: • who we are and how we can be contacted; • the services we are authorised to provide under our licence; • how we and our staff are paid; • any relevant associations or relationships we have; • how complaints are dealt with; and • the compensation arrangements we have in place.

The Document contains information about significant benefits, risks, fees and other charges and other information about the Transaction. Financial services we are licensed to provide

We hold an Australian Financial Services Licence, which authorises us to provide financial product advice in relation to: • interests in managed investments schemes (excluding investor directed portfolio services); • securities (such as shares and debentures).

Our responsibility to you We provide financial product advice when engaged to prepare a report in relation to a transaction relating to one of these types of financial products. You have not engaged us directly but have received a copy of the Report because of your connection to the Transaction. We are responsible and accountable to you for ensuring that there is a reasonable basis for the conclusions in our Report.

376 Seven Network Limited Scheme Booklet – Part B 

Investigating Accountant’s Report and Financial Services Guide 16 March 2010

General Advice

Our report only contains general advice, because it has been prepared without taking into account your personal objectives, financial situation or needs.

You should consider the appropriateness of the general advice in our Report having regard to your circumstances before you act on our Report.

You should also consider the other parts of the Document before making any decision in relation to the Transaction.

Fees we may receive

We charge fees for preparing reports. These fees will usually be agreed with, and paid by, the financial product issuer. Fees are usually agreed on either a fixed fee or a time cost basis. In this instance SNL has agreed to pay us approximately $1.2 million for preparing the Report.

KPMG and its officers, employees, representatives, related entities and associates will not receive any other fee or benefit in connection with the provision of the Report. Fees of approximately $2.0 million will be received for other services provided in relation to the Transaction, although not directly related to preparing the Report.

Referrals

We do not pay commissions or provide any other benefits to any person for referring customers to us in connection with the reports that we are licensed to provide.

Associations and relationships

Through a variety of corporate and trust structures KPMG is controlled by and operates as part of KPMG’s Australian professional advisory and accounting practice (the KPMG Partnership). Our directors may be partners in the KPMG Partnership.

From time to time KPMG, the KPMG Partnership and related entities (KPMG entities) may provide professional services, including audit, tax and financial advisory services, to companies and issuers of financial products in the ordinary course of their businesses. KPMG entities have, over the past two years, provided a range of audit, tax and advisory services to the Issuers for which professional fees have been received. No KPMG entity has any interest in the Issuers or any other interested party to the Transaction.

Section 7 377 

Investigating Accountant’s Report and Financial Services Guide 16 March 2010

Remuneration or other benefits received by our representatives

KPMG officers, employees and representatives receive a salary or a partnership distribution from the KPMG Partnership. Our employees are eligible for bonuses based on overall productivity but not directly in connection with any engagement for the provision of a report.

Complaints resolution

Internal complaints resolution process

If you have a complaint, please let us know. Formal complaints should be sent in writing to The Complaints Officer, KPMG, PO Box H67, Australia Square, Sydney NSW 1213.

When we receive a written complaint we will record the complaint, acknowledge receipt of the complaint within 5 days and investigate the issues raised. As soon as practical, and not more than 45 days after receiving the written complaint, we will advise you in writing of our response to your complaint.

External complaints resolution process

If we cannot resolve your complaint to your satisfaction within 45 days, you can refer the matter to the Financial Ombudsman Service (FOS) of which we are a member. FOS is an independent company that has been established to provide free advice and assistance to consumers to help in resolving complaints relating to the financial services industry.

Further details about FOS are available at the FOS website www.fos.org.au or by contacting them directly at:

Address: Financial Ombudsman Service Limited, GPO Box 3, Melbourne Victoria 3001 Telephone: 1300 78 08 08 Facsimile: (03) 9613 6399 Email: [email protected].

The Australian Securities and Investment Commission also has a freecall infoline on 1300 300 630 which you may use to obtain information about your rights.

Compensation arrangements

KPMG has professional indemnity insurance cover as required by the Corporations Act.

Contact details

You may contact us using the contact details set out at the top of the letterhead on the first page of this Guide.

378 Seven Network Limited Scheme Booklet – Part B 8 TAX LETTERS

Section 8 379 THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK

380 Seven Network Limited Scheme Booklet – Part B

16 March 2010 The Directors Seven Network Limited 38-42 Pirrama Road PYRMONT NSW 2009

Tax letter for Seven Shareholders

Dear Directors

This letter has been prepared at the request of Seven for inclusion in Part B of the Scheme Booklet to be dated 16 March 2010 in relation to the proposed merger of Seven and WesTrac Group pursuant to the Share Scheme.

This letter provides a summary of the Australian income tax and goods and services tax (“GST”) implications for an Australian resident (for income tax purposes) of:

► the disposal of their Seven Shares under the Share Scheme; and

► the issue to them of SGH Shares under the Share Scheme.

This letter is concerned only with the taxation consequences for Australian resident investors (that are individuals, complying superannuation entities, companies and trusts herein referred to as the Investors) and is not intended to provide an exhaustive or a definitive statement of the possible taxation consequences for Investors. Further, in relation to trusts the advice only relates to the determination of trust net income and does not comment on taxation of underlying beneficiaries.

The information contained in this letter has not been prepared for Investors that:

► hold Seven Shares as trading stock or in the ordinary course of carrying on a business;

► hold Seven Shares for the purposes of resale at a profit;

► are not residents (or are temporary residents) of Australia for income tax purposes;

► are exempt from Australian tax; or

► are currently subject to the application of taxation of financial arrangements rules (“TOFA”) contained in Division 230 of the Income Tax Assessment Act 1997 (“the ITAA 1997”) or will make an election to bring their existing financial arrangements (including Seven Shares and SGH Shares) within the application of TOFA.

The information contained in this letter is based on the Income Tax Assessment Act 1936 (“ITAA 1936”), the ITAA 1997, the New Business Tax System (Goods and Services Tax) Act 1999 (“the GST Act”), applicable case law and published Australian Taxation Office (“ATO”) rulings, determinations and administrative practice at the date of this letter. Any changes in the tax law or interpretation of the tax law subsequent to the date of this letter may alter the information contained in this tax letter.

Section 8 381

Tax is a complex area of law and the tax implications for Investors may differ from those detailed in this tax letter, depending on the Investor’s particular circumstances. Accordingly, Investors should not rely on this tax letter as the information in this letter is only general in nature. Investors should obtain independent professional advice, specific to their circumstances, before deciding to participate in the Share Scheme.

A Class Ruling has been sought in respect of certain taxation matters relating to the Share Scheme and the issue of SGH Shares. The Class Ruling is expected to confirm the tax outcomes of those matters described in this letter.

Defined terms used in this letter are consistent with those set out in the glossary section of the Scheme Booklet.

1. Exchange of Seven Shares for SGH Shares

Under the Share Scheme, Seven Shareholders will transfer their Seven Shares to a wholly owned subsidiary of SGH in exchange for SGH Shares.

The disposal of Seven Shares to the wholly owned subsidiary of SGH will result in CGT event A1 happening for Investors. Prime facie, subject to the comments about scrip-for-scrip rollover at section 1.1 below, Investors will make a capital gain to the extent that the capital proceeds from the event happening exceed the cost base that the Investor has in their Seven Shares. An Investor will make a capital loss to the extent that the capital proceeds from the event happening are less than the reduced cost base that the Investor has in their Seven Shares.

The capital proceeds from the event should be equal to the market value of the SGH Shares issued in respect of the Seven Shares exchanged.

If an Investor makes a capital gain and does not choose roll-over relief, the Investor may be entitled to discount the amount of any taxable capital gain (after application of capital losses) arising from the disposal of Seven Shares. The amount that the capital gain can be discounted is 50% for individual and trust Investors (conditions apply) and 33.3% for complying superannuation entity Investors. This discount is only available if the disposal occurs at least 12 months after the date of acquisition of the Seven Shares. A corporate tax entity is not entitled to claim the CGT discount concession.

If an Investor would make a capital loss on the exchange of their Seven Shares for SGH Shares, scrip-for- scrip rollover relief is not available. Where scrip-for-scrip rollover relief does not apply, the first element of the cost base and reduced cost base for Investors in their SGH Shares should be equal to the market value of the Seven Shares exchanged for SGH Shares.

1.1 Capital gain - scrip-for-scrip rollover

Scrip-for-scrip rollover relief should be available under Subdivision 124-M of the ITAA 1997 for an Investor that exchanges their Seven Shares for SGH Shares under the Share Scheme and would otherwise make a capital gain. In order to obtain the rollover, eligible Investors must choose to obtain the rollover. The way an Investor prepares its income tax return is sufficient evidence of the making of the choice.

The effect of this rollover is to defer the capital gain until a subsequent capital gains tax event arises in relation to the SGH Shares. Further, the holding period of the SGH Shares (for capital gains tax purposes) is deemed to have commenced at the time the Seven Shares were acquired.

382 Seven Network Limited Scheme Booklet – Part B

On the basis that scrip-for-scrip rollover relief is chosen, the first element of the cost base and reduced cost base for an Investor in each SGH Share acquired under the Share Scheme should be equal to the cost base the Investor had in each Seven Share exchanged plus any incidental costs incurred on acquisition.

2. Selling of SGH Shares on ASX

If an Investor disposes of its SGH Shares in the course of trading on ASX, a CGT event will occur. This will give rise to a capital gain or a capital loss. A capital gain will arise if the capital proceeds received on disposal exceed the cost base of SGH Shares to the Investor.

The cost base of SGH Shares to the Investor will include the acquisition cost and any incidental costs on disposal (refer to the discussion at section 1 above in relation to cost base in the SGH Shares). An individual Investor, a trustee and a complying superannuation entity Investor may be able to discount this capital gain (after application of capital losses) if certain conditions are satisfied (see discussion at section 1 above). A corporate tax entity Investor would not be able to obtain the CGT discount concession.

A capital loss would arise if the capital proceeds received on disposal were less than the reduced cost base of the SGH Shares to the Investor.

3. SGH dividends

The assessable income of an Investor who is a resident individual, a complying superannuation entity, a trustee or corporate tax entity includes dividends paid by a resident company out of profits derived by that company from any source. The total amount included in the assessable income of the Investor depends on the extent to which the dividend has franking credits attached to it.

The Investors that receive a dividend with a franking credit attached to it are required to include the amount of the dividend and the amount of the attached franking credit in their assessable income. An individual is subject to tax at their marginal tax rate in respect of these amounts. A complying superannuation entity is generally subject to tax at the rate of 15% in respect of these amounts. A resident corporate tax entity is subject to tax at the rate of 30% in respect of these amounts. Investors are also entitled to receive a tax offset equal to the amount of the franking credit attached to the dividend (subject to the application of a number of specific tax rules discussed at 3.2 below). An individual or complying superannuation entity Investor is able to receive a refund of tax in respect of a particular year of income if the tax offset in relation to the franking credit exceeds the tax payable for that year on all of the Investor's taxable income. A refund is not available to a corporate tax entity (instead a tax loss may be generated).

The availability of the tax offset in relation to the franking credit is subject to the "holding period rule". In summary, this rule provides that the Investor must have held their SGH Shares (being ordinary shares) "at risk" for more than 45 days. This 45 day period does not include the day on which the Investor acquired their SGH Shares and does not include the day on which the Investor disposed of their SGH Shares.

The scrip-for-scrip rollover relief mentioned at section 1.1 above does not extend the holding period for these purposes.

If an Investor does not satisfy the holding period rule, the amount of the franking credit attached to the dividend would not be included in the assessable income of the Investor and the Investor would not be entitled to the tax offset in relation to the franking credit.

Section 8 383

An exemption from the holding period rule may apply to individual Investors that have total tax offsets of $5,000 or less relating to dividends paid during a year of income on all shares that the Investor held or held an interest in. This exemption does not apply to trusts, complying superannuation entities or corporate tax entity Investors. Certain other exemptions to the application of these rules also may apply to particular Investors.

The Treasurer announced by Press Release No. 74 dated 11 November 1999 that the Federal Government intended to review the "at risk" period of the holding period rule. At the date of this letter, no such amendments have been enacted. The Federal Government subsequently announced that the "at risk" rules would be updated to reflect drafting used in the current imputation provisions. At the date of this letter, no such amendments have been enacted. These amendments are not at this time expected to affect the substance of the "at risk" rules.

3.1 Franking account balance — Corporate investors

When an Investor that is a resident corporate tax entity receives a dividend with a franking credit attached and is eligible for the associated tax offsets, a credit would arise in the franking account of the resident corporate tax entity Investor on the day the dividend is paid. The amount of the credit is equal to the amount of the franking credit attached to the dividend.

3.2 Anti-Avoidance

There are a number of anti-avoidance provisions in the taxation laws relating to dividend streaming arrangements, arrangements relating to franking credit benefits, the provision of capital benefits and the streaming of capital benefits that allow the Commissioner of Taxation to make a determination to deny shareholders the benefit of franking credits and other benefits associated with franking credits attached to dividends or treat the amount of any capital benefit as an unfranked dividend paid by the company to the taxpayer.

The application of these anti-avoidance provisions depends on all the facts and circumstances surrounding the future proposed transactions.

4. Quotation of Tax File Numbers

Investors in SGH Shares should be able to quote their Tax File Number ("TFN") or claim an exemption from doing so. Although disclosure of a TFN is not compulsory, failure to disclose a TFN by an Investor that is not exempt from doing so will result in an amount of tax being withheld from any part of a dividend that does not have a franking credit attached to it. The rate at which the tax will be withheld is the highest marginal tax rate, plus Medicare Levy. Alternatively, where the Investor holds SGH Shares in the course or furtherance of an enterprise carried on by it, the Investor may quote its Australian Business Number. Investors should be entitled to a tax offset in respect of any amounts withheld.

384 Seven Network Limited Scheme Booklet – Part B

5. GST

Investors should not be liable to GST in respect of:

► a disposal of Seven Shares to a wholly owned subsidiary of SGH;

► acquisition of, or dividends received from, SGH; or

► the disposal of SGH Shares.

GST registered Investors may not be able to recover GST incurred on acquisitions (for example, adviser's fees) related to the above.

* * * * *

We disclaim all liability to any Investor or other party for all costs, loss, damage and liability that the Investor or other party may suffer or incur arising from or relating to or in any way connected with the contents of this letter or the provision of this letter to the Investor or other party or the reliance on this letter by the Investors or other party.

Ernst & Young has given its consent to the inclusion of this letter in the Scheme Booklet. At the date of this letter, this consent has not been withdrawn.

Ernst & Young expresses no opinion and gives no assurance or guarantee in respect of the performance of the Scheme Booklet, the Share Scheme or SGH Shares and the letter's content should not be taken as an endorsement or as a recommendation thereof.

This advice is confined to taxation issues and is only one of the matters Investors need to consider when making a decision about their investments. Under the Corporations Act, this advice is not required to be provided to Investors by a holder of an Australian Financial Services Licence (AFSL). Before making a decision about their investments, Investors should consider taking advice from a holder of an AFSL.

Yours faithfully

Ernst & Young

Section 8 385 THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK

386 Seven Network Limited Scheme Booklet – Part B

16 March 2010 The Directors Seven Network Limited 38-42 Pirrama Road PYRMONT NSW 2009

Tax letter for TELYS3 Holders and TELYS4 Holders

Dear Directors

This letter has been prepared at the request of Seven for inclusion in Part B of the Scheme Booklet to be dated 16 March 2010 in relation to the proposed merger of Seven and WesTrac Group pursuant to the TELYS3 Scheme.

This letter provides a summary of the Australian income tax and goods and services tax (“GST”) implications for an Australian resident (for income tax purposes) of:

► the disposal of TELYS3 in exchange for the issue of TELYS4; and

► the holding of TELYS4; and

► the continued holding of TELYS3 after the acquisition of all of the Seven Shares by a wholly owned subsidiary of SGH.

This letter is concerned only with the taxation consequences for Australian resident investors that are individuals, complying superannuation entities, companies and trusts (herein referred to as the Investors) and is not intended to provide an exhaustive or a definitive statement of the possible taxation consequences for Investors. Further, in relation to trusts the advice only relates to the determination of trust net income and does not comment on taxation of underlying beneficiaries.

The information contained in this letter has not been prepared for Investors that:

► hold TELYS3 or TELYS4 as trading stock or in the ordinary course of carrying on a business;

► hold TELYS3 or TELYS4 for the purpose of resale at a profit;

► are not residents (or are temporary residents) of Australia for income tax purposes;

► are exempt from Australian tax; or

► are currently subject to the application of the taxation of financial arrangements rules (“TOFA”) contained in Division 230 of the Income Tax Assessment Act 1997 (“the ITAA 1997”), or will make an election to bring their existing financial arrangements (including TELYS3 and TELYS4) within the application of TOFA.

Section 8 387

The information contained in this letter is based on the Income Tax Assessment Act 1936 (“the ITAA 1936”), the ITAA 1997, the New Business Tax System (Goods and Services Tax) Act 1999 (“the GST Act”), applicable case law and published Australian Taxation Office (“ATO”) rulings, determinations and administrative statements at the date of this letter. Any changes in the tax law or interpretation of the tax law subsequent to the date of this letter may alter the information contained in this tax letter.

Tax is a complex area of the law and the tax implications for an Investor may differ from those detailed in this tax letter, depending on the Investor’s particular circumstances. Accordingly, Investors should not rely on this tax letter as the information in this letter is only general in nature. Investors should obtain independent professional taxation advice, specific to their circumstances, on the taxation consequences of participating in the TELYS3 Scheme and of acquiring, holding or disposing of TELYS4.

Applications for Class Rulings have been lodged with the ATO in respect of certain taxation matters relating to TELYS3 and TELYS4. Those Class Rulings are expected to confirm the tax outcomes of those matters as described in this letter.

Defined terms used in this letter are consistent with those set out in the glossary section of the Scheme Booklet.

1. Exchange of TELYS3 for TELYS4

Under the TELYS3 Scheme or the TELYS4 Offer, TELYS3 Holders may transfer their TELYS3 to a wholly owned subsidiary of SGH in exchange for TELYS4 issued by SGH.

The disposal of TELYS3 to the wholly owned subsidiary of SGH will result in CGT event A1 happening for Investors. Subject to the comments about scrip-for-scrip rollover at section 1.1 below, Investors will make a capital gain to the extent that the capital proceeds from the event happening exceed the cost base that the Investor has in their TELYS3. An Investor will make a capital loss to the extent that the capital proceeds from the event happening are less than the reduced cost base that the Investor has in their TELYS3.

The capital proceeds from the event should be equal to the market value of TELYS4 issued in respect of the TELYS3 exchanged.

If an Investor makes a capital gain and does not choose roll-over relief, the Investor may be entitled to discount the amount of any taxable capital gain (after application of capital losses) arising from the disposal of TELYS3. The amount that the capital gain can be discounted is 50% for individual and trust Investors (conditions apply) and 33.3% for complying superannuation entity Investors. This discount is only available if the disposal occurs at least 12 months after the date of acquisition of the TELYS3. A corporate tax entity is not entitled to claim the CGT discount concession.

If an Investor makes a capital loss on the exchange of their TELYS3 for TELYS4, scrip-for-scrip rollover relief is not available.

Where scrip-for-scrip roll-over does not apply the first element of the cost base and reduced cost base in their TELYS4 should be equal to the market value of the TELYS3 exchanged for TELYS4.

388 Seven Network Limited Scheme Booklet – Part B

1.1 Capital gain - scrip-for-scrip rollover

Scrip-for-scrip rollover relief should be available under Subdivision 124-M of the ITAA 1997 for an Investor that exchanges their TELYS3 in Seven for TELYS4 in SGH under the TELYS3 Scheme and would otherwise make a capital gain. In order to obtain roll-over, eligible Investors must choose to obtain the rollover. The way an Investor prepares its income tax return is sufficient evidence of the making of the choice.

The effect of this rollover is to defer the capital gain until a subsequent capital gains tax event arises in relation to the TELYS4. Further, the 12 month holding period of the TELYS4 (for discount CGT purposes) is deemed to have commenced at the time the TELYS3 were acquired.

On the basis that scrip-for-scrip rollover relief is chosen, the first element of the cost base and reduced cost base for an Investor in each TELYS4 acquired under the TELYS3 Scheme should be equal to the cost base and reduced cost base the Investor had in each TELYS3 exchanged plus any incidental costs incurred on acquisition.

2. Selling of TELYS4 on ASX

If an Investor disposes of its TELYS4 in the course of trading on ASX, a CGT event will occur. This will give rise to a capital gain or a capital loss. A capital gain will arise if the capital proceeds received on disposal exceed the cost base of TELYS4 to the Investor.

The cost base of TELYS4 to the Investor will include the acquisition cost and any incidental costs on disposal (refer to the discussion at section 1 above in relation to cost base in TELYS4). An individual Investor, a trustee and a complying superannuation entity Investor may be able to discount this capital gain (after application of capital losses) if certain conditions are satisfied (see discussion at section 1 above). A corporate tax entity would not be able to obtain the CGT discount concession.

A capital loss would arise if the capital proceeds received on disposal are less than the reduced cost base of the TELYS4 to the Investor.

3. Implications of holding TELYS4

3.1 Equity interest

TELYS4 should constitute an equity interest for the purposes of the ITAA 1997. Accordingly, dividends paid by SGH on TELYS4 should be capable of having franking credits attached thereto.

3.2 TELYS4 dividends

The assessable income of an Investor, who is a resident individual, a complying superannuation entity, a trustee or a corporate tax entity, includes dividends paid by a resident company out of profits derived by that company from any source. The total amount included in the assessable income of the Investor depends on the extent to which the dividend has franking credits attached to it.

Investors that receive a dividend with a franking credit attached are required to include the amount of the dividend and the amount of the attached franking credit in their assessable income. An individual is subject to tax at their marginal tax rate in respect of these amounts. A complying superannuation entity is generally subject to tax at the rate of 15% in respect of these amounts. A resident corporate tax entity

Section 8 389

is subject to tax at the rate of 30% in respect of these amounts. Investors are also entitled to receive a tax offset equal to the amount of the franking credit attached to the dividend (subject to the application of a number of specific tax rules discussed below and at section 5). An individual or complying superannuation entity Investor is able to receive a refund of tax in respect of a particular year of income if the tax offset in relation to the franking credit exceeds the tax payable for that year on all of the Investor's taxable income. A refund is not available to a corporate tax entity (instead a tax loss may be generated).

The availability of the tax offset in relation to the franking credit is subject to the "holding period rule". In summary, this rule provides that the Investor must have held TELYS4 (being preference shares) "at risk" for more than 90 days. This 90 day period does not include the day on which the Investor acquired TELYS4 and does not include the day on which the Investor disposed of TELYS4. The scrip-for-scrip rollover relief mentioned at 1.1 does not extend the holding period for these purposes. This means that in relation to the dividend payable on 31 May 2010, Investors must hold their TELYS4 “at risk” for 90 days starting the day after the day the Investor actually began to hold the shares, in order to satisfy the holding period rule in relation to that particular dividend.

If an Investor does not satisfy the holding period rule, the amount of the franking credit attached to the dividend would not be included in the assessable income of the Investor and the Investor would not be entitled to the tax offset in relation to the franking credit.

An exemption from the holding period rule may apply to individual Investors that have total tax offsets of $5,000 or less relating to dividends paid during a year of income on all shares that the Investor held or held an interest in. This exemption does not apply to trusts, complying superannuation entities or corporate tax entity Investors. Certain other exemptions to the application of these rules also may apply to particular Investors.

The Treasurer announced by Press Release No. 74 dated 11 November 1999 that the Federal Government intended to review the "at risk" period of the holding period rule. At the date of this letter, no such amendments have been enacted. The Federal Government subsequently announced that the "at risk" rules would be updated to reflect drafting used in the current imputation provisions. At the date of this letter, no such amendments have been enacted. These amendments are not at this time expected to affect the substance of the "at risk" rules.

3.3 Franking account balance — Corporate investors

When an Investor that is a resident corporate tax entity receives a dividend with a franking credit attached and is eligible for the associated tax offset, a credit would arise in the franking account of the resident corporate tax entity Investor on the day the dividend is paid. The amount of the credit is equal to the amount of the franking credit attached to the dividend.

4. SGH conversion or exchange of TELYS4

Upon the happening of certain specified events, SGH may either:

► Convert TELYS4 into SGH Shares; or

► Exchange TELYS4 for cash.

390 Seven Network Limited Scheme Booklet – Part B

4.1 SGH converts TELYS4

If SGH chooses to convert a TELYS4 into a SGH Share, SGH will vary the rights attaching to each TELYS4 so that it becomes an ordinary share. This process should not constitute a cancellation, redemption or termination of TELYS4 or the issue, allotment or creation of a new ordinary share (other than the additional ordinary shares discussed below). The conversion should not trigger a CGT event for tax purposes in respect of TELYS4.

Each Investor may be issued with additional SGH Shares. For the purposes of calculating the cost base of the SGH Shares for CGT purposes, the cost base of the original TELYS4 should be apportioned between the SGH Share into which the TELYS4 is converted and the additional SGH Shares issued to the Investor under the conversion process. For CGT purposes, the additional SGH Shares issued to the Investor should be treated as having been acquired by the Investor at the time that the Investor acquired TELYS4 in respect of which the additional SGH Shares were allotted.

On a subsequent disposal of a SGH Share, a CGT event would occur which would give rise to a capital gain or capital loss for Investors that hold the SGH Shares on capital account. Broadly, a capital gain will arise if the capital proceeds from the disposal of the SGH Shares by the Investor exceed the cost base of the SGH Share to the Investor.

Generally, the cost base of a SGH Share to an Investor will include the Investor's acquisition cost (modified as discussed above for additional SGH Shares allotted) and incidental acquisition and disposal costs (for example, brokerage) that are not deductible to the Investor.

An individual, complying superannuation entity or trustee Investor may be entitled to discount the amount of the taxable capital gain (after application of capital losses) arising from the disposal of the SGH Share if certain conditions are satisfied (refer to discussion at section 1 above). A resident corporate tax entity would not be able to obtain the CGT discount concession.

A capital loss would arise if the capital proceeds received on disposal were less than the reduced cost base of the SGH Share to the Investor.

4.2 SGH exchanges TELYS4

If SGH Exchanges TELYS4, it can achieve this by redeeming, buying back or otherwise cancelling the TELYS4 for a cash payment. The tax implications will depend on how SGH decides to effect the Exchange and also the accounting treatment for the Exchange adopted by SGH.

Generally, a payment in Exchange of TELYS4 could be debited, for accounting purposes, by SGH wholly to the share capital account or the retained earnings account, or a portion could be debited to each account. The tax implications will depend on the accounting treatment of the redemption. The tax implications may also depend on the application of a number of the tax rules discussed at section 5 below.

To the extent the Exchange payment is debited to share capital for accounting purposes, generally no amount of the capital proceeds should be a dividend. The Investor would make a capital gain or loss depending on the cost base and reduced cost base of the TELYS4 and the proceeds received. An individual, complying superannuation entity or trustee Investor may be entitled to discount the amount of the taxable capital gain (after application of capital losses) if certain conditions are satisfied (see discussion at section 1 above). A corporate tax entity would not be able to obtain the CGT discount concession.

Section 8 391

To the extent the Exchange payment is debited to retained earnings for accounting purposes, the amount so debited would generally be a dividend for tax purposes. That dividend should be capable of having franking credits attached to it.

Because the tax implications of the Exchange depend upon how SGH decides to effect the Exchange and on the accounting treatment for the Exchange in the future, Investors should seek their own advice regarding the tax implications of any future Exchange when it occurs.

5. Anti-avoidance provisions

There are a number of anti-avoidance provisions in the taxation laws relating to dividend streaming arrangements, arrangements relating to franking credit benefits, the provision of capital benefits and the streaming of capital benefits that allow the Commissioner of Taxation to make a determination to deny shareholders the benefit of franking credits and other benefits associated with franking credits attached to dividends or to treat the amount of the capital benefit as an unfranked dividend paid by the company to the taxpayer. The application of these anti-avoidance provisions depends on all the facts and circumstances surrounding the relevant future proposed transactions.

6. Implications of continuing to hold TELYS3

6.1 Debt interest

Should the TELYS3 Scheme not be implemented, certain Investors may retain ownership of their TELYS3 after all of the Seven Shares are acquired by a wholly owned subsidiary of SGH. Seven proposes to execute a deed poll in favour of TELYS3 Holders should the TELYS3 Scheme not be implemented. Pursuant to the deed poll, Seven commits itself in respect of certain actions in respect of the TELYS3. For tax purposes, the deed poll should change the status of the TELYS3 from an equity interest to a debt interest.

6.2 TELYS3 dividends

After the deed poll becomes effective, any dividends paid on TELYS3 should be unfrankable. It follows that no additional amount in respect of the franking credit will be included in the assessable income of an Investor. Further no tax offset will be available to an Investor. Subject to the comments made at section 6.5, below, the amount of any dividend will be included in the assessable income of an Investor in the year that the dividend is paid.

6.3 Disposal of TELYS3 on the ASX

Subject to the comments made below at section 6.5, if an Investor disposes of TELYS3 in the course of trading on ASX, a CGT event will occur. This will give rise to a capital gain or a capital loss. A capital gain will arise if the capital proceeds received on disposal exceed the cost base of the TELYS3 to the Investor. An individual Investor, complying superannuation entity and trustee (conditions apply) may be able to discount this capital gain (after application of capital losses) if certain conditions are satisfied. A corporate entity would not be able to obtain the CGT discount.

