Nine Entertainment Co Holdings Ltd
Annual Report 2016

Plain-text annual report

2016 Annual Report Entertaining Australia The Year in Brief 2 4 Chairman’s Address 6 Chief Executive’s Address 8 Operational results 12 Other businesses 14 Nine’s place in the community 16 Governance 18 Building the future 20 Board of Directors 22 Directors’ Report 27 Remuneration Report 45 Operating and Financial Review 49 Financial Report 107 Shareholder Information ibc Corporate Directory Create Great Content Distribute it Broadly Engage Audiences and Advertisers Nine Entertainment Co. 2016 Annual Report Entertaining Australia Nine Entertainment Co. 1 In FY16, NEC reported Group EBITDA from continuing businesses of $202 million, down 7% on FY15 on revenue of $1.3 billion. Net Profit after Tax declined by 7% to $120.3 million compared to the Pro Forma FY15 result. Earnings per share were down 0.7% on a lower share count due to the on-market buy-back. Statutory Net Profit after Specific Items was $325 million, inclusive of the profit on the sale of Nine Live. Operationally, the impact of a difficult Free To Air television market was offset by a group-wide cost improvement and double digital EBITDA growth from a refocussed digital business. Operating free cash flow for the year, ex the cash impact of the Warner Specific Item, was $157 million. Net Debt at 30 June 2016 was $178 million — during the year, $164 million was returned to shareholders through dividends and the on-market share buy-back, $89 million was invested in Southern Cross Media and a further $37 million in Stan. $m Revenue1 Group EBITDA1 NPAT, before Specific Items1 Statutory Net NPAT, after Specific Items Operating Free Cash Flow1 Earnings per Share, before Specific Items — cents1 Dividend per Share — cents 1. Pro Forma Net Debt, $m Net leverage1 Statutory Interest Cover FY16 1,282.4 201.7 120.3 324.8 157.4 13.7 12.0 FY15 1,371.4 217.2 129.5 (592.2) 237.5 13.8 9.2 Reported 30 June 2016 Reported 30 June 2015 177.6 0.9x 40.1x 524.3 1.8x 10.8x Variance -6.5% -7.1% -7.1% — -33.7% -0.7% +30.4% (346.7) During FY16, Nine Entertainment Co. has focussed on the repositioning of its business from a linear free to air broadcaster, to a creator and distributor of cross-platform, premium content. While the Nine Network remains core, it is now complemented by Australia’s leading local subscription video on demand operator (Stan), a state-of the art live streaming and catch-up service, 9Now, a leading edge digital network nine.com.au and a broadening array of digital content. When it comes to evolving a media brand for the future, engaging audiences across all platforms with world class content and reinvesting for success, Nine is delivering on all fronts. #1 broadcast network in 25-54 demographic1 New affiliate deal with Southern Cross Media on improved terms rights secured through 2022 1.9m2 registered users of 10.5m+ Australians have watched The Year in Brief Notes: 1. Source: 12 months to June 2016, survey weeks, 6am-midnight 2. As at September 2016 3. Source: Omniture 2 Annual Report 2016 Video streams up 14% to 392m across the year3 Launch of Industry wide licence fee reduction 500,000+ active subscribers of Nine Entertainment Co. 3 Operational/Financial Highlights On behalf of the Board of Directors, I am pleased to present the Nine Entertainment Co. (NEC) Annual Report for the 2016 financial year, my first as Chairman. 2016 has been a challenging year for the Free To Air industry generally, and for Nine. As a Company, we have used this period wisely, continuing to broaden the business beyond linear broadcasting to be a major content creator and distributor across multiple platforms. With leading platforms across free-to-air, AVOD and SVOD and a suite of local broadcast and digital content — including the key genres of News, Sports, Reality, lifestyle and drama — the Company is uniquely positioned in a market where overall television viewership is growing in a universe of proliferating choice. Nine leads the industry in this direction. In particular, our SVOD joint venture with Fairfax, Stan, continues on a growth trajectory surpassing our expectations and is now firmly locked in as the leading domestic player in this growing space. 9Now, our state-of-the-art AVOD platform is also grabbing consumers’ attention, with 1.9 million registered users and consistent growth in streams and engagement since launch in early 2016. Both are great examples of leveraging the power of broadcast television onto other platforms and reaching a larger audience. We are constantly looking for other similar opportunities. Following the release of the full year results, the Directors declared a dividend to shareholders of 4.0 cents per share, bringing total dividends for the year to 12.0 cents per share, fully franked and an 86% payout of pre Specific Item earnings. As we stated at our full year results announcement, dividends in FY17 will be determined based on a 80 — 100% payout of earnings prior to Specific Items, although likely to be more evenly weighted between the interim and the final than in FY16 to better reflect our cash-profile. Chairman’s Address 4 Annual Report 2016 In a positive and welcome move, the Government implemented a licence fee reduction to 3.375%, which was announced in the May budget. However, our licencing regime remains unfair to Australian broadcasters. The licence fee is in addition to the usual company and consumption taxes. Not only does the Australian Free To Air Industry remain liable for these taxes but of course it has local content and production requirements as well. Licencing tax and content rules do not apply to foreign entrants now delivering content to Australian viewers and directly competing with Australian broadcasters. The licencing regime is anachronistic, it was conceived for a media world that has passed and is out of step with arrangements in other developed markets. Despite a number of proposals to deal with the issue, the media industry is still subject to rules that might have been once relevant but have been overtaken by the pace of change and technological advance, rules such as retransmission arrangements, reach, and licence fees. However, as we have proven with our recent affiliate agreement with Southern Cross, we can and will seek out commercial opportunities where they present themselves. This deal has been clearly beneficial for both companies. In May, Think TV was formed — a new industry body bringing together the free- to-air and subscription television industries in Australia with a mandate to promote television advertising in broadcast quality content environments. We welcome this first real sign of a commitment to work together for the good of the industry, and we expect there will be more initiatives to come, driving television’s share of the advertising pie, as well as exploring the potential for further infrastructure co-operation. In November last year, the Board welcomed the appointment of Hugh Marks, as the new Chief Executive Officer. Hugh is a highly successful veteran of the media and production industry, with almost 20 years experience as a senior executive in content production and broadcasting in Australia and internationally. His previous position as a non-executive director of NEC has enabled a very smooth transition. His vision and commitment to the future of the business have been welcomed. Hugh succeeded David Gyngell who decided to retire, after eight tireless years as CEO of NEC. He led the Company through a significant restructuring, whilst remaining an active and inspiring leader on a day-to-day basis. We were delighted when David agreed to continue his long association with Nine as a Non-Executive Director. I also acknowledge the contribution of our other retiring Directors during the year, in particular, David Haslingden who stepped down as Chairman in March to focus on other business interests. David joined the Board in February 2013, and during his time as Chairman, oversaw the successful public market float of the group. Kevin Crowe and Steve Martinez also retired during the year. Both nominees of Apollo Management, Steve and Kevin were committed Board members since February 2013 making invaluable contributions throughout their tenure. In particular, we acknowledge Steve’s willingness to remain a Director after Apollo’s sell-down, as we replenished the Board. During the year, we appointed Elizabeth Gaines and Catherine West as Directors. Both bring strong skills to the Board which now has a majority of independent Directors. Together, the Board has an impressive mix of complementary skills from international media to finance and public market experience, and a commitment to work in the interests of all shareholders. I want to touch briefly on the events in Beirut in April when four members of a 60 Minutes team, who were covering a child rescue story, were imprisoned for a short period of time. NEC commissioned an extensive independent review of the events leading up to the incident to ascertain what had gone wrong and what should have been done better. There were failures that exposed the crew to serious risk, and 60 Minutes and Nine to significant reputational damage. We have an obligation to our staff, our shareholders and our viewers to operate in ways consistent with our reputation as a leading producer of News and Current Affairs and we have committed to enhanced processes relating to story selection and approval, how we approve contracts and payments, and the way we conduct risk assessments. These procedures will be verified on a regular basis. During the year, the Board completed the details of the long term incentive plan for its key executives. We are confident that, coupled with the short term incentive plan, this will provide a clear link between executive remuneration and shareholder returns, while ensuring the Company is able to attract and retain a market leading team of dedicated executives. As a Company, we remain committed to supporting our broader community. Through Nine Cares, more than $45 million of airtime and exposure was provided to a variety of charities and community groups in FY16. The Children’s Hospital telethons in Sydney, Adelaide and Brisbane are key from a profile perspective whilst we are similarly active behind the scenes helping numerous disadvantaged people across Australia, as we continue to respect the community obligations associated with being the holder of the broadcasting licence. In closing, I would like to thank all of NEC’s management and staff for their ongoing commitment and outstanding work ethic. We are constantly asking our employees to challenge the way things have been done in the past and to think of ways to improve our service to consumers. They are consistently rising to the challenge. Thank you also to my fellow Board members who have supported the management team and me throughout the year. Peter Costello, AC Chairman “In a positive and welcome move, the Government implemented a licence fee reduction to 3.375%... but it remains out of step with arrangements in other developed countries.” Nine Entertainment Co. 5 Chairman’s AddressWhen I took the role of Chief Executive of NEC in November 2015, I was inspired by the opportunities that I could see to invest in the future of the Nine brand — a modern media business built around the foundations of world class content, a diverse set of platform assets and, of course, our greatest asset, our people. As a business, we have done much over the past year, notwithstanding the backdrop of a difficult advertising market and disappointing free-to-air ratings specifically in the June half. From a platform perspective, we have developed and launched a leading AVOD service, 9Now which as of the end of September had more than 1.9 million registered users, from a standing start in February. Viewing through 9Now has moved our business from 4th to 2nd1 position across consumption of streamed long form content across all Australian publishers. With more premium content scheduled for our business across 2017, I am confident 9Now will continue to grow and become a substantial part of our business into the future. Our SVOD joint venture, Stan, continues to thrive and has established itself as the number one local player in this burgeoning market. We have launched a fourth TV channel in 9Life, Australia’s first free-to-air lifestyle channel which is now the #1 multi-channel in the all-important women 18-54 demo2. Adding real targeted advertising capability in our multi-channel environment. We have locked in our long term broadcast rights (including free digital rights from 2018) for the NRL through to 2022 on terms which have improved on a cost per live hour basis. In April this year, we signed a long term affiliate deal with Southern Cross Media. This was a landmark deal for Nine, partnering with an innovative media company, and on significantly improved terms. Nine becomes the only free television brand with national coverage. We have successfully reduced the underlying costs of our television business by more than 2% and markedly improved the variable to fixed cost balance, enhancing our ability to adjust to market factors in the future. We have continued to invest in the business. We have moved to state-of- the-art broadcast facilities in Adelaide and Perth, and agreed a plan for Sydney. Both our digital and broadcast businesses have invested in leading edge ad management systems which will ensure maximisation of yield and efficiency of delivery. And we are investing in local content, to ensure our 2017 schedule is refreshed and more competitive. Before I get to the future, it is worth touching on our Warner Bros. content deal. This expired in January 2016, but under the terms of the legacy contract, we have been obliged to continue to receive and pay for a catalogue of programs, many of which were not useable by Nine. In FY15, we took what was expected to be the first of a series of provisions against the value of this content, the tail of which would run until all subsequent series of these programs were finished — to some extent an open-ended liability. In August, after the end of this financial year, we successfully reached an in principle agreement with Warner Bros. on the cost of our commitment under this obligation. As a result, we have agreed to pay a further $86 million in FY18 and FY19. Whilst the magnitude of this payment is clearly disappointing, it is below what was Chief Executive’s Address Notes: 1. Source: Nielsen streaming data, July 2016 2. Source: OzTAM data 6 Annual Report 2016 our expected scenario of costs looking forward. More importantly, settlement gives the business and our shareholders absolute clarity on the dollar value, but also greatly enhances our ability to focus our resources on the premium local content that will deliver us the greatest return in the future. The evolution of Media is creating opportunities for players with the right content, and the right distribution capabilities to evolve with it. We will be one of those players. In the medium term, we have identified five key points of focus to ensure we are the leading distributor of premium content in Australia. Our primary focus must be the rebuilding of our ratings and revenue share. Our strong performers of Sports and News will remain the key foundations but we need to deepen our local content offering. Through this year, we have substantially reworked our content mix and schedule for 2017 with a view to delivering more premium local shows. I am pleased to report that we enter 2017 with 50% more premium local television hours than we will deliver in 2016. Secondly, we remain committed to firm cost disciplines. In FY16, we did a good job, with an underlying decrease in television costs of more than 2%. The discontinuation of our long-standing Warners contract has given us increased flexibility regarding the allocation of our $1 billion cost base. In 2017, despite substantially more hours of premium local content, we have committed to a flat cost base in our Free To Air business as we prioritise and lift the efficiency of our programming spend. Thirdly, we must continue to innovate in our approach to revenue through investing in sales systems and structures that can adapt to the changing needs of our clients, as well as finding new ways to generate revenue from our program assets. We have broadened the revenue base on key program brands like The Voice and The Block. Adding more local premium content in 2017 will enable us to continue to expand this activity. This is what advertisers are demanding. While re-establishing operating performance in the Free TV business is the first priority and immediate focus for the business, we must do this at the same time as recognising that we are no longer just a Free To Air television network and must continue to invest for the future. Our fourth point of focus is on broadening our revenue base in parallel or adjacent businesses where we have an inherent competitive advantage. Stan is one example. Additionally, through 2016, we have invested in the content offering of our aligned digital businesses with the launch of a number of new verticals in 9Elsewhere, 9Kitchen, 9Homes as well as established brands 9Pickle and 9Honey. In 2017, we will be focussed on further expanding these content brands, investing in other verticals that work with our existing mix and enhancing the monetisation of this content including across video and mobile. Finally, we are a content production and distribution business. We continue to expand our internal production capability with revenue in our production business forecast to grow in excess of 50% in FY17. The ownership and exploitation of content rights will be a key priority in the current year. So in closing, during FY16, NEC has made substantial progress repositioning its business to respond to the changing behaviour of audiences and their consumption of video content. The combination of a re-focussed Free To Air network, a state-of-the-art streaming service, Australia’s leading SVOD service, and a broadening digital content offering is unique in the Australian market and further positions the Group to capitalise on the opportunities ahead. I would like to thank all our staff for their continued support and their work in ensuring Nine brings the best of content to Australian audiences. Having re-shaped our executive team throughout the year, I am confident we now have the right team to lead your company in 2017 and beyond. Finally, I would particularly like to thank David Gyngell for his eight years leading NEC. He retired in November, having seen the group through an enormous restructuring and rebuilding period. David instilled a culture of success at Nine that I will seek to build upon in the coming years. A culture that places the business in a position to deliver rewards to all our shareholders. I am grateful that he has agreed to remain on the Board and, in doing so, has given us the clear air to build upon the solid foundations that will be the future of the Nine brand. Thank you Hugh Marks Chief Executive Officer “NEC has made substantial progress repositioning its business to respond to the changing behaviour of audiences and their consumption of video content.” Nine Entertainment Co. 7 Chief Executive’sAddressMore than 95% of group revenues are currently derived from advertising across our television and digital platforms. These advertising revenues are a function of the depth and breadth of the Group’s content offering, and the monetisation of the audience this content attracts. In FY16, NEC reported Television advertising revenue of $1.1 billion and Digital revenues of $150 million. Free To Air television (FTA) which remains the core of NEC’s business, had a difficult twelve months. The Metro FTA ad market in Australia declined by 2%1 across the year, reaching its nadir in the March quarter with a 7% decline. The Regional markets again underperformed with advertising revenue down 6.2%1 on FY15. In an increasingly competitive market, Nine Network’s metro FTA revenue share declined by 1.9 percentage points to 37.0%1 for FY16 — the March quarter marking the low. The early 2016 revenue outcome, a reflection of Nine’s main channel ratings, was adversely impacted by fewer hours of premium Australian content, coupled with challenges in a number of Nine’s prime time shows. Over the year, Nine Network’s reported costs decreased by $62 million (6.2%). Inclusive of the total Warner’s costs, the onerous component of which was treated as a Specific Item, TV costs were down by 2.2%. This reduction was despite increases in contracted sports costs and legal fees, as well as the costs associated with the launch of the new 9HD and 9Life channels, partially offset by the recently legislated reduction in licence fees. TV EBITDA declined by 11% to $184 million. Digital recorded a 19% increase in EBITDA in the period, as the focus on more profitable revenue streams and firm cost controls delivered margin improvement. Display ad revenue across the year was impacted by disruption from the TV-Digital sales integration implemented in FY15, which resulted in the loss of market share. Premium local content the key From a ratings perspective, Nine was the number one network across the full fiscal period in the key demographics from 6am-midnight, on a four channel network basis. However, the prime time ratings of Channel 9, the main channel, were weak in early calendar 2016 as a number of key shows struggled. Since that time, Nine has been focussed on a plan to deliver significant ratings growth into CY17. Primarily, this has centred on the delivery of incremental premium, local content, which gains the greatest traction with the greatest audiences, within the bounds of the existing Television cost base. In CY17, Channel Nine expects to broadcast around 50% more premium local content than in CY16. This incremental local content combines with Nine’s traditional strengths of News and Current Affairs and core sports, cricket and NRL, for a markedly more compelling offering in CY17. And, in an unprecedented step, in July this year Nine presented over 500 hours of local Australian entertainment and 50 hours of new Australian drama to the major advertisers and agencies, months earlier than the standard upfront season, to ensure maximum monetisation of this refreshed content offering. Operational results Note: 1. Free TV data 8 Annual Report 2016 TV RESULTS Revenue $m EBITDA $m 1,200 1,000 800 600 400 200 0 300 250 200 150 100 50 0 FY11 FY11 FY12 FY12 FY13 FY13 FY14 FY14 FY15 FY15 FY16 FY16 Revenue EBITDA DIGITAL RESULTS EBITDA $m 180 160 140 120 100 80 60 40 20 0 50 40 30 20 10 0 FY14 FY15 FY16 Revenue EBITDA HOURS OF PREMIUM LOCAL CONTENT 350 300 250 200 150 100 50 0 +50% 2016 2017 RATINGS FOR THE YEAR #1 #1 #1 25-54s 18-49s 16-39s 37.0% 37.0% 37.1% OzTAM data, commercial share 12 months to end of June 2016, 6am-midnight. Love Child Season 3 averaged 1.25m national audience Nine Entertainment Co. 9 Operational ResultsLaunching New Platforms During FY16, the business delivered on a number of key milestones that vastly improve its strategic position for the years ahead. In December, two new channels were launched, Channel 9 in high definition as 9HD as well as lifestyle channel, 9Life, which has performed above expectations and has established a valuable and unique audience. In February, we launched 9Now, our world class streaming and catch up service. 9Now provides a state-of-the- art user experience with an extensive library of broadcast content for audiences to consume as and when they want. Since launch, more than 1.9 million users have subscribed to the service and by requiring registration, this enables the development of a proprietary data base which will become a key asset in the future. Data will allow advertisers to target their audiences directly, increasing advertising effectiveness and ultimately yield. The year culminated at the end of June with the launch of nine.com.au — a complete redesign of the flagship digital network which remains the gateway to Nine’s suite of broadcast, news, sport and lifestyle content. Wholly owned and now branded with its stable-mates, this was not just a new look and a new logo but a genuine commitment between the broadcast and digital editorial teams to ensure a seamless way of connecting Australians. The aim is to consolidate audiences across key genres and look for opportunities to monetise those audiences, whether by advertising or potentially transactional based revenue. #1 in their competitive set average monthly reach of 2 million unique Australians Launched #1 publisher by streams1 more eyeballs than any other news brands in a given month ¼ million Australians registered for Sales initiatives During the second half, Nine completely re-imagined its sales offering by introducing a number of key senior roles alongside new National roles in Television and Digital which will allow the Group to maximise core revenue and find new and diversified opportunities for growth. Part of this reflects the unwind of a previous decision to merge the Digital and Television sales force — a decision which ultimately led to loss of share of the growing digital market. During 2016, the group has invested in advanced advertising technology which will automate the trading of linear television inventory in early 2017. This will deliver operational and commercial efficiencies as a result of new and more innovative trading models. Ultimately, this technology will also enable the agnostic trading of audiences across television and online inventory supported by the deep first party data supplied by the 9Now single sign on. In May, Nine Digital launched its new ad platform using AppNexus technology, enabling world class innovation in ad product and ad serving. New Regional Affiliate Agreement During the year, Nine signed a long term affiliate deal with Southern Cross Media for the broadcast of Nine’s metropolitan TV content into regional Queensland, Southern New South Wales and regional Victoria. This was a landmark deal for Nine, partnering with an innovative media company, and on markedly improved terms. From 1 July 2016, the Southern Cross channels have carried Nine’s branding and broadcast its premium Australian and international content providing a seamless Nine brand across metropolitan and major regional markets for the first time in the Company’s history. Licence fees In May, the Free To Air industry was granted a 25% cut in licence fees paid to the Government, after much industry- wide lobbying. At 3.375%, these licence fees remain at odds with international averages, and the Free To Air industry continues to expect further reductions to come. Note: 1. Nielsen Digital ratings July 2016 — #1 News ranking by time spent and audience engagement 10 Annual Report 2016 Operational results continued Touching 16.8m Australians each month across all platforms Nine Entertainment Co. 11 Operational ResultsStan Stan is a natural extension of our traditional business — a state-of-the-art distribution platform for premium video content. Stan launched around 18 months ago, and as at the end of June, had signed up more than 1.1 million gross subscribers. At the same time, active subscribers totalled more than 500,000. The Subscription Video on Demand market in Australia continues its double-digit growth, with no sign of take-up slowing. For an industry that didn’t officially exist at the start of 2015, it is estimated that there could by more than 2 million subscriptions in the market currently, and Stan is the leading local player, by a clear margin. On a monthly basis, Stan continues to release first run, exclusive and original programming including the first SVOD Australian created and produced exclusives. And Stan recently announced the first sale of its original Australian content into the international market with Wolf Creek sold to Lionsgate in the US. 2017 is even more exciting with around half of the most anticipated shows from around the world expected to be on Stan, principally through its landmark distribution agreement with Showtime. This deal cements Stan’s foothold on the domestic market, drawing it further ahead of the other local players and locking in the future growth of the business. Other Investments NEC continues to target verticals which provide incremental content, particularly focussing on key advertising categories. These verticals not only provide alternate propositions for advertisers, but can also benefit from the cross-promotional capabilities of the group’s leading TV and digital platforms. • a majority stake in Pedestrian TV, Australia’s leading youth publishing business • 30% stake in Literacy Planet, an online English literacy education business with more than 115,000 subscribing students across Australia and abroad • 33% of the Australian News Channel, a three way joint venture between NEC, Seven Network and BSkyB, which operates Sky News in Australia and New Zealand • a majority stake in CarAdvice, the leading publisher of online automotive editorial content in Australia (from September 2016). Other businesses 12 Annual Report 2016 Stan Original Series Wolf Creek Australian streaming premiere of the year Nine Entertainment Co. 13 Other businessesNEC remains committed to supporting deserving community groups through providing opportunities for them to reach out to the general public for recognition and support. In FY16, Nine Cares provided more than $40 million of publicity and assistance to charities, community groups and campaigns, providing a broadcast microphone to many worthy causes. The Telethons remain the highlight of the Nine Cares’ calendar and, in FY16, Nine televised telethons in Sydney, Adelaide and Brisbane, in total raising more than $17 million for essential equipment, services and research at the local Children’s Hospitals. These Telethons are televised by Channel 9 in their local markets, with many of Nine’s key talent manning the phones and calling on the public to open their hearts and their pockets. Since their inceptions, these Telethons have raised more than $40 million and have become a critical contributor to the hospital fundraising appeals. A further $600,000 was raised in the inaugural 9Perth telethon for the victims of the devastating WA bushfires in January 2016. The Footy Show’s Big Change to Little Champions telethon, in its 4th year, raised a further $433,000 for the Starlight Foundation. Incrementally, Nine provided in-program exposure and editorial coverage in support of a variety of other causes including Take Heart Australia, the McGrath Foundation, Cure Brain Cancer and Epilepsy Australia. Through programs like A Current Affair, ordinary Australians can tell their stories and be supported by Nine and their audiences. Nine Cares also remains actively engaged with our communities around Australia, sponsoring local council events, surf clubs and galleries and museums, as well as events like Channel 9 Young Achiever Awards, The Melbourne Marathon, the Perth Royal Show and the Story Bridge 75th Anniversary. In FY16, Nine Cares managed and provided $37 million of airtime for Community Service Announcements (CSAs) for not-for-profit or community announcements in support of causes including Bowel Cancer Australia, Youngcare Australia, Vinne’s CEO Sleepout, Dry July and Camp Quality. In FY17, Nine Cares will increase its community work and launch a dedicated NineCares website to celebrate the work that is done and moreover, to provide further opportunities for community groups to connect with the public and maximise the reach of their messages. $45m in publicity and assistance Including $37m of CSA airtime $40m raised by Telethons since inception Nine’s place in the community 14 Annual Report 2016 Nine