Nine Entertainment Co Holdings Ltd
Annual Report 2019

Plain-text annual report

Annual Report 2019 OVERVIEW During FY19, Nine completed the merger with Fairfax Media, creating Australia’s leading integrated media business. Nine today has a clearly diversified earnings base, with four key operational pillars — Broadcasting, Digital and Publishing, Stan as well as a 59% stake in Domain. These businesses are all at different stages of their evolution, and are all scale businesses in their own right. In FY19, on a Pro Forma basis, the traditional Broadcasting business contributed just over half of Group revenue, down from 84% in FY18, marking a real change in the drivers of Nine for the future. Result in brief In FY19, Nine reported Group EBITDA of $350 million, up 36% on FY18, driven by a 40% increase in Group Revenues to $1.8 billion, reflecting the impact of the merger with Fairfax from 7 December. On a continuing business basis, Statutory Net Profit after Tax and Specific Items, which were predominately accounting led non-cash items, was $217 million, up 3%. On a Pro Forma basis, NEC reported Group EBITDA of $424 million, up 10% on FY18, on revenue of $2.3 billion. Net Profit after Tax and minority interests increased by 16% to $198 million compared to the FY18 result. Earnings per share was 11.6 cents, (+16%) and a full-year dividend of 10c per share, fully franked, was declared. Revenue1 split FY19 10% Pro Forma EBITDA growth driven by 7% 9% 30% 54% 300 250 200 150 100 50 0 -50 -100 -11% +56% -17% FY19 +56% +48% +48% FY18 Broadcasting Digital & Publishing Domain Stan Broadcasting Digital & Publishing Domain Stan Corporate Associates Yr to June, $m, continuing business basis Revenue2 Group EBITDA2 NPAT, before Specific Items and minorities2 NPAT, before Specific Items2 Statutory Net Profit After Tax, after Specific Items Earnings per Share, before Specific Items — cents2 Dividend per Share — cents2 FY19 2,341.7 423.8 224.8 198.3 216.6 11.6 10.0 FY18 VARIANCE 2,364.0 385.1 205.9 170.6 209.7 10.0 9.0 -1% +10% +9% +16% +3% +16% +11% Operating Free Cash Flow for the year, ex the cash impact of the final Warner-related Specific Item, was $269 million. Net Debt on a wholly-owned basis at 30 June 2019 was $121 million, unchanged from 12 months earlier. During the year, $170 million was returned to shareholders through dividends, $130 million cash was paid as part of the consideration for Fairfax, including transaction costs, $166 million was received from the sale of non-core assets and nearly $110 million was invested in the business, in terms of both CapEx and acquisitions. Reported, wholly owned basis 30 JUNE 2019 30 JUNE 2018 VARIANCE Net Debt, $m Net Leverage Interest Cover 120.7 0.4x 21.8x 121.3 0.5x 114.5x +$0.6m -0.1x nm 1. Split on an economic share basis. 2. Pro Forma — Consolidates the results of the former Nine and Fairfax for the full 12 months, including the consolidation of Stan. Results include synergies realised since the transaction was completed. Interest costs associated with the transaction are also for the period from completion. Pro Forma results are presented on a Continuing Business basis, and exclude Australian Community Media and Printing (ACM), Stuff New Zealand and Events. Create Great Content Distribute it Broadly Engage Audiences and Advertisers C O M P A N Y O V E R V E W I O P E R A T I O N A L I H G H L I G H T S TRANSFORMING INVESTING IN THE PREMIUM CONTENT THAT DRIVES PROFITABILITY BUILDING USING THE CORE OF BROADCAST TO POWER GROWTH BUSINESSES RETURNING STRONG CASH FLOWS AND DIVIDENDS TO SHAREHOLDERS Broadcasting and Metro Media focusing on the efficient delivery of premium content Leading player in a fast-growing segment, new revenue streams from existing content spend Grown brand to 1.7m-plus subscribers in 4 years in a new market segment Leveraging Nine’s reach to grow yield and geographic share Strong cash flow conversion 10¢ fully franked dividend in FY19, equates to a yield of ~5% Chairman’s Address Chief Executive Officer’s Address Operational Review Corporate Responsibility Nine Cares Board of Directors Financial Report Directors’ Report 2 4 6 18 20 22 24 25 Auditor’s Independence Declaration Remuneration Report Operating and Financial Review Financial Statements Directors’ Declaration Independent Auditor’s Report Shareholder Information Corporate Directory 31 32 53 59 121 122 129 ibc I C H A R M A N S ’ A D D R E S S C E O S ’ A D D R E S S 1 1 NINE ANNUAL REPORT 2019 OPERATIONAL HIGHLIGHTS 2019 Australia’s leading broadcast brands, across television and radio Reaches 19m Australians nationally each week One of Australia’s leading digital publishers, and most watched commercial BVOD operator Reaches 14m Australians nationally each month Broadcasting Digital and Publishing #1 FTA RATINGS SHARE 12 months to June 2019, 25-54s, prime time, main channel, OzTAM data #1 Free To Air revenue share 12 months to June 2019, ThinkTV data FTA costs down 4% NEWS-TALK AUDIENCE AT MACQUARIE UP 5% GfK Mon-Sun Average Audience. All People 10+, survey 5 2018-survey 4 2019 vs pcp 3% METRO MEDIA REVENUE GROWTH AFTER THREE YEARS OF DECLINES 65% growth in Metro Media EBITDA 87% GROWTH IN EBITDA FROM 9NOW TO $36M Australia’s leading local SVOD business ~1.7m-plus active subscribers Evolving Australian property marketplace with core upside from relationship with Nine 6.9m total audience reach emma™ conducted by Ipsos, people 14+ for 12 months ending March 2019. Nielsen Digital Content Ratings (Monthly), people 14+ March 2019 Stan Domain (59.2%) 62% GROWTH IN SUBSCRIPTION REVENUE LAUNCH OF 63 NEW EXCLUSIVES ACROSS THE YEAR, SOURCED FROM 16 DIFFERENT STUDIOS EBITDA and cash flow break-even in H2 12% INCREASE IN RESIDENTIAL YIELD, OFFSETTING WEAKNESS IN KEY PROPERTY MARKETS DISCIPLINED COST MANAGEMENT WITH UNDERLYING COSTS DOWN 5% Realignment of Group operating structure Development of products to further enrich agent experience CHAIRMAN’S ADDRESS 2019 has been a transformational year for Nine. The merger with Fairfax, which completed in early December, has changed the scale of our business, creating one of the largest multi-platform media companies in Australia. It has allowed us to bring together premium assets that are complementary. It has given us diversified sources of revenue that overall, reduce our exposure to adverse cycles. It is a big development for our business that will provide greater opportunities in the digital age. And we retain a balance sheet that provides further flexibility into the future. From a results perspective, the benefit of the diversification is clear. During the year, growth in our Video on Demand platforms and Metro Media has more than offset the short term cyclical issues facing our Broadcasting and Domain businesses. On a Pro Forma basis, this resulted in a 10% increase in combined Group EBITDA for the year, on broadly flat revenues. But the essence of the merger was based around more than just short term profit considerations. Whilst the Nine business alone was doing well, and had strong profit momentum, the pace of change in the media market remains unabated, and we are determined to ensure that Nine is at the forefront of the future landscape in Australia. The fragmentation of traditional media has been occurring for some time. There is more competition for audience, and more competition for revenue. The merger with Fairfax ensures us a strong future within that environment. We now have premium assets across multiple platforms, and therefore a greater ability to invest in the content that drives audiences and in the data, research and technology that ensures our relevance to advertisers. Through Nine, advertising can now be offered across the full spectrum of audiences, from mass-market brand-building to truly addressable advertising. “We are determined to ensure that Nine is at the forefront of the future media landscape in Australia” 2 Nine’s portfolio of complementary and inter-related assets places us in a unique position in Australia. At the core of our content creation abilities, Nine boasts a leading Free To Air TV business and the traditional mastheads that make up the Metro Media business. Each of them creates content, reaching audiences and generating revenue across multiple platforms including the digital platforms 9Now and our Digital Publishing mastheads. Together, these create a powerful platform for the promotion and development of our other digital assets, namely Stan and Domain. We have an enviable mix of assets which together, provide us great opportunities into the future. The merger process has gone very smoothly. This is a testament to all of our people and their willingness to accept change and the challenges that change brings. A merging of cultures is never easy, but this one has been successful, and the underlying business has not missed a beat. The merger with Fairfax has also resulted in the combining of our respective Boards. As a result, David Gyngell and Janette Kendall retired from the Nine board in early December. I would like to acknowledge the contributions of both David and Janette over the years, particularly through the merger process, and thank them for their commitment. Additionally, I’d like to welcome the appointment of Nick Falloon, Patrick Allaway and Mickie Rosen to the Nine board as Non-Executive Directors. It has been something of a transition year but your Board settled quickly, and has been a great support to the management team throughout this process. I would like to highlight two businesses that are increasingly important to our future. The first is Stan – our subscription streaming business. With the merger, we now have full control of Stan. This business turned profitable in the second half of the year, which is an exceptional result. In the digital world, start-ups can attract huge market valuations without ever turning a profit. With more than 1.7m subscribers, coupled with positive cash flow, Stan has a strong future. The second is Domain. Domain is principally a Digital business. Although it has been buffeted by the short term correction in the housing market, it has a proven model and track record and will clearly benefit from a close association with Nine. Both of these, Stan and Domain, are growth businesses. Our advertising businesses are now in competition with global players like Facebook and Google. The Australian Competition and Consumer Commission (ACCC) has recently reported on the near- monopoly these players have in the areas of search, content aggregation and social media. They sell advertising on the basis of reach and targeting and distribute news and video content, yet they do not have the obligations of broadcasters and publishers. We are highly regulated, including content, viewing hours, advertising standards, defamation and public-decency. They are not. There remain legitimate concerns about how they use their market power to commercially engage with media businesses with their `take it or leave it' terms. The ACCC has rightly acknowledged that these businesses need regulatory oversight in areas including their commercial dealings with media businesses, the spread of disinformation on their platforms and copyright. The ACCC has also recommended regulatory changes to level the playing field. We welcome the steps the ACCC has outlined to deal with these issues in the public interest and look forward to the Government's response to this well-considered review of the Digital Platforms. In a fast-moving and competitive world, we will continue to focus on generating superior returns for our shareholders. We believe the merged Group enhances our prospects. We are excited by what the future has to offer the new Nine, and look forward to sharing the rewards of that future with all of our stakeholders. In this transformational year, we have completed one of the most significant mergers in Australian media history and have emerged a stronger company. We have continued to improve the relative performance of the traditional businesses, while containing costs, and we have delivered on our longer-term goal of broadening the base of our revenue streams with new and growing digital assets. We will continue to execute on this strategy. PETER COSTELLO, AC Chairman C O M P A N Y O V E R V E W I O P E R A T I O N A L I H G H L I G H T S I C H A R M A N S ’ A D D R E S S C E O S ’ A D D R E S S 3 NINE ANNUAL REPORT 2019 CHIEF EXECUTIVE OFFICER’S ADDRESS In 2019, Nine has laid the clear foundations for its long term growth. The merger with Fairfax has created a business with four key operational pillars — the traditional Broadcasting business, predominantly Australia’s leading Free to Air broadcaster in terms of ratings, revenue and profitability; Digital & Publishing — one of Australia’s most read digital publishers and leading commercial BVOD operator; 100% of Stan — Australia’s leading local SVOD business as well as our strategic 59.2% stake in Domain. This combination gives Nine an increasingly digital earnings profile, which will underpin the growth of the business for years to come. In terms of the result for the year, a year in which the cyclical nature of advertising and property worked heavily against us, we were very pleased to report 10% growth in Group EBITDA to $424 million. Net Profit After Tax and before Specific Items was $198 million, up 16%. We retained our dividend at 10c per share fully franked which, at the average of the share price across the year, equated to a yield of more than 5%. These results are reported on a Pro Forma basis — so incorporating a full period of the Fairfax acquisition and excluding the assets that we have either already sold, or earmarked for sale in the near future. And so are therefore reflective of Nine going forward. The merger came at a time when Nine’s own business was in great shape. The cost structure and focus of our Free to Air business had been significantly reworked and we had positive ratings and revenue share momentum. Momentum that continues today. And we had substantially completed the investments that we needed for the future of Nine — Stan and 9Now as well as our innovative sales platform technology, 9 Galaxy. Our balance sheet was, and remains, strong. The merger with Fairfax brought operational diversity, but more importantly, it substantially changed the growth profile of the Nine business. And with businesses that were complemented by Nine’s core Free to Air business either in terms of cross-platform content or from the tremendous marketing machine that is Free to Air television. In FY19, on a reported Pro Forma, ownership-weighted basis, 7% of Nine’s revenue was sourced from Stan; 9% from Domain and 30% from our newly formed Digital & Publishing division which includes the high growth business of 9Now. We will see the mix of both our revenues and our profitability change even further in the coming financial year. Operationally, there were a number of highlights in FY19. “Nine has great momentum, and we have used this period to invest in our future” 4 In a difficult FTA television advertising market, Nine strongly outperformed. Our primary channel ratings were almost 6 points clear of the competition in our targeted 25-54 demographics and this underpinned a #1 revenue share for the year of 39.6%, up 1% point on FY18. This ratings success stemmed not only from Nine’s consistent favourites of news, current affairs and entertainment products like The Block and Married At First Sight, but also some new content like Lego Masters. And extraordinarily, this gain in share was achieved on a 4% decline in operating costs, with the difficult decision to migrate Nine’s summer sports allegiances from cricket to tennis vindicated on every measure. Spurred by the broad success of Nine’s schedule, 9Now continued its dominance of the strongly growing Broadcast Video On Demand (BVOD) market. 9Now’s revenue growth of nearly 70% outperformed the overall market and with much of the associated cost already expensed through television, around 80c of each incremental $ of revenue flowed through to profit. We also incorporated 9Now inventory into the 9Galaxy sales platform from early 2019, and were the first local broadcaster to introduce true addressable advertising at scale, commencing with 9Now’s live streaming of the Australian Open. Driven by further increases in active users, 9Now will continue to be a strong contributor to growth into the future. The other key component of our Digital & Publishing division, Metro Media, has outperformed our own expectations on acquisition. This is a business which has completely reworked its operating model over the past three years. A renewed focus on profitable subscriptions and on our core print advertising base has coupled with the growth in digital advertising and ongoing cost focus to underpin the division’s first period of growth in four years. And growth across both key components — subscription and advertising. It is a testament to the business which has now reached an interesting juncture — subscription revenues which exceed advertising revenues, and print advertising revenues which have stabilised at around 30% of total group revenues. And it is a business, which by virtue of the recent sale of ACM, no longer has ownership, and Denison Street From 2020, Nine is relocating its Sydney premises with all businesses relocating from the current 4 locations to a purpose built, state of the art facility at 1 Denison Street. the associated fixed cost base, of print assets. Stan has had a fabulous 12 months, consistently surpassing expectations across all key metrics. The achievement of positive cash flow in the second half, with more than 1.7 million increasingly active and loyal subscribers, is a testament both to the team involved and Nine’s willingness four years ago to invest in a market segment that didn’t really exist in Australia at the time. Stan’s position as an aggregator of the best content from around the world, most specifically the US and UK, has enabled it to build a strong and profitable position in this fast-growing segment. Domain has operated in a cyclically challenging property market across the year, particularly in its core markets of Sydney and Melbourne. Despite this backdrop, underlying depth and yield improvements have continued. During the year, Domain completed the reorganisation of its operating structure, allowing more focus on its core business of residential and commercial real estate, and reducing its exposure to low margin adjacencies. Overlaid with the opportunities presented by a Nine- Domain partnership, we remain excited about our investment in Domain and believe the leverage will be strongly positive when the cycle returns to normal. Our unique suite of assets has brought with it vast amounts of first-party data through 9Now, Stan, nine.com.au as well as the major metro mastheads and Domain — data which will enable us to not only provide better platforms and products for our advertisers, but also target potential new customers for our subscription products. Our substantial first-party database and the way that will merge with our existing technology and improved audience measurement, will start to really take shape in the latter half of calendar 2019 and creates another exciting opportunity for Nine to continue to grow our revenues. In summary, the new Nine is at a very exciting stage. The turnaround at Stan, continued growth at 9Now and the already implemented synergies will underpin profit growth for FY20 — and that is before we see any cyclical improvement in broadcast or the property markets. Our balance sheet is strong and the business is generating significant cash. It leaves us in a great position to focus on maximising the performance of our business, and consolidating our position as one of Australia’s leading digital media companies. It’s been a big year. A big year for Nine, our staff and the Board who have been unwavering in their commitment and support as we continue to redefine our business. Nine has great momentum and we have used this period to invest in our future. These past twelve months have been both challenging and rewarding and I thank all my colleagues for the speed and effectiveness at which they have approached the opportunity. I and my team are equally excited about our future. HUGH MARKS CEO C O M P A N Y O V E R V E W I O P E R A T I O N A L I H G H L I G H T S I C H A R M A N S ’ A D D R E S S C E O S ’ A D D R E S S 5 NINE ANNUAL REPORT 2019 Broadcasting 6 BROADCASTING Nine’s Broadcasting division, which comprises Nine Network as well as the consolidated results of Macquarie Media (of which Nine currently owns a 54.4% stake), reported EBITDA of $241 million on revenues of $1,222 million for the year. These results are reported on a Pro Forma basis, which reflects the operations of both businesses for a full 12 month period. Free to Air Television The positive operating momentum of Nine’s Free to Air business continued into FY19 with growth in both ratings and revenue share across the year. Coupled with a further reduction in operating costs, Nine mitigated much of the impact of a weak Free to Air (FTA) Television market. The overall Metro FTA TV market was challenging in FY19, with the decline of more than 5% marked by softness in a number of key advertising categories, including Financials and Automotive, as well as the interruptive impact of both State and Federal elections. Conversely, Nine’s share of Metro revenues for the year was strong at 39.6%, up one share point from 38.6% in FY18, marking Nine’s highest share since 2000. This growth in share was achieved on a 4% decline in Nine’s television cost base. A combination of the change in sports rights, coupled with continued ongoing focus on cost management, resulted in a reduction in overall television costs of nearly $40 million. For the year to June 2019, Nine was the #1 Free to Air Network in all of the key buying demographics1. Network ratings #1 #1 #1 25-54s 38.2% +1.9pts 16-39s 38.4% +2.5pts GB+CH 40.5% +2.6pts OzTAM data, 12 months to end of June 2019, 6am–midnight. The most significant change in FY19 was the replacement of Nine’s summer sport from a longstanding relationship with cricket to tennis. The decision was made with many considerations, not the least of which was the expectation of markedly superior economics of tennis at the prevailing rights prices. On all levels, Nine’s decision has been vindicated. From an audience perspective, Nine’s Summer of Tennis attracted a cumulative audience reach of nearly 14.5 million people nationally, with the Australian Open Men’s Final the highest rating session, attracting an average audience on Nine of more than 2 million. Across the Summer, 9Now recorded more than 6.2 million streams totalling 121 million minutes. EBITDA1 contribution — FY19 Broadcasting results2 $m 55% 1,400 1,200 1,000 800 600 400 200 0 300 250 200 150 100 50 0 Broadcasting Digital & Publishing Domain FY18 FY19 TV Radio EBITDA 1. On an economic interest adjusted and Pro Forma basis. 2. Pro Forma basis. O P E R A T I O N A L R E V E W I C O R P O R A T E G O V E R N A N C E I N N E C A R E S B O A R D O F I D R E C T O R S 7 NINE ANNUAL REPORT 2019 Nine’s entertainment schedule continues to perform well. Across the year, Nine has an enviable depth and breadth of content that entertains Australians. Australian Ninja Warrior returned for season 2 in July 2018 and was closely followed by Season 14 of The Block. Average audiences for The Block of around 1.2 million and 1.7 million people on a 5-city metro and national basis respectively again demonstrated Australians' obsession with their homes and renovations, and the enduringly successful formula of The Block. Moreover, it remains the best example of what can be achieved with original content and an integrated sales effort that brought more than 30 premium advertising relationships to the show. The return of Married At First Sight at the start of calendar 2019, with the lead-in of the Australian Open Tennis, resulted in 5% growth in overnight audiences on the previous season and an average audience, including 9Now, of almost 2.4 million per episode. Lego Masters, which launched in April, was an instant success, with families tuning in to watch the most extraordinary Lego creations being imagined and built. In its first season, Lego Masters averaged an audience of more than 2 million nationally (including 9Now), winning all of its time slots and guaranteeing its return in 2020. Nine now has a strong and consistent schedule of premium entertainment content across the full calendar year. Married at First Sight, Lego Masters, The Voice, Australian Ninja Warrior and The Block which has created an unrivalled proposition for our advertisers. Moreover, Nine has further increased its depth around these core titles — Travel Guides, This Time Next Year, Doctor Doctor and Hamish and Andy to name a few.  