A capital loss will arise if the capital proceeds on disposal are less than the reduced cost base of the TELYS3 to the Investor.

392 Seven Network Limited Scheme Booklet – Part B

6.4 Exchange of TELYS3

Subject to the comments made at section 6.5 below, if Seven Exchanges TELYS3, it can achieve this by redeeming, buying back or otherwise cancelling the TELYS3 for a cash payment. The tax implications will depend on how Seven decides to effect the Exchange and also the accounting treatment for the Exchange adopted by Seven.

Generally, a payment in Exchange of TELYS3 could be debited, for accounting purposes, by Seven wholly to the share capital account or the retained earnings account, or a portion could be debited to each account. The tax implications will depend on the accounting treatment of the redemption. The tax implications may also depend on the application of a number of the tax rules discussed at section 5 above.

To the extent the Exchange payment is debited to share capital for accounting purposes, generally no amount of the capital proceeds should be a dividend. The Investor would make a capital gain or loss depending on the cost base and reduced cost base of the TELYS3 and the proceeds received. An individual, complying superannuation entity or trustee Investor may be entitled to discount the amount of the taxable capital gain (after application of capital losses). A corporate tax entity would not be able to obtain the CGT discount concession.

To the extent the Exchange payment is debited to retained earnings for accounting purposes, generally the amount so debited would be a dividend for tax purposes. That dividend would not be capable of having franking credits attached to it.

Because the tax implications of the Exchange depend upon how Seven decides to effect the Exchange and on the accounting treatment for the Exchange in the future, Investors should seek their own advice regarding the tax implications of any future Exchange when it occurs.

6.5 Possible application of accruals rules

There is a risk that the tax implications described above at sections 6.2, 6.3 and 6.4 for TELYS3 after the deed poll becomes effective may be affected by the operation of certain accruals rules contained in Division 16E of the ITAA 1936. We believe that these rules should not apply to the TELYS3. However, the position is not certain. If the rules were to apply, the timing and character (i.e. capital or revenue) of any return, profit or loss from holding the TELYS3 could change. We recommend that each TELYS3 Holder should seek its own professional advice regarding this matter.

7. Quotation of Tax File Numbers

Investors in TELYS3 and TELYS4 should be able to quote their Tax File Number ("TFN") or claim an exemption from doing so. Although disclosure of a TFN is not compulsory, failure to disclose a TFN by an Investor that is not exempt from doing so will result in an amount of tax being withheld from any part of a dividend that does not have a franking credit attached to it. The rate at which the tax will be withheld is the highest marginal tax rate, plus Medicare Levy. Alternatively, where the Investor holds TELYS3 or TELYS4 in the course or furtherance of an enterprise carried on by it, the Investor may quote its Australian Business Number. Investors should be entitled to a tax offset in respect of any amounts withheld.

Section 8 393

8. GST

Investors should not be liable to GST in respect of:

► a disposal of TELYS3 to a wholly owned subsidiary of SGH under the TELYS3 Scheme;

► acquisition of, or a dividend received from, TELYS4;

► the conversion of TELYS4 to SGH Shares; or

► the redemption or disposal of TELYS4.

GST registered Investors may not be able to recover GST incurred on acquisitions (for example, adviser's fees) related to the above.

* * * * *

We disclaim all liability to any Investor or other party for all costs, loss, damage and liability that the Investor or other party may suffer or incur arising from or relating to or in any way connected with the contents of this letter or the provision of this letter to the Investor or other party or the reliance on this letter by the Investor or other party.

Ernst & Young has given its consent to the inclusion of this letter in the Scheme Booklet. At the date of this letter, this consent has not been withdrawn.

Ernst & Young expresses no opinion and gives no assurance or guarantee in respect of the performance of the Scheme Booklet, the TELYS3 Scheme or TELYS4 and this letter's content should not be taken as an endorsement or as a recommendation thereof.

This advice is confined to taxation issues and is only one of the matters Investors need to consider when making a decision about their investments. Under the Corporations Act, this advice is not required to be provided to Investors by a holder of an Australian Financial Services Licence ("AFSL"). Before making a decision about their investments, Investors should consider taking advice from a holder of an AFSL.

Yours faithfully

Ernst & Young

394 Seven Network Limited Scheme Booklet – Part B 9 ADDITIONAL INFORMATION

Section 9 395 THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK

396 Seven Network Limited Scheme Booklet – Part B 9.1 ASX WAIVERS AND CONFIRMATIONS • Seven discloses all material changes to its financial position occurring after 26 December 2009 in the explanatory Seven has requested the following waivers and confirmations statement. This information is provided in section 9.17 from ASX: of Part B of this Scheme Booklet; and • either a confirmation by ASX that Listing Rule 10.1 does not • the explanatory statement sent to members is substantially apply to the Schemes or a waiver of the rule to the extent in the form given to ASIC on 3 March 2010. it is not satisfied by Seven’s proposed disclosures and meeting arrangements in relation to the Schemes; A copy of Seven’s half year report for the period ended • a waiver from ASX from compliance with Listing Rule 6.23.2 26 December 2009 is available on Seven’s website at in relation to the proposed cancellation of all options www.sevencorporate.com.au, or is available by contacting the issued to Seven executives for consideration as described Seven Shareholder Information Line on 1300 656 831 (for the in section 9.9 of Part B of this Scheme Booklet; cost of a local call from within Australia) or +61 2 8986 9358 • confirmation in respect of Listing Rule 1.1, Condition 6 (from outside Australia) between 9.00am and 5.00pm in relation to the continued quotation of TELYS3, if the (Sydney time), Monday to Friday. TELYS3 Scheme is not approved. For the purpose of Schedule 8, Part 3, rule 8305 of the All the information that would be required under section 710 of Corporations Regulations 2001 (Cth), Seven has requested the Corporations Act if this Scheme Booklet were a prospectus ASIC to consent to the Independent Expert’s Report containing offering the New SGH Shares for subscription is contained in this references to forecasts and statements in relation to market Scheme Booklet. value of Seven’s assets.

SGH will apply for WesTrac Holdings to be a Specialist 9.3 SEVEN DIRECTORS Settlement Participant under the ASTC Settlement Rules. The Seven Directors in office at the date of lodgement of this This would ensure that TELYS3 the subject of an acceptance be Scheme Booklet for registration with ASIC are: placed in an acceptance sub position pending satisfaction of the offer conditions, similar to a takeovers acceptance sub position. Independent ASX does not take responsibility for the contents of this Seven Scheme Booklet. The fact that ASX may admit SGH to its official Seven Director Position Director list or grant the confirmations and waiver requested is not to Kerry Stokes AC Executive Chairman No be taken in any way as an indication of the merits of SGH. Peter Ritchie AO Non-Executive Yes Deputy Chairman 9.2 ASIC RELIEF David Leckie Executive Director No Rule 8302(h) of Part 3 of Schedule 8 of the Corporations Ryan Stokes Executive Director No Regulations requires the Scheme Booklet to disclose the extent Bruce McWilliam Executive Director No to which the financial position of Seven has materially changed since the date of the last balance sheet laid before Seven’s Dulcie Boling Non-Executive Director Yes general meeting, being its financial statements for the financial Peter Gammell Non-Executive Director No year ended 27 June 2009. Professor Non-Executive Director Yes Murray Wells Seven has requested ASIC to allow Seven to confine its disclosure to all material changes to Seven’s financial position between Each of the Independent Seven Directors recommends that: 26 December 2009, being the end of Seven’s half year (the results in • Seven Shareholders vote in favour of the Share Scheme, respect of which were announced to the ASX on 22 February 2010), in the absence of a superior proposal; and and the lodgement of the Scheme Booklet for registration by ASIC, • TELYS3 Holders vote in favour of the TELYS3 Scheme, in the on condition that: absence of a superior proposal. • Seven complies with Division 2 of Part 2M.3 of the Corporations Act in respect of the half year ended Refer to section 1 of Part A of this Scheme Booklet in respect 26 December 2009; of the Share Scheme and the TELYS3 Scheme respectively for • the explanatory statement states that Seven will give a copy of details regarding the Independent Seven Directors’ basis for the documents referred to in section 302 of the Corporations their recommendation. Act for the half year ended 26 December 2009 free of charge Each of Messrs Kerry Stokes AC, Ryan Stokes and Peter to anyone who asks for them, before the Share Scheme and Gammell have declined to make a recommendation in respect TELYS3 Scheme are approved by order of the Court; of the Share Scheme or the TELYS3 Scheme. They are each directors of SGH and have interests in each of ACE and SGH.

Section 9 397 Accordingly, they do not consider it appropriate that they make (2) APPOINTMENT AS SGH DIRECTORS a recommendation. Each of Messrs Ryan Stokes, Peter Gammell and Jim Walker are, as at the date of this Scheme Booklet, directors of SGH. Each of Messrs David Leckie and Bruce McWilliam have also declined to make a recommendation in respect of either If the Share Scheme becomes Effective, each other Scheme as they are each executives of Seven. Accordingly, Seven Director as at the date of this Scheme Booklet (being they do not consider it appropriate that they make a Messrs Kerry Stokes AC, Peter Ritchie AO, David Leckie and recommendation. Bruce McWilliam, Ms Dulcie Boling and Professor Murray Wells) will be appointed as directors of SGH. Each Seven Director intends to vote, or procure the voting of, all their Seven Director Shares and Seven Director TELYS3 in (3) RESIGNATION AS SEVEN DIRECTORS favour of the Share Scheme and TELYS3 Scheme, respectively. On the Implementation Date of the Share Scheme, the Seven Directors other than the Seven Independent 9.4 INTERESTS OF SEVEN DIRECTORS Directors will resign from the board of Seven. The Seven (A) INTERESTS OF SEVEN DIRECTORS IN Independent Directors will not resign from the board of Seven. SEVEN SECURITIES The Independent Directors remain entitled to their retirement As at the date of this Scheme Booklet, the Seven Directors have benefits as Seven Directors if they choose to resign from the the following relevant interests in marketable securities in Seven: board of Seven at a future point in time.

Seven Seven (C) INTERESTS OF SEVEN DIRECTORS AND SGH Seven Director Shares TELYS3 Options DIRECTORS IN SGH SECURITIES Kerry Stokes AC 92,814,349 Nil Nil Prior to the implementation of the Share Scheme, Messrs Peter Ritchie AO 46,072 Nil Nil Kerry Stokes AC, Peter Gammell, Ryan Stokes, Jim Walker and Robin Waters (Alt) will hold the following relevant interests in David Leckie 66,908 Nil 3,000,000 SGH shares: Ryan Stokes 23,000 Nil Nil Bruce McWilliam 265,447 Nil 2,000,000 SGH Director Interest in SGH Shares 1 Dulcie Boling Nil Nil Nil Kerry Stokes AC 1,490,000 Peter Gammell Nil Nil Nil Peter Gammell 200,000 Professor Murray Wells 4,000 710 Nil Ryan Stokes 70,000 Robin Waters (Alt) Nil Nil Nil Jim Walker 70,000 Robin Waters (Alt) 10,000 (B) AGREEMENTS OR ARRANGEMENTS WITH Note to this table: SEVEN DIRECTORS 1 The relevant interest of Kerry Stokes AC is from the SGH Shares owned by the The agreements or arrangements between any Seven Director Related Holders. and any other person in connection with, or conditional on, the A further 160,000 SGH Shares will be on issue prior to the outcome of either or both Schemes are: implementation of the Share Scheme. These SGH Shares (1) SEVEN DIRECTORS HOLDING SEVEN SHARES, TELYS3 will be held by members of WesTrac and ACE management. OR SEVEN OPTIONS Prior to the Implementation of the Share Scheme and the Each Seven Director who holds Seven Shares or TELYS3 as at TELYS3 Scheme there will be no other SGH securities on issue the relevant Scheme Record Date will be entitled to receive other than the ordinary shares noted above. New SGH Shares or TELYS4 (as appropriate) in accordance with the Share Scheme and TELYS3 Scheme, respectively. Following the implementation of the Share Scheme and the TELYS3 Scheme, the following SGH Directors will hold the Each Seven Director who holds Seven Options (together with following interests in SGH Shares, SGH Options and TELYS4. other holders of Options) have those Seven Options cancelled and replaced with options over unissued SGH Shares. See section 9.9 of Part B of this Scheme Booklet for further details about the arrangements relating to Options.

398 Seven Network Limited Scheme Booklet – Part B SGH 9.5 PAYMENTS OR OTHER BENEFITS TO SGH Director SGH Shares Options TELYS4 DIRECTORS, SECRETARIES OR EXECUTIVE Kerry Stokes AC 207,304,3491 Nil Nil OFFICERS Peter Gammell 200,000 Nil Nil No payments or other benefits are proposed to be made or given to any director, secretary or executive officer of Seven Ryan Stokes 93,000 Nil Nil or any of its related bodies corporate as compensation for loss Jim Walker 70,000 Nil Nil of, or as consideration for or in connection with, his or her loss David Leckie 66,908 3,000,000 Nil of office or retirement from office where such loss of office or Bruce McWilliam 265,447 2,000,000 Nil retirement from office is as a consequence of, or in connection Professor Murray Wells 4,000 Nil 710 with, either Scheme. Elizabeth Dulcie Boling Nil Nil Nil 9.6 OTHER AGREEMENTS OR ARRANGEMENTS Peter Ritchie AO 46,072 Nil Nil CONNECTED WITH OR CONDITIONAL ON Robin Waters (Alt) 10,000 Nil Nil THE SCHEMES Except for the following, or as set out elsewhere in this Scheme Other than as specified in this Scheme Booklet, no marketable Booklet, there is no agreement or arrangement made between securities in SGH are held by or on behalf of any Seven Director any Seven Director, or any secretary or executive officer of as at the date of this Scheme Booklet. Seven, and any other person in connection with or conditional Ultimately, ACE will receive 115,000,000 SGH Shares (less on the outcome of either Scheme: the SGH Shares already on issue) pursuant to the Purchase • under the Implementation Deed, ACE has indemnified Agreement in exchange for SGH’s acquisition of WesTrac Seven, its related bodies and each of their directors, Holdings (and the WesTrac Group, which WesTrac Holdings officers and employees against all claims, liabilities, actions, owns). Mr Kerry Stokes AC will have a relevant interest in damages, costs, expenses, payments and losses which those SGH Shares when they are issued. any of those parties or persons suffers, incurs or is liable for by reason of a breach of any of the representations Other than as specified in this Scheme Booklet, no Seven or and warranties given by ACE in Schedule 1 of the SGH Director acquired or disposed of a relevant interest in any Implementation Deed; SGH Shares or TELYS4 in the four months immediately before • subject to the Share Scheme being implemented, SGH has the date of this Scheme Booklet. agreed in the Implementation Deed: (D) INTERESTS OF SEVEN DIRECTORS IN CONTRACTS – for a period of 7 years from the Implementation Date, OF SGH to ensure that the constitutions of Seven and its related Other than as set out elsewhere in this Scheme Booklet bodies corporate retain their provisons under which (including in section 9.6 of Part B), no Seven Director has such companies indemnify each of its officers against an interest in any contract entered into by SGH. liabilities incurred by them in their capacity as an officer of that company; and (E) IDENTITY OF THE OWNERS OF ACE – to procure that Seven and its related bodies corporate The ultimate parent entity of ACE is the Griffin Trust of which comply with any deeds of indemnity, access and the trustee is Clabon Pty Ltd and in respect of which Mr insurance in favour of their respective directors and Kerry Stokes AC and his family members are, amongst others, officers from time to time and ensure that directors discretionary beneficiaries. and officers’ run-off insurance is maintained for a period of 6 years from the retirement date of each director and officer. • Seven Directors who join, or have joined, the board of SGH will be entitled to the benefit of an indemnity contained in the SGH Constitution and it is expected that they will enter into a deed of access and indemnity that will provide for indemnity against liability as a director of SGH to the extent permitted by law. These directors are also expected to be insured against liability incurred in that capacity to the extent Note: 1 The interest of Kerry Stokes AC includes the 114,490,000 SGH Shares that will permitted by law under SGH’s insurance arrangements. ultimately be received by ACE and the Related Holders under the Purchase Agreement for WesTrac Holdings. A further 92,814,349 SGH Shares will be issued to Related Holders (namely Wroxby and Ashblue Holdings) as Scheme Consideration in respect of Seven Shares currently held by these entities.

Section 9 399 9.7 OTHER INTERESTS OF SEVEN DIRECTORS • allows Seven Shares that have been issued under the TDP, and which are subject to a holding lock or other Each of Messrs Kerry Stokes AC, Peter Gammell, Ryan Stokes, restriction on transfer, to participate in the Share Scheme, Jim Walker and Robin Waters (Alt) have interests in the Share on the condition that the new SGH Shares issued to Scheme that differ from those of other Seven Shareholders, TDP participants will continue to be subject to disposal as directors or associates of either ACE or the Related Holders. restrictions (so as to maintain the original intention of the In particular: TDP itself), which either mirror the original offer terms • Mr Kerry Stokes AC is the Executive Chairman of ACE, (for acquisitions pre July 2009) or mirror the terms of the a director of WesTrac Holdings, and the Chairman of each recent offer (for acquisitions due to occur as a result of the of Ashblue Holdings, Wroxby and North Aston; December 2009 offer). • Peter Gammell is a director of ACE, Ashblue Holdings, Wroxby, North Aston and WesTrac Holdings; (B) PERFORMANCE MANAGEMENT PLAN • Ryan Stokes is a director of ACE and WesTrac Holdings; Until 2007, Seven operated a Performance Management Plan • Jim Walker is a director of WesTrac Pty Ltd; and (PMP) under which selected executives were issued Seven • Robin Waters is a director of ACE, Ashblue Holdings, Shares. 34 Seven executives participated in the PMP in 2006 Wroxby, North Aston and WesTrac Holdings. and 2007 and Seven issued a total of 391,982 Seven Shares. These shares are held in trust for the participants by Australian ACE and the Related Holders have entered into transactions Executor Trustees Limited. 361,212 Seven Shares are held by and agreements with Seven and SGH in relation to the the trust. Recommended Proposal. The relevant agreements between Seven or SGH and ACE and the Related Holders are set out It is intended that subject to approval of the Share Scheme by in section 9.14. Seven Shareholders and the Court, Seven: • allows Seven Shares that have been issued under the Except as set out in this Scheme Booklet, no Seven Director PMP and which are subject to a holding lock or other has any other interest material in either Scheme. restriction on transfer, to participate in the Share Scheme, on the condition that the new SGH Shares issued to 9.8 IMPACT OF THE SCHEMES ON SEVEN’S PMP participants will continue to be subject to disposal EMPLOYEE INCENTIVE SCHEME restrictions, unless the PMP participant applies for the (A) EMPLOYEE SHARE PLANS release of such restrictions and the Board approves such Under the Seven Tax Exempt Plan (TEP) and the Seven Tax- an application; and Deferred Plan (TDP), the Seven Board may make invitations to • as a result of the Share Scheme, test early performance Seven employees to acquire Seven Shares, taking advantage conditions attaching to any unvested Shares under the PMP of tax concessions available for employee share plans. and that any Seven Shares issued as a result of such early testing be subject to the Share Scheme on the condition Under the TEP and TDP, Seven employees may elect to salary that the new SGH Shares issued to PMP participants will sacrifice a portion of their pre-tax cash salary and wages. In continue to be subject to disposal restrictions, unless the return, Seven allocates an equivalent value of Seven Shares PMP participant applies for the release of such restrictions to participating employees. and the Board approves such an application. It is intended that subject to approval of the Share Scheme by Seven Shareholders and the Court, Seven: • waives all restrictions on Seven Shares that have been issued under the TEP (including those in respect of the December 2009 offer made by Seven under the TEP), and which are subject to a holding lock or other restriction on transfer, to allow the holders of those Seven Shares to participate in the Share Scheme; and

400 Seven Network Limited Scheme Booklet – Part B 9.9 IMPACT OF THE SCHEMES ON SEVEN OPTIONS Seven has entered into option deeds with executives as set out in the following table:

Optionholder Grant date Lapse date Exercise price(s) Number of options James Warburton 1 June 2005 1 June 2015 $7.00 25,000 Peter Meakin 21 February 2007 30 June 2012 500,000 at $9.00 1,000,000 250,000 at $10.00 250,000 at $11.00 Rohan Lund 23 July 2007 1 January 2011 $9.00 100,000 David John Leckie 9 December 2009 30 June 2014 1,500,000 at $7.00 3,000,000 1,000,000 at $8.00 500,000 at $9.00 Bruce Ian McWilliam 9 December 2009 30 June 2014 1,000,000 at $7.00 2,000,000 500,000 at $8.00 500,000 at $9.00 Peter Joseph Lewis 11 December 2009 30 June 2014 250,000 at $7.00 750,000 250,000 at $8.00 250,000 at $9.00 TOTAL 6,875,000

Each option entitles the holder to subscribe for and be allotted one Seven Share at the applicable exercise price per share. One tranche of options noted above will lapse if not exercised before the Implementation Date for the Share Scheme. Seven has applied to ASX for a waiver of Listing Rule 6.23.3 to enable it to cancel all the options described above that have not lapsed in consideration for the issue of options on equivalent terms at SGH level without obtaining separate approval of Seven Shareholders. It is proposed that those options that have not lapsed are cancelled in exchange for the issue of new options over unissued SGH Shares on equivalent terms as described above.

If the Share Scheme is approved by Seven Shareholders, Seven will enter into cancellation deeds with each optionholder to give effect to the above resolution.

9.10 INTENTIONS OF SEVEN DIRECTORS If the Share Scheme is implemented, it is a matter for the reconstituted SGH Board to determine its intentions as to: • the continuation of the businesses of Seven; • any major changes to be made to the businesses of Seven, including any redeployment of its fixed assets; and • the future employment of the present employees of Seven.

The current intentions of SGH in relation to these matters are set out in sections 3.10(K) and 4.6(F) of Part B of this Scheme Booklet.

If the Share Scheme is not implemented, the Seven Directors intend to continue the business of Seven in accordance with the board’s stated strategy. In this event, the board of Seven does not presently intend to make any major changes to the business of Seven, whether in respect of the redeployment of its fixed assets or the future employment of the present employees of Seven or otherwise.

9.11 INTERESTS OF DIRECTORS OF SGH IN SGH SECURITIES See the detailed information set out in section 9.4.

Section 9 401 9.12 INTERESTS IN SEVEN AND DEALINGS IN WesTrac Group is required to maintain specified places of SEVEN SECURITIES BY SGH business in each territory of operation and adequate personnel and inventory able to provide the services. WesTrac Group Section 1.1(e) of Part B of this Scheme Booklet sets out the must not encumber its inventory of parts and attachments securities issued by Seven as at the date of this Scheme Booklet. purchased from Caterpillar. As at that date, SGH has a relevant interest in 30,731,907 Seven Shares (representing 16.1% of all Seven Shares) and voting power Caterpillar has the discretion to vary prices at which products are in Seven of 16.1%. These Seven Shares are held by Wroxby, which sold to WesTrac Group at any time and may also vary or cease the like SGH, is a subsidiary of ACE. SGH does not have an interest in production of products at any time without notice. In addition, any TELYS3 or Options as at the date of this Scheme Booklet. Caterpillar has the discretion to reject orders of products.

Except as disclosed elsewhere in this Scheme Booklet, WesTrac Group is obliged to provide warranty services to particularly in respect of the restructure of the ACE corporate Caterpillar products in its territories of operation, regardless of group in section 4.1(A) of Part B: who sold such products. The agreement does, however, include • neither SGH nor any of its associates has provided, or a provision to compensate WesTrac Group if sales are made of agreed to provide, or has received or agreed to receive, products by a third party which are initially used in WesTrac consideration for a Seven Share under a sale, purchase or Group’s territories. agreement for sale or purchase of Seven Shares in the four The appointment of a third party to perform sales and service months before the date of this Scheme Booklet; and responsibilities is prohibited by the agreement, without • from four months before the date of this Scheme Booklet, Caterpillar’s consent. WesTrac Group is also required to avoid neither SGH nor any of its associates gave, offered to affiliation with another organisation which is a substantial give or agreed to give a benefit to another person which operator of similar products. Kerry Stokes is expressly required was likely to induce the other person, or an associate to remain in the active management of, or to continue to own a of the other person, to vote in favour of either Scheme substantial financial interest in, WesTrac Group. The agreement or dispose of Seven Shares, which was not offered to all states that no substantial change of his management position, Seven Shareholders. ownership or voting control shall be made without the prior 9.13 DEALINGS IN SGH SECURITIES consent of Caterpillar. WesTrac Group is also prohibited from undergoing a change of control without Caterpillar’s consent Other than as disclosed in this Scheme Booklet, no SGH Shares (see section 9.14(B)(3) below for consent to the Schemes). or TELYS4 have been sold in the three months immediately Except as expressly agreed, WesTrac Group will not use any before the date of this Scheme Booklet and SGH has not raised Caterpillar marks. capital for the three months before the date of issue of this Scheme Booklet and will not need to raise any capital for three (2) CATERPILLAR PRODUCT SUPPORT AGREEMENTS – months after the date of the issue of this Scheme Booklet. WESTERN AUSTRALIA AND NEW SOUTH WALES/AUSTRALIAN CAPITAL TERRITORY 9.14 SUMMARY OF SIGNIFICANT CONTRACTS The product support agreements were entered into by AND DOCUMENTS WesTrac Group on 21 April 1998 with Caterpillar of Australia (A) CATERPILLAR DEALER AGREEMENTS Ltd for Western Australia and 30 October 2003 with Caterpillar Singapore for New South Wales (east of 144° longitude) and (1) SALES AND SERVICE AGREEMENTS – WESTERN AUSTRALIA the Australian Capital Territory. Under the agreements WesTrac AND NEW SOUTH WALES/AUSTRALIAN CAPITAL TERRITORY Group is contracted to provide parts and prompt, competent, The Sales and Service Agreements were entered into by diagnostic and mechanical service services to the users of all WesTrac Group on 5 March 1990 with Caterpillar of Australia models of engines sold by Caterpillar and its affiliates. Ltd for Western Australia and 30 October 2003 with Caterpillar Singapore for New South Wales (east of 144° longitude) and the The agreements do not include any express exclusivity Australian Capital Territory. Under these agreements WesTrac provisions and they are terminable upon 90 days’ notice by Group is contracted to be primarily responsible for developing either party with or without cause. The agreements also contain and promoting the sale and servicing of Caterpillar machines. provisions for accelerated termination in certain circumstances, such as material breach, insolvency events, and changes in The agreements do not include any express exclusivity control without Caterpillar consent. provisions and they are terminable upon 90 days’ notice by either party with or without cause. The agreements also contain WesTrac Group is required to maintain specified places of provisions for automatic or accelerated termination in certain business in each territory of operation and adequate personnel circumstances, such as material breach, insolvency events, and and inventory able to provide the services. Caterpillar has a first changes in control without Caterpillar consent. charge, security interest or lien over WesTrac Group’s inventory

402 Seven Network Limited Scheme Booklet – Part B of parts (and their proceeds), and WesTrac Group agrees not to WesTrac Beijing and WesTrac HK are required to maintain specified further encumber the inventory without Caterpillar’s consent. places of business in each territory of operation and adequate levels of inventory and personnel able to provide the services. All pricing is subject to change by Caterpillar without prior notice to WesTrac Group. Sales are made to WesTrac Group on Caterpillar China and Caterpillar Singapore have the discretion the price, in the currency and on the payment terms specified to vary prices at which products are sold to WesTrac Beijing by Caterpillar from time to time. A part may also be changed and WesTrac HK at any time and may also vary or cease the or discontinued by Caterpillar at any time without notice. production of products at any time without notice. In addition, Caterpillar China and Caterpillar Singapore have the discretion The appointment of a third party to perform sales and service to reject orders of products. responsibilities is prohibited by the agreement, without Caterpillar’s consent. WesTrac Group is also required to avoid WesTrac Beijing and WesTrac HK are obliged to provide affiliation with any another organisation which is a substantial warranty services to Caterpillar products in its territories operator of similar products. of operation, regardless of who sold such products. The agreement does, however, include a provision to compensate No substantial change of Kerry Stokes’ management position, WesTrac Beijing and WesTrac HK if sales are made of products ownership or voting control shall be made without the prior by a third party which are initially used in WesTrac Beijing and consent of Caterpillar (see section 9.14(B)(3) below for consent WesTrac HK’s service territories. to the Schemes). The appointment of a third party to perform sales and Except as expressly agreed, WesTrac Group will not use any service responsibilities cannot be done without the consent Caterpillar marks (see section (F) below). of Caterpillar China or Caterpillar Singapore. WesTrac Beijing (B) CATERPILLAR SALES AND SERVICE AGREEMENTS and WesTrac HK must also avoid affiliation with another – JILIN, HEBEI, BEIJING, TIANJIN, LIAONING, INNER organisation which is a substantial operator of similar products. MONGOLIA, HEILONGJIANG AND SHANXI No substantial change of Kerry Stokes’ management position, These Sales and Service Agreements were entered into by ownership or voting control shall be made without the prior WesTrac (Beijing) Machinery Equipment Limited (WesTrac consent of Caterpillar. Beijing) on 17 March 2009 with Caterpillar China for each of the territories in Jilin, Hebei, Beijing, Tianjin, Liaoning, Inner (1) CATERPILLAR DISTRIBUTION AGREEMENT Mongolia, Heilongjiang and Shanxi. WesTrac (China) Machinery Caterpillar of Australia Ltd and Energy Power (40% owned Equipment Limited, Liaoning WesTrac Machinery Equipment by WesTrac Group) entered into a distribution agreement on Limited and Tianjin WesTrac Machinery Equipment Limited, 27 November 1997 under which Energy Power is primarily all wholly-owned subsidiaries of WesTrac, are the Dealer responsible for fully and adequately developing sales of Representatives under these contracts. engines sold by Caterpillar and its affiliates to influencers (those who substantially influence a user’s purchase decision), original WesTrac Hong Kong Limited (WesTrac HK) has also entered equipment manufacturers for resale and to users, in Australia, into Sales and Service Agreements with Caterpillar Singapore Papua New Guinea and the Solomon Islands. on 17 March 2009 for each of Jilin, Hebei, Beijing, Tianjin, Liaoning, Inner Mongolia, Heilongjiang and Shanxi. WesTrac Energy Power must have a strategic business unit exclusively (China) Machinery Equipment Limited, WesTrac Beijing and dedicated for this purpose with a CEO acceptable to Caterpillar WesTrac China Limited, all wholly-owned subsidiaries of and the capability of providing services as Caterpillar dictates. WesTrac, are the Dealer Representatives under these contracts. The provisions of this agreement are similar to those of the Under these agreements, WesTrac Beijing and WesTrac HK are Caterpillar sales and services agreements (described in section contracted to be primarily responsible for developing and (A) above) to the extent that they relate to sales. Other key promoting the sale and servicing of Caterpillar machines, provisions under this agreement are as follows: engines and their attachments and parts. • without the prior consent of Caterpillar, neither David J Collinson (managing director and 1/8th voting rights on the board) The agreements do not include any express exclusivity nor the CEO of Energy Power will substantially change their provisions and they are terminable upon 90 days’ notice by management position, ownership or voting control; either party with or without cause. The agreements also contain provisions for accelerated termination in certain circumstances, • Energy Power gives a broad indemnity relating to its or such as material breach, insolvency events, and changes in a customer’s use or possession of the relevant products; control without Caterpillar consent. • Caterpillar may sell directly to original equipment manufacturers (Energy Power still services these products)