Cares Children’s Hospital Telethons raised more than $17m during FY16 Nine Entertainment Co. 15 Nine’s place in the communityCorporate Governance During the year, NEC reviewed and amended its Corporate Governance Statement, demonstrating the extent to which it has complied with the ASX’s Corporate Governance Council Principles and Recommendations and corporate governance best practice. As evidenced by the Corporate Governance Statement, NEC has taken a more detailed approach to the board review and assessment processes and consideration of the board skills matrix this year, allowing a more rigorous assessment of future needs of the Board. NEC has also reviewed and updated its Code of Conduct for all staff and made minor changes to the Securities Trading Policy to reflect changes in the organisational structure of NEC during the year. The Corporate Governance Statement, Code of Conduct and Securities Trading Policy are available on NEC’s website nineentertainment.com.au/overview.aspx. Media Ethics and Content Regulation As a commercial television licence holder, Nine is bound by the Commercial Television Code of Practice, which prohibits certain types of programs and advertisements, requires classification of program material and broadcasts in suitable time slots, and puts limits on the amount of advertising and other non-programming matter which can be broadcast. It also promotes editorial accuracy, fairness and protection of privacy for individuals in relation to news and current affairs. The Commercial Television Code of Practice requires Nine to ensure advertisers comply with the AANA Advertiser Code of Ethics and the AANA Code of Advertising and Marketing Communications to Children. Female 50% Further, Nine’s commercial television licences issued under the Broadcasting Services Act are subject to conditions around specific matter such as advertising of tobacco and interactive gambling, obligations to broadcast matters of national interest, and prohibitions on the broadcast of material with certain classifications. Male 50% Female 50% Male 50% Female 35% Male 65% Nine provides regular training for employees on Nine’s obligations under the Commercial Television Code of Practice and compliance with other applicable laws, relating to matter such as defamation and contempt of court. Nine Digital Pty Ltd is a member of the Press Council of Australia. The Press Council has issued a Statement of General Principles, a Statement of Privacy Principles and Specific Principles covering matters such as the reporting of suicides, which guide the publication of content by nine.com.au. As a member of the Press Council, Nine Digital Pty Ltd must co-operate with the Press Council’s consideration of complaints against it and to publish any decisions by the Press Council following a complaint to nine.com.au. Employees As an employer of around 3,350 people across Australia, NEC aims to provide an inclusive workplace that attracts the very best employees, which allows each of them to achieve their potential in a supportive and discrimination-free environment. Whilst we recognise that all definitions of diversity are important, gender diversity remains the most heavily focussed upon. Female 50% Male 50% Female 35% Male 65% Female 41% Male 59% NEC Board NEC Management NEC Total Employees Female 35% Governance Female 41% Male 65% Female 41% Male 59% Male 59% Female 41% Male 59% Female 41% Male 59% 16 Annual Report 2016 Female 41% Male 59% Nine’s key winter sport of NRL reaches more than 3m Australians each week Nine Entertainment Co. 17 GovernanceAs the business continues to evolve, so too must the infrastructure. Reflecting this evolution, NEC continues to invest in updating its technology, studio, content creation and distribution facilities to ensure its remains at the industry forefront. In September 2015, 9 Adelaide commenced broadcasting from its new Pirie Street studio facility adjacent to Hindmarsh Square, moving from the historic Tynte Street North Adelaide, after more than 50 years. From the heart of the Adelaide CBD, 9 Adelaide now boasts a state-of-the-art, high definition, automated studio facility providing vastly improved flexibility and competitive advantage in the local News market. Moving into the Adelaide CBD ensures Nine continues to evolve with its city and further immerses the Network in its local community. During 2016, 9 Perth has also been working towards a move from Dianella, in the city’s north to St George’s Terrace, in the CBD in September 2016. From an ageing facility in the city’s suburbs that had not been updated since the 1960s, the new fully digitised high definition studio in a highly visible location will further Nine’s community involvement and integration within the city of Perth, generating a deep connection within the heart of the CBD. The first step of the Sydney move occurred in August 2015, when agreement was reached to sell the current Willoughby site, the birthplace of Australian Free- To-Air television and home to Nine for 60 years in 2016, for $147.5 million. The sale is expected to complete in late 2017 — with an agreement to remain on the site under a leaseback arrangement as late as 2020. Site options are currently being assessed. Consolidating into one facility gives NEC the opportunity to bring all its sales, programming, executive and support functions together — both a culturally and financially significant move forward. In Brisbane and the Gold Coast, Nine will be investing further in high definition and automation upgrades throughout 2016 and 2017 to ensure our competitive advantage is maintained. The Newcastle Facility is working towards a rezoning and subsequent property sale to allow relocation to modern facilities consistent with the broader group strategy. Timing of the sale and relocation is currently being assessed. By 2020, all of Nine’s major sites will be fully integrated and streamlined as one content company, giving the Group enhanced quality, flexibility and capability across all aspects of the content creation and distribution business. 9 Adelaide moved September 2015 9 Perth moved September 2016 9 Sydney sale is expected to complete October 2017 Building the future 18 Annual Report 2016 Nine’s new Pirie Street studio facility in the heart of the Adelaide CBD Nine moved to St George’s Terrace in Perth in September 2016 Nine Entertainment Co. 19 Building the futurePeter Costello (a) Non-Executive Chairman Mr Costello was appointed to the Board in February 2013 as an independent, Non-Executive Director and in March 2016 was appointed Chairman of the Board. He is also a member of the Nomination & Remuneration Committee. Mr Costello is currently Chairman of the Board of Guardians of Australia’s Future Fund and serves on a number of advisory boards. He is a Trustee of Melbourne Cricket Ground. His business ECG Financial Pty Ltd is a boutique advisor on mergers and acquisitions, foreign investment, competition and regulatory issues which affect business in Australia. Mr Costello served as a member of the House of Representatives from 1990 to 2009 and was Treasurer of the Commonwealth of Australia from March 1996 to December 2007. Prior to entering Parliament Mr Costello was a barrister. He has a Bachelor of Arts and a Bachelor of Laws LLB (Hons) and a Doctorate of Laws (Honoris Causa) from Monash University. In 2011 Mr Costello was appointed a Companion of the Order of Australia. Hugh Marks (b) Chief Executive Officer Mr Marks was appointed Chief Executive Officer of Nine Entertainment Co. in November 2015. Prior to this, Mr Marks had been an independent, Non-Executive Director since February 2013. Mr Marks has almost 20 years’ experience as a senior Executive in content production and broadcasting in Australia and overseas. Prior to his appointment as CEO, Mr Marks owned talent management agency RGM Artists and had ownership and management interests in a number of independent companies producing content for broadcast and pay TV. Before joining the Board, Mr Marks was an authority member for the Australian Communications and Media Authority for over two years. Previously, Mr Marks was Chief Executive Officer of the Southern Star Group. Mr Marks has also worked with the Nine Network as legal counsel and then as Director of Nine Films & Television for seven years. Mr Marks received a Bachelor of Commerce and Bachelor of Laws from the University of New South Wales. a d b e c f Board of Directors 20 Annual Report 2016 Elizabeth Gaines (c) Non-Executive Director Ms Gaines was appointed to the Board in March 2016 as an Independent, Non- Executive Director and is the Chair of the Audit and Risk Committee. Ms Gaines was previously the CEO of ASX listed Helloworld, a travel distribution business operating in the brick and mortar and online retail sector. Ms Gaines’ executive career included extensive experience in financial services, construction, infrastructure and media in both the UK and Australia. Ms Gaines is currently a Non-Executive Director of Fortescue Metals Group Limited, Next DC Limited and ImpediMed Limited and she was appointed a Commissioner of Tourism Western Australia in November 2015. She is a Member of the Chartered Accountants Australia and New Zealand, Australian Institute of Company Directors and Chief Executive Women. Ms Gaines holds a Bachelor of Commerce degree and a Master of Applied Finance degree. David Gyngell (d) Non-Executive Director Mr Gyngell was the Company’s Chief Executive Officer from November 2010 until November 2015, having previously served as the Chief Executive Officer of Nine Network from September 2007. Mr Gyngell became a Non-Executive Director of the company in November 2015. He has over 15 years of experience at the Company and over 25 years’ overall media sector experience. Previously, Mr Gyngell was Chief Executive Officer of Granada Television and also Director of International Management Group and Transworld Media International. He has also worked as Executive Director, Group Marketing and Communications for Publishing & Broadcasting Limited. Holly Kramer (e) Non-Executive Director Ms Kramer was appointed to the Board in May 2015 as an independent, Non-Executive Director, and is the Chair of the Nomination & Remuneration Committee and a member of the Audit and Risk Committee. Ms Kramer has more than 20 years’ experience in general management, marketing and sales including roles at the Ford Motor Company (in the US and Australia), Pacific Brands and Telstra. Ms Kramer serves as a Non-Executive Director for Woolworths, AMP, Australia Post, regional community- owned telco Southern Phones and the Alannah and Madeleine Foundation. Her most recent executive position was Chief Executive Officer of Best & Less, a subsidiary of South African retail group Pepkor. Whilst at Telstra, her roles included Group Managing Director, Telstra Product Management and Chief of Marketing. She is a member of Chief Executive Women. Ms Kramer has a BA with Honours in Economics and Political Science from Yale University and an MBA from Georgetown University. Catherine West (f) Non-Executive Director Ms West was appointed to the Board in May 2016 as an Independent, Non- Executive Director and a member of the Audit and Risk Committee. Ms West has more than 20 years’ business and legal affairs experience in the media industry, both in Australia and the UK. Her most recent executive role was Director of Legal — Content Commercial and Joint Ventures for Sky Plc in the UK. In this role, Ms West was responsible for all of Sky’s content relationships and distribution and commercial activities. Ms West has recently returned to Australia from the UK. She is currently a Member of the Australian Institute of Company Directors and a Committee Member of the Sydney Breast Cancer Foundation at Chris O’Brien Lifehouse. Ms West holds both a Bachelor of Laws (Hons) and Bachelor of Economics degree from the University of Sydney. Nine Entertainment Co. 21 Board ofDirectorsDirectors’ Report The Directors present the financial report for the year ended 30 June 2016. The financial report includes the results of Nine Entertainment Co. Holdings Limited (the 'Company') and the entities that it controlled during the year (the 'Group'). Directors The Directors of the Company at any time during the financial year or up to the date of this report were as follows. Directors held office for the entire period unless otherwise stated. Name Title Date Appointed Date Resigned Peter Costello Independent Non-Executive Chairman1 6 February 2013 Hugh Marks Chief Executive Officer2 6 February 2013 David Haslingden Independent Non-Executive Chairman 6 February 2013 1 March 2016 Kevin Crowe Jr Non-Executive Director 6 February 2013 13 November 2015 Elizabeth Gaines Independent Non-Executive Director 1 March 2016 David Gyngell Non-Executive Director3 25 November 2010 Holly Kramer Independent Non-Executive Director 6 May 2015 Steve Martinez Independent Non-Executive Director4 6 February 2013 9 May 2016 Catherine West Independent Non-Executive Director 9 May 2016 1. Mr Costello was an independent Non-Executive Director of the Company until 1 March 2016, when he was appointed as Chairman. 2. Mr Marks was an independent Non-Executive Director of the Company until 10 November 2015, when he was appointed Chief Executive Officer. 3. Mr Gyngell was Chief Executive Officer of the Company until his resignation from that role which took effect on 30 November 2015. 4. Mr Martinez became an independent Director on 23 November 2015, when the Apollo Group sold its remaining shareholding in the Company. Remuneration Report The Remuneration Report is set out on the pages that follow and forms part of this Directors’ Report. Directors’ Interests The relevant interests of each Director in the equity of the Company and related bodies corporate as at the date of this report are disclosed in the Remuneration Report. 22 Annual Report 2016 Directors’ Meetings The number of meetings of Directors (including meetings of committees of Directors) held during the year, and the number of meetings attended by each Director, were as follows: Hugh Marks David Haslingden Peter Costello Kevin Crowe Jr1 Elizabeth Gaines2 David Gyngell Holly Kramer Steve Martinez3 Catherine West4 Board Audit and Risk Committee Nomination and Remuneration Committee Meetings held* Meetings attended Meetings held* Meetings attended Meetings held* Meetings attended 13 9 13 5 4 13 13 11 2 11 9 13 5 3 12 13 9 2 1 3 2 1 1 — 1 2 1 1 3 2 1 1 — 1 2 1 — 3 1 — — — 4 4 — — 3 1 — — — 4 3 — * The number of meetings held refers to the number of meetings held while the Director was a member of the Board or Committee. 1. Mr Kevin Crowe Jr resigned on 13 November 2015. 2. Ms Elizabeth Gaines was appointed to the Board and the Audit and Risk Committee on 1 March 2016. 3. Mr Steve Martinez resigned on 9 May 2016. 4. Ms Catherine West was appointed to the Board and the Audit and Risk Committee on 9 May 2016. Company Secretary Rachel Launders (General Counsel and Company Secretary) Ms Launders was appointed joint Company Secretary on 4 February 2015 and became sole Company Secretary on 29 February 2016. Ms Launders holds the role of General Counsel and Company Secretary at the Group. Prior to joining the Group in January 2015, Ms Launders was a partner at Gilbert + Tobin for over 13 years where she specialised in mergers and acquisitions, corporate governance and compliance. Ms Launders holds a Bachelor of Arts and Bachelor of Laws (Hons) from the University of Sydney. She also completed the Graduate Diploma of Applied Finance and Investment at the Financial Services Institute of Australasia and is a Fellow of the Financial Services Institute of Australasia. Principal Activities The principal activities of the entities within the Group during the year were: • Television broadcasting and program production; and • Digital, internet, subscription television, and other media sectors. Dividends Nine Entertainment Co. Holdings Limited paid an interim dividend of 8.0 cents per share in respect of the year ending 30 June 2016 amounting to $70,073,492 during the year. The Company has not declared any dividend subsequent to 30 June 2016. The Company declared and paid a final dividend of 5.0 cents per share in respect of the year ending 30 June 2015 amounting to $44,625,470 during the current year. Corporate Information Nine Entertainment Co. Holdings Limited is a company limited by shares that is incorporated and domiciled in Australia. It is the parent entity of the Group. The registered office of Nine Entertainment Co. Holdings Limited is 24 Artarmon Road, Willoughby NSW 2068. Nine Entertainment Co. 23 Directors’ ReportReview of Operations For the year to 30 June 2016, the Group reported a consolidated net profit after income tax of $324,755,000 (2015: loss $592,151,000). The Group’s revenues from continuing operations for the year to 30 June 2016 decreased by $97,538,000 (7%) to $1,286,360,000 (2015: $1,383,898,000). The Group’s earnings before interest, tax, depreciation and amortisation (EBITDA) and before specific items (Note 3(iv)) for continuing operations for the year ended 30 June 2016 was a profit of $201,746,000 (2015: profit of $217,178,000). The Group’s cash flows generated in operations for the year to 30 June 2016 were $50,279,000 (2015: $246,204,000). Further information is provided in the Operating and Financial Review on pages 45 to 48. Significant Changes in the State of Affairs On 31 July 2015 the Group disposed of the controlled entity A.C.N 604 938 534 Pty Ltd and its subsidiaries (collectively “Live”) for an enterprise value of $640 million subject to normal completion adjustments (refer to Note 6(a) for further detail), which resulted in a gain on sale of $410,217,000 (pre-tax) and $288,189,000 (post-tax). During the period Live contributed an EBITDA before specific items of $7.7 million. Following the receipt of the proceeds from the disposal, on 5 August 2015 the Group repaid the $580 million debt which was drawn at 30 June 2015. On 18 March 2016 the Group acquired 9.99% of the shares in Southern Cross Media Group Limited (ASX: SXL) for a total consideration of $88,448,000. Significant Events after the Balance Sheet Date On 24 August 2016, the Group entered into a non-binding heads of agreement with Warner Bros, in relation to its life of series obligations. Under the original contract, the Group was obliged to purchase a number of US drama and comedy series as they became available, for as long as new series were being released and irrespective of how this content performed in the Australian market. To the extent that such content was loss-making, it was impaired as it became available. For the year ended 30 June 2016, Specific Items included a $46m charge to this effect. The agreement reached gives the Group the option to exit the life of series obligations in exchange for foregoing the relevant rights to the content. As compensation for exiting the original contract, the agreement includes financial payments of up to $101 million to Warner Brothers, of which approximately $86 million relates to commitments in respect of future series not available for broadcast at 30 June 2016. The Group expects a formal contract to be signed and the option to be exercised during the year ending 30 June 2017, at which time a provision of approximately $86m and corresponding expense will be recognised by the Group. Other than noted above, there has not arisen in the interval between the end of the financial period and the date of this report any item, transaction or event of a material and unusual nature, to affect significantly the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity, in future years. Likely Developments and Expected Results Other than the developments described in this report, the Directors are of the opinion that no other matters or circumstance will significantly affect the operations and expected results of the Group. Unissued Shares and Options As at the date of this report, there were no unissued ordinary shares or options. There have not been any share options issued during the year or subsequent to the year end. Indemnification and Insurance of Directors and Officers During or since the financial year, Nine Entertainment Co. Holdings Limited has paid premiums in respect of a contract insuring all the Directors and officers of the parent entity and its controlled entities against costs incurred by them in defending any legal proceedings arising out of their conduct while acting in their capacity as Director or officer of Nine Entertainment Co. Holdings Limited or its controlled entities. The insurance contract specifically prohibits disclosure of the nature of the insurance cover, the limit of the aggregate liability and the premiums paid. 24 Annual Report 2016 Directors’ ReportDirectors’ Report continuedAuditor’s Independence Declaration The Directors have received the Auditor’s Independence Declaration, a copy of which is included on page 26. Indemnification of Auditors To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. Non-audit Services Details of amounts paid or payable to the auditor for non-audit services provided by the auditor during the year are set out in Note 24 of the financial statements. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Rounding The amounts contained in the financial statements have been rounded off to the nearest thousand dollars (where rounding is applicable) under the option available to the Group under ASIC Class Order 2016/191. Nine Entertainment Co. Holdings Limited is an entity to which the Class Order applies. Signed on behalf of the Directors in accordance with a resolution of the Directors. Peter Costello Chairman Hugh Marks Chief Executive Officer and Director Sydney, 25 August 2016 Nine Entertainment Co. 25 Directors’ ReportAuditor’s Independence Declaration 26 Annual Report 2016 Remuneration Report – Audited Letter from the Committee Chair Dear Shareholders I am pleased to present the Company’s 2016 Remuneration Report on behalf of the Board. The report outlines the Company’s remuneration philosophy and approach as well as the remuneration framework and outcomes for the 2016 financial year. The Company’s remuneration philosophy is continuously reviewed and refined to ensure the link between shareholder returns and Executive remuneration is maintained. The Company’s remuneration structure and policies are designed to attract and retain a talented and motivated leadership team, who can deliver sustainable total returns to shareholders. There was a significant amount of change during 2016 at both Board and Executive level. These changes included the appointment of a new Chairman, Peter Costello and a new Chief Executive Officer, Hugh Marks. All Board and Key Executive Management changes are set out in detail in the Remuneration Report. During the 2016 financial year our key focus was to embed the Company’s post IPO remuneration framework. One critical component of the framework was the implementation of a Long Term Incentive (LTI) Plan for Key Management Personnel and key Senior Executives. The LTI Plan seeks to retain participants and align long-term remuneration outcomes with shareholder interests. As part of our annual remuneration process, we also reviewed the Company’s Short Term Incentive (STI) Plan. We believe that the STI plan appropriately rewards short term performance and have not recommended any further change. In line with the remuneration framework, incentive payments for the 2016 financial year have been reduced to reflect a clear link between Company performance and shareholder returns. The Nomination and Remuneration Committee and the Board are satisfied that the Company’s remuneration arrangements remain appropriate and demonstrate a responsible approach to aligning remuneration outcomes with shareholder interests. We will, however, continue to seek feedback from our stakeholders and evaluate and implement improvements to the framework as we go forward. Holly Kramer Chair of the Nomination and Remuneration Committee Nine Entertainment Co. 27 Remuneration ReportThis Remuneration Report for the year ended 30 June 2016 outlines the remuneration arrangements of the Company and the Group in accordance with the Corporations Act 2001 (the Act) and its regulations. This information has been audited as required by section 308(3C) of the Act. The Remuneration Report is presented under the following sections: 1. Key Management Personnel 2. Remuneration Governance 2.1 Nomination and Remuneration Committee (NRC) 2.2 Use of Remuneration Consultants 2.3 Associated Policies 3. Executive Remuneration 3.1 Remuneration Principles 3.2 Approach to Setting Remuneration 3.3 Fixed Remuneration 3.4 Short-Term Incentive (STI) Plan 3.5 Long-Term Incentive (LTI) Plan 3.6 Employee Gift Offer Plan 4. Legacy Remuneration Arrangements — Pre-IPO 5. Executive Remuneration Outcomes for 2016 5.1 Link to Performance 5.2 Short-Term Incentives (STI) 5.3 Summary Remuneration Outcomes 6. Executive Contracts 7. Non-Executive Director (NED) Remuneration Arrangements 8. Performance Rights, Employee Gift Offer Shares and Share Interests of Key Management Personnel 9. Loans to Key Management Personnel and their related parties 10. Other transactions and balances with Key Management Personnel and their related parties 28 Annual Report 2016 Remuneration Report – Audited continued1. Key Management Personnel The Remuneration Report details the remuneration framework and arrangements for Key Management Personnel (KMP), as set out below for the year ended 30 June 2016. KMP are those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any Director (whether Executive or otherwise) of the Company. The tables detail movements during the 2016 financial year and current KMP and Directors. Key Management Personnel at 30 June 2016 Non-Executive Directors (NEDs) Peter Costello Chairman (independent, Non-Executive) Elizabeth Gaines Director (independent Non-Executive) David Gyngell1 Director (Non-Executive) Holly Kramer Director (independent, Non-Executive) Catherine West Director (independent Non-Executive) Executive Director Hugh Marks Chief Executive Officer Other Executive KMP Amanda Laing Managing Director Michael Stephenson Chief Sales Officer 1. Mr Gyngell was Chief Executive Officer of the Company until his resignation from that role which took effect on 30 November 2015. With the exception of Holly Kramer no other NED or KMP held their current position for the full financial year as set out below. Appointments The table below sets out details of Director and KMP appointments made during the 2016 financial year. Non-Executive Directors (NEDs) David Gyngell1 Name Peter Costello2 Elizabeth Gaines Catherine West Position Director Chairman Director Director Executive Director Hugh Marks3 Chief Executive Officer Other Executive KMP Amanda Laing4 Managing Director Michael Stephenson Chief Sales Officer Commencement date 30 November 2015 1 March 2016 1 March 2016 9 May 2016 10 November 2015 1 November 2015 14 March 2016 1. Mr Gyngell was Chief Executive Officer of the Company until his resignation from that role which took effect on 30 November 2015. 2. Mr Costello has been a Non-Executive Director since 6 February 2013. 3. Mr Marks was an independent Non-Executive Director of the Company until 10 November 2015, when he was appointed Chief Executive Officer. 4. Managing Director role is not a Board position. Subsequent to the end of the financial year, Greg Barnes was appointed to the position of Chief Financial Officer, effective 4 July 2016. Nine Entertainment Co. 29 Remuneration ReportResignations The table below sets out details of Director and KMP resignations during the 2016 financial year. Non-Executive Directors (NEDs) Kevin Crowe Name Position Director David Haslingden Chairman Steve Martinez Director Other Executive KMP Simon Kelly Chief Operating Officer, Chief Financial Officer and Company Secretary Cessation date 13 November 2015 1 March 2016 9 May 2016 29 February 2016 Peter Wiltshire Chief Revenue Officer 15 May 2016 On 10 November 2015, Hugh Marks, previously a Non-Executive Director, accepted the role as Chief Executive Officer and, in doing so, became an Executive Director. There were no other changes to KMP after the reporting date and before the date the financial report was authorised for issue. 2. Remuneration Governance 2.1 Nomination and Remuneration Committee (NRC) The NRC assists the Board in fulfilling its responsibilities for corporate governance and oversight of NEC’s nomination and remuneration policies and practices. The Committee’s goal is to ensure that NEC is able to attract the industry’s best talent and appropriately align their interests with those of key stakeholders. Specifically, the Board approves the remuneration arrangements of the Chief Executive Officer (CEO) and other key executives and awards made under short-term incentive (STI) and long-term incentive (LTI) plans, following recommendations from the NRC. The Board also sets the remuneration levels of Non-Executive Directors (NEDs), subject to the aggregate pool limit approved by shareholders. The NRC also assists the Board in discharging its responsibilities in relation to NEC’s Board composition and performance and succession of the CEO and other key executives. The NRC meets as required throughout the year. The CEO and other Senior Executives attend certain NRC meetings by invitation, where management input is required. Management are not present during any discussions relating to their own remuneration arrangements. Details of the membership, number and attendance at meetings held by the NRC are set out on page 23 of the Directors’ Report. Further information on the NRC’s role, responsibilities and membership is included in the committee charter which is available at http://www.nineentertainment.com.au. In accordance with its charter the NRC should, to the extent practicable given the size and composition of the Board from time to time, comprise: i. At least three members each of whom must be Non-Executive Directors; and ii. A majority of Directors who are independent. Holly Kramer replaced David Haslingden as Chair of the NRC on 9 November 2015. David Haslingden and Steve Martinez ceased to be committee members upon their resignations from the Board. At 30 June 2016, the Committee comprised Holly Kramer (Chair) and Peter Costello. Catherine West has been appointed to the NRC since that date. During the 2016 financial year key focus areas of the NRC included the following: • The appointment of Hugh Marks to the position of CEO following David Gyngell’s resignation from the position and transition to a Non-Executive Director role; • The appointment of Greg Barnes to the position of Chief Financial Officer, commencing 4 July 2016, following the resignation of Simon Kelly as Chief Operating Officer, Chief Financial Officer and joint Company Secretary; • The promotion of Michael Stephenson to the position of Chief Sales Officer following the resignation of Peter Wiltshire as Chief Revenue Officer; • The appointment of Catherine West and Elizabeth Gaines as independent, Non-Executive Directors; and • Approval and implementation of the new Long Term Incentive Plan for Senior Executives. 