Nine Entertainment Co reports half-year profit steady despite TV down

Hugh Marks

• Strong FTA share and double digit cost reduction

Nine reported a net Profit After Tax of $172m, down 1% on the previous corresponding period.

Nine has flagged these half year highlights:

• Strong FTA share and double digit cost reduction, offsetting weakness in the FTA market
• 39% growth in Digital & Publishing EBITDA underpinned by >50% growth in both Metro Media and 9Now
• Broadly flat contribution from Domain (ex Consumer Solutions businesses) in a cyclical housing market
• Close to 1.5m active subscribers at Stan, growth of more than 60% over the 12 months, with Stan expected to move into profit from Q4

Hugh Marks, chief executive officer of Nine Entertainment Co. said: “The merger with Fairfax has created Australia’s pre-eminent media company, with a diverse suite of assets that now reach more Australians each week than those of any other local media company.

“This half year result is a testimony to the new Nine. With around 55% of our revenue coming from a stable base of broadcasting and 45% coming from businesses that are in strong long-term growth markets. Meaning we’ve been able to grow EBITDA through a more demanding operating environment, at the same time investing for the future of our business.

“Nine is now uniquely positioned through the combination of the operating strength of our traditional media assets as well as an increasing exposure to the continued transition of the market towards digital media assets.”

Nine’s Broadcasting division, which comprises Nine Network as well as the consolidated results of Macquarie Media (of which Nine owns a 54.5% stake), reported EBITDA of $177m on revenues of $632m for the half.

Nine Network reported a revenue decline from $637m to $564m for the six months. One less week ($15m) and absence of Foxtel simulcast revenues ($9m) accounted for around one-third of this shortfall. In a more difficult FTA market (-5% for the half), Nine held or grew share in each month other than in November-December when the cricket-related comparables impacted. Overall, Metro FTA share for the half was 39.3%.

For the six months to December, Nine attracted a #1 commercial network share of 36.7% of the 25-54 demographic, notwithstanding the absence of cricket. For the primary channel, Nine’s share of the 25-54s was 37.1%3, around 3.4 share points ahead of its nearest competitor.

Reported costs improved by 13% or $62m for the six months. The considered move away from Cricket accounted for much of this change as Nine refocused its summer sport to tennis.

FTA EBITDA fell by 6% or $11m for the half, the bulk of which could be attributed to the extra week in H1 FY18. As such, the reduction in Nine’s costs offset almost all of the impact of the softer overall Free To Air market. Nine’s FTA margins were a post IPO high of 28.6%.

Macquarie Media reported its H1 FY19 results on 15 February. Reported revenue was broadly flat at $68m – the Group’s News Talk network continuing to outperform the overall radio market, with 4% revenue growth, offset by the short-term revenue impact of the launch of Macquarie Sports Radio. EBITDA, before Specific Items of $15.4m, was down around 5% on previous corresponding period.

Nine’s Digital & Publishing division includes Metro Media and 9Now, as well as Nine’s other Digital Publishing titles including Pedestrian, CarAdvice and Together, Digital & Publishing reported revenue of $328m (of which less than half was derived from Print, and less than half that again from Print Advertising), and a combined EBITDA of $60m, up 39% for the half.

Metro Media reported overall revenue growth of 4% after three years of single digit declines. Continued strong readership of the group’s mast-heads drove 12% growth in digital revenues, and stabilising print revenues (both in terms of circulation and advertising). Metro Media’s ongoing focus on costs resulted in a further decline of c$6m. EBITDA increased by 58% to $40m, the fifth consecutive half of EBITDA growth for the Metro Media business.

In a BVOD market, which grew by 41% for the half to almost $60m, 9Now further increased its share to 47.5%, for revenue growth of more than 50%. Content such as Love Island, The Block and Manifest drove audiences throughout the half, with long form streams increasing by 66%. 9Now increased its EBITDA contribution from $10.7m to $16.4m, up 54%.

Other key components of Digital & Publishing together contributed revenue of $58m, and EBITDA of $4m with softer conditions in the broader digital display market impacting.

Domain recorded flat revenues in a cyclical operating environment, specifically in its key markets of Sydney and Melbourne. Notwithstanding, the group made clear progress. Core digital revenues grew by 5%, with residential revenue up by 9%. Offsetting this ongoing digital growth, print revenues fell by 24%, and now represent less than 20% of Domain group revenues.

Costs rose by less than 4% on a reported basis, with the savings from print and other initiatives invested in continuing to develop the growth drivers of the business.

Reported EBITDA was down by 7% – most importantly, Core Digital EBITDA was stable. Underlying depth and yield improvements

Stan recorded a very strong period for sign-ups, with active subscribers now of 1.5m. Stan’s consistent roll-out of exclusives like The Harry Quebert Affair and Who Is America? and local content like Bloom complemented the addition of Disney from mid-December. Usage per subscriber continues to increase, with daily total hours streamed now exceeding 1m.

Revenue growth of 50%, and a cost increase of 19% again highlights the leverage of this business. The strong subscriber growth, coupled with the recently announced price increase means that Stan is expected to exit FY19 with a positive profit run-rate, and expectations of a net positive EBITDA contribution in FY20.

ACM had a difficult half, with the Australia-wide drought affecting both agricultural and regional markets and publications. Revenue declined by 8%, and EBITDA dropped by 42% to $21m for the half.

Stuff experienced similarly difficult advertising conditions in its core market of New Zealand, reporting an EBITDA decline of 23% to $15m.

Following implementation of the merger with Fairfax Media on 7 December 2018, Nine has completed its review of the breadth and scope of the combined group.

In order to align with the group’s strategic objectives and future focus, Nine is exploring potential value maximising opportunities for its non-metropolitan media assets, namely Australian Community Media and Printing (ACM), Stuff New Zealand and Events.

To this end, Nine has appointed an advisor to manage the divestment processes, and has received initial indications of potential interest from a number of parties in relation to each business for sale.

Current trading environment and outlook

The FTA market conditions of the first half have continued into the current quarter. However, Nine has increased its share and expects to grow year on year revenue in the quarter by approximately 3%.

Nine believes that the FTA market should improve in the run up to, and post the Federal Election, currently expected in May, and that it will continue to record share growth. Full year FTA costs are now expected to be down by around 4%. On this basis, EBITDA from broadcasting is expected to be broadly in line with Pro Forma FY18, excluding the impact of the extra week.

Digital and Publishing is expected to continue to grow through H2 FY19 and into FY20, driven both by top line growth and further cost efficiency gains in Metro Media and continuing strong growth at 9Now.

As Domain commented with their result last week, the short term outlook remains defined by growth in yield and lower listing volumes. Continued investment in growth initiatives is being supported by ongoing cost discipline.

On the back of the increased subscriber numbers, and the recent price increase, Stan expects to be profitable in Q4 FY19, and report a positive contribution to EBITDA in FY20.

The above performance by Nine’s operating divisions will be supported by further delivery of merger synergies in H2FY19 and in FY20.

In terms of the FY19 result, Nine is expecting to report Pro Forma Group EBITDA on a continuing business basis of at least $420m, which equates to growth of at least 10% on the FY18 like-basis result of $385m. It is expected that positive momentum will continue at the Group level in FY20.

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