Section 9 403 and Caterpillar may enter into product support agreements provided their consent to the proposed transaction subject to with dealers in the Energy Power territories; conditions including: • Caterpillar can vary its sale prices from time to time, and • a shareholder voting agreement is executed between not less than once a year, to cover the costs of reimbursing Wroxby, North Aston and Ashblue Holdings (being the dealers for providing warranty services under product proposed SGH Shareholders associated with Mr Kerry support agreements. Parts can also be discontinued and Stokes AC) pursuant to which they agree to exercise the changed at any time, without notice and without obligation voting rights attaching to the SGH Shares that they hold in on Caterpillar; and the same manner and the adoption of certain resolutions • Energy Power is responsible for the administration or by the directors of ACE or the Related Holders in respect provision of inspection services, reimbursable from Caterpillar. of the Caterpillar dealership agreements; and • that the rights and discretions of Caterpillar China and (2) CATERPILLAR TRADE MARK LICENCES Caterpillar Singapore under the Caterpillar dealership Caterpillar has granted three trade mark licence agreements agreements in respect of termination and future consents in relation to use of certain specific CAT and CATERPILLAR will not be restricted or limited or otherwise affected by trade marks: Caterpillar China or Caterpillar Singapore’s consent to the • CAT Licence with WesTrac Group dated 23 February 2004, proposed transaction. in relation to products provided under the sales and service agreements and product support agreements Further, ACE and the Related Holders have made a commitment (Operating Agreements); to Caterpillar that, collectively, they will hold more than 60% of • Western Australia CAT Licence with WesTrac Group dated the voting shares in SGH. 5 November 2004, in relation to products provided under (C) NC2 SALES AND SERVICE AGREEMENTS – WESTERN the Operating Agreements for Western Australia; and AUSTRALIA AND NEW SOUTH WALES • Sitech Licence with Sitech (WA) Pty Ltd dated 1 October 2009, WesTrac Group has executed two additional sales and service in relation to the Caterpillar Accu Grade products and agreements for Western Australia and New South Wales (other Computer Aided Earthmoving Systems acquired under the than west of 144° longitude and north of 33° latitude) with NC2 Trimble Navigation Technology Reseller Agreement dated Luxembourg S.A.R.L. (NC2), a subsidiary of NC2 Global LLC which 30 September 2009 (Trimble Agreement). is a 50/50 joint venture of Caterpillar and Navistar International The agreements are largely on the same terms. Set out below Corporation. At the date of this scheme booklet, NC2 had not are the key provisions: yet executed the agreements. • all of the licences are non-exclusive; These agreements govern WesTrac Group’s sales and service of • the Western Australia CAT Licence and Sitech Licence are other Caterpillar vehicles and contain similar provisions to the limited to use of the trade marks in Western Australia and the Caterpillar sales and service agreements (described in section CAT Licence is not expressly limited although use of the trade (a) above), although there are a few significant changes: marks is limited by the terms of the Operating Agreements; • the restriction exists on Kerry Stokes and Darren Tasker (New • the term of the CAT Licence and Western Australia CAT South Wales) and Sybrandt Van Dyk (Western Australia) not to Licence is for the period of the respective Operating substantially change their management positions, ownership Agreements and the term of the Sitech Licence is for the or voting control without the prior written consent of NC2 but period of the Trimble Agreement. there is no express change of control provision; • all of the licences allow termination by either party without • WesTrac Group is ‘responsible’ for developing and promoting cause on 30 days’ written notice; the sale and services of the vehicles and NC2 expressly • WesTrac Group may use any trade mark owned reserves a right to sell, lease and loan the vehicles to certain by Caterpillar but the Sitech Licence is limited to customers such as governments, fleet operators, leasing ‘CAT CONNECTED WORKSITE SOLUTIONS’; companies, original equipment manufacturers and charities; • the scope of the licences are limited; • there is no compensation payment for the sale of vehicles • the licences permit certain specified sub-licensing; and into WesTrac Group’s territories that WesTrac Group must • there are broad quality control provisions and restrictions service, although the agreement specifically restricts on use of the Caterpillar trade marks which are typical. WesTrac Group from selling into other territories; • either party can terminate on 6 months’ notice; (3) CATERPILLAR CONSENT LETTERS • WesTrac Group gives a broad indemnity to NC2, affiliates of On 5 February 2010, in reliance on certain statements by NC2 and their owners, directors, officers and employees for ACE, Caterpillar China and Caterpillar Singapore, pursuant losses connected with the possession, distribution, sale, use, to provisions of the various Caterpillar dealer agreements, maintenance or repair of the vehicles by WesTrac Group, any

404 Seven Network Limited Scheme Booklet – Part B dealer representative or second level dealer (appointed by • Landfill Gas and Power Holdings Pty Limited (a power WesTrac Group with Caterpillar’s consent) or customer, except producer) will be transferred from WesTrac Holdings to ACE; where caused by a defect at the time of shipment; and • WesTrac Holdings will be transferred from ACE to SGH • NC2 has a first priority charge, security interest, or lien on pursuant to the Purchase Agreement (summarised in section the vehicles and proceeds thereof, sold to WesTrac Group 9.14(E)(1) of Part B of this Scheme Booklet). Consideration and financed by, or for which money is owed to, NC2 or an under that agreement will be the issue of SGH Shares to ACE. affiliate of NC2. Pursuant to a separate sale agreement, those SGH Shares will be transferred from ACE to North Aston, such that North (D) CHINA TAX INDEMNITY DEED Aston will become a substantial shareholder in SGH; and ACE and SGH entered into the China Tax Indemnity Deed on • a series of properties occupied by WesTrac Group will be 21 February 2010. Pursuant to this deed, ACE indemnifies SGH transferred from WesTrac Holdings to the Property West Fund (subject to certain limitations) for: which is indirectly wholly-owned by ACE. The properties • tax payable by any WesTrac China Group Company in will be leased back to WesTrac Holdings pursuant to long- respect of a period prior to Completion under the Purchase term lease agreements under which WesTrac Holdings has Agreement, unless a provision for that tax has been included the option to purchase those properties back from the in the accounts for the relevant entity for the relevant period; WesTrac Western Australia Property Fund in certain specified • the amount of any tax credit, relief or rebate included in the circumstances – these arrangements are described in section relevant accounts of a WesTrac China Group Company prior 9.14(F)(2) of Part B of this Scheme Booklet. to Completion under the Purchase Agreement which has been lost by or denied to that entity; and KEY AGREEMENTS • reasonable costs of SGH or any WesTrac China Group (1) PURCHASE AGREEMENT Company in connection with actions taken under the deed. On 21 February 2010, ACE entered into a share sale agreement with SGH under which SGH has agreed to purchase all of the (E) NATIONAL HIRE MARKET VALUE DEED issued share capital of WesTrac Holdings. The consideration National Hire is a publicly listed entity, and as such, WesTrac for the purchase is the issue of 115,000,000 SGH Shares to Holdings could not provide Seven with access to due diligence ACE (less the number of SGH Shares on issue). ACE must in relation to its 66% investment in National Hire. Instead, ACE procure that immediately following “Completion” under the has entered into the National Hire Market Value Deed pursuant Purchase Agreement, the number of SGH Shares on issue are to which ACE “underwrites” the value of WesTrac Group’s consolidated so that prior to the Effective Date of the Share investment in National Hire at an effective $2.50 per share as Scheme there are 115,000,000 SGH Shares on issue. The at 30 June 2011 (subject to adjustments to reflect the impact purchase consideration will be subject to certain adjustments. of changes to the capital structure of National Hire prior to 30 June 2011). The value of the WesTrac Group’s investment The sale of the shares in WesTrac Holdings is conditional on all in National Hire as at the date of the release of the audited conditions precedent to the Share Scheme being satisfied or accounts for the year ending 30 June 2011 will be assessed waived and will be completed on the second Business Day after by an independent expert based on National Hire’s audited these conditions precedent have been satisfied or waived. It is accounts for the year ending 30 June 2011. also conditional on specified “Restructure Steps” (relating to the transfer to ACE or its associates of specified non-core assets of If the independent expert’s valuation of WesTrac Group’s WesTrac Group). investment in National Hire shares is less than $2.50 (as adjusted) Under the Purchase Agreement ACE must procure, on or before ACE will pay to SGH the difference between $2.50 (as adjusted) completion, that all intergroup indebtedness between ACE (and and the independent expert’s valuation, in respect of the its related entities, other than SGH, WesTrac Holdings and its 98,300,404 National Hire shares held by WesTrac Group. subsidiaries) and WesTrac Holdings (and its subsidiaries) is repaid (F) WESTRAC HOLDINGS RESTRUCTURE AGREEMENTS other than amounts owing on the normal course of trading on WesTrac Holdings will be restructured to remove certain non- arm’s length. With effect from completion of the share sale, SGH core assets from WesTrac Group, conditional on all conditions must use all reasonable endeavours to procure the release of precedent to the Share Scheme (including Seven Shareholder ACE (and its related entities other than SGH, WesTrac Holdings approval) being satisfied. and its subsidiaries) from guarantees provided by ACE in relation to obligations of WesTrac Holdings and its subsidiaries. ACE must In particular, the following steps will occur: use all reasonable endeavours to release WesTrac Holdings and • Wroxby, which holds (amongst other assets) a 16% interest in its subsidiaries from guarantees provided by WesTrac Holdings in Seven Shares, will be transferred by WesTrac Holdings to ACE; relation to obligations of ACE (and its related entities other than • preference shares held by WesTrac Holdings in Mercury SGH, WesTrac Holdings and its subsidiaries). Endeavour Pty Limited will be transferred to ACE;

Section 9 405 The Purchase Agreement includes relatively usual seller increasing to approximately $40 million per annum following warranties on an indemnity basis for a transaction of this the development of Tomago site and other capital works. nature, including that financiers have given the necessary Key terms of the triple net leases are as follows: waivers or confirmations in respect of completion of the Purchase Agreement. SGH gives usual buyer warranties. The • a term of 10 years or more with annual increases to the reater of fixed 3% increases and CPI increases and a market seller warranties are subject to various limitations. ACE will not rent review at the commencement of each further term; be liable in respect of a warranty claim if, amongst other things: • the lessee bears most costs of maintaining the property, • the fact, matter or circumstance giving rise to the claim including repairs of a capital or structural nature (other than is fully and fairly disclosed or described in the share sale those capital works which are needed to make the property agreement, the due diligence materials, on certain public compliant with regulations, and where the cost of those records on specified dates, or is provided for in the pro capital works exceeds the greater of one months’ rent or forma accounts or financial information set out in the $100,000, in which case the lessor is required to negotiate Scheme Booklet or is within the actual knowledge of SGH in good faith to make a contribution) and repairs to (and or Seven; replacements of ) the lessor’s plant and equipment on • the claim relates to National Hire or the Coates Group; the property; • the claim (other than a claim for breach of a tax warranty) • the lessee must comply with all laws and authority where the notice of the claim is received more than requirements in relation to the property (including where 18 months after completion; works of a capital or structural nature are required); • the claim is for breach of a tax warranty and the notice of • extensive insurance obligations on the lessee; claim is received more than four years and three months • lessee to remediate any contamination caused by the lessee after the date of lodgement of the tax return for the income during the lease term; year during which completion occurs; • lessee may request the lessor to carry out alterations or • the amount recoverable in respect of a specific warranty extension works on the land at the lessor’s cost in return breach is less than $1,000,000 and the aggregate amount for payment during the then current term by the lessee of SGH is entitled to recover is less than $10 million; or an additional “special rent”. The annual “special rent” will • the full amount is recovered under an insurance policy be calculated according to the “agreed works cost” (being within 12 months of SGH exercising its right to recover. the lesser of the actual cost of the works and the maximum The maximum amount recoverable by SGH and Seven from ACE amount the lessee requires the lessor to pay for the works) in relation to all claims is $375 million. The Purchase Agreement multiplied by the “agreed interest rate” (being the BBSY plus also includes a tax indemnity in favour of SGH. 4%). If the lessor (being the BBSY plus 4%). If the lessor does not agree to carry out the requested works, the lessee has The Purchase Agreement may be terminated by ACE, or SGH an option to purchase the property for a price which is the in accordance with a direction from the Seven Independent then current market value of the property either agreed Directors, at any time before 8.00am on the date of the by the parties or determined by a valuer. Once the current Second Court Hearing if there is a breach of warranty that is market value of the properties is agreed or determined, not remedied within five Business Days of receipt of written the lessee may elect to proceed with or to withdraw the notice of the breach, which notice must include an intention exercise of the option; to terminate and the loss that could reasonably be expected • lessee has a right of first refusal to purchase the property to follow from such a breach or other breaches exceeds on the terms and conditions offered for sale by the lessor. $10 million in aggregate. If the lessee does not wish to purchase on those terms, the (2) SALE AND LEASE BACK lessor may sell the property to a third party on no more All freehold properties owned by WesTrac Group and used favourable terms; in the WesTrac business are being transferred out of WesTrac • lessee has an option to purchase all of the portfolio Group to Fairburn Nominees Pty Ltd as trustee for Property properties (being branch locations and services centres West Fund, a wholly-owned subsidiary of ACE. A property operated by WesTrac which are listed in exhibit B to the known as 4 Hyne Road, which is not used by WesTrac will lease) at a purchase price which is the then current market also be transferred to ACE. The market value of the properties value of the properties either agreed by the parties or being transferred is approximately $100,550,000. These determined by a valuer. This portfolio purchase option properties used in WesTrac business will then be leased back is exercisable on the lease expiry date, but may only be to the WesTrac Group under triple net leases. The rent of these exercised in respect of all properties leased by the relevant properties will be approximately $18 million per annum, lessor to the lessee. Once the current market value of the

406 Seven Network Limited Scheme Booklet – Part B properties is agreed or determined, the lessee may elect to any related body corporate of ACE, if the Recommended proceed with or to withdraw the exercise of the option; Proposal proceeds. • lessee has a right to sublet or license any residential premises to a related entity, employees or contractors of 9.15 CONSENTS AND DISCLAIMERS the lessee, without the lessor’s consent; and (A) CONSENT TO BE NAMED • lessee to pay the lessor’s legal costs of the lease up to a The following persons have given and have not, before the maximum of $2,000 plus GST for each lease. time of registration of this Scheme Booklet by ASIC, withdrawn their written consent to be named in this Scheme Booklet in The lease documents are yet to be executed, and hence the the form and context in which they are named: terms may change from those specified. • SGH, ACE and WesTrac Holdings; (G) RELATED PARTY AGREEMENTS AND ARRANGEMENTS • Grant Samuel and J.P. Morgan as financial advisers to Seven; WesTrac has contracted with a wholly-owned subsidiary • KPMG as Investigating Accountant; of ACE to use its aircraft when required. The agreement • the Independent Expert named in that role; expires on 30 June 2018 and can only be terminated upon • Freehills as legal adviser to Seven; certain termination events, such as failure to pay, breach of • Ernst & Young as tax adviser to Seven; agreement, insolvency or revocation of consent, licence approval or authorisation. • Registries Limited as the Seven Registry; and • LEK Consulting. WesTrac pays a monthly minimum fee of $165,000. The contract lists fixed charges; for example, for crew, hanger (B) CONSENT TO THE INCLUSION OF STATEMENTS rental, maintenance, and variable charges; for example, for This Scheme Booklet contains statements made by, or fuel, maintenance support, parking. Fees may be varied on an statements said to be based on statements made by: annual basis to take account of changes to these costs, except • SGH; for fuel which is varied on a bi-annual basis. Charges can also • ACE in respect of the SGH Information and WesTrac Information; be varied to take account of any impact on costs as a result of • Caterpillar (China) Investment Co. Ltd and Caterpillar foreign currency exchange rates. Variable charges are varied on S.A.R.L. Singapore Branch in respect of the Caterpillar the basis of the difference between the actual cost of providing Consent Letters; the relevant item and the budgeted cost for that item (not to • KPMG in respect of its Investigating Accountant’s Report; be applied retrospectively). • the Independent Expert in that role and in respect of its In addition, WesTrac Group purchases airtime from Independent Expert’s Report; SMG to conduct ordinary course advertising activities. • Ernst & Young in respect of its Tax Letters; and These arrangements are on arm’s length commercial terms, • LEK Consulting. and are likely to be ongoing. Each of the persons named above has consented to the (H) COSTS RECOVERY AGREEMENT inclusion of each statement it has made in the form and ACE and Seven have entered into a Costs Recovery Agreement context in which the statements appear in this Scheme Booklet, pursuant to which ACE will reimburse all of Seven’s reasonable has consented to the references to those statements in the external costs incurred in connection with Seven’s assessment form and context in which they are included in this Scheme of the Recommended Proposal if: Booklet, and has not withdrawn those consents at the date • ACE informs Seven, or Seven forms the view, acting of this Scheme Booklet. reasonably, that ACE has decided not to proceed with the (C) DISCLAIMERS OF RESPONSIBILITY Recommended Proposal; or Each person named in sections 9.15(A) and 9.15(B) of Part B of • ACE informs Seven or Seven forms the view, acting this Scheme Booklet: reasonably, that ACE will only proceed with the • has not authorised or caused the issue of this Scheme Booklet; Recommended Proposal if the parties vary the transaction • does not make, or purport to make, any statement in this structure, timetable or due diligence process in a manner Scheme Booklet or any statement on which a statement in which is not unreasonable to Seven having regard to all this Scheme Booklet is based other than: the circumstances; or – SGH; • Caterpillar declines to or refuses to give any approval which is required for the Recommended Proposal to proceed, or – ACE in respect of the SGH Information and the WesTrac is only willing to give approval on terms or conditions that Information; are not acceptable to Seven, or will not provide its consent – Caterpillar China and Caterpillar Singapore in respect of to the continuation of existing agreements with ACE or the Caterpillar Consent Letters;

Section 9 407 – KPMG in respect of its Investigating Accountant’s Report; A copy of Seven’s half year report for the period ended – Deloitte as the Independent Expert and in respect of its 26 December 2009 is available on Seven’s website at Independent Expert’s Report; and www.sevencorporate.com.au, or is available by contacting – Ernst & Young in respect of its Tax Letters; and the Seven Network Limited Shareholder Information Line on • to the maximum extent permitted by law, expressly 1300 656 831 (for the cost of a local call from within Australia) disclaims all liability in respect of, makes no representation or +61 2 8986 9358 (from outside Australia) between 9.00am regarding, and takes no responsibility for, any part of this and 5.00pm (Sydney time), Monday to Friday. Scheme Booklet other than a reference to its name and the statement (if any) included in this Scheme Booklet with the 9.18 SUPPLEMENTARY INFORMATION consent of that party. (A) SGH INFORMATION AND WESTRAC INFORMATION ACE will provide Seven with supplementary information if it 9.16 FEES becomes aware of any of the following matters between the Each of the persons named in section 9.15 of Part B of this date of lodgement of this Scheme Booklet for registration by Scheme Booklet as performing a function in a professional, ASIC and the Scheme Meetings: advisory or other capacity in connection with the preparation • a material statement in the SGH Information or WesTrac or distribution of this Scheme Booklet, will be entitled to Information that is false, misleading or deceptive; receive professional fees charged in accordance with their • a material omission from any SGH Information or normal basis of charging. WesTrac Information; • a material change affecting a matter that is referred to 9.17 MATERIAL CHANGES IN THE FINANCIAL in any SGH Information or the WesTrac Information; or POSITION OF SEVEN • a significant new matter concerning SGH, ACE, WesTrac Otherwise than for the Recommended Proposal, the following Holdings or any of their respective subsidiaries which if it comprise the material changes in the financial position of had arisen prior to the date of this Scheme Booklet would Seven since the half year ended 27 December 2009. have been required to be included in the SGH Information or the WesTrac Information. (A) ANNOUNCED AMENDMENT TO TAXATION LAWS On 10 February 2010, the Tax Laws Amendment (2010 (B) SUPPLEMENTARY DOCUMENT Measures No 1) Bill 2010 was introduced into the House of Seven will issue a supplementary document to this Scheme Representatives. Certain provisions within this Bill would have Booklet if it becomes aware of any of the following between a material impact on the deferred tax balances disclosed in the the date of lodgement of this Scheme Booklet for registration accounts of Seven relating to equity accounted investments. by ASIC and the Scheme Meetings: It is estimated that the impact would be an increase in deferred • a material statement in this Scheme Booklet being tax liabilities of approximately $207 million to the balance misleading or deceptive; disclosed in the accounts with a corresponding increase in • a material omission from this Scheme Booklet; deferred tax expense. The pro forma deferred tax liability taking • a material change affecting a matter included in this the effect of this change as if it occurred before 28 December Scheme Booklet; or 2009 is likely to be $607 million. The relevant provisions in this • a significant new matter arising which would have been Bill, if enacted, will apply from 10 February 2010. required to be included in this Scheme Booklet. (B) CHANGES IN VALUE OF LISTED INVESTMENTS The form which the supplementary document may take, and The value of listed investments and listed investments accounted whether a copy will be sent to each Seven Shareholder and for using the equity method at 26 December 2009 has since TELYS3 Holder, will depend on the nature and timing of the changed due to market movements affecting share prices. new or changed circumstances. Any such supplementary As at 10 March 2010 an unrealised and unadjusted loss of document will be released to the ASX and made available approximately $60 million exists in relation to these investments online from both the ASX’s website (www.asx.com.au) and from Seven’s website (www.sevencorporate.com.au).

408 Seven Network Limited Scheme Booklet – Part B 9.19 NO UNACCEPTABLE CIRCUMSTANCES The directors of Seven, SGH and WesTrac Holdings believe that the Recommended Proposal does not involve any circumstances in relation to the affairs of Seven or SGH that could reasonably be characterised as constituting “unacceptable circumstances” for the purposes of section 657A of the Corporations Act.

9.20 OTHER MATERIAL INFORMATION Other than as contained in or referred to in this Scheme Booklet, there is no other information material to the making of a decision by Seven Shareholders or TELYS3 Holders whether or not to vote in favour of the relevant Scheme, being information that is known to: • SGH or any director of SGH; or • Seven or any director of Seven or any director of a related body corporate of Seven; and which has not previously been disclosed to Seven Shareholders and TELYS3 Holders.

9.21 WORKING CAPITAL SGH has sufficient working capital to carry out its objectiives.

Section 9 409 THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK

410 Seven Network Limited Scheme Booklet – Part B 10 GLOSSARY

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412 Seven Network Limited Scheme Booklet – Part B Term Meaning ACE Australian Capital Equity Pty Limited (ACN 009 412 328). ACE Holdings Australian Capital Equity Holdings Pty Limited (ACN 009 336 109). ACMA Australian Communications and Media Authority. AIFRS the International Financial Reporting Standards as adopted in Australia. Allight Allight Holdings Pty Limited (ABN 73 070 926 555) and its business, as the context requires. Ashblue Holdings Ashblue Holdings Pty Limited (ACN 068 180 898). ASIC the Australian Securities and Investments Commission. associate has the meaning given to it in section 12 of the Corporations Act. ASX ASX Limited (ABN 98 008 624 691) or the Australian Securities Exchange financial market that it operates, as the context requires. ATO Australian Taxation Office. AUD Australian dollars. Broadcasting Services Act the Broadcasting Services Act 1992 (Cth). Business Day a weekday on which trading banks are open for business in Sydney, Australia. Carlyle Group The Carlyle Group. Caterpillar or CAT Caterpillar, Inc. Caterpillar China Caterpillar (China) Investment Co., Ltd. Caterpillar Singapore Caterpillar S.A.R.L Singapore Branch. Channel Seven the broadcast television business of SMG. China Tax Indemnity Deed the WesTrac China Tax Indemnity Deed between ACE and SGH dated 21 February 2010. CMH Consolidated Media Holdings Limited (ACN 009 071 167). Coates Group Coates Group Holdings Pty Ltd (ACN 126 069 341). Coates Hire the equipment rental business conducted by Coates Group. Conversion has the meaning given to that term in the Terms of Issue and Convert and Converted have corresponding meanings. Corporations Act the Corporations Act 2001 (Cth). Court the Federal Court of Australia. CRS Caterpillar Rental Stores. Deed Poll 1. in respect of the Share Scheme means the deed poll executed by SGH substantially in the form set out in section 13 of Part B of this Scheme Booklet; and 2. in respect of the TELYS3 Scheme means the deed poll executed by SGH substantially in the form set out in section 14 of Part B of this Scheme Booklet. Deloitte Deloitte Corporate Finance Pty Limited (ABN 19 003 833 127). Dividend and Capital Stopper a term of the TELYS4 which prohibits SGH from paying dividends or returning capital on any securities ranking behind TELYS4 without the approval of TELYS4 Holders if a TELYS4 dividend is not paid in full within 20 Business Days after its Dividend Payment Date. EBIT earnings before interest and tax. EBITDA earnings before interest, tax, depreciation and amortisation. Effective • when used in relation to the Share Scheme, the coming into effect, under section 411(10) of the Corporations Act, of the order of the Court made under section 411(4)(b) in relation to the Share Scheme; and • when used in relation to the TELYS3 Scheme, the coming into effect, under section 411(10) of the Corporations Act, of the order of the Court made under section 411(4)(b) in relation to the TELYS3 Scheme. Effective Date the date on which the Share Scheme or the TELYS3 Scheme becomes Effective, as appropriate.

Section 10 413 Term Meaning EMT EMT Group Pty Limited (ACN 100 871 592). End Date 30 September 2010. Energy Power Systems Australia Energy Power Systems Australia Pty Limited (ACN 055 274 514). Engin Engin Limited (ACN 063 582 990). Ernst & Young Ernst & Young Australia (ABN 75 288 172 749). Exchange the right of SGH or Seven, at its option, to redeem, buy back or otherwise cancel the TELYS4 or TELYS3, as applicable in exchange for a cash payment in accordance with clause 3 of the Terms of Issue or TELYS3 Terms of Issue, respectively. Face Value has the meaning given to that term in the Terms of Issue. Flagship Flagship Property Holdings Pty Limited (ACN 130 035 175). FY financial year. GDP gross domestic product. GFC the “global financial crisis”. Government Agency any government or governmental, administrative, monetary, fiscal or judicial body, department, commission, authority, tribunal, agency or entity in any part of the world. Grant Samuel Grant Samuel Corporate Finance Pty Limited (ABN 84 076 176 657). IBC the Seven Independent Board Committee, being a committee of the Board of Directors of Seven comprising only the Independent Seven Directors. Implementation Date a. in respect of the Share Scheme, the fifth Business Day after the Share Scheme Record Date or such other day as Seven, SGH and ACE agree; and b. in respect of the TELYS3 Scheme, the fifth Business Day after the TELYS3 Scheme Record Date or such other day as Seven, SGH and ACE agree. Implementation Deed the Scheme Implementation Deed between Seven, SGH and ACE dated 21 February 2010 (as amended), a summary of which is set out in section 4.3 of Part B of this Scheme Booklet. Independent Expert Deloitte. Independent Expert’s Report the report prepared by the Independent Expert in connection with the Share Scheme and the TELYS3 Scheme, which is set out in section 6 of Part B of this Scheme Booklet. Independent Seven Directors Mr Peter Ritchie AO, Professor Murray Wells and Ms Dulcie Boling. Ineligible Foreign Holder a. in respect of a Seven Shareholder whose address shown in the Share Register at the Share Scheme Record Date is a place outside Australia and its external territories, New Zealand, United Kingdom, United States of America, Hong Kong or Canada unless ACE determines that it is lawful and not unduly onerous or impractical to issue SGH Shares to that person; and b. in respect of a Scheme TELYS3 Holder whose address shown in the TELYS3 Register at the TELYS3 Scheme Record Date is a place outside Australia and its external territories, New Zealand and Hong Kong unless ACE determines that it is lawful and not unduly onerous or impractical to issue TELYS4 to that person. Investigating Accountant KPMG Transaction Services (Australia) Pty Limited (ACN 003 891 718). Investigating Accountant’s the report, prepared by the Investigating Accountant, set out in section 7 of Part B of the Report Scheme Booklet. J.P. Morgan J.P. Morgan Australia Limited (ACN 002 888 011). KKR Kohlberg Kravis Roberts & Co. KPMG KPMG Transaction Services (Australia) Pty Limited (ACN 003 891 718). LEK Consulting LEK Consulting Pty Limited (ACN 003 780 523). Listing Rules the listing rules of the ASX. Mining Equipment Spares Mining Equipment Spares Pty Limited (ACN 133 869 191). National Hire National Hire Group Limited (ABN 61 076 688 938).