30 Annual Report 2016 Remuneration Report – Audited continued2.2 Use of Remuneration Consultants From time to time, the NRC seeks external independent remuneration advice. Remuneration consultants are engaged by, and report directly to, the committee. In selecting a remuneration consultant, the committee considers potential conflicts of interest and requires the consultant’s independence from management as part of their terms of engagement. Where the consultant’s engagement requires a remuneration recommendation, the recommendation is provided to the Chair of the NRC to ensure management cannot unduly influence the outcome. The Company has continued to engage the services of Egan Associates as the Company’s remuneration advisor for three consecutive years. In the current financial year the NRC did not receive any remuneration recommendations, though it was provided with information on market trends to assist the committee with policy development and other strategic advice. The committee requested Egan Associates to review elements of the terms and conditions of the CEO and those of the recently appointed CFO. 2.3 Associated Policies The Company has established a number of policies to support reward and governance, including the Code of Conduct, Disclosure Policy and Securities Trading Policy. These policies have been implemented to promote ethical behaviour and responsible decision making. The Code of Conduct and Securities Trading Policy were updated in May 2016 to further support the aforementioned. These policies are available on Nine’s website (www.nineentertainment.com.au). 3. Executive Remuneration 3.1 Remuneration Principles The remuneration framework is designed to attract and retain high performing individuals, align executive reward to NEC’s business objectives and to create shareholder value. The remuneration framework reflects the company’s remuneration positioning following consideration of industry and market practices and advice from independent external advisers. The Company’s executive reward structure is designed to: • Align rewards to the creation of shareholder value, implementation of business strategy and delivery of results; • Implement targeted goals that encourage high performance and establish a clear link between executive remuneration and performance, both at Company and individual business unit levels; • Attract, retain and motivate high calibre executives for key business roles; • Provide a balance between fixed remuneration and at-risk elements and short- and long-term outcomes that encourages appropriate behaviour to provide reward for short-term delivery and long-term sustainability; and • Implement an industry competitive remuneration structure. 3.2 Approach to Setting Remuneration The Group aims to reward Executive KMP with a level and mix (comprising fixed remuneration, short- and long-term incentives) of remuneration appropriate to their position, responsibilities and performance within the Group and aligned with industry and market practice. The key components of the remuneration framework for Executive KMP detailed in this remuneration report include fixed remuneration and at-risk remuneration. • Fixed remuneration is made up of base salary, non-monetary benefits and superannuation; and • At-Risk remuneration is made up of Short Term and Long Term incentives which form the at-risk component of Executive KMP remuneration. The Company’s policy is to position remuneration for Executive KMP principally within a competitive range of direct industry peers in light of the small pool of executive talent with appropriate industry experience and skills and the competitive nature of the media and entertainment industry. There is also consideration of other Australian listed companies of a similar size, complexity and prominence. Total remuneration at target is positioned at the median of this comparator group, while providing the opportunity to earn top quartile rewards for outstanding performance against stretch targets. Remuneration levels are considered periodically and on a case-by-case basis through a remuneration review that considers the following: industry insights, the performance of the Company and individual, and the broader economic environment, and (as required) advice from independent external advisors. The Company’s executive remuneration framework was revised to reflect its move from private to public ownership during the 2014 financial year. Disclosed remuneration for the 2015 and 2016 financial years includes certain legacy elements of the pre-IPO Remuneration Framework which was in place prior to the Company’s IPO. These are discussed later in this report. The following table summarises the Executive KMP remuneration structure and mix under the Company’s Remuneration Framework. Nine Entertainment Co. 31 Remuneration ReportRemuneration Structure and Mix Chief Executive Officer Fixed Remuneration Short-Term Incentive Long-Term Incentive Total at Risk 33.3% 33.3% 33% 66.6% Cash — 67% Deferred Shares — 33% Other Executive KMP Fixed Remuneration Short-Term Incentive Long-Term Incentive Total at Risk 40% — 50% 25 — 30% 25 — 30% 50 — 60% Cash — 67% Deferred Shares — 33% 3.3 Fixed Remuneration Fixed remuneration represents the amount within the framework comprising base salary, non-monetary benefits and superannuation. Fixed Remuneration is set at a competitive level to attract and retain talent and also considers the scope of role, knowledge and experience of the individual and the external market. Once established, Fixed Remuneration is considered as part of an annual salary review process or from time-to-time as necessary to ensure it is competitive with comparable roles in the external market. 3.4 Short-Term Incentive (STI) Plan The Group operates an annual STI program for certain executives; awards are aligned to the attainment of clearly defined Group, business unit and individual targets. The STI plan is subject to annual review by the NRC and the structure, performance measures and weightings may therefore vary from year to year. No changes were made to the STI plan that was implemented in 2015. Actual STI payments awarded to each Executive KMP continue to depend on the extent to which specific measures are met. The measures consist of key performance indicators (KPIs) covering financial and non-financial measures of performance at both a corporate and business unit level, as relevant for each participant. A summary of the measures and weightings applicable to the 2016 financial year is set out below. The non-financial measures for the STI plan are a range of KPIs assigned on an individual basis to participants based on their specific area of responsibility. These personal KPIs are directly aligned to the Group’s Board approved key operational and strategic objectives and include quantitative measures where appropriate. On an annual basis, after consideration of actual performance against financial and non-financial measures, the Board determines the amount, if any, of the short-term incentive to be paid to each Executive KMP, seeking recommendations from the NRC and CEO as appropriate. This performance evaluation process was undertaken during the financial year. In assessing the achievement of financial and non-financial measures the NRC may exercise its discretion to adjust outcomes for significant factors that contribute positively or negatively to results that are considered outside the control of management. Further details of the 2016 STI plan are set out below. Measures and weightings Chief Executive Officer Other Executive Key Management Personnel Financial Measures Non-Financial Group EBITDA Group EPS Measures 37.5% 37.5% 37.5% 37.5% 25% 25% The financial performance measure for the 2016 financial year includes both Group EBITDA and Group Earnings Per Share (EPS) to continuously align executive performance with the key drivers of shareholder value and reflect the short-term performance of the business. Financial performance measures for future years will be determined annually. An additional 28 executives participated in the STI plan during the 2016 financial year, 72% of those were measured against both Group and Business Unit EBITDA and Group EPS. In exceptional circumstances, individuals may be awarded an STI payment of up to 137.5% of their target STI based on significant outperformance of financial measures and personal KPIs. 32 Annual Report 2016 Remuneration Report – Audited continuedFinancial Measures % Financial Measure Delivery <95% 95% 100% 105% 110% >115% Non-Financial Measures Performance Assessment based on delivery of Personal KPIs Unsatisfactory Performance Requires Development Valued Contribution Superior Contribution Exceptional Contribution % Payout (of Financial Component) vs Target Payout Subject to Board consideration 50% 100% 110% 125% 150% % Payout (of Non-Financial Component) vs Target Payout Nil 25 — 90% 75 — 100% 100%1 100%1 1. The CEO (or the NRC in relation to the CEO’s own performance) may recommend payouts exceeding 100% for Superior and Exceptional performance. Any such recommendations are subject to NRC approval. Deferred STI Payment Part of any STI payment under this Plan for Executive KMP is satisfied by the transfer of an equivalent value of NEC shares (Shares), at the time of the award, which are held in two tranches for prescribed time periods before they vest and can be traded. Any unvested Shares may be forfeited if the executive ceases to be an employee before a vesting date. The following allocation of any STI payment between cash and Shares applies: Cash Deferred Shares Date Payable/of Vesting Following results release 1 year following end of performance period 2 years following end of performance period Percentage 67% 16.5% 16.5% The number of Shares subject to deferral is determined by dividing the deferred STI amount (being 33% of the STI payable) by the volume weighted average price (VWAP). VWAP is calculated over the period commencing 5 trading days before and ending 4 trading days after the performance period results release (i.e. over a total period of 10 trading days). The executive will receive all benefits of holding the Shares in the period before vesting, including dividends, capital returns and voting rights. Shares granted are amortised over the applicable vesting period for the purpose of statutory remuneration disclosures. Shares which have vested can only be traded, within specified trading windows, consistent with NEC’s Securities Trading Policy or any applicable laws (such as the insider trading provisions). The Board has determined that Shares will be acquired on-market to satisfy awards under this component of the STI Plan. 3.5 Long-Term Incentive (LTI) Plan The NRC approved the construct of an equity-based LTI plan in the 2015 financial year to align long-term remuneration outcomes with stakeholder interests benchmarked against the market and the delivery of the Company’s strategic and operating goals. The first grant was issued in the 2016 financial year. The plan which seeks to align long-term remuneration outcomes with stakeholder interests benchmarked against the market and the delivery of the Company’s strategic and operating goals will be implemented over time as part of this Remuneration Framework. Nine Entertainment Co. 33 Remuneration ReportThe LTI plan involves the granting of conditional rights to members of the Company’s leadership team and grants will be made on an annual basis. The 2016 grant consists of two distinct components, each representing 50% of the total value of the grant. The vesting of the first component is subject to an EPS growth hurdle and the second component is subject to a relative TSR performance hurdle. The TSR performance is measured against a comparator group drawn from the S&P ASX 200 Index. Each grant has a vesting period of 3 years. Further details of the Performance Rights Plan are as follows: Grant Date Consideration Performance Rights Vesting Dates As determined by the Board Nil Upon satisfaction of Vesting Conditions, each Performance Right will, at the Company’s election, convert to a Share on a one-for-one basis or entitle the Participant to receive cash to the value of a Share. No amount is payable on conversion. Subject to the Vesting Conditions and Employment Conditions described below, Performance Rights held by each Participant will vest on the Vesting Date 3 years from Grant Date (with no opportunity to retest). Vesting Conditions Performance Rights granted in any one allocation will vest: • 50% subject to the Company’s TSR performance against a comparator group over the Performance Period • 50% subject to the achievement of fully diluted earnings per share growth (EPSG) targets as set by the Board over the Performance Period The degree of TSR and EPSG performance will determine whether none, some or all granted Performance Rights vest at the end of the performance period. Performance against each of TSR and EPSG will be determined independently in accordance with Board approved hurdles. As they are Commercial in Confidence an update against TSR and EPSG performance will be provided at each AGM. Performance targets will be disclosed when, and if, Performance Rights vest. Any Performance Rights which do not vest at the end of the performance period will lapse. The Board may vary the Vesting Conditions for each Plan issue. Performance Period The Performance Period is the period over which Vesting Conditions are tested. The Performance Period for each Vesting Condition may be different. If the Participant is not employed by NEC or any NEC Group member on a particular Vesting Date due to the Participant either: • having been summarily dismissed; or • having terminated his/her employment agreement otherwise than in accordance with the terms of that agreement. Any unvested Performance Rights held on or after the date of termination will lapse. If the Participant has ceased to be employed by NEC in any other circumstances (e.g. redundancy, retirement, ill health, termination by the employee in accordance with his/her employment agreement), the Participant will retain a time based, pro-rated number of unvested Performance Rights determined on a tranche by tranche basis (where the time based proportion of each tranche is determined as the length of time from the start of the performance period to the date on which employment ceases divided by the total time period of a particular tranche). Any unvested Performance Rights that do not lapse in accordance with the above, remain on foot until the relevant Vesting Date. Any vesting at that time will be determined based on Vesting Conditions for those Performance Rights being met. Where vesting occurs during a trading blackout period under the Company’s Share Trading Policy, any Shares issued or transferred to the Participant upon vesting of any Performance Rights will be subject to restrictions on disposal from the date of issue (or transfer) of the Shares until the commencement of the business day following the end of that blackout period, or such later date that the Board may determine under the Company’s Securities Trading Policy. Cessation of employment (Employment Conditions) Disposal restrictions 34 Annual Report 2016 Remuneration Report – Audited continuedChange of control The Board has the discretion to accelerate vesting of some or all of a Participant’s Performance Rights in the event of certain transactions which may result in a change of control of Nine Entertainment Co. Holdings Ltd. The discretion will be exercised having regard to all relevant circumstances at the time. Unvested Performance Rights will remain in place unless the Board determines to exercise that discretion. Where a change of control occurs, Nine Entertainment Co. Holdings Ltd can agree with a Participant and the new controller that the Participant will receive shares in the new controller, rather than shares in Nine Entertainment Co. Holdings Ltd, on vesting of Performance Rights, with appropriate adjustments to the number and type of shares to be issued on vesting of the Performance Rights. Unless the Board decides otherwise, any restrictions on disposal of shares which have been issued on vesting of Performance Rights will be lifted, if a change of control event occurs. Restrictions Without the prior approval of the Board, or unless required by law, Performance Rights may not be sold, transferred, encumbered or otherwise dealt with. Amendments Capital Initiatives Other terms A Participant may not enter into any arrangement for the purpose of hedging, or otherwise affecting their economic exposure to their Performance Rights To the extent permitted by the ASX Listing Rules, the Board retains the discretion to vary the terms and conditions of the Performance Rights Plan. This includes varying the number of Performance Rights or the number of Shares to which a Participant is entitled upon a reorganisation of capital of NEC. The Board will endeavour to amend the terms of any Performance Rights on issue to equitably deal with any capital return, share consolidation, share split, such that the value of those rights is not prejudiced. The Board’s actions here will be at their sole discretion. The Performance Rights Plan also contains customary and usual terms having regard to Australian law for dealing with administration, variation, suspension and termination of the Performance Rights Plan. Participants and Allocations The table below sets out the details for the Executive KMPs that participated in the LTI Plan for the 2016 financial year. The number of share rights allocated was based on a 10 day VWAP around the release of the FY15 results. VWAP is calculated over the period commencing 5 trading days before and ending 4 trading days after the performance period results release (i.e. Over a total period of 10 trading days). Hugh Marks1 Amanda Laing Peter Wiltshire Number of Performance Rights Granted Not issued 283,333 283,333 Value of Performance Rights Granted2 $ n/a $425,000 $425,000 1. The grant of 906,149 Performance Rights to the CEO, with a value at the date of allocation of $1.4 million, under the LTI Plan is subject to shareholder approval which will be sought at the 2016 Annual General Meeting. 2. Value of Performance Rights at the date of allocation. 3.6 Employee Gift Offer Plan All eligible employees, including KMP (excluding Directors) were entitled to participate in an Employee Gift Offer made at the time of the IPO. Under this offer, successful applicants received an allocation of $1,000 worth of shares (487 shares at the offer price of $2.05 per share) for nil consideration on the listing of the Company. The Company did not make an Employee Gift Offer in the 2015 or 2016 financial years and it has not been determined at this stage whether there will be any future Employee Gift Offers. Nine Entertainment Co. 35 Remuneration Report4. Legacy Remuneration Arrangements – Pre-IPO The remuneration framework in place prior to the Company’s listing in December 2013 (“Pre-IPO Remuneration Framework”) was established by the Board and shareholders of the Company at the time to align with operational and strategic priorities under private ownership. Arrangements impacting Executive KMP under the Pre-IPO Remuneration Framework were disclosed in the Prospectus issued as part of the Company’s listing in December 2013. The following sets out the outcomes of legacy short and long-term incentive arrangements established under the Pre-IPO Remuneration Framework. Executive Director David Gyngell Other Key Management Personnel Simon Kelly Amanda Laing Peter Wiltshire 2016 2015 2016 2015 2016 2015 2016 2015 Short term benefits Share based payments Additional Short- Term Incentivesi $ Pre IPO Share Rightsii $ Total Pre-IPO Components $ 131,707 153,658 1,020,832 1,899,315 1,152,539 2,052,974 61,346 71,571 30,673 35,785 18,209 21,034 475,482 884,659 189,222 442,329 139,741 259,995 536,828 956,229 219,895 478,115 157,950 281,029 Notes: i. Additional Short-Term Incentives Each of the Executive KMP and certain other executives are entitled to receive cash bonuses in circumstances where dividends are paid to shareholders, with such bonuses calculated by reference to the number of Performance Rights held by the relevant Executive KMP or Senior Executives under the pre- IPO Performance Rights Plan (details of which are set out below) at the relevant dividend payment date multiplied by the dividend paid per share in the relevant period. This arrangement formed part of the commitment to certain executives at the time that contracts were re-negotiated prior to the company’s IPO. Amounts paid under the Additional Short-Term Incentive are recorded as remuneration in the year paid. As dividends were declared and paid in the year to June 2016 cash bonuses were paid under these arrangements during the 2016 year. ii. Pre-IPO Performance Rights Whilst in private ownership, the owners instigated a one-off pre-IPO Performance Rights Plan. Grants under this plan were contingent on the Company’s successful listing on the ASX. The vesting criteria of this one-off share-based plan is solely based on continued employment which was considered appropriate at the time given the intention of this plan to reward prior long-term business performance and shareholder value creation, assist retention and align key executives to the IPO process. In addition, participants were required to align their key contractual terms including notice and restraint periods and termination provisions to a set of standards based on the management level of each participant, in doing so reducing retention and competitor risk for the business. A total of 6,186,415 Performance Rights were issued (valued at $12,676,000 at the IPO issue price of $2.05 per share) following the Company’s listing on the ASX. No further grants under the Pre-IPO Performance Rights Plan have been made since listing or are proposed. Of the total Performance Rights issued, 4,029,266 were issued (valued at $8,259,995 at the IPO issue price of $2.05 per share) to the following KMP on the Company’s listing in December 2013. The rights were granted in three equal tranches, each vesting on the first, second and third anniversaries of completion of the Company’s listing on the ASX (being 11 December 2014, 11 December 2015 and 11 December 2016). The fair value of Performance Rights granted is amortised over the applicable vesting period for the purpose of statutory remuneration disclosures. During the year ended June 2015, the Company acquired shares on market through a trust to satisfy the transfer of shares on the vesting of Performance Rights. Through this program, 6,003,083 shares were acquired on market for a total cost of $12,192,321 (excluding brokerage and GST), at an average price of $2.03. David Gyngell Simon Kelly Amanda Laing Peter Wiltshire 36 Annual Report 2016 Number of Share Rights Granted Fair Value of Share Rights Granted2 $ 2,195,121 $4,499,998 1,022,439 $2,096,000 511,219 $1,047,999 300,487 $615,998 Remuneration Report – Audited continued Further details of the Pre-IPO Share Rights Plan are as follows: Grant date Consideration Share Rights Vesting dates Cessation of employment (employment condition) Disposal restrictions Change of control 11 December 2013 Nil Each Share Right will, at the Company’s election, convert to a Share on a one-for-one basis or entitle the Participant to receive cash to the value of a Share at the relevant Vesting Date. No amount is payable on conversion. These have no expiry date, as rights are exercised on the vesting date. Subject to the employment conditions described below, one-third of Share Rights held by each Participant will vest on the first, second and third anniversaries of completion of the Company’s listing on the ASX (being 11 December 2014, 11 December 2015 and 11 December 2016). If the Participant is not employed by NEC or any NEC Group member on a particular Vesting Date due to the Participant either: • having been summarily dismissed; or • having terminated his/her employment agreement otherwise than in accordance with the terms of that agreement, any unvested Share Rights held on or after the date of termination will lapse. If the Participant is not employed by NEC or any NEC Group member on a particular Vesting Date and: • NEC or an NEC Group member has terminated the Participant’s employment agreement (other than summarily) and his/her salary is being paid out in lieu of notice, then the only unvested Share Rights that will lapse are those that would ordinarily have vested after the end of the later of the notice period and any other date nominated in the terms of grant (Minimum Period); or • the Participant has validly terminated his or her employment agreement and NEC or an NEC Group member has elected to pay the Participant his/her salary in lieu of notice, then the only unvested Share Rights that will lapse are those that would ordinarily have vested after the end of the notice period. Any unvested Share Rights that do not lapse in accordance with the above remain on foot until the relevant vesting date. Any Shares issued or transferred to the Participant upon vesting of any Share Rights will be subject to restrictions on disposal from the date of issue (or transfer) of the Shares until the release of NEC’s financial results for either the half or full-year period immediately following the date of issue (or transfer, as applicable). The Board has the discretion to accelerate vesting of some or all of a Participant’s Share Rights in the event of certain transactions which may result in a change of control of Nine Entertainment Co. Holdings. The discretion will be exercised having regard to all relevant circumstances at the time, including the extent to which any applicable vesting conditions have been met. Unvested Share Rights will remain in place unless the Board determines to exercise that discretion. Where a change of control occurs, Nine Entertainment Co. Holdings can agree with a Participant and the new controller that the Participant will receive shares in the new controller, rather than shares in Nine Entertainment Co. Holdings, on vesting of Share Rights, with appropriate adjustments to the number and type of shares to be issued on vesting of the Share Rights. Unless the Board decides otherwise, any restrictions on disposal of shares which have been issued on vesting of Share Rights will be lifted, if a change of control event occurs. Restrictions Without the prior approval of the Board, or unless required by law, Share Rights may not be sold, transferred, encumbered or otherwise dealt with. A Participant may not enter into any arrangement for the purpose of hedging, or otherwise affecting their economic exposure to their Share Rights. Amendments To the extent permitted by the ASX Listing Rules, the Board retains the discretion to vary the terms and conditions of the Share Rights Plan. This includes varying the number of Share Rights or the number of Shares to which a Participant is entitled upon a reorganisation of capital of NEC. Other terms The Share Rights Plan also contains customary and usual terms having regard to Australian law for dealing with administration, variation, suspension and termination of the Share Rights Plan. Nine Entertainment Co. 37 Remuneration Report5. Executive Remuneration Outcomes for 2016 5.1 Link to Performance The Company continued to face difficult market conditions through the 2016 financial year and financial results fell short of expectations. Accordingly, incentive payments for the 2016 financial year have been sharply reduced, demonstrating the clear link between the remuneration framework and outcomes, Company results and shareholder returns. The link between Executive KMP remuneration and Group financial performance is set out below. Revenue1 Group EBITDA1 Group EBITDA %1 Net profit before tax1 Net profit after tax1 30 Jun 16 $m 1,286.4 30 Jun 15 $m 1,373.6 201.7 16% 164.1 118.6 217.2 16% 158.9 111.6 Pro forma3 30 Jun 14 $m 1,570 311 20% 205 144.2 Earnings per share – cents1 13.5 cents 11.9 cents 16.4 cents Opening share price Closing share price Dividend Paid Executive KMP STI Payments2 Earned Forfeited 30 Jun 16 Cents/Share 30 Jun 15 Cents/Share 30 Jun 14 Cents/Share 155 105 13.0 209 155 9.2 205 206 4.2 30 Jun-16 30 Jun 15 30 Jun 14 19% 81% 25% 75% 100% — 1. Continuing operations before specific items. 2. Excludes STI payments made to former KMP. See section 5.2 for details of STI payments to former KMP. 3. Actual results as adjusted to reflect the impact of acquisitions, divestments and/or other transactions as if these had been effective for the whole reported period and after adjusting for standalone listed company costs. Outcomes in relation to ongoing arrangements under the Remuneration Framework are set out below. The remuneration outcomes for the 2016 financial year are set out in section 5.3. 38 Annual Report 2016 Remuneration Report – Audited continued5.2 Short-Term Incentives (STI) In the current year (and the prior year), financial STI targets were aligned with the delivery of budgeted Group EBITDA and Earnings per Share. Non-financial measures were determined on an individual-by-individual basis based on their respective delivery of key operational and strategic objectives of the Company, as determined by the Company’s Board. The proportions of target and maximum STI that were earned and forfeited by each Executive KMP in relation to the current financial year are set out below: Name Hugh Marks Amanda Laing Michael Stephenson Former Key Management Personnel David Gyngell1 Simon Kelly2 Peter Wiltshire FY16 FY15 FY16 FY15 FY16 FY15 FY16 FY15 FY16 FY15 FY16 FY15 Proportion of Target STI in 2016 (%) Proportion of Maximum STI in 2016 (%) Earned % Forfeited % Earned % Forfeited % 20% — 20% 25% 8% — 20% 25% 50% 25% — 25% 80% — 80% 75% 92% — 80% 75% 50% 75% — 75% 14.5% — 14.5% 18.2% 6.1% — 14.5% 18.2% 36.4% 18.2% — 18.2% 85.5% — 85.5% 81.8% 93.9% — 85.5% 81.8% 63.6% 81.8% — 81.8% 1. Pro-rata payment for 5 months of the year in accordance with termination agreement. 2. Minimum guaranteed payment made in accordance with termination agreement. In accordance with the share deferral component of the STI plan, 33% of the 2016 financial year STI payments earned by current Executive KMP, at 30 June 2016, will be provided as shares in accordance with that plan, as described in section 3.4. The balance of the STI payable will be paid in cash following the release of the Company’s 2016 financial results. The value of Shares granted is expensed in the year to which the award relates. STI entitlements to former KMP during the 2016 financial year will be paid in cash. Nine Entertainment Co. 39 Remuneration Report l a t o T i g n d u c x E l O P I - e r P s $ t n e n o p m o C — 9 5 1 , 8 8 3 , 1 — , 4 8 3 7 4 0 , 1 3 4 8 0 9 7 , 6 7 6 2 4 2 , 6 8 1 , 0 8 4 , 1 4 9 1 , 0 3 4 2 , , 9 1 0 4 8 3 , 3 6 3 3 , 4 9 3 , 1 , 0 7 9 0 5 6 , 1 3 0 2 9 5 9 , 4 9 3 , 3 9 1 , 9 , 6 7 5 4 7 5 5 , 1 3 — 3 3 3 4 4 — 5 3 5 5 8 1 6 4 8 1 3 e c n a d % e t a e R l - m r o f r e P l $ a t o T — 9 5 1 , 8 8 3 , 1 — 9 7 2 7 6 2 , , 1 , 7 5 9 8 6 2 , 1 3 2 0 3 4 2 , , 0 6 5 8 2 0 2 , $ — — — — — — 6 6 1 , 4 0 6 s t n e m y a P n o i t a n m r e T i — — — — — — — 7 6 1 , 3 8 4 4 , — 6 6 5 0 5 3 , , 2 — 0 8 1 , 6 4 7 3 , , 7 1 4 2 9 1 , 2 , 5 1 3 9 9 8 , 1 8 8 1 , 2 3 ) 4 9 9 , 1 5 ( 3 8 7 8 1 , 8 5 6 3 5 1 , 0 0 0 5 6 1 , 0 0 0 5 3 3 , 7 1 2 , 1 3 9 , 1 5 1 Y F , 5 1 8 0 0 3 — 9 7 4 0 6 , 7 1 9 4 2 , 6 4 3 , 1 6 0 0 2 5 , , 0 0 0 0 0 3 6 0 0 , 1 0 8 6 1 Y F , 9 5 6 4 8 8 8 9 9 9 1 , ) 2 6 4 8 1 ( , 0 0 0 5 3 , 1 7 5 , 1 7 0 0 3 7 5 , 0 0 5 0 0 1 , 0 0 0 0 0 2 , , 1 5 1 Y F 0 1 1 , 3 6 7 , 1 , 0 2 8 8 5 7 8 7 4 2 2 , 1 1 1 , 4 9 3 6 5 0 3 1 , 9 0 4 7 3 , 8 0 3 9 1 , 9 2 0 8 1 , — — 2 9 3 , 2 8 6 6 1 Y F 2 3 2 , 0 4 2 , 1 — — 5 9 9 9 5 2 , 2 6 0 3 1 , 6 6 5 3 1 , 3 8 7 8 1 , 4 3 0 , 1 2 0 0 9 2 4 , 0 0 1 , 7 8 , 2 9 7 3 8 7 5 1 Y F , 1 1 3 6 3 4 0 1 , , 3 0 4 5 5 5 3 , , 4 8 7 5 7 3 1 6 1 , 1 0 0 , 1 3 9 7 2 6 1 , 2 5 6 6 9 1 , 7 1 4 3 9 , 6 5 7 , 1 4 2 9 9 9 , 1 0 1 , 4 1 9 0 5 6 , 2 3 4 6 5 0 4 , , 2 2 9 2 4 3 9 , — — , 8 9 2 6 8 4 3 , 7 6 7 5 7 , ) 8 1 6 5 1 ( , 9 4 3 , 1 9 8 4 0 2 8 2 , , 3 1 8 9 9 2 8 3 0 7 7 5 , , 7 2 2 6 4 5 4 , 6 1 Y F 5 1 Y F 4 l l e g n y G i d v a D n o m S i 6 y l l e K 6 e r i h s t l i W r e t e P e v i t u c e x E l a t o T P M K 6 5 7 2 0 1 , 2 2 2 9 8 1 , 6 6 1 , 4 1 9 2 3 , 2 4 4 9 1 5 0 1 , — 7 4 3 — 2 5 3 , 3 6 6 6 6 1 4 , — — — 1 3 2 9 3 , 2 7 2 , 1 4 1 7 8 2 1 , 3 5 6 9 , 8 0 7 , 1 3 1 — 7 6 6 6 6 1 , 0 0 7 9 9 6 , 6 1 Y F — 8 0 3 9 1 , 3 8 7 8 1 , 0 5 7 5 , 3 7 6 0 3 , 7 3 7 4 3 , 4 4 2 , 8 5 , 2 4 9 8 7 7 6 1 Y F 5 8 7 5 3 , 3 1 6 4 3 , 8 3 4 4 5 , 8 1 2 , 1 3 6 — — — — — 7 8 9 2 , 2 6 0 6 , 4 5 6 , 1 1 2 5 1 Y F 6 1 Y F 5 1 Y F 5 n o s n e h p e t S l e a h c M i a d n a m A g n a L i l e n n o s r e P t n e m e g a n a M y e K r e h t O l e n n o s r e P t n e m e g a n a M y e K r e m r o F . 