Doctor Doctor continues to be a consistent timeslot winner for Nine — series 3 delivered a national average audience of 1.2m per episode Over the past year, 60 Minutes has cemented itself as the nation’s most watched weekly public affairs program  BROADCASTING continued The more female skew of tennis enabled Nine to start calendar 2019 with significant momentum. The lead-in and demographic alignment of tennis to Nine’s top-rating show of the year, Married At First Sight, gave Nine its strongest start to a calendar year since OzTAM became the measurement system in 2001. And thirdly, the move to tennis enabled Nine to further refine its cost base — both reducing overall costs, with limited impact on revenue, but also reducing the portion of Nine’s ~$650 million programming cost base that is contracted, creating increased future flexibility. Sport remains a key pillar for Nine. In FY19, Nine broadcast more than 750 hours of premium sport across the year, in addition to around 350 hours of other sports-related content. Coupled with tennis in summer, NRL is Nine’s core winter sport. For the first 24 rounds of season 2019, Nine’s regular NRL broadcasts attracted an average audience of around 3.4 million of league supporters each week, a fertile audience for advertisers chasing that tight demographic. The State of Origin series reached a massive 9.9m people nationally — one of the few events in Australia to reach such a big audience and accounted for three of the top ten shows on Australian television in the year to June 2019. News is the other key pillar, underpinning a consistency to both audiences and advertisers that is crucial. Nine’s commitment to news is unwavering, and the merger with Fairfax highlights this commitment — to be the primary supplier of news to all Australians, across all demographics, and distribution platforms. In FY19, Nine broadcast around 65 hours of television news and current affairs each week. Nine’s 6pm news service is almost always one of the top five shows, attracting a national Free to Air audience of almost 1.2m people each night. In addition, Nine’s regional news coverage sourced directly from 13 different regional market hubs is broadcast through the affiliation with Southern Cross. The Nine news and current affairs brands have extended their reach through Nine’s digital publishing platforms, 9.com.au and 9News.com while Nine’s video content reaches audiences via FaceBook, Twitter and Instagram as well as the Metro Media mastheads. 8 OPERATIONAL REVIEWMacquarie Media (54.4%) FY19 was a difficult year for Macquarie Media. While audience performance was strong, this performance did not translate through to revenues. In FY19, Macquarie’s top-rating News Talk stations 2GB in Sydney and 3AW in Melbourne, combined with the growing 4BC in Brisbane and 6PR in Perth for average audience growth across the network of 5%. Despite this strong audience performance, revenues declined by 3%, in a subdued advertising market. Costs were up by 1%, partially reflecting the increased investment in the Macquarie Sports Radio Network which resulted in a 16% decline in EBITDA to $27 million. In August 2019, Nine announced an off-market takeover offer for all of the outstanding shares in Macquarie Media. Successful completion will further consolidate Nine’s position as a leading supplier of news and current affairs content across all the key platforms — Television, Digital, Print and Radio. The offer is expected to close later in 2019. Travel Guides enjoyed its best season to date, with a national series average audience for season 3 of 1.1m per episode, up 15% on season 2  O P E R A T I O N A L R E V E W I C O R P O R A T E G O V E R N A N C E I N N E C A R E S B O A R D O F I D R E C T O R S 9 NINE ANNUAL REPORT 2019 Digital & Publishing 10 DIGITAL & PUBLISHING Nine’s Digital & Publishing division includes Metro Media and 9Now, as well as Nine’s other Digital Publishing titles including Nine.com.au, Pedestrian TV and CarAdvice. Together, on a Pro Forma basis, Digital & Publishing reported revenue of $637 million and a combined EBITDA of $130 million, up 56% for the year. Metro Media Metro Media performed strongly in FY19, with revenue growth of 3% coupling with a 5% cost decline, for an EBITDA increase of 65% to $83 million. There was growth in both advertising and subscription/circulation revenues across the year. This result marks an interesting juncture in the evolution of this business. Not only have the previous sharp declines in print revenues stabilised, but the combined circulation and subscription revenues of the mastheads now comfortably exceed advertising, marking a real change in dynamics of a business that traditionally relied on advertising for the bulk of its revenue. The focus is now clearly on reader revenue, which will continue to be driven by distinctive journalism and engaging products. This has resulted in strong and growing readership of the Group’s mastheads while a tightening of the paywall and a focus on targeted marketing has driven subscription revenue growth across each of the key titles — the SMH, the Age and most significantly, the AFR. Nine’s commitment to content and specifically to news will result in a further increase in focus on editorial content and quality in the future. There was strong growth in advertising in digital (+17%) and a real stabilisation in print. The business attracted an increased share of digital revenues, while print advertising has benefited from a renewed appreciation of the value of the medium to certain advertising categories, most specifically Travel and Homewares. Additionally, the benefit of being part of the larger Nine Group has been reflected in enhanced agency relationships across the Metro Media business. Metro Media’s strong history on costs continued in FY19, with total costs declining by 5%. A key driver to this decline was the print deal announced with News Ltd in July 2018, which resulted in increased capacity utilisation at a smaller number of print facilities owned between the two groups, with surplus facilities closed. The subsequent sale by Nine of ACM in June took this one step further from Nine’s perspective, with there now being no residual ownership of print facilities, creating further flexibility in the business’s cost base longer term. EBITDA1 contribution — FY19 Digital & Publishing results2 $m 700 600 500 400 300 200 100 0 FY18 Metro Media 9Now 9Digital EBITDA FY19 140 120 100 80 60 40 20 0 31% Broadcasting Digital & Publishing Domain 1. On an economic interest adjusted and Pro Forma basis. 2. Pro Forma basis. O P E R A T I O N A L R E V E W I C O R P O R A T E G O V E R N A N C E I N N E C A R E S B O A R D O F I D R E C T O R S 11 NINE ANNUAL REPORT 2019 DIGITAL & PUBLISHING continued This success has been primarily driven by the broad performance of Nine’s schedule. In particular, the popularity of Married At First Sight, The Voice and The Block helped to underpin a 71% increase in BVOD minutes for the year. 9Now’s unique single sign-in process has enabled the development of a proprietary database which has become a key asset for Nine, particularly when combined with the data from Stan, nine.com.au, the Metro mastheads as well as Domain. Data will allow advertisers to more effectively target their audiences, increasing advertising effectiveness and ultimately yield. In late 2018, 9Now introduced addressable advertising, enabling the serving of differentiated advertising content to customer bases with specific gender, age and location characteristics. From an advertiser's perspective, addressable advertising brings together the very best of television and the best of digital, and 9Now’s signed in user base gives Nine an important and unique competitive advantage. 9Now In 2019, 9Now, Nine’s live streaming and catch-up service, made significant progress, both operationally and financially. Nine’s schedule of premium content has continued to attract growth in registered users and audiences, while our ability to monetise those audiences has improved with sales focus, education and technology. On average, around 8% of Nine’s general entertainment audiences access the content through 9Now, weighted to catch-up, but with consumption via both catch-up and live streaming growing strongly. Industry-wide BVOD revenue of $125 million in FY19 was up 38%. Across the year, Nine grew its share of industry revenues to 49%, up 10 share points, reflective of its market leading proposition. This resulted in revenue growth of 51% to $62 million and an 87% increase in EBITDA contribution from 9Now to $36 million. 9Now results, $m s n o i l l i m $ 70 60 50 40 30 20 10 0 65.0 40.9 21.6 FY17 FY18 FY19 Revenue EBITDA 40 35 30 25 20 15 10 5 0 #11 Commercial BVOD site By Monthly Unique Audience (2.3m) #12 BVOD revenue share Year to June 2019 (49%) #13 Audience share of BVOD Minutes Year to June 2019 (45%) #13 VPM rating for a reality program with MAFS, Year to June 2019 Up 86% from previous season Source: 1. Nielsen June 2019 2. Think TV 3. OzTAM 12 OPERATIONAL REVIEW The inclusion of the 9Now advertising inventory on 9Galaxy, Nine’s proprietary advertising platform, from February, has made it easier for advertisers and Nine to work together to maximise the return an advertiser receives for their advertising dollar. All of these innovations are expected to allow 9Now to continue to grow and expand its position in the broader digital video market. 9Now is instrumental to the success of Nine — a distribution platform adding incrementally to the returns Nine is achieving on its premium content, and enabling broader demographics to engage with this content. 9Digital 9Digital comprises Nine’s digital publishing assets — namely core digital sites including network home (nine.com.au), 9News, WWOS and 9Honey as well Pedestrian TV (recently merged with Allure Media) and CarAdvice (recently merged with Drive.com.au). During the year, Nine reviewed the status of a number of its digital publishing assets, resulting in the emergence of a more consolidated portfolio. This tightening of focus will continue into FY20. As a result, and also reflecting the general weakness of the digital display market, 9Digital recorded declines in both revenue and costs, resulting in an EBITDA contribution of $11 million. Stuff NZ Our New Zealand business Stuff delivered $28 million in EBITDA on revenue of $253 million. This result reflected the difficult trading conditions in the New Zealand market, including the broad withdrawal of advertising following the March Christchurch attacks. Stuff remains an asset held for sale. O P E R A T I O N A L R E V E W I C O R P O R A T E G O V E R N A N C E I N N E C A R E S B O A R D O F I D R E C T O R S 13  44% of the audience of Love Island Australia watched through 9Now NINE ANNUAL REPORT 2019 Stan 14 STAN Stan is Nine’s Subscription Video On Demand (SVOD) platform. Established in 2015, Stan is now the lead local player in what continues to be a rapidly expanding market. As audiences demand the option of on-demand services, and the breadth of content that brings, Stan has positioned itself as a key aggregator of premium exclusive and library content. During FY19, Stan delivered more than 60 first-run exclusive premieres, sourced from 16 different studios and distributors from around the world. During FY19, Stan added around 600,000 active subscribers, ending the year with around 1.7 million active subscribers and a revenue run rate of around $200 million. Consistent subscriber adds across the year were underpinned by exclusive international content like Billions, Who Is America and The Truth About the Harry Quebert Affair sourced from major studios including Sony, MGM, Showtime and Starz. In addition, Stan originals like Bloom, The Second and No Activity captured the imagination of audiences both in Australia and overseas. In December, Stan added Disney movies and television series to the platform, which added further to the subscriber momentum. As the subscriber numbers have grown, so too has their engagement with Stan. Average hours of viewing per subscriber continued to increase across the year, as Australians embraced the platform and watched increasing hours of SVOD- delivered content. The very strong growth in subscribers, coupled with an average price increase of around $2 per subscriber from March, underpinned revenue growth of 62% for the year to $157 million, and a reduced full-year loss of $21 million. Since March, Stan has passed through the break-even EBITDA point, and this continued for a second-half EBITDA and cash flow positive result. This an outstanding milestone for a business that is just 4½ years old, in a market segment that did not exist five years ago and augurs well for the future of the business. Stan results, $m Stan hits 1.7 million subscribers 0 1,800,000 1,000,000 0 5 1 n a J 1 5 1 l u J 1 6 1 n a J 1 6 1 l u J 1 7 1 n a J 1 7 1 l u J 1 8 1 n a J 1 8 1 l u J 1 9 1 n a J 1 9 1 l u J 1 -10 -20 -30 -40 -50 -60 Revenue EBITDA Stan Original series — Bloom Bloom is Stan’s most successful original drama to date, securing two wins at the 2019 TV Week Logie Awards. Its launch date on 1 January 2019, marked Stan’s biggest sign up day on record. Bloom has also been sold for distribution into the US market. O P E R A T I O N A L R E V E W I C O R P O R A T E G O V E R N A N C E I N N E C A R E S B O A R D O F I D R E C T O R S 15 020406080100120140160180FY19FY18 NINE ANNUAL REPORT 2019 Domain (59.2%) 16 DOMAIN Nine’s 59.2% owned, and separately ASX listed Domain, performed well in a challenging year for the Australian property market. In FY19, Domain reported a 15% decline in EBITDA to $98 million, from a 6% decline in Group Revenues. It was a difficult operating market for Domain, but the business responded well with growth in yield, underlying cost reductions and clarified focus overall. Domain comprises five businesses, all of which are focussed on consolidating the Group’s position as a leading Australian property marketplace. Nine’s proven ability in marketing and promoting new digital businesses, coupled with the extensive combined database, will create significant opportunities for Domain as it continues to extend its geographical footprint further across Australia and deepen its relationships with the property market participants. Residential is Domain's largest business, and contributes more than half of Group revenues. Unprecedented weakness in the Australian residential property market resulted in markedly lower listing volumes in FY19, particularly in Domain’s key geographic exposures of Sydney and Melbourne. Notwithstanding, Domain’s residential revenue increased by 0.5%, as a result of yield growth, driven by both price and increased depth penetration. Domain’s focus on delivering a superior value proposition, utilising its evolving data and analytics as well as its market-specific approach, supported this yield performance and should underpin longer-term growth opportunities as the property market stabilises. Media, Developer and Commercial revenue declined by 13%. This reflected a challenging market environment for Media and Developers, and the adoption of a new operating model for Media (lower revenue, lower cost). These factors offset 30% revenue growth in Commercial Real Estate. Agent Services provides, data, analytics and reporting tools to the property industry. Underlying revenue increased by 10% in FY19 as Domain continues to invest in innovation to enrich both the agent and consumer experience and to help differentiate the Domain product. Domain’s Consumer Solutions business comprises home loans, insurance and utilities connections — all markets adjacent to the core listings business that aim to leverage Domain’s audience and brand. These remain early-stage investments for Domain with significant potential to contribute post this current period of investment. Print continues to deliver strategic value to Domain, from both an agent and consumer perspective, and is also bundled with the Group’s digital offerings. Domain managed costs in this business, partially matching the declining revenue with a 29% reduction in costs. EBITDA split1 — FY19 Domain results, $m 14% Broadcasting Digital & Publishing Domain Core Digital Consumer Solutions Print Corporate EBITDA 1. On an economic interest adjusted and Pro Forma basis. 140 120 100 80 60 40 20 0 O P E R A T I O N A L R E V E W I C O R P O R A T E G O V E R N A N C E I N N E C A R E S B O A R D O F I D R E C T O R S 17 050100150200250300350400FY19FY18 NINE ANNUAL REPORT 2019 CORPORATE RESPONSIBILITY People Nine is a people business. At the heart of what we do to create great content, distribute it broadly and engage audiences and advertisers are the incredible people who bring it all together. We are committed to building an environment that allows those people to bring their best every day, that provides them with the opportunity to create, that empowers them to deliver outstanding results, and that reflects the incredible diversity of our audience. With the merger with Fairfax, the reach of our business and our audiences, have increased. So too has the diversity of voices with which we speak. Merging two strong cultures, such as those that existed within both Nine and Fairfax, has not been an easy task. With respect to the legacy of both organisations, we are committed to a culture at Nine that continues to enable the delivery of our long term strategy. Caring for our people The merger marked a significant change for all our people, regardless of originating from Fairfax or Nine. We were conscious of the magnitude of this change, particularly with many employees exiting the business at the time. All impacted employees were given access to support through our Employee Assistance Program, as well as outplacement guidance through external providers. Across Benestar and Converge, there was a total of 382 people who used the service in FY19. During the merger process, we increased internal communications, and ensured consistency in messaging to our people across all sites through the creation of a merger portal on both company’s intranets. Leaders, including the CEO, were encouraged to hold face to face sessions with their new teams as quickly as possible post 10 December. Nine’s CEO also held CORPORATE RESPONSIBILITY People Governance Community Nine’s Corporate Responsibility strategy is based on the three key pillars illustrated above. During the year, the merger with Fairfax enabled the Group to combine the best of the Corporate Responsibility practices of the two groups. Corporate responsibility is a ongoing focus and Nine will continue to evolve and improve its practices over time. face to face sessions for editorial staff in Sydney and Melbourne. In addition to the support provided through the integration process, we have continued to provide holistic care to our people through the provision of services and access to external support for health and wellbeing. In May 2019, we piloted Mental Health First Aid training, accrediting 10 internal employees as Mental Health First Aiders. Each metropolitan site now has an accredited mental health first aider on-site, and we intend to continue to roll out this accreditation into FY20. Trauma training, previously conducted for Nine’s broadcast journalists, has now been extended to all our journalists and editorial employees, and provides tools and support for our people who are often amongst first responders to difficult situations. A significant benefit of the merger was the ability to leverage the work done by Fairfax to improve and focus on safety across all of the merged Group. We have harmonised all our Health, Safety and Wellbeing policies across Nine and have commenced group- wide reporting against key leading and lag indicators (including Lost Time Injury Frequency Rate and Hazard reporting). Full- year reporting on the combined entity will be provided in the FY20 Annual Report. Women @ Nine Nine continues to strongly represent women across the business, and in particular at Board level (50% Non-Executive Directors), CEO-direct report (46%) and broader NEC management (38%). We believe that these strong, visible female leaders provide inspiration and demonstrate our ongoing commitment to attracting, developing and retaining women across Nine. In 2019, we continued to build Women @ Nine, a range of initiatives for our people centred around development through mentoring, inspiration and networking. Women @ Nine consists of the following initiatives: • 9Mentor Program, designed to support the career progression of women at Nine. Two programs were introduced, one for senior executives with more than 9 years experience in the media industry who aspire to leadership roles, and a second, 9Gen, for those earlier in their NEC Board NEC Management NEC Total Employees 57% 39% 44% 43% 61% 56% Male Female Male Female Male Female 18 career wanting support and professional advice for important decisions, workplace challenges and goal setting. The 9Mentor Program was launched in October 2018. 27 women were mentored by 15 Executives across Nine for a period of 6 months. Feedback from both the mentees and mentors was very positive, and we will continue to incorporate mentoring into our Women @ Nine plans. • Through her Lens a video and event series to showcase the stories behind Nine’s leading women and share inspiration and knowledge. Two Through Her Lens events have been held. The first had CEO Hugh Marks interviewing Tracey Grimshaw on her experiences in News, whilst our second introduced Through Her Lens to the wider Nine Group, with an interview with Kate McClymont in Studio 22 and live- streamed across all sites. • Future Women all Nine employees received a 12-month subscription to Future Women, which could be used for themselves or for a friend or family member. On International Women’s Day 2019, we extended our free subscription to all employees of the combined Group. We plan to continue to build on Women@ Nine into FY20. In addition to the initiatives above, the following will be launched: • Women Leading @ Nine In FY 20, we will pilot the Women Leading @ Nine program. The 6-month program is focused on leveraging the strengths of our mid to senior level, high potential female leaders. It is designed to help the talented leaders accelerate their leadership journey through applying a strengths-based approach to development, coupled with three face to face workshops built around Create, Distribute and Engage, coaching and individual challenges. • Women of Influence We will leverage the strength of the Women of Influence awards, previously run successfully for internal nominees at Fairfax. The criteria for nomination will be slightly amended around Connect (includes collaboration), Create (innovation), Distribute (customer-centric), Engage (leadership). Developing our People In August 2019, we launched our second Senior Leadership program with twenty of our high performing leaders from across Nine. Working with an external provider, the program covered critical areas of leadership including personal leadership, strategic leadership, disruption and innovation and leading culture. Participants were also required to work on a strategic business project from outside of their immediate area of responsibility, and present back to the Executive Leadership Team. As we look to FY20, we will review this program, as well as our approach to management development across Nine, developing a new language and expectation for leadership across the Group. Engaging our People In October 2018, Nine ran its first employee engagement survey, NineConnect. 73% of our people completed the survey, which measured both engagement and the employee experience. The survey was deliberately conducted pre-merger to allow us to have a baseline for Nine, as well as to identify those areas that would require primary focus post-merger. Our people overwhelmingly told us they were confident in our future, proud to work for Nine, know what they needed to do to be successful in their role, and how their role contributed to the goals of Nine. Opportunities were identified in communication and management fundamentals, and these formed the foundation of our People Integration strategy. A short ‘pulse’ survey was conducted six months post-merger to gather insight into the integration process, and identify our strengths and areas to focus on to accelerate integration. 61% of the total organisation participated in the survey. Pleasingly, pride in working for Nine and confidence in our success over the next three years continued to be strong, a great result just six months into the combined business. However, we know there is more to do, and have developed action plans to address focus areas such as internal communication. A full organisation survey will be conducted in October 2019. Governance Council Principles and Recommendations and corporate governance best practice. The Corporate Governance Statement, Charters and related corporate governance policies are available on Nine’s website (http://www.nineentertainmentco.com.au/ investor-centre). Media Ethics and Content Regulation Nine aims to be a good corporate citizen, by maintaining the trust of the communities which we are a part of, through responsible journalism and providing high-quality content. 