414 Seven Network Limited Scheme Booklet – Part B Term Meaning National Hire Market Value Deed the deed titled “National Hire Market Value Deed” between ACE and SGH in relation to National Hire dated 21 February 2010. New SGH Shares the SGH Shares that are issued under the Share Scheme as Share Scheme Consideration. New South Wales/ACT that portion of New South Wales east of 144° longitude, and the Australian Capital Territory. Service Territory Nominee the person appointed by SGH to sell the New SGH Shares and TELYS4 that are attributable to Ineligible Foreign Holders under the terms of the Share Scheme and the TELYS3 Scheme, respectively. North Aston North Aston Pty Limited (ACN 009 387 606). North Eastern China in the People’s Republic of China, the provinces of Jilin, Hebei, Liaoning, Inner Mongolia, Service Territory Heilongjiang and Shanxi and the municipalities of Beijing and Tianjin. Notional SGH Group the aggregation of SGH, WesTrac Holdings and each of their respective subsidiaries from time to time (excluding Iron Ore Holdings Limited, Landfill Gas and Power Holdings Pty Limited, Wroxby and Seven and its subsidiaries). PEC Perth Entertainment Centre. Perth Land The land referred to in section 1.1(N) of Part B of this Scheme Booklet. PRT Prime Media Group Limited (ACN 000 764 867). Purchase Agreement the Share Purchase Agreement between ACE and SGH relating to the purchase by SGH of all of the issued shares in WesTrac Holdings dated 21 February 2010. Recommended Proposal the proposed creation of SGH, through: • SGH acquiring the WesTrac Group in exchange for 115,000,000 SGH Shares (less the number of SGH Shares already on issue); • SGH Group acquiring all Seven Shares pursuant to the Share Scheme in exchange for SGH Shares; and • the listing of SGH, together with SGH Group acquiring the TELYS3 pursuant to the TELYS3 Scheme or the offer of TELYS4 on an individual basis if the TELYS3 Scheme is not implemented. Related body corporate has the meaning given to it in the Corporations Act. Related Holders companies associated with Kerry Stokes AC, including Wroxby, Ashblue Holdings and North Aston. Related Holder Class Meeting in respect of the Share Scheme only, the class meeting of Seven Shareholders ordered by the Court to be convened under section 411(1) for Related Holders, notice of which is set out in Annexure 1 of Part A of this Scheme Booklet. Scheme each of the Share Scheme and the TELYS3 Scheme, as appropriate. Scheme Booklet this document dated 11 March 2010, including both Part A and Part B, the Annexures to each Part and the Proxy Form. Scheme Meeting each of the Share Scheme Meeting and the TELYS3 Scheme Meeting, as appropriate. Scheme Shareholder a Seven Shareholder on the Share Register at the Record Date for the Share Scheme. Scheme TELYS3 Holder a TELYS3 Holder on the TELYS3 Register at the Record Date for the TELYS3 Scheme. Second Court Date the first day on which an application made to the Court for an order approving the Schemes is heard. Second Court Hearing the hearing before the Court to approve the Share Scheme following the Share Scheme Meetings and (if the TELYS3 Scheme is approved by TELYS3 Holders) to approve the TELYS3 Scheme following the TELYS3 Scheme Meeting. SEM Shandong SEM Machinery Co., Ltd. Seven Seven Network Limited (ACN 052 816 789). Seven Board of Directors the board of directors of Seven.

Section 10 415 Term Meaning Seven Director a director of Seven. Seven Director Share any Seven Share: • held by, or on behalf of, a Seven Director; or • listed as an indirect interest in an Appendix 3X or 3Y lodged with the ASX for Seven in respect of any Seven Director. Seven Financial Information the Seven Pro Forma Historical Financial Information and the Seven Pro Forma Forecast Financial Information set out in section 1.2 of Part B of this Scheme Booklet. Seven Group Seven and its subsidiaries. Seven Material Adverse Change one or more changes, events, occurrences or matters occurring between 21 February 2010 and 8.00am on the Second Court Date which (whether individually or when aggregated with all such changes, events, occurrences or matters of a like kind) has had or is likely to have: 1. the effect of a diminution of 5% or more in the consolidated net assets of the Seven Group (excluding listed investments held by the Seven Group), taken as a whole (calculated on the basis of AIFRS); 2. the effect of a diminution of 5% or more in the consolidated annual net profit after tax (calculated on the basis of AIFRS) of the Seven Group taken as a whole for any of the financial years ended 30 June 2009, 30 June 2010 or 30 June 2011; or 3. the result that the Seven Group is unable to carry on its business in substantially the same manner as it is currently carried on, other than those changes, events, occurrences or matters: 4. required or permitted by the Implementation Deed, the Share Scheme, the TELYS3 Scheme or transactions contemplated by them; 5. which took place with the written consent of a member of the Notional SGH Group or as a result of a resolution of Seven’s board on which any Specified Director voted in favour; 6. which Seven has disclosed in an announcement made to the ASX or a document lodged with ASIC prior to entry into the Implementation Deed; or 7. where the effect of the change, event, occurrence or matter on the Seven Group, its financial position and operations has been fully and fairly disclosed to a member of the Notional SGH Group before 21 February 2010. Seven Options the options over unissued Seven Shares described in section 9.9 of Part B of this Scheme Booklet. Seven Option Holders a holder of a Seven Option. Seven Prescribed Occurrence other than: 1. as required by the Implementation Deed, the Share Scheme or the TELYS3 Scheme; 2. as agreed to in writing by a member of the Notional SGH Group; 3. as approved by a resolution of Seven’s board upon which any Specified Director voted in favour; or 4. as fully and fairly disclosed by Seven in writing to a member of the Notional SGH Group, or in an announcement by Seven to the ASX or a document lodged by Seven with ASIC, before 21 February 2010, the occurrence of any of the following between 21 February 2010 and 8.00am on the Second Court Date: 5. Seven converting all or any of its shares into a larger or smaller number of shares; 6. Seven resolving to reduce its share capital in any way; 7. Seven: • entering into a buy-back agreement; or • resolving to approve the terms of a buy-back agreement under the Corporations Act;

416 Seven Network Limited Scheme Booklet – Part B Term Meaning Seven Prescribed Occurrence 8. a member of the Seven Group issuing shares or securities convertible into shares, or (continued) granting an option over its shares (including an Option) or securities convertible into shares, or agreeing to make such an issue or grant such an option other than: • to a member of the Seven Group; or • the issue of shares upon exercise of a Seven Option occurring before the Share Scheme Record Date; 9. a member of the Seven Group creating, or agreeing to create, any mortgage, charge, lien or other encumbrance over the whole, or a substantial part, of its business or property other than a lien which arises by operation of law or legislation securing an obligation that is not yet due; 10. a member of the Seven Group (other than a company with less than $100,000 in total assets as at 21 February 2010) resolving that it be wound up or the making of an application or order for the winding up or dissolution of a member of the Seven Group other than where the application or order (as the case may be) is set aside within 14 days; 11. a liquidator or provisional liquidator of a member of the Seven Group being appointed; 12. a court making an order for the winding up of a member of the Seven Group; 13. an administrator of a member of the Seven Group being appointed under the Corporations Act; 14. a member of the Seven Group procuring or taking any steps to implement a deed of company arrangement with its creditors or any class of them; or 15. a receiver, or a receiver and manager, being appointed in relation to any part of the property of a member of the Seven Group. Seven Pro Forma Forecast has the same meaning as in section 1.2(A) of Part B of this Scheme Booklet. Financial Information Seven Pro Forma Historical has the same meaning as in section 1.2(A) of Part B of this Scheme Booklet. Financial Information Seven Registry Registries Limited (ACN 003 209 836). Seven Regulated Event other than: 1. as required by the Implementation Deed, the Shares Scheme or the TELYS3 Scheme; 2. as agreed to in writing by a member of the Seven Group; or 3. as approved by a resolution of Seven’s board upon which any Specified Director voted in favour; or 4. as fully and fairly disclosed by Seven in writing to a member of the Notional SGH Group, or in an announcement by Seven to the ASX or a document lodged by Seven with ASIC, before entry into the Implementation Deed, the occurrence of any of the following between 21 February 2010 and 8.00am on the Second Court Date: 5. Seven declaring, paying or distributing any dividend, bonus or other share of its profits or assets (other than the Permitted Dividend) or returning or agreeing to return any capital to its members other than in the ordinary course; 6. Seven making any change to its constitution; 7. a member of the Seven Group disposing, or agreeing to dispose, of the whole, or a substantial part of, its business or property; 8. except in the ordinary course of business, a member of the Seven Group acquiring or disposing of or agreeing to acquire or dispose of, any asset or business, or agreeing to form a business combination, or assuming or agreeing to assume any liability, where the aggregate of the amounts involved in any such acquisition, disposal or business combination and liability assumed exceed $50 million or exceed $10 million in the case of an individual acquisition, disposal, business combination or assumption of liability;

Section 10 417 Term Meaning Seven Regulated Event 9. Seven: (continued) • increases the remuneration of, or pays any bonus or issues any securities to, or otherwise varies the employment arrangements with, any of its directors; • accelerates the rights of any of its directors or executives to benefits of any kind; or • pays or agrees to pay a director or executive a termination payment (including a “golden parachute”), other than as provided for in an existing employment contract; 10. a member of the Seven Group: • entering into any contract or commitment (including in respect of debt or other monetary liability, whether actual or contingent, in respect of moneys borrowed or raised or any financial accommodation) requiring payments by the Seven Group in excess of $20 million; • without limiting the foregoing) agreeing to incur capital expenditure from the date of this deed of more than $10 million; • waiving any material third party default where the financial impact on the Seven Group will be in excess of $5 million; or • accepting as a compromise of a matter less than the full compensation due to a member of the Seven Group where the compromise is more than $5 million, in each case except in the ordinary course of business; 11. a member of the Seven Group providing financial accommodation other than to members of the Seven Group (irrespective of what form that accommodation takes) in excess of $5 million, except in the ordinary course of business; or 12. a member of the Seven Group entering into any agreement, arrangement or transaction with respect to derivative instruments (including, but not limited to, swaps, futures contracts, forward commitments, commodity derivatives or options) or similar instruments other than in the ordinary course. Seven Shares fully paid ordinary shares of Seven. Seven Shareholders each person who is registered as the holder of Seven Shares. SFA WesTrac Holdings’ Syndicated Facility Agreement. SGH Seven Group Holdings Limited (ACN 142 003 469). SGH Board the board of directors of SGH. SGH Constitution the constitution of SGH as amended from time to time. SGH Director a director of SGH. SGH Financial Information the SGH Pro Forma Historical Financial Information and the SGH Pro Forma Forecast Financial Information set out in section 3.11 of Part B of this Scheme Booklet. SGH Group SGH and its subsidiaries. SGH Information information regarding: 1. the Notional SGH Group; and 2. the merged SGH Group following implementation of the Share Scheme, prepared by ACE or a member of the Notional SGH Group for inclusion in this Scheme Booklet (which, for the avoidance of doubt, does not include the Independent Expert’s Report, the Investigating Accountant’s Report or the Tax Letters).

418 Seven Network Limited Scheme Booklet – Part B Term Meaning SGH Material Adverse Change one or more changes, events, occurrences or matters occurring between 21 February 2010 and 8.00am on the Second Court Date which (whether individually or when aggregated with all such changes, events, occurrences or matters of a like kind): 1. has had or is likely to have the effect of a diminution of 5% or more in the consolidated net assets of the Notional SGH Group (not including National Hire or Coates Group), taken as a whole (calculated on the basis of AIFRS); 2. has had or is likely to have the effect of a diminution of 5% or more in the consolidated annual net profit after tax (calculated on the basis of AIFRS) of the Notional SGH Group (not including National Hire or Coates Group), taken as a whole, for either or both of the financial year from 1 July 2009 to 30 June 2010 (on a pro forma basis) and the financial year from 1 July 2010 to 30 June 2011; and 3. has had or is likely to have the result that the Notional SGH Group (not including National Hire or Coates Group) is unable to carry on its business in substantially the same manner as it is currently carried on, other than those changes, events, occurrences or matters: 4. required or permitted by the Implementation Deed, the Share Scheme, the TELYS3 Scheme or transactions contemplated by them; 5. which took place with the written consent of the IBC acting on behalf of Seven; 6. which SGH has disclosed in a document lodged with ASIC prior to entry into the Implementation Deed; or 7. where the effect of the change, event, occurrence or matter on the Notional SGH Group, its financial position and operations has been fully and fairly disclosed to Seven before entry into the Implementation Deed. SGH Prescribed Occurrence other than: 1. as required by the Implementation Deed, the Share Scheme or the TELYS3 Scheme; 2. as agreed to in writing by the IBC acting on behalf of Seven; 3. as fully and fairly disclosed by ACE in writing to Seven or in a document lodged by SGH with ASIC before entry into the Implementation Deed, the occurrence of any of the following between 21 February 2010 and 8.00am on the Second Court Date: 4. SGH converting all or any of its shares into a larger or smaller number of shares; 5. SGH resolving to reduce its share capital in any way; 6. SGH: • entering into a buy-back agreement; or • resolving to approve the terms of a buy-back agreement under the Corporations Act; 7. a member of the Notional SGH Group (not including National Hire or Coates Group) issuing shares or securities convertible into shares, or granting an option over its shares or securities convertible into shares, or agreeing to make such an issue or grant such an option other than to a member of the Notional SGH Group; 8. a member of the Notional SGH Group (not including National Hire or Coates Group) disposing, or agreeing to dispose, of the whole, or a substantial part, of its business or property except for a disposal of any asset, business or property to another member of the Notional SGH Group; 9. a member of the Notional SGH Group (not including National Hire or Coates Group) creating, or agreeing to create, any mortgage, charge, lien or other encumbrance over the whole, or a substantial part, of its business or property other than a lien which arises by operation of law or legislation securing an obligation that is not yet due;

Section 10 419 Term Meaning SGH Prescribed Occurrence 10. a member of the Notional SGH Group (not including National Hire or Coates Group) (continued) (other than a company with less than $100,000 in total assets as at 21 February 2010) resolving that it be wound up or the making of an application or order for the winding up or dissolution of member of the Notional SGH Group other than where the application or order (as the case may be) is set aside within 14 days; 11. a liquidator or provisional liquidator of a member of the Notional SGH Group (not including National Hire or Coates Group) being appointed; 12. a court making an order for the winding up of a member of the Notional SGH Group (not including National Hire or Coates Group); 13. an administrator of a member of the Notional SGH Group (not including National Hire or Coates Group) being appointed under the Corporations Act; 14. a member of the Notional SGH Group (not including National Hire or Coates Group) procuring or taking any steps to implement a deed of company arrangement with its creditors or any class of them; or 15. a receiver, or a receiver and manager, being appointed in relation to any part of the property of a member of the Notional SGH Group (not including National Hire or Coates Group). SGH Pro Forma Forecast has the same meaning as in section 3.11(A) of Part B of this Scheme Booklet. Financial Information SGH Pro Forma Historical has the same meaning as in section 3.11(A) of Part B of this Scheme Booklet. Financial Information SGH Regulated Event other than: 1. as required by this deed or the Share Scheme or the TELYS3 Scheme; 2. as agreed to in writing by the IBC acting on behalf of Seven; or 3. as fully and fairly disclosed by ACE in writing to Seven, or by ACE in a document lodged with ASIC, before entry into the Implementation Deed, the occurrence of any of the following between 21 February 2010 and 8.00am on the Second Court Date: 4. SGH returning or agreeing to return any capital to its members; 5. SGH making any change to its constitution; 6. except in the ordinary course of business, a member of the Notional SGH Group (not including National Hire or Coates Group) acquiring or disposing of or agreeing to acquire or dispose of, any asset or business, or agreeing to form a business combination, or assuming or agreeing to assume any liability, where the aggregate of the amounts involved in any such acquisition, disposal or business combination and liability assumed exceed $50 million or exceed $10 million in the case of an individual acquisition, disposal, business combination or assumption of liability; 7. a member of the Notional SGH Group (not including National Hire or Coates Group): • increases the remuneration of, or pays any bonus or issues any securities to, or otherwise varies the employment arrangements with, any of its directors; • accelerates the rights of any of its directors or executives to benefits of any kind; or • pays or agrees to pay a director or executive a termination payment (including a “golden parachute”), other than as provided for in an existing employment contract;

420 Seven Network Limited Scheme Booklet – Part B Term Meaning SGH Regulated Event (continued) 8. a member of the Notional SGH Group (not including National Hire or Coates Group): • entering into any contract or commitment (including in respect of debt or other monetary liability, whether actual or contingent, in respect of moneys borrowed or raised or any financial accommodation) which require payments by the Notional SGH Group in excess of $20 million or require payments materially higher than were taken into account in compiling the forecasts in respect of SGH; • (without limiting the foregoing) agreeing to incur capital expenditure from 21 February 2010 of more than $10 million; • waiving any material third party default where the financial impact on the Notional SGH Group will be in excess of $5 million; or • accepting as a compromise of a matter less than the full compensation due to a member of the Notional SGH Group where the compromise is more than $5 million, in each case except in the ordinary course of business; 9. a member of the Notional SGH Group (not including National Hire or Coates Group) providing financial accommodation other than to members of the Notional SGH Group (irrespective of what form that accommodation takes) in excess of $5 million, except in the ordinary course of business; or 10. a member of the Notional SGH Group (not including National Hire or Coates Group) entering into any agreement, arrangement or transaction with respect to derivative instruments (including, but not limited to, swaps, futures contracts, forward commitments, commodity derivatives or options) or similar instruments other than in the ordinary course. SGH Shareholders each person who is registered as the holder of SGH Shares. SGH Shares fully paid ordinary shares in the capital of SGH. Share Register the register of holders of Seven Shares maintained in accordance with the Corporations Act. Share Scheme the scheme of arrangement under Part 5.1 of the Corporations Act between Seven and the persons who are Seven Shareholders on the Share Scheme Record Date, in respect of the Seven Shares, a copy of which is set out in section 11 of Part B of this Scheme Booklet. Share Scheme Consideration the consideration comprising one New SGH Share to be provided by SGH to each person who is a Seven Shareholder on the Share Scheme Record Date, for the transfer of each Seven Share to WesTrac Holdings under the Share Scheme. Share Scheme Meetings the meetings of Seven Shareholders ordered by the Court to be convened under section 411(1) of the Corporations Act for the purpose of considering and, if thought fit, approving the Share Scheme, being: • the Unrelated Seven Shareholder Class Meeting; and • the Related Holder Class Meeting. Share Scheme Proxy Form the white or pink proxy forms for the Share Scheme Meetings. Share Scheme Record Date 5.00pm on the fifth Business Day after the Effective Date for the Share Scheme. Share Scheme Resolution the resolution set out in the notices of meeting for each of the Share Scheme Meetings in Annexure 1 of Part A of this Scheme Booklet. SiTech SiTech (WA) Pty Ltd (ACN 139 286 454). SMG Seven Media Group Pty Limited (ACN 116 850 607). SOE state owned enterprises. Specified Director any one of Mr Kerry Stokes AC, Peter Joshua Thomas Gammell or Ryan Kerry Stokes. Southern Cross Southern Cross Broadcasting (Australia) Pty Limited (ACN 006 186 974). subsidiary has the meaning given to it in the Corporations Act. S&P Standard & Poor’s. Tax Letters the letters from Ernst & Young set out in section 8 of Part B of this Scheme Booklet.

Section 10 421 Term Meaning TELYS3 Transferrable Extendable Listed Yield Shares, being non-cumulative redeemable and convertible preference shares issued by Seven. TELYS3 Holders each person who is registered as the holder of TELYS3. TELYS3 Register the register of holders of TELYS3 maintained in accordance with the Corporations Act. TELYS3 Scheme the scheme of arrangement under Part 5.1 of the Corporations Act between Seven and persons who are TELYS3 Holders on the TELYS3 Scheme Record Date, in respect of the TELYS3, a copy of which is set out in section 12 of Part B of this Scheme Booklet. TELYS3 Scheme Consideration the consideration comprising one SGH TELYS4 to be provided by SGH to each person who is a TELYS3 Holder on the TELYS3 Scheme Record Date, for the transfer of each TELYS3 to WesTrac Holdings under the TELYS3 Scheme. TELYS3 Scheme Meeting the meeting of TELYS3 Holders ordered by the Court to be convened under section 411(1) of the Corporations Act for the purpose of considering and, if thought fit, approving the TELYS3 Scheme. TELYS3 Scheme Proxy Form the yellow proxy form for the TELYS3 Scheme Meeting. TELYS3 Scheme Record Date 5.00pm on the fifth Business Day after the Effective Date for the TELYS3 Scheme. TELYS3 Undertaking a deed poll for the benefit of TELYS3 Holders from time to time to be entered into by Seven if the Share Scheme is approved and the TELYS3 Scheme is not approved. TELYS4 Transferrable Extendable Listed Yield Shares, being non-cumulative redeemable and convertible preference shares issued by SGH. TELYS4 Dividend Stopper Event any time a Dividend and Capital Stopper is subsisting under the Terms of Issue. TELYS4 Offer the offer by WesTrac Holdings to acquire all or some TELYS3 on issue on the TELYS3 Record Date for TELYS4 to be issued by SGH on a one for one basis, subject to the satisfaction of various conditions, as described in documents to be provided to TELYS3 Holders. Terms of Issue terms of issue of the TELYS4 as set out in Annexure 3 to Part A of the Scheme Booklet in respect of the TELYS3 Scheme. Transaction Documents each of the: 1. Implementation Deed; 2. Purchase Agreement; 3. China Tax Indemnity Deed; and 4. National Hire Market Value Deed. Unrelated Seven Shareholder in respect of the Share Scheme only, the class meeting of Seven Shareholders ordered Class Meeting by the Court to be convened under section 411(1) for Unrelated Seven Shareholders, notice of which is set out in Annexure 1 of Part A of this Scheme Booklet. Unrelated Seven Shareholders Seven Shareholders other than Related Holders. USD United States dollars. VWAP volume weighted average price. WAN West Australian Newspapers Holdings Limited (ACN 053 480 845). WERC WesTrac Equipment Rebuild Centre. Western Australia the State of Western Australia. Service Territory WesTrac WesTrac Pty Limited (ABN 63 009 342 572). WesTrac Australia the equipment business conducted by WesTrac Group comprising WesTrac Western Australia and WesTrac New South Wales/ACT. WesTrac Beijing WesTrac (Beijing) Machinery Equipment Limited. WesTrac China the equipment business conducted by the WesTrac Group in the North Eastern China Service Territory.

422 Seven Network Limited Scheme Booklet – Part B Term Meaning WesTrac China Group Company • WesTrac China Limited; • WesTrac Hong Kong Limited; • Tianjin WesTrac Machinery Limited; • Liaoning WesTrac Machinery Equipment Limited; • WesTrac (Beijing) Machinery Equipment Limited; • WesTrac (China) Machinery Equipment Limited; • Sitech (Beijing) Engineering Technology Development; and • Weishan (Beijing) Machinery Equipment Ltd. WesTrac Group WesTrac Holdings and its subsidiaries excluding National Hire. WesTrac Group Financial the WesTrac Group Pro Forma Historical Financial Information and the WesTrac Group Pro Information Forma Forecast Financial Information set out in section 2.6 of Part B of this Scheme Booklet. WesTrac Group Pro Forma has the same meaning as in section 2.6(A) of Part B of this Scheme Booklet. Forecast Financial Information WesTrac Group Pro Forma has the same meaning as in section 2.6(A) of Part B of this Scheme Booklet. Historical Financial Information WesTrac Holdings WesTrac Holdings Pty Ltd (ABN 68 009 336 109). WesTrac HK WesTrac Hong Kong Limited. WesTrac Information information regarding the WesTrac Group prepared by ACE for inclusion in this Scheme Booklet (which, for the avoidance of doubt, does not include the Independent Expert’s Report, the Investigating Accountant’s Report or the Tax Letters). WesTrac NSW/ACT the equipment business conducted by WesTrac Group in its New South Wales/ACT Service Territory. WesTrac Western Australia the equipment business conducted by WesTrac Group in Western Australia. Wireless Broadband Australia Wireless Broadband Australia Limited (ACN 008 082 737) (formally Unwired Group Limited). Wroxby Wroxby Pty Limited (ACN 061 621 921).

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424 Seven Network Limited Scheme Booklet – Part B 11 SCHEME OF ARRANGEMENT: SHARE SCHEME

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426 Seven Network Limited Scheme Booklet – Part B SCHEME OF ARRANGEMENT The scheme of arrangement is made under section 411 of the Corporations Act 2001 (Cth)

Between the parties

Seven Network Limited ABN 21 052 816 789 of 38-42 Pirrama Road, Pyrmont NSW 2009 (Seven)

The registered holders of Seven Shares

1 INTERPRETATION AND DEFINITIONS 1.1 DEFINITIONS The means of the terms used in this Scheme are set out below:

Term Meaning ACE Australian Capital Equity Pty Limited (ACN 009 412 328). ASIC the Australian Securities and Investments Commission. ASX ASX Limited (ABN 98 008 624 691). Business Day has the meaning given in the Listing Rules. Close of Trading the close of trading on ASX on the day the Scheme becomes Effective. Conditions Subsequent the conditions subsequent contained in claus e 4.1 of the Implementation Deed. Corporations Act the Corporations Act 2001 (Cth). Corporations Regulations The Corporations Regulations 2001 (Cth). Court the Federal Court of Australia or such other court of competent jurisdiction under the Corporations Act agreed to in writing by Seven and SGH. Deed Poll the deed poll dated 11 March 2010 under which SGH covenants in favour of the Scheme Shareholders to perform its obligations under this Scheme. Effective when used in relation to the Scheme, the coming into effect, under section 411(10) of the Corporations Act, of the orders of the Court made under section 411(4)(b) of the Corporations Act in relation to the Scheme. End Date 30 September 2010. Escrow Agent the escrow agent appointed by Seven for the purpose of clause 4.2(b). Implementation Date the fifth Business Day after the Scheme Record Date or other such day as the parties to the Implementation Deed agree. Implementation Deed the scheme implementation deed entered into between SGH, ACE and Seven on 21 February 2010, as amended. Ineligible Foreign a Scheme Shareholder whose address shown in the Seven Register on the Scheme Record Date is Shareholder a place outside Australia and its external territories, Canada, Hong Kong, New Zealand, the United Kingdom or the United States unless , in accordance with the Implementation Deed, ACE determines that it is lawful and not unduly onerous or impracticable to issue that Scheme Shareholder with SGH Shares when the Scheme becomes Effective. Listing Rules the official listing rules of the ASX. Net Proceeds of Sales has the meaning given in 5.3(c). New SGH Share a fully paid ordinary share in SGH to be issued to Scheme Shareholders as Scheme Consideration under the Scheme. Registered Address in relation to a Scheme Shareholder, their address as shown on the Seven Register as at the Scheme Record Date. Sale Agent a nominee appointed by SGH after consultation with Seven to sell the New SGH Shares that are attributable to Ineligible Foreign Shareholders under the terms of this Scheme.

Section 11 427 Term Meaning Scheme this scheme of arrangement under Part 5.1 of the Corporations Act between Seven and Scheme Shareholders, subject to any alternations or conditions (whether proposed by a party or required by the Court under subsection 411(6) of the Corporations Act) which are agreed in writing by SGH. Scheme Booklet the information described under clause 7.1(b) of the Implementation Deed to be approved by the Court and despatched to Seven Shareholders being the explanatory statement for the Scheme complying with the requirements of the Corporations Act and the Corporations Regulations, an independent expert’s report, an investigating accountant’s report, a tax opinion, notices of meeting and proxy form. Scheme Consideration the consideration to be provided by, or on behalf of, SGH to each Scheme Shareholder for the transfer to WesTrac Holdings of each Scheme Share, pursuant to this Scheme, being subject to clause 5.2, one New SGH Share in respect of each Scheme Share held by a Scheme Shareholder. Scheme Record Date 5.00 pm on the fifth Business Day after the Scheme becomes Effective. Scheme Share a Seven Share held by a Scheme Shareholder as at the Scheme Record Date. Scheme Shareholders Seven Shareholders as at the Scheme Record Date. Second Court Date the first day on which an application made to the Court for an order under section 411(4)(b) of the Corporations Act approving the Scheme is heard. SGH Seven Group Holdings Limited (ACN 142 003 469). SGH Constitution the constitution of SGH. SGH Register the register of members of SGH maintained in accordance with the Corporations Act. SGH Registry Registries Limited (ACN 003 209 836) or any other authorised share registry appointed by SGH. SGH Shares a fully paid ordinary shares in the capital of SGH. Seven Register the register of members of Seven maintained in accordance with the Corporations Act. Seven Share a fully paid ordinary share in the capital of Seven. Seven Shareholders each person who is registered as the holder of Seven Shares. TELYS3 transferable extendable listed yield securities issued by Seven. WesTrac Holdings WesTrac Holdings Pty Limited (ACN 009 336 109).

1.2 INTERPRETATION In this Scheme, unless a contrary intention appears: a. words or expressions importing the singular include the plural and vice versa; b. words or expressions importing a gender include any gender; c. words or expressions denoting individuals include corporations, firms, unincorporated bodies, government authorities and instrumentalities; d. a reference to a party to a document includes that party’s successors and permitted assigns; e. where a word or expression is defined or given meaning, another grammatical form of that word or expression has a corresponding meaning; f. any heading, index, table of contents or marginal note is for convenience only and does not affect the interpretation of this Scheme; g. a provision of this Scheme shall not be construed to the disadvantage of a party merely because that part was responsible for the preparation of this Scheme or that provision; h. a reference to a clause, party, annexure, exhibit or schedule is a reference to a clause of, and a party, annexure, exhibit and schedule to, this Scheme; i. any recital, schedule or annexure forms part of this document and has effect as if set out in full in the body of this document; j. a reference to legislation or a provision of legislation includes: 1. all regulations, orders or instruments issued under the legislation or provision; and 2. any modification, consolidation, amendment, re-enactment, replacement or codification of such legislation or provision; k. references to “include”, “including” or any variation thereof are to be construed without limitation;

428 Seven Network Limited Scheme Booklet – Part B l. a reference to “$” or “dollar” is a reference to Australian currency; m. where the day on which any act, matter or thing is to be done is a day other than a Business Day, such act, matter or thing will be done on the next Business Day; and n. reference to time is to that time in Sydney, Australia.

2. PRELIMINARY a. Seven is a public company registered in New South Wales, Australia and is limited by shares. b. As at the date of the Scheme Booklet: 1. 190,410,281 Seven Shares were on issue; and 2. 4,963,640 TELYS3 were on issue. c. SGH is a public company registered in Victoria, Australia and is limited by shares. d. WesTrac Holdings is a proprietary company registered in Perth, Australia and is limited by shares. As at the date of the Implementation Deed, WesTrac Holdings is a subsidiary of ACE. On the Effective Date WesTrac Holdings will be a subsidiary of SGH. e. ACE is a proprietary company registered in Perth, Australia and is limited by shares. f. Seven, ACE and SGH have agreed by entering into the Implementation Deed to implement the Scheme. g. If the Scheme becomes Effective, all of the Conditions Subsequent are satisfied or waived in accordance with the terms of the Implementation Deed and the Scheme is implemented, each of the following will occur: 1. all of the Scheme Shares will be transferred to WesTrac Holdings and Seven will become a wholly-owned subsidiary of SGH; and 2. in consideration for the transfer of the Scheme Shares to WesTrac Holdings, SGH will provide the Scheme Consideration to the Scheme Shareholders in accordance with this Scheme. h. SGH has agreed by executing the Deed Poll to provide the Scheme Consideration to the Scheme Shareholders in accordance with this Scheme and undertake all other actions attributed to it under this Scheme.

3 CONDITIONS PRECEDENT 3.1 CONDITIONS PRECEDENT This Scheme is conditional on: a. all of the conditions precedent set out in clause 3.1 of the Implementation Deed having been satisfied or waived in accordance with the terms of the Implementation Deed; b. all of the Conditions Subsequent having been satisfied or waived in accordance with the terms of the Implementation Deed; and c. such other conditions as may be imposed by the Court under section 411(6) of the Corporations Act and agreed to by Seven, ACE and SGH having been satisfied.

3.2 CERTIFICATE At or before the Court hearing on the Second Court Date, Seven and SGH will each provide the Court with a certificate, or such other evidence as the Court requests, confirming whether or not all of the conditions precedent set out in clause 3.1 of the Implementation Deed, other than clause 3.1(b) of the Implementation Deed, have been satisfied or waived in accordance with the terms of the Implementation Deed. Where the certificates disclose that any of those conditions precedent have been satisfied or waived in accordance with the terms of the Implementation Deed, they will constitute conclusive evidence of the satisfaction or waiver of the condition (as the case may be).

3.3 LAPSE OF SCHEME The Scheme will lapse and be of no further force or effect if the Implementation Deed is terminated in accordance with its terms, or if the Scheme does not become Effective by the End Date, or if the conditions referred to in clause 3.1 are not satisfied or, if capable of waiver, waived by the End Date, in which event Seven and SGH are each released from: a. any further obligation to take steps to implement this Scheme; and b. any liability with respect to this Scheme.

Section 11 429 4 IMPLEMENTATION OF THE SCHEME 4.1 LODGEMENT OF COURT ORDERS Seven must lodge the orders of the Court approving this Scheme with ASIC on the third Business Day following the date on which the Court approves the Scheme (or such earlier Business Day as Seven and SGH agree). This Scheme will become Effective on and from the date of lodgement of the orders.

4.2 ACQUISITION OF SEVEN BY WESTRAC HOLDINGS a. On the Implementation Date, SGH must provide the Scheme Consideration in accordance with clause 5. b. All of the Scheme Shares, together with all rights and entitlements attaching to those shares at the Implementation Date, will be transferred to WesTrac Holdings without the need for any further act by an Scheme Shareholder by: 1. Seven delivering on the Implementation Date to the Escrow Agent duly completed and executed share transfer form or forms (executed by Seven acting as attorney and agent of each Scheme Shareholder under clause 7.6) in respect of all of the Scheme Shares in favour of WesTrac Holdings as transferee (which may be a master transfer of all or part of the Scheme Shares); 2. the Escrow Agent delivering, on the direction of Seven, such transfer form or forms (as the case may be) to WesTrac Holdings on the date that the New SGH Shares are issued to Scheme Shareholders entitled to receive them and the Sale Agent in accordance with this Scheme (and the relevant register has been updated to record their issuance); 3. WesTrac Holdings duly executing such transfer form or forms as transferee and delivering it or them to Seven for registration; and 4. Seven promptly procuring that the name of WesTrac Holdings is entered in the Seven Register as the holder of all of the Scheme Shares. c. Seven must direct the Escrow Agent to deliver the transfer form or forms (as the case may be) to WesTrac Holdings promptly following the occurrence of the matters specified in clause 4.2(b)(2). d. Notwithstanding any other provision of this Scheme (including clause 5.1), while New SGH Shares forming part of the Scheme Consideration must be issued (and the relevant register have been updated to record their issuance) on the Implementation Date, any requirements under clause 5 for the sending of share certificates, holding statements or allotment advices may be satisfied within 10 Business Days after the Implementation Date (and requirements relating to the Ineligible Foreign Shareholders must be satisfied within the time periods set out in clause 5.3).

5 SCHEME CONSIDERATION 5.1 PROVISION OF SCHEME CONSIDERATION Subject to clauses 4.2(d), 5.1(c), 5.2 and 5.3, the obligation of SGH to provide the Scheme Consideration to Scheme Shareholders will be satisfied by SGH: a. in the case of Scheme Consideration that is required to be provided to Scheme Shareholders in the form of New SGH Shares, by SGH procuring that: 1. the name and address of each such Scheme Shareholder is entered into the SGH Register on the Implementation Date in respect of the New SGH Shares to which it is entitled under this clause 5; and 2. a share certificate or holding statement (or equivalent document) is sent to the Registered Address of each Scheme Shareholder representing the number of New SGH Shares to be issued to the Scheme Shareholder pursuant to this Scheme; b. in the case of Scheme Consideration that is required to be issued to the Sale Agent as a result of the operation of clause 5.2, by SGH procuring that: 1. the name and registered address of the Sale Agent, as nominee in trust for the Ineligible Foreign Shareholders, is entered into the SGH Register on the Implementation Date in respect of the New SGH Shares required to be issued to it under this clause 5; 2. a share certificate or holding statement (or equivalent document) in the name of the Sale Agent, as nominee in trust for the Ineligible Foreign Shareholders, is sent to the Sale Agent representing the number of New SGH Shares so issued to it; and 3. the Sale Agent, as nominee in trust for the Ineligible Foreign Shareholders, sells those New SGH Shares, and pays the proceeds in accordance with clause 5.3; and

430 Seven Network Limited Scheme Booklet – Part B c. in the case of joint holders of Scheme Shares: 1. the New SGH Shares to be issued under this Scheme will be issued to and registered in the names of the joint holders (or the Sale Agent, as applicable); 2. any cheque required to be sent under clause 5.3 will be made payable to the joint holders and sent to the holder whose name appears first in the Seven Register on the Scheme Record Date; and 3. any other document required to be sent under this clause 5 must be forwarded to the holder whose name appears first in the Seven Register on the Scheme Record Date.

5.2 INELIGIBLE FOREIGN SHAREHOLDERS SGH will be under no obligation to issue, and must not issue, any SGH Shares under this Scheme to any Ineligible Foreign Shareholder and, instead, must procure that those SGH Shares which, but for this clause 5.2, would be required to be so issued are dealt with on behalf of the Ineligible Foreign Shareholders in accordance with clause 5.3.

5.3 SALE AGENT a. New SGH Shares that are required to be dealt with under this clause by virtue of clause 5.2 must be issued by SGH to the Sale Agent, as nominee in trust for the Ineligible Foreign Shareholders, on the Implementation Date and subsequently sold in accordance with the remaining provisions of this clause 5.3. b. SGH must procure that the Sale Agent: 1. as soon as practicable after the Implementation Date, sells the New SGH Shares issued to it pursuant to clause 5.3(a), in the ordinary course of trading on the securities market conducted by ASX; and 2. remits to SGH the proceeds of sale (after deduction of any applicable brokerage, stamp duty and other costs, taxes and charges) (the Proceeds). c. Promptly after receiving the entire Proceeds in accordance with clause 5.3(b)(2), SGH must pay, or procure the payment, to each Ineligible Foreign Shareholder the amount “A” calculated in accordance with the following formula and rounded down to the nearest cent: A = (B ÷ C) x D where B = the number of New SGH Shares that would have been issued to that Ineligible Foreign Shareholder had it not been an Ineligible Foreign Shareholder; and C = the total number of New SGH Shares which would otherwise have been issued to all Ineligible Foreign Shareholders collectively and which were instead issued to the Sale Agent; and D = the Proceeds. d. SGH must make payments, or must procure that payments are made, to Ineligible Foreign Shareholders under clause 5.3(c) by sending cheques in Australian currency drawn on an Australian bank for the relevant amounts to the Registered Addresses of Ineligible Foreign Shareholders. e. Payment of an amount to an Ineligible Foreign Shareholder under this clause 5.3 will be in full satisfaction of the obligations of SGH to the Ineligible Foreign Shareholder under the Scheme in respect of that Ineligible Foreign Shareholder’s Scheme Consideration. f. If SGH receives professional advice that any withholding or other tax is required by law to be withheld from any such payment, SGH must ensure, or must procure, that the relevant amount is withheld before making the payment to the Ineligible Foreign Shareholder (and payment of the reduced amount shall be taken to be full payment of the relevant amount for the purposes of this Scheme including clause 5.3(c)). SGH must ensure, or must procure, that any amount so withheld is paid to the relevant taxation authorities within the time permitted by law, and that a receipt or other appropriate evidence of such payment is promptly provided to the relevant Ineligible Foreign Shareholder. g. None of Seven, SGH or the Sale Agent gives any assurance as to the price that will be achieved for the sale of SGH Shares by the Sale Agent. The sale of SGH Shares under this clause 5.3 will be at the risk of the Ineligible Foreign Shareholder. h. Each Ineligible Foreign Shareholder appoints Seven as its agent to receive on its behalf any financial services guide or other notices (including any updates of those documents) that the Sale Agent is required to provide to Ineligible Foreign Shareholders under the Corporations Act.

Section 11 431 5.4 STATUS OF SGH SHARES Subject to this Scheme becoming Effective, SGH must: a. issue the SGH Shares required to be issued by it under this Scheme on terms such that each such SGH Share will rank equally in all respects with each existing SGH Share; b. ensure that each such SGH Share is duly issued, fully paid and free from any mortgage, charge, lien, encumbrance or other security interest (except for any lien arising under the SGH Constitution); and c. use all reasonable endeavours to ensure that such SGH Shares, as from the Business Day following the date the Scheme becomes Effective (or such later date as ASX requires) the SGH Shares are listed for quotation on the official list of the ASX initially on a deferred settlement basis and after the Implementation Date on an ordinary settlement basis.

6 DEALINGS IN SEVEN SHARES 6.1 DEALINGS IN SEVEN SHARES BY SCHEME SHAREHOLDERS a. For the purpose of establishing who is a Scheme Shareholder, dealings in Seven Shares will only be recognised if: 1. in the case of dealings of the type to be effected using CHESS, the transferee is registered in the Seven Register as the holder of the relevant Seven Shares by the Scheme Record Date; and 2. in all other cases, registrable transfer or transmission applications in respect of those dealings are received at the place where the Seven Register is kept, on or before the Scheme Record Date. b. Seven must register transfers or transmission applications of the type referred to in clause 6.1(a)(2) by the Scheme Record Date.

6.2 SEVEN REGISTER a. For the purpose of determining entitlements to Scheme Consideration, Seven must, until the Scheme Consideration has been provided in accordance with this Scheme, maintain or procure the maintenance of the Seven Register in accordance with the provisions of this clause 6 and the Seven Register in this form will solely determine the entitlements to Scheme Consideration. b. As from the Scheme Record Date, each entry current at that time in the Seven Register in relation to the Scheme Shares will cease to be of any effect other than as evidence of entitlement to the Scheme Consideration in accordance with this Scheme in respect of the Scheme Shares relating to that entry.

6.3 CERTIFICATES AND HOLDING STATEMENTS All certificates and statements of holding for Scheme Shares held by Scheme Shareholders shall, following the Scheme Record Date, cease to have any effect as documents of title in respect of such Scheme Shares.

6.4 PROVISION OF INFORMATION As soon as practicable after the Scheme Record Date and in any event at least one Business Day before the Implementation Date, Seven will ensure that details of the names, Registered Addresses and holdings of Scheme Shares for each Scheme Shareholder are made available to SGH in such form as SGH may reasonably require.

6.5 QUOTATION OF SEVEN SHARES a. It is expected that suspension of trading in Seven Shares on the ASX will occur from the Close of Trading. b. At a time after the Implementation Date to be determined by SGH, Seven will apply: 1. for termination of the official quotation of Seven Shares on ASX; and 2. to have itself removed from the official list of ASX.

7 GENERAL PROVISIONS 7.1 EFFECT OF SCHEME Each Scheme Shareholder acknowledges that this Scheme binds Seven and all of the holders for the time being of Seven Shares (including those who do not attend the members’ meeting of Seven to approve the Scheme or do not vote at the meeting or who vote against the Scheme at that meeting) and, to the extent permitted by law, overrides the constitution of Seven.

7.2 AGREEMENTS BY SCHEME SHAREHOLDERS a. Each Scheme Shareholder agrees to: 1. the transfer of its Scheme Shares to WesTrac Holdings in accordance with this Scheme; and 2. any variation, cancellation or modification of the rights attached to their Seven Shares constituted by or resulting from this Scheme.

432 Seven Network Limited Scheme Booklet – Part B b. Each Scheme Shareholder who is issued SGH Shares under this Scheme agrees to become a shareholder of SGH in respect of those SGH Shares and to be bound by the SGH Constitution. c. Each Scheme Shareholder who is an Ineligible Foreign Shareholder agrees and acknowledges that the payment to it of an amount in accordance with clause 5.3 constitutes the satisfaction in full of its entitlement in and to the scrip component of its Scheme Consideration. d. Except for a Scheme Shareholder’s tax file number and any elections made in relation to participation in any dividend reinvestment plan or annual reports, all binding instructions or notifications between a Scheme Shareholder and Seven relating to Seven Shares (including, without limitation, any e-mail addresses, instructions relating to communications from Seven, whether dividends are to be paid by cheque or into a specific bank account, notices of meeting or to other communications from Seven) will from the Implementation Date be deemed (except to the extent determined otherwise by SGH in its sole discretion), by reason of this Scheme, to be a similarly binding instruction or notification to and accepted by SGH in respect of the New SGH Shares issued to Scheme Shareholder until that instruction or notification is revoked or amended in writing addressed to SGH at the SGH Registry.

7.3 WARRANTIES BY SCHEME SHAREHOLDERS Each Scheme Shareholder is deemed to have warranted to SGH, and appointed and authorised Seven as its attorney and agent to warrant to SGH, that their Scheme Shares will, at the date of transfer of them to WesTrac Holdings, be fully paid and free from all mortgages, charges, liens, encumbrances and interests of any third parties of any kind, including any restrictions on transfer, and that they have full power and capacity to sell and to transfer their Scheme Shares to WesTrac Holdings under the Scheme. Seven undertakes that it will provide such warranty to SGH as agent and attorney of each Scheme Shareholder.

7.4 PENDING REGISTRATION OF TRANSFERS From the date the Scheme becomes Effective, pending the registration of WesTrac Holdings in the Seven Register as the holder of the Scheme Shares, WesTrac Holdings will be beneficially entitled to the Scheme Shares transferred to it under this Scheme and each Scheme Shareholder is deemed to have irrevocably appointed WesTrac Holdings as attorney and agent (and directed WesTrac Holdings in each capacity) to appoint any officer or agent nominated by WesTrac Holdings as its sole proxy and, where appropriate, its corporate representative, to attend shareholders’ meetings, exercise the votes attached to the Scheme Shares registered in their name and sign any shareholders’ resolution (and each Scheme Shareholder acknowledges and agrees that as a result of such appointment they must not themselves attend or vote at any meetings or sign any resolutions, whether in person or by proxy or corporate representative).

7.5 STAMP DUTY WesTrac Holdings must pay all stamp duty (if any) and any related fines and penalties in connection with the transfer of the Scheme Shares under this Scheme.

7.6 AUTHORITY TO SEVEN a. Each Scheme Shareholder consents to Seven doing all acts and things as may be necessary or desirable to give full effect to the Scheme and the transactions contemplated by it. b. Each Scheme Shareholder, without the need for any further act, irrevocably appoints Seven and each of its directors and officers (jointly and severally) as its agent and attorney for the purpose of: 1. executing any document or doing any other act necessary or expedient to give effect to the terms of this Scheme and the transactions contemplated by it including the provision of a proper instrument of transfer in respect of the Scheme Shares for the purposes of section 1071B of the Corporations Act (which may be a master transfer of all or part of the Scheme Shares); and 2. enforcing the Deed Poll against SGH.

Seven undertakes in favour of each Scheme Shareholder that it will enforce the Deed Poll against SGH on behalf of and as agent and attorney for each Scheme Shareholder.

7.7 FURTHER ASSURANCE Seven will execute all documents and do all acts and things as may be necessary or desirable to give full effect to the Scheme and the transactions contemplated by it.

Section 11 433 7.8 AMENDMENTS TO THE SCHEME If the Court proposes to approve the Scheme subject to any alterations or conditions, Seven may consent on behalf of all persons concerned, by its counsel, to those alterations or conditions to which SGH has consented in writing.

7.9 DEFINITION OF ‘SENDING’ For the purpose of clause 5, the word “send” (or any variant thereof) means: a. sending by ordinary pre-paid post or courier to the Registered Address of the Scheme Shareholder; or b. delivering to that address by any other means at no cost to the recipient.

7.10 NOTICES If a notice, transfer, transmission application, direction or other communication referred to in this Scheme is sent by post to Seven, it will not be taken to be received in the ordinary course of post or on a date and time other than the date and time (if any) on which it is actually received at the registered office of Seven.

7.11 GOVERNING LAW a. This Scheme is governed by the laws of New South Wales. b. Each of Seven, SGH and WesTrac Holdings and the holders of Seven Shares irrevocably and unconditionally submits, in connection with this Scheme, to the non-exclusive jurisdiction of the Court and any courts which have jurisdiction to hear appeals from the Court and waives any right to object to any proceedings being brought in these courts.

434 Seven Network Limited Scheme Booklet – Part B 12 SCHEME OF ARRANGEMENT: TELYS3 SCHEME

Section 12 435 THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK

436 Seven Network Limited Scheme Booklet – Part B SCHEME OF ARRANGEMENT The scheme of arrangement is made under section 411 of the Corporations Act 2001 (Cth)

Between the parties

Seven Network Limited ABN 21 052 816 789 of 38-42 Pirrama Road, Pyrmont NSW 2009 (Seven)

The registered holders of TELYS3

1 INTERPRETATION AND DEFINITIONS 1.1 DEFINITIONS The means of the terms used in this Scheme are set out below:

Term Meaning ACE Australian Capital Equity Pty Limited (ACN 009 412 328). ASIC the Australian Securities and Investments Commission. ASX ASX Limited (ABN 98 008 624 691). Business Day has the meaning given in the Listing Rules. Close of Trading the close of trading on ASX on the day the TELYS3 Scheme becomes Effective. Conditions Subsequent the conditions subsequent contained in clause 4.1 of the Implementation Deed. Corporations Act the Corporations Act 2001 (Cth). Corporations Regulations the Corporations Regulations 2001 (Cth). Court the Federal Court of Australia or such other court of competent jurisdiction under the Corporations Act agreed to in writing by Seven and SGH. Deed Poll the deed poll dated 11 March 2010 under which SGH covenants in favour of the Scheme TELYS3 Holders to perform its obligations under this TELYS3 Scheme. Effective when used in relation to the TELYS3 Scheme, the coming into effect, pursuant to section 411(10) of the Corporations Act, of the orders of the Court made under section 411(4)(b) of the Corporations Act in relation to the TELYS3 Scheme. End Date 30 September 2010 Escrow Agent the escrow agent appointed by Seven for the purpose of clause 4.2(b). Implementation Date the fifth Business Day after the TELYS3 Record Date or other such day as the parties to the Implementation Deed agree. Implementation Deed the scheme implementation deed entered into between SGH, ACE and Seven on 21 February 2010, as amended. Ineligible Foreign TELYS3 a Scheme TELYS3 Holder whose address shown in the TELYS3 Register on the TELYS3 Record Date is Holder a place outside Australia and its external territories, Canada, Hong Kong, New Zealand, the United Kingdom or the United States unless, in accordance with the Implementation Deed, ACE determines that it is lawful and not unduly onerous or impracticable to issue that Scheme TELYS3 Holder with New TELYS4 when the TELYS3 Scheme becomes effective. Listing Rules the official listing rules of the ASX. Net Proceeds of Sales has the meaning given in 5.3(b)(2). New TELYS4 a fully paid TELYS4 to be issued to Scheme TELYS3 Holders as TELYS3 Scheme Consideration under the TELYS3 Scheme. Registered Address in relation to a Scheme TELYS3 Holder, their address as shown on the TELYS3 Register as at the TELYS3 Record Date. Sale Agent a nominee appointed by SGH after consultation with Seven to sell the New TELYS4 that are attributable to Ineligible Foreign TELYS3 Holders under the terms of this TELYS3 Scheme.

Section 12 437 Term Meaning Scheme TELYS3 a TELYS3 held by a Scheme TELYS3 Holder as at the TELYS3 Record Date. Scheme TELYS3 Holder TELYS3 Holders as at the TELYS3 Record Date. Second Court Date the first day on which an application made to the Court for an order under section 411(4)(b) of the Corporations Act approving the Scheme and the TELYS3 Scheme is heard. SGH Seven Group Holdings Limited (ACN 142 003 469). SGH Constitution the constitution of SGH. SGH Register the register of members of SGH maintained in accordance with the Corporations Act. SGH Registry Registries Limited (ACN 003 209 836) or any other authorised share registry appointed by SGL. Seven Register the register of members of Seven maintained in accordance with the Corporations Act. Seven Share a fully paid ordinary share in the capital of Seven. TELYS3 transferable extendable listed yield securities issued by Seven which are on issue on the date of the Implementation Deed. TELYS3 Holders each person who is registered as the holder of TELYS3. TELYS3 Record Date 5.00pm on the fifth Business Day after the date on which the TELYS3 Scheme becomes Effective. TELYS3 Scheme this scheme of arrangement under Part 5.1 of the Corporations Act between Seven and Scheme TELYS3 Holders, subject to any alternations or conditions (whether proposed by a party or required by the Court under subsection 411(6) of the Corporations Act) which are agreed in writing by SGH. TELYS3 Scheme Booklet the information described under clause 7.1(b) of the Implementation Deed to be approved by the Court and despatched by Seven to TELYS3 Holders being the explanatory statement for the TELYS3 Scheme complying with the requirements of the Corporations Act and the Corporations Regulations, an independent expert’s report, an investigating accountant’s report, a tax opinion, notices of meeting and proxy form. TELYS3 Scheme the consideration to be provided by, or on behalf of, SGH to each Scheme TELYS3 Holder for the Consideration transfer to WesTrac Holdings of each Scheme TELYS3, pursuant to this Scheme, being, subject to clause 5.2, one New TELYS4 in respect of each Scheme TELYS3 held by a Scheme TELYS3 Holder. TELYS4 TELYS4 issued by SGH on the terms set out in Attachment 2 to the Implementation Deed. WesTrac Holdings WesTrac Holdings Pty Limited (ACN 009 336 109).

1.2 INTERPRETATION In this TELYS3 Scheme, unless a contrary intention appears: a. words or expressions importing the singular include the plural and vice versa; b. words or expressions importing a gender include any gender; c. words or expressions denoting individuals include corporations, firms, unincorporated bodies, government authorities and instrumentalities; d. a reference to a party to a document includes that party’s successors and permitted assigns; e. where a word or expression is defined or given meaning, another grammatical form of that word or expression has a corresponding meaning; f. any heading, index, table of contents or marginal note is for convenience only and does not affect the interpretation of this Scheme; g. a provision of this Scheme shall not be construed to the disadvantage of a party merely because that part was responsible for the preparation of this Scheme or that provision; h. a reference to a clause, party, annexure, exhibit or schedule is a reference to a clause of, and a party, annexure, exhibit and schedule to, this Scheme; i. any recital, schedule or annexure forms part of this document and has effect as if set out in full in the body of this document; j. a reference to legislation or a provision of legislation includes: 1. all regulations, orders or instruments issued under the legislation or provision; and 2. any modification, consolidation, amendment, re-enactment, replacement or codification of such legislation or provision;

438 Seven Network Limited Scheme Booklet – Part B k. references to “include”, “including” or any variation thereof are to be construed without limitation; l. a reference to “$” or “dollar” is a reference to Australian currency; m. where the day on which any act, matter or thing is to be done is a day other than a Business Day, such act, matter or thing will be done on the next Business Day; and n. reference to time is to that time in Sydney, Australia.

2 PRELIMINARY a. Seven is a public company registered in New South Wales and is limited by shares. b. As at the date of the TELYS3 Scheme Booklet: 1. 190,410,282 Seven Shares were on issue; and 2. 4,963,640 TELYS3 were on issue. c. SGH is a public company registered in Victoria, Australia and is limited by shares. d. WesTrac Holdings is a proprietary company registered in Perth, Australia and is limited by shares. As at the date of the Implementation Deed, WesTrac Holdings is a subsidiary of ACE. On the Effective Date WesTrac Holdings will be a subsidiary of SGH. e. ACE is a proprietary company registered in Perth, Australia and is limited by shares. f. Seven, Ace and SGH have agreed by entering into the Implementation Deed to implement the TELYS3 Scheme. g. If the TELYS3 Scheme becomes Effective, all of the Conditions Subsequent are satisfied or waived in accordance with the terms of the Implementation Deed and the TELYS3 Scheme is implemented, each of the following will occur: 1. all of the Scheme TELYS3 will be transferred to WesTrac Holdings and Seven will become a wholly-owned subsidiary of SGH; and 2. in consideration for the transfer of the Scheme TELYS3 to WesTrac Holdings, SGH will provide the TELYS3 Scheme Consideration to the Scheme TELYS3 Holders in accordance with this TELYS3 Scheme. h. SGH has agreed by executing the Deed Poll to provide the TELYS3 Scheme Consideration to the Scheme TELYS3 Holders in accordance with this TELYS3 Scheme and undertake all other actions attributed to it under this Scheme.

3 CONDITIONS PRECEDENT 3.1 CONDITIONS PRECEDENT This TELYS3 Scheme is conditional on: a. all of the conditions precedent set out in clause 3.2 of the Implementation Deed having been satisfied or waived in accordance with the terms of the Implementation Deed; b. all of the Conditions Subsequent having been satisfied or waived in accordance with the terms of the Implementation Deed; and c. such other conditions as may be imposed by the Court under section 411(6) of the Corporations Act and agreed to by Seven and SGH having been satisfied.

3.2 CERTIFICATE At or before the Court hearing on the Second Court Date, Seven and SGH will each provide the Court with a certificate, or such other evidence as the Court requests, confirming whether or not all of the conditions precedent set out in clause 3.2 of the Implementation Deed, other than clauses 3.2(a) (as it relates to the condition in clause 3.1(b)) and 3.2(c) of the Implementation Deed, have been satisfied or waived in accordance with the terms of the Implementation Deed. Where the certificates disclose that any of those conditions precedent have been satisfied or waived in accordance with the terms of the Implementation Deed, they will constitute conclusive evidence of the satisfaction or waiver of the condition (as the case may be).

3.3 LAPSE OF SCHEME The TELYS3 Scheme will lapse and be of no further force or effect if the Implementation Deed is terminated in accordance with its terms, or if the TELYS3 Scheme does become Effective by the End Date, or if the conditions referred to in clause 3.1 are not satisfied or, if capable of waiver, waived by the End Date, in which event Seven and SGH are each released from: a. any further obligation to take steps to implement this TELYS3 Scheme; and b. any liability with respect to this TELYS3 Scheme.

Section 12 439 4 IMPLEMENTATION OF THE SCHEME 4.1 LODGEMENT OF COURT ORDERS Seven must lodge the orders of the Court approving this TELYS3 Scheme with ASIC on the third Business Day following the date on which the Court approves the TELYS3 Scheme (or such earlier Business day as Seven and SGH agree). This TELYS3 Scheme will become effective on and from the date of lodgement of the orders.

4.2 ACQUISITION OF SEVEN BY WESTRAC HOLDINGS a. On the Implementation Date, SGH must provide the TELYS3 Scheme Consideration in accordance with clause 5. b. All of the Scheme TELYS3, together with all rights and entitlements attaching to those TELYS3 at the Implementation Date, will be transferred to WesTrac Holdings without the need for any further act by an Scheme TELYS3 Holder by: 1. Seven delivering on the Implementation Date to the Escrow Agent duly completed and executed share transfer form or forms (executed by Seven acting as attorney and agent of each Scheme TELYS3 Holder under clause 7.6) in respect of all of the Scheme TELYS3 in favour of WesTrac Holdings as transferee (which may be a master transfer of all or part of the Scheme TELYS3); 2. the Escrow Agent delivered, on the direction of Seven, such transfer form or forms (as the case may be) to WesTrac Holdings on the date that the New TELYS4 are issued to Scheme TELYS3 Holders entitled to receive them and the Sale Agent in accordance with this TELYS3 Scheme (and relevant register have been updated to record their issuance); 3. WesTrac Holdings duly executing such transfer form or forms as transferee and delivering it or them to Seven for registration; and 4. Seven promptly procuring that the name of WesTrac Holdings is entered in the Seven Register as the holder of all of the Scheme TELYS3. c. Seven must direct the Escrow Agent to deliver the transfer form or forms (as the case may be) to WesTrac Holdings promptly following the occurrence of the matters specified in clause 4.2(b)(2). d. Notwithstanding any other provision of this TELYS3 Scheme (including clause 5.1), while New TELYS4 forming part of the TELYS3 Scheme Consideration must be issued (and the relevant register have been updated to record their issuance) on the Implementation Date, any requirements under clause 5 for the sending of share certificates, holding statements or allotment advices may be satisfied within 10 Business Days after the Implementation Date (and requirements relating to the Ineligible Foreign TELYS3 Holders must be satisfied within the time periods set out in clause 5.3).

5 SCHEME CONSIDERATION 5.1 PROVISION OF SCHEME CONSIDERATION Subject to clauses 4.2(d), 5.1(c), 5.2 and 5.3, the obligation of SGH to provide or the TELYS3 Scheme Consideration to Scheme TELYS3 Holders will be satisfied by SGH: a. in the case of TELYS3 Scheme Consideration that is required to be provided to Scheme TELYS3 Holders in the form of New TELYS4, by SGH procuring that: 1. the name and address of each such Scheme TELYS3 Holder is entered into the SGH Register on the Implementation Date in respect of the New TELYS4 to which it is entitled under this clause 5; and 2. a share certificate or holding statement (or equivalent document) is sent to the Registered Address of each Scheme TELYS3 Holder representing the number of New TELYS4 to be issued to the Scheme TELYS3 Holder pursuant to this TELYS3 Scheme; b. in the case of TELYS3 Scheme Consideration that is required to be issued to the Sale Agent as a result of the operation of clause 5.2, by SGH procuring that: 1. the name and registered address of the Sale Agent, as nominee in trust for the Ineligible Foreign TELYS3 Holders, is entered into the SGH Register on the Implementation Date in respect of the New TELYS4 required to be issued to it under this clause 5; 2. a share certificate or holding statement (or equivalent document) in the name of the Sale Agent, as nominee in trust for the Ineligible Foreign TELYS3 Holders, is sent to the Sale Agent representing the number of New TELYS4 so issued to it; and 3. the Sale Agent, as nominee in trust for the Ineligible Foreign TELYS3 Holders, sells those New TELYS4, and pays the proceeds in accordance with clause 5.3; and c. in the case of joint holders of Scheme TELYS3: 1. the New TELYS4 to be issued under this TELYS3 Scheme will be issued to and registered in the names of the joint holders (or the Sale Agent, as applicable);

440 Seven Network Limited Scheme Booklet – Part B 2. any cheque required to be sent under clause 5.3 will be made payable to the joint holders and sent to the holder whose name appears first in the Seven Register on the TELYS3 Record Date; and 3. any other document required to be sent under this clause 5 must be forwarded to the holder whose name appears first in the Seven Register on the TELYS3 Record Date.

5.2 INELIGIBLE FOREIGN TELYS3 HOLDERS SGH will be under no obligation to issue, and must not issue, any New TELYS4 under this TELYS3 Scheme to any Ineligible Foreign TELYS3 Holder and, instead, must procure that those New TELYS4 which, but for this clause 5.2, would be required to be so issued are dealt with on behalf of the Ineligible Foreign TELYS3 Holders in accordance with clause 5.3.

5.3 SALE AGENT a. New TELYS4 that are required to be dealt with under this clause by virtue of clause 5.2 must be issued by SGH to the Sale Agent, as nominee in trust for the Ineligible Foreign TELYS3 Holders, on the Implementation Date and subsequently sold in accordance with the remaining provisions of this clause 5.3. b. SGH must procure that the Sale Agent: 1. as soon as practicable after the Implementation Date, sells the New TELYS4 issued to it pursuant to clause 5.3(a) in such manner, in the ordinary course of trading on the securities market conducted by ASX; and 2. remits to SGH the proceeds of sale (after deduction of any applicable brokerage, stamp duty and other costs, taxes and charges) (the Proceeds). c. Promptly after receiving the entire Proceeds in accordance with clause 5.3(b)(2), SGH must pay, or procure the payment, to each Ineligible Foreign TELYS3 Holder the amount “A” calculated in accordance with the following formula and rounded down to the nearest cent: A = (B ÷ C) x D where B = the number of New TELYS4 that would have been issued to that Ineligible Foreign TELYS3 Holder had it not been an Ineligible Foreign Shareholder; and C = the total number of New TELYS4 which would otherwise have been issued to all Ineligible Foreign TELYS3 Holders collectively and which were instead issued to the Sale Agent; and D = the Proceeds. d. SGH must make payment, or must procure that payments are made, to Ineligible Foreign TELYS3 Holder under clause 5.3(c) by sending cheques in Australian currency drawn on an Australian bank for the relevant amounts to the Registered Addresses of Ineligible Foreign TELYS3 Holders. e. Payment of an amount to an Ineligible Foreign TELYS3 Holder under this clause 5.3 will be in full satisfaction of the obligations of SGH to the Ineligible Foreign TELYS3 Holder under the TELYS3 Scheme in respect of that Ineligible Foreign TELYS3 Holder’s TELYS3 Scheme Consideration. f. If SGH receives professional advice that any withholding or other tax is required by law to be withheld from any such payment, SGH must ensure, or must procure, that the relevant amount is withheld before making the payment to the Ineligible Foreign TELYS3 Holder (and payment of the reduced amount shall be taken to be full payment of the relevant amount for the purposes of this TELYS3 Scheme including clause 5.3(b)(2). SGH must ensure, or must procure, that any amount so withheld is paid to the relevant taxation authorities within the time permitted by law, and that a receipt or other appropriate evidence of such payment is promptly provided to the relevant Ineligible Foreign TELYS3 Holder. g. None of Seven, SGH, or the Sale Agent gives any assurance as to the price that will be achieved for the sale of New TELYS4 by the Sale Agent. The sale of New TELYS4 under this clause 5.3 will be at the risk of the Ineligible Foreign TELYS3 Holder. h. Each Ineligible Foreign TELYS3 Holder appoints Seven as its agent to receive on its behalf any financial services guide or other notices (including any updates of those documents) that the Sale Agent is required to provide to Ineligible Foreign TELYS3 Holders under the Corporations Act.

Section 12 441 5.4 STATUS OF NEW TELYS4 Subject to this TELYS3 Scheme becoming Effective, SGH must: a. issue the New TELYS4 required to be issued by it under this TELYS3 Scheme on terms such that each such New TELYS4 will rank equally in all respects with each existing New TELYS4; b. ensure that each such New TELYS4 is duly issued, fully paid and free from any mortgage, charge, lien, encumbrance or other security interest (except for any lien arising under the SGH Constitution); and c. use all reasonable endeavours to ensure that such New TELYS4, as from the Business Day following the date the TELYS3 Scheme becomes Effective (or such later date as ASX requires) the New TELYS4 are listed for quotation on the official list of the ASX initially on a deferred settlement basis and after the Implementation Date on an ordinary settlement basis.

6 DEALINGS IN SEVEN SHARES 6.1 DEALINGS IN TELYS3 BY SCHEME TELYS3 HOLDERS a. For the purpose of establishing who is a Scheme TELYS3 Holder, dealings in TELYS3 will only be recognised if: 1. in the case of dealings of the type to be effected using CHESS, the transferee is registered in the Seven Register as the holder of the relevant TELYS3 by the TELYS3 Record Date; and 2. in all other cases, registrable transfer or transmission applications in respect of those dealings are received at the place where the Seven Register is kept, on or before the TELYS3 Record Date. b. Seven must register transfers or transmission applications of the type referred to in clause 6.1(a)(2) by the TELYS3 Record Date.

6.2 SEVEN REGISTER a. For the purpose of determining entitlements to TELYS3 Scheme Consideration, Seven must, until the TELYS3 Scheme Consideration has been provided in accordance with this TELYS3 Scheme, maintain or procure the maintenance of the Seven Register in accordance with the provisions of this clause 6 and the Seven Register in this form will solely determine the entitlements to TELYS3 Scheme Consideration. b. As from the TELYS3 Record Date, each entry current at that time in the Seven Register in relation to the Scheme TELYS3 will cease to be of any effect other than as evidence of entitlement to the TELYS3 Scheme Consideration in accordance with this TELYS3 Scheme in respect of the Scheme TELYS3 relating to that entry.

6.3 CERTIFICATES AND HOLDING STATEMENTS All certificates and statements of holding for Scheme TELYS3 held by Scheme TELYS3 Holders shall, following the TELYS3 Record Date, cease to have any effect as documents of title in respect of such Scheme TELYS3.

6.4 PROVISION OF INFORMATION As soon as practicable after the TELYS3 Record Date and in any event at least one Business Day before the Implementation Date, Seven will ensure that details of the names, Registered Addresses and holdings of Scheme TELYS3 for each Scheme TELYS3 Holder are made available to SGH in such form as SGH may reasonably require.

6.5 QUOTATION OF TELYS3 a. It is expected that suspension of trading in TELYS3 on the ASX will occur from the Close of Trading. b. At a time after the Implementation Date to be determined by SGH, Seven will apply: 1. for termination of the official quotation of TELYS3 on ASX; and 2. to have itself removed from the official list of ASX.

7 GENERAL PROVISIONS 7.1 EFFECT OF SCHEME Each Scheme TELYS3 Holder acknowledges that this TELYS3 Scheme binds Seven and all of the holders for the time being of TELYS3 (including those who do not attend the members’ meeting of Seven to approve the TELYS3 Scheme or do not vote at the meeting or who vote against the TELYS3 Scheme at that meeting) and, to the extent permitted by law, overrides the constitution of Seven.

442 Seven Network Limited Scheme Booklet – Part B 7.2 AGREEMENTS BY SCHEME TELYS3 HOLDERS a. Each Scheme TELYS3 Holder agrees to: 1. the transfer of its TELYS3 to WesTrac Holdings in accordance with this TELYS3 Scheme; and 2. any variation, cancellation or modification of the rights attached to their TELYS3 constituted by or resulting from this TELYS3 Scheme. b. Each Scheme TELYS3 Holder who is issued New TELYS4 under this TELYS3 Scheme agrees to become a shareholder of SGH in respect of those SGH New TELYS4 and to be bound by the SGH Constitution. c. Each Scheme TELYS3 Holder who is an Ineligible Foreign TELYS3 Holder agrees and acknowledges that the payment to it of an amount in accordance with clause 5.3 constitutes the satisfaction in full of its entitlement in and to the scrip component of its TELYS3 Scheme Consideration. d. Except for a Scheme TELYS3 Holder’s tax file number and any elections made in relation to participation in any dividend reinvestment plan or annual reports, all binding instructions or notifications between a Scheme TELYS3 Holder and Seven relating to TELYS3 (including, without limitation, any e-mail addresses, instructions relating to communications from Seven, whether dividends are to be paid by cheque or into a specific bank account, notices of meeting or to other communications from Seven) will from the Implementation Date be deemed (except to the extent determined otherwise by SGH in its sole discretion), by reason of this TELYS3 Scheme, to be a similarly binding instruction or notification to and accepted by SGH in respect of the New TELYS4 issued to Scheme TELYS3 Holder until that instruction or notification is revoked or amended in writing addressed to SGH at the SGH Registry.

7.3 WARRANTIES BY SCHEME TELYS3 HOLDERS Each Scheme TELYS3 Holder is deemed to have warranted to SGH, and appointed and authorised Seven as its attorney and agent to warrant to SGH, that their Scheme TELYS3 will, at the date of transfer of them to WesTrac Holdings, be fully paid and free from all mortgages, charges, liens, encumbrances and interests of any third parties of any kind, including any restrictions on transfer, and that they have full power and capacity to sell and to transfer their Scheme TELYS3 to WesTrac Holdings under the TELYS3 Scheme. Seven undertakes that it will provide such warranty to SGH as agent and attorney of each Scheme TELYS3 Holder.

7.4 PENDING REGISTRATION OF TRANSFERS From the date the TELYS3 Scheme becomes Effective, pending the registration of WesTrac Holdings in the Seven Register as the holder of the Scheme TELYS3, WesTrac Holdings will be beneficially entitled to the Scheme TELYS3 transferred to it under this TELYS3 Scheme and each Scheme TELYS3 Holder is deemed to have irrevocably appointed WesTrac Holdings as attorney and agent (and directed WesTrac Holdings in each capacity) to appoint any officer or agent nominated by WesTrac Holdings as its sole proxy and, where appropriate, its corporate representative, to attend shareholders’ meetings, exercise any votes attached to the Scheme TELYS3 registered in their name and sign any TELYS3 Holders’ resolution (and each Scheme TELYS3 Holder acknowledges and agrees that as a result of such appointment they must not themselves attend or vote at any meetings or sign any resolutions, whether in person or by proxy or corporate representative).

7.5 STAMP DUTY WesTrac Holdings must pay all stamp duty (if any) and any related fines and penalties in connection with the transfer of the Scheme TELYS3 under this TELYS3 Scheme.

7.6 AUTHORITY TO SEVEN a. Each Scheme TELYS3 Holder consents to Seven doing all acts and things as may be necessary or desirable to give full effect to the TELYS3 Scheme and the transactions contemplated by it. b. Each Scheme TELYS3 Holder, without the need for any further act, irrevocably appoints Seven and each of its directors and officers (jointly and severally) as its agent and attorney for the purpose of: 1. executing any document or doing any other act necessary or expedient to give effect to the terms of this TELYS3 Scheme and the transactions contemplated by it including the provision of a proper instrument of transfer in respect of the Scheme TELYS3 for the purposes of section 1071B of the Corporations Act (which may be a master transfer of all or part of the Scheme TELYS3); and 2. enforcing the Deed Poll against SGH.

Seven undertakes in favour of each Scheme TELYS3 Holder that it will enforce the Deed Poll against SGH on behalf of and as agent and attorney for each Scheme TELYS3 Holder.

Section 12 443 7.7 FURTHER ASSURANCE Seven will execute all documents and do all acts and things as may be necessary or desirable to give full effect to the TELYS3 Scheme and the transactions contemplated by it.

7.8 AMENDMENTS TO THE SCHEME If the Court proposes to approve the TELYS3 Scheme subject to any alterations or conditions, Seven may consent on behalf of all persons concerned, by its counsel, to those alterations or conditions to which SGH has consented in writing.

7.9 DEFINITION OF ‘SENDING’ For the purpose of clause 5, the word “send” (or any variant thereof) means: a. sending by ordinary pre-paid post or courier to the Registered Address of the Scheme TELYS3 Holder; or b. delivering to that address by any other means at no cost to the recipient.

7.10 NOTICES If a notice, transfer, transmission application, direction or other communication referred to in this TELYS3 Scheme is sent by post to Seven, it will not be taken to be received in the ordinary course of post or on a date and time other than the date and time (if any) on which it is actually received at the registered office of Seven.

7.11 GOVERNING LAW a. This TELYS3 Scheme is governed by the laws of New South Wales. b. Each of Seven, SGH and WesTrac Holdings and the holders of Seven Shares irrevocably and unconditionally submits, in connection with this TELYS3 Scheme, to the non-exclusive jurisdiction of the Court and any courts which have jurisdiction to hear appeals from the Court and waives any right to object to any proceedings being brought in these courts.

444 Seven Network Limited Scheme Booklet – Part B 13 DEED POLL: SHARE SCHEME

Section 13 445 THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK

446 Seven Network Limited Scheme Booklet – Part B 1 INTERPRETATION AND DEFINITIONS 1.1 DEFINITIONS In this deed poll, unless the context otherwise requires, terms defined in the Implementation Deed or the Scheme have the same meaning when used in this deed poll.

1.2 INTERPRETATION Clauses 1.2 to 1.4 of the Implementation Deed apply to the interpretation of this deed poll, except that references to “deed” are to be read as references to “deed poll”.

2 NATURE OF DEED POLL SGH acknowledges and agrees that: a. this deed poll may be relied on and enforced by any Scheme Shareholder in accordance with its terms even though the Scheme Shareholders are not party to it; and b. under the Scheme, each Scheme Shareholder irrevocably appoints Seven and each of its directors and officers (jointly and severally) as its agent and attorney to enforce this deed poll against SGH.

3 CONDITIONS 3.1 CONDITIONS The obligations of SGH under clause 4.1(a) are subject to: a. all of the Conditions Subsequent being satisfied or waived in accordance with the terms of the Implementation Deed; and b. the Scheme becoming Effective.

3.2 TERMINATION Unless Seven and SGH agree otherwise, the obligations of SGH under this deed poll will automatically terminate and the terms of this deed poll will be of no further force or effect if: a. the Implementation Deed is terminated in accordance with its terms; b. the Scheme does not become Effective by the End Date; or c. the Conditions Subsequent are not satisfied by the End Date.

Section 13 447 3.3 CONSEQUENCES OF TERMINATION If this deed poll is terminated under clause 3.2, then in addition and without prejudice to any other available rights, powers or remedies: a. SGH is released from its obligations to further perform this deed poll except those obligations contained in clause 8.1; and b. Each Scheme Shareholder retains the rights they have against SGH in respect of any breach of this deed poll by SGH which occurs before this deed poll is terminated.

4 OBLIGATION TO PAY SCHEME CONSIDERATION 4.1 OBLIGATION TO PROVIDE SCHEME CONSIDERATION AND OTHER MATTERS Subject to clause 3, SGH undertakes in favour of each Scheme Shareholder to: a. provide the Scheme Consideration to each Scheme Shareholder; and b. undertake all other actions attributed to it under the Scheme.

4.2 STATUS OF NEW SGH SHARES SGH undertakes in favour of each Scheme Shareholder that the New SGH Shares which are issued to Scheme Shareholders and the Sale Agent in accordance with the Scheme will: a. rank equally in all respects with existing SGH Shares; and b. be duly issued, fully paid and free from any mortgage, charge, lien, encumbrance or other security interest (except for any lien arising under the SGH Constitution).

5. REPRESENTATIONS AND WARRANTIES SGH represents and warrants that: a. it is a corporation duly incorporated, validly existing and in good standing under the laws of Australia; b. it has the corporate power to enter into and perform its obligations under this deed poll and to carry out the transactions contemplated by this deed poll; c. it has taken all necessary corporate action to authorise its entry into this deed poll and has taken or will take all necessary corporate action to authorise the performance of this deed poll and to carry out the transactions contemplated by this deed poll; and d. this deed poll is valid and binding on it.

6 CONTINUING OBLIGATIONS This deed poll is irrevocable and subject to clause 3 remains in full force and effect until the earlier of: a. SGH having fully performed its obligations under this deed poll; or b. the termination of this deed poll under clause 3.2.

7 FURTHER ASSURANCES SGH will do all things and execute all deeds, instruments, transfers or other documents and do all acts or things as may be necessary or desirable to give full effect to the provisions of this deed poll and the transactions contemplated by it.

8 GENERAL 8.1 STAMP DUTY SGH must: a. pay all stamp duties (if any) and any fines and penalties with respect to stamp duty in respect of this deed poll or the steps to be taken under this deed poll; and b. indemnify each Scheme Shareholder against any liability arising from any failure to comply with clause 8.1(a).

448 Seven Network Limited Scheme Booklet – Part B 8.2 NOTICES a. Any notice or other communication to SGH in connection with this deed poll must be in legible writing in English, signed by the person making the communication or its agent and must be given to SGH either by hand delivery, pre-paid post or facsimile, in each case addressed in the manner relevantly described below: Address: Company Secretary/Legal Director Seven Group Holdings Limited Level 3, 30 Kings Park Road WEST PERTH WA 6005 Facsimile: 08 9215 8889

With a copy to: Address: c/- Freehills MLC Centre 19 Martin Place SYDNEY NSW 2000 Facsimile: (02) 9322 4000

Attention: Rebecca Maslen-Stannage / Nicola Yeomans b. Any notice or other communication given in accordance with clause 8.2(a) shall, in the absence of proof of earlier receipt, be deemed to have been duly given as follows: 1. if delivered by hand, on delivery; 2. if sent by pre-paid mail, on the third Business Day after posting; and 3. if sent by facsimile, at the local time (in the place of receipt of the fax) which then equates to the time at which that fax is sent as shown on the transmission report which is produced by the machine from which that fax is sent and which confirms transmission of that fax in its entirety. c. Any notice delivered or received other than on a Business Day or after 5.00pm (recipient’s time) is regarded as received at 9.00am on the following Business Day and a notice delivered or received before 9.00am (recipient’s time) is regarded as received at 9.00am.

8.3 CUMULATIVE RIGHTS The rights, powers and remedies of each of SGH and the Scheme Shareholders under this deed poll are cumulative with and do not exclude the rights, powers or remedies provided by law independently of this deed poll.

8.4 WAIVER AND VARIATION a. A party waives a right under this deed poll only by written notice that it waives that right. A waiver is limited to the specific instance to which it relates and to the specific purpose for which it is given. b. Failure to exercise or enforce a delay in exercising or enforcing or the partial exercise or enforcement of any right, power or remedy provided by law or under this deed poll by any party will not in any way preclude, or operate as a waiver of, any exercise or enforcement, or further exercise or enforcement of that or any other right, power or remedy provided by law or under this deed poll. c. A provision of this deed poll may not be varied unless the variation is agreed to by Seven in writing in which event SGH must enter into a further deed poll in favour of the Scheme Shareholders giving effect to such amendment.

8.5 GOVERNING LAW AND JURISDICTION a. The laws of New South Wales govern this deed poll. b. Each party submits to the jurisdiction of the courts exercising jurisdiction in New South Wales, and any court may hear appeals from any of those courts, for any proceedings in connection with this deed poll. c. Each party irrevocably waives any right it may have to claim that the courts referred to in clause 8.5(b) are an inconvenient forum.

8.6 ASSIGNMENT The rights of a Scheme Shareholder under this deed poll are personal. They cannot be assigned, charged or otherwise dealt with, and no person shall attempt or purport to do so, without the prior written consent of SGH.

Section 13 449 SIGNING PAGE EXECUTED AS A DEED

450 Seven Network Limited Scheme Booklet – Part B 14 DEED POLL: TELYS3 SCHEME

Section 14 451 THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK

452 Seven Network Limited Scheme Booklet – Part B 1 INTERPRETATION AND DEFINITIONS 1.1 DEFINITIONS In this deed poll, unless the context otherwise requires, terms defined in the Implementation Deed or the TELYS3 Scheme have the same meaning when used in this deed poll.

1.2 INTERPRETATION Clauses 1.2 to 1.4 of the Implementation Deed apply to the interpretation of this deed poll, except that references to “deed” are to be read as references to “deed poll”.

2 NATURE OF DEED POLL SGH acknowledges and agrees that: a. this deed poll may be relied on and enforced by any Scheme TELYS3 Holder in accordance with its terms even though the Scheme TELYS3 Holders are not party to it; and b. under the TELYS3 Scheme, each Scheme TELYS3 Holder irrevocably appoints Seven and each of its directors and officers (jointly and severally) as its agent and attorney to enforce this deed poll against SGH.

3 CONDITIONS 3.1 CONDITIONS The obligations of SGH under clause 4.1(a) are subject to: a. all of the Conditions Subsequent being satisfied or waived in accordance with the terms of the Implementation Deed; and b. the TELYS3 Scheme becoming effective.

3.2 TERMINATION Unless Seven and SGH agree otherwise, the obligations of SGH under this deed poll will automatically terminate and the terms of this deed poll will be of no further force or effect if: a. the Implementation Deed is terminated in accordance with its terms; b. the TELYS3 Scheme does not become Effective by the End Date; or c. the Conditions Subsequent are not satisfied by the End Date.

Section 14 453 3.3 CONSEQUENCES OF TERMINATION If this deed poll is terminated under clause 3.2, then in addition and without prejudice to any other available rights, powers or remedies: a. SGH is released from its obligations to further perform this deed poll except those obligations contained in clause 8.1; and b. Each Scheme TELYS3 Holder retains the rights they have against each of SGH in respect of any breach of this deed poll by SGH which occurs before this deed poll is terminated.

4 OBLIGATION TO PAY TELYS3 SCHEME CONSIDERATION 4.1 OBLIGATION TO PROVIDE TELYS3 SCHEME CONSIDERATION AND OTHER MATTERS Subject to clause 3, each of SGH undertakes in favour of each Scheme TELYS3 Holder to: a. provide the TELYS3 Scheme Consideration to each Scheme TELYS3 Holder; and b. undertake all other actions attributed to it under the TELYS3 Scheme.

4.2 STATUS OF NEW TELYS4 SGH undertakes in favour of each TELYS3 Scheme Holder that the New TELYS4 which are issued to TELYS3 Scheme Holders and the Sale Agent in accordance with the TELYS3 Scheme will: a. rank equally in all respects with existing TELYS4; and b. be duly issued, fully paid and free from any mortgage, charge, lien, encumbrance or other security interest (except for any lien arising under the SGH Constitution).

5 REPRESENTATIONS AND WARRANTIES SGH represents and warrants that: a. it is a corporation duly incorporated, validly existing and in good standing under the laws of Australia; b. it has the corporate power to enter into and perform its obligations under this deed poll and to carry out the transactions contemplated by this deed poll; c. it has taken all necessary corporate action to authorise its entry into this deed poll and has taken or will take all necessary corporate action to authorise the performance of this deed poll and to carry out the transactions contemplated by this deed poll; and d. this deed poll is valid and binding on it.

6 CONTINUING OBLIGATIONS This deed poll is irrevocable and subject to clause 3 remains in full force and effect until the earlier of: a. SGH having fully performed its obligations under this deed poll; or b. the termination of this deed poll under clause 3.2.

7 FURTHER ASSURANCES SGH will do all things and execute all deeds, instruments, transfers or other documents and do all acts or things as may be necessary or desirable to give full effect to the provisions of this deed poll and the transactions contemplated by it.

8 GENERAL 8.1 STAMP DUTY SGH must: a. pay all stamp duties (if any) and any fines and penalties with respect to stamp duty in respect of this deed poll or the steps to be taken under this deed poll; and b. indemnify each Scheme TELYS3 Holder against any liability arising from any failure to comply with clause 8.1(a).

454 Seven Network Limited Scheme Booklet – Part B 8.2 NOTICES a. Any notice or other communication to SGH in connection with this deed poll must be in legible writing in English, signed by the person making the communication or its agent and must be given to SGH either by hand delivery, pre-paid post or facsimile, in each case addressed in the manner relevantly described below: Address: Company Secretary/Legal Director Seven Group Holdings Limited Level 3, 30 Kings Park Road WEST PERTH WA 6005 Facsimile: 08 9215 8889

With a copy to: Address: c/- Freehills MLC Centre 19 Martin Place SYDNEY NSW 2000 Facsimile: (02) 9322 4000

Attention: Rebecca Maslen-Stannage / Nicola Yeomans b. Any notice or other communication given in accordance with clause 8.2(a) shall, in the absence of proof of earlier receipt, be deemed to have been duly given as follows: 1. if delivered by hand, on delivery; 2. if sent by pre-paid mail, on the third Business Day after posting; and 3. if sent by facsimile, at the local time (in the place of receipt of the fax) which then equates to the time at which that fax is sent as shown on the transmission report which is produced by the machine from which that fax is sent and which confirms transmission of that fax in its entirety. c. Any notice delivered or received other than on a Business Day or after 5.00pm (recipient’s time) is regarded as received at 9.00am on the following Business Day and a notice delivered or received before 9.00am (recipient’s time) is regarded as received at 9.00am.

8.3 CUMULATIVE RIGHTS The rights, powers and remedies of each of SGH and the Scheme TELYS3 Holders under this deed poll are cumulative with and do not exclude the rights, powers or remedies provided by law independently of this deed poll.

8.4 WAIVER AND VARIATION a. A party waives a right under this deed poll only by written notice that it waives that right. A waiver is limited to the specific instance to which it relates and to the specific purpose for which it is given. b. Failure to exercise or enforce a delay in exercising or enforcing or the partial exercise or enforcement of any right, power or remedy provided by law or under this deed poll by any party will not in any way preclude, or operate as a waiver of, any exercise or enforcement, or further exercise or enforcement of that or any other right, power or remedy provided by law or under this deed poll. c. A provision of this deed poll may not be varied unless the variation is agreed to by Seven in writing in which event SGH must enter into a further deed poll in favour of the Scheme TELYS3 Holders giving effect to such amendment.

8.5 GOVERNING LAW AND JURISDICTION a. The laws of New South Wales govern this deed poll. b. Each party submits to the jurisdiction of the courts exercising jurisdiction in New South Wales, and any court may hear appeals from any of those courts, for any proceedings in connection with this deed poll. c. Each party irrevocably waives any right it may have to claim that the courts referred to in clause 8.5(b) are an inconvenient forum.

8.6 ASSIGNMENT The rights of a Scheme TELYS3 Holder under this deed are personal. They cannot be assigned, charged or otherwise dealt with, and no person shall attempt or purport to do so, without the prior written consent of SGH.

Section 14 455 SIGNING PAGE EXECUTED AS A DEED

456 Seven Network Limited Scheme Booklet – Part B APPENDIX 1 NOTES TO SGH PRO FORMA FINANCIAL INFORMATION

Section 15 457 THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK

458 Seven Network Limited Scheme Booklet – Part B NOTES TO PRO FORMA SGH FINANCIAL INFORMATION 31 DECEMBER 2009

1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the financial information in the Scheme Booklet are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial information sections include historical and forecast financial information for: • Pro forma WesTrac Holdings Pty Ltd and its controlled entities (WesTrac Group) excluding National Hire Group; • Pro forma Seven Network Limited and its controlled entities (Seven); and • Pro forma Seven Group Holdings Limited consolidated to include WesTrac Group and Seven but excluding National Hire Group (SGH or Group). a. Basis of preparation The abridged financial information have been prepared in accordance with the recognition and measurement principles of applicable Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board (including Australian Interpretations) unless otherwise stated.

The abridged financial information is presented in an abbreviated form and does not include all of the disclosures provided in an annual report prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board (including Australian Interpretations) or the Corporations Act.

Compliance with IFRS Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the consolidated financial information and notes presented comply with International Financial Reporting Standards (IFRS) except as noted in Note 1(b)(ii).

Historical cost convention The financial information has been prepared under the historical cost convention, as modified by the revaluation of available-for- sale financial assets, financial assets and liabilities (including derivative instruments) at fair value through the income statement and certain classes of property, plant and equipment.

Critical accounting estimates The preparation of financial information 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 significant to the financial information are disclosed in note 3 to this Appendix.

Proforma adjustments The WesTrac Group proforma historical financial information is based on the consolidated reviewed abridged financial report for WesTrac Holdings Pty Ltd (formerly known as Australian Capital Equity Holdings Pty Ltd) for the half-year ended 31 December 2009 and has been adjusted to reflect transactions and balances that will form part of the SGH Group after implementation of the Share Scheme. This abridged financial report reflects WesTrac Holdings Pty Ltd adjusted to remove those entities and balances that do not form part of the SGH Group after implementation of the Share Scheme and recognises the investment in National Hire at its cost and not as a consolidated entity.

The Seven proforma historical financial information is based on the consolidated reviewed 26 December 2009 half-year report for Seven Network Limited. The proforma historical information for Seven has been adjusted to remove one-off or unusual significant items that are considered non-recurring in nature. b. Principles of consolidation i. Subsidiaries The consolidated Balance Sheet incorporates the assets and liabilities of all expected subsidiaries of SGH (“parent entity”) as at 31 December 2009 except that the investment in National Hire is recognised at its cost and not consolidated. SGH and its subsidiaries together are referred to in this financial information as the Group or the consolidated entity.

Subsidiaries are all those entities (including special purpose entities) over which the Group will have the power to govern the financial 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.

Appendix 1 459 NOTES TO PRO FORMA SGH FINANCIAL INFORMATION 31 DECEMBER 2009 (continued)

1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) b. Principles of consolidation (continued) i. Subsidiaries 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.

Business Combinations are accounted for in accordance with 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 statements and balance sheet respectively.

Investments in subsidiaries are accounted for at cost in the individual financial information of the Group. Such investments include both investments in shares issued by the subsidiary and other parent entity interests that in substance form part of the parent entity’s investment in the subsidiary. These include non-share equity investments which have been provided to subsidiaries as an additional source of long term capital. ii. Associates and jointly controlled entities Associates and jointly controlled entities are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for in the consolidated financial information using the equity method of accounting, after initially being recognised at cost. Subsequent to initial recognition, Investments in Associates and Jointly Controlled Entities are carried at the lower of equity accounted amount and recoverable amount.

The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement and its share of post- acquisition movements in equity is recognised in equity. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates reduce the carrying amount of the investment.

When the Group’s share of losses equals or exceeds its interest in the equity accounted investee, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

Within Seven, the loss of control of the Seven Media Group (SMG) group on 4 April 2007 resulted in a profit on deconsolidation. As the consolidated entity retained a 47.7% interest in SMG normally a portion of the gain would be credited against the investment in SMG. As 47.7% of the gain was greater than the investment in SMG, IFRS guidance indicates that there is a choice of two accounting treatments to account for this profit: 1. eliminate share of gain that relates to the consolidated entity’s retained interest in SMG; or 2. eliminate unrealised gain only to the extent that it reduces the carrying amount of SMG to nil.

Seven elected to account for the profit in accordance with alternative (1), which resulted in net deferred income of $665 million.

SMG introduced a Management Equity Plan (MEP) in December 2007. The MEP’s Category 1 options are regarded as ownership interests in the SMG Group, thereby, diluting the interest held by SGH investors. Consequently, Seven’s ownership interest reduced from 47.7% to 47.0% in December 2007, which resulted in a release of a portion of the deferred gain. Seven’s ownership interest remained at 47.0% at 27 June 2009

From the date of deconsolidation up to 27 December 2008 the investment in SMG was equity accounted.

460 Seven Network Limited Scheme Booklet – Part B At 27 December 2008 an impairment loss was recognised reducing the carrying amount of the investment in SMG to nil. In accordance with UIG Interpretation 113 Aus7.1 Seven released the gain that was eliminated at the time of the deconsolidation. UIG Interpretation 113 Aus7.1 requires the gain that was eliminated to be recognised as the assets are consumed, in this case impaired, by the joint venture. UIG Interpretation 113 Aus7.1 is an Australian specific addition to Interpretations issued under IFRS and is compliant with AIFRS but not compliant with IFRS. Under IFRS the deferred income would be released only on disposal or dilution.

At 26 December 2009, a portion of the impairment loss recognised above was reversed and the investment in SMG was restated at its recoverable amount at that time. c. Foreign currency translation i. Functional and presentation currency Items included in the financial information 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 financial information are presented in Australian dollars, which is the Group’s functional and presentation currency. ii. Transactions 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 reporting date exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when they are deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.

Translation differences on financial assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale financial assets are included in the fair value reserve in equity. iii. Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary 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 date of the transactions); and • All resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences are recognised in the income statement, as part of the gain or loss on sale where applicable.

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 net of goods and services tax. Amounts disclosed as revenue are net of returns, trade allowances and amounts collected on behalf of third parties.

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that the future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Appendix 1 461 NOTES TO PRO FORMA SGH FINANCIAL INFORMATION 31 DECEMBER 2009 (continued)

1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) d. Revenue recognition (continued) Revenue is recognised for major business activities as follows: i. Sales revenue A sale is recorded when the provision of services or product have been provided or dispatched to a customer pursuant to a sales order and, in the case of product sales, the associated risks have passed to the customer. Amounts received in advance of the provision of services or products, such as membership fees, are deferred and brought to account as revenue in the same period the service or product is provided.

Sales revenue from the provision of broadband and telecommunication services is recognised net of returns, trade allowances and duties and taxes paid. Fees for monthly access plans which are charged monthly in advance are allocated to the appropriate calendar month. Any income in advance at the end of an accounting period is not recognised as revenue in the income statement, and is held as deferred revenue in the balance sheet. ii. Lease income Lease income from operating leases is recognised in income on a straight-line basis over the lease term. iii. Interest income Interest income is recognised on a time proportion basis using the effective interest method. iv. Dividends Dividend income is recognised when received, except for dividend income from controlled and related entities which is recognised when declared. e. 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 applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the expected tax bases of assets and liabilities and their carrying amounts in the consolidated financial information. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets have been 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.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

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

Tax consolidation legislation It is envisaged that ultimately SGH and its wholly owned Australian controlled entities and SMG Pty Limited will be part of a single tax consolidated group.

As at the date of this report, that group has not yet been formed however it is assumed that SGH will be the Head Entity of the tax consolidated group and a tax funding agreement will be put in place to share tax payments and balances within the group.

The exact nature of the tax funding and tax sharing arrangements are yet to be determined.

462 Seven Network Limited Scheme Booklet – Part B In preparing this financial information certain assumptions have been made regarding changes that may occur to the tax cost base of assets and liabilities as a result of the steps involved in forming the new tax consolidated group, refer note 3 (iii). The proforma disclosures for WesTrac Group and Seven have been prepared on the basis of existing tax cost bases and existing book values of assets and liabilities. The proforma disclosures for the Group have been prepared on the basis of expected tax cost bases and the book values of assets and liabilities disclosed in the financial information sections of this document. f. Maintenance and repair contracts (“MARC”) Contract revenues and expenses are recognised in accordance with the percentage of completion method unless the outcome of the contract cannot be reliably estimated. Where it is probable that a loss will arise from a MARC, the excess of total expected contract costs over total expected contract revenue is recognised as an expense immediately.

Where the outcome of a contract cannot be reliably estimated, contract costs are recognised as an expense as incurred, and where it is probable that the costs will be recovered, revenue is recognised to the extent of the costs incurred. g. Leases Leases of property, plant and equipment, where the Group, as lessee has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short term and long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset’s useful life and the lease term.

Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified 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 Acquisition by SGH of WesTrac Group The acquisition of WesTrac Group including National Hire Group will be accounted for as a common control transaction. The opening Balance Sheet of SGH presented in this report reflects the values for assets and liabilities to be acquired from WesTrac Group’s consolidated accounting records. As a common control transaction, the acquisition does not reflect the fair value of assets and liabilities acquired or any recording of additional goodwill at the time of the acquisition of WesTrac Group. The difference between the fair value of the consideration given and the carrying value of the assets and liabilities acquired is recognised as a common control reserve in SGH’s consolidated financial information.

Acquisition by SGH of Seven and all other acquisitions The purchase method of accounting has been used to account for these business combinations. Cost is measured as the fair value of the assets given, equity instruments issued (including share based payment awards of the acquire that are replaced mandatorily in the business combination) or liabilities incurred or assumed at the date of exchange. Where equity instruments are issued in an acquisition, the fair value of the instruments is their market price as at the date of exchange. Transaction costs arising on the issue of equity instruments are recognised directly in equity. Transaction costs relating to a business combination are expensed in full on the date of exchange.

Identifiable 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 identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the Group’s share of the fair value of the identifiable net assets of the subsidiary acquired, the difference is recognised directly in the income statement, but only after a reassessment of the identification 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 financier under comparable terms and conditions.

Appendix 1 463 NOTES TO PRO FORMA SGH FINANCIAL INFORMATION 31 DECEMBER 2009 (continued)

1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) i. Impairment of assets Goodwill and intangible assets that have an indefinite life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets 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. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. Impairment losses are recognised in the income statement unless the asset has previously been revalued, in which case the impairment is recognised as a reversal to the extent of that previous revaluations with any excess recognised in the income statement. j. Cash and cash equivalents For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. k. Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for impairment. Trade receivables are generally due for settlement no more than 30 days from the date of recognition.

Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. An impairment provision for 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. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short term receivables are not discounted if the effect of discounting is immaterial. The amount of the provision is recognised in the income statement.

Other debtors are reviewed on an ongoing basis and are written down to their recoverable amount when this amount is in excess of their carrying value. l. Inventories i. Raw materials and stores, work in progress and finished goods Raw materials and stores, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost is based on the actual costs, with the exception of exchange component inventory and parts inventory for which cost is based on weighted average cost, and includes expenditure incurred in acquiring the inventories and bringing them to their existing condition and location. In the case of work in progress, cost includes an appropriate share of both variable and fixed costs. Fixed costs have been allocated on the basis of normal operating capacity.

Net realisable value is determined on the basis of the Group’s normal selling pattern. Expenses for marketing, selling and distribution to customers are estimated and are deducted to establish net realisable value. m. Investments and other financial assets CLASSIFICATION The Group classifies its investments in the following categories: financial assets at fair value through the income statement, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and, in the case of assets classified as held-to-maturity, re-evaluates this designation at each reporting date. i. Financial assets at fair value through the income statement Financial assets at fair value through the income statement are either financial assets held for trading which are acquired principally for the purpose of selling with the intention of making a profit or financial assets that are managed and have their performance regularly evaluated by management and the directors on a fair value basis. Derivatives are also categorised as held for trading unless they are designated as hedges.

464 Seven Network Limited Scheme Booklet – Part B ii. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables are included in receivables in the balance sheet. iii. Available-for-sale financial assets Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

RECOGNITION AND DE-RECOGNITION Regular purchases and sales of investments are recognised on trade-date - the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through the income statement. Financial assets carried at fair value through the income statement are initially recognised at fair value and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement as gains and losses from investment securities.

SUBSEQUENT MEASUREMENT Loans and receivables are carried at amortised cost using the effective interest method.

Available-for-sale financial assets and financial assets at fair value through income statement are subsequently carried at fair value. Gains or losses arising from changes in the fair value of the financial assets at fair value through income statement category, are presented in the income statement within other income or other expenses in the period in which they arise. Dividend income from financial assets through the income statement is recognised in the income statement as part of revenue from continuing operations.

Gains or losses arising from changes in the value of available for sale financial assets category are taken to the available for sale investments reserve. Amounts are recognised in profit or loss when the associated assets are sold or impaired.

IMPAIRMENT The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of a security below its cost is considered in determining whether the security is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in income statement - is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments classified as available-for-sale are not reversed through the income statement but are recognised in equity. n. Derivatives Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: • hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or • hedges of the cash flows of recognised assets and liabilities and highly probable forecast transactions (cash flow hedges).

The Group documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items.

The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 month; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.

Appendix 1 465 NOTES TO PRO FORMA SGH FINANCIAL INFORMATION 31 DECEMBER 2009 (continued)

1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) n. Derivatives (continued) i. Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The gain or loss relating to the effective portion of interest rate swaps hedging fixed rate borrowings is recognised in the income statement within finance costs, together with changes in the fair value of the hedged fixed rate borrowings attributable to interest rate risk. The gain or loss relating to the ineffective portion is recognised in the income statement within other income or expenses.

If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss over the period to maturity using a recalculated effective interest rate. ii. Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the income statement within other income or other expense.

Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item affects profit or loss (for instance when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in the income statement within ‘finance costs’. The gain or loss relating to the effective portion of forward foreign exchange contracts hedging export sales is recognised in the income statement within ‘sales’. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory or fixed assets), the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised in profit or loss as a cost of goods sold in the case of inventory, or as depreciation in the case of fixed assets.

When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. iii. Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the income statement. o. Property, plant and equipment All 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 benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the reporting period in which they are incurred.

Freehold Land is not depreciated. Depreciation on other assets is calculated using the straight line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives, as follows: Buildings 16 – 40 years Plant and equipment 3 – 25 years Rental fleet – rental store assets 2 – 10 years Leasehold improvements 1 – 50 years Leased plant and equipment 2 – 12 years

Other rental fleet assets, other than those shown above, are depreciated on a reducing balance method at a rate of 30%.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

466 Seven Network Limited Scheme Booklet – Part B 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 the carrying amount. These are included in the income statement.

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 improvement to the consolidated entity, whichever is the shorter. 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 identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is not amortised. Instead, goodwill is 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. Each of those cash generating units represents the Group’s investment in each country of operation by each primary reporting segment. ii. Distribution network The distribution network of the Group is considered by the directors to be an identifiable intangible asset. The directors are of the opinion that the distribution network has an indefinite useful life, and as such the distribution network is not subject to amortisation but rather is tested annually for impairment or more frequently if events or changes in circumstances indicate impairment. The basis for the classification of indefinite life is that the dealership agreements do not require specific renewal over set intervals thus the distribution rights continue uninterrupted unless a cause to terminate is triggered. iii. Research and development expenditure Research expenditure is recognised as an expense as incurred. Costs incurred on development projects are written off as incurred unless it is probable the project will be a success considering its commercial and technical feasibility and its costs can be measured reliably.

Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight line basis over its useful life, which varies from 1 – 5 years. iv. IT development and software Costs which are incurred in developing products or systems and costs incurred in acquiring software and licenses that will contribute to the future period financial benefits through revenue generation and/or cost reduction are capitalised to software and systems. Costs capitalised include external direct costs of materials and services and direct payroll and payroll related cost of employees’ time spent on the project. Amortisation is calculated on a straight line basis over periods generally ranging from 3 – 5 years.

IT development costs include only the costs directly attributable to the development phase and are only recognised following completion of technical feasibility and where the Group has an intention and an ability to use the asset. v. Customer contracts Customer contracts acquired as part of a business combination are recognised separately from goodwill. The customer contracts 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 flows of the contracts over their estimated useful lives, which currently vary from 1 to 10 years. vi. Spectrum licences Spectrum licence assets are measured at cost less impairment charges. The amortisation of spectrum licence assets is calculated on a straight-line basis over the expected useful life of the asset. In respect of the 3.5GHz spectrum, this is deemed to be the remaining licence term of 11 years and 7 months commencing June 2004, being the date that the first commercial customers were deployed on the network. Amortisation of the 2.3GHz spectrum commenced in November 2007. The 2.3GHz spectrum licence expires in 2015.

Appendix 1 467 NOTES TO PRO FORMA SGH FINANCIAL INFORMATION 31 DECEMBER 2009 (continued)

1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) q. Trade and other payables These amounts are carried at amortised costs and represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid within normal trading terms. 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 specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or any liabilities assumed, is recognised in other income or expenses.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement for at least 12 months after the reporting date.

Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed. s. Provisions Provisions for legal claims, service warranties and make good obligations are recognised when the group has a present legal or constructive obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. t. Employee benefits i. Wages, salaries and annual leave Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in provisions 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. ii. Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms of maturity and currency that match, as closely as possible, the estimated future cash outflows. iii. Profit-sharing and bonus plans A subsidiary recognises a liability and an expense for bonuses and profit-sharing based on a formula that takes into consideration the profit attributable to the company’s shareholders after certain adjustments. A provision is recognised where the subsidiary is contractually obliged or where there is a past practice that has created a constructive obligation. iv. Share based payments The fair value of options granted under a subsidiary’s option plan is recognised as an employee benefit 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.

468 Seven Network Limited Scheme Booklet – Part B The fair value at grant date is independently determined using Black-Scholes, Binomial or Monte Carlo simulation option pricing models that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield, total shareholder return (TSR) hurdles and the risk-free interest rate for the term of the option.

The fair value of the options granted excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate.

The market value of shares issued to employees for no cash consideration under the employee share scheme is recognised as an employee benefit expense with a corresponding increase in equity over the period between the grant date and the date that employees become entitled to the shares.

Other cash-settled share based payments are recognised as an employee benefit expense with a corresponding increase in liability for employee entitlements. The expense and the liability incurred are measured at the fair value of the liability. u. Goods and services tax 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 flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flow. v. New accounting standards The following standards, amendments to standards and interpretations have been identified as those which may impact the entity in the period of initial application. They are available for early adoption at 31 December 2009, but have not been applied in preparing this financial information.

• AASB2009-5 Further amendments to Australian Accounting Standards arising from the Annual Improvements Process affect various AASBs resulting in minor changes for presentation, disclosure, recognition and measurement purposes. The amendments, which become mandatory for SGH’s 30 June 2011 financial statements are not expected to have a significant impact on the financial information. • AASB2009-8 Amendments to Australian Accounting Standards – Group Cash – settled Share Based Payment Transactions resolves diversity in practice regarding the attribution of cash-settled share-based payments between different entities within a group. As a result of the amendments AI 8 Scope of AASB2 and AI 11 AASB2 – Group and Treasury Share Transactions will be withdrawn from the application date. The amendments, which become mandatory for SGH’s 30 June 2011 financial statements, are not expected to have a significant impact on the financial information.

Over the period to 30 June 2011 there are further amendments expected to Accounting Standards and interpretations. The financial information presented has been prepared on the basis of Accounting Standards and Interpretations in force at 31 December 2009 as described in Notes 1(a) to Note 1(z).

Proposed new Accounting Standards relating to Revenue, Leases and Financial Instruments are likely to be issued in late 2010 or 2011. These new Accounting Standards would likely apply from 1 July 2011 and therefore impact SGH’s annual financial report for the year-ended 30 June 2012.

Given the fact that no final exposure draft or standard has been issued, no formal quantification of the impact of these standards is possible at this time. However it is possible that the introduction of new standards in these areas will result in material differences to balance sheet categories and potentially the timing of recognition of revenue in periods ending 30 June 2012 and beyond. w. Contributed equity Ordinary shares, redeemable preference shares, non-share equity and other equity securities are classified as equity.

Non-share equity represents an unsecured, subordinated perpetual instrument which is subject to discretionary dividends and can be voluntarily repaid.

Appendix 1 469 NOTES TO PRO FORMA SGH FINANCIAL INFORMATION 31 DECEMBER 2009 (continued)

1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) w. Contributed equity (continued) 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, for the acquisition of a business, are not included in the cost of the acquisition as part of the purchase consideration. x. Segment Reporting The Group will determine and present operating segments based on the information that internally is provided to the CEO and the Board.

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Groups other components. All operating segments’ operating results are regularly reviewed by the Group’s CEO and Board to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available.

Segment results that are reported to the CEO and Board include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Company’s headquarters), head office expenses, and income tax assets and liabilities.

Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill. y. TELYS The Transferable Extendable Listed Yield Shares (TELYS) have been classified as equity and the dividend payable on the TELYS treated as a distribution of Shareholders Equity. The income statement does not include the dividends on TELYS. z. Earnings Per Share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares.

Profit or loss attributable to ordinary Seven shareholders is stated after allocation of the portion of profit attributable to holders of TELYS.

2 FINANCIAL RISK MANAGEMENT The existing entities activities expose it to a variety of financial risks including foreign exchange risk, credit risk, liquidity risk and interest rate risk. Derivative financial instruments such as foreign exchange contracts and interest rate caps and swaps are used to hedge certain risk exposures.

The entities identify and evaluate financial risk and when required propose a course of action to their Board for approval. Necessary action is then taken to mitigate any identified risks as approved.

470 Seven Network Limited Scheme Booklet – Part B At the reporting date the Group held the following financial instruments:

WesTrac Group Seven SGH 2009 2009 2009 $’000 $’000 $’000 Financial Assets Cash and cash equivalents1 45,623 1,041,856 497,479 Trade and other receivables 280,659 21,671 302,330 Financial assets at fair value through income statement – 8,202 8,202 Available-for-sale financial assets 3,162 413,973 417,135 Other financial assets 197,351 6,384 203,735 526,795 1,492,086 1,428,881 Financial Liabilities Trade and other payables2 (220,731) (49,328) (311,401) Borrowings1, 3 (1,100,024) (6,071) (499,671) Derivative financial instruments (32,274) – (32,274) (1,353,029) (55,399) (843,346)

Notes: 1 SGH figures shown reflect the proposed repayment of $600 million of existing WesTrac Group debt from Seven cash deposits. In addition, the cash and cash equivalents include a pro forma adjustment of $10 million for initial allocation of shares 2 The SGH trade and other payables includes transaction costs of $41.3 million 3 Borrowings for WesTrac Group above are before a reduction of capitalised borrowing costs net of accumulated amortisation of $6.4 million shown on note 20 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’s foreign exchange risk arises primarily from:

– Borrowings denominated in foreign currency; and – Firm commitments of highly probable forecast transactions for receipts and payments settled in foreign currency.

WesTrac is exposed to fluctuations in United States Dollars and Euros, Seven has no material currency exposure.

SGH will seek to minimise exposure to foreign exchange risk by initially seeking contracts effectively denominated in Australian Dollars where possible. Where this is not possible the Group will manage foreign exchange risk as follows: – By agreement with WesTrac’s major supplier, the Group may elect to defer foreign currency (USD) vendor payments until the earlier of : 6 months from vendor invoice date, or payment by the customer. In these circumstances the customer is invoiced in USD and a notional hedge is created minimising exposure to changes in the AUD/USD exchange rate. – External forward contracts and options are used to manage foreign exchange risk. Contracts are entered into on a transaction by transaction basis and hedge specific purchases, sales and borrowings.

The Group’s foreign exchange risk from recognised assets and liabilities arises primarily from WesTrac’s long term USD denominated borrowings (note 20). The Group effectively hedges 100% of its long term foreign denominated borrowings using a combination of designated forward exchange contracts and put options. The revaluation of the underlying debt tied to the put options gives rise to a profit and loss impact where the spot rate exceeds the options strike rate. The put options however enable an exchange rate “floor” to be established.

Appendix 1 471 NOTES TO PRO FORMA SGH FINANCIAL INFORMATION 31 DECEMBER 2009 (continued)

2 FINANCIAL RISK MANAGEMENT (CONTINUED) a. Market risk (continued) i. Foreign exchange risk (continued) The carrying amounts of the Group’s financial assets and liabilities are denominated in Australian dollars except as set out below:

Group WesTrac Group Seven SGH USD € USD € USD € 000’s 000’s 000’s 000’s 000’s 000’s Cash at Bank 45 – 964 – 1,009 – Trade receivables 1,363 – – – 1,363 – Trade payables (8,215) (9) – – (8,215) (9) Borrowings (332,000) – – – (332,000) – Derivative financial instruments – Buy foreign currency (cash flow hedges) (26,969) – – – (26,969) – ii. Interest rate risk The Group’s exposure to interest rate risk arises from Australian dollar cash deposits and short to medium term borrowings which are at variable interest rates in Australian Dollars. Generally, long term fixed rate borrowings are obtained offshore, principally in the US, while short term variable borrowings are denominated in local Australian currency and expose the Company to cash flow interest rate risk. The company manages this risk by:

– Fixing interest rates for the term of the loan facility and/or – Using financial derivative instruments including interest rate swaps, interest rate caps and options, creating a “maximum” interest rate to which the Group is exposed. b. Liquidity risk Financing arrangements The Group had access to the following undrawn borrowing facilities at the reporting date:

WesTrac Group Seven SGH 2009 2009 2009 $’000 $’000 $’000 Floating rate Expiring within one year (bank overdraft and bill facility) 336,837 NIL 336,837 Expiring beyond one year (bank loans) 101,175 NIL 101,175 438,012 NIL 438,012

Subject to continued compliance with facility terms, the facilities may be drawn at any time and have an average maturity age of 1.9 years.

The Group will have significant cash deposits which will reduce liquidity risk.

Maturities of financial liabilities The tables below analyse the Group’s financial liabilities (including derivative financial instruments) into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. Gross cash flows include principal, coupon and premium (on put options) payments at contracted rates. The amounts disclosed in the table are the contracted undiscounted cash flows.

472 Seven Network Limited Scheme Booklet – Part B Total Within Between Between Over Contractual Carrying 1 Year 1 and 2 Years 2 and 5 Years 5 Years Cash Flows Amount SGH – at 31 December 2009 $’000 $’000 $’000 $’000 $’000 $’000 Non-interest bearing 220,731 – – – 220,731 220,731 Variable rate 75,615 3,285 – – 78,900 78,990 Fixed rate on borrowings Principal 26,208 40,196 108,652 358,143 533,199 436,512 Interest 25,032 28,714 79,176 103,085 236,007 13,427 Derivatives (inflow)/outflow 2,624 1,414 2,134 – 6,172 3,369 Total 350,210 73,609 189,962 461,228 1,075,009 753,029

SGH figures shown reflect the proposed repayment of $600 million of existing WesTrac Group debt from Seven cash deposits. c. Credit risk Credit risk is the risk that a contracting entity will not complete its obligations under a financial instrument and cause the Group to incur a financial loss.

The Group does have exposure to credit risk on all financial assets included in the balance sheet. Trade and other receivables consist of a large number of customers, spread across the mining, construction and local government sectors. The Group has no significant concentrations of credit risk to a single customer or group of customers and has policies in place to ensure that sales of products and services are made only to customers with an appropriate credit history. The Group establishes credit limits for all customers and continually monitors credit worthiness. When required an allowance for impairment is raised. Derivative and cash transactions are limited to high quality counterparties.

The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets as summarised in Note 5.

3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below. i. Estimated impairment of intangible assets The Group tests annually whether goodwill and distribution networks have 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 or fair value less costs to sell where appropriate evidence exists to support the fair value. These calculations require the use of assumptions. ii. Acquisition accounting In estimating the opening balance sheet of SGH relating to the acquisition of WesTrac, the following assumptions were made: • This is a common control transaction • 113m shares will be issued to acquire WesTrac • The fair value of shares issued to acquire WesTrac will be $8.25

The impact of these assumptions is that a common control reserve of $782.2m arises representing the difference between the fair value of consideration and the book value of assets acquired.

In estimating the opening balance sheet of SGH relating to the acquisition of Seven, the following assumptions were made: • SGH Group is the accounting acquirer of Seven • The fair value of shares in Seven at the date of exchange will be $8.25 • 190m shares will be issued by SGH to acquire Seven

Appendix 1 473 NOTES TO PRO FORMA SGH FINANCIAL INFORMATION 31 DECEMBER 2009 (continued)

3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS ii. Acquisition accounting (continued) • The fair values of the assets and liabilities of Seven are materially the same as the book values disclosed at 26 December 2009 with the following exceptions: • Certain equity accounted property investments with a fair value of $10m, book value of $1.1m • Deferred tax liabilities with an expected value of $395.7m and a book value of $607.1m.

The impact of these assumptions is that negative goodwill of $378.5m arises on consolidation, which in accordance with AASB 3 is taken immediately to the income statement.

The final accounting value of the consideration paid for the acquisition of Seven will be determined by the share price of Seven on the date of exchange of shares plus the value of TELYS4 equity instruments issued. To the extent that the Seven share price is higher or lower than the assumed $8.25, there will be an increase or decrease to the negative goodwill arising on consolidation with an offsetting increase or decrease to the net assets of the consolidated Group balance sheet. iii. Taxation As a result of this transaction the following changes are anticipated to occur to the tax status of the Group: • WesTrac Holdings Pty Limited and its controlled entities will exit an existing consolidated tax group; • SGH and WesTrac Holdings Pty Limited and its controlled entities will form a new consolidated tax group; • Seven and its controlled entities and SMG will join the SGH consolidated tax group.

In calculating the impact of these changes on the financial information presented various assumptions have been made regarding the market value of assets & liabilities, the application of Taxation rules regarding exiting and forming consolidated tax groups.

4 CURRENT ASSETS – CASH AND CASH EQUIVALENTS

WesTrac Group Seven SGH 2009 2009 2009 $’000 $’000 $’000 Cash at bank and on hand 45,579 66,856 122,435 Deposits at call 44 975,000 375,044 45,623 1,041,856 497,479 a. SGH figures shown reflect the proposed repayment of $600 million of existing WesTrac Group debt from Seven cash deposits, as well as the receipt of $10 million arising on initial issuance of equity on formation of SGH. b. Cash at bank and on hand Cash at bank and on hand are bearing floating interest rates between 0% and 3.64%. c. Deposits at call Deposits at call are bearing floating interest rates between 4.16% and 4.85%.

474 Seven Network Limited Scheme Booklet – Part B 5 CURRENT ASSETS – TRADE AND OTHER RECEIVABLES

WesTrac Group Seven SGH 2009 2009 2009 $’000 $’000 $’000 Trade debtors 262,167 10,445 272,612 Less: Provision for doubtful debts (7,389) (247) (7,636) 254,778 10,198 264,976 Amounts receivable from associated entity 4,944 – 4,944 Other debtors 16,837 3,955 20,792 Prepayments 11,441 2,008 13,449 33,222 5,963 39,185 288,000 16,161 304,161 a. Impaired trade receivables The creation and release of the provision for impairment on receivables has been included in ‘other expenses’ in the income statement. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. b. Past due but not impaired As at 31 December 2009, the Group had trade receivables of $52,755,000 which were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default.

The ageing analysis of these trade receivables is as follows:

WesTrac Group Seven SGH 2009 2009 2009 $’000 $’000 $’000 31-60 days 14,289 143 14,432 61-90 days 13,184 83 13,267 >90 days 24,737 319 25,056 52,210 545 52,755

The other classes within trade and other receivables do not contain impaired assets and are not past due. Based on the credit history of these other classes, it is expected that these amounts will be received when due. The Group does not hold any collateral in relation to these receivables (see note 2 (c)). c. Other receivables These amounts generally arise from transactions outside the usual operating activities of the Group. Interest may be charged at commercial rates where the terms of repayment exceed six months. Collateral is not normally obtained. d. Foreign exchange and interest rate risk Information about the Group’s exposure to foreign currency risk and interest rate risk in relation to trade and other receivables is provided in note 2. e. Fair value and credit risk Due to the short-term nature of these receivables, their carrying amount is assumed to approximate their fair value.

The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivables mentioned above. Refer to note 2 for more information on risk management policy of the Group and the credit quality of the entity’s trade receivables.

Appendix 1 475 NOTES TO PRO FORMA SGH FINANCIAL INFORMATION 31 DECEMBER 2009 (continued)

6 CURRENT ASSETS – INVENTORIES

WesTrac Group Seven SGH 2009 2009 2009 $’000 $’000 $’000 Raw materials and stores – at cost 9,659 – 9,659 Work in progress – at cost 26,955 – 26,955 Finished goods: – at cost 454,736 1,724 456,460 – at net realisable value 4,382 – 4,382 459,118 1,724 460,842 495,732 1,724 497,456

7 DERIVATIVE FINANCIAL INSTRUMENTS

WesTrac Group Seven SGH 2009 2009 2009 $’000 $’000 $’000 Current liabilities Forward foreign exchange contracts and options – cash flow hedges (2,396) – (2,396) Total current derivative financial instrument liabilities (2,396) – (2,396)

Non-current liabilities Interest rate derivative contracts – cash flow hedges (2,203) – (2,203) Forward foreign exchange contracts and options – cash flow hedges (27,674) – (27,674) Total non-current derivative financial instrument liabilities (29,877) – (29,877) Net derivative asset/(liability) (32,273) – (32,273) a. Instruments used by the group The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in interest and foreign exchange rates and to trade and to profit from short-term movements in interest rates, exchange rates, and the price of equity instruments in accordance with the Group’s financial risk management policies (refer to note 2). i. Australian dollar interest rate swap/cap contracts - cash flow hedges Bank loans of the Group currently bear an average variable interest rate of 5.28%. It is policy to protect part of the loans from exposure to increasing interest rates. Accordingly, the Group has entered into interest rate swap contracts which effectively fix the cost of finance on variable rate loans, and interest rate caps which effectively cap the cost of finance on variable rate loans.

Designated caps in place at balance date cover approximately 50% of variable interest rate loan principal outstanding at that date. The variable rates are based on the 3 month bank bill rates as determined on each contract’s reset date. The capped rate under the interest rate caps is set at 7%.

The gain or loss from remeasuring the hedging instruments at fair value is deferred in equity in the hedging reserve, to the extent of its intrinsic value that the hedge is effective, and reclassified into profit and loss when the hedged interest expense is recognised. The gain or loss relating to time value of options is recognised directly in the income statement. ii. Foreign exchange contracts and derivatives – cash flow hedges The Group has obligations to repay the principal amounts of US dollar denominated debt and interest thereon. The Group also enters into purchase and sale transactions denominated in US dollars, Euros, Great British Pounds and Japanese Yen. In order to protect against exchange rate movements, the Group has entered into forward exchange contracts to purchase foreign currency, and foreign exchange option derivatives to impose an upper limit on the cost of purchasing US dollars.

476 Seven Network Limited Scheme Booklet – Part B These contracts are hedging fixed interest and principal repayments to August 2021, and certain known trading commitments over the next year. The contracts are timed to mature when interest and principal, and lease payments are due, and when payments for major purchases of machinery and component parts are scheduled to be made.

The portion of the gain or loss on hedging instruments that is determined to be an effective hedge is recognised directly in equity. When the cashflows occur, the Group adjusts the measurement of the item recognised by the related amount deferred in equity. c. Credit risk exposures Information about the Group’s exposure to credit risk, foreign exchange and interest rate risk is provided in note 2.

8 NON-CURRENT ASSETS – RECEIVABLES

WesTrac Group Seven SGH 2009 2009 2009 $’000 $’000 $’000 Loans to associated entities 4,100 – 4,100 Other debtors – 7,518 7,518 4,100 7,518 11,618 a. Impaired receivables and receivables past due The non-current receivables are neither impaired or past due and are considered recoverable.

9 NON-CURRENT ASSETS – INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

WesTrac Group Seven SGH 2009 2009 2009 $’000 $’000 $’000 Listed equity securities Shares in associates (refer note 28) – 831,252 831,252 Non-listed equity securities Shares in associates (refer note 28) 8,990 415,088 424,078 8,990 1,246,340 1,255,330 a. SGH figure includes an adjustment to values of Seven’s investments accounted for using the equity method upon business combination to reflect fair value.

10 NON-CURRENT ASSETS – INVESTMENTS

WesTrac Group Seven SGH 2009 2009 2009 $’000 $’000 $’000 At fair value through the income statement: Listed securities Equity securities – 8,202 8,202 Available for sale financial assets: Listed securities Equity securities – 413,973 413,973 Unlisted securities Ordinary shares 3,162 – 3,162 Term deposits – 6,384 6,384 3,162 428,559 431,721

Appendix 1 477 NOTES TO PRO FORMA SGH FINANCIAL INFORMATION 31 DECEMBER 2009 (continued)

10 NON-CURRENT ASSETS – INVESTMENTS (CONTINUED) a. Listed securities Listed securities are valued at fair value based on quoted market prices at each balance date. The value of listed investments and listed investments accounted for using the equity method at 26 December 2009 has since changed due to market movements affecting share prices. As at 10 March 2010 an unrealised loss of approximately $60 million exists in relation to these investments. b. Unlisted Securities Investments in unlisted securities are carried at the lower of cost and recoverable amount. Recoverable amount is determined on the basis of the present value of the forecast net cash inflows based on market interest rates and a risk premium specific to the investment.

11 NON-CURRENT ASSETS – OTHER FINANCIAL ASSETS WesTrac Group Seven SGH 2009 2009 2009 $’000 $’000 $’000 Shares in National Hire Group – at cost 197,351 – 197,351 197,351 – 197,351

12 NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT WesTrac Group Seven SGH 2009 2009 2009 $’000 $’000 $’000 Property, plant and equipment – at net book amount Freehold land – 5,918 5,918 Buildings 12,124 3,320 15,444 Leasehold improvements 4,938 11 4,949 Plant and equipment (refer note 12(a)) 75,572 33,987 109,559 Leased plant and equipment 34,854 491 35,345 127,488 43,727 171,215 a. Plant and equipment comprises Plant and equipment – rental at cost 33,895 – 33,895 Less: accumulated depreciation (8,977) – (8,977) 24,918 – 24,918 Plant and equipment – non-rental at cost 113,909 54,800 168,709 Less: accumulated depreciation (63,255) (20,813) (84,068) 50,654 33,987 84,641 Plant and equipment at net book amount 75,572 33,987 109,559

13 NON-CURRENT ASSETS – INTANGIBLE ASSETS WesTrac Group Seven SGH 2009 2009 2009 $’000 $’000 $’000 Development costs 3,016 – 3,016 Distribution networks 422,996 – 422,996 Goodwill 15,936 – 15,936 Customer contracts 6,997 – 6,997 Spectrum licenses and software – 90,262 90,262 448,945 90,262 539,207 a. Intangible assets Distribution network intangible assets of WesTrac relate to China ($385.7 million), NSW ($30.0 million) and WA ($7.3 million).

478 Seven Network Limited Scheme Booklet – Part B 14 CURRENT LIABILITIES – PAYABLES WesTrac Group Seven SGH 2009 2009 2009 $’000 $’000 $’000 Trade creditors 125,274 2,818 128,092 Amounts due to other related parties (refer note1)83–83 Other creditors and accruals1 80,082 40,885 162,309 Employee benefits 15,292 – 15,292 220,731 43,703 305,776 Note: 1 SGH includes an accrual for costs of the proposed transaction. 15 CURRENT LIABILITIES – INTEREST BEARING LIABILITIES

Secured (refer note 15(d)): Bank loans 71,102 – 71,102 Lease liabilities (refer note 27(b)) 20,369 386 20,755 Other borrowings 105 – 105 91,576 386 91,962 Unsecured: Bank overdraft (refer note 4(a)) 4,825 – 4,825 Other borrowings (refer note 15(a)) 1,316 316 1,632 6,141 316 6,457 97,717 702 98,419 a. Other borrowings Other borrowings are repayable at call and bear interest at 7.99% per annum b. Interest rate risk exposures Details of the Group’s exposure to interest rate changes on borrowings are set out in note 2(a) (ii). c. Fair value disclosures Details of the fair value of borrowings for the Group are set out in note 20 (b). d. Security Details of the security related to each of the secured liabilities and further information on the bank overdrafts and bank loans are set out in note 20 (c).

16 CURRENT TAX LIABILITIES WesTrac Group Seven SGH 2009 2009 2009 $’000 $’000 $’000 Provision for income tax 1,143 – 1,143 1,143 – 1,143

17 CURRENT LIABILITIES – PROVISIONS

Employee benefits 9,792 929 10,721 Service warranty 18,650 – 18,650 Other provisions 3,831 24 3,855 32,273 953 33,226

Appendix 1 479 NOTES TO PRO FORMA SGH FINANCIAL INFORMATION 31 DECEMBER 2009 (continued)

17 CURRENT LIABILITIES – PROVISIONS (CONTINUED) a. Service warranty Provision is made for the estimated warranty claims in respect of products sold which are still under warranty at balance date. These claims are expected to be settled in the next financial year but this may be extended into the following year if claims are made late in the warranty period and are subject to confirmation by suppliers that component parts are defective.

18 CURRENT LIABILITIES – OTHER

WesTrac Group Seven SGH 2009 2009 2009 $’000 $’000 $’000 Deferred revenue 37,343 – 37,343 37,343 – 37,343

19 NON-CURRENT LIABILITIES – PAYABLES

Trade creditors & accruals – 5,625 5,625 – 5,625 5,625

20 NON-CURRENT LIABILITIES – INTEREST BEARING LIABILITIES

Secured (refer note 20(c)): Bank loansa 3,932 – 3,932 Lease liabilities (refer note 26(b)) 28,152 1,707 29,859 Other borrowings 60 – 60 32,144 1,707 33,851 Unsecured: Bank loansa 600,000 – – Other borrowings – 3,662 3,662 Fixed term US dollar notes (refer note 20(a)) 370,163 – 370,163 Less capitalised borrowing costs net of accumulated amortisation (6,424) – (6,424) 963,739 3,662 367,401 995,883 5,369 401,252 a. SGH figures reflect the proposed repayment of $600 million of existing WesTrac Group debt from Seven cash deposits.

480 Seven Network Limited Scheme Booklet – Part B b. Unsecured-fixed term USD Notes The Group has issued notes denominated in US currency of US $332,000,000. These borrowings are hedged by forward exchange contracts or foreign exchange option derivatives as detailed in note 7. Interest is payable half yearly in arrears and the terms and conditions attaching to the notes including the effective hedge position, are summarised as follows:

Hedged WesTrac Group – Amount Spot Amount Amount Interest Maturity 31 December 2009 Notes US$’000 A$’000 A$’000 Rate Date Series C 1999 17,000 18,954 18,954 7.65% 18/06/2011 Series D 1999 15,000 16,724 22,628 7.87% 18/06/2014 Series A 2006 55,000 61,322 72,368 7.40% 23/08/2013 Series B 2006 75,000 83,621 99,088 7.48% 23/08/2016 Series C 2006 55,000 61,322 72,598 7.50% 23/03/2018 Series D 2006 30,000 33,449 39,282 7.53% 23/03/2020 Series E 2006 85,000 94,771 112,236 7.56% 23/03/2021 Total 332,000 370,163 437,154 c. Fair value The carrying amount and net fair value of borrowings at 31 December 2009 are:

WesTrac Group Seven SGH Carrying Carrying Carrying amount Fair Value amount Fair Value amount Fair value $’000 $’000 $’000 $’000 $’000 $’000 Group Bank loansa 675,034 674,969 – – 75,034 74,969 Bank overdraft 4,825 4,825 – – 4,825 4,825 Other borrowings 1,481 1,481 3,978 3,978 5,459 5,459 Fixed term US Dollar notes 370,163 382,805 – – 370,163 382,805 Lease liabilities 48,521 46,518 2,093 2,093 50,614 48,611 1,100,024 1,110,598 6,071 6,071 506,095 516,669 a. SGH figures reflect the proposed repayment of $600 million of existing WesTrac Group debt from Seven cash deposits.

Assets pledged as security Lease liabilities are effectively secured as the rights to the leased assets recognised in the financial information revert to the lessor in the event of default.

The carrying amount of assets pledged or held as security for current and non-current borrowings are:

WesTrac Group Seven SGH 2009 2009 2009 $’000 $’000 $’000 Fixed and floating charges Property, plant and equipment 45,382 2,093 47,475 Total assets pledged as security 45,382 2,093 47,475

Seven has issued a financial guarantee over a loan held by ATP Partnership Pty Limited, a subsidiary of Flagship Holdings Pty Limited (Flagship), which, is an equity accounted associate of Seven. In the event of a default by Flagship, Seven is required under this guarantee to pay the amount outstanding up to a maximum of $21 million. As the Directors consider it is not probable that there will be an outflow of resources in respect of this guarantee, no provision has been recorded in this financial information.

Appendix 1 481 NOTES TO PRO FORMA SGH FINANCIAL INFORMATION 31 DECEMBER 2009 (continued)

20 NON-CURRENT LIABILITIES – INTEREST BEARING LIABILITIES (CONTINUED) d. Interest rate risk exposures The Group’s and parent entity’s exposure to interest rate and foreign currency changes is provided in note 2.

21 NON-CURRENT LIABILITIES – DEFERRED TAX LIABILITIES

WesTrac Group Seven SGH 2009 2009 2009 $’000 $’000 $’000 Proforma net Deferred Tax Liabilities – 607,131 420,504 – 607,131 420,504

22 NON-CURRENT LIABILITIES – PROVISIONS

Other provisions – 413 413 Employee benefits 83 1,562 1,645 83 1,975 2,058

23 NON-CURRENT LIABILITIES – OTHER

Deferred revenue 9,520 7,321 16,841 9,520 7,321 16,841

24 SGH CONTRIBUTED EQUITY & RESERVES

Common Control Ordinary Shares TELYS4 Reserve Retained Profits Number $’000 $’000 $’000 $’000 Shares issued on formation of SGH 2,000,000 10,000 Acquisition of WesTrac 113,000,000 932,250 (782,218) Acquisition of Seven ordinary shares 190,410,281 1,569,647 393,774 Acquisition of TELYS3 4,963,640 496,364 (15,316) 2,511,897 496,364 (782,218) 378,458

It is anticipated that SGH will issue 7,025,000 options over ordinary shares to replace existing Seven options on issue a. TELYS4 Transferable Extended Listed Yield Shares (TELYS4) are proposed to be issued in exchange for all TELYS3 currently issued by Seven. Holders will be entitled to a preferential non-cumulative floating rate fully franked dividend, which is base on the Bank Bill Swap Rate for 180 days plus a margin. The margin is set at 4.75% subject to the Company’s right of conversion and exchange. There are no voting rights attached except in limited circumstances, in which case holders will have one vote per TELYS4 held. b. Common Control Reserve As described in Note 1(h), the acquisition of WesTrac Group by the SGH is accounted for as a Common Control transaction. As a consequence the difference between the fair value of the consideration paid and the existing book values of assets & liabilities of the WesTrac Group will be debited to a Common Control Reserve. Upon a disposal of all interests in WesTrac Group by SGH this reserve would be transferred to retained profits. c. Retained profits On acquisition of Seven it is estimated that the fair value of the consideration paid will be lower than the fair value of the individual net assets acquired. As a consequence negative goodwill will arise which in accordance with AASB3 is treated as a gain on consolidation.

482 Seven Network Limited Scheme Booklet – Part B 25 CONTINGENT LIABILITIES Details and estimates of maximum amounts of contingent liabilities, classified in accordance with the party from whom the liability could arise and for which no provisions are included in the financial information, are as follows:

WesTrac Group Seven SGH 2009 2009 2009 $’000 $’000 $’000 a. Controlled Entities: Guarantees in respect of equipment performance 17,856 – 17,856

26 COMMITMENTS FOR EXPENDITURE a. Capital commitments: Aggregate capital commitments contracted for at the reporting date but not recognised as liabilities Payable within 1 year 21,720 9,362 31,082 Later than 1 year but not later than 5 years 4,200 – 4,200 25,920 9,362 35,282 b. Lease commitments: Operating leases Commitments in relation to operating leases contracted for at the reporting date but not recognised as liabilities, payable: Not later than 1 year 56,047 10,860 66,907 Later than 1 year but not later than 5 years 123,645 15,707 139,352 Later than 5 years 106,083 851 106,934 285,775 27,418 313,193 Representing: Cancellable operating leases 11,063 – 11,063 Non-cancellable operating leases 274,712 27,418 302,130 285,775 27,418 313,193 Non-cancellable operating leases Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: No later than 1 year 51,973 10,860 62,833 Later than 1 year but no later than 5 years 116,662 15,707 132,369 Later than 5 years 106,077 851 106,928 Commitments not recognised in the financial information 274,712 27,418 302,130 Finance leases Commitments in relation to finance leases are payable as follows: Not later than 1 year 24,358 807 25,165 Later than 1 year but not later than 5 years 28,559 1,407 29,966 Later than 5 years – 2,269 2,269 Minimum lease payments 52,917 4,483 57,400 Less: Future finance charges (4,396) (2,390) (6,786) Total lease liabilities 48,521 2,093 50,614 Representing lease liabilities Current (refer note 15) 20,369 386 20,755 Non-current (refer note 20) 28,152 1,707 29,859 48,521 2,093 50,614

Appendix 1 483 NOTES TO PRO FORMA SGH FINANCIAL INFORMATION 31 DECEMBER 2009 (continued)

27 RELATED PARTY TRANSACTIONS The initial Directors of SGH will be:

• K M Stokes AC • P D Ritchie AO • D J Leckie • E D Boling • B I McWilliam • R K Stokes • M C Wells • P J T Gammell • J A Walker • R Waters (Alt)

The initial Director and Executive relevant interests in the equity of SGH will be:

Options over Ordinary Shares Ordinary Shares TELYS4 K M Stokes AC 207,304,349 – – P D Ritchie AO 46,072 – – D J Leckie 66,908 3,000,000 – E D Boling – – – B I McWilliam 265,447 2,000,000 – R K Stokes 93,000 – – M C Wells 4,000 – 710 P J T Gammell 200,000 – – J A Walker 70,000 – – P Lewis 17,179 750,000 – R Waters (Alt) 10,000 – –

In addition to the amounts shown above, other executives of Seven and SMG will hold 1,275,000 options in SGH. a. The terms and conditions of the Options over Ordinary Shares are disclosed in Note 30. SGH has an interest in 66.24% of National Hire Group. None of the Directors and Executives have additional interests in the equity of National Hire Group. b. Transactions with related parties It is envisaged that the Group will have contractual arrangements that will be ongoing with entities of which the directors of the Group KM Stokes, PJT Gammell and RK Stokes, are or were Directors or Officers or otherwise had an interest. These arrangements are as follows: (The Group includes National Hire)

Property Rental – Australian Capital Equity Group and $16,041,000 per annum. Based on market rates for a period of 10 years director related entities with options to continue. Aircraft Usage – Australian Capital Equity Group $2,211,000 per annum. Agreement is based on re-imbursement of costs incurred on a take-or-pay basis. Electricity Usages – Australian Capital Equity Group Supply agreement for electricity supply based on market rates, no minimum usage. Current estimated usage at $940,000 per annum. Tax Indemnity – Australian Capital Equity Group Australian Capital Equity has entered a deed of indemnity in favour of SGH in respect of specified foreign tax matters. National Hire valuation indemnity – Australian Capital Australian Capital Equity has entered a deed of guarantee which Equity Group ‘underwrites’ the value of the investment in National Hire at an effective $2.50 per share as at 30 June 2011.

484 Seven Network Limited Scheme Booklet – Part B OTHER TRANSACTIONS A number of Specified Directors and Key Management Personnel, or their personally-related entities, hold positions in other entities that can result in them having control or significant influence over the financial or operating policies of those entities.

A number of these entities will continue to transact with the Group following the transaction. The terms and conditions of these transactions will be no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to unrelated entities on an arm’s length basis.

28 INVESTMENTS IN ASSOCIATES Investments in associates are accounted for in the abridged financial information using the equity method of accounting.

Information relating to the associates is set out below.

Carrying Amount Ownership WesTrac Interest Group Seven SGH 2009 2009 2009 2009 Name of Company Principal Activity % $’000 $’000 $’000 SMG Pty Limited Media 47.0 – 385,862 385,862 Consolidated Media Holdings Limited Media 22.1 – 425,668 425,668 West Australian Newspapers Limited Media 23.4 – 405,583 405,583 Flagship Property Holdings Pty Limited Property Investment 46.8 – 27,100 27,100 Adelaide Broadcast Property Trust Property Investment 40 ––– Adelaide Broadcast Property Pty Limited Property Investment 40 ––– Mo’s Mobiles Pty Limited Mobile Phone Retailer 25 ––– P2 Pty Limited Dormant 50 ––– P4 Pty Limited Dormant 50 ––– Premier Capital Developments Pty Limited Property Investment 25 – 250 250 Revy Investments Pty Limited Property Investment 25 – 827 827 Revy Investment Trust Property Investment 25 ––– Sydney Broadcast Property Trust Pty Limited Property Investment 40 ––– Sydney Broadcast Property Trust Property Investment 40 – 1,050 1,050 Vuecast Operations Pty Limited Media Production 50 ––– Energy Power Systems Australia Pty Ltd Distribution of 40 8,990 – 8,990 CAT engines 8,990 1,246,340 1,255,330

Each of the above associates are incorporated in Australia.

Appendix 1 485 NOTES TO PRO FORMA SGH FINANCIAL INFORMATION 31 DECEMBER 2009 (continued)

29 SEGMENT DISCLOSURES SGH is expected to have five reportable segments, as described below: • WesTrac Australia – the operations of WesTrac in WA, NSW and ACT; • WesTrac China – the operations of WesTrac in North Eastern China; • National Hire Group – the operations of National Hire and its interest in Coates Group Holdings • Investments – the equity accounted results of Seven Media Group, Consolidated Media Holdings and West Australian Newspapers plus Seven’s listed share portfolio and cash balances and • Broadband & telephony- operations of Wireless Broadband Australia and Engin

Information regarding the operations of each reportable segment is included in each financial section of the Financial section of the Scheme Booklet.

30 SHARE BASED PAYMENTS EXPENSES ARISING FROM SHARE-BASED PAYMENT TRANSACTIONS Total expenses arising from share based payment transactions recognised during the period as part of employee benefit expense were as follows:

WesTrac Group Seven SGH 2009 2009 2009 $’000 $’000 $’000 Share based payments – 166 –

It is envisaged that SGH will have in place an option scheme for 7,250,000 options to be issued to replace existing Seven options currently on issue. The exact terms and conditions are yet to be confirmed but will be similar to those disclosed by Seven in its ASX announcement in November 2009. The Seven options currently link vesting of options to TSR growth to align the interest of key management personnel with that of shareholders.

486 Seven Network Limited Scheme Booklet – Part B Corporate directory

COMPANY LEGAL ADVISER Seven Network Limited Freehills ACN 052 816 789 Level 38 MLC Centre REGISTERED OFFICE Martin Place Level 2 Sydney NSW 2000 38-42 Pirrama Road Pyrmont NSW 2009 INVESTIGATING ACCOUNTANT KPMG Transaction Services (Australia) Pty Limited COMPANY SECRETARY 10 Shelley Street Mr Warren W Coatsworth Sydney NSW 2000

SEVEN REGISTRY INDEPENDENT EXPERT Registries Limited Deloitte Corporate Finance Pty Limited Level 7, 207 Kent Street Grosvenor Place Sydney NSW 2000 225 George Street Sydney NSW 2000 FINANCIAL ADVISERS TO SEVEN TAX ADVISER Grant Samuel Corporate Finance Pty Limited Level 19 Ernst & Young Australia Governor Macquarie Tower Level 33, Ernst & Young Centre, World Square 1 Farrer Place 680 George Street Sydney NSW 2000 Sydney NSW 2000

J.P. Morgan Australia Limited Level 32 Grosvenor Place 225 George Street Sydney NSW 2000

487 THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK

488 Seven Network Limited Scheme Booklet – Part B