4 n o i t c e s n i r e h t r u f d e l i a t e d e r a e s e h T . O P I ’ s y n a p m o C e h t o t r o i r p d e t c a r t n o c s t n u o m a o t e t a e r l s t n e n o p m o c n o i t a r e n u m e r O P I - e r P . i p h s r e b m e m m y g d n a i g n k r a p r a c , t n e m y a p e r a h s I T S d e r r e f e d s a h c u s s t fi e n e b l e b a h s a c - n o n t n e s e r p e r s t fi e n e B y r a t e n o M - n o N . 5 3 . n o i t c e s n i d e n i l t u o e r a n a P l e v i t n e c n I m r e T g n o L e h t f o s l i a t e D . n o i t a n m r e t i n o s t n e m y a p i e c v r e S g n o L d n a l a u n n A . t n e m t n o p p a i P M K e c n s i n o i t a r e n u m e r s e d u c n I l . s e e f D E N s e d u c x E l . 1 . 2 . 3 . 4 . 5 . 6 s t n e m y a P d e s a b - e r a h S s t i f e n e B m r e t - g n o L s t i f e n e B s t i f e n e b m r e t - t r o h S - t s o P t n e m y o p m E l w s e m o c t u O n o i t a r e n u m e R y r a m m u S 3 5 . m r e t - g n o L 3 $ s e v i t n e c n I e r a h S s $ t h g R i O P I - e r P g n o L i e c v r e S e $ v a e L 1 O P I - e r P e $ v a e L l a u n n A - r e p u S n $ o i t a u n n n a h s a C y r a t e n o M h s a C s $ e v i t n e c n I 2 $ s t i f e n e B s $ u n o B O P I 1 O P I - e r P d e t a e R l - n o N d n a s $ e e F y r a a S l — 0 5 5 0 5 2 , — — — — — 2 1 7 4 1 , 2 6 6 6 4 , 1 8 4 4 1 , — — 5 7 0 9 5 , 1 4 9 9 1 1 , 8 3 7 2 8 8 , 6 1 Y F — — — 5 1 Y F e v i t u c e x E r o t c e r i D 4 s k r a M h g u H 40 Annual Report 2016 Remuneration Report – Audited continued 6. Executive Contracts The remuneration and terms of Executive KMP are formalised in their employment agreements. Each of these employment agreements, which have no fixed term, provide for the payment of fixed and performance-based remuneration, superannuation and other benefits such as statutory leave entitlements. The key terms of Executive KMP contracts at 30 June 2016 were as follows: Fixed Remuneration1 Target STI Notice Period by Executive Notice Period by Company Restraint Termination Payment4 Hugh Marks2 Amanda Laing2,4 Michael Stephenson2,3 $1,400,000 $1,400,000 $869,307 $730,000 $434,654 $365,000 12 months 12 months 12 months 12 months 12 months Not specified 12 months 12 months Not specified 12 months 12 months Not specified Former Key Management Personnel David Gyngell4 $2,000,000 $2,000,000 12 months, but notice may not be given prior to 1 November 2015 12 months, but notice may not be given prior to 1 November 2015 12 months Not specified Simon Kelly4 $1,235,000 $600,000 12 months 12 months 12 months 12 months fixed remuneration plus annual STI, as defined Peter Wiltshire $802,575 $520,000 12 months 12 months 12 months Not specified 1. Fixed Remuneration comprises base cash remuneration, superannuation and other benefits which can be sacrificed for cash at the employee’s election. Excludes other non-cash ancillary benefits such as car parking and gym membership. 2. KMP are entitled to participate in a long term incentive plan, as discussed separately in this report. 3. Reflects contract terms since appointment to the position of Chief Sales officer 14 March 2016. 4. David Gyngell, Simon Kelly and Amanda Laing are subject to exemptions in respect of termination payment caps provided by S200B of the Corporations Act. These exemptions were approved by the Company’s shareholders on 28 June 2012. 7. Non-Executive Director (NED) Remuneration Arrangements Remuneration policy The Board seeks to set aggregate Non-Executive remuneration at a level that provides the Company with the ability to attract and retain Directors of the highest calibre, at a cost that is acceptable to shareholders. NED remuneration including base fees and committee chair and membership fees is reviewed annually against fees paid to NEDs of other Australian listed companies of a similar size, complexity and prominence. The Board considers advice from external consultants when undertaking the annual review process. The Company’s constitution and the ASX Listing Rules specify that the NED fee pool shall be determined from time to time by a general meeting. The latest determination was at the Annual General Meeting (AGM) held on 21 October 2013 when shareholders approved an aggregate fee pool of $3,000,000 per year. The Board will not seek any increase to the NED remuneration pool at the 2016 AGM. Structure The remuneration of NEDs consists of Directors’ fees and committee fees. The payment of additional fees for serving on a committee recognises the additional time commitment required by NEDs who serve on sub-committees. The Chairman of the Board does not receive any additional fees in addition to Board fees for being a member of any committee. All Board fees include any superannuation entitlements, as applicable. These arrangements are set out in the written engagement letters with each Director. Kevin Crowe and Steve Martinez as nominee Directors of major shareholders waived their rights to any remuneration during the year. Nine Entertainment Co. 41 Remuneration ReportNED fees for the 2016 financial year which remain unchanged since 2014 were as follows: Board fees Chairman Directors Committee fees Committee Chair Committee Member $425,000 $180,000 $15,000 $10,000 NEDs do not receive retirement benefits, nor do they participate in any incentive programs. No Share Rights or other share- based payments were issued to NEDs during the 2016 financial year. NED remuneration for the years ended 30 June 2016 and 2015 Salary & fees $ Superannuation $ Share-based payments $ Financial year Non-Executive Directors Peter Costello Elizabeth Gaines David Gyngell1 Holly Kramer Catherine West Former Non-Executive Directors Kevin Crowe David Haslingden Hugh Marks2 Steve Martinez Joanne Pollard3 Total NED 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 249,012 164,384 59,361 — 95,666 — 177,010 25,621 25,127 — — — 270,461 406,217 64,226 180,902 — — — 70,257 940,863 847,381 17,254 15,616 5,639 — 9,088 — 16,816 2,434 2,387 — — — — 12,872 18,783 6,099 14,098 — — — 6,334 70,155 57,265 — — — — — — — — — — — — — — — — — — — — — — — Total $ 266,266 180,000 65,000 — 104,754 — 193,826 28,055 27,514 — — — 283,333 425,000 70,325 195,000 — — — 76,591 1,011,018 904,646 1. Mr Gyngell was Chief Executive Officer of the Company until his resignation from that role which took effect on 30 November 2015. 2. Mr Marks was an independent Non- Executive Director of the Company until 10 November 2015, when he was appointed Chief Executive Officer. 3. Ms Pollard was an independent Non- Executive Director of the Company until 21 November 2014. 42 Annual Report 2016 Remuneration Report – Audited continued 8. Performance Rights, Employee Gift Offer Shares and Share Interests of Key Management Personnel The number of Performance Rights and employee gift shares granted and outstanding to Executive KMP as remuneration and the number vested during the year are shown below. Performance Rights do not carry any voting or dividend rights and can be exercised once the vesting conditions have been met. Share Rights/ Employee Gift Shares outstanding at start of year No. Share Rights/ Employee Gift Shares granted in year No. Award date Fair Value per Share Right/ Employee Gift Share at award date $ Vesting Date Vested during the year No. Lapsed during the year No. Share Rights/ Employee Gift Shares Outstanding at End of Year No. Executive Director Hugh Marks1 — 906,149 11-Nov-15 1.09 1-Jul-18 — Other Executive KMP Amanda Laing Michael Stephenson Former Key Management Personnel 170,406 170,407 8,130 8,130 — — 11-Dec-13 11-Dec-13 283,333 1-Jul-15 — — 11-Dec-13 11-Dec-13 David Gyngell Simon Kelly Peter Wiltshire 731,707 731,7072 340,813 340,8132 4873 100,162 100,1632 — — — — — — — 11-Dec-13 11-Dec-13 11-Dec-13 11-Dec-13 11-Dec-13 11-Dec-13 11-Dec-13 283,333 1-Jul-15 2.05 2.05 1.09 2.05 2.05 2.05 2.05 2.05 2.05 2.05 2.05 2.05 1.09 11-Dec-15 170,406 11-Dec-16 1-Jul-18 11-Dec-15 11-Dec-16 — — 8,130 — 11-Dec-15 731,707 11-Dec-16 — 11-Dec-15 340,813 11-Dec-16 11-Dec-16 11-Dec-15 11-Dec-16 1-Jul-18 — — 100,162 — — — — — — — — — — — — — — — 200,694 906,149 — 170,407 283,333 — 8,130 — 731,707 — 340,813 487(3) — 100,163 82,6392 1. The CEO is entitled to participate in a long term incentive plan. At the time of preparing this report awards held by the CEO under the LTI plan, not otherwise disclosed incorporated the granting of 906,149 Performance Rights. 2. In accordance with termination agreements, the rights which were held on termination of employment are to be cash settled, at a price to be determined, based on a volume weighted average price of the shares of the Company in the 5 days immediately preceding vesting. 3. Other than the holding of 487 Shares by Simon Kelly granted under the Employee Gift Offer, all holdings are Share Rights granted under the pre-IPO Share Rights Plan detailed in section 4. Further details of the Employee Gift Offer are set out in section 3.6. Nine Entertainment Co. 43 Remuneration Report Shareholdings of Key Management Personnel Shares held in Nine Entertainment Co. Holdings Limited by KMP and their related parties are as follows: As at 1 July 2015 Ord Granted on conversion of Share Rights Ord Other Net Changes Ord Held directly as at 30 June 2016 Ord Held nominally as at 30 June 2016 Ord Non-Executive Directors Peter Costello Elizabeth Gaines David Gyngell1 Holly Kramer Catherine West Executive Director Hugh Marks1 Other Key Management Personnel Amanda Laing Michael Stephenson Former Non-Executive Directors2 David Haslingden Steve Martinez Kevin Crowe Jr Former Key Management Personnel2 Simon Kelly Peter Wiltshire Total 51,786 — 4,878,535 — — 27,396 19,406 487 309,588 — — 487 — 5,287,685 — — — — — — 250,000 — — 76,181 — — — 4,878,048 — — 301,786 — 487 76,181 — 75,000 75,000 27,396 170,407 17,874 — — — — 340,183 100,162 610,752 — — — — 33,000 8,600 207,687 487 309,588 — — 373,670 108,762 — — — — — — — 460,655 5,953,242 405,850 1. Includes period as CEO and NED. 2. Details given to the date on which the individual ceased to be a Director or member of KMP. 9. Loans to Key Management Personnel and their related parties No loans have been made to KMP or their related parties. 10. Other transactions and balances with Key Management Personnel and their related parties The following related party arrangements have been entered into by an NEC Group member: • Leila McKinnon, the wife of David Gyngell, is employed by Nine Network as a journalist and news presenter; and • Sebastian Costello, the son of Peter Costello, is employed by the Nine Network as a reporter. These arrangements are on commercial and arm’s length terms. Certain Directors have interests in television production, advertising or other media-related business concerns. From time to time, one or more of the Directors (or the companies or entities that they control, have an interest in, or are employed by) may provide services or sell products to NEC. Should such sales occur or services be provided, they are on commercial and arm’s length terms. The monetary value of such transactions during the year with Directors or their related entities is not material. 44 Annual Report 2016 Remuneration Report – Audited continued Operating and Financial Review Review of Operations This commentary reflects the reported statutory results. Commentary on management and Pro Forma results is included in a separate filing with the Australian Securities Exchange. Revenue from Continuing Operations (before Specific Items) Group EBITDA from Continuing Operations (before Specific Items)1 Finance Costs from Continuing Operations (excluding specific finance cost) Profit after tax before specific items from Continuing Operations Specific Items from Continuing Operations (before income tax) Profit/(loss) from Continuing Operations after Income Tax Profit from Discontinuing Operations after Income Tax Net Cash Flows from Operating Activities Net Debt2 Leverage3 2016 $m 2015 $m 1,286.4 1,373.6 201.7 (9.4) 118.6 217.2 (30.5) 111.6 Variance $m -87.2 -15.5 +21.1 +7.0 (107.0) (847.2) +740.2 33.2 291.5 50.3 177.6 0.8X (597.6) 5.5 246.2 507.2 1.8X +630.8 +286.0 -195.9 -329.6 -1.0X % -6% -7% +69% +6% nm nm nm -80% -65% — 1. EBITDA plus share of associates, less Corporate Costs. 2. Interest bearing loans and borrowings, less cash at bank. 3. Net Debt/Group EBITDA (including Discontinued Operations and before Specific Items). nm — not meaningful. Revenue from Continuing operations before Specific items decreased by 6% to $1,286.4 million while Group EBITDA before Specific Items (from Continuing Operations) decreased by $15.5 million (7%) to $201.7 million. In both the current and prior years Specific Items and Net Interest Expense had significant impacts on the bottom line result with Profit after Income Tax of $324.8 million in the current year compared with $592.2 million Loss after Income Tax in the prior year. In the current year, Specific Items of $107.0 million (refer to note 3(iv) and 3(v)) include a $39.7 million non-cash impairment charge against licence, goodwill and investment values on the balance sheet, a $55.2 million inventory and onerous contract provision and restructuring and termination costs of $8.7 million. Specific Items in the prior year of $847.2 million (refer note 3 (iv)) included a $791.8 million non-cash impairment charge against licence, goodwill and investment values on the balance sheet, a $57.4 million inventory and onerous contract provision and a gain on the disposal of HWW Pty Ltd of $10.3 million. Finance Costs declined from $30.5 million in the prior year to $10.8 million in the current year reflecting the reduced funding costs associated with the reduction of debt post the disposal of Nine Live in July 2015. Finance costs include a specific item of $1.5 million in respect of debt establishment fees on debt which was cancelled (refer note 3 (v)). Operating Cash Flow reduced year on year as a result of the sale of the Nine Live business, coupled with weaker operating results from the Free To Air business. Income tax paid also increased markedly as prior year tax losses were fully utilised and the Group invested $88.4 million in the acquisition of shares in Southern Cross Media Group Limited. At balance sheet date, Net Debt reduced to $177.6 million from $507.2 million with the repayment of debt post the disposal of the Live business, partially offset by the cash utilised in the on-market buy-back of $49 million of NEC shares during the period. Net Leverage at 30 June 2016 was 0.8X, well within bank covenants. Nine Entertainment Co. 45 Operating and Financial ReviewSegmental Results Revenue1 Network Digital Corporate Total Revenue from Continuing Operations1 EBITDA Network Digital Corporate Share of Associates Group EBITDA Continuing Operations Group EBITDA including Discontinued Operations 1. After the elimination of inter-segment revenue and interest income. 2016 $m 1,130.0 149.9 2.5 1,282.4 183.5 26.0 (9.9) 2.1 201.7 209.4 2015 $m 1,215.0 156.4 — 1,371.4 206.0 21.9 (14.1) 3.4 217.2 287.3 Variance $m -85.0 -6.5 2.5 -89.0 -22.5 +4.1 +4.2 -1.3 -15.5 -77.9 % -7% -4% nm -6% -11% +19% +30% -6% -7% -27% Reported segmental results reflect the actual business ownership that existed through each year. The results for Live, for which the sale was completed on 31 July 2015, are included in Discontinued Operations. A summary of each division’s performance is set out below. Nine Network Revenue EBITDA Margin 2016 $m 1,130.0 183.5 16.2% 2015 $m 1,215.0 206.0 17.0% Variance $m -85.0 -22.5 — % -7% -11% -0.8pts Nine Network recorded revenue of $1,130 million a decline of $85.0 million on last year, and a decline in EBITDA of 11% to $183.5 million compared to the prior year. This decline reflects the combination of reduced revenues, partially offset by a decrease in costs incurred during the year. The Metro Free-to-Air (FTA) advertising market remained difficult for much of FY16. In the December half, Metro FTA advertising declined by 0.4%; in the June half the decline was 3.9%, resulting in an overall Metro FTA advertising market decline of 2.0% for the year. Regional markets underperformed, recording overall TV advertising revenue which was down 6.2% on FY15. Nine Network’s Metro FTA revenue share of 37.0% over the year incorporated a first half share of 38.2% and a second half share of 35.6%. The weaker second half was attributed to fewer hours of premium Australian content, coupled with lower-than- expected ratings for a number of key programs particularly in Q3. Costs were down by 6.2% on the prior year, a comparison which benefitted from the industry-wide licence fee reduction ($11m saving to Nine). Inclusive of the total Warners’ costs, the onerous component of which is treated as a specific item, TV costs were down by 2%. This reduction was delivered despite a contracted $25m increase in sports costs, legal fees which were around $7m higher than ‘normal’ as well as the costs associated with the launch of the new 9HD and 9Life channels. 46 Annual Report 2016 Operating and Financial Review continuedNine Digital Revenue EBITDA Margin 2016 $m 149.9 26.0 17.3% 2015 $m 156.4 21.9 14.0% Variance $m -6.5 +4.1 — % -4% +19% +3.3pts In FY16, Nine Digital recorded a decline in revenue to $149.9 million, and growth of 19% in EBITDA to $26 million compared to the prior year. Adjusted for the impact of the loss of Microsoft default traffic and the sale of HWW, revenues were flat year-on-year. Reported costs were down 7.9%, despite significant investment across the Digital business. During FY16, Nine Digital launched a suite of consumer content including 9Now, Nine’s catch-up and live streaming service and its associated data proposition My9, as well as the complete re-design of the digital network, nine.com.au. Share of Associates profit Share of Associates profit declined from $3.4 million to $2.1 million. The key driver of this decline was a reduced contribution from Sky News. Live (Discontinued Operation) Revenue1 EBITDA Margin 1. Excluding interest income. 2016 $m 57.1 7.7 13.5% 2015 $m 238.7 70.1 29.4% Variance $m -181.6 -62.4 % -76.1 -89.0 — -15.9 pts The sale of Nine Live to Affinity Equity Partners for $640 million was completed on 31 July 2015. For the one month of ownership in FY16, Live reported EBITDA of $7.7 million and revenue of $57.1 million. Review of Financial Position At 30 June 2016 the Net Assets of the Group were $1,233.8 million which is approximately $151.1 million higher than at 30 June 2015. The key impacts during the period were the sale of Nine Live, the operating profit for the year, offset by the adjustments to asset carrying values as detailed in the Specific Items, dividends paid in the year and the Group’s on market share buyback. Underlying Drivers of Performance The Group operates across two key businesses and industries, each of which has their own underlying drivers of performance. These are summarised below: • Nine Network — size of the advertising market and the share attributed to Free-to-Air television, Nine’s share of the Free-to-Air advertising sector, the regulatory environment and the ability to secure key programming contracts. • Nine Digital — size of the advertising market and the share attributed to online and Nine Digital’s share of the online advertising sector. The impacts of changes in underlying drivers of performance on the current year result are set out in the Review of Operations, as applicable. Nine Entertainment Co. 47 Operating and Financial ReviewBusiness Strategies and Future Prospects The Group is focusing on the following business growth strategies: • Continue strong momentum and consolidate position as a leading FTA TV network The Group intends to achieve consistent performance across Sydney, Melbourne and Brisbane and to increase its audience and revenue share in Adelaide and Perth, with an overall aim of developing a leading position in FTA audience and advertising revenue share across the five capital cities. Overall Network performance is driven by the combination of the primary Channel Nine, as well as 9GO! 9GEM and 9Life. The Group is also focused on optimising returns through improved broadcast rights deals and affiliate arrangements, and maintaining disciplined cost management. In programming, the Group recognises the importance of leading news and current affairs, sports content and local content, and is focused on continuing to make targeted investments in content to reflect audience preferences. • Continue to grow digital media assets The Group intends to build on Nine Digital’s position as a leading online network in Australia to grow audience and advertising revenue. The Group plans to expand its audience by increasing its content and the ways customers find and access this content, including via tablets and mobile devices, particularly in online video. Nine Digital’s goal is to increase its advertising revenue through growth in audience, inventory, as well as making use of its data assets to improve yields and effectiveness of advertising. • Optimise the returns and opportunities associated with the Group’s premium free content and audience reach Across its traditional segments of FTA and digital media, NEC’s strengths lie in the production and distribution of premium content. The Group will continue to identify and pursue opportunities where it can increase its content and broaden the utilisation of this content to generate returns and cross-selling opportunities across its integrated platform. This includes investments through Nine Ventures, as well as commercial relationships with businesses. The Group intends to improve financial returns by improving alignment and integration across its businesses, including its sales and marketing functions. The Group is confident that the successful execution of these business strategies will enable the Group to grow in the future. The key risks which could prevent the Group from optimising its growth in the future are set out below: • Nine Network — significant changes to advertising market conditions, Nine’s share of the advertising market, viewer preferences, the regulatory environment and/or a loss of key programming contracts. • Nine Digital — significant changes to advertising market conditions, Nine Digital’s share of the advertising market, internet user preferences and/or the regulatory environment. • Technological changes — may offer new entertainment options which may or may not dilute the impact of NEC’s content; and may or may not offer NEC future opportunities. 48 Annual Report 2016 Operating and Financial Review continuedConsolidated Statement of Comprehensive Income for the year ended 30 June 2016 Continuing operations Revenues Expenses Finance costs Share of profits of associate entities Profit/(loss) from continuing operations before income tax expense Income tax (expense)/benefit Net profit/(loss) from continuing operations for the period attributable to equity holders Discontinued operations Note 2016 $’000 2015 $’000 3 3 3 10 5 1,286,360 1,383,898 (1,220,578) (2,045,161) (10,844) 2,111 57,049 (23,826) (30,462) 3,353 (688,372) 90,748 33,223 (597,624) Profit from discontinued operations after income tax – Live business 6(a) Net profit/(loss) for the period attributable to equity holders Earnings/(loss) per share Basic profit/(loss) attributable to ordinary equity holders of the parent Diluted profit/(loss) attributable to ordinary equity holders of the parent Earnings/(loss) per share for continuing operations Basic profit/(loss) from continuing operations attributable to ordinary equity holders of the parent Diluted profit/(loss) from continued operations attributable to ordinary equity holders of the parent Profit/(loss) for the year Other comprehensive income/(loss) Items that may be reclassified subsequently to profit or loss Foreign currency translation Reclassification of foreign currency translation reserve to profit from discontinued operations Fair value movement in cash flow hedges Items that will not be reclassified subsequently to profit or loss Fair value movement in investment in listed equities (net of tax) Actuarial (loss)/gain on defined benefit plan Other comprehensive loss for the period 31 31 31 31 6(a) 11 22 291,532 324,755 $0.37 $0.37 $0.04 $0.04 5,473 (592,151) ($0.63) ($0.63) ($0.64) ($0.64) $’000 324,755 $’000 (592,151) 258 634 — (9,715) (222) (9,045) 674 — 711 (9,070) 6,532 (1,153) Total comprehensive income/(loss) for the period attributable to equity holders 315,710 (593,304) Nine Entertainment Co. 49 ConsolidatedStatements Consolidated Statement of Financial Position as at 30 June 2016 Note 30 June 2016 $’000 30 June 2015 $’000 Current assets Cash and cash equivalents Trade and other receivables Program rights Derivative financial instruments Other assets Property, plant and equipment held for sale Assets of discontinued operations Total current assets Non-current assets Receivables Program rights Investments in associates accounted for using the equity method Investment in listed equities Property, plant and equipment Licences Other intangible assets Deferred tax assets Property, plant and equipment held for sale Other assets Total non-current assets Total assets Current liabilities Trade and other payables Interest-bearing loans and borrowings Current income tax liabilities Provisions Derivative financial instruments Liabilities of discontinued operations Total current liabilities Non-current liabilities Payables Interest-bearing loans and borrowings Deferred tax liabilities Provisions Derivative financial instruments Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity attributable to equity holders of the parent 50 Annual Report 2016 20 7 8 29 9 12 6(a) 7 8 10 11 12 13 14 5 12 9 15 16 17 29 6(a) 15 16 5 17 29 18 42,860 286,703 139,203 31 72,695 9,338 — 550,830 59,067 61,177 19,680 104,695 123,344 477,784 505,130 — 41,823 61,210 50,855 281,698 192,637 436 25,136 11,916 424,107 986,785 23,548 36,353 19,081 23,813 118,769 493,870 514,026 67,734 36,209 100,112 1,453,910 1,433,515 2,004,740 2,420,300 327,896 60 30,567 47,256 — — 405,779 47,800 220,425 38,902 46,569 11,426 365,122 770,901 1,233,839 746,563 6,446 480,830 1,233,839 398,129 23 4,786 42,315 297 230,476 676,026 37,460 575,671 — 37,317 11,113 661,561 1,337,587 1,082,713 793,004 18,935 270,774 1,082,713 Consolidated Statement of Cash Flows for the year ended 30 June 2016 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Dividends received — associates Interest received Interest and other costs of finance paid Income tax paid Net cash flows from operating activities Cash flows from investing activities Purchase of property, plant and equipment Purchase of venue ticketing rights Purchase of other intangible assets Proceeds on disposal of property, plant and equipment Acquisition of subsidiaries Investment in listed equities and associates Proceeds from sale of controlled entities (net of cash acquired) Net cash flows from/(used in) investing activities Cash flows from financing activities Payment of share issue costs Proceeds from borrowings Repayment of borrowings Shares purchased in the parent held for settlement of Rights Plan Share buy-back Loans to associates Dividends paid Note 2016* $’000 2015* $’000 1,505,839 1,803,153 (1,406,264) (1,532,025) 10 20(b) 6(b) 10,11 6(a) 25 18 4 2,500 1,777 (15,519) (38,054) 50,279 (34,432) (10,628) (12,912) — (17,100) (88,948) 534,670 370,650 — 670,000 (1,027,523) — (49,033) (36,700) (114,699) (557,955) (137,026) 179,886 42,860 3,333 3,837 (22,605) (9,489) 246,204 (27,005) (26,159) (6,066) 25 (23,034) (18,950) 20,866 (80,323) (273) 150,000 (178,643) (12,192) (61,694) (24,136) (78,824) (205,762) (39,881) 219,767 179,886 Net cash flows (used in)/from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the period 20(a) * The consolidated statement of cash flows includes the cashflows relating to the discontinued operations. As at 30 June 2015, the cash and cash equivalents at the end of the period of $179,886,000 were disclosed as $50,855,000 in continuing operations and $129,031,000 in discontinued operations (note 6a (iv)). Nine Entertainment Co. 51 ConsolidatedStatements Consolidated Statement of Changes in Equity for the year ended 30 June 2016 Contributed equity $’000 Rights Plan Shares $'000 Foreign currency translation reserve $’000 Net unrealised gains reserve $’000 Cash flow hedge reserve $’000 Share-based payments reserve $’000 Other reserve $’000 Retained earnings $’000 Total equity $’000 At 1 July 2015 801,031 (8,027) (2,171) 12,504 Profit for the period Other comprehensive income/(loss) for the period Total comprehensive income/(loss) for the period Share buy-back (Note 18) Vesting of Rights Plan shares (Note 25(c)) Share-based payment expense Dividends to shareholders — — — — — 892 (9,937) 892 (9,937) — — — (49,033) — — — 2,592 — — — — — — — — At 30 June 2016 751,998 (5,435) (1,279) 2,567 — — — — — — — — 5,431 3,171 270,774 1,082,713 — — — (5,515) 2,071 — 1,987 — 324,755 324,755 — — (9,045) — 324,755 315,710 (49,033) — — (2,923) 2,071 (114,699) (114,699) — — — 3,171 480,830 1,233,839 Contributed equity $’000 Rights Plan Shares $'000 Foreign currency translation reserve $’000 Net unrealised gains reserve $’000 Cash flow hedge reserve $’000 Share-based payments reserve $’000 Other reserve $’000 Retained earnings $’000 Total equity $’000 (2,845) 15,042 (711) 4,519 3,171 941,749 1,823,650 At 1 July 2014 862,725 Loss for the period Other comprehensive income/(loss) for the period Total comprehensive income/(loss) for the period — — — Share buy-back (61,694) — — — — — — — 674 (2,538) 711 674 (2,538) 711 Purchase of Rights Plan shares (Note 25(c)) Vesting of Rights Plan shares (Note 25(c)) Share-based payment expense Dividends to shareholders — — — — (12,192) 4,165 — — — — — — — — — — At 30 June 2015 801,031 (8,027) (2,171) 12,504 — — — — — 52 Annual Report 2016 — — — — (4,165) 5,077 — 5,431 — (592,151) (592,151) — — (1,153) — (592,151) (593,304) (61,694) (12,192) — 5,077 — — — (78,824) (78,824) — — — — 3,171 270,774 1,082,713 Notes to the Consolidated Financial Statements for the year ended 30 June 2016 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial report includes the consolidated entity consisting of Nine Entertainment Co. Holdings Limited and its controlled entities (collectively, the Group) for the year ended 30 June 2016 and was authorised for issue in accordance with a resolution of the Directors on 25 August 2016. Nine Entertainment Co. Holdings Limited is a for-profit company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The nature of the operations and principal activities of the Group is described in the Directors’ Report. Information on the Group’s structure is provided in Note 27. Information on other related party relationships is provided in Note 26. (a) Basis of preparation This financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has been prepared on a historical cost basis, except for derivative financial instruments and investments in listed equities which have been measured at fair value and investments in associates which have been accounted for using the equity method. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Company under ASIC Class Order 2016/191. The Company is an entity to which the class order applies. The consolidated financial statements provide comparative information in respect of the previous period, which is reclassified where necessary in order to provide consistency with the current financial year. (b) Statement of compliance The financial report complies with Australian Accounting Standards. The financial report also complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. (c) Changes in accounting policies Accounting standards adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and which may impact the Group’s financial statements have not been adopted by the Group for the annual reporting period ending 30 June 2016. The Group has not yet assessed the impact which these recently issued or amended standards will have on the Group’s financial statements. The standards which may impact the Group’s financial report are as follows: • AASB 15 Revenue from Contracts with Customers — The AASB has issued a new standard for the recognition of revenue due to be effective 1 January 2018. This will replace AASB 118 which covers contracts for goods and services and AASB 111 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer — so the notion of control replaces the existing notion of risks and rewards. • AASB 9 Financial Instruments (effective date 1 January 2018) — The AASB released the final version of AASB 9 in January 2015. The final version of AASB 9 introduces a new expected-loss impairment model that will require more timely recognition of expected credit losses. Specifically, the new Standard requires entities to account for expected credit losses from when financial instruments are first recognised and to recognise full lifetime expected losses on a more timely basis. • AASB 16 Leases (effective date 1 January 2019) — The AASB issued a new standard which, amongst other things, will have the impact of requiring the Group to account for material operating leases in a similar manner to which it already accounts for finance leases. • AASB 107 Statement of Cash flows (effective date 1 January 2017) — The AASB has amended this standard to require disclosures to enable users of financial statements to evaluate changes in liabilities arising from financing activities. The Group has not included disclosures of new and amended standards and interpretations that do not have any impact on the financial statements. Accounting policies The accounting policies adopted in the preparation of the financial report are consistent with those applied and disclosed in the 2015 annual financial report. (d) Basis of consolidation The consolidated financial statements are those of the consolidated entity, comprising Nine Entertainment Co. Holdings Limited (the parent entity) and all entities that Nine Entertainment Co. Holdings Limited controlled from time to time during the year and at the reporting date. Nine Entertainment Co. 53 Notes to theFinancial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Information from the financial statements of subsidiaries is included from the date the parent entity obtains control until such time as control ceases. Where there is loss of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting year during which the parent entity has control. Subsidiary acquisitions are accounted for using the purchase method of accounting. The financial statements of subsidiaries are prepared for the same reporting year as the parent entity, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. (e) Significant accounting estimates, judgements and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates, judgements and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting year are: Impairment of goodwill and television licences with indefinite useful lives The Group determines whether goodwill and television licences with indefinite useful lives are impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash-generating units to which the goodwill and television licences with indefinite useful lives are allocated. The assumptions used in this estimation of recoverable amount and the carrying amount of goodwill and television licences with indefinite useful lives are discussed in Note 14. Onerous contract provisions The Group has recognised an onerous contract provision in relation to its television program purchase commitments. Refer to Note 17 for disclosure of the assumptions included in the calculation of the provision. Carrying value of program rights The Group recognises program rights which are available for use. These are capitalised and amortised over the useful life of the content. The assessment of the appropriate carrying value of these rights requires estimation by management of the forecast future cash flows which will be derived from that content. This estimate is based on a combination of market conditions and the value generated from the broadcast of comparable programs. (f) Income tax Current tax liabilities are measured at the amount expected to be paid to the taxation authorities based on the current year’s taxable income. The tax rules and tax laws used to compute the amount are those that are enacted at the balance date. Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences: • except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or • in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses, can be utilised except: • where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit not taxable profit or loss; or • in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Income taxes relating to items recognised directly in equity are recognised in other comprehensive income and not in the profit or loss for the year. 54 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 2016(g) Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: • where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the Statement of Cash Flows on a gross basis and the GST components of cash flows arising from investing and financing activities, which are recoverable from, or payable to, the taxation authority, are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (h) Foreign currency translation Both the functional and presentation currency of Nine Entertainment Co. Holdings Limited and its Australian subsidiaries is Australian dollars (A$). Each foreign entity in the Group determines its own functional currency and items included in the financial statements of each foreign entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rate of exchange ruling at the reporting date. All exchange differences in the consolidated financial report are taken to the statement of comprehensive income, with the exception of those items that are designated as hedges which are recognised in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. As at the reporting date the assets and liabilities of overseas subsidiaries are translated into the presentation currency of Nine Entertainment Co. Holdings Limited at the rate of exchange ruling at the reporting date and statements of comprehensive income are translated at the weighted average exchange rates for the year. The exchange differences arising on translation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the Statement of Comprehensive Income. (i) Cash and cash equivalents Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand, and short-term deposits. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. ( j) Trade and other receivables Trade receivables are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. Collectability of trade receivables is reviewed on an ongoing basis at each division. Individual debts that are known to be uncollectible are written off when identified. A provision for impairment loss is recognised when there is objective evidence that the Group will not be able to collect all amounts due according to the original trade terms. Factors considered as objective evidence of impairment include ageing and timing of expected receipts and the creditworthiness of counterparties. The amount of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows. (k) Inventories Inventories are valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Nine Entertainment Co. 55 Notes to theFinancial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (l) Program rights Television programs which are available for use, including those acquired overseas, are recorded at cost less amounts charged to the Statement of Comprehensive Income based on the useful life of the content and management’s assessment of the future years of benefit, which is regularly reviewed with additional write-downs made as considered necessary. (m) Investments and Other Financial Assets Certain of the Group’s investments are categorised as investments in listed equities under AASB9 — Financial Instruments. When financial assets are recognised initially, they are measured at fair value plus, in the case of assets not recorded at fair value through profit or loss, directly attributable transaction costs. Recognition and derecognition All regular way purchases and sales of financial assets are recognised on the trade date i.e., the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets under contracts that require delivery of the assets within the period established generally by regulation or convention in the market place. Financial assets are derecognised when the right to receive cash flows from the financial assets has expired or when the entity transfers substantially all the risks and rewards of the financial assets. If the entity neither retains nor transfers substantially all of the risks and rewards, it derecognises the asset if it has transferred control of the assets. Subsequent measurement Investments in listed equities are non-derivative financial assets, principally equity securities, which meet the definition of equity instruments. Upon initial recognition under AASB 9, the Group made an irrevocable election, on an instrument by instrument basis, to present subsequent changes in the fair value of its investments in listed equities in a separate component of equity. Dividends from investments in listed equities are recognised in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. The fair values of investments that are actively traded in organised financial markets are determined by reference to quoted market bid prices at the close of business on the reporting date. For investments with no active market, fair values are determined using valuation techniques. Such techniques include: using recent arm’s length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis; and option pricing models, making as much use of available and supportable market data as possible and keeping judgemental inputs to a minimum. (n) Investments in associates and joint arrangements The Group’s investments in its associates are accounted for under the equity method of accounting in the consolidated financial statements. These are entities in which the Group has significant influence and which are not subsidiaries. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The financial statements of the associates and joint ventures are used by the Group to apply the equity method. The investment in the associate or joint venture is carried in the consolidated Statement of Financial Position at cost plus post-acquisition changes in the Group’s share of net assets of the associates, less any impairment. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The consolidated Statement of Comprehensive Income reflects the Group’s share of the results of operations of the associates. Where there has been a change recognised directly in the associate’s or joint venture’s equity, the Group recognises its share of any movements directly in equity. The financial statements of the associate or joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, then recognises the loss as “Share of profit of an associate” in the statement of profit or loss. 56 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 2016(o) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. freehold buildings — 20 to 40 years Depreciation and amortisation is calculated on a straight-line basis over the estimated useful life of the asset as follows: • • • plant and equipment — 2 to 15 years leasehold improvements — lease term; and The assets’ residual values, useful lives and amortisation methods are reviewed and adjusted as appropriate each year end. Impairment The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. The recoverable amount of property, plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Disposal An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected to arise from the continued use or disposal of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the Statement of Comprehensive Income in the year the item is derecognised. (p) Borrowing costs Interest is recognised as an expense when it is incurred. Debt establishment costs are capitalised and expensed over the term of the loan. (q) Intangible assets Licences Licences are carried at cost less any accumulated impairment losses. Television licences are renewable every five years under the provisions of the Broadcasting Services Act 1992. Whilst certain of the television licences continue to be subject to Government legislation and regulation by the Australian Communications and Media Authority, the Directors have no reason to believe the licences will not be renewed. The Directors regularly assess the carrying value of licences so as to ensure they are not carried at a value greater than their recoverable amount. No amortisation is provided against these assets as the Directors consider that the licences are indefinite life intangible assets. Goodwill Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised. As at the acquisition date, any goodwill acquired is allocated to each of the cash-generating units expected to benefit from the combination’s synergies. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained. Nine Entertainment Co. 57 Notes to theFinancial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Other intangible assets Intangible assets acquired separately are capitalised at cost, and from a business combination are capitalised at fair value as at the date of acquisition. Following initial recognition, the cost model is applied to the class of intangible assets. The useful lives of these intangible assets are assessed to be either finite or indefinite. Costs incurred to develop software for internal use and websites are capitalised and amortised over the estimated useful life of the software. Costs related to design or maintenance of internal-use software and website development are expensed as incurred. Venue ticketing rights are amortised over their contractual period. Where amortisation is charged on assets with finite lives, this expense is taken to the Statement of Comprehensive Income. Intangible assets, excluding development costs, created within the business are not capitalised and expenditure is charged against profits in the year in which the expenditure is incurred. Intangible assets are tested for impairment where an indicator of impairment exists, and in the case of indefinite life intangibles annually, either individually or at the cash generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the Statement of Comprehensive Income when the net asset is derecognised. (r) Recoverable amount of assets At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset’s value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. (s) Trade and other payables Trade and other payables are carried at amortised cost. Liabilities are brought to account for amounts payable in relation to goods received and services rendered, whether or not billed to the Group at reporting date. The Group operates in a number of diverse markets, and accordingly the terms of trade vary by business. (t) Interest-bearing loans and borrowings All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised costs using the effective interest method. (u) Provisions Provisions are recognised when the Group has a legal or constructive obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other events, it is probable that a future sacrifice of economic benefit will be required and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost. A provision for dividends is not recognised as a liability unless the dividends are declared, determined or publicly recommended on or before the reporting date. 58 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 2016(v) Pensions and other post-employment benefits The Group contributes to a defined benefit superannuation fund which requires contributions to be made to a separately administered fund. The cost of providing benefits under the defined benefit plan is determined separately for each plan using the projected unit credit actuarial valuation method. Re-measurements, comprising actuarial gains and losses, the effect of the asset ceiling (excluding net interest) and the return on plan assets (excluding net interest), are recognised immediately in the statement of financial position with a corresponding debit or credit to a separate component of equity in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods. Past service costs are recognised in the Statement of Comprehensive Income on the earlier of the date of the plan amendment or curtailment, and the date that the Group recognises restructuring-related costs. Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognises the following changes in the net defined benefit obligation under “expenses” in the Statement of Comprehensive Income (by function): • service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements; and • net interest expense or income. (w) Employee benefits Provision is made for employee benefits accumulated as a result of employees rendering services up to balance date including related on-costs. The benefits include wages and salaries, incentives, compensated absences and other benefits, which are charged against profits in their respective expense categories when services are provided or benefits vest with the employee. The provision for employee benefits is measured at the remuneration rates expected to be paid when the liability is settled. Benefits expected to be settled after 12 months from the reporting date are measured at the present value of the estimated future cash outflows to be made in respect of services provided by employees up to the reporting date. 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 using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and years of service. Expected future payments are discounted using market yields at the reporting date on government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. (x) Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or equipment or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the leased liability so as to achieve a constant rate of interest on the remaining balance of the liability. Operating lease payments are recognised as an expense in the Statement of Comprehensive Income on a straight-line basis over the lease term. (y) Derecognition of financial instruments The derecognition of a financial instrument takes place when the Group no longer controls the contractual rights that comprise the financial instrument, which is normally the case when the instrument is sold, or all the cash flows attributable to the instrument are passed through to an independent third party. (z) Derivative financial instruments The Group uses derivative financial instruments such as foreign currency contracts and interest rate swaps to hedge its risks associated with interest rate and foreign currency fluctuations. Such derivative financial instruments are stated at fair value. The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments. Nine Entertainment Co. 59 Notes to theFinancial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) For the purposes of hedge accounting, hedges are classified as either fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability, or cash flow hedges where they hedge exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a forecasted transaction. In relation to fair value hedges (interest rate swaps) which meet the conditions for hedge accounting, any gain or loss from remeasuring the hedging instrument at fair value is recognised immediately in profit or loss for the year. Any gain or loss attributable to the hedged risk on re-measurement of the hedged item is adjusted against the carrying amount of the hedged item and recognised in profit or loss for the year. Where the adjustment is to the carrying amount of a hedged interest-bearing financial instrument, the adjustment is amortised through the profit or loss for the year such that it is fully amortised by maturity. In relation to cash flow hedges (forward foreign currency contracts and cross currency principal and interest rate swaps and options) to hedge firm commitments which meet the conditions for hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the profit or loss for the year. When the hedged firm commitment results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses that had previously been recognised in equity are included in the initial measurement of the acquisition cost or other carrying amount of the asset or liability. For all other cash flow hedges, the gains or losses that are recognised in equity are transferred to profit or loss in the same year in which the hedged firm commitment affects net profit or loss, for example when the future sale actually occurs. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair values or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair values or cash flows. For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to profit or loss for the year. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to profit or loss for the year. (aa) Impairment of financial assets The Group assesses at each reporting date whether a financial asset or group of financial assets is impaired. Financial assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through use of an allowance account. The amount of the loss is recognised in profit or loss for the year. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment, and for which an impairment loss is (or continues to be) recognised, are not included in a collective assessment of impairment. If, in a subsequent year, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in profit or loss for the year, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. (ab) Contributed equity Ordinary shares are classified as equity. Issued capital is recognised at the fair value of the consideration received by the Group, less transaction costs. The Group provided remuneration to senior management in the form of share-based payments, whereby employees render services as consideration for equity instruments. In the Group’s financial statements the transactions of these share-based payments are settled through a plan trust and are treated as being executed by the Group (an external third party acts as the Group’s agent). Where shares to satisfy the Rights Plan are purchased by the third party, the consideration paid is deducted from total shareholders’ equity and the shares are treated as treasury shares until they are subsequently vested, sold, reissued or cancelled. Where such shares are vested, sold or reissued, any consideration received is included in shareholders’ equity. 60 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 2016(ac) Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Television and Digital Revenue for advertising and media activities is recognised when the advertisement has been broadcast/displayed or the media service has been performed. Live (Discontinued Operations) Revenue from ticketing operations primarily consists of booking and service/delivery fees charged at the time a ticket for an event is sold and is recorded on a net basis (net of the face value of the ticket). This revenue is recognised at the time of the sale. Revenue from the promotion and production of an event is recognised in the month the performance occurs (event maturity). Interest Revenue is recognised as the interest accrues using the effective interest method (which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset). (ad) Business combinations The purchase method of accounting is used to account for all business combinations regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange. Where equity instruments are issued in a business combination, the fair value of the instruments is their published price at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity. Except for non-current assets or disposal groups classified as held for sale (which are measured at fair value less costs to sell), all 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 Non-Controlling interest. The excess of the cost of the business combination over the net fair value of the Group’s share of the identifiable net assets acquired is recognised as goodwill. If the cost of acquisition is less than the Group’s share of the net fair value of the identifiable net assets of the subsidiary, the difference is recognised as a gain in the Statement of Comprehensive Income, but only after a reassessment of the identification and measurement of the net assets required. Where settlement of any part of the 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 Group’s incremental borrowing rate, being the rate at which similar borrowing could be obtained from an independent financier under comparable terms and conditions. (ae) Share-based payments The Group provides remuneration to senior management in the form of share-based payments, whereby employees render services as consideration for equity instruments (equity-settled transactions). The cost for equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model. That cost is recognised, together with a corresponding increase in share-based payment reserves, over the period in which the performance and/or service conditions are fulfilled in employee benefit expense. Refer to Note 25(c). The cumulative expense recognised at each reporting date, until vesting dates, reflects the extent to which the vesting period has expired. The share-based payments can be settled with either cash or equity at the election of the Group. (af) Assets held for sale and discontinued operations The Group classifies non-current assets and disposal groups as held for sale or for distribution to equity holders of the parent if their carrying amounts will be recovered principally through sale or a distribution rather than through continuing use. Such non-current assets and disposal groups classified as held for sale or for distribution are measured at the lower of their carrying amount and fair value less costs to sell or to distribute. Costs to sell or distribute are the incremental costs directly attributable to the sale or distribution, excluding the finance costs and income tax expense. Nine Entertainment Co. 61 Notes to theFinancial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The criteria for held for sale or for distribution classification is regarded as met only when the sale or distribution is highly probable and the asset or disposal group is available for immediate sale or distribution in its present condition. Actions required to complete the sale or distribution should indicate that it is unlikely that significant changes to the sale or distribution will be made or that the decision to sell or distribute will be withdrawn. Management must be committed to the sale or distribution expected within one year from the date of the classification. Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale or distribution. Assets and liabilities classified as held for sale or distribution are presented separately as current items in the statement of financial position except where contracted maturity falls in excess of one year from balance date. represents a separate major line of business or geographical area of operations A disposal group qualifies as a discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held for sale or distribution, and: • • or • is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; is a subsidiary acquired exclusively with a view to resale. Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the Statement of Comprehensive Income. Additional disclosures are provided in Note 6(a). All other notes to the financial statements include amounts for continuing operations, unless otherwise stated. 2. SEGMENT INFORMATION The Chief Operating Decision Makers (determined to be the Board of Directors) review and manage the business based on the following reportable segments: • Television — includes free to air television activities. • Digital — includes Nine Digital Pty Limited (formerly ninemsn Pty Limited) and other digital activities. No operating segments have been aggregated to form the above reportable operating segments. Segment performance is evaluated based on continuing operations segment EBITDA before specific items (refer to Note 3(iv)) which are included in corporate costs or disclosed separately in the table below. Group finance costs, interest income and income taxes are managed on a Group basis and are not allocated to operating segments. Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties and are eliminated on consolidation. Year ended 30 June 2016 (i) Segment revenue Operating revenue Inter-segment revenue Total segment revenue Reconciliation of segment revenue from continuing operations to the Consolidated Statement of Comprehensive Income Dividend received from investment in listed entity Interest income Inter-segment eliminations Television $’000 Digital $’000 Consolidated $’000 1,129,966 1,290 1,131,256 149,896 1,279,862 — 149,896 1,290 1,281,152 2,496 4,002 (1,290) Revenue from continuing operations per the Consolidated Statement of Comprehensive Income 1,286,360 62 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 2016 Year ended 30 June 2016 (ii) Segment result Segment earnings before interest, tax, depreciation and amortisation (EBITDA) Depreciation and amortisation Segment earnings before interest and tax (EBIT) Share of associates’ net profit after tax EBIT after share of associates Television $’000 Digital $’000 Consolidated $’000 183,453 (26,481) 156,972 26,007 (5,543) 20,464 Reconciliation of segment EBIT after share of associates to profit from continuing operations before tax to the Consolidated Statement of Comprehensive Income Corporate costs Interest income Finance costs Profit from continuing operations before tax and before specific items Tax Profit from continuing operations after tax and before specific items Specific items (refer note 3(iv)) Specific finance cost (refer note 3(v)) Tax on specific items Profit from continuing operations after tax and specific items 209,460 (32,024) 177,436 2,111 179,547 (10,089) 4,002 (9,367) 164,093 (45,542) 118,551 (105,567) (1,477) 21,716 33,223 Year ended 30 June 2015 (i) Segment revenue Operating revenue Inter-segment revenue Total segment revenue Reconciliation of segment revenue from continuing operations to the Consolidated Statement of Comprehensive Income Gain on sale of HWW Pty Ltd (Note 6(b)(ii)) Interest income Inter-segment eliminations Television $’000 Digital $’000 Consolidated $’000 1,214,977 6,259 1,221,236 156,394 7,833 164,227 1,371,371 14,092 1,385,463 10,341 2,186 (14,092) Revenue from continuing operations per the Consolidated Statement of Comprehensive Income 1,383,898 Nine Entertainment Co. 63 Notes to theFinancial Statements 2. SEGMENT INFORMATION (continued) Year ended 30 June 2015 (ii) Segment result Segment earnings before interest, tax, depreciation and amortisation (EBITDA) Depreciation and amortisation Segment earnings before interest and tax (EBIT) Share of associates’ net profit after tax EBIT after share of associates Television $’000 Digital $’000 Consolidated $’000 205,984 (26,205) 179,779 21,950 (3,568) 18,382 Reconciliation of segment EBIT after share of associates to profit from continuing operations before tax to the Consolidated Statement of Comprehensive Income Corporate costs Interest income Finance costs Profit from continuing operations before tax and before specific items Tax Profit from continuing operations after tax and before specific items Specific items (refer note 3(iv)) Tax on specific items Loss from continuing operations after tax and specific items 227,934 (29,773) 198,161 3,353 201,514 (14,375) 2,186 (30,462) 158,863 (47,281) 111,582 (847,235) 138,029 (597,624) Earnings/(loss) per share from continuing operations Basic and diluted profit/(loss) before specific items Basic and diluted profit/(loss) after specific items 2016 2015 $0.13 $0.04 $0.12 ($0.64) Geographic information A majority of the Group’s external revenues arise out of sales to customers within Australia. Major customers The Group did not have any customers which accounted for more than 10% of operating revenue for the year (2015: nil). 64 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 2016 3. REVENUES AND EXPENSES Profit/(loss) before income tax expense includes the following revenues and expenses: (i) Revenues and income from continued operations Revenue from rendering services Gain on disposal of HWW Pty Ltd (Note 6(b)(ii)) Profit on sale of non-current assets Dividend received from investment in listed entity Interest 2016 $’000 2015 $’000 1,279,862 1,371,365 — — 2,496 4,002 10,341 6 — 2,186 Total revenues and income from continuing operations 1,286,360 1,383,898 (ii) Expenses from continuing operations Television activities Other activities Total expenses from continuing operations (iii) Other expense disclosures from continuing operations (included in expenses (ii) above) Depreciation of non-current assets Buildings Plant and equipment Total depreciation Amortisation of non-current assets Plant and equipment under finance lease Leasehold property Other assets Total amortisation Total depreciation and amortisation expense Salary and employee benefit expense (included in expenses (ii) above) Program rights (included in expenses (ii) above) (iv) Specific items from continuing operations included in revenues and income (i) and expenses (ii) above: Goodwill impairment (Note 14) Licence impairment (Note 14) Program stock writedown Onerous contracts Write-off of loans to DailyMail.com Australia Pty Ltd (Note 10(b)) Investment writedown (Note 10) Gain on disposal of HWW Pty Ltd (Note 6(b)(ii)) Mark to market of derivatives (Note 29) Restructuring and termination costs Other 1,060,221 160,357 1,220,578 1,885,323 159,838 2,045,161 2,352 23,451 25,803 43 1,864 4,581 6,488 32,291 345,073 455,870 17,227 16,086 47,931 7,299 5,905 512 — 405 8,729 1,473 2,778 22,982 25,760 53 1,881 2,345 4,279 30,039 349,105 466,341 667,317 99,483 57,429 — — 25,019 (10,341) 1,343 1,404 5,581 Total specific items included in income (i) and expenses (ii) above 105,567 847,235 Nine Entertainment Co. 65 Notes to theFinancial Statements 3. REVENUES AND EXPENSES (continued) (v) Finance Costs Finance costs expensed: Interest on debt facilities Amortisation of debt facility and non-cash interest on derivatives Finance leases Specific item Write off of debt establishment fees for debt cancelled Total finance costs 4. DIVIDENDS PAID AND PROPOSED (a) Dividends appropriated during the financial year 2016 $’000 2015 $’000 8,209 1,151 7 9,367 1,477 10,844 29,187 1,264 11 30,462 — 30,462 During the year Nine Entertainment Co. Holdings Limited paid an interim dividend of 8.0 cents per share (amounting to $70,073,492) in respect of the year ending 30 June 2016 and a final dividend of 5.0 cents per share (amounting to $44,625,470) in respect of the year ending 30 June 2015. The Company has not declared any dividend subsequent to 30 June 2016. (b) Franking credits Nine Entertainment Co. Holdings Limited had a franking account balance as follows: Franking account balance as at the beginning of the financial year Franking credits that arose from the payment of income tax payable during the financial year Franking credits that arose from Nine Digital Pty Ltd joining the tax consolidation group Franking debits that arose from the payment of dividends during the financial year Franking credits that arose from the receipt of dividends Franking account balance at the end of the financial year Nine Entertainment Co. Holdings Limited had an exempting account balance as follows: Exempting account balance as at the beginning of the financial year Exempting debit allocated to 30 June 2015 Interim Dividend Exempting debit allocated to 30 June 2014 Final Dividend Exempting account balance at the end of the financial year 2016 $’000 2,613 37,654 9,778 (49,157) 2,163 3,051 2016 $’000 41,069 — — 41,069 2015 $’000 1,237 — — — 1,376 2,613 2015 $’000 75,278 (16,719) (17,490) 41,069 Nine Entertainment Co. Holdings Limited became a former exempting entity as a consequence of the IPO in December 2013. As a result, the Company’s franking account balance at that time was transferred to an exempting account. Exempting credits will generally only be of benefit to certain foreign resident shareholders by providing an exemption from Australian dividend withholding tax. The exempting credits will generally not give rise to a tax offset for Australian resident shareholders. 66 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 20165. INCOME TAX (a) Income tax benefit/(expense) The prima facie tax expense, using tax rates applicable in the country of operation, on profit, differs from income tax provided in the financial statements as follows: Profit/(loss) from continuing operations Profit from discontinued operations Profit/(loss) before income tax 2016 $’000 2015 $’000 57,049 415,333 472,382 (688,372) 40,675 (647,697) Prima facie income tax expense/(benefit) at the Australian rate of 30% 141,715 (194,309) Tax effect of: Share of associates’ net profits Difference between tax and accounting profit from disposal of Live Gain on disposal of investments and assets Deferred tax liability movement in investment and tangible assets Impairment and write down of investments Capital losses brought to account Other items — net Income tax expense/(benefit) Current tax expense Deferred tax expense/(benefit) relating to the origination and reversal of temporary differences Income tax expense/(benefit) Aggregate income tax expense/(benefit) is attributable to: Continuing operations Discontinued operations Income tax expense/(benefit)1 (633) (1,037) 424 111 10,376 — (3,329) 147,627 (1,006) — 23,868 839 237,860 (124,000) 1,202 (55,546) 63,381 51,034 84,246 147,627 23,826 123,801 147,627 (106,580) (55,546) (90,748) 35,202 (55,546) 1. The income tax expense/(benefit) includes a specific net tax expense of $100.3 million (2015: $115.1 million benefit) in relation to specific items in Notes 3(iv), 3(v) and 6(a) . This specific net tax expense is allocated as a tax benefit of $21.7 million (2015: $138.0 million) to continuing operations and a tax expense of $122.0 million (2015: $22.9 million) to discontinued operations. (b) Deferred income taxes Deferred income tax assets Continuing operations Discontinued operations Total deferred income tax assets Deferred income tax liabilities Continuing operations Discontinued operations Total deferred income tax liabilities Net deferred income tax (liabilities)/assets continuing operations 2016 $’000 2015 $’000 85,614 — 85,614 (124,516) — (124,516) (38,902) 202,147 3,672 205,819 (134,413) (46,879) (181,292) 67,734 Nine Entertainment Co. 67 Notes to theFinancial Statements 5. INCOME TAX (continued) (c) Deferred income tax assets and liabilities at the end of the financial year TV licence fees accrued Employee benefits provision Other provisions and accruals Disposal of discontinued operation1 Investments in associates Accelerated depreciation for tax purposes Other Net deferred income tax assets/(liabilities) 2016 $’000 2015 $’000 P&L Expense/ (Benefit) Movement $’000 12,676 14,418 32,328 — (3,841) (118,474) 23,991 (38,902) 17,875 14,552 31,017 101,034 (1,581) (155,764) 17,394 24,527 5,199 134 (1,311) 124,000 111 (37,290) (6,597) 84,246 1. As at 30 June 2015, in respect of the disposal of Live, the Group recognised previously unrecognised capital losses of $413.3 million (which resulted in a deferred tax benefit of $124.0 million) and a deferred tax liability of $23.0 million. (d) Deferred income tax assets not brought to account Capital losses 2016 $’000 2015 $’000 — 3,437 In the year ended 30 June 2016 an income tax effect of $2.1 million was taken directly to equity in relation to the fair value movement in listed equities (2015: nil). (e) Tax consolidation Effective 6 June 2007, for the purposes of income taxation, Nine Entertainment Co. Holdings Limited and its 100% owned Australian subsidiaries formed a tax consolidated group. Members of the group have entered into a tax sharing arrangement in order to allocate income tax expense to the wholly-owned subsidiaries on a pro-rata basis. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax obligations. At the balance date, the possibility of default is remote. The head entity of the tax consolidated group is Nine Entertainment Co. Holdings Limited. The parent entity has recognised the current tax liability of the tax consolidated group. Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement provides for the allocation of current and deferred taxes to members of the tax consolidated group in accordance with their taxable income for the year. The allocation of taxes under the tax funding agreement is recognised as an increase/decrease in the subsidiaries’ intercompany accounts with the head entity, Nine Entertainment Co. Holdings Limited. The Group has applied the group allocation approach to determine the appropriate amount of current and deferred tax to allocate to each member of the tax consolidated group. 68 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 2016 6(a). DISCONTINUED OPERATIONS — LIVE BUSINESS On 31 July 2015, the Group disposed of 100% of its Live business for an enterprise value of $640 million subject to normal completion adjustments. (i) Results of the discontinued operation: The results of the discontinued operation for the year are presented below: Revenue Expenses Results from operating activities Income tax expense1 Results from operating activities, net of tax Gain on sale of discontinued operation2 Income tax expense on gain on sale of discontinued operation Profit for the year from discontinued operation3 (ii) Earnings per share 2016 $’000 2015 $’000 57,260 (52,144) 5,116 (1,773) 3,343 410,217 (122,028) 291,532 240,403 (199,728) 40,675 (35,202) 5,473 — — 5,473 Basic and diluted, profit for the year from the discontinued operation $0.33 $0.01 1. Income tax expense in the prior year includes a deferred tax liability of $23.0 million recognised in respect of the disposal of Live. 2. The profit on disposal includes the recycling of the foreign currency translation reserve loss of $634,000 through profit and loss. 3. The profit from the discontinued operation of $291.5 million (2015: $5.5 million) is attributable entirely to the owners of the Company. (iii) Cash flows of the discontinued operation were as follows: Operating activities Investing activities Financing activities Net cash flow (outflow)/inflow Net cash inflow on disposal Cash consideration (net of associated costs) Less cash held on Trust transferred on disposal Net cash inflow associated with the discontinued operation for the year 2016 $’000 1,120 (11,293) — (10,173) 642,291 (107,621) 534,670 2015 $’000 46,381 (32,016) (6,313) 8,052 — — — Nine Entertainment Co. 69 Notes to theFinancial Statements 6(a). BUSINESS COMBINATIONS (continued) (iv) Assets and liabilities of the discontinued operation The major assets and liabilities of the Live Group held for sale as at 30 June 2015 and subsequently disposed of were as follows: Assets Cash and cash equivalents Trade and other receivables Inventories Other assets Property, plant and equipment Other intangibles Total assets Liabilities Trade and other payables Deferred tax liabilities Provisions Total liabilities Net assets associated with the discontinued operation 6(b). BUSINESS COMBINATIONS 30 June 2016 2015 $’000 129,031 24,477 845 1,762 17,473 250,519 424,107 (181,508) (43,207) (5,761) (230,476) 193,631 There were no material business combinations for the year ended 30 June 2016. In accordance with the agreement with Microsoft, effective 1 November 2013, to acquire the 50% of shares in Nine Digital Pty Limited (formerly Ninemsn Pty Limited) which the Company did not already own, on 1 July 2015 the final tranche for the payment of consideration ($17.1 million) and transfer of shares was completed. 30 June 2015 (i) Acquisition of Pedestrian Group Pty Ltd On 31 March 2015, the Group acquired 60% of the shares and voting interests in Pedestrian Group Pty Ltd (“Pedestrian”) for cash consideration of $9.3 million plus acquisition costs. Launched in 2005, Pedestrian is Australia’s fastest-growing publishing brand. Pedestrian helps advertisers create innovative, engaging and effective campaigns targeted at young Australians. The acquisition of Pedestrian was completed to expand the Group’s presence in the youth online publishing website market. There is a put and call option for the remaining 40% of shares not owned by the Group that can be exercised after three years and before six years from the date of completion. The option exercise price is to be determined at the date of the exercise of the option based on EBITDA of Pedestrian at that time. The Board consists of five Directors with NEC nominating three Directors. The Group completed an assessment to determine the fair value of the assets acquired and liabilities assumed and determined that there is no significant fair value uplift on acquisition in depreciable assets and that all intangible assets arising from the acquisition are non-amortising in nature. Goodwill of $19.3 million has been recognised, as the purchase price (including put option) exceeds the tangible and intangible assets and liabilities identified, and is allocated to the Digital segment. None of the goodwill recognised is expected to be deductible for income tax purposes. The option liability has been valued at $11.9 million and has been included as a non-current derivative financial instrument on the balance sheet. This valuation is based on forecast EBITDA after three years discounted to current values. Any changes to the expected value for the option exercise will be accounted for through the Statement of Comprehensive Income. Pedestrian has been 100% consolidated from the date of acquisition as it is highly probable that the Group will acquire the remaining 40% interest due to the put and call option. As the Group has gained effective control over Pedestrian, no non- controlling interest has been recorded. There were no other material business combinations for the year ended 30 June 2015. 70 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 2016(ii) Disposals During the prior period, the Group completed the following disposal: Company disposed HWW Pty Ltd Disposal date 1 October 2014 Interest disposed % Interest after disposal % 100 — In October 2014, Nine Digital Pty Limited (formerly ninemsn Pty Limited) completed the sale of wholly-owned subsidiary HWW Pty Ltd to Gracenote, part of the Tribune Media Company for a net disposal price of $20.6 million (net of cash and transaction costs). The gain on disposal was $10.3 million pre-tax (refer to Note 3(iv)) and $7.0 million post-tax. The Group recognised a disposal of net assets of $10.3 million including $9.8 million of goodwill. 7. TRADE AND OTHER RECEIVABLES Current Trade receivables1 Provision for impairment loss Related parties receivables (Note 26) Other receivables Total current trade and other receivables Non-Current Loans to related parties (Note 26) Total non-current trade and other receivables 2016 $’000 2015 $’000 249,885 (1,310) 248,575 6,285 31,843 286,703 266,245 (1,425) 264,820 4,503 12,375 281,698 59,067 59,067 23,548 23,548 1. Trade receivables are non-interest bearing and are generally on 30 to 60 day terms. (a) Provision for impairment loss A provision for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired. A net release from the provision of $67,000 (2015: impairment $76,000) has been recognised by the Group in the current period. Operating divisions each have follow-up procedures including contact with debtors to discuss collection of outstanding debts. Impairment provisions are recorded for those debtors where the likelihood of collection is unlikely. Related party and other receivables do not contain impaired assets and are not past due. It is expected that these balances will be received when due. Movements in the provision for impairment loss were as follows: Balance at the beginning of the year Release/(Charge) for the year Provision utilised during the year Discontinued operation re-classification Balance at the end of the year 2016 $’000 (1,425) 67 48 — (1,310) 2015 $’000 (3,969) (76) 2,364 256 (1,425) Nine Entertainment Co. 71 Notes to theFinancial Statements 7. TRADE AND OTHER RECEIVABLES (continued) The ageing analysis of trade receivables is as follows: 2016 2015 Consolidated 249,885 221,387 Consolidated 266,245 245,859 Total Current Current CI1 — — 0-30 Days PDNI1 12,538 10,939 0-30 Days CI1 — — 31-60 Days PDNI1 1,895 1,320 31-60 Days CI1 — — 61+ Days PDNI1 12,755 6,702 61+ Days CI1 1,310 1,425 1. Past due but not impaired (“PDNI”) or Considered impaired (“CI”). The trade receivables which are past due but not impaired are considered to be recoverable in full. (b) Credit risk The maximum exposure to credit risk is the carrying amount of current receivables. For those non-current receivables, the maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivables. Collateral is not held as security. 8. PROGRAM RIGHTS Current Program rights Stock provision Total current program rights Non-current Program rights Stock provision Total non-current program rights 9. OTHER ASSETS Current Prepayments Other Total current other assets Non-current Prepayment Defined Benefit Fund Asset (Note 22) Other Total non-current other assets 72 Annual Report 2016 2016 $’000 176,622 (37,419) 139,203 69,862 (8,685) 61,177 2016 $’000 65,366 7,329 72,695 41,500 19,286 424 61,210 2015 $’000 233,550 (40,913) 192,637 42,350 (5,997) 36,353 2015 $’000 11,362 13,774 25,136 80,000 19,508 604 100,112 Notes to the Consolidated Financial Statements continued for the year ended 30 June 201610. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (a) Investments at equity accounted amount: Associated entities — unlisted shares (b) Investments in Associates and Joint Ventures 2016 $’000 19,680 2015 $’000 19,081 Interests in associates are accounted for using the equity method of accounting. Information relating to associates is set out below. Principal Activity Country of Incorporation 30 June 2016 30 June 2015 % interest1 Australian News Channel Pty Ltd Pay TV news service DailyMail.com Australia Pty Ltd2 Provider of online news content Darwin Digital Television Pty Ltd Television transmission Intrepica Pty Ltd Online learning service IEC Exhibitions Pty Ltd3 Developer and promoter of touring exhibitions Australia Australia Australia Australia Australia Oztam Pty Ltd RateCity Pty Ltd Television audience measurement Australia Operator of a financial product comparison service Stan Entertainment Pty Ltd Pay TV service TX Australia Pty Ltd Television transmission Australia Australia Australia 1. The proportion of ownership interest is equal to the proportion of voting power held. 2. On 1 February 2016, the Company disposed of its interest in DailyMail.com Australia Pty Ltd. 3. IEC Exhibitions Pty Ltd is an associate of the discontinued operations that was sold on 31 July 2015. (c) Carrying amount of investments in associates Balance at the beginning of the financial year Acquired during the period Share of associates’ net profit for the year Dividends received or receivable Write-down of investments Carrying amount of investments in associates at the end of the financial year 33 — 50 32 — 33 50 50 33 33 50 50 30 25 33 50 50 33 2016 $’000 19,081 1,500 2,111 (2,500) (512) 19,680 2015 $’000 38,081 6,950 3,353 (3,333) (25,970) 19,081 (d) Share of associates and joint ventures net (loss)/profit The following table illustrates the Group’s aggregate share of net profit/(loss) after income tax from associates and joint ventures. Net profit/(loss) after income tax from continuing operations (e) Impairment 2016 $’000 (36,592) 2015 $’000 (14,512) 30 June 2016 Management has determined the accounting fair value less costs to disposal for Australian News Channel Pty Limited to be the likely net proceeds which it is estimated would be received on a disposal of the Group’s shares in this entity. This has resulted in an impairment of $512,000 being recognised on the investment in Australian News Channel Pty Limited during the current financial year. Nine Entertainment Co. 73 Notes to theFinancial Statements 11. INVESTMENT IN LISTED EQUITIES Opening balance at 1 July Acquisition of Australian shares Mark to market of investment in listed equities Closing balance at 30 June 2016 $’000 23,813 88,448 (7,566) 104,695 2015 $’000 20,883 12,000 (9,070) 23,813 On 18 March 2016 the Group acquired 9.99% of the shares in Southern Cross Media Group Limited (ASX: SXL) for a total consideration of $88,448,000. Additionally, the Group holds 17.65% of the ordinary issued capital of Yellow Brick Road Limited (ASX: YBR) The investment in listed equities is classified as a Level 1 instrument as described in Note 29(a). Fair value was determined with reference to a quoted market price. 12. PROPERTY, PLANT AND EQUIPMENT Freehold land and buildings $’000 Leasehold improvements $’000 Plant and equipment $’000 Construction work in progress $’000 Leased plant and equipment $’000 Year ended 30 June 2016 At 1 July 2015, net of accumulated depreciation and impairment Additions Transfer from construction work in progress Disposals Depreciation expense Amortisation expense 18,676 1,623 — — (2,352) 8,024 326 — — — — (1,864) Transfer to assets held for sale1 (3,313) 19 75,701 17,312 9,722 (28) (23,451) — (899) 16,257 17,245 (9,722) — — — — 111 — — — — (43) — Total property, plant and equipment $’000 118,769 36,506 — (28) (25,803) (1,907) (4,193) 14,634 6,505 78,357 23,780 68 123,344 710 — 169 (34) (2,778) — (41,527) — 62,136 8,591 98,491 17,103 104 16,416 13,644 — — — 1,584 12,050 (13,803) (3) — (1,911) (64) (173) (213) (28,000) — (6,534) (17,300) — — — — — 18,676 8,024 75,701 16,257 179 — — — (15) — (53) — — 111 185,813 31,457 104 — (265) (30,778) (1,964) (48,125) (17,473) 118,769 At 30 June 2016, net of accumulated depreciation and impairment Year ended 30 June 2015 At 1 July 2014, net of accumulated depreciation and impairment Additions Acquisition of subsidiaries (Note 6(b)(i)) Transfer from construction work in progress Disposals Depreciation expense Amortisation expense Transfer to assets held for sale1 Discontinued operations (Note 6(a)) At 30 June 2015, net of accumulated depreciation and impairment 74 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 2016Freehold land and buildings $’000 Leasehold improvements $’000 Plant and equipment $’000 Construction work in progress $’000 Leased plant and equipment $’000 Total property, plant and equipment $’000 At 30 June 2016 Cost (gross carrying amount) 30,694 14,754 396,948 23,780 417 466,593 Accumulated depreciation and impairment Net carrying amount At 30 June 2015 (16,060) 14,634 (8,249) 6,505 (318,591) 78,357 - (349) (343,249) 23,780 68 123,344 Cost (gross carrying amount) 33,176 15,313 371,180 16,257 417 436,343 Accumulated depreciation and impairment Net carrying amount (14,500) 18,676 (7,289) (295,479) — (306) (317,574) 8,024 75,701 16,257 111 118,769 1. Assets held for sale includes $41.8 million (2015 $36.2 million) in respect of the sale of the Willoughby, Sydney site; these are treated as non-current assets. The remaining assets held for sale of $9.3 million relate to assets held in Adelaide. No contract for disposal has been entered into in respect of the remaining assets held for sale however the net proceeds are expected to be in line with their carrying value. 13. LICENCES Balance at the beginning of the period, net of accumulated impairment Impairment loss1 Balance at the end of the period, net of accumulated impairment Cost (gross carrying amount) Accumulated impairment Net carrying amount 1. Refer to Note 14 for further detail on the recoverable amount of licences. 2016 $’000 493,870 (16,086) 477,784 2015 $’000 593,353 (99,483) 493,870 1,450,353 1,450,353 (972,569) 477,784 (956,483) 493,870 Nine Entertainment Co. 75 Notes to theFinancial Statements 14. OTHER INTANGIBLE ASSETS Year ended 30 June 2016 At 1 July 2015, net of accumulated amortisation and impairment Purchases Amortisation expense Impairment loss At 30 June 2016, net of accumulated amortisation and impairment At 1 July 2014, net of accumulated amortisation and impairment Purchases Disposal of controlled entities (Note 6(b)(ii)) Acquisition of controlled entities (Note 6(b)(i)) Amortisation expense Impairment loss Discontinued operations (Note 6(a)) At 30 June 2015, net of accumulated amortisation and impairment At 30 June 2016 Cost (gross carrying amount) Accumulated amortisation and impairment Net carrying amount At 30 June 2015 Cost (gross carrying amount) Accumulated amortisation and impairment Discontinued operations Net carrying amount Goodwill $’000 Venue Ticketing Rights $’000 Other1 $’000 Total $’000 506,015 — — (17,227) 488,788 1,334,179 — (9,771) 19,307 — (667,317) (170,383) 506,015 1,335,949 (847,161) 488,788 1,506,332 (829,934) (170,383) 506,015 — — — — — 56,334 40,599 — — (23,627) — (73,306) — — — — 136,723 (63,417) (73,306) — 8,011 12,912 (4,581) — 514,026 12,912 (4,581) (17,227) 16,342 505,130 14,577 6,065 (1,123) — (4,678) — (6,830) 1,405,090 46,664 (10,894) 19,307 (28,305) (667,317) (250,519) 8,011 514,026 37,379 (21,037) 16,342 31,297 (16,456) (6,830) 8,011 1,373,328 (868,198) 505,130 1,674,352 (909,807) (250,519) 514,026 1. This includes capitalised development costs being, in part, an internally generated intangible asset. 76 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 2016(a) Allocation of non-amortising intangibles and goodwill The consolidated entity has allocated goodwill and licences to the following cash generating units (“CGUs”): Nine Network NBN Total licences Nine Network NBN Digital Total goodwill 2016 $’000 466,784 11,000 477,784 2016 $’000 421,913 — 66,875 488,788 2015 $’000 466,784 27,086 493,870 2015 $’000 421,913 17,227 66,875 506,015 (b) Determination of recoverable amount The recoverable amount of the following CGUs, which are classified within Level 3 of the fair value hierarchy, is determined based on fair value less cost of disposal calculations using discounted cash flow projections based on financial forecasts covering a five-year period: • Nine Network • NBN • Digital The cash flow projections which are used in determining any impairment require management to make significant estimates and judgements. Key assumptions in preparing the cash flow projections are set out below. Management has determined that there is no impairment for Nine Network and Digital as at 30 June 2016. (c) Impairment losses recognised As a result of lower than previously expected growth forecast in the regional Free-to-Air television advertising market, the following impairments were recognised during the year: • An impairment of $16.1 million in respect of NBN’s TV licence was recognised in the year ended 30 June 2016 (2015: $99.5 million). • An impairment of $17.2 million in respect of goodwill relating to NBN was recognised in the year ended 30 June 2016 (2015: $14.3 million). In the prior year an impairment of $653 million was recognised in respect of goodwill relating to Nine Network. (d) Key assumptions The key assumptions on which management has based its cash flow projections when determining the fair value less cost of disposal calculations for the Nine Network are as follows: • The advertising market is assumed to be flat throughout the period of the financial forecasts. • The Nine Network’s share of the Metro Free-to-Air advertising market for the 2017 financial year and in future years is assumed to remain in line with recent historical share which has been achieved. • The compounded annual growth rate of EBITDA over the period of the financial forecasts is assumed to be broadly consistent with the forecast terminal growth rate of 1.5%. • The pre-tax discount rate applied to the cash flow projections was 13.6% (2015: 15.3%) which reflects management’s best estimate of the time value of money and the risks specific to the Free-to-Air television market not already reflected in the cash flows. • Terminal growth rate of 1.5% (2015: 2.0%). Nine Entertainment Co. 77 Notes to theFinancial Statements 14. OTHER INTANGIBLE ASSETS (continued) The key assumptions on which management has based its cash flow projections when determining the fair value less cost of disposal calculations for NBN are as follows: • The advertising market for Regional Free-to-Air television declines over the 2017 financial year followed by further low single digit declines. • NBN’s share of the Regional Free-to-Air advertising market for the 2017 financial year and in future years is assumed to remain stable. • NBN’s affiliate fee payable (as a % of gross revenue) as a regional broadcaster will remain in line with industry expectations. • The pre-tax discount rate applied to the cash flow projections was 13.8% (30 June 2015: 14.6%) which reflects management’s best estimate of the time value of money and the risks specific to the Free-to-Air television market not already reflected in the cash flows. • Terminal growth rate of 0.0% (30 June 2015: 2.0%). The key assumptions on which management has based its cash flow projections when determining the fair value less cost of disposal calculations for Digital are as follows: • The digital industry in terms of digital advertising grows consistent with industry market participant expectations. • The pre-tax discount rate applied to the cash flow projections was 15.4% (2015: 17.2%) which reflects management’s best estimate of the time value of money and the risks specific to the Digital industry. • Terminal growth rate of 2% (2015: 2%). For the purpose of impairment testing, intangible assets with indefinite lives, including goodwill, are allocated to the Group’s operating divisions which represent the lowest level within the Group at which the assets are monitored for internal management purposes. (e) Sensitivity The estimated recoverable amounts of the Nine Network and NBN CGUs of $1,257.2 million and $34.6 million respectively are in line with the sum of the carrying amounts of intangible and tangible assets of the respective CGUs. An adverse movement in discount rate of 0.5%, or a decrease in forecast revenue of 1.0% will, if occurring in isolation, result in a further impairment of intangible assets of $74.3 million and $102.1 million respectively. The estimated recoverable amount of the Digital CGU is in excess of the carrying amount of intangibles and any reasonable adverse change in key assumptions would not lead to impairment. 15. TRADE AND OTHER PAYABLES Current — unsecured Trade and other payables1 Program contract payables2 Deferred income Total current trade and other payables Non-current — unsecured Program contract payables2 Other3 Total non-current trade and other payables 2016 $’000 152,619 137,784 37,493 327,896 25,875 21,925 47,800 2015 $’000 214,366 171,245 12,518 398,129 37,460 — 37,460 1. Terms of trade in relation to trade payables are, on average, 30 to 60 days from the date of invoice. The Group operates in a number of diverse markets and accordingly, the terms of trade vary by business. 2. Program contract creditors are settled according to the contract negotiated with the program supplier. 3. Relates to a deposit in respect of the sale of the Willoughby, Sydney site. 78 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 201616. INTEREST-BEARING LOANS AND BORROWINGS Current Lease liabilities secured1 (Note 19(b)) Total current interest-bearing loans and borrowings Non-current Bank facilities unsecured2 Lease liabilities secured1 (Note 19(b)) Total non-current interest-bearing loans and borrowings 1. Lease liabilities are secured by a charge over the assets. 2. Bank facilities include unamortised financing costs of $2,075,000 (2015: $4,389,000). 2016 $’000 60 60 220,425 — 220,425 2015 $’000 23 23 575,611 60 575,671 Credit facilities Bank facilities Facility type Maturity Committed Facility Amount $’000 Facility drawn at 30 June 2016 $’000 — Tranche A Syndicated facility1 Revolving syndicated facility 16 June 2018 — Tranche B Syndicated facility1 Revolving syndicated facility 16 June 2019 Bank guarantees Bank guarantees 5 February 2017 Working capital facility bilateral facility Cash advance and other transactional banking facilities 5 February 2017 87,500 412,500 15,000 1,000 516,000 87,500 135,000 11,192 — 233,692* Facility type Maturity Committed Facility Amount $’000 Facility drawn at 30 June 2015 $’000 Total Credit facilities Bank facilities — Tranche A Syndicated facility1 Revolving syndicated facility 16 June 2018 — Tranche B Syndicated facility1 Revolving syndicated facility 16 June 2019 Bank guarantees Bank guarantees 5 February 2016 Working capital facility bilateral facility Cash advance and other transactional banking facilities 5 February 2016 Total 412,500 412,500 15,000 1,000 841,000 412,500 167,500 8,896 — 588,896* 1. On 5 August 2015 the Group repaid the $580 million which was drawn at 30 June 2015. On 11 August 2015 the Group cancelled $325 million of the Tranche A Syndicated facility. Nine Entertainment Co. 79 Notes to theFinancial Statements 16. INTEREST-BEARING LOANS AND BORROWINGS (continued) *Reconciliation of Facility Drawn to Statement of Financial Position Total debt drawn (above) Unamortised balance of establishment costs Bank guarantees Lease liabilities 30 June 2016 $’000 30 June 2015 $’000 233,692 588,896 (2,075) (11,192) 60 (4,389) (8,896) 83 Total debt per Statement of Financial Position 220,485 575,694 Corporate facilities The corporate facilities entered into by the Group in June 2014 are provided by a syndicate of banks and financial institutions. These facilities are supported by Group guarantees from most of the Company’s wholly-owned subsidiaries but are otherwise provided on an unsecured basis. Details of the assets and liabilities that form these Group guarantees are included in the Extended Closed Group disclosures in Note 28. These facilities impose various affirmative and negative covenants on the Company and the Group, including restrictions on encumbrances, and customary events of default, including a payment default, breach of covenants, cross-default and insolvency events. As part of the corporate facilities, the Group is subject to certain customary financial covenants measured on a six-monthly basis. The Group has been in compliance with its financial covenant requirements to date including the period ended 30 June 2016. Assets pledged as security The carrying amounts of assets pledged as security for interest bearing liabilities are: Finance lease Plant and equipment (Note 12) Total assets pledged as security 2016 $’000 68 68 2015 $’000 111 111 80 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 201617. PROVISIONS Year ended 30 June 2016 At 1 July 2015 Arising during the period At 30 June 2016 Year ended 30 June 2015 At 1 July 2014 (Utilised)/arising during the period Discontinued Operations (Note 6(a)) At 30 June 2015 At 30 June 2016 Current Non-current Total at 30 June 2016 At 30 June 2015 Current Non-current Total at 30 June 2015 Employee Entitlements Employee entitlements $’000 Onerous contracts $’000 52,925 281 53,206 54,211 2,219 (3,505) 52,925 28,708 24,498 53,206 29,782 23,143 52,925 2,218 5,584 7,802 7,704 (5,486) — 2,218 4,606 3,196 7,802 1,394 824 2,218 Other $’000 24,489 8,328 32,817 39,018 (12,273) (2,256) 24,489 13,942 18,875 32,817 11,139 13,350 24,489 Total $’000 79,632 14,193 93,825 100,933 (15,540) (5,761) 79,632 47,256 46,569 93,825 42,315 37,317 79,632 Refer to Note 1(w) for a description of the nature and expected timing of provision for employee entitlements. Onerous contracts The provision for onerous contracts represents contracts, where due to changes in market conditions, the forecast income is lower than cost for which the Group is currently obligated under the contract. The net obligation under the contracts has been provided for. The provision is calculated as the net of estimated revenue and the estimate of committed program purchase commitments discounted to present values. Other During the year a provision was recognised for the value of services which are to be provided by the Group to Nine Live following its disposal. These services are expected to be provided over the next four years. During the year ending 30 June 2014, a provision of $10.7 million was recognised relating to a dispute with the Australian Taxation Office (“ATO”) regarding payments the Group made to the International Olympic Committee in relation to the exclusive Australian television broadcast rights for the 2010 Vancouver Winter Olympics and 2012 London Summer Olympic Games without deducting withholding tax. The Group has subsequently paid $5.35 million in respect of the amount in order to reduce any potential interest or penalty charges; however this claim is still ongoing and the Group is still in dispute of the claim. The other provision also includes the value of services required to be provided to Australian Consolidated Press Limited as a requirement of the disposal agreement. These are expected to be incurred on a straight-line basis over the next two-and-a-quarter years. Nine Entertainment Co. 81 Notes to theFinancial Statements 18. CONTRIBUTED EQUITY Issued share capital Ordinary Shares fully paid 2016 $’000 2015 $’000 746,563 746,563 793,004 793,004 Movements in issued share capital — ordinary shares Carrying amount at the beginning of the financial year 793,004 862,725 Purchase of Rights Plan shares (Note 25(c)) Vesting of Rights Plan shares (Note 25(c)) Share buy-back Carrying amount at the end of the financial year Issued share capital Ordinary Shares fully paid Movements in issued share capital — Ordinary Shares Balance at the beginning of the financial year Share buy-back Carrying amount at the end of the financial year — 2,592 (49,033) 746,563 (12,192) 4,165 (61,694) 793,004 2016 Number 2015 Number 871,373,191 903,997,035 903,997,035 940,295,023 (32,623,844) (36,297,988) 871,373,191 903,997,035 At 30 June 2016, a trust on behalf of the Company held 2,703,073 (30 June 2015: 3,971,219) of ordinary fully paid shares in the Company. 2,702,771 were purchased during the prior period for the purpose of allowing the Group to satisfy performance rights to certain senior management of the Group. Refer to Note 25(c) for further details on the performance rights plan. During the current year 280,000 shares were purchased by the trust, with 279,698 shares distributed to certain senior executives in part satisfaction of their short term incentive entitlement for the year to 30 June 2015. During the year the Group completed an on-market share buy-back of 32,623,844 ordinary shares. The ordinary shares were purchased at an average share price of $1.50 per share. The cost of the share buy-back comprised a purchase consideration of $49,033,220 and associated transaction costs of $80,905. During the prior year ending 30 June 2015, the Group completed an on-market share buy-back of 36,297,988 ordinary shares. The ordinary shares were purchased at an average share price of $1.70 per share. The cost of the share buy-back comprised a purchase consideration of $61,693,544 and associated transaction costs of $95,201. Terms and Conditions of Contributed Equity Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up or sale of the Company in proportion to the number of shares held. 82 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 2016 2016 $’000 2015 $’000 13,145 1,411 88 14,644 281,153 538,446 157,342 976,941 — — — 12,409 — — 12,409 239,237 282,806 — 522,043 22,916 61,376 84,292 19. EXPENDITURE COMMITMENTS (a) Capital expenditure commitments (i) Estimated capital expenditure contracted for at balance date, but not provided for, payable: • within one year • after one year but not more than five years • more than five years (ii) Television program and sporting broadcast rights contracted for at balance date, but not provided for, payable: • after one year but not more than five years • after one year but not more than five years • more than five years (iii) Live contracts for venue rights and tour promotions contracted for at balance date, but not provided for, payable1: • within one year • after one year but not more than five years 1. These commitments are in respect of discontinued operations. (b) Lease expenditure commitments (i) Finance lease commitments: Future minimum lease payments under finance leases and hire purchase contracts together with the present value of the net minimum lease payments are as follows: Consolidated • within one year • after one year but not more than five years Total minimum lease payments Less amounts representing finance charges Present value of minimum lease payments Minimum lease payments 2016 $’000 Present value of lease payments 2016 $’000 Minimum lease payments 2015 $’000 Present value of lease payments 2015 $’000 63 — 63 (3) 60 60 — 60 — 60 30 63 93 (10) 83 23 60 83 — 83 Nine Entertainment Co. 83 Notes to theFinancial Statements 19. EXPENDITURE COMMITMENTS (continued) At 30 June 2016, the Group has finance leases principally relating to various items of equipment and motor vehicles. These leases have terms of renewal but no purchase options and escalation clauses. Renewals are at the option of the specific entity that holds the lease. (ii) Non-cancellable operating lease commitments:1 Payable within one year Payable after one year but not more than five years Payable more than five years Total non-cancellable operating lease commitments 1. This total includes $Nil (2015: $2,714,000) in respect of discontinued operations. 2016 $’000 18,794 54,406 43,924 117,124 2015 $’000 23,403 61,212 35,859 120,474 The Group has entered into non-cancellable operating leases. The leases vary in remaining duration but generally have an average lease term of approximately five years. Operating leases include telecommunications rental agreements and leases on assets including motor vehicles, land and buildings and items of plant and equipment. Renewal terms are included in certain contracts, whereby renewal is at the option of the specific entity that holds the lease. On renewal, the terms of the leases are usually renegotiated. There are no restrictions placed upon the lessee by entering into these leases. 84 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 201620. RECONCILIATION OF THE STATEMENT OF CASH FLOWS (a) For the purpose of the statement of cash flows, cash and cash equivalents comprise the following at 30 June: Cash balances representing continuing operations: — Cash on hand and at bank Cash balances representing discontinuing operations: — Cash on hand and at bank — Cash held on Trust Total cash and cash equivalents (b) Reconciliation of profit after tax to net cash flows from operations: (Loss)/profit after tax from continuing operations Profit after tax from discontinued operation Depreciation and amortisation • Property, plant and equipment • Amortisation of ticketing rights • Amortisation of other assets • Amortisation of financing costs Share of associates’ net profit Impairment of assets Provision for doubtful debts (Profit)/loss on sale of property, plant and equipment (Profit)/loss on disposal of Live (Profit)/loss on sale of other assets Management and employee share accounting expense Investment distributions from associates Mark to market on derivatives Acquisition costs of consolidated entities Changes in assets and liabilities: Trade and other receivables Inventories Program rights Prepayments Other assets Payables relating to cash held on Trust Other payables Provision for income tax Provision for employee entitlements Other provisions Deferred income tax liability Foreign currency movements in assets and liabilities of overseas controlled entities Net cash flows from operating activities 2016 $’000 2015 $’000 42,860 50,855 — — 42,860 33,223 291,532 28,112 2,074 4,796 2,314 (2,111) 33,825 (370) 28 (410,217) 5,905 1,935 2,500 405 — (18,135) 177 28,609 (13,828) 5,126 (3,787) (42,321) 25,781 (679) (8,167) 83,294 258 50,279 17,623 111,408 179,886 (597,624) 5,473 32,742 23,627 4,678 1,264 (3,353) 791,819 (1,989) 240 — (8,112) 5,077 3,333 1,046 806 25,751 (42) 24,322 (4,857) 4,239 (15,049) 34,737 1,358 (3,834) (11,201) (68,921) 674 246,204 Nine Entertainment Co. 85 Notes to theFinancial Statements 21. EVENTS AFTER THE BALANCE SHEET DATE On 24 August 2016, the Group entered into a non-binding heads of agreement with Warner Bros, in relation to its life of series obligations. Under the original contract, the Group was obliged to purchase a number of US drama and comedy series as they became available, for as long as new series were being released and irrespective of how this content performed in the Australian market. To the extent that such content was loss-making, it was impaired as it became available. For the year ended 30 June 2016, Specific Items included a $46m charge to this effect. The agreement reached gives the Group the option to exit the life of series obligations in exchange for foregoing the relevant rights to the content. As compensation for exiting the original contract, the agreement includes financial payments of up to $101 million to Warner Brothers, of which approximately $86 million relates to commitments in respect of future series not available for broadcast at 30 June 2016. The Group expects a formal contract to be signed and the option to be exercised during the year ending 30 June 2017, at which time a provision of approximately $86m and corresponding expense will be recognised by the Group. Other than noted above, there has not arisen in the interval between the end of the financial period and the date of this report any item, transaction or event of a material and unusual nature, to affect significantly the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity, in future years. 22. SUPERANNUATION COMMITMENTS Plan information Defined benefit members receive lump sum benefits on retirement, death, disablement and withdrawal. The defined benefit section of the Plan is closed to new members. All new members receive accumulation only benefits. Regulatory framework The Superannuation Industry (Supervision) (SIS) legislation governs the superannuation industry and provides the framework within which superannuation plans operate. The SIS Regulations require an actuarial valuation to be performed for each defined benefit superannuation plan every three years, or every year if the plan pays defined benefit pensions. Responsibilities for the governance of the Plan The Plan’s Trustee is responsible for the governance of the Plan. The Trustee has a legal obligation to act solely in the best interests of Plan beneficiaries. The Trustee has the following roles: • administration of the Plan and payment to the beneficiaries from Plan assets when required in accordance with Plan rules; • management and investment of the Plan assets; and • compliance with superannuation law and other applicable regulations. The prudential regulator, the Australian Prudential Regulation Authority (APRA), licenses and supervises regulated superannuation plans. Risks There are a number of risks to which the Plan exposes the Company. The more significant risks relating to the defined benefits are: • Investment risk — the risk that investment returns will be lower than assumed and the Company will need to increase contributions to offset this shortfall; • Salary growth risk — the risk that wages or salaries (on which future benefit amounts will be based) will rise more rapidly than assumed, increasing defined benefit amounts and thereby requiring additional employer contributions; and • Legislative risk — the risk that legislative changes could be made which could increase the cost of providing the defined benefits. The defined benefit assets are invested in the AMP Future Directions Balanced investment option. The assets have a 54% weighting to equities and therefore the Plan has a significant concentration of equity market risk. However, within the equity investments, the allocation both globally and across the sectors is diversified. The assets held to support accumulated benefits, including the accumulation accounts in respect of defined benefit members, are held in the investment options selected by the member. Significant events There were no plan amendments affecting the defined benefits payable, curtailments or settlements during the year. Valuation The actuarial valuation of the defined benefits fund for the year ended 30 June 2016 was performed by Mercer Investment Nominees Limited for the purpose of satisfying accounting requirements. 86 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 2016Reconciliation of the Net Defined Benefit Asset Financial year ended Net defined benefit asset at start of year Current service cost Net interest Actual return on Plan assets less interest income Actuarial losses/(gains) arising from changes in financial and demographic assumptions Actuarial gains arising from liability experience Employer contributions Net defined benefit (asset)/liability at end of year Reconciliation of the Fair Value of Plan Assets Financial year ended Fair value of Plan assets at beginning of the year Interest income Actual return on Plan assets less Interest income Employer contributions Contributions by Plan participants Benefits paid Taxes, premiums and expenses paid Fair value of planned assets obligations at 30 June Reconciliation of the Present Value of the Defined Benefit Obligation Financial year ended Present value of defined benefit obligations at beginning of year Current service cost Interest cost Contributions by Plan participants Actuarial losses arising from changes in financial and demographic assumptions Actuarial losses arising from liability experience Benefits paid Taxes, premiums and expenses paid Present value of defined benefit obligations at 30 June 30 June 2016 $’000 30 June 2015 $’000 (19,508) (12,976) 829 (709) 1,175 697 (1,592) (178) (19,286) 847 (406) (3,721) (1,527) (1,618) (107) (19,508) 30 June 2016 $’000 30 June 2015 $’000 54,787 2,260 (1,175) 178 616 (1,559) (128) 54,979 48,632 1,724 3,721 107 718 — (115) 54,787 30 June 2016 $’000 30 June 2015 $’000 35,279 35,656 829 1,551 616 697 (1,592) (1,559) (128) 35,693 847 1,318 718 (1,527) (1,618) — (115) 35,279 The defined benefit obligation consists entirely of amounts from Plans that are wholly or partly funded. Nine Entertainment Co. 87 Notes to theFinancial Statements 22. SUPERANNUATION COMMITMENTS (continued) Fair value of Plan assets As at 30 June 2016, total Plan assets of $54,979,000 are held in AMP Future Directions Balanced investment option. The percentage invested in each asset class at the reporting date is: As at Australian Equity International Equity Fixed Income Property Alternatives/Other Cash 1. Asset allocation as at 31 May 2015, consistent with the allocation shown in last year’s report. The fair value of Plan assets includes no amounts relating to: • any of the Company’s own financial instruments; or • any property occupied by, or other assets used by, the Company. Significant Actuarial Assumptions As at Assumptions to Determine Benefit Cost Discount rate Expected salary increase rate Assumptions to Determine Benefit Obligation Discount rate Expected salary increase rate 30 June 2016 30 June 20151 23% 31% 16% 8% 12% 10% 28% 29% 15% 6% 18% 4% 30 June 2016 30 June 2015 4.2% pa 3.0% pa 3.1% pa 2.0% pa 3.6% pa 3.0% pa 4.2% pa 3.0% pa 88 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 2016Sensitivity Analysis The defined benefit obligation as at 30 June 2016 under several scenarios is presented below. Scenario A and B relate to discount rate sensitivity. Scenario C and D relate to salary increase rate sensitivity. • Scenario A: 0.5% pa lower discount rate assumption. • Scenario B: 0.5% pa higher discount rate assumption. • Scenario C: 0.5% pa lower salary increase rate assumption. • Scenario D: 0.5% pa higher salary increase rate assumption. % p.a. Discount rate Salary increase rate Defined benefit obligation ($’000s)1 1. Includes defined benefit contributions tax provision. Base Case 3.1% pa 2.0% pa 35,693 Scenario A –0.5% pa discount rate Scenario B +0.5% pa discount rate Scenario C –0.5% pa salary increase rate Scenario D +0.5% pa salary increase rate 2.6% pa 2.0% pa 37,154 3.6% pa 2.0% pa 34,307 3.1% pa 1.5% pa 34,497 3.1% pa 2.5% pa 36,940 The defined benefit obligation has been recalculated by changing the assumptions as outlined above, whilst retaining all other assumptions. Funding arrangements The financing objective adopted at the 1 July 2015 actuarial investigation of the Plan, in a report dated 25 February 2016, is to maintain the value of the Plan’s assets at least equal to: • • 100% of accumulation account balances (including additional accumulation accounts of defined benefit members); plus 110% of defined benefit Leaving Service Benefits. In that valuation, it was recommended that the Company contributes to the Plan as follows: Defined Benefit members: Category A A1 Employer Contributions Rate (% of Salaries) nil nil Plus any compulsory or voluntary member pre-tax (salary sacrifice) contributions. For A1 members, Employers should also make the relevant Superannuation Guarantee contributions to members’ chosen funds. Accumulations members: • the Superannuation Guarantee rate of Ordinary Time Earnings (or such lesser amount as required to meet the Employer’s obligations under Superannuation Guarantee legislation or employment agreements); plus • any additional employer contributions agreed between the Employer and a member (e.g. additional salary sacrifice contributions). Nine Entertainment Co. 89 Notes to theFinancial Statements 22. SUPERANNUATION COMMITMENTS (continued) Expected Contributions Financial year ending Expected employer contributions 30 June 2017 $'000 — Maturity profile of defined benefit obligation The weighted average duration of the defined benefit obligation as at 30 June 2016 is seven years (30 June 2015: eight years). Expected benefit payments for the financial year ending on: 30 June 2017 30 June 2018 30 June 2019 30 June 2020 30 June 2021 Following five years $’000 2,944 2,886 3,010 4,028 2,543 18,152 23. CONTINGENT LIABILITIES AND RELATED MATTERS 2016 $’000 2015 $’000 Contingent liabilities are unsecured and related primarily to the following: Controlled Entities The consolidated entity has made certain guarantees regarding contractual leases, performance and other commitments 11,192 8,896 The probability of having to meet these contingent liabilities is less than probable, and there are uncertainties relating to the amount and the timing of any outflows. 24. AUDITORS’ REMUNERATION Amounts received, or due and receivable, by the auditor of the parent entity for: Audit and review of the financial report of the entity Taxation services Assurance related services Other non-audit services Total auditors’ remuneration 2016 $ 2015 $ 499,858 733,370 50,462 58,780 735,717 853,481 45,707 33,000 1,342,470 1,667,905 90 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 201625. KEY MANAGEMENT PERSONNEL DISCLOSURES AND SHARE-BASED PAYMENTS (a) Remuneration of Key Management Personnel Total remuneration for Key Management Personnel for the Group and Parent Entity during the financial year are set out below. The Key Management Personnel of the Group are persons having the authority and responsibility for planning, directing and controlling the Company’s activities directly or indirectly, including the Directors of Nine Entertainment Co. Holdings Limited: Remuneration by category Short-term employee benefits Post-employment benefits Long-term benefits Termination benefits Share-based payments Total remuneration of Key Management Personnel 2016 $ 2015 $ 5,991,964 6,552,507 163,572 359,445 3,555,403 148,614 60,149 — 1,376,945 3,486,298 11,447,329 10,247,568 Detailed remuneration disclosures are provided in the Remuneration Report on pages 27 to 44. (b) Other transactions with Key Management Personnel and their personally related entities All transactions between the Group and its Key Management Personnel and their personally related entities are conducted under normal commercial terms and conditions unless otherwise noted. (c) Share-based payments Under the executive long-term incentive, performance rights (“Rights”) have been granted to executives and other senior management who have an impact on the Group’s performance. Upon satisfaction of any vesting conditions, each Right will convert to a share on a one-for-one basis or entitle the Participant to receive cash to the value of a share. Subject to employment vesting conditions detailed below, one-third of Rights held by each Participant will vest over three years on the anniversary of the Company listing (being 11 December 2014, 11 December 2015 and 11 December 2016). Employment vesting conditions are as follows: • If the Participant is not employed by the Company on a particular vesting date the Participant either: • having been summarily dismissed; or • having terminated his/her employment agreement otherwise than in accordance with the terms of that agreement any unvested Share Rights held on or after the date of termination will lapse. • If the Participant is not employed by the Company on a particular vesting date: • and the Company has terminated the Participant’s employment agreement (other than summarily) and his/her salary is being paid out in lieu of notice, then the only unvested Share Rights that will lapse are those that would ordinarily have vested after the end of the later of the notice period and any other date nominated in the terms of grant; or • the Participant has validly terminated his or her employment agreement and the Company has elected to pay the Participant his/her salary in lieu of notice, then the only unvested Share Rights that will lapse are those that would ordinarily have vested after the end of the notice period. Nine Entertainment Co. 91 Notes to theFinancial Statements 25. KEY MANAGEMENT PERSONNEL DISCLOSURES AND SHARE-BASED PAYMENTS (continued) Any shares issued or transferred to the Participant upon vesting of any Rights will be subject to restrictions on disposal from the date of issue of the Shares until the release of the Company’s financial results for either the half or full-year period immediately following the date of issue. On 10 December 2013, the Company granted 6,183,414 performance rights (“Rights”) to certain senior management following the Company’s listing on the ASX. The Rights were issued at fair value of $2.05 per share, resulting in a cost of $1,288,569 for the period ended 30 June 2016 (30 June 2015: $5,076,500) which has been expensed in the profit and loss for the period and included in the share-based payments reserve in equity during the period. During the year to 30 June 2015, 6,003,083 shares in the parent entity to the value of $12,192,321 were purchased by a trust on behalf of the Company. These shares have and will continue to be used by the trust to satisfy grants to holders of the Rights on vesting in lieu of the Company issuing new shares. The consideration paid to the trust to acquire these shares has been deducted from total shareholders’ equity (refer to Note 18). On 11 December 2014, 2,031,864 Rights vested and the shares were issued to senior management. On 11 December 2015, 1,996,091 Rights vested, resulting in 1,264,384 shares being transferred to employees. 167,477 Rights were forfeited in the period as employees left the Group (30 June 2015: 136,602). 1,851,380 Rights are due to vest on 11 December 2016 (some of which will be settled in cash in accordance with the plan rules). In accordance with his termination agreement, the 1,463,414 Rights which David Gyngell held on the termination of his employment are to be cash settled. 731,707 of these rights were settled at a cost of $1,321,119 on vesting on 11 December 2015 and 731,707 Rights will vest on 11 December 2016 at a price to be determined based on a volume weighted average price of the shares of the Company in the 5 days immediately preceding vesting. This has resulted in a cost being recognised in the period of $604,166 as a Specific item, in respect of the tranche to vest on 11 December 2016, over and above the costs of these Rights which were recognised throughout the term of his employment, and a creditor of $1,499,999 being recognised as an estimate of the amount which will be paid on vesting in December 2016, based on the fair value of the Rights on granting of $2.05. In accordance with his termination agreement, the 340,813 Rights which Simon Kelly held on the termination of his employment are to be cash settled. 340,813 Rights will vest on 11 December 2016 at a price to be determined based on a volume weighted average price of the shares of the Company in the 5 days immediately preceding vesting. This has resulted in a cost being recognised in the period of $174,666 as a Specific item, in respect of the tranche to vest on 11 December 2016, over and above the costs of these Rights which were recognised throughout the term of his employment, and a creditor of $698,667 being recognised as an estimate of the amount which will be paid on vesting in December 2016, based on the fair value of the Rights on granting of $2.05. In accordance with his termination agreement, the 182,802 Rights which Peter Wiltshire held on the termination of his employment are to be cash settled. 100,163 Rights will vest on 11 December 2016 and 82,639 Rights will vest on 30 June 2018 (subject to performance conditions being met) at a price to be determined based on a volume weighted average price of the shares of the Company in the 5 days immediately preceding vesting. This has resulted in a cost being recognised in the period of $45,629 as a Specific item, in respect of the tranche to vest on 11 December 2016, and $67,433 in respect of the tranche to vest on 30 June 2018, over and above the costs of these Rights which were recognised throughout the term of his employment, and a creditor of $295,245 being recognised as an estimate of the amount which will be paid on vesting, based on the fair value of the Rights on granting of $2.05 and $1.09 respectively. During the year, the Company granted or agreed to grant 2,952,588 performance rights (“New Rights”) to certain senior management, with effective grant dates of 1 July 2015 or on the date of commencement of employment, where later. 334,025 rights were forfeited in the period as employees left the Group. The New Rights will vest on 1 July 2018 dependent upon certain hurdles being met in respect of Total Shareholder Return and Earnings Per Share for the period 1 July 2015 to 30 June 2018. As at 30 June 2016 it has been assumed that all New Rights will vest. Each New Right has been valued at an average of $1.09, resulting in a cost of $782,839 for the period to 30 June 2016. That portion of the New Rights to be granted to the Chief Executive Officer remain subject to shareholder approval. 92 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 201626. RELATED PARTY DISCLOSURES Parent entity Nine Entertainment Co. Holdings Limited is the ultimate parent entity of the Group incorporated within Australia and is the most senior parent in the Group which produces financial statements available for public use. Controlled entities, associates and joint arrangements Interests in significant controlled entities are set out in Note 27. Investments in associates and joint arrangements are set out in Note 10. Key Management Personnel Disclosures relating to Key Management Personnel are set out in Note 25. Transactions with related parties The following table provides the total amount of transactions that were entered into with related parties for the relevant financial year (for information regarding outstanding balances at year end, refer to Note 7: 2016 $’000 2015 $’000 Rendering of services to and other revenue from — Associates of Nine Entertainment Co. Stan Entertainment Pty Ltd DailyMail.com Australia Pty Ltd Other Dividends received from — Listed Equity investments of Nine Entertainment Co.: Southern Cross Media Associates of Nine Entertainment Co.: Australian News Channel Pty Ltd Oztam Pty Ltd Amounts owed by related parties — Stan Entertainment Pty Ltd Ratecity Pty Ltd Other Loans to related parties — Stan Entertainment Pty Ltd1 IEC Exhibitions Pty Ltd1,3 Darwin Digital Television Pty Ltd2 DailyMail.com Australia Pty Ltd1 Other2 6,332 — 123 2,496 1,300 1,200 2016 $’000 6,124 161 — 55,623 — 2,760 — 684 11,108 579 25 — 2,333 1,000 2015 $’000 4,136 328 39 16,606 6,313 2,760 3,498 684 1. The loans granted to these related parties are interest bearing on interest rates that prevail on arm’s length transactions. 2 The loans granted to these related parties are non-interest bearing. 3. This relates to discontinued operations of the Group. Nine Entertainment Co. 93 Notes to theFinancial Statements 26. RELATED PARTY DISCLOSURES (continued) Terms and conditions of transactions with related parties All of the above transactions were conducted under normal commercial terms and conditions. Outstanding balances at the year end in relation to these transactions, disclosed under amounts owed by related parties, are made on terms equivalent to those that prevail on arm’s length transactions, are interest free, unless otherwise stated, and settlement occurs in cash. For the year ended 30 June 2016, the Group has not made any allowance for doubtful debts relating to amounts owed by related parties. An impairment assessment is undertaken each financial year by examining the financial position of the related party and the market in which the related party operates to determine whether there is objective evidence that a related party receivable is impaired. When such objective evidence exists, the Group recognises an allowance for the impairment loss. 27. INVESTMENT IN ENTITIES The consolidated financial statements include the financial statements of Nine Entertainment Co. Holdings Limited and its controlled entities. Significant controlled entities and those included in a class order with the parent entity are: Footnote Place of Incorporation Nine Entertainment Co. Holdings Ltd A.C.N. 604 938 534 Pty Ltd2, 3 Channel 9 South Australia Pty Ltd ecorp Pty Ltd Eventopia Pty Ltd2 Events Management Catering Pty Limited2, 3 General Television Corporation Pty Limited Mi9 New Zealand Limited1 Micjoy Pty Ltd NBN Enterprises Pty Limited NBN Pty Ltd Nine Films & Television Pty Ltd Nine Films & Television Distribution Pty Ltd Nine Network Australia Pty Ltd Nine Network Australia Holdings Pty Ltd Nine Network Marketing Pty Ltd Nine Network Productions Pty Limited Nine Entertainment Group Pty Limited NEC Mastheads Pty Ltd Nine Entertainment Co. Pty Ltd Nine Touring and Events Pty Ltd2, 3 Nine Rewards Pty Ltd2 Nine Digital Pty Ltd (formerly Ninemsn Pty Ltd)1, 3 Pay TV Holdings Pty Limited Petelex Pty Limited Pedestrian Corporation Holdings Pty Limited4 Pedestrian Group Pty Limited4 Pink Platypus Pty Ltd Queensland Television Holdings Pty Ltd Queensland Television Pty Ltd Shertip Pty Ltd A, B A A, B A, B B A, B A, B A, B A, B A, B B A, B A, B B A, B A, B A, B A, B A, B B A, B A, B A, B B A, B A, B A, B 94 Annual Report 2016 Australia Australia Australia Australia Australia Australia Australia New Zealand Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Beneficial Interest Held by the Consolidated Entity 2016 % Beneficial Interest Held by the Consolidated Entity 2015 % Parent Entity Parent Entity — 100 100 — — 100 100 100 100 100 100 100 100 100 100 100 100 100 100 — — 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Notes to the Consolidated Financial Statements continued for the year ended 30 June 2016 Footnote Place of Incorporation Beneficial Interest Held by the Consolidated Entity 2016 % Beneficial Interest Held by the Consolidated Entity 2015 % Softix Pty. Limited2 Swan Television & Radio Broadcasters Pty Ltd Sydney Superdome Pty Ltd2, 3 TCN Channel Nine Pty Ltd Television Holdings Darwin Pty Limited Territory Television Pty Ltd Ticketek Pty Ltd2, 3 Ticketek New Zealand Limited2 Ticketek Services Limited2 Tipstone Australia Pty Ltd1 White Whale Pty Ltd 5th Finger Pty Ltd1 B A, B A, B A, B A, B A, B A, B B B A, B Australia Australia Australia Australia Australia Australia Australia New Zealand New Zealand Australia Australia Australia — 100 — 100 100 100 — — — 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 A. These controlled entities have entered into a deed of cross guarantee with the parent entity under ASIC Class Order 98/1418 — the “Closed Group” (refer to Note 28). B. Members of the “Extended Closed Group” (refer to Note 16 and Note 28 for further detail). 1. During the year to 30 June 2014, the Company agreed to acquire the remaining 50% interest in in Nine Digital Pty Limited (formerly ninemsn Pty Limited) and its controlled entities (“Nine Digital”) it did not already own to effectively gain control as of 1 November 2013 (refer to Note 6(b)). As a consequence, the results of Nine Digital have been consolidated from 1 November 2013 with equity accounting ceasing at that time. The transfer of shares during the current financial year was 16.67%, taking the legal ownership to 100% at the end of the year (June 2015: 83.33%). 2. On 31 July 2015, the Company sold its 100% interest in A.C.N. 604 938 534 Pty Ltd, and so disposed of its interest in Eventopia Pty Ltd, Events Management Catering Pty Limited, Nine Touring and Events Pty Ltd, Nine Rewards Pty Ltd, Softix Pty Limited, Sydney Superdome Pty Ltd, Ticketek Pty Ltd, Ticketek New Zealand Limited and Ticketek Services Limited. 3. Nine Digital Pty Ltd (formerly Ninemsn Pty Ltd) became a party to the Deed of Cross-Guarantee on 15 July 2015 and a party to the Group’s syndicated oan facility on 31 July 2015. A.C.N. 604 938 534 Pty Ltd, Events Management Catering Pty Ltd, Nine Touring and Events Pty Ltd, Sydney SuperDome Pty Ltd and Ticketek Pty Ltd ceased to be parties to the Deed of Cross-Guarantee on 31 July 2015 and in accordance with a Notice of Disposal of the Live business Events Management Catering Pty Ltd, Nine Touring and Events Pty Ltd, Sydney SuperDome Pty Ltd and Ticketek Pty Ltd ceased to be parties to the Group’s syndicated loan facility on 31 July 2015. 4. As detailed in note 6(b) the Group currently owns 60% of the shares in these entities, however they are consolidated 100% in accordance with accounting standards. Nine Entertainment Co. 95 Notes to theFinancial Statements 28. DEED OF CROSS GUARANTEE Pursuant to ASIC Class Order 98/1418 and various deeds of cross guarantee entered into with the parent entity, certain controlled entities of Nine Entertainment Co. Holdings Limited have been granted relief from the Corporations Act 2001 requirements for preparation, audit and publication of accounts. The Consolidated Statement of Comprehensive Income of the entities which are members of the “Closed Group” and the “Extended Closed Group” for the year ended 30 June 2016 is as follows: Consolidated Statement of Comprehensive Income Profit/(loss) from continuing operations before income tax Income tax (expense)/benefit Net profit/(loss) after income tax from continuing operations Profit from discontinued operations after income tax Net profit/(loss) attributable to members of the parent Dividends paid during the period Accumulated losses of disposed entities Accumulated profits at the beginning of the financial year Accumulated profits at the end of the financial year 1. Closed Group are those entities party to the Deed of Cross Guarantee. Closed Group1 Extended Closed Group 2016 $’000 2015 $’000 2016 $’000 2015 $’000 470,536 (146,320) 324,216 — 324,216 (114,519) 43,886 212,972 466,555 (715,099) 103,886 (611,213) 1,562 (609,651) (78,824) — 901,447 212,972 470,131 (146,606) 323,525 — 323,525 (114,519) 27,130 239,035 475,171 (716,135) 103,886 (612,249) 5,473 (606,776) (78,824) — 924,635 239,035 96 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 2016The consolidated statement of financial position of the entities which are members of the “Closed Group” and the “Extended Closed Group” for the year ended 30 June 2016 is as follows: Current assets Cash and cash equivalents Trade and other receivables Program rights Derivative financial instruments Property, plant and equipment held for sale Other assets Assets from discontinued operations Total current assets Non-current assets Receivables Program rights Investment in associates accounted for using the equity method Investment in group entities Investment in listed or unlisted equities Property, plant and equipment Licences Other intangible assets Deferred tax assets Property, plant and equipment held for sale Other assets Total non-current assets Total assets Current liabilities Closed Group1 Extended Closed Group 2016 $’000 2015 $’000 2016 $’000 2015 $’000 37,139 283,530 139,203 — 9,338 72,157 — 541,367 74,155 61,177 19,680 28,292 95,611 123,036 477,784 485,823 — 41,823 61,210 41,816 239,476 192,637 — 11,916 31,502 405,399 922,746 6,941 36,353 13,798 160,124 — 115,092 493,870 439,385 63,766 36,209 99,588 37,139 283,530 139,203 31 9,338 72,157 — 541,398 59,068 61,177 19,680 28,282 104,694 123,036 477,784 485,823 — 41,823 61,210 41,816 239,476 192,637 436 11,916 31,502 424,107 941,890 6,941 36,353 13,798 160,114 23,812 115,092 493,870 439,385 63,766 36,209 99,588 1,468,591 2,009,958 1,465,126 2,387,872 1,462,577 2,003,975 1,488,928 2,430,818 Trade and other payables 324,263 358,467 325,366 358,156 Interest-bearing loans and borrowings Current income tax liabilities Provisions Derivative financial instruments Liabilities from discontinued operations Total current liabilities Non-current liabilities Payables Interest-bearing loans and borrowings Deferred tax liabilities Derivative financial instruments Provisions Total non-current liabilities Total liabilities Net assets 60 29,607 45,662 — — 399,592 47,800 220,425 39,738 11,426 46,488 365,877 765,469 1,244,489 23 — 33,090 297 208,102 599,979 125,530 575,671 — — 36,797 737,998 1,337,977 1,049,895 60 30,465 45,662 — — 401,553 47,808 220,425 39,166 11,426 46,488 365,313 766,866 1,237,109 23 — 33,090 297 227,233 618,799 133,674 575,671 — — 40,040 749,385 1,368,184 1,062,634 Nine Entertainment Co. 97 Notes to theFinancial Statements 29. FINANCIAL INSTRUMENTS Financial risk management The Group’s principal financial instruments, other than derivatives, comprise cash and short-term deposits and credit facilities (refer to Note 16). The main purpose of these financial instruments is to manage liquidity and to raise finance for the Group’s operations. The Group has various other financial instruments, such as trade and other receivables and trade and other payables, which arise directly from its operations. The Group uses derivatives in accordance with Board approved policies to reduce the Group’s exposure to adverse fluctuations in interest rates and foreign exchange rates. These derivatives create an obligation or right that effectively transfers one or more of the risks associated with an underlying financial instrument, asset or obligation. Derivative instruments that the Group uses to hedge risks such as interest rate, foreign currency and commodity price movements include: • • cross currency principal and interest rate swaps and options (“cross currency hedges”); and • forward foreign currency contracts. interest rate swaps; The Group’s risk management activities are carried out centrally by the Nine Entertainment Co. Holdings Group Treasury. Group Treasury operates under policies as approved by the Board. Group Treasury operates in cooperation with the Group’s operating units so as to maximise the benefits associated with centralised management of Group risk factors. Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to shareholders through the optimisation of net debt and total equity balances. Capital risk management focuses on the maturity profile and stability of debt facilities. The Group’s capital structure is reviewed to maintain: • • sufficient funds available to the business to implement its capital expenditure and business acquisition strategies. sufficient finance for the business at a reasonable cost; and (a) Carrying Value and Fair Values of Financial Assets and Financial Liabilities The carrying value of a financial asset or liability will approximate its fair value where the balances are predominantly short- term in nature; can be traded in highly liquid markets; and incur little or no transaction costs. The carrying values of the following accounts approximate their fair value: Account Cash and cash equivalents Trade and other receivables Trade and other payables Note 20(a) 7 15 The Group uses various methods in estimating the fair value of a financial asset or liability. The different methods have been defined as follows: Level 1: The fair value is calculated using quoted prices in active markets. Level 2: The fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, through valuation techniques including forward pricing and swap models and using present value calculations. The models incorporate various inputs including credit quality of counterparties and foreign exchange spot rates, forward rates and listed share prices. Fair values of the Group’s interest-bearing borrowings and loans are determined by using DCF method using a discount rate that reflects the issuer’s borrowing rate as at the end of the reporting period. Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. The fair value of the option over the controlled entity is determined based on a multiple of the controlled entity’s EBITDA at a future date. As such, the fair value of the financial liability moves based on the EBITDA of the controlled entity and a significant increase/(decrease) in the EBITDA of the controlled entity would result in higher/(lower) fair value of the financial liability. 98 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 2016Fair values hierarchy has been determined as follows for financial assets and financial liabilities of the Group at 30 June 2016. Level 1: Investment in listed equities (refer to Note 11). Level 2: Forward foreign exchange contracts, interest rate swaps and Interest bearing borrowings and options over listed equities. Level 3: Options over unlisted shares and options over controlled entities. There were no transfers between the Level 1, Level 2 and Level 3 fair value measurements during the year. The following table lists the carrying values and fair values of the Group’s financial assets and financial liabilities at balance date: 2016 2015 Note Carrying Amount $’000 Fair Value $’000 Carrying Amount $’000 Fair Value $’000 Derivative financial assets Option over listed entities — current Total derivative financial instruments — assets Derivative financial liabilities Interest rate swap — current Option over controlled entity (Note 6(b)(i)) — non-current Total derivative financial instruments — liabilities Loan facilities — non-current Syndicated facility unsecured — at amortised cost Total loan facilities (b) Market risk factors 31 31 — 11,426 11,426 31 31 — 11,426 11,426 436 436 297 11,113 11,410 436 436 297 11,113 11,410 16 220,425 220,425 220,425 220,425 575,611 575,611 575,611 575,611 The key risk factors that arise from the Group’s activities, including the Group’s policies for managing these risks, are outlined below. Market risk is the risk that the fair value or future cash flows of the Group’s financial instruments will fluctuate because of changes in market prices. The market risk factors to which the Group is exposed are discussed in further detail below. (i) Liquidity risk Liquidity risk is the risk that the Group cannot meet its financial commitments as and when they fall due. To help reduce this risk, the Group ensures it has readily accessible funding arrangements available. The contractual maturity of the Group’s fixed and floating rate derivatives, other financial assets and other financial liabilities are shown in the following tables. The amounts presented represent the future undiscounted principal and interest cash flows and therefore do not equate to the values shown in the Statement of Financial Position. Nine Entertainment Co. 99 Notes to theFinancial Statements 29. FINANCIAL INSTRUMENTS (continued) Contractual maturity (nominal cash flows) 2016 2015 Less than 1 year $’000 1 to 2 year(s) $’000 2 to 5 years $’000 Over 5 years $’000 Less than 1 year $’000 1 to 2 year(s) $’000 2 to 5 years $’000 Over 5 years $’000 Derivatives — outflows1 Interest rate swap Option over controlled entity (Note 6(b)(i)) — non-current Other financial assets1 — — Cash assets 42,860 — — — — 11,880 — Trade and other receivables2 286,703 56,307 2,760 Other financial liabilities1 Trade and other payables2 327,896 42,568 5,232 Other interest bearing loans and borrowings 60 — Debt facilities (including interest)3 7,287 234,234 — — — — — — — — — 297 — 50,855 281,698 — — — — — 11,880 — — — — 17,620 5,928 398,128 28,347 9,113 30 63 — 21,924 21,924 617,321 — — — 1. For floating rate instruments, the amount disclosed is determined by reference to the interest rate at the last repricing date. 2. Excluding amounts due from/to subsidiaries. 3. This assumes the amount drawn down at 30 June 2016 remains drawn until the facilities mature. (ii) Interest rate risk Interest rate risk refers to the risks that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. Interest rate risk arises from interest-bearing financial assets and liabilities that the Group utilises. Non-derivative interest bearing assets are predominantly cash. The Group’s debt facilities are all floating rate liabilities, which gives rise to cash flow interest rate risks. The Group’s risk management policy for interest rate risk seeks to minimise the effects of interest rate movements on its asset and liability portfolio through active management of the exposures. The Group maintains a mix of long-term and short-term debt to manage these risks as deemed appropriate. The Group designates which of its financial assets and financial liabilities are exposed to a fair value or cash flow interest rate risk, such as financial assets and liabilities with a fixed interest rate or financial assets and liabilities with a floating interest rate that is reset as market rates change. At balance date, the Group had the following mix of financial assets and financial liabilities exposed to Australian floating interest rate risk that were not designated as cash flow hedges: 2016 2015 Average interest rate p.a. % Floating rate $’000 Non- interest bearing $’000 Average interest rate p.a. % Floating rate $’000 Non- interest bearing $’000 Total $’000 Total $’000 2.2 6.26 42,860 — 42,860 2.60 50,855 — 50,855 55,623 290,147 345,770 6.37 20,788 284,458 305,246 Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables n/a n/a 375,696 375,696 n/a n/a 435,588 435,588 Syndicated facilities — at amortised cost 3.28 220,425 — 220,425 3.78 575,611 — 575,611 100 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 2016Interest rate sensitivity analysis The table below shows the effect on net profit after income tax if interest rates at balance date had been higher or lower with all other variables held constant, taking into account all underlying exposures and related hedges. Concurrent movement in interest rates and parallel shifts in the yield curves are assumed. The following sensitivities have been assumed in this analysis: AUD interest rates +/– 1% (100 basis points) +/– 1% (100 basis points) 2016 2015 The sensitivities above have been selected as they are considered reasonable given the current level of both short-term and long-term Australian market. Sensitivities are based on financial instruments held at the balance date assumed to have been in place since the beginning of the period. Based on the sensitivity analysis, if interest rates changed as described above, net profit and equity would have been impacted as follows: If interest rates were higher with all other variables held constant — decrease If interest rates were lower with all other variables held constant — increase Net Profit After Tax 2016 $’000 Post-tax Equity (Cash flow hedge reserve) As at 30 June 2015 $’000 2016 $’000 2015 $’000 (1,558) (2,269) 1,558 2,269 — — — — (iii) Credit risk exposures Credit risk is the risk that a contracting entity will not complete its obligations under a financial instrument and cause the Group to make a financial loss. The Group has exposure to credit risk on all financial assets included in the Group’s statement of financial position. To help manage this risk, the Group: • has a policy for establishing credit limits; and • manages exposures to individual entities it either transacts with or with which it enters into derivative contracts (through a system of credit limits). The Group’s credit risk is mainly concentrated across a number of customers and financial institutions. The Group does not have any significant credit risk exposure to a single customer or group of customers, or individual institutions. Financial assets are considered impaired where there is objective evidence that the Group will not be able to collect all amounts due according to the original trade and other receivable terms. Factors considered when determining if impairment exists include ageing and timing of expected receipts and the creditworthiness of counterparties. An allowance for doubtful debts is created for the difference between the assets’ carrying value and the present value of estimated future cash flows. The Group’s trading terms do not generally include the requirement for customers to provide collateral as security for financial assets. Refer to Note 7 for an ageing analysis of trade receivables and the movement in the allowance for doubtful debts. All other financial assets are not impaired and are not past due. Based on the credit history of these classes, it is expected that these amounts will be received when due. Trade receivables include the following credit concentration: Advertising Television stations Other 2016 $’000 179,799 14,605 55,481 249,885 2015 $’000 193,886 10,360 61,999 266,245 Nine Entertainment Co. 101 Notes to theFinancial Statements 29. FINANCIAL INSTRUMENTS (continued) (iv) Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates related primarily to trade payables and receivables from contractual payments. The Group manages this foreign currency risk by entering into cross-currency hedges. Cash flow hedges During the year there was no amount (2015: $780,000) which was recognised through profit or loss in relation to hedge ineffectiveness. During the year, the Group did not undertake hedge accounting and as such, there was no amount which was reclassified from other comprehensive income to profit or loss in relation to foreign currency hedges which were closed out. During the prior year $711,000 was reclassified from other comprehensive income to profit or loss in relation to foreign currency hedges which were closed out. 30. PARENT ENTITY DISCLOSURES (a) Financial Position Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Contributed equity Reserves Retained earnings Total equity (b) Comprehensive Income Net profit for the year Total comprehensive income for the year (c) Commitments and Contingencies Parent Entity 2016 $’000 2015 $’000 5,536 1,256,405 1,261,941 3,123 26,484 29,607 1,232,334 751,998 5,156 475,180 8,288 927,150 935,438 6,911 4,721 11,632 923,806 801,031 8,600 114,175 1,232,334 923,806 475,705 475,705 216,136 216,136 The parent entity was a party to the Deed of Cross Guarantee entered into with various Group companies. Refer to Note 28 for further details. Refer to Notes 19 and 23 for disclosure of the Group’s commitments and contingencies respectively. The operation of the Deed of Cross Guarantee has the effect of joining the parent entity as a guarantor to the Group’s commitments and contingencies. 102 Annual Report 2016 Notes to the Consolidated Financial Statements continued for the year ended 30 June 201631. EARNINGS PER SHARE Basic earnings per share amounts are calculated by dividing the net profit/(loss) for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profit/(loss) attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. The following reflects the income and share data used in the basic and diluted earnings per share computations: Profit/(loss) attributable to ordinary equity holders for basic and diluted earnings Continuing operations Discontinued operations Weighted average number of ordinary shares for basic earnings per share Effect of dilution: Rights Plan shares1 Weighted average number of ordinary shares adjusted for the effect of dilution 2016 $’000 33,223 291,532 2016 No. '000 879,606 2015 $’000 (597,624) 5,473 2015 No. '000 935,437 3,781 883,387 3,063 938,500 1. Rights Plan shares have been calculated as a weighted average from the date of purchase less the weighted average of shares vested during the period under the performance rights plan (refer to Note 25(c) for further detail). Nine Entertainment Co. 103 Notes to theFinancial Statements Directors’ Declaration The Directors of Nine Entertainment Co. Holdings Limited have declared that: 1. the Directors have received the declarations required by section 295A of the Corporations Act 2001 from the Managing Director and CEO and the Chief Financial Officer for the year ended 30 June 2016. 2. in the opinion of the Directors, the consolidated financial statements and notes that are set out on pages 49 to 103 and the Remuneration Report in pages 27 to 44 in the Director’s Report, are in accordance with the Corporations Act 2001, including: i. giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the financial year ended on that date; and ii. complying with Australian Accounting Standards and the Corporations Regulations 2001. 3. in the opinion of the Directors, there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. 4. a statement of compliance with International Financial Reporting Standards has been included in Note 1(b) to the financial statements; and 5. in the opinion of the Directors, at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in Note 28 will be able to meet any obligations or liabilities to which they are or may become subject to, by virtue of the Deed of Cross Guarantee. The Directors’ Declaration is made in accordance with a resolution of the Board of Nine Entertainment Co. Holdings Limited. Peter Costello Chairman Hugh Marks Chief Executive Officer and Director Sydney, 25 August 2016 104 Annual Report 2016 Independent Auditor’s Report to the Directors of Nine Entertainment Co. Holdings Limited Nine Entertainment Co. 105 Independent Auditor’s Report106 Annual Report 2016 Independent Auditor’s Report continuedto the Directors of Nine Entertainment Co. Holdings LimitedShareholder Information Twenty Largest Shareholders of NEC securities at 2 September 2016 Rank Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Limited Birketu Pty Ltd National Nominees Limited Citicorp Nominees Pty Limited Oaktree Netherlands Entertainment Holdings B.V. Birketu Pty Ltd HSBC Custody Nominees (Australia) Limited-GSCO ECA RBC Investor Services Australia Nominees Pty Limited BNP Paribas Noms Pty Ltd RBC Investor Services Australia Nominees Pty Limited Erste Abwicklungsanstalt BNP Paribas Nominees Pty Ltd David Gyngell UBS Nominees Pty Ltd RBC Investor Services Australia Nominees Pty Limited Citicorp Nominees Pty Limited UBS Nominees Pty Ltd RBC Investor Services Australia Pty Limited 20 RBC Investor Services Australia Nominees Pty Limited Total Units 212,952,173 119,657,356 99,677,718 88,134,664 80,843,465 61,179,656 30,000,000 26,048,716 23,602,946 15,018,647 14,055,200 9,977,113 9,463,093 4,878,048 4,877,409 4,222,412 4,188,928 3,841,983 3,825,717 2,584,694 % 24.60 13.82 11.52 10.18 9.34 7.07 3.47 3.01 2.73 1.74 1.62 1.15 1.09 0.56 0.56 0.49 0.48 0.44 0.44 0.30 Options There were no options exercisable at the end of the financial year. Escrowed Shares A total of 5,073,169 shares are subject to voluntary escrow, until 11 December 2016. Substantial shareholders Substantial shareholders as shown in substantial shareholder notices received by the Company as at 2 September 2016 are: Name Birketu Pty Ltd Perpetual Limited Maple-Brown Abbott Prudential Plc Oaktree Netherland Entertainment Holdings BV Westpac* BT Investment Management Silver Point Capital UBS Group AG Macquarie Group * Westpac shareholding inclusive of BT Investment Management Ltd. Total Units 131,177,718 111,303,985 72,549,761 72,339,739 69,157,066 65,169,739 58,772,830 55,825,000 54,635,667 45,806,011 % 14.96 12.77 8.33 8.27 7.87 7.48 6.74 6.35 6.27 5.25 Nine Entertainment Co. 107 ShareholderInformationDistribution of Holdings at 2 September 2016 No. of Securities 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and Over Total Number of holders holding less than a marketable parcel No. of ordinary shareholders 503 855 436 605 72 2,471 202 Voting rights On a show of hands, every member present, in person or by proxy shall have one vote and upon a poll, each share shall have one vote. On-market Buy-back The Company has an on-market buy-back, which will cease on 16 November 2016. 108 Annual Report 2016 Shareholder Information continuedCorporate Directory ABN 60 122 203 892 Annual General Meeting The Annual General Meeting will be held at 10.00am AEST on Tuesday, 15 November at the offices of Gilbert + Tobin, Level 35, Tower Two, International Towers, 200 Barangaroo Avenue, Barangaroo NSW 2000. Financial Calendar 2017 Interim Result February 2017 Preliminary Final Result August 2017 Annual General Meeting November 2017 Company Secretary Rachel Launders Registered Office Nine Entertainment Co. Holdings Limited 24 Artarmon Road Willoughby NSW 2068 Ph: +61 2 9906 9999 Share Registry Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 Ph: 1300 888 062 (toll free within Australia) Ph: +61 2 8280 7670 Fax: +61 2 9287 0303 Email: registrars@linkmarketservices.com.au Website: www.linkmarketservices.com.au Securities Exchange Listing The Company’s ordinary shares are listed on the Australian Securities Exchange as NEC. Auditors Ernst & Young 200 George Street Sydney NSW 2000 RM-16065 Nine Entertainment Co.

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