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. 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. Nine’s Metro Publishing business is a member of the Press Council of Australia. The Press Council has issued a Statement of General Principles, a Statement of Privacy Principles, Specific Principles covering matters such as the reporting of suicides, and Advisory Guidelines on matters such as reporting elections, which guide the publication of content by Nine. As a member of the Press Council, Nine must cooperate with the Press Council’s consideration of complaints against it and publish any decisions by the Press Council following a complaint to Nine. Corporate Governance Nine’s Corporate Governance Statement demonstrates the extent to which Nine has complied with the ASX’s Corporate Nine provides regular training for employees on our obligations as a broadcaster and publisher and compliance with other applicable laws, relating to matter such as defamation and contempt of court. O P E R A T I O N A L R E V E W I C O R P O R A T E G O V E R N A N C E I N N E C A R E S B O A R D O F I D R E C T O R S 19 NINE ANNUAL REPORT 2019 NINE CARES Nine Cares provides a valuable service utilising Nine’s network of media assets across television, publishing, digital and social, and Nine’s role as a content creator and distributor to connect communities. Nine’s reach in terms of both depth and breadth makes it a unique platform for many needy individuals and organisations, and Nine Cares’ commitment to continuing its role in drawing attention and support to some of Australia’s most critical social issues remains unwavering. In FY19, Nine Cares managed and provided almost $23 million of airtime for Community Service Announcements (CSAs) for community or not-for-profit organisations in support of causes including MND Australia, the Children’s Tumour Foundation, the Gidget Foundation, the Melanoma Institute and the Mark Hughes Foundation. Nine Cares is committed to providing community groups with the ability to connect with the general public and maximise the reach and understanding of their messages. During FY19, Channel Nine was again instrumental in the raising of almost $20 million for the local children’s hospitals through telethons in Sydney and Brisbane. These telethons remain key to the hospitals' annual fundraising efforts, with the proceeds used to provide essential equipment, services and research. The telethons are televised on Channel Nine in their local markets, with many of the Nine’s key talent volunteering to staff the phone lines, further encouraging the public’s generosity. The AFL Footy Show My Room Telethon raised $1.6 million in a national broadcast on Nine to support the fight against childhood cancer. Nine again joined forces with the NRL and the broader rugby league community to help fund brain cancer research. Through the Beanie for Brain Cancer Round 19 in July this year, The Mark Hughes Foundation raised more than $3 million, helping to fund research into a cancer that kills more people under 40 in Australia than any other cancer and yet receives less than 5% of government cancer research funding. Every day through December, the Today Show joined forces with a number of key corporates to give a meaningful gift to a deserving individual or charity — The Today Show Advent giveaway. The recipients were all aligned to Nine’s key charity partners.  $20m RAISED FOR SYDNEY AND MELBOURNE CHILDREN’S HOSPITALS $3m MARK HUGHES FOUNDATION 20 30yrs+ NINE’S PARTNERSHIP WITH STARLIGHT CHILDREN’S FOUNDATION A Current Affair also serves a significant community interest by publicising news-worthy human interest stories. Genuinely needy people are provided a forum to tell their stories, often with incredible outcomes. Donations of money, care or essential devices are not uncommon as the nightly 1m-plus audiences are inspired. A Current Affair also promotes the national ACA Christmas hamper giveaway where tens of thousands of dollars worth of food are donated, packed and distributed to hundreds of needy families. During the year, Nine celebrated 30 years as media partner with Starlight Children’s Foundation, and remains a key platinum partner. Nine Cares also continues its active involvement in communities around Australia, sponsoring local council events and surf clubs, as well as The Monash Children’s Hospital, the Treasure Chest Charity and the Mothers’ Day Classic, as well as Carols by Candlelight across many of the Australian capital cities. The Fairfax Foundation The Fairfax Foundation, established in 1959 with an independent charter, provides assistance to current and former employees and their dependents through a range of grants and other benefits. The Foundation provided $774,281 in financial grants and other benefits to eligible beneficiaries (employees and former employees of Fairfax Media and associated eligible companies) during the 2019 financial year. $50m in publicity and assistance through airtime, program integration, advertising and stories $23m in CSA airtime (CSA = Community Service Announcement) $90m raised by telethons since inception O P E R A T I O N A L R E V E W I C O R P O R A T E G O V E R N A N C E I N N E C A R E S B O A R D O F I D R E C T O R S 21 NINE ANNUAL REPORT 2019 BOARD OF DIRECTORS Peter Costello INDEPENDENT NON-EXECUTIVE CHAIRMAN Peter Costello was appointed to the Board in February 2013 as an independent, Non- Executive Director and in March 2016 became Chairman of the Board. He is also a member of the Audit & Risk Management Committee. Mr Costello is currently Chairman of the Board of Guardians of Australia’s Future Fund and serves on a number of domestic and international advisory boards. He commenced his career as a solicitor, and then a barrister. Mr Costello was a member of the Australian House of Representatives from 1990 to 2009 and Treasurer of the Commonwealth of Australia from March 1996 to December 2007. From 2009, Mr Costello has worked as a corporate advisor in the field of mergers, acquisitions and foreign investment. 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. Nick Falloon INDEPENDENT NON-EXECUTIVE DEPUTY CHAIRMAN Prior to the merger of Nine and Fairfax, Mr Falloon was chairman of the Fairfax Board before taking up the role of deputy chairman of Nine in December 2018. He is also chairman of Domain Holdings Australia. Mr Falloon has had 30 years’ experience in the media industry, 19 years working for the Packer-owned media interests from 1982 until 2001. Mr Falloon served as CEO of Publishing and Broadcasting Limited (PBL) from 1998 to 2001 and before that as Chief Executive Officer of PBL Enterprises and Group Financial Director of PBL. The PBL experiences provided a strong background in the television, pay TV, magazine, radio and digital industries. From 2002, Mr Falloon spent nine years as Executive Chairman and CEO of Ten Network Holdings. He holds a Bachelor of Management Studies (BMS) from Waikato University in New Zealand. Hugh Marks CHIEF EXECUTIVE OFFICER AND DIRECTOR Patrick Allaway INDEPENDENT NON- EXECUTIVE DIRECTOR Hugh Marks was appointed Chief Executive Officer of Nine in November 2015. Prior to this, he had been an independent, Non-Executive Director since February 2013. Mr Marks has over 20 years’ experience as a senior executive in content production and broadcasting in Australia and overseas. Before his appointment as CEO, he had ownership and management interests in a number of independent companies providing content for broadcast and pay TV, talent management, and digital production. Before joining the board Mr Marks was an authority member of the Australian Communications and Media Authority for more than two years. Previously he was CEO of the Southern Star Group. He has also worked with the Nine Network as legal counsel, and was Director of Nine Films & Television for seven years. Mr Marks holds a Bachelor of Commerce/Laws degree from the University of New South Wales. Patrick Allaway served on the Fairfax Board from April 2016, before moving on to the new board when Nine and Fairfax merged in December 2018. He has had 30 years’ experience in the global financial industry across capital markets and corporate advisory; and 16 years Non- Executive Director experience across property, retail, media, and finance. Mr Allaway commenced his executive career with Citibank in Sydney, London and New York and with Swiss Bank Corporation in Zurich and London. He was previously a Director of Macquarie Goodman, Metcash, Fairfax, Woolworths South Africa, and Chairman of Saltbush Capital Markets. In May 2019, he was appointed Non- Executive Director of the Bank of Queensland, and will take over as Chair of the Bank in October 2019. He is also a Non-Executive Director of Domain Holdings Australia. Mr Allaway has a Bachelor of Arts/Law degree from the University of Sydney. 22 Samantha Lewis INDEPENDENT NON-EXECUTIVE DIRECTOR Mickie Rosen INDEPENDENT NON-EXECUTIVE DIRECTOR Catherine West INDEPENDENT NON-EXECUTIVE DIRECTOR Samantha Lewis joined the Board in March 2017 as an independent, Non- Executive Director and is Chair of the Audit & Risk Management Committee and a member of the People & Remuneration Committee. Ms Lewis has extensive financial experience, with 20 years at Deloitte Touche Tohmatsu including 14 years as a Partner. In that role, she led the audit of a number of major Australian listed companies, in the retail/fast-moving consumer goods (FMCG) and industrial sectors. During her time at Deloitte, Ms Lewis also provided accounting advice and transactional advisory services, including due diligence, IPOs and debt/ equity raisings. Since retiring from Deloitte in 2014, Ms Lewis has been appointed to the Boards of ASX-listed Orora Ltd and Aurizon Holdings Ltd and is also the Chair of the Audit Committee of the Australian Prudential Regulatory Authority. She is a Member of the Institute of Chartered Accountants in Australia, England and Wales, and is a Member of the Australian Institute of Company Directors. Ms Lewis holds a Bachelor of Arts (Hons) degree from the University of Liverpool. Mickie Rosen served on the Fairfax Board from March 2017, before moving on to the new board when Nine and Fairfax merged in December 2018. Ms Rosen has nearly three decades of strategy, operating, advisory, and investment experience at the intersection of media and technology. She has built and led businesses for iconic global brands such as Yahoo, Fox, and Disney, and early-stage start-ups such as Fandango and Hulu. Ms Rosen currently serves on public, private, and non-profit boards, and she advises early to growth stage companies in digital media and commerce. Until recently, she served on the board of Pandora Media, and was the President of Tribune Interactive, the digital arm of Tribune Publishing, and concurrently the President of the Los Angeles Times. Ms Rosen has also served as a Senior Advisor to the Boston Consulting Group, and was a co-founder and partner of a boutique strategic advisory firm, Whisper Advisors. The foundation of Ms Rosen’s career was built with McKinsey & Company, and she holds an MBA from Harvard Business School. Catherine West was appointed to the Board in May 2016 as an independent, Non-Executive Director and is the Chair of the People & Remuneration Committee and a member of the Audit & Risk Management Committee. Ms West has more than 20 years of 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, she was responsible for all of Sky’s content relationships, distribution, commercial activities and joint ventures. A Graduate Member of the Australian Institute of Company Directors, Ms West is currently a non-executive director of Southern Phones, Vice-President of the Sydney Breast Cancer Foundation at Chris O’Brien Lifehouse and a director of the NIDA Foundation Trust. Ms West holds a Bachelor of Laws (Hons) and Bachelor of Economics degree from the University of Sydney. O P E R A T I O N A L R E V E W I C O R P O R A T E G O V E R N A N C E I N N E C A R E S B O A R D O F I D R E C T O R S 23 NINE ANNUAL REPORT 2019 Nine Entertainment Co. Holdings Limited ABN 60 122 203 892 Financial Report for the year ended 30 June 2019 CONTENTS Directors’ Report Auditor’s Independence Declaration Remuneration Report — Audited Operating and Financial Review Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report 25 31 32 53 60 61 62 63 64 121 122 24 DIRECTORS’ REPORT The Directors’ present the financial report for the year ended 30 June 2019. 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. NAME TITLE DATE APPOINTED DATE RESIGNED Peter Costello Independent Non-Executive Chairman 6 February 2013 Nick Falloon Hugh Marks Independent Non-Executive Deputy Chairman 7 December 2018 Chief Executive Officer 6 February 2013 Patrick Allaway Independent Non-Executive Director 7 December 2018 Samantha Lewis Independent Non-Executive Director 20 March 2017 Mickie Rosen Independent Non-Executive Director 7 December 2018 Catherine West Independent Non-Executive Director 9 May 2016 David Gyngell Non-Executive Director 25 November 2010 7 December 2018 Janette Kendall Independent Non-Executive Director 5 June 2017 7 December 2018 Peter Costello (Independent Non-Executive Chairman) Mr Costello was appointed to the Board in February 2013 as an independent, Non-Executive Director and in March 2016 became Chairman of the Board. He is also a member of the Audit & Risk Management 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 commenced his career as a solicitor and then a barrister. Mr Costello was a member of the Australian House of Representatives from 1990 to 2009 and was Treasurer of the Commonwealth of Australia from March 1996 to December 2007. From 2009, Mr Costello has worked as a corporate adviser in the fields of mergers, acquisitions and foreign investment. He has a Bachelor of Arts and a Bachelor of Laws (Hons) and a Doctorate of Laws (Honoris Causa) from Monash University. In 2011 Mr Costello was appointed a Companion of the Order of Australia. Nick Falloon (Independent Non-Executive Deputy Chairman) Mr Falloon was appointed to the Board on 7 December 2018 as an independent, Non-Executive Director. Prior to the merger of Nine and Fairfax, Mr Falloon was chairman of the Fairfax Board before taking up the role of deputy chairman of Nine in December 2018. He is also chairman of Domain Holdings Australia. Mr Falloon has had 30 years experience in the media industry, 19 years working for the Packer-owned media interests from 1982 until 2001. Mr Falloon served as CEO of Publishing and Broadcasting Limited (PBL) from 1998 to 2001 and before that as Chief Executive Officer of PBL Enterprises and Group Financial Director of PBL. PBL provided a strong background in the television, pay TV, magazine, radio and digital industries. From 2002, Mr Falloon spent nine years as Executive Chairman and CEO of Ten Network Holdings. He holds a Bachelor of Management Studies (BMS) from Waikato University in New Zealand. Hugh Marks (Director and 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 over 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. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 25 NINE ANNUAL REPORT 2019 Patrick Allaway (Independent Non-Executive Director) Mr Allaway served on the Fairfax Board from April 2016, before moving on to the new board when Nine and Fairfax merged in December 2018. He has had 30 years’ experience in the global financial industry across capital markets and corporate advisory; and 16 years Non-Executive Director experience across property, retail, media, and finance. Mr Allaway commenced his executive career with Citibank in Sydney, London and New York and with Swiss Bank Corporation in Zurich and London. He was previously a Director of Macquarie Goodman, Metcash, Fairfax, Woolworths South Africa, and Chairman of Saltbush Capital Markets. In May 2019, he was appointed Non-Executive Director of the Bank of Queensland and will take over as Chair of the Bank in October 2019. He is also a Non-Executive Director of Domain Holdings Australia. Mr Allaway has a Bachelor of Arts/Law degree from the University of Sydney. Samantha Lewis (Independent Non-Executive Director) Ms Lewis joined the Board in March 2017 as an independent, Non-Executive Director and is Chair of the Audit & Risk Management Committee and a member of the People & Remuneration Committee. Ms Lewis has extensive financial experience, with 20 years at Deloitte Touche Tohmatsu including 14 years as a Partner. In that role, she led the audit of a number of major Australian listed companies, in the retail/FMCG and industrial sectors. During her time at Deloitte, Ms Lewis also provided accounting advice and transactional advisory services, including due diligence, IPOs and debt/equity raising. Since retiring from Deloitte in 2014, Ms Lewis has been appointed to the Boards of ASX-listed Orora Ltd (since March 2014) and Aurizon Holdings Ltd (since February 2015) and is also the Chair of the Audit Committee of the Australian Prudential Regulatory Authority. She is a Member of the Institute of Chartered Accountants in both Australia, and England and Wales, and is a Member of the Australian Institute of Company Directors. Ms Lewis holds a Bachelor of Arts (Hons) degree from the University of Liverpool. Mickie Rosen (Independent Non-Executive Director) Ms Rosen served on the Fairfax Board from March 2017, before moving on to the new board when Nine and Fairfax merged in December 2018. Ms Rosen has nearly three decades of strategy, operating, advisory, and investment experience at the intersection of media and technology. She has built and led businesses for iconic global brands such as Yahoo, Fox, and Disney, and early-stage start-ups such as Fandango and Hulu. Ms Rosen currently serves on public, private, and non-profit boards, and she advises early to growth stage companies in digital media and commerce. Until recently, she served on the board of Pandora Media, and was the President of Tribune Interactive, the digital arm of Tribune Publishing, and concurrently the President of the Los Angeles Times. Ms Rosen has also served as a Senior Advisor to the Boston Consulting Group and was a co-founder and partner of a boutique strategic advisory firm, Whisper Advisors. Prior, Ms Rosen served as Senior Vice President of Global Media & Commerce for Yahoo, where she led Yahoo’s media division worldwide. Prior to Yahoo, she was a partner with Fuse Capital, a consumer Internet-focused venture capital firm, investing in early-stage video, publishing, advertising technology, and e-commerce companies. She was also an executive with Fox Interactive Media, Fandango, and The Walt Disney Company. The foundation of Ms Rosen’s career was built with McKinsey & Company, and she holds an MBA from Harvard Business School. Catherine West (Independent Non-Executive Director) Ms West was appointed to the Board in May 2016 as an Independent, Non-Executive Director and is the Chair of the People & Remuneration Committee and a member of the Audit & Risk Management 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, distribution, commercial activities and joint ventures. Ms West is currently a non-executive director of Southern Phones and a Vice President of the Sydney Breast Cancer Foundation at Chris O’Brien Lifehouse and a director of the NIDA Foundation Trust. Ms West holds both a Bachelor of Laws (Hons) and a Bachelor of Economics degree from the University of Sydney. David Gyngell (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 almost 20 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. Mr Gyngell resigned from the Board on 7 December 2018. 26 DIRECTORS’ REPORT continuedJanette Kendall (Independent Non-Executive Director) Ms Kendall was appointed to the Board in June 2017 as an independent, Non-Executive Director and is a member of the People & Remuneration Committee. Ms Kendall has more than 23 years board experience across public, private and not-for-profit organisations, spanning a range of industries including marketing and technology, advertising, digital media, supermarkets and the arts. She is currently a Non-Executive Director of Costa Group (since October 2016), Vicinity Centres (since December 2017), Wellcom Group (since January 2016), Placer Property and the Melbourne Theatre Company. Ms Kendall is a former senior executive who has held various roles in her career including Senior Vice President of Marketing at Galaxy Entertainment Group in Macau, China; Executive General Manager of Marketing at Crown Melbourne; General Manager, Pacific Brands; Managing Director of emitch Limited; and Executive Director of Clemenger BBDO. Ms Kendall holds a Bachelor of Business — Marketing, and is also a Fellow of the Australian Institute of Company Directors. Ms Kendall resigned from the Board on 7 December 2018. 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. 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: BOARD AUDIT & RISK MANAGEMENT COMMITTEE PEOPLE & REMUNERATION COMMITTEE MEETINGS HELD* MEETINGS ATTENDED MEETINGS HELD* MEETINGS ATTENDED MEETINGS HELD* MEETINGS ATTENDED Peter Costello Nick Falloon Hugh Marks Patrick Allaway Samantha Lewis Mickie Rosen Catherine West David Gyngell Janette Kendall 15 5 15 5 15 5 15 10 10 15 5 15 5 15 5 15 10 10 5 — — 3 5 — 5 — — 5 — — 3 5 — 5 — — — 2 — — 6 — 6 — 4 — 2 — — 6 — 6 — 4 * The number of meetings held refers to the number of meetings held while the Director was a member of the Board or Committee. 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 and a graduate of the Australian Institute of Company Directors. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 27 NINE ANNUAL REPORT 2019 Principal Activities The principal activities of the entities within the Group during the year were: • Broadcasting and program production across Free to Air television and metropolitan radio networks in Australia; • Publishing across digital platforms and newspapers; • Real estate media and technology services; and • Subscription video on demand. Dividends Nine Entertainment Co. Holdings Limited paid an interim dividend of 5 cents per share, fully franked, in respect of the year ended 30 June 2019 amounting to $85,131,858 during the year. Since the year-end, the Company has proposed a final dividend of 5 cents per share, fully franked, in respect of the year ended 30 June 2019 amounting to $85,131,858. The Company declared and paid a final dividend of 5 cents per share, fully franked, in respect of the year ended 30 June 2018 amounting to $43,557,105 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. Review of Operations On 7 December 2018, the Group merged with Fairfax Media Limited (“Fairfax”) (see below). The operating results include the results of Fairfax and Stan for the period from 7 December to 30 June 2019, Stan having been consolidated in the Group’s accounts from 7 December 2018. For the year to 30 June 2019, the Group reported a consolidated net profit after income tax of $233,880,000 (2018: $209,666,000). This included $17,314,000 from discontinued operations (2018: Nil). The Group’s revenues from continuing operations for the year to 30 June 2019 increased by $561,129,000 (40%) to $1,965,074,000 (2018: $1,403,945,000). The Group’s earnings before interest, tax, depreciation and amortisation (EBITDA) and before specific items (Note 2.1) for continuing operations for the year ended 30 June 2019 was a profit of $349,862,000 (2018: profit of $257,237,000). The Group’s cash flows generated in operations for the year to 30 June 2019 were $221,570,000 (2018: generated in operations: $161,087,000). Further information is provided in the Operating and Financial Review on pages 53 to 58. Significant Changes in the State of Affairs Merger with Fairfax Media On 7 December 2018, the Group merged with Fairfax by acquiring all of the outstanding shares in Fairfax, in return for the issue of 0.3627 shares in Nine and 2.5 cents per Fairfax share. Refer to Note 6.1 for details. Other acquisitions On 5 November 2018, the Group acquired the remaining 40.78% of CarAdvice.com Pty Ltd’s shares which it did not already own for a cash consideration of $26.5m. On 10 April 2019 the group acquired the remaining 41.3% of 112 Pty Ltd (the business known as “Drive”) which it did not already own in return for 12% of shares in CarAdvice. Refer to Note 6.1 for details. On 14 December 2018, a controlled entity of the Group, Domain Holdings Australia Limited, through a partially owned subsidiary (Commercial Real Estate Media Limited (“CREM”)) acquired a 100% interest in Commercialview.com.au Limited, an Australian commercial property portal, for consideration of $8.2 million in newly issued CREM shares and $1.9 million in cash. Refer to Note 6.1 for details. 28 DIRECTORS’ REPORT continuedDiscontinued operations and disposals Following the acquisition of Fairfax on 7 December 2018, the Board agreed to sell Stuff NZ, Australian Community Media (including printing operations) and Events, wholly owned businesses of Fairfax. Consequently, the Group classified these businesses as a disposal group held for sale and as discontinued operations. Australian Community Media (including printing operations) was sold on 30 June 2019, and Events was sold on 31 May 2019. The sale of Stuff NZ is expected to be completed within a year from the date of the initial acquisition. Significant Events after the Balance Sheet Date On 12 August 2019, the Group announced to the ASX an offer to acquire the remaining shares in radio broadcaster Macquarie Media, being those the Group did not already own. The Group inherited the majority shareholding in Macquarie Media following its merger with Fairfax Media in December 2018. The offer will result in the Group paying $113.9 million (at $1.46 per share) for the remaining 45.6 percent stake, provided enough shareholders accept the offer to lift Nine to 90 percent (and the Group can then acquire the remainder). The acquisition will be 100 percent financed from cash reserves and existing debt facilities. Subject to obtaining Macquarie Media shareholder acceptances, the transaction is due to complete by December 2019. 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. Auditor’s Independence Declaration The Directors have received the Auditor’s Independence Declaration, a copy of which is included on page 31. 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 7.3 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. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 29 NINE ANNUAL REPORT 2019 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 Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. Nine Entertainment Co. Holdings Limited is an entity to which the Instrument applies. Signed on behalf of the Directors’ in accordance with a resolution of the Directors’. PETER COSTELLO, AC Chairman Sydney, 22nd August 2019 HUGH MARKS CEO 30 DIRECTORS’ REPORT continued AUDITOR’S INDEPENDENCE DECLARATION to the Directors of Nine Entertainment Co. Holdings Limited Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Audit or’s Independence Declarat ion t o t he Dir ect ors of Nine Ent ert ainment Co. Holdings Limit ed As lead auditor for the audit of Nine Entertainment Co. Holdings Limited for the financial year ended 30 June 2019, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Nine Entertainment Co. Holdings Limited and the entities it controlled during the financial year. Ernst & Young Christopher George Part ner 22 August 2019 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 8 I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 31 NINE ANNUAL REPORT 2019 REMUNERATION REPORT – AUDITED 1 Key Management Personnel 2 Executive Summary 2.1 Summary of Executive Remuneration Outcomes 3 Executive Remuneration 3.1 Remuneration Principles 3.2 Approach to Setting Remuneration 3.3 Remuneration Mix (at target) 3.4 Fixed Remuneration 3.5 Short-Term Incentive (STI) Plan 3.6 Long-Term Incentive (LTI) Plan 4 Linking Pay to Performance 4.1 Impact of Nine’s 2019 performance on remuneration 4.2 Short-Term Incentives (STI) 4.3 Long-Term Incentives (LTI) 5 Executive Agreements 6 Remuneration Governance 6.1 The Board 6.2 People and Remuneration Committee (PRC) 6.3 Management 6.4 Use of Remuneration Consultants 6.5 Associated Policies 7 Detailed disclosure of executive remuneration 7.1 Statutory remuneration disclosures 7.2 Non-statutory remuneration disclosures 7.3 Performance Rights and Share Interests of Key Management Personnel 8 Non-Executive Director (NED) Remuneration Arrangements and detailed disclosures of NED remuneration 9 Loans to Key Management Personnel and their related parties 10 Other transactions and balances with Key Management Personnel and their related parties 32 Letter from Committee Chair On behalf of the Board, I am pleased to present the Company’s Remuneration Report for financial year 2019 (FY19). This year the Company has undergone a significant strategic transformation with the successful merger between Nine and Fairfax Media Limited (Fairfax) to create one of the largest multi-platform media companies in Australia. The merger provides the Group with a diverse suite of assets across television, digital, publishing and radio which in turn provides a greater audience reach and diverse revenue growth streams, providing the foundations for future long-term growth. The executive team has successfully completed the merger and delivered strong results despite challenging external market impacts on the advertising and property markets. The team has delivered Pro Forma FY19 EBITDA1 of $423.8 million representing 10% growth. Net Profit After Tax and before Specific Items is $198 million for the year, up 16%, also on a Pro Forma basis. Nine’s FTA revenue share grew 1 share point to 39.6% and was achieved on a 4% lower cost base. Across the Group, annualised cost synergies of $50 million were realised. Digital and Publishing has grown EBITDA by 56%, with Metro Media revenue up 3% resulting in 65% EBITDA growth. 9Now performed strongly in the BVOD market with 51% revenue growth and 87% growth in EBITDA. Stan achieved positive EBITDA in the second half of FY19, with more than 1.7 million active subscribers. Domain has been affected by the housing cycle but has achieved growth in yield from both pricing and depth penetration. The team successfully sold Australian Community Media and part of the Events business during the year. In FY19 there were no changes to the structure of executive incentive arrangements. The Board remains committed to an executive remuneration framework that is focused on driving a performance culture and linking pay to the achievement of Nine’s long-term strategy and business objectives. These in turn drive long-term shareholder value. For Executive KMP a portion of any Short-Term Incentive and the entire Long-Term Incentive is delivered in the form of deferred equity aligning a significant amount of any awards earned with shareholder interests, and supporting the retention of key executives. During the financial year there was no increase made to the CEO’s fixed remuneration and the Non-Executive Director base pay and committee fees remained unchanged in FY19. Short-Term Incentives In FY19 the Short-Term Incentive Plan for Executive KMP remained the same as FY18, with 60% allocated to achievement of the Group EBITDA target and 40% allocated to individual objectives which were made up of financial and strategic objectives aligned to Nine’s strategy. The Group financial STI target was originally the budgeted Group EBITDA for Nine. Following the merger with Fairfax, the Board revised the Group EBITDA target. The new target comprised of the original Group EBITDA budget set at the beginning of the financial year for Nine and forecast EBITDA for the continuing businesses of Fairfax following the merger. The target was also adjusted to reflect targeted synergies to be delivered within the year. The final Pro Forma FY19 EBITDA1 result of $423.8 million was just below the level required to achieve a 50% payment requiring the Board to consider the payment level. The Board considered that the business had performed strongly on underlying key metrics to achieve that outcome, particularly in relation to revenue share growth, over achievement of cost targets and cost synergies and strong performance of growth assets. The Board considered the external market factors of a decline in the overall television market and the weaker listings environment on Domain and determined that based on the strong performance of the business on the aforementioned key metrics, the Group EBITDA result warranted a payment of 50% of target opportunity. The individual STI outcomes were assessed against specific targets and awarded where achieved. The combined group and individual FY19 short-term incentive payments to Executive KMP were consequently below target levels at payouts of 69% and 70% of target opportunity. 1. See page 44 for definition. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 33 NINE ANNUAL REPORT 2019 Long-Term Incentives The FY17 Long-Term Incentive Plan (LTI) grant was tested at the conclusion of FY19. The required targets for the FY17 LTI grant were Total Shareholder Return (TSR) and Earnings Per Share Growth (EPSG) measured over a three year performance period. The TSR performance was above the 75th percentile, resulting in vesting of 100% of the rights attributable to that hurdle. The EPSG performance was tested using statutory results pre-specific items and prior to the impact of purchase price accounting amortisation as a result of the merger. That is, it applied results for legacy Nine up to the merger date and the consolidated merged entity thereafter, pre-specific items. The EPSG performance was also achieved at maximum performance, resulting in vesting of 100% of the rights attributable to that hurdle. This resulted in participants receiving the maximum possible benefits under the FY17 Long-Term Incentive Plan. On behalf of the Board I would like to thank our executives and the whole Nine team for executing the strategic priorities of the business in a transformational year for Nine to drive long-term performance and value for shareholders. I trust you will find this report informative. I encourage you to vote in favour of the report, and welcome any questions at the Annual General Meeting. Yours faithfully, CATHERINE WEST Chair of the People and Remuneration Committee 34 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 2019. KMP are those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any Director (whether Executive or otherwise) of the Company. The tables detail movements during the 2019 financial year and current KMP and Directors. Key Management Personnel NAME POSITION TERM 2019 Non-Executive Directors (NEDs) Peter Costello Nick Falloon1 Patrick Allaway1 David Gyngell1 Janette Kendall1 Samantha Lewis Mickie Rosen1 Catherine West Executive Director Chairman (Independent, Non-Executive) Full year Deputy Chairman (Independent Non-Executive) From 7 December 2018 Director (Independent Non-Executive) From 7 December 2018 Director (Non-Executive) Up to 7 December 2018 Director (Independent Non-Executive) Up to 7 December 2018 Director (Independent Non-Executive) Full year Director (Independent Non-Executive) From 7 December 2018 Director (Independent Non-Executive) Full year Hugh Marks Chief Executive Officer Other Executive KMP Greg Barnes Chief Financial Officer Michael Stephenson Chief Sales Officer Full year Full year Full year 1. As part of the merger with Fairfax Media Limited there were changes to the Board composition. David Gyngell and Janette Kendall retired from the Board on 7 December 2018 and Nick Falloon, Patrick Allaway and Mickie Rosen were appointed to the Board from 7 December 2018. 2 Executive Summary The table below outlines each component of the remuneration framework, metrics and the link to Group strategic objectives. COMPONENT Fixed remuneration Salary, non-monetary benefits and statutory superannuation. Further detail in Section 3.4. PERFORMANCE MEASURE Performance and delivery of key responsibilities as set out in the position description. AT RISK PORTION Not applicable LINK TO STRATEGIC OBJECTIVE Fixed remuneration is set at competitive levels to attract and retain high performance individuals. Other considerations include: • Scope of role and responsibility; • Capability, experience and competency; and • Internal and external benchmarks I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 35 NINE ANNUAL REPORT 2019 COMPONENT Annual short-term incentive (STI) Cash payments and deferred shares. Further detail in Section 3.5. Long-term incentive (LTI) Performance rights used to align the reward of executives to the returns generated for Nine shareholders. Further detail in Section 3.6. Total Remuneration PERFORMANCE MEASURE Group Financial measure: 60% — Group Earnings Before Interest, Tax, Depreciation and Amortisation before specific items (EBITDA). Individual measures: 40% — Individual objectives related to the KMP’s role and responsibilities. 50% — Total Shareholder Return (TSR) — relative to S&P/ ASX 200 Index companies. 50% — Earnings Per Share Growth (EPSG). Measured over a three-year performance period. AT RISK PORTION Chief Executive Officer: Target 100% of fixed remuneration Maximum 150% of fixed remuneration. Other Executive KMP: Target 50% of fixed remuneration Maximum 75% of fixed remuneration. Chief Executive Officer: 100% of fixed remuneration. Other Executive KMP: 50% of fixed remuneration. LINK TO STRATEGIC OBJECTIVE The group financial measure rewards Group performance. The Group EBITDA measure was chosen because it contributes to the determination of dividend outcomes and share price performance over time. Individual measures reflect individuals’ performance and contribution to the achievement of both business unit and Group long-term objectives. This year’s focus was on the implementation and integration of the merger with Fairfax Media, meeting the cost management initiatives and driving growth in revenues and audiences. A portion is paid in cash and a portion (33%) delivered as Nine shares deferred for up to two years to ensure continued alignment to shareholder outcomes and a positive impact beyond the performance year of the incentive. Creates a strong link with the creation of shareholder value. Relative TSR was chosen as it provides an external market performance measure having regard to S&P/ASX 200 Index companies representing Consumer Discretionary, Consumer Staples, Information Technology and Telecommunication Services. EPSG was chosen as it aligns with shareholder dividends over time. The remuneration mix is designed to align Executive remuneration and rewards to the creation of long-term shareholder value. The remuneration of Executive KMP is set on appointment and then reviewed annually. We set both fixed remuneration and the total remuneration opportunity by considering factors such as experience, competence and performance in the role, competitive market pressures, and internal equity with peers. 36 REMUNERATION REPORT – AUDITED continued2.1 Summary of Executive Remuneration outcomes The table below is a summary of remuneration outcomes for financial year 2019. Fixed remuneration • During the 2019 financial year there was no increase made to the CEO’s fixed remuneration. • Greg Barnes received an increase in fixed remuneration (from $850,000 to $900,000) effective from 10 December 2018 in light of the increased operational responsibilities following the merger with Fairfax. • Michael Stephenson received an increase in fixed remuneration (from $720,000 to $840,000) at the start of the financial year in recognition of his performance and consideration of the market. Short-term incentive (STI) • The Group financial STI target was originally budgeted Group EBITDA for Nine. Following the merger with Fairfax Media, the Board revised the Group EBITDA target. The new target comprised of the original Group EBITDA budget set at the beginning of the financial year for Nine and forecast EBITDA for the continuing businesses of Fairfax following the merger. The target was also adjusted to reflect targeted synergies to be delivered within the year. The final Pro Forma Group EBITDA result of $423.8 million was just below the level required to achieve a 50% payment requiring the Board to consider the payment level. The Board considered that the business had performed strongly on underlying key metrics to achieve that outcome, particularly in relation to revenue share growth, over achievement of cost targets and cost synergies and strong performance of growth assets. The Board considered the external market factors of a decline in the overall television market and the weaker listings environment on Domain and determined that based on the strong performance of the business on the aforementioned key metrics, the Group EBITDA result warranted a payment of 50% of target opportunity. • The individual objectives component of the STI was assessed against specific targets and awarded where achieved. • The combined group and individual FY19 short-term incentive payments to Executive KMP were consequently below target levels at payouts of 69% and 70% of target opportunity. • LTI grants were made in line with plan rules for Executive KMP in financial year 2019. • LTI grants made in financial year 2017 were tested at 30 June 2019 in line with the plan rules. • TSR requirements were met, resulting in maximum vesting of this portion of the grant (50% of total grant). • The cumulative EPSG performance was tested using statutory results, pre-specific items and prior to the purchase price accounting amortisation as a consequence of the merger. That is, EPSG was calculated by applying legacy Nine results up to the merger date (7 December 2018) and the merged entity results thereafter. The EPSG target was also achieved at maximum performance, resulting in maximum vesting of this portion of the grant (50% of total grant). • This resulted in participants receiving the maximum possible benefits under the FY17 LTI plan. • The total amount paid by the Company to Non-Executive Directors in financial year 2019 was $1,087,123. This is well below the aggregate fee pool of $3 million approved by shareholders at the AGM on 21 October 2013. Long-term Incentive (LTI) Award vesting Non-Executive Director fees I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 37 NINE ANNUAL REPORT 2019 3 Executive Remuneration 3.1 Remuneration Principles The remuneration framework is designed to attract and retain high performing individuals, align executive reward to Nine’s business objectives and to create shareholder value. The remuneration framework reflects the Company’s remuneration approach and considers 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 Our Executive KMP reward is designed to support and reinforce the Nine strategy and reward delivery against our objectives and returns to shareholders. The Group aims to reward the Chief Executive Officer and other Executive KMP (Executive KMP) with competitive remuneration and benefits based on consideration of all the relevant inputs and provides a mix of remuneration (comprising fixed remuneration, short and long-term incentives) 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 reviews remuneration on a periodic and case-by-case basis taking into consideration market data, performance of the Company and individual and market conditions. The 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 media and entertainment industry experience and skills. There has also been consideration of other Australian listed companies of a similar size, complexity and prominence. Total remuneration at target has been positioned at the median of this comparator group, while providing the opportunity to earn top-quartile rewards for outstanding performance against stretch targets. The following table summarises the Executive KMP remuneration structure and mix under the Company’s Remuneration Framework. 3.3 Remuneration Mix (at target) Chief Executive Officer FIXED REMUNERATION SHORT-TERM INCENTIVE LONG-TERM INCENTIVE 33.3% 33.3% 33.3% Cash — 67% Deferred Shares — 33% Other Executive KMP FIXED REMUNERATION SHORT-TERM INCENTIVE LONG-TERM INCENTIVE 50% 25% 25% Cash — 67% Deferred Shares — 33% Total at Risk 66.6% Total at Risk 50% 38 REMUNERATION REPORT – AUDITED continuedLonger-term focus through incentive deferral The remuneration mix is structured so that a substantial portion of remuneration is delivered through Deferred STI or LTI. The table below shows that remuneration awards to KMPs are earned over a period of up to three years. This ensures that the interests of executives are aligned with shareholders and the delivery of the long-term business strategy. YEAR 1 Fixed remuneration STI — cash (67%) LTI — 3-year performance period YEAR 2 YEAR 3 STI — deferred shares (16.5%) STI — deferred shares (16.5%) 3.4 Fixed Remuneration Fixed remuneration represents the amount comprising base salary, non-monetary benefits and superannuation appropriate to the Executive KMP’s role. Fixed Remuneration is set at a competitive level to attract and retain talent and considers the scope of the role, knowledge and experience of the individual and the internal and external market. 3.5 Short-Term Incentive Plan (STI) Plan Purpose and overview • The STI plan is the annual incentive plan that is used for the Executive KMPs and other Executives. The STI plan is designed to align individual performance to the achievement of the business strategy and increased shareholder value. • Awards are made annually and are aligned to the attainment of clearly defined Group, business unit and individual targets. • The STI plan is subject to annual review by the People and Remuneration Committee (PRC). The structure, performance measures and weightings may therefore vary from year to year. STI funding • The pool to fund STI rewards is determined by the Group’s financial performance before significant items. • The STI is weighted 60% to a Group financial measure and 40% to individual measures. STI Opportunity (at target) CEO Other Executive KMP % OF FIXED REMUNERATION 100 50 Group Financial Measures • Group EBITDA (60% of the STI). • Group EBITDA was chosen to align executive performance with the key drivers of shareholder value and reflect the short-term performance of the business. • During the year the Board set a new Group EBITDA target to incorporate the impacts of the merger with Fairfax. The new target included the Group EBITDA budget set at the beginning of the financial year of Nine and the forecasted EBITDA of the continuing businesses of Fairfax following the merger. The target was then adjusted to reflect synergies planned to be delivered within the year. • Group Financial performance measures for future years will be determined annually. • Payouts based on financial measures are detailed below (pro-rata between bands). PERFORMANCE AGAINST TARGET % PAYOUT (OF GROUP FINANCIAL COMPONENT) VS TARGET PAYOUT <95% 95% 100% 105% 110% >115% Subject to Board consideration 50% 100% 110% 125% 150% I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 39 NINE ANNUAL REPORT 2019 Individual measures • Executive KMPs are assigned individual objectives based on their specific area of responsibility. These objectives are set annually and are directly aligned to the Board approved financial, operational and strategic objectives and include quantitative measures where appropriate. Weightings are assigned to each objective to reflect their relative importance to delivery of the strategy and required focus. • Individual objectives in FY19 were focussed on implementation and integration of the merger with Fairfax Media, meeting the cost management initiatives and driving growth in revenues and audiences. Payouts based on individual measures are detailed below. PERFORMANCE ASSESSMENT BASED ON DELIVERY OF PERSONAL KPIS % PAYOUT (OF INDIVIDUAL COMPONENT) Unsatisfactory Performance Requires Development Valued Contribution Superior Contribution Exceptional Contribution Nil 25-75% 75-110% 110-130% 130-150% Deferred STI Payment • 33% of any STI outcome is deferred into Nine shares (Shares) that vest in two tranches and cannot be traded until after they have vested. • 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 for financial year 2019. 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 KMP will receive all benefits of holding the Shares in the period before vesting, including dividends, capital returns and voting rights. • Shares which have vested can only be traded, within specified trading windows, consistent with Nine’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. 40 REMUNERATION REPORT – AUDITED continuedAssessment and Board discretion • Actual performance against group financial and individual measures is assessed at the end of the financial year. • In assessing the achievement of Group financial and individual measures the People and Remuneration Committee may exercise its discretion to adjust outcomes for significant factors that are considered outside the control of management that contribute positively or negatively to results. Adjustments are by exception and are not intended to be regular. Any adjustment will require the judgement of the PRC and should balance ensuring fair outcomes that reflect management’s delivery of financial performance, with ensuring the outcomes experienced by Nine’s shareholders. • The Board determines the amount, if any, of the short-term incentive to be paid to each Executive KMP, seeking recommendations from the PRC and CEO as appropriate. • In exceptional circumstances, individuals may be awarded an STI payment of up to 150% of their target STI based on significant outperformance of financial measures and personal objectives. 3.6 Long-Term Incentive (LTI) Plan The LTI plan involves the annual granting of conditional rights to participants. Overview Grant Date(s) The Long-Term Incentive Plan is an equity incentive plan used to align the Executive KMPs’ remuneration to the returns generated for Nine shareholders. The following grants have been issued and remain on foot (or subject to testing against vesting conditions): • 1 December 2017 — FY2018 grant • 26 November 2018 — FY2019 grant The nature and structure of each grant is materially consistent and discussed collectively below. Consideration Nil Performance Rights Performance rights are awarded based on the fixed amount to which the individual is entitled divided by the VWAP. The VWAP is calculated over the period commencing 5 trading days before and ending 4 trading days after the results release immediately following the start of the performance period (i.e. over a total period of 10 trading days). 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. LTI opportunity (at target) Performance Period Vesting Dates Vesting Conditions CEO Other Executive KMP % OF FIXED REMUNERATION 100 50 The Performance Period for each grant is three financial years from the financial year of granting. For the FY19 grant, the performance period is the three year period from 1 July 2018 to 30 June 2021. (Vesting Date). Subject to the Vesting Conditions and Employment Conditions described below, Performance Rights held by each Participant will vest on the Vesting Date (with no opportunity to retest). Performance Rights granted in any one allocation will vest: • 50% subject to the Company’s TSR performance against S&P/ASX 200 Index companies representing Consumer Discretionary, Consumer Staples, Information Technology and Telecommunication Services. TSR was chosen as it provides a relative, external market performance measure. • 50% subject to the achievement of fully diluted EPSG targets as set by the Board over the Performance Period. EPSG was chosen as it aligns with shareholder dividends over time and provides a clear focus on meeting the earnings expectations delivered to the market. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 41 NINE ANNUAL REPORT 2019 Vesting Conditions continued Total Shareholder Return (TSR) TSR vesting schedule OUTCOME Ranked at the 75th percentile or higher Ranked at the 50th percentile (Threshold) Ranked below the 50th percentile Earnings Per Share Growth (EPSG) EPSG vesting schedule OUTCOME The EPSG hurdle assesses cumulative growth in EPS as the sum of the annual EPS growth relative to actual EPS for the year preceding commencement of the plan. This is calculated at the end of each financial year over the performance period. Vesting occurs when: Cumulative annual growth over the period exceeds the Maximum Vesting Target Cumulative annual growth over the period exceeds the Threshold Cumulative annual growth over the period of less than the Threshold VESTING 50% 25% 0% VESTING 50% 16.5% 0% The Board may vary the Vesting Conditions for each Plan issue. Vesting is pro-rated if the outcome is between the Threshold and Maximum bands. EPSG hurdles are determined at the issue of each grant having regard to factors including: • Internal forecasting estimates taking into account the outlook for the industry • Market expectations, including reference to sell-side equity analyst forecasts • Recent actual performance • Market practice and competitor benchmarking Due to the competitively sensitive nature of these hurdles and the implied outlook for Nine earnings, the PRC and Nine Board has determined to disclose these targets upon vesting of any performance rights. The PRC undertakes reviews of the targets on LTI grants on-foot to ensure they remain relevant in light of any Company transactions and external or legislative impacts. If the Participant is not employed by Nine or any Nine 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 or, for the FY19 grant, by resigning, any unvested Performance Rights held on or after the date of termination will lapse. If the Participant has ceased to be employed by Nine in any other circumstances (e.g. redundancy, retirement, ill health), 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 performance 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. Cessation of employment (Employment Conditions) 42 REMUNERATION REPORT – AUDITED continuedDisposal restrictions Change of control Amendments Where vesting occurs during a trading blackout period under the Company’s Securities 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. A Participant may not enter into any arrangement for the purpose of hedging, or otherwise affecting their economic exposure to their Performance Rights. 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. 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 Nine. Capital Initiatives The Board will endeavour to amend the terms of any Performance Rights on issue to equitably deal with any capital return, share consolidation or share split, such that the value of those rights is not prejudiced. The Board’s actions here will be at their sole discretion. 4 Linking Pay to Performance 4.1 Impact of Nine’s 2019 performance on remuneration This year the Company has undergone a significant strategic transformation with the successful merger between Nine and Fairfax to create one of the largest multi-platform media companies in Australia. The merger provides the Group with a diverse suite of assets across television, digital, publishing and radio which in turn provides a greater audience reach and diverse revenue growth streams, providing the foundations for future long-term growth. When considering business performance, Management and the Board use results prepared on a Pro Forma basis. Pro Forma results refer to consolidated results for the full financial year, for both Nine and former Fairfax businesses, as if they had been owned by Nine for the full year. As the results consider performance prior to the merger implementation date (7 December 2018), they are unaudited. The executive team has successfully completed the merger and delivered strong results despite challenging external market impacts on advertising and the property markets. The team has delivered Pro Forma FY19 EBITDA of $423.8 million representing 10% growth. Net Profit After Tax and before Specific Items is $198 million for the year, up 16 %, also on a Pro Forma basis. Nine’s FTA revenue grew 1% to 39.6% and was achieved on a 4% lower cost base. Annualised cost synergies of $50 million were realised. Digital and Publishing has grown EBITDA by 56% with Metro Media revenue up 3% resulting in 65% EBITDA growth. 9Now performed strongly in the BVOD market with 51% revenue growth and 87% growth in EBITDA. Stan achieved positive EBITDA in the second half of FY19, with more than 1.7 million active subscribers. Domain has been affected by the housing cycle but has achieved growth in yield from both pricing and depth penetration. The team successfully sold Australian Community Media and part of the Events business during the year. In FY19 the Short-Term Incentive Plan for Executive KMP remained the same as FY18, with 60% allocated to achievement of the Group EBITDA target and 40% allocated to individual objectives which were made up of financial and strategic objectives aligned to Nine’s strategy. The Group financial STI target was originally budgeted Group EBITDA for Nine. Following the merger with Fairfax, the Board revised the Group EBITDA target. The new target comprised of the original Group EBITDA budget set at the beginning of the financial year for Nine and forecast EBITDA for the continuing businesses of Fairfax following the merger. The target was also adjusted to reflect targeted synergies to be delivered within the year. The final Pro Forma FY19 EBITDA2 result of $423.8 million was just below the level required to achieve a 50% payment requiring the Board to consider the payment level. The Board considered that the business had performed strongly on underlying key metrics to achieve that outcome, particularly in relation to revenue share growth, over achievement of cost targets and cost synergies and strong performance of growth assets. The Board considered the external market factors of a decline in the overall television market and the weaker listings environment on Domain and determined that based on the strong performance of the business on the aforementioned key metrics, the Group EBITDA result warranted a payment of 50% of target opportunity. 2. See note on page 44 for definition of Pro Forma FY19 EBITDA. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 43 NINE ANNUAL REPORT 2019 Executives were provided with clear targets in their individual objectives during the year that were important to the delivery of the company’s strategic plan and objectives. For FY19 these measures mainly related to achievement of a successful merger and integration of Fairfax, meeting the cost management initiatives, and driving growth in revenues and audiences. Detailed assessments of the Executive KMP performance were prepared by the CEO and discussed with the PRC. The Board and the PRC believe that the performance in FY19 has been appropriately reflected in the Short-Term Incentive outcomes. The combined Group and individual FY19 short-term incentive payments to Executive KMP were consequently below target levels at payouts of 69% and 70% of target opportunity. The link between Executive KMP remuneration and Group financial performance is set out below. Revenue Group EBITDA Group EBITDA % Net profit before tax and specific items 30 JUNE 191 PRO-FORMA $M 30 JUNE 181 PRO-FORMA $M 2,341.9 2,364.0 423.8 18% 318.8 385.1 16% 287.1 30 JUNE 192 $M 30 JUNE 18 $M 30 JUNE 17 $M 30 JUNE 16 $M 1,965.1 349.9 18% 265.6 1,403.9 257.2 18% 218.2 1,244.9 205.6 17% 164.7 1,286.4 201.7 16% 164.1 118.6 Net profit after tax and minority interests, before specific items 198.3 170.6 174.6 156.7 123.6 Earnings per share — cents 11.6 cents 10.0 cents 13.0 cents 18.0 cents 14.0 cents 13.5 cents 30 JUNE 19 CENTS/SHARE 30 JUNE 18 CENTS/SHARE 30 JUNE 19 CENTS/SHARE 30 JUNE 18 CENTS/SHARE 30 JUNE 17 CENTS/SHARE 30 JUNE 16 CENTS/SHARE Opening share price Closing share price Dividend 248 188 10 138 248 10 248 188 10 138 248 10 105 138 9.5 155 105 12 EXECUTIVE KMP STI PAYMENTS 30 JUNE 19 30 JUNE 18 30 JUNE 19 30 JUNE 18 30 JUNE 17 30 JUNE 16 Earned Forfeited (at target) 69% 31% 129% — 69% 31% 129% — 94% 6% 19% 81% 1. FY19 Pro-forma results aggregate the results for the former Nine and Fairfax businesses for the full 12 months to 30 June 2019, including 100% of Stan. They are presented pre specific items and purchase price accounting adjustments and on a continuing operations basis. These were used for STI purposes. These figures are unaudited. 2. FY19 includes the contribution from the former Fairfax businesses since the merger implementation date of 7 December 2018 and are from continuing operations only. They are presented pre specific items but inclusive of purchase price accounting adjustments, which total $8.7 million pre-tax, $6.1 million after-tax. 4.2 Short-Term Incentives (STI) In FY19, the Executive KMP short-term incentive outcomes were allocated 60% for the Group EBITDA performance and the remaining 40% for individual measures that reflect the individuals’ performance and contribution to the achievement of both business unit and Group objectives. Each Executive KMP has a target opportunity specified in their contract. The FY19 target for the CEO was 100% of fixed remuneration. For the other Executive KMP, it was 50% of fixed remuneration. The maximum award an individual can earn is 150% of their respective target opportunity. As described in Section 4.1, the combined group and individual FY19 short-term incentive payments for FY19 to Executive KMP were below target levels with payouts of 69% and 70% of target opportunity equating to 46% and 47% of maximum available STI. 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. 44 REMUNERATION REPORT – AUDITED continued NAME Hugh Marks Greg Barnes Michael Stephenson PROPORTION OF TARGET STI (%) PROPORTION OF MAXIMUM STI (%) EARNED % FORFEITED % EARNED % FORFEITED % FY19 FY18 FY19 FY18 FY19 FY18 69% 136% 70% 100% 70% 137% 31% 0% 30% 0% 30% 0% 46% 91% 47% 68% 47% 91% 54% 9% 53% 33% 53% 9% In accordance with the share deferral component of the STI plan, 33% of the 2019 financial year STI payments earned by Executive KMP, at 30 June 2019, will be provided as shares in accordance with that plan, as described in Section 3.5. The balance of the STI payable will be paid in cash following the release of the Company’s 2019 financial results. Given Mr Barnes will cease to be an employee of the Company at the end of August 2019 his short-term incentive payment for FY19 will be paid entirely in cash. 4.3 Long-Term Incentives (LTI) GRANT DATE TEST DATE PERFORMANCE HURDLES 1 December 2016 30 June 2019 1 December 2017 30 June 2020 26 November 2018 30 June 2021 50% — Total Shareholder Return 50% — Earnings Per Share Growth 50% — Total Shareholder Return 50% — Earnings Per Share Growth 50% — Total Shareholder Return 50% — Earnings Per Share Growth VESTING OUTCOME (%) 100% NA NA The performance period of the FY17 Long-Term Incentive Plan (granted 1 December 2016) commenced on 1 July 2016 and concluded on 30 June 2019. Performance was assessed at the conclusion of the FY19 year, and as a result of performance over the three year period, full vesting was achieved. The Total Shareholder Return achieved the requirements for maximum vesting. The Company’s three-year Earnings Per Share growth resulted in maximum vesting. The performance was tested on a pro-rata basis to incorporate the merger with Fairfax on 7 December 2018 (legacy Nine up to the merger date and the consolidated merged entity thereafter), in line with the statutory accounts adjusted for specific items and prior to the impact of purchase price accounting amortisation as a result of accounting for the merger. GRANT PERFORMANCE PERIOD PERFORMANCE MEASURE WEIGHTING TARGET STRETCH ACTUAL PERFORMANCE PERFORMANCE ACHIEVED FY17 1 July 2016 to 30 June 2019 EPS 50% 1%pa 4.6%pa 6.5%pa 100% TSR Total 50% 100% 0.832¢ (growth pooled) 3.919¢ (growth pooled) 5.60¢ (growth pooled) 50th percentile 75th percentile > 75th percentile n/a n/a 100% 100% I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 45 NINE ANNUAL REPORT 2019 5 Executive Agreements Each Executive KMP has a formal employment agreement. Each of these employment agreements, which are of a continuing nature and 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 2019 were as follows: Hugh Marks Greg Barnes2 FIXED REMUNERATION1 TARGET STI TARGET LTI NOTICE PERIOD BY EXECUTIVE NOTICE PERIOD BY COMPANY RESTRAINT $1,400,000 $1,400,000 $1,400,000 12 months 12 months 12 months $900,000 $450,000 $450,000 3 months 12 months 12 months Michael Stephenson3 $840,000 $420,000 $420,000 12 months 12 months 12 months 1. Fixed remuneration comprises of base cash remuneration, superannuation and other benefits which can be sacrificed for cash at the employee’s election. 2. Mr Barnes’ fixed remuneration increased to $900,000 (from $850,000) effective from 10 December 2018 in light of the increased operational responsibilities following the merger with Fairfax. At the same time, the notice period he is required to give on resignation was reduced to 3 months (from 12 months). We note that on 14 August the Company announced the departure of Mr Barnes. 3. Mr Stephenson received an increase in fixed remuneration, (from $720,000 to $840,000) effective 1 July 2018 in recognition of his performance and consideration of market. 6 Remuneration Governance 6.1 The Board 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 PRC. The Board also sets the remuneration levels of Non-Executive Directors’ (NEDs), subject to the aggregate pool limit approved by shareholders. 6.2 The People and Remuneration Committee (PRC) The PRC assists the Board in fulfilling its responsibilities for corporate governance and oversight of Nine’s human resources policies and practices and workplace health and safety (WHS) management. The PRC’s goal is to ensure that Nine attracts the industry’s best talent, appropriately align their interests with those of key stakeholders, comply with WHS obligations and effectively manage WHS risks. The PRC makes recommendations to the Board on CEO and Non-Executive Director remuneration. The PRC approves the executive reward strategy, and incentive plans and provides oversight of management’s implementation of approved arrangements. Details of the membership, number and attendance at meetings held by the PRC are set out on page 27 of the Directors’ Report. Further information on the PRC’s role, responsibilities and membership is included in the committee charter which is available at http://www.nineentertainmentco.com.au. 6.3 Management Management prepares recommendations and information for the PRC’s consideration and approval. Management also implements the approved remuneration arrangements. 6.4 Use of Remuneration Consultants From time to time, the PRC 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 PRC to ensure management cannot unduly influence the outcome. The Company has engaged the services of PricewaterhouseCoopers (PwC) as the Company’s remuneration advisor during the 2019 financial year. There were no remuneration recommendations provided to the Committee by PwC or any other consultants in the 2019 financial year. 6.5 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. These policies are available on Nine’s website (www.nineentertainmentco.com.au). 46 REMUNERATION REPORT – AUDITED continued . s t n e m e r i u q e r e r u s o c s d i l y r o t u t a t s h t i w e c n a d r o c c a n i l e b a t i g n w o l l o f e h t n i t u o t e s e r a 9 1 0 2 e n u J 0 3 d e d n e r a e y e h t r o f s e v i t u c e x e e h t f o n o i t a r e n u m e r e h t f o s l i a t e D n o i t a r e n u m e r e v i t u c e x e f o e r u s o c s i d l d e l i a t e D s e r u s o c s i d l n o i t a r e n u m e r y r o t u t a t S 7 1 . 7 D % E T A L E R E C N A M R O F R E P L $ A T O T M R E T - G N O L 2 $ S E V I T N E C N I D E R R E F E D I E C V R E S G N O L L A U N N A / R E P U S 3 $ I T S E $ V A E L 1 $ E V A E L N $ O I T A U N N A H S A C S $ U N O B Y R A L A S S $ E E F D N A - T S O P T N E M Y O L P M E 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 6 5 8 6 0 4 0 5 9 3 7 4 , 4 8 0 8 4 2 3 , , 5 0 6 0 5 4 4 , , 0 5 2 0 5 8 0 8 7 8 1 3 , , 0 9 9 5 3 1 , 1 , 7 6 6 4 3 6 , 4 9 6 0 4 4 , 1 2 1 1 , 8 5 2 — 4 5 1 , 2 7 6 , 1 , 3 7 3 3 0 4 , 5 7 5 8 5 3 , 1 8 2 8 9 2 2 , 7 4 7 , 1 4 1 0 2 0 7, 9 , 0 0 4 8 1 4 , 1 7 4 5 7, 6 1 3 9 7 6 6 1 , 4 5 3 7, 4 0 6 , 0 9 1 , 8 3 3 , 1 0 0 8 5 1 4 , 9 5 1 , 1 4 5 7, , 0 1 9 6 0 7 , 1 , 7 0 2 3 4 9 — — — — 8 5 6 3 1 , 9 5 8 9 , 8 5 6 3 1 , 9 5 8 9 , 4 3 8 , 1 3 5 1 6 0 1 , ) 3 9 5 0 1 ( , ) 4 8 3 6 ( , ) 1 1 9 8 1 ( , 2 2 9 0 1 , 0 3 3 2 , 3 5 1 , 5 1 1 3 5 0 2 , 9 4 0 0 2 , 1 3 5 0 2 , 9 4 0 0 2 , 1 3 5 0 2 , 9 4 0 0 2 , 3 9 5 , 1 6 7 4 1 , 0 6 0 2 2 7, 4 6 , 9 6 4 9 7 3 , 1 , 3 3 3 9 6 2 , 1 , 1 5 9 9 7 3 , 1 0 0 0 5 1 3 , 4 4 6 7, 5 8 5 9 4 3 8 2 , , 4 7 8 9 2 8 0 8 9 6 9 1 , 9 6 4 9 1 8 , , 7 8 5 3 3 3 3 4 6 9 0 7 , , 0 0 2 9 5 1 , 1 , 5 1 4 6 8 8 , 1 , 2 8 5 6 5 0 3 , , 8 6 4 9 1 9 2 , N O I T A R E N U M E R P M K 9 1 0 2 S E M O C T U O 9 1 Y F 8 1 Y F 9 1 Y F 8 1 Y F 9 1 Y F 8 1 Y F 9 1 Y F 8 1 Y F s k r a M h g u H 4 s e n r a B g e r G P M K r e h t O 5 n o s n e h p e t S l e a h c M i P M K e v i t u c e x E l a t o T s e t o N r o t c e r i D e v i t u c e x E y t i u n i t n o c i g n m u s s a , s r a e y o w t t x e n e h t r e v o s e h c n a r t l a u q e o w t n i d e l t t e s e b l l i w i s h T . s e r a h s e n N i n i d e r r e f e d t u b r a e y l i a c n a n fi e h t o t n o i t l a e r n i d e d r a w a I T S o t s e t a e r l I T S d e r r e f e D . 3 . t n e m y o p m e l f o h t i w r e g r e m e h t i g n w o l l o f s e i t i l i i b s n o p s e r l a n o i t a r e p o d e s a e r c n i e h t f o t h g i l n i 8 1 0 2 r e b m e c e D 0 1 m o r f e v i t c e ff e , ) 0 0 0 0 5 8 $ m o r f ( , 0 0 0 0 0 9 $ o t d e s a e r c n i n o i t a r e n u m e r d e x fi s e n r a B r M . 4 . 9 1 0 2 t s u g u A f o d n e e h t t a y n a p m o C e h t f o e e y o p m e l n a e b o t e s a e c l l i w e h n e v g i , h s a c n i l y e r i t n e i d a p e b l l i w 9 1 Y F r o f t n e m y a p e v i t n e c n i m r e t - t r o h s ’ s e n r a B r M . x a f r i a F . t e k r a m f o n o i t a r e d s n o c i d n a e c n a m r o f r e p i s h f o n o i t i n g o c e r n i 8 1 0 2 l y u J 1 e v i t c e ff e , ) 0 0 0 0 4 8 $ o t , 0 0 0 0 2 7 $ m o r f ( n o i t a r e n u m e r d e x fi n i e s a e r c n i n a i d e v e c e r n o s n e h p e t S r M . 5 . d e u r c c a t a h t s d e e c x e r a e y e h t n i n e k a t e v a e l l a u n n a ' s P M K e h t e r e h w e v i t a g e n e b y a m s t n u o m A . 1 . 6 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 . 2 I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 47 NINE ANNUAL REPORT 2019 7.2 Non-statutory remuneration disclosures The actual remuneration earned by current executives in the year ended 30 June 2019 (“FY19”) is set out in the table below. This information is considered to be relevant as it provides details of the remuneration actually received by the Company’s executives in FY19. It includes the proposed payments relating to the FY19 STI plan, albeit payment will be received in FY20. STI amounts include both the cash and deferred shares elements. Only LTIs which have vested during the year are included. The table differs from the statutory disclosure in Section 7.1 principally because the table in Section 7.1 includes a value for LTI which may or may not vest in future years. SALARY AND FEES $ CASH BONUS1 $ FIXED SALARY AND CASH BONUS % OTHER REMUNERATION2 $ DEFERRED STI4 $ LONG-TERM INCENTIVES3 $ REMUNERATION EARNED FOR 2019 $ Executive Director Hugh Marks FY19 1,379,469 647,220 2,026,689 52,365 318,780 2,559,804 4,957,638 FY18 1,379,951 1,269,333 2,649,284 30,664 634,667 1,708,254 5,022,869 Other Key Management Personnel Greg Barnes5 FY19 857,644 315,000 1,172,644 9,939 — 777,083 1,959,666 FY18 FY19 829,874 283,495 1,113,369 13,665 141,747 755,850 2,024,632 819,469 196,980 1,016,449 15,278 97,020 667,377 1,796,124 FY18 709,643 333,587 1,043,230 40,830 166,793 — 1,250,853 FY19 3,056,582 1,159,200 4,215,782 77,582 415,800 4,004,264 8,713,428 FY18 2,919,468 1,886,415 4,805,883 85,159 943,207 2,464,104 8,298,354 Michael Stephenson6 Total Executive KMP Notes: 1. Cash bonus includes cash benefits such as STI. 2. Other remuneration relates to superannuation and movement in annual leave and long service leave balances. The values may be negative where the KMP’s annual leave taken in the year exceeds that accrued. 3. Rights which vested subsequent to 30 June 2019 but which were measured based on performance up to 30 June 2019. The value attributed to these Rights has been calculated based on the share price as at 13 August 2019 as an approximation of the cash value on vesting. 4. Deferred STI relates to STI awarded in relation to the financial year but deferred in Nine shares. This will be settled in two equal tranches over the next two years, assuming continuity of employment. 5. Mr Barnes fixed remuneration increased to $900,000 (from $850,000) effective from 10 December 2018 in light of the increased operational responsibilities following the merger with Fairfax. Mr Barnes’ short-term incentive payment for FY19 will be paid entirely in cash, given he will cease to be an employee of the Company at the end of August 2019. 6. Mr Stephenson received an increase in fixed remuneration (from $720,000 to $840,000) effective 1 July 2018 in recognition of his performance and consideration of market. 48 REMUNERATION REPORT – AUDITED continued7.3 Performance Rights and Share Interests of Key Management Personnel The number of Performance Rights granted to Executive KMP as remuneration, the number vested during the year and the number outstanding at the end of 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 OUTSTANDING AT START OF YEAR NO. SHARE RIGHTS GRANTED IN YEAR NO. FAIR VALUE PER SHARE RIGHT AT AWARD DATE $ AWARD DATE VESTING DATE VESTED1 NO. CASH SETTLED DURING THE YEAR NO. LAPSED DURING THE YEAR NO. SHARE RIGHTS OUTSTANDING AT END OF YEAR NO. Executive Director Hugh Marks 1,372,549 — 1-Dec-16 0.61 1-Jul-19 1,372,549 958,904 — 1-Dec-17 1.136 1-Jul-20 584,795 26-Nov-18 1.065 1-Jul-21 — — Other Executive KMP Greg Barnes2 416,667 291,096 — — 1-Dec-16 1-Dec-17 177,527 26-Nov-18 10,433 1-Dec-18 0.61 1-Jul-19 416,667 1.136 1-Jul-20 1.065 1.065 1-Jul-21 1-Jul-21 — — — Michael Stephenson 357,843 — 1-Dec-16 0.61 1-Jul-19 357,843 250,000 1-Dec-17 1.136 1-Jul-20 175,439 26-Nov-18 1.065 1-Jul-21 — — — — — — — — — — — — — — — — — — — — — — — 958,904 584,795 — 291,096 177,527 10,433 — 250,000 175,439 1. Rights which vested subsequent to 30 June 2019 but which were measured based on performance up to 30 June 2019. 2. Mr Barnes received a further issue of Performance Rights granted on the 1 December 2018 relating to the FY19 Long-Term Incentive Plan following the increase in his remuneration arrangement on 10 December 2018. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 49 NINE ANNUAL REPORT 2019 2019 Shareholding of Key Management Personnel Last year, the Board adopted a policy of encouraging directors to acquire shares to the value of one year’s base fees, to be acquired within five years of appointment. Shares held in Nine Entertainment Co. Holdings Limited by KMP and their related parties are as follows: AS AT 1 JULY 2018 ORD GRANTED ON CONVERSION OF SHARE RIGHTS ORD GRANTED AS STI ORD OTHER NET CHANGES ORD HELD DIRECTLY AS AT 30 JUNE 2019 ORD HELD NOMINALLY AS AT 30 JUNE 2019 ORD Non-Executive Directors’ Peter Costello Nick Falloon¹ Catherine West 301,786 396,222 40,000 David Gyngell¹ 4,988,535 Janette Kendall¹ 30,500 Mickie Rosen¹ Patrick Allaway¹ Samantha Lewis Executive Director — 73,542 40,000 — — — — — — — — — — — — — — — — Hugh Marks 718,715 705,890 262,456 Other Key Management Personnel Greg Barnes 774,696 312,303 Michael Stephenson 80,393 — 58,617 68,975 Total 7,444,389 1,018,193 390,048 — — — — — — — — — — — — — 301,786 51,142 345,080 — 40,000 4,988,048 — — — — 487 30,500 — 73,542 40,000 1,404,781 282,280 1,145,616 149,368 — — 7,738,955 1,113,675 1. As part of the merger with Fairfax Media Limited, there were changes to the Board composition. David Gyngell and Janette Kendall retired from the Board on 7 December 2018 and Nick Falloon, Patrick Allaway and Mickie Rosen were appointed to the Board on 7 December 2018. Share numbers provided are as at the start/end of their term as KMP. 50 REMUNERATION REPORT – AUDITED continued8 Non-Executive Director (NED) Remuneration Arrangements and detailed disclosures of NED remuneration 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. The shareholders of Nine approved an aggregate fee pool of $3 million at the AGM on 21 October 2013. The Board will not seek any increase to the NED fee pool at the 2019 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 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. The NED fees are set out below: ROLE Chairman Directors’ Audit and Risk Committee Chair Audit and Risk Committee member People and Remuneration Committee Chair People and Remuneration Committee member FEES $340,000 $135,000 $30,000 $20,000 $25,000 $15,000 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 2019 financial year. This table below includes fees for the period when they held the position of NEDs. Directors’ Fees Paid by Domain Holdings Australia Limited Mr Falloon and Mr Allaway are Board members of Domain Holdings Australia Limited (Domain). The fees paid to Mr Falloon and Mr Allaway from 10 December 2018 (post-merger with Fairfax Media) are included in the Nine statutory tables, provided below, as controlled entity transactions. The fees are paid by Domain. Mr Falloon is the Chairman of the Domain Board and a member of the Domain People and Culture Committee. The Chairman’s fee on the Domain Board is $250,000 per annum. The Chairman does not receive any Committee fees for being a member of Committees. Mr Allaway is a Non-Executive Director of Domain and a member of the Domain Audit and Risk Committee. The Non-Executive Directors’ fee for the Domain Board is $110,000 per annum. Audit and Risk Committee members are also paid a Committee fee of $18,000 per annum. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 51 NINE ANNUAL REPORT 2019 NED Remuneration for years ended 30 June 2019 and 2018 FINANCIAL YEAR $ NINE NON- EXECUTIVE DIRECTOR FEES $ DOMAIN FEES $ SUPER- ANNUATION6 $ Non-Executive Directors’ Peter Costello Nick Falloon1, 2, 3 Catherine West David Gyngell1 Janette Kendall1 Mickie Rosen1 Patrick Allaway1, 4, 5 Samantha Lewis Total NED Notes 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 319,469 319,951 74,868 — 164,384 164,384 54,795 123,288 60,883 136,986 68,966 — 131,718 — 20,531 20,049 19,625 — 15,616 15,616 5,205 11,712 5,784 13,014 6,552 — TOTAL $ 340,000 340,000 226,211 — 180,000 180,000 60,000 135,000 66,667 150,000 75,518 — 76,747 67,439 13,698 157,884 — — — 15,616 15,616 — 180,000 180,000 199,157 102,627 1,286,280 — 76,007 985,000 164,384 164,384 984,496 908,993 1. As part of the merger with Fairfax Media Limited there were changes to the Board composition. Mr Gyngell and Ms Kendall retired from the Board on 7 December 2018 and Mr Falloon, Mr Allaway and Ms Rosen were appointed to the Board from 7 December 2018. 2. Mr Falloon joined the People and Remuneration Committee on 24 January 2019. 3. Mr Falloon received Director fees from a controlled entity, Domain Holdings Australia Limited (Domain), in respect of his services as Chairman of Domain. This amount is disclosed separately and was paid by Domain. 4. Mr Allaway joined the Audit and Risk Committee on 24 January 2019. 5. Mr Allaway received Director and Committee fees from a controlled entity, Domain Holdings Australia Limited (Domain), in respect of his services as a non-executive director of Domain and as a member of the Audit and Risk Committee. This amount is disclosed separately and was paid by Domain. 6. Superannuation is inclusive of $12,513 for Mr Falloon and $6,407 for Mr Allaway from Domain in respect of their services as non-executive directors. These amounts were paid by Domain. 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 a Nine Group member: • Leila McKinnon, the wife of David Gyngell, is employed by Nine Network as a journalist and news presenter. Mr Gyngell resigned from the Nine Board on 7 December 2018; 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. 52 REMUNERATION REPORT – AUDITED continuedOPERATING AND FINANCIAL REVIEW Review of Operations Revenue from Continuing Operations (before specific Items) Group EBITDA from Continuing Operations (before specific Items)1 Depreciation and Amortisation from Continuing operations Net Finance Costs from Continuing Operations Profit after tax before specific items from Continuing Operations Specific Items from Continuing Operations (after income tax) Profit/(Loss) from Continuing Operations after Income Tax Net Cash Flows generated from/ (used in) operating activities Net Debt2 Leverage3 1. EBITDA plus share of associates. 2. Interest-bearing loans and borrowings, less cash at bank. 3. Net Debt/Group EBITDA (before Specific Items). 2019 $m 1,848.1 349.9 (73.7) (10.5) 187.1 29.5 216.6 221.6 255.8 0.7x 2018 $m 1,318.2 257.2 (36.7) (2.2) 156.7 52.9 209.7 161.1 121.3 0.5x VARIANCE $m 529.9 92.7 (37.0) (8.3) 30.4 % 40.2% 36.0% (101.0%) (377.3%) 19.4% (23.4) (44.2%) 6.9 60.5 134.5 0.2x 3.3% 37.6% 110.9% On 7 December 2018, the Group merged with Fairfax Media Limited (“Fairfax”). Consequently, the operating results include the consolidated results from continuing operations of Fairfax and Stan for the period from 7 December to 30 June 2019, Stan having been consolidated on becoming 100% owned, effective 7 December 2018. Revenue from Continuing operations before Specific items increased by 40.2% to $1,848.1 million. Revenue growth was achieved predominantly due to the consolidation of Fairfax since the date of the merger on 7th December 2018. Group EBITDA before Specific Items (from Continuing Operations) increased by $92.7 million (36.0%) to $349.9 million as a result of the consolidation of Fairfax since the date of merger. Specific Items (refer to note 2.4) relate principally to the merger and integration with Fairfax. These include: $21.2 million in acquisition-related costs; $36.6 million in redundancy costs; a $93 million notional gain on sale in relation to Stan (that arises on the Group’s original shareholding) as a consequence of consolidating Stan into the Group following the acquisition of Fairfax’s interest (in Stan) at the time of the merger; and an impairment of intangibles of $17.7 million in CarAdvice, following the scrip-based acquisition of the minority interests in Drive by CarAdvice. Specific Items also include the gain on sale of the NBN operating site in Newcastle ($10.8 million) and items reported by Domain and Macquarie Radio. Net Finance Costs increased from $2.2 million in the prior year to $10.5 million in the current year, reflecting the higher average Net Debt throughout the year as a result of the acquisition of Fairfax. Operating Cash Flow increased year on year largely due to the consolidation of Fairfax since the date of the merger. The Group made its final payment in relation to the Warner Bros life of series settlement of $33 million during the period, marking the end of that obligation. The Group received proceeds from the sale of Australian Community Media of ($97 million) and Fairfax’s key sporting events ($31 million), which were used to reduce net debt. The Group continues to invest in longer-term growth with the acquisition of the remaining 40.78% of CarAdvice for $26.5 million. The Group made dividend payments of $170.8 million or 10 cents per share, to shareholders during the year. Net Debt of the wholly owned group at 30 June 2019 was $120.7 million and, based on pro-forma EBITDA for a full 12 months, meant net leverage was 0.4x, well within bank covenants. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 53 NINE ANNUAL REPORT 2019 Segmental Results The results of the continuing operations are set out below: Revenue1 Broadcasting Digital and Publishing Domain Stan (since consolidation) Corporate 2019 $m 1,160.3 425.6 168.1 100.1 10.9 2018 $m 1,152.4 165.8 — — — Total Revenue from Continuing Operations1 1,865.0 1,318.2 EBITDA Broadcasting Digital and Publishing Domain Stan Corporate Share of Associates Group EBITDA Continuing Operations 225.9 100.1 48.2 (4.9) (16.6) (2.9) 349.9 238.2 34.1 — — (16.2) 1.2 257.3 VARIANCE $m % 7.9 259.8 168.1 100.1 10.9 546.8 (12.3) 66.0 48.2 (4.9) (0.4) (4.1) 92.6 0.7 156.7 100.0 100.0 100.0 41.5 (5.2) 193.5 100.0 100.0 (2.5) (341.7) 36.0 1. Before the elimination of inter-segment revenue and excluding interest income. A summary of each division’s performance is set out below. The results in the table above include the results of the businesses acquired as part of the merger with Fairfax from 7 December (the date of acquisition and consolidation in the Group results). The commentary in relation to these acquired businesses is for the full year to June 2019 (including the period from 1 July 2018 to 6 December 2018 which was not consolidated in the Group results), in order to provide context on the operating performance and environment of each of these businesses. Broadcasting Revenue EBITDA Margin 2019 $m 1,160.3 225.9 19.5% 2018 $m 1,152.4 238.2 20.7% VARIANCE $m 7.9 (12.3) % 0.6 (5.2) –1.2 pts Nine’s Broadcasting division, which comprises Nine Network as well as the consolidated results of Macquarie Media (of which Nine owns a 54.4% stake) from 7 December 2018, reported EBITDA of $225.9 million on revenues of $1,160 million for the year. Nine Network reported a revenue decline from $1,152 million to $1,090 million for the year. The decline however, was confined to the first half, with second half revenues growing by 2%, as share gains more than offset the impact of a difficult FTA market (–5.1%1 for the year and –5.2%2 in the second half). After a first half Metro FTA share of 39.3%2, Nine’s second half share of 39.9% was up 2.9 pts on pcp and resulted in a full-year revenue share of 39.6%1. 1. Source: Think TV, Metro Free To Air revenue, 12 months to June 2019. 2. Source: Think TV, Metro Free To Air revenue share, 12 months to June 2019. 54 OPERATING AND FINANCIAL REVIEW continuedReported costs improved by 4% or $40 million for the year, reflecting both the move from cricket to tennis as well as other cost-saving initiatives, offset by the conscious decision by Nine to further strengthen its first half CY19 programming schedule. FTA EBITDA fell by 10% or $25 million for the year, to $213 million. Nine’s strong performance in both share and costs was more than offset by the softer overall Free to Air market. Macquarie Media’s result since 7 December was EBITDA $13 million on revenue of $70.3 million. Macquarie Media (ASX: MRN) reported its FY19 results on 7th August. For the full year, (including the period not included in the consolidated results of the Group), revenue was down by 3%, to $132 million, primarily reflecting the slower second half radio advertising market. Coupled with a cost increase of less than 1%, Macquarie Media reported EBITDA before Specific Items of $27 million, down 17% on previous corresponding period. From an average audience perspective, Macquarie’s NewsTalk and Sports Networks performed well with growth of nearly 5%3, which should underpin leverage when the ad market improves. Digital and Publishing Revenue EBITDA Margin 2019 $m 425.6 100.1 23.5% 2018 $m 165.8 34.1 20.6% VARIANCE $m 259.8 66.0 % 156.7 193.5 2.9 pts Nine’s Digital and Publishing division includes Metro Media (since 7 December 2018) and a full twelve months of 9Now, as well as Nine’s other Digital Publishing titles including Pedestrian, CarAdvice and nine.com.au. Publishing reported revenue of $425.6 million and a combined EBITDA of $100.1 million. Metro Media contributed revenue of $250 million and EBITDA of $53 million since being consolidated on 7 December. On a full-year basis (including the period prior to 7 December not consolidated in the Group results), Metro Media reported overall revenue growth of 3% after three years of declining revenues. This growth was underpinned by growth in digital advertising, as the Group benefitted from the Google sales arrangement. Overall, circulation/subscription revenues grew by 2%, with 10% growth in digital subscribers across each of The Age, SMH and the AFR, while print circulation and subscription revenues fell by 1%. Metro Media’s ongoing focus on costs resulted in a further expenses decline of c$20 million (full year, including the period prior to consolidation), which was weighted to the second half reflecting the benefit of Group synergies and a full period of the print outsourcing arrangement with News Limited. For the full year to June 2019 EBITDA increased by 65% to $83 million. In a BVOD market4 which grew by 38% for the year to $125 million, 9Now further increased its share to approximately 49%, for revenue growth of nearly 51% to $62 million. Users and engagement continued to grow with long-form VOD streams increasing by 53% across the year, and live streams up by 73%. 9Now increased its EBITDA contribution from $19 million to $36 million, up 87%, reflecting the scalability of the current 9Now business model. Other key components of Digital and Publishing together contributed revenue of $114 million, and EBITDA of $11 million with softer advertising conditions, in the broader and highly competitive digital display market, impacting performance. Domain Revenue EBITDA Margin 2019 $m 168.1 48.2 28.7% 2018 $m — — — VARIANCE $m 168.1 48.2 % n/m n/m n/m 3. Source: GfK Mon-Sun Average Audience All People 10+ Survey 4 2019 versus Survey 4 2018. 4. Source: KPMG Data. BVOD market includes 9Now, 10Play and 7Plus. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 55 NINE ANNUAL REPORT 2019 The results of Domain were consolidated in the Group results from 7 December 2018. Across the year to June 2019 (including the period not consolidated in the Group results), Domain (ASX: DHG) operated in a cyclically challenging property market, particularly in its core markets of Sydney and Melbourne. New listing volumes were down by 8% nationally, and approximately 12%, weighted for Domain’s geographic exposure. Against this backdrop, Domain increased residential yields and depth penetration by 6%. The market weakness also impacted on Domain’s commercial and Print operations — the latter now representing less than 15% of Group revenues. Core digital operating costs declined by 4% in the second half, for a 2.9% increase across the full year to 30 June 2019. Savings stemmed primarily from printing and marketing, while the Group continues to invest in other initiatives, particularly its consumer solutions businesses, to extend and develop new growth pathways for the business. In the year to 30 June 2019, full-year EBITDA was down by 15%. During the year, Domain completed the reorganisation of its operating structure, allowing more focus on its core business of residential and commercial real estate, and reducing its exposure to low margin adjacencies. Underlying depth and yield improvements have continued, which will result in strong leverage when the cycle returns to normal. Stan Revenue EBITDA Margin 2019 $m 100.1 (4.9) (4.9%) 2018 $m — — — VARIANCE $m 100.1 (4.9) % n/m n/m n/m The results for Stan were consolidated in the Group results from 7 December 2018. Across the full year (including period not consolidated in Group results), Stan grew its active subscriber numbers to 1.7 million, with the very strong summer period continuing through the second half of the year. Stan’s consistent roll-out of exclusive content like Billions and Who Is America? and local content like Bloom complemented the addition of Disney from mid-December. Usage per subscriber continues to increase, with daily total hours streamed now reaching 1.5 million. The combination of the strong subscriber growth and the $2 price rise from March increased Stan’s revenue by 62% across the full year to 30 June 2019 and resulted in Stan generating positive EBITDA in the second half of the year. Share of Associates profit Share of Associates profit decreased from a profit after tax of $1.2 million to a loss after tax of $2.9 million, largely reflecting the Group’s now discontinued investment in the Australian Money Channel. Review of Financial Position At 30 June 2019, the Net Assets of the Group were $2,773 million which is approximately $1,664 million higher than as at 30 June 2018. The key impact during the period was the Fairfax merger. Underlying Drivers of Performance The Group operates across four key businesses and industries, each of which has their own underlying drivers of performance. These are summarised below: • Broadcasting — size of the advertising market and the share attributed to Free-to-Air television and Radio, Nine’s share of those advertising sectors, the regulatory environment and the ability to secure key programming contracts. • Digital and Publishing — size of the advertising market and the share attributed to Online and Broadcast Video on Demand (BVOD), Nine’s share of those advertising sectors, the ability of Nine to engage with audiences across print media and digital platforms with their content. • Real Estate Media and Technology Services — size of the real estate classifieds market largely driven by new property listings and Domain’s share of that market, as well as Domain’s ability to sell premium services to agents and users (often referred to as “depth penetration”). • Subscription Video on Demand (SVOD) — size of the SVOD market, Nine’s share of the SVOD market and the ability to secure key programming contracts. The impacts of changes in underlying drivers of performance on the current year result are set out in the Review of Operations, as applicable. 56 OPERATING AND FINANCIAL REVIEW continued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 Nine’s strong ratings performance, driven by a focus on the key advertiser 25-54 demographic in making prime time content decisions, is expected to continue into FY20. Nine expects to continue to grow its revenue share in FY20 due to its ratings performance and strong relationships with advertising agencies. Overall Network performance is driven primarily by that of the primary channel, Channel Nine, as well as but to a lesser extent the multi-channels, 9GO!, 9GEM and 9Life. The Group is focused on optimising returns through improved broadcast rights deals and affiliate arrangements, growth in premium or integrated revenue and maintaining disciplined cost management. In programming, the Group recognises the importance of leading news and current affairs, sport, entertainment and lifestyle content, and is focused on continuing to make targeted investments in content to reflect audience and advertiser preferences. • Continue to grow digital media assets The Group intends to build on Nine’s position as a leading online network in Australia to grow audience and advertising revenues. The Group plans to expand its audience by increasing the content that appeals to them, and by increasing the ways customers find and access this content, including via mobile devices. Nine is particularly focused on both short and long-form video with its strength in these areas supported by the Group’s large library of FTA television content. The Group’s goal is to increase its digital advertising revenue via growth in audience and inventory and an increased focus on growing premium revenue, as well as making use of its data assets to improve yields and the effectiveness of advertising. • Grow the Domain business The Group is focused on growing Domain, with a clear operational focus on the core residential listings business. Residential revenue growth is expected to come via both yield (more, and a more favourable mix of, depth listings) and geographical expansion (growth in the business outside of Sydney and central Melbourne), expedited by the relationship with, and access to, other Nine assets, most notably FTA television and digital. Group-wide initiatives are underway to facilitate the growth of Domain via increased brand recognition, more traffic to Domain.com.au and the strengthening of Domain’s relationships with agents. Growth in Domain is expected via both an increase in revenue, as well as a strong focus on cost efficiencies, particularly in seasonal low listing periods. • Continue to grow Stan and maintain position as a key SVOD provider with scale in Australia The Group is committed to support the continued growth of Stan. Support is provided via the cross-promotion of Stan across Nine’s multi-platform ecosystem and the provision of strategic advice on content acquisitions. This aims to enhance Stan’s content offer, drive new subscriber growth and reduce customer churn. Optimise the returns and opportunities associated with the Group’s content and audience reach Across its assets, Nine’s strengths lie in the production and broad distribution of its premium content. The Group will continue to identify and pursue opportunities where it can increase its content, rights to use content and premium revenue, and broaden the utilisation of this content across its well-established distribution platforms. The Group remains committed to the achievement of further cost efficiencies through FY20 and beyond. The Group believes that the successful execution of these business strategies will enable the Group to grow in the future. The key risks which may impact the operations or results of the Group are set out below: Revenue — the major risks which could affect the revenue of the Group are: • A significant change to advertising market conditions that leads to a prolonged decline in the advertising market or an adverse shift in FTA television, Print or Digital publishing relative shares of the broader advertising market; • Nine’s share of the FTA market itself; • A change in the way content is viewed or consumed by audiences; and • Declines in property market conditions. A contributor to these risks is a change in audience behaviours and preferences. Peak-time programming performance or loss of key programming rights may also contribute to this risk materialising. In addition, the continued development of alternative forms of media may lead to increased competition for advertising revenue. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 57 NINE ANNUAL REPORT 2019 Operational — from an operational perspective, the business is subject to operational risks of various kinds, including transmission failure, systems failure, data loss, inaccurate reporting, industrial action (such as a film and television production studios, in sporting competitions broadcast by Nine), defamation and other execution risks. These risks could have a negative effect on Nine’s reputation and its ability to conduct its business without disruption or at the budgeted level of cost in various ways. Regulation and Legislation — Nine’s businesses are subject to changes in regulation at Federal, State and local levels as well as changes in government policy and decisions by the courts. These risks include changes to: the regulatory environment under which the FTA industry operates; the anti-siphoning legislation; the licence conditions under which Nine operates (including the granting of a fourth licence in the major markets in which Nine operates); regulation of content; advertising restrictions in relation to certain types of products; and interpretation of privacy and defamation laws. These risks could adversely impact Nine’s reputation and/or Nine’s revenues, costs or financial performance. Fairfax merger integration — The merger between Nine and Fairfax was implemented on 7 December 2018. As a result, there is a risk that unexpected issues or complications arise during the process of integration. Furthermore, prior to the merger, Fairfax had been the subject of or undertaken a range of corporate actions. Those actions are likely to have required the exercise of judgment in assessing the approach which should be taken, or the treatment of the corporate action or the effect of it, including from a tax or accounting standpoint. There is a risk that other parties and stakeholders, including a regulatory authority such as the ATO, could hold a different view and may seek that adjustments be made that could have an adverse impact on the Group. Domain and Macquarie Media — Each of Domain and Macquarie Media is a separate company that has minority investors and is listed on the ASX. As such, decisions by their respective boards and the actions of those companies must be made having regard to their separate interests. This may mean that if their interests diverge from those of Nine, the relevant company may adopt an approach contrary to the preferences of Nine. Systems security and data privacy — while Nine has policies and procedures in place to address system security and data risks, there is a risk that these may not be sufficient which could adversely affect Nine’s reputation and financial position. Key management personnel and employees — Nine relies upon its ability to attract and retain experienced and high performing executives and other employees. The failure to achieve this may impact upon Nine’s ability to develop and meet its strategies and may lead to a loss in revenue and profitability. Purchase Price Accounting (PPA) — Nine’s financial position at 30 June 2019 has been prepared to include adjustments to allocate the purchase price resulting from Nine’s acquisition of Fairfax. Under the relevant accounting standards, Nine has 12 months from implementation of the transaction to finalise these adjustments and, as such, the adjustments included at 30 June 2019 are provisional and may change. Any subsequent changes may impact the carrying value of individual assets or classes of assets, which may then impact reported financial performance. These risks are managed on an ongoing basis. Mitigations and strategies to address them are maintained and regularly reviewed, including via regular reporting to the Board. 58 OPERATING AND FINANCIAL REVIEW continued Nine Entertainment Co. Holdings Limited ABN 60 122 203 892 Contents Financial Statements Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report 60 61 62 63 64 121 122 129 ASX Information Shareholder Information Note Index 1 ABOUT THIS 2 GROUP REPORT PERFORMANCE 1.1 Significant 2.1 Segment events during the period Information 1.2 Basis of preparation 2.2 Revenue and other income from continuing operations 1.3 The Notes to the Financial Statements 2.3 Expenses from continuing operations 3 OPERATING ASSETS AND LIABILITIES 3.1 Cash and cash equivalents 4 CAPITAL STRUCTURE AND MANAGEMENT 5 TAXATION 6 GROUP STRUCTURE 7 OTHER 4.1 Interest-bearing Loans and Borrowings 5.1 Taxes 6.1 Business 7.1 Other financial Combinations assets 3.2 Trade and other 4.2 Share capital 5.2 Deferred receivables tax assets and liabilities 3.3 Program rights and inventories 4.3 Dividends paid and proposed 6.2 Investments Accounted for Using the Equity Method 7.2 Defined benefits plan 6.3 Investment 7.3 Auditor’s in controlled entities 6.4 Deed of cross guarantee 6.5 Parent entity disclosures remuneration 7.4 Contingent liabilities and related matters 7.5 Events after the balance sheet date 6.6 Related party transactions 6.7 Discontinued operations 7.6 Other significant accounting policies 2.4 Specific items 3.4 Trade and other payables 4.4 Share-based payments 2.5 Earnings per share 3.5 Property, plant and equipment 4.5 Financial instruments 3.6 Intangible assets 3.7 Provisions 3.8 Commitments 3.9 Other Assets Continuing operations Revenues Expenses Finance costs Share of profit/(loss) of associate entities Net profit from continuing operations before income tax expense Income tax expense Net profit from continuing operations after income tax expense Discontinued operations Profit after tax from discontinued operations Net profit for the period Other comprehensive (loss)/income Items that may be reclassified subsequently to profit or loss: Foreign currency translation Other Items that will not be reclassified subsequently to profit or loss: Fair value movement in investment in listed equities (net of tax) Gain/(loss) on defined benefit plan Other comprehensive income for the period NOTE 2.1 2.3 2.3 6.2(c) 5.1 6.7 7.1 7.2 2019 $’000 2018 $’000 1,965,074 1,403,945 (1,662,541) (1,119,001) (17,132) (2,857) 282,544 (65,978) 216,566 17,314 233,880 566 28 (1,031) (4,423) (4,860) (11,121) 1,155 274,978 (65,312) 209,666 — 209,666 (234) — (1,178) 2,733 1,321 Total comprehensive income/(loss) attributable to equity holders 229,020 210,987 Total comprehensive income attributable to: Owners of the parent Non-controlling interest Total comprehensive income for the period Earnings per share (in cents) Basic profit attributable to ordinary equity holders of the parent Diluted profit attributable to ordinary equity holders of the parent Earnings per share for continuing operations (in cents) Basic profit attributable to ordinary equity holders of the parent Diluted profit attributable to ordinary equity holders of the parent 2.5 2.5 2.5 2.5 216,369 12,651 229,020 $0.17 $0.16 $0.15 $0.15 210,987 — 210,987 $0.24 $0.24 $0.24 $0.24 The above consolidated statement of profit or loss and other comprehensive income should read in conjunction with the accompanying notes. 60 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEfor the year ended 30 June 2019 Current assets Cash and cash equivalents Trade and other receivables Program rights and inventories Prepayments Other assets Assets held for sale — continuing operations Assets held for sale — discontinued operations Total current assets Non-current assets Receivables Program rights and inventories Investments accounted for using the equity method Other financial assets Property, plant and equipment Intangible assets Prepayments Defined benefit plan 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 held for sale — 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 Non-controlling interest Total equity NOTE 3.1 3.2 3.3 3.9 3.5 6.7 3.2 3.3 6.2 7.1 3.5 3.6 7.2 3.4 4.1 3.7 4.5 6.7 3.4 4.1 5.2 3.7 4.5 4.2 2019 $’000 256,121 403,716 267,690 36,327 23,508 1,583 90,772 2018 $’000 36,375 285,469 190,427 19,657 1,228 18,528 – 1,079,717 551,684 14,262 109,902 26,145 5,949 165,322 2,958,405 26,125 23,231 3,329,341 4,409,058 433,142 195,375 47,723 131,060 — 58,061 865,361 72,639 316,577 314,380 54,373 12,405 770,374 1,635,735 2,773,323 2,126,216 5,652 448,811 2,580,679 192,644 2,773,323 134,470 69,865 12,479 4,468 106,516 911,984 36,575 25,584 1,301,941 1,853,625 225,460 — 35,632 52,315 26,228 — 339,635 34,123 157,646 173,049 39,530 603 404,951 744,586 1,109,039 745,027 5,409 358,603 1,109,039 — 1,109,039 The above consolidated statement of financial position should read in conjunction with the accompanying notes. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 61 CONSOLIDATED STATEMENTOF FINANCIAL POSITIONas at 30 June 2019 NINE ANNUAL REPORT 2019 0 0 0 $ ’ L A T O T Y T I U Q E , 9 3 0 9 0 1 , 1 ) 3 3 3 2 ( , 0 0 0 $ ’ - N O C - N O N G N I L L O R T S T S E R E T N I 0 0 0 $ ’ L A T O T 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ I D E N A T E R I S G N N R A E E V R E S E R E V R E S E R R E H T O S T N E M Y A P D E S A B - E R A H S E U L A V R A F I F O E V R E S E R N G I E R O F 0 0 0 $ ’ I C O V F 0 0 0 $ ’ E V R E S E R 0 0 0 $ ’ 0 0 0 $ ’ S E R A H S Y T I U Q E I L A C N A N I F T A S T E S S A Y C N E R R U C S T H G R I - N O C N O I T A L S N A R T N A L P D E T U B R T I — — , 9 3 0 9 0 1 , 1 3 0 6 8 5 3 , 1 7 1 , 3 6 2 6 4 , ) 4 6 7 ( ) 4 2 6 , 1 ( ) 1 7 9 6 ( , 8 9 9 , 1 5 7 8 1 0 2 l y u J 1 t A ) 3 3 3 2 ( , ) 3 3 3 2 ( , — — — — — — s d r a d n a t s g n i t n u o c c a w e n f o n o i t p o d a f o t c e f f E ) 6 7. e t o N ( , 6 0 7 6 0 1 , 1 — , 6 0 7 6 0 1 , 1 , 0 7 2 6 5 3 1 7 1 , 3 6 2 6 4 , ) 4 6 7 ( ) 4 2 6 , 1 ( ) 1 7 9 6 ( , 8 9 9 , 1 5 7 ) d e t a t s e r ( 8 1 0 2 l y u J 1 t a s A 62 — ) 7 0 7 4 ( , 9 6 0 5 , — — — 5 9 6 9 8 1 , 5 9 6 9 8 1 , — — ) 7 0 7 4 ( , 9 6 0 5 , , 0 3 9 5 8 3 , 1 — , 0 3 9 5 8 3 , 1 — — — — — ) 0 6 8 4 ( , — ) 0 6 8 4 ( , — 0 8 8 3 3 2 , 1 5 6 2 1 , 9 2 2 , 1 2 2 9 2 2 , 1 2 2 0 2 0 9 2 2 , 1 5 6 2 1 , 9 6 3 6 1 2 , 9 2 2 , 1 2 2 ) 0 9 3 8 3 1 ( , ) 2 0 7 9 ( , ) 8 8 6 8 2 1 ( , ) 8 8 6 8 2 1 ( , — 8 2 8 2 5 2 1 , 3 — — — — — — — — — — ) 1 9 0 3 ( , — — 9 6 0 5 , — ) 4 5 4 5 ( , ) 4 5 4 5 ( , — — — — — — 6 6 5 6 6 5 — — — — — — — — — — — — — 1 9 0 3 , ) 7 0 7 4 ( , — — — d o i r e p e h t r o f ) s s o l ( / e m o c n i i e v s n e h e r p m o c r e h t O d o i r e p e h t r o f ) s s o l ( / e m o c n i e v i s n e h e r p m o c l a t o T d o i r e p e h t r o f t i f o r P , 5 0 8 2 8 3 , 1 ) 1 . 6 e t o N ( i s e i r a d s b u s i f o i n o i t i s u q c A — — — — — ) 4 4 . e t o N ( s e r a h s n a P l s t h g R i f o g n i t s e V e s n e p x e t n e m y a p d e s a b - e r a h S s e r a h s f o e s a h c r u P i s e i r a d s b u s i n i I C N f o n o i t i n g o c e R l s r e d o h e r a h s o t s d n e d v D i i , 3 2 3 3 7 7 2 , 4 4 6 2 9 1 , , 9 7 6 0 8 5 2 , , 1 1 8 8 4 4 4 2 3 6 , 4 0 6 6 , ) 8 1 2 6 ( , ) 8 5 0 , 1 ( ) 7 8 5 8 ( , , 3 0 8 4 3 1 , 2 9 1 0 2 e n u J 0 3 t A , 0 9 8 5 8 9 6 6 6 9 0 2 , 1 2 3 , 1 7 8 9 0 1 2 , — ) 1 6 6 4 ( , 9 9 8 3 , ) 6 7 0 7, 8 ( , 9 3 0 9 0 1 , 1 — — — — — — — — — 1 2 3 , 1 — 6 6 6 9 0 2 , 6 6 6 9 0 2 , 7 8 9 0 1 2 , 6 6 6 9 0 2 , — ) 1 6 6 4 ( , 9 9 8 3 , — — — ) 6 7 0 7, 8 ( ) 6 7 0 7, 8 ( — — — — — — — — — — ) 1 6 0 , 1 ( — 9 9 8 3 , — — 5 5 5 , 1 5 5 5 , 1 — — — — — ) 4 3 2 ( ) 4 3 2 ( — — — — — — — — — 1 6 0 , 1 ) 1 6 6 4 ( , — — — — — — — , 0 9 8 5 8 9 , 3 1 0 6 3 2 1 7 1 , 3 8 8 7 , 1 ) 9 1 3 2 ( , ) 0 9 3 , 1 ( ) 1 7 3 3 ( , 8 9 9 , 1 5 7 d o i r e p e h t r o f ) s s o l ( / e m o c n i i e v s n e h e r p m o c r e h t O d o i r e p e h t r o f ) s s o l ( / e m o c n i e v i s n e h e r p m o c l a t o T ) 4 4 . e t o N ( s e r a h s n a P l s t h g R i f o g n i t s e V e s n e p x e t n e m y a p d e s a b - e r a h S s e r a h S f o e s a h c r u P ) d e t a t s e r ( 1 7 1 0 2 l y u J 1 t A d o i r e p e h t r o f t i f o r P l s r e d o h e r a h s o t s d n e d v D i i , 9 3 0 9 0 1 , 1 3 0 6 8 5 3 , 1 7 1 , 3 6 2 6 4 , ) 4 6 7 ( ) 4 2 6 , 1 ( ) 1 7 9 6 ( , 8 9 9 , 1 5 7 8 1 0 2 e n u J 0 3 t A . s e t o n i g n y n a p m o c c a e h t h t i w n o i t c n u n o c j n i d a e r e b l d u o h s y t i u q e n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o c e v o b a e h T . i s g n n r a e i d e n a t e r i g n n e p o o t e d a m t n e m t s u d a j n a f o s l i a t e d r o f t r o p e R l a u n n A 8 1 0 2 e h t f o . 2 4 e t o n e e S . 1 CONSOLIDATED STATEMENTOF CHANGES IN EQUITYfor the year ended 30 June 2019 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 generated from operating activities Cash flows from investing activities Purchase of property, plant and equipment Purchase of other intangible assets Proceeds on disposal of property, plant and equipment Acquisition of subsidiaries, net of cash and acquisition costs Loans to associates Proceeds from sale of controlled entities Net cash flows from investing activities Cash flows from financing activities Net proceeds from borrowings Purchase of rights plan shares Dividends paid NOTE 2019 $’000 2018 $’000 6.2 3.1 6.1 6.7 2,454,441 1,418,625 (2,166,544) (1,226,086) 880 6,909 (15,605) (58,511) 221,570 1,000 1,927 (8,185) (26,194) 161,087 (26,524) (22,666) (35,979) 28,172 (7,362) (8,981) 134,544 (40,147) (7,200) (27,300) 127,757 78,864 62,409 (4,707) — 35,450 (135,125) (4,661) 4.3 (138,390) (87,076) Net cash flows used in financing activities Net (decrease)/increase 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 3.1 (80,688) (226,862) 219,746 (30,325) 36,375 256,121 66,700 36,375 This statement of cash flows includes the cash flows of both continuing and discontinuing operations. The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 63 CONSOLIDATED STATEMENTOF CASH FLOWSfor the year ended 30 June 2019 NINE ANNUAL REPORT 2019 1 About this Report The financial report includes the consolidated entity consisting of Nine Entertainment Co. Holdings Limited (the “Company” or “Parent Entity”) and its controlled entities (collectively, the “Group”) for the year ended 30 June 2019. 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 are described in the Directors’ Report. Information on the Group’s structure is provided in Note 6. Information on other related party relationships is provided in Note 6.6 The consolidated general purpose financial report of the Group for the year ended 30 June 2019 was authorised for issue in accordance with a resolution of the directors on 22 August 2019. The Directors have the power to amend and reissue the financial report. 1.1 Significant events during the period On 7 December 2018, the Group merged with Fairfax. As a result of this merger, the results presented in the consolidated financial report include Fairfax Media Limited and its controlled entities’ and Stan Entertainment Pty Limited’s operating results from 7 December 2018 and all the net assets as at 30 June 2019. Refer Note 6.1 for more details. 1.2 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 using the going concern basis of accounting and the historical cost convention, 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 Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. The Company is an entity to which the instrument applies. The accounting policies adopted in the preparation of the financial report are consistent with those applied and disclosed in the 2018 annual report except as set out in Note 7.6. 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. 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. Key judgements and estimates In the process of applying the Group’s accounting policies, management has made a number of judgements and applied estimates of future events. Judgements and estimates which are material to the financial report are found in the following notes: Note 3.3 Program rights and inventories Note 3.6 Intangible assets Note 3.7 Provisions — onerous contracts Note 6.1 Business Combinations 1.3 The Notes to the Financial Statements The notes include information which is required to understand the financial statements and is material and relevant to the operations, financial position and performance of the Group. Information is considered material and relevant if, for example: • the amount in question is significant because of its size or nature; • it is important for understanding the results of the Group; • it helps to explain the impact of significant changes in the Group’s business or it relates to an aspect of the Group’s operations that is important to its future performance. 64 NOTES TO THE CONSOLIDATEDFINANCIAL STATEMENTSfor the year ended 30 June 2019The notes are organised into the following sections: 1. About this report: provides an introduction to the structure and preparation of the report. 2. Group performance: provides a breakdown of individual line items in the statement of profit or loss and other comprehensive income that the directors consider most relevant and the accounting policies, judgements and estimates relevant to understanding these line items; 3. Operating assets and liabilities: provides a breakdown of the key assets and liabilities and the accounting policies, judgements and estimates relevant to understanding these line items. 4. Capital structure and management: provides information about the capital management practices of the Group, shareholders return and the Group’s exposure to various financial risks, how they affect the Group’s performance and are managed; 5. Taxation: discusses the tax position of the Group; 6. Group structure: explains aspects of the Group structure and how changes have affected the financial position and performance of the Group; and 7. Other: provides information on items that require disclosure to comply with Australian Accounting Standards and other regulatory pronouncements. However, these are not considered critical in understanding the historical financial performance or position of the Group. 2 Group Performance 2.1 Segment Information SEGMENT REVENUE EBITDA BEFORE SPECIFIC ITEMS DEPRECIATION AND AMORTISATION EBIT BEFORE SPECIFIC ITEMS 2019 $’000 2018 $’000 2019 $’000 2018 $’000 2019 $’000 2018 $’000 2019 $’000 2018 $’000 Broadcasting 1,160,344 1,152,944 225,867 238,223 (24,378) (25,880) 201,488 212,343 Digital and Publishing 425,574 165,768 100,139 34,071 (22,141) (10,860) 77,998 23,211 Domain Group Stan 168,072 100,137 — — 48,220 (4,866) — — (19,823) (6,636) — — 28,397 (11,502) — — Segment total 1,854,127 1,318,712 369,360 272,294 (72,978) (36,740) 296,381 235,554 Corporate Associates 10,823 — — — (16,641) (16,212) (731) (2,857) 1,155 — (2) — (17,371) (16,214) (2,857) 1,155 Total Group1 1,864,950 1,318,712 349,862 257,237 (73,709) (36,742) 276,153 220,495 1. Includes intersegment revenue of $16,884,000 (2018: $548,000). RECONCILIATION OF TOTAL GROUP REVENUE FROM CONTINUING OPERATIONS TO THE CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 2019 $’000 2018 $’000 Total Group revenue (per above, refer to Note 2.2) Inter-segment eliminations Total Group revenue Interest income Net profit on sale of assets held for sale Gain on consolidation of Stan (Refer to Note 6.1) Net gain (loss) on disposal of investments and controlled entities Revenue per the Consolidated Statement of Profit or Loss and Other Comprehensive Income 1,864,950 1,318,712 (16,884) (548) 1,848,066 1,318,164 6,610 12,126 93,000 5,272 8,875 76,906 — — 1,965,074 1,403,945 I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 65 NINE ANNUAL REPORT 2019 RECONCILIATION OF EBIT BEFORE SPECIFIC ITEMS TO PROFIT AFTER TAX FROM CONTINUING OPERATIONS NOTES EBIT before specific items Interest income Finance costs Income tax expense Profit before specific items Specific items Income tax (expense)/benefit on specific items 5.1 2.4 2.4 2019 $’000 276,153 6,610 (17,132) (78,567) 187,064 16,913 12,589 2018 $’000 220,495 8,875 (11,121) (61,524) 156,725 56,729 (3,788) Net profit/(loss) from operations after income tax expense 216,566 209,666 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 (2018: none). ACCOUNTING POLICY The results reflect the operations of the businesses acquired (refer Note 6.1) for the period from 7 December 2018. For the financial report for the year ended 30 June 2019, management have reviewed the segments to reflect how the Chief Operating Decision Makers (determined to be the Board of Directors’) review and manage the business. The reportable segments for continuing operations for the period ended 30 June 2019 are: • Broadcasting — includes free to air television activities and metropolitan radio networks in Australia. • Digital and Publishing — includes Nine Digital (Nine Digital Pty Limited and other digital activities) and Metropolitan Media (metropolitan news, sport, lifestyle and business media across various platforms). • Domain Group — real estate media and services businesses. • Stan — subscription video on demand service. Segment performance is evaluated based on continuing operations segment earnings before interest tax depreciation and amortisation (“EBITDA”) before specific items. Specific items are items that by size and nature or incidence are relevant in explaining the financial performance of the Group and are excluded when assessing the underlying performance of the business. 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. No operating segments are aggregated to form the reportable operating segments. 66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20192 Group Performance (continued) 2.1 Segment Information (continued)2.2 Revenue and other income from continuing operations 2.2.(a) Revenue from contracts with customers In the following table, revenue is disaggregated by major products/service lines. The table also includes a reconciliation of the disaggregated revenue with the Group’s reportable segments (see Note 2.1). BROADCASTING $’000 PUBLISHING $’000 DOMAIN GROUP $’000 STAN $’000 CORPORATE $’000 TOTAL $’000 Year ended 30 June 2019 Advertising revenue 1,047,648 281,959 151,855 Subscription revenue Affiliate revenue Circulation revenue Program Sales Other revenue Total revenue1 — 70,450 — — — 124,787 16,190 26,056 1,160,344 — 18,828 425,574 1. Includes intersegment revenue of $16,884,000. — 100,137 — — — — — — — — 1,481,462 100,137 70,450 124,787 16,190 — — — — 16,217 168,072 — 100,137 10,823 10,823 71,924 1,864,950 BROADCASTING $’000 PUBLISHING $’000 DOMAIN GROUP $’000 STAN $’000 CORPORATE $’000 TOTAL $’000 Year ended 30 June 2018 Advertising revenue 1,029,456 153,799 Affiliate revenue Other revenue Total revenue1 85,043 38,445 — 11,969 1,152,944 165,768 1. Includes intersegment revenue of $548,000. — — — — — — — — — — — — 1,183,255 85,043 50,414 1,318,712 I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 67 NINE ANNUAL REPORT 2019 ACCOUNTING POLICY Revenue The effect of initially applying AASB 15 on the Group’s revenue from contracts with customers is described in Note 7.6. Due to the transition method chosen in applying AASB 15, comparative information has not been restated to reflect the new requirements. The Group recognises revenue only when the performance obligation is satisfied and the control of goods or services is transferred, typically at the point of being published, broadcast or streamed. Amounts disclosed as revenue are net of commissions, rebates, discounts and returns which are recognised when they can be reliably measured. All performance obligations are expected to be recognised within one year. The Group determined that the estimates of variable consideration are not constrained based on its historical experience, business forecast and the current economic conditions. In addition, the uncertainty on the variable consideration will be resolved within a short time frame. The following specific recognition criteria must also be met before revenue is recognised: TYPE OF SALES REVENUE RECOGNITION CRITERIA Advertising revenue Broadcasting — Recognised by reference to when an advertisement has been broadcast and specific viewer metrics contained in the agreement with the customer have been met. Publishing and Domain — Revenue from advertising for newspapers, magazines and other publications is recognised on the publication date. Revenue from the provision of advertising on websites is recognised over the period the advertisements are placed. Revenue from the provision of property listings is accounted for as a single performance obligation, the provision of a listing being a distinct service. Revenue is recognised over the listing period. Subscription revenue Revenue from subscriptions for newspapers, magazines, other publications is recognised on the publication date. Revenue for digital subscriptions and Stan subscriptions is recognised over time. Circulation revenue Revenue from circulation for newspapers, magazines and other publications is recognised on the publication date. Program sales revenue Revenue from program sales and recoveries, including syndicated programming content, is recognised in the month that it is broadcast or as the program content is distributed. Affiliate revenue Revenue from affiliates is recognised on a monthly basis based on a percentage of revenue generated by the affiliate. Affiliate revenue relates to the Group’s entitlement to a percentage advertising revenue derived by broadcast partners, payable to the Group as consideration for use of the Group’s program inventory. Other revenue includes: a. Transactional revenue Recognised when the services are performed. b. Non-trading revenue Recognised when the services are performed. TYPE OF OTHER INCOME RECOGNITION CRITERIA Other income includes: a. Dividends b. Interest Recognised when the right to receive payment has been established. 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). c. Rental income Recognised on a straight-line basis over the term of the lease. 68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20192 Group Performance (continued) 2.2 Revenue and other income from continuing operations (continued)2.3 Expenses from continuing operations Expenses Broadcasting Publishing Domain Group Stan Other Total expenses from continuing operations Included in the expenses above are the following: Depreciation and amortisation (excluding program rights)1 Salary and employee benefit expenses Program rights Total depreciation, salary and program rights Finance Costs Interest on debt facilities Amortisation of debt facility establishment costs Total finance costs 2019 $’000 984,904 347,576 144,209 113,189 72,663 1,662,541 76,238 544,326 534,450 1,155,014 15,605 1,527 17,132 2018 $’000 943,828 — — — 175,173 1,119,001 36,742 384,040 466,778 887,560 7,867 3,254 11,121 1. Includes $2,529,000 of accelerated depreciation relating to prior years, reported as a specific item in the Group’s accounts, reflecting the policy of a listed subsidiary. ACCOUNTING POLICY 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. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 69 NINE ANNUAL REPORT 2019 2.4 Specific items The net profit after tax from continuing operations includes the following specific items, which by size and nature or incidence are relevant in explaining the financial performance of the Group: Net profit on sale of assets held for sale1 Net impairment adjustment on merger of CarAdvice and Drive2 Program stock provision write up/(write down)3 Mark to market of derivatives (Notes 4.5 and 6.1) Restructuring and termination costs (Note 3.7)4 Acquisition related costs5 (Note 6.1) Gain on consolidation of Stan (Note 6.1) Other6 Net specific items profit/(expense) before tax from continuing operations Income tax (expense)/benefit on specific items from continuing operations Net specific items profit/(expense) after tax from continuing operations 2019 $’000 9,408 (17,739) — — (36,558) (21,205) 93,000 (9,993) 16,913 12,589 29,502 2018 $’000 76,906 — 1,720 (14,653) (5,811) — — (1,433) 56,729 (3,788) 52,941 1. 2019: relates entirely to net profit on sale of property held in Newcastle and other assets held for sale (2018: includes profit on disposal of sale of Willoughby and Tynte Street, Adelaide properties). 2. Relates to impairment of CarAdvice. Refer to Note 3.6. 3. Includes amounts payable for series cancellation costs, local program cancellation costs and program rights net recoverable value write-downs. 4. Includes redundancy costs in relation to the Fairfax merger and other restructuring and termination costs incurred during the year (2018: includes various restructuring costs for the Group). 5. 2019: includes costs related to the acquisition of Fairfax (excluding redundancies) (2018: Nil). 6. 2019: includes specific items associated with listed subsidiaries and settlements relating to prior years. 70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20192. Group Performance (continued) 2.5 Earnings per share From continuing and discontinuing operations (in cents) Basic and diluted earnings per share before specific items1 Basic earnings per share after specific items Diluted earnings per share after specific items1 2019 2018 $0.14 $0.17 $0.16 $0.18 $0.24 $0.24 Profit/(Loss) attributable to the ordinary equity holders of the Group used in calculating the basic and diluted earnings per share ($’000) from continuing and discontinuing operations 221,229 209,666 From continuing operations (in cents) Basic and diluted earnings per share before specific items1 Basic earnings per share after specific items Diluted earnings per share after specific items1 Profit/(Loss) attributable to the ordinary equity holders of the Group used in calculating the basic and diluted earnings per share ($’000) $0.13 $0.15 $0.15 $0.18 $0.24 $0.24 204,135 209,666 Weighted average number of ordinary shares for basic earnings per share (‘000) 1,337,721 870,351 Effect of dilution: Rights Plan shares under the performance rights plan (Note 4.4) (‘000) 7,932 7,137 Weighted average number of ordinary shares adjusted for the effect of dilution (‘000) 1,345,653 877,488 1. Diluted earnings per share assumes that the executive long-term incentive plan (Refer Note 4.4) is satisfied by issuing new shares. The Group’s practice to date has been to purchase the shares on the open market and if the practice continues there will be no difference between basic and diluted earnings per share. ACCOUNTING POLICY Basic 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, as adjusted for shares held in Trust (refer to Note 4.4). Diluted Earnings Per Share Diluted earnings per share amounts are calculated by dividing the net profit/(loss) attributable to ordinary equity holders of the parent by the sum of the weighted average number of ordinary shares outstanding during the year plus the number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares (such as performance rights) into ordinary shares. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 71 NINE ANNUAL REPORT 2019 3 Operating assets and liabilities 3.1 Cash and cash equivalents 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 Total cash and cash equivalents b. Reconciliation of profit after tax to net cash flows from operations: Profit after tax from continuing operations Profit after tax from discontinuing operations Profit on sale of properties Depreciation and amortisation Impairment of assets Share based expense Share of associates net profit Mark to market on derivatives Derivative interest unwinding Gain on consolidation of Stan Other non-cash items Changes in assets and liabilities: Trade and other receivables Program rights and inventories Prepayments and other assets Trade and 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 72 2019 $’000 2018 $’000 256,121 256,121 36,375 36,375 216,566 209,666 17,314 (9,408) 83,438 17,739 5,069 2,857 241 1,100 (93,000) — — (76,906) 36,742 — 3,899 1,000 14,653 623 — (522) 63,363 (34,063) 7,090 533 (6,616) 18,724 (62,379) (25,995) (4,038) (36,136) (8,521) 19,742 — 221,570 48,279 2,834 (21,830) (9,177) (224) 161,087 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2019 3.1.(a) Changes in liabilities from financing activities At 1 July 2018 Net cash flows Debt acquired on acquisition (Refer Note 6.1) At 30 June 2019 At 1 July 2017 Net cash flows Other changes (liability related) At 30 June 2018 LIABILITIES INTEREST BEARING LIABILITIES $’000 157,646 62,409 291,898 511,953 291,175 (135,125) 1,596 157,646 ACCOUNTING POLICY Cash and cash equivalents in the Statement of Financial Position comprise cash at bank and in hand, deposits held at call with financial institutions and other short-term investments with original maturities of three months or less that are readily convertible to cash and subject to insignificant risk of changes in value. Bank overdrafts are shown within interest bearing liabilities in current liabilities on the Consolidated Statement of Financial Position. 3.2 Trade and other receivables Current Trade receivables Allowance for expected credit loss Related party receivables (Note 6.6) Other receivables 2019 $’000 2018 $’000 384,386 265,589 (3,507) 380,879 3,457 19,380 (775) 264,814 1,634 19,021 Total current trade and other receivables 403,716 285,469 Non-current Loans to related parties (Note 6.6) Other Total non-current trade and other receivables 5,421 8,841 14,262 130,018 4,452 134,470 A net charge from the allowance for expected credit loss (“ECL”) of $74,169 (2018: $97,000) has been recognised by the Group in the current period. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 73 NINE ANNUAL REPORT 2019 The ageing analysis of trade receivables not considered impaired is as follows: 2019 2018 TOTAL NOT PAST DUE <30 DAYS 31-60 DAYS >61 DAYS 380,879 264,814 339,232 245,746 24,794 11,724 9,124 2,914 7,729 4,430 PAST DUE BUT NOT IMPAIRED ACCOUNTING POLICY Trade receivables are recognised and carried at original invoice amount less an allowance for expected credit loss. They are non-interest bearing and are generally on 30 to 60 day terms. Expected credit losses for trade receivables are initially recognised based on the Group’s historical observed default rates. If appropriate, the Group will adjust the historical credit loss with forward-looking information. For instance, if forecast economic conditions are expected to materially deteriorate over the next year, which could lead to an increased number of defaults in debtors, the historical default rates are adjusted. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed. Expected credit losses for individual trade receivables are recognised when there is objective evidence that the Group will not be able to collect all amounts due according to the original trade terms. 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. 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. 3.3 Program rights and inventories Current Program rights — cost less accumulated amortisation and impairment Inventories Total current program rights and inventories Non-current Program rights — cost less accumulated amortisation and impairment Total non-current program rights 2019 $’000 250,648 17,042 267,690 109,902 109,902 2018 $’000 177,179 13,248 190,427 69,865 69,865 74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20193 Operating assets and liabilities (continued) 3.2 Trade and other receivables (continued)ACCOUNTING POLICY Program Rights The Group recognises program rights which are available for use. Television programs which are available for use, including those acquired overseas, are recorded at cost less amounts charged to the Statement of Profit or Loss and Other 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. Program rights are classified as current or non-current based on the expected realisation of economic benefits flowing from their use. Inventories Inventories are carried at lower of cost or net realisable value (“NRV”). The NRV is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The methods used to determine cost for the main items of inventory are: • raw materials (comprising mainly newsprint and paper on hand) are assessed at average cost and newsprint and paper in transit by specific identification cost; • finished goods and work in progress are assessed as the cost of direct material and labour and a proportion of manufacturing overheads based on normal operating capacity; and • in the case of other inventories, cost is assigned by the weighted average cost method. Key judgements, estimates and assumptions The assessment of the appropriate carrying value of program rights and inventories 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. 3.4 Trade and other payables Current — unsecured Trade and other payables Program contract payables Deferred income1 2019 $’000 228,524 151,488 53,130 2018 $’000 121,323 96,226 7,911 Total current trade and other payables 433,142 225,460 Non-current — unsecured Program contract payables Deferred income1 Total non-current trade and other payables 58,470 14,169 72,639 26,668 7,455 34,123 1. $36,122,000 was recognised in deferred income as a result of the acquisition of Fairfax Media Limited. ACCOUNTING POLICY 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. Terms of trade in relation to trade payables are, on average, 30 to 60 days from the date of invoice. Program contract payables are settled according to the contract negotiated with the program supplier. Deferred income represents the fair value of cash received for revenue relating to future periods. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 75 NINE ANNUAL REPORT 2019 3.5 Property, plant and equipment FREEHOLD LAND AND BUILDINGS $’000 LEASEHOLD IMPROVEMENTS $’000 PLANT AND EQUIPMENT $’000 WORK IN PROGRESS $’000 LEASED PLANT AND EQUIPMENT $’000 TOTAL PROPERTY, PLANT AND EQUIPMENT $’000 Year ended 30 June 2019 At 1 July 2018, net of accumulated depreciation and impairment 7,914 10,630 78,370 9,602 Acquisition of subsidiaries (Note 6.1) 9,026 27,107 30,128 190 — — — — — — — — — — — — — — — — 106,516 66,451 24,113 — (454) (26,346) (4,958) 165,322 129,289 22,945 — (57) (25,006) (2,127) (18,528) 106,516 10,699 12,623 2,059 (2,059) 660 — (64) — (362) (25,787) (4,958) — 16,484 33,375 95,107 20,356 13,569 12,694 87,719 15,307 15,525 7,348 13,053 (13,053) 63 — — — (57) (24,492) (2,127) — — (13,378) 10,630 78,370 9,602 — — — — — — — Additions Transfer from construction work in progress Disposals Depreciation expense Amortisation expense At 30 June 2019, net of accumulated depreciation and impairment Year ended 30 June 2018 At 1 July 2017, net of accumulated depreciation and impairment Additions Transfer from construction work in progress Disposals Depreciation expense Amortisation expense Transfer to assets held for sale1 At 30 June 2018, net of accumulated depreciation and impairment At 30 June 2019 Cost (gross carrying amount) Accumulated depreciation and impairment 131 — (28) (559) — 9 — — (514) — (5,150) 7,914 23,912 (7,428) 57,810 421,752 20,356 (24,435) (326,645) — 96 (96) 523,926 (358,604) Net carrying amount 16,484 33,375 95,107 20,356 — 165,322 At 30 June 2018 Cost (gross carrying amount) Accumulated depreciation and impairment 14,783 (6,869) 30,107 379,087 9,602 (19,477) (300,717) — 129 (129) 433,708 (327,192) Net carrying amount 7,914 10,630 78,370 9,602 — 106,516 1. Assets held for sale in 2019 Assets held for sale relates solely to land and buildings held in Perth. 76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20193 Operating assets and liabilities (continued)Assets held for sale in 2018 Assets held for sale included $13.9 million in respect of the National Playout Centre. The remaining assets held for sale for the year ended 30 June 2018 related to assets held in Newcastle and Perth. Contracts for the sale of the National Playout Centre and Newcastle assets had been entered into as at 30 June 2018 with completion post year-end. The net proceeds for the National Playout Centre were in line with its carrying value, with a gain on sale expected with the disposal of Newcastle assets. ACCOUNTING POLICY Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation and amortisation is calculated on a straight-line basis over the estimated useful life of the asset as follows: • freehold buildings — 20 to 60 years; • other production equipment — up to 15 years; • leasehold improvements — lease term; • plant and equipment — 2 to 15 years; and • computer equipment — up to 6 years. 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. The recoverable amount is the greater of fair value less costs to sell and value in use. The recoverable amounts are based on the present value of expected future cash flows. 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. 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 Profit or Loss and Other Comprehensive Income in the year the item is derecognised. Assets held for sale 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 no distribution rather than through continuing use. Such non-current assets and disposal 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. 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. 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. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 77 NINE ANNUAL REPORT 2019 3.6 Intangible assets Year ended 30 June 2019 At 1 July 2018, net of accumulated amortisation and impairment GOODWILL $’000 LICENCES $’000 MASTHEADS AND BRAND NAMES $’000 OTHER1 $’000 TOTAL $’000 416,520 477,784 — 17,680 911,984 Acquisition of subsidiaries (Note 6.1) 1,122,355 146,298 563,681 249,735 2,082,069 Purchases Disposals Impairment Amortisation expense At 30 June 2019, net of accumulated amortisation and impairment Year ended 30 June 2018 At 1 July 2017, net of accumulated amortisation and impairment Purchases Acquisition of subsidiaries (Note 6.1) Amortisation expense At 30 June 2018, net of accumulated amortisation and impairment At 30 June 2019 — (3,217) (18,910) — — — — — — — (788) — 32,708 32,708 (507) — (3,724) (19,698) (44,934) (44,934) 1,516,748 624,082 562,893 254,682 2,958,405 415,922 477,784 — 598 — — — — 416,520 477,784 — — — — — 18,308 912,014 8,981 — (9,609) 8,981 598 (9,609) 17,680 911,984 Cost (gross carrying amount) 2,642,819 1,596,651 563,681 338,380 5,141,531 Accumulated amortisation and impairment (1,126,071) (972,569) (788) (83,698) (2,183,126) Net carrying amount 1,516,748 624,082 562,893 254,682 2,958,405 At 30 June 2018 Cost (gross carrying amount) 1,523,681 1,450,353 Accumulated amortisation and impairment (1,107,161) (972,569) Net carrying amount 416,520 477,784 — — — 56,445 3,030,479 (38,765) (2,118,495) 17,680 911,984 1. This includes customer relationships of $177.5 million and capitalised development costs of software of $77.2 million being, in part, an internally generated intangible asset. 78 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20193 Operating assets and liabilities (continued)3.6(a) Allocation of non-amortising intangibles and goodwill The Group has allocated goodwill and licences to the following cash-generating units (“CGUs”): GOODWILL $’000 LICENCES $’000 MASTHEADS AND BRAND NAMES $’000 30 June 2019 Nine Network NBN Nine Digital1 Stan2 Domain2 Metropolitan Media2 Macquarie Media2 301,913 3,300 110,710 315,302 620,261 124,444 40,818 Total goodwill and non-amortising intangibles as at 30 June 2019 1,516,748 30 June 2018 Nine Network NBN Nine Digital1 Total goodwill and non-amortising intangibles as at 30 June 2018 301,913 3,300 111,307 416,520 466,784 11,000 — — — — 146,298 624,082 466,784 11,000 — 477,784 — — — 71,452 407,028 84,413 — 562,893 — — — — 1 Digital goodwill is made up of Nine Digital Pty Ltd $47.6 million (2018: $47.6 million), Pedestrian TV $19.3 million (2018: $19.3 million), CarAdvice $43.8 million (2018: $43.8 million) and Future Women $nil (2018: $0.6 million). 2. New CGUs as a result of the merger with Fairfax. Refer to Note 6.1 for details of acquisition. 3.6(b) Determination of recoverable amount The recoverable amount of the CGUs, which are classified within Level 3 of the fair value hierarchy, is determined based on value in use calculations using discounted cash flow projections based on financial forecasts covering a five-year period with a terminal growth rate applied thereafter, with the exception of the Domain CGU Group which is based on fair value less cost of disposal calculations using cash flow projections for up to ten years and a terminal growth rate applied thereafter. The Group determined Nine Network, NBN, Domain, Macquarie Radio, Metropolitan Media, Stan and each of the components of Nine Digital (Nine Digital Pty Ltd, Pedestrian TV and CarAdvice) to be CGUs. The Group performed its annual impairment test in June 2019 for each CGU, except for Stan. Stan was valued as part of the allocation of fair value exercise following the acquisition of Fairfax (refer note 6.1). At 30 June 2019 Management assessed whether there were any indicators of impairment for Stan and have determined that there was none. 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. Each of the assumptions is subject to significant judgement about future economic conditions and the ongoing structure of industries in which the CGUs operate. Management has applied its best estimates to each of these variables but cannot warrant their outcome. 3.6(c) Impairment losses recognised As a result of the analysis performed, there is headroom in the Group’s CGUs and management did not identify an impairment charge for any of the CGUs (2018: Nil) other than CarAdvice. Impairment analysis conducted at 30 June 2019 did not support the carrying value of the increased goodwill in CarAdvice following the accounting for the acquisition of the remaining shares in Drive not previously owned (refer to Note 6.1). Therefore, goodwill was written off in the statement of profit and loss and other comprehensive income, offsetting an accounting gain that arose on consolidation resulting in a net charge of $17.7 million to the statement of profit and loss and other comprehensive income. This has been disclosed as a specific item in Note 2.4. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 79 NINE ANNUAL REPORT 2019 3.6(d) Key assumptions The key assumptions on which management has based its cash flow projections when determining the value in use calculations for Nine Network are set out below. These assumptions are considered to be consistent with industry market participant expectations. • The advertising market for metro free-to-air television reflects management’s expectation of a single-digit decline in the market in the short-term followed by a flat market in the medium term. • Nine Network’s share of the metro free-to-air advertising market in future years is estimated after consideration of recent audience performance in key demographics and revenue share performance and the impact of investment in prime time programming. • Expenditure is assumed to remain broadly flat in nominal terms over the life of the model, reflecting known increases in committed expenditure being largely offset by cost-saving initiatives and operational efficiencies. • Terminal growth rate of 1.0% (30 June 2018: 1.0%). • The pre-tax discount rate applied to the cash flow projections was 13.72% (30 June 2018: 13.9%) which reflects management’s best estimate of the time value of money and the risks specific to the free-to-air television metro market not already reflected in the cash flows. The key assumptions on which management has based its cash flow projections when determining the value in use calculations for NBN are set out below. These assumptions are considered to be consistent with industry market participant expectations. • The advertising market for Regional Free-to-Air television shows single-digit declines over the short to medium term. • The pre-tax discount rate applied to the cash flow projections was 14.24% (30 June 2018: 14.2%) which reflects management’s best estimate of the time value of money and the risks specific to the regional free-to-air television market not already reflected in the cash flows. • Terminal growth rate of 0.0% (30 June 2018: 0.0%). The key assumptions on which management has based its cash flow projections when determining the value in use calculations for Nine Digital are as follows: • The digital industry in terms of digital advertising grows consistent with industry market participant expectations. • Expenditure is assumed to increase over the life of the model, to support the forecast growth in revenue. • The pre-tax discount rate applied to the cash flow projections was 15.76% (30 June 2018: 15.5%) which reflects management’s best estimate of the time value of money and the risks specific to the Nine Digital industry. • Terminal growth rate of 2% (30 June 2018: 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 Domain are as follows: • Revenue growth is in line with digital business industry trends, market maturity and management’s expectations of market development. • Management forecasts the operating costs based on the current structure of the business and does not reflect any future restructurings or cost-saving measures. • The pre-tax discount rate applied to the cash flow projections was 12.50% which reflects current market assessment of the time value of money and the risks specific to the relevant market in which the CGU operates. • Terminal growth rate of 2.5% consistent with industry forecasts specific to the CGU. The key assumptions on which management has based its cash flow projections when determining the value in use calculations for Metropolitan Media are as follows: • Revenue is forecast to show single-digit declines in the short to medium term, based on the market maturity and is in line with industry trends and management’s expectation of market development. • Expenses are forecast to remain relatively flat over the period of the model. • The pre-tax discount rate applied to the cash flow projections was 19.05% which reflects current market assessment of the time value of money and the risks specific to the relevant segments and countries in which the CGU operates. • Terminal growth rate of 0% consistent with industry forecasts specific to the CGU. 80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20193 Operating assets and liabilities (continued)3.6 Intangible assets (continued)The key assumptions on which management has based its cash flow projections when determining the value in use calculations for Macquarie Media are as follows: • Revenue is based on assumptions around market growth and market share by station, taking into account past performance and trends. • The pre-tax discount rate applied to the cash flow projections was 17.77% which reflects current market assessment of the time value of money and the specific risk within the cash flow projections applicable to the relevant licence. • Terminal growth rate of 2.5% consistent with industry forecasts specific to the CGU. 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. 3.6(e) Sensitivity The estimated recoverable amounts of the CGUs represent Management’s assessment of future performance based on historical performance and expected future economic and industry conditions. The recoverable amount of the Nine Network and NBN CGUs are in excess of the carrying amounts of intangible and tangible assets of the respective CGUs. The excess is deemed to relate to previously impaired goodwill, which cannot be reversed according to Australian Accounting Standards. Any reasonable adverse change in key assumptions would not lead to impairment. The estimated recoverable amount of the Core Digital and PedestrianTV CGUs are in excess of the carrying amount of intangible assets. Any reasonable adverse change in key assumptions would not lead to impairment in Core Digital and PedestrianTV. The estimated recoverable amount of CarAdvice is equal to the carrying amount of the intangible assets, following the impairment previously discussed. Any adverse change in the assumptions will result in additional impairment being recognised for CarAdvice. The estimated recoverable amount and carrying amount of the Domain CGU is consistