Nine reveals massive write-down in value of its television network, leading to $237m loss

13/07/2019 Posted by admin

Nine chairman Peter Costello with chief executive Hugh Marks. Photo: Ben Rushton Nine Entertainment Company’s chief executive Hugh Marks says ratings are improving. Photo: Janie Barrett
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Nine Entertainment Company has reported a $237 million loss for the six months to December after reducing goodwill of Nine Network from $422 million to $162 million.

The write-down will close the gap between Nine’s book value of its free-to-air network and its actual market value of $902 million.

Nine’s shares jumped after management said full-year pre-tax earnings will meet analyst forecasts of between $158 million to $187 million. The stock closed 7.3 per cent higher at $1.04.

The company did not change the value of its free-to-air broadcasting licences, which it still carries at $478 million in its books.

Operating earnings were down 6 per cent at $120 million, compared to the same period in 2015. Earnings from free-to-air television dropped 9 per cent to $109 million, while digital profits rose 13 per cent to $13.8 million.

Despite lower revenues and earnings, Nine still reported a $75 million underlying profit profit after reducing its costs, a 4 per cent decline on the same period last year.

Nine Entertainment will pay a dividend of 4.5¢ per share fully franked, down from 8¢ a year earlier.

“Over the past year, we have made significant progress in rebuilding our free-to-air business. Nine Network won all prime-time key demographics post the Olympics in 2016,” chief executive Hugh Marks told the market.

He is confident it will have better ratings this year, which will attract more advertising dollars. 

Asked about persisting speculation that Nine may consider merging with Fairfax Media (owner of The Age and The Sydney Morning Herald), Mr Marks said “there is nothing concrete that we are looking at at the moment”.

“I am interested in quality content that I can make a business out of quality platforms,” he later explained, adding print products are not a strategic asset for Nine.

Meanwhile the two companies’ joint venture – streaming service Stan – added 135,000 accounts, and now has more than 700,000 active subscribers.

The outlook is for a 2 per cent to 3 per cent decline in metropolitan advertising revenue. Nine expects to meet analyst full-year guidance of pre-tax earnings between $158 million and $187 million.  Writing down goodwill

The goodwill impairment on its TV network comes after Nine reviewed the value of assets carried in its books and found “the market capitalisation of the group was below the book value of its equity and the decline in free-to-air television market activity arising in the period”. 

“Impairment testing on Nine Network determined that an impairment loss in Nine Network’s goodwill of $260 million was required and this has been recognised in the period. The recent decline in market activity and resulting fall in EBITDA has led to this impairment,” the financial report states.

The move comes a day after the n Securities and Investments Commission revealed it had a hand in Seven West Media reducing the carrying value of its Yahoo7 joint venture by $75.5 million. ASIC has been cracking down on over-inflated valuations.

Chief financial officer Greg Barnes, who joined Nine in July, said the impairment “was the right thing to do” because of the share price.

“Write it down and move on,” he said.

Asked if Nine received any input from ASIC, he said, “It would be fair to say that when your market cap, your share price, sits below the book value of your assets per share – which Nine’s has done really for the majority of time since it reported its last year’s results – that it would get the attention of regulators”.

Director of Fusion Strategy, Steve Allen, said the write-down may have been necessary because “Nine wrote assets up during its [2013] float, which raised eyebrows”.

Television networks do not have the same value they had five years ago, Mr Allen added. However, he believes advertising dollars are returning to free to air.

“We just feel that advertisers’ mood has changed towards TV, particularly with revelations that have come out about social media metrics.”

Nine’s chief sales officer Michael Stephenson said this year television ads are being booked earlier in advance.

“We are seeing that in two areas – existing advertisers who are allocating a greater percentage of their total marketing budget back into television … [and] there are new brands coming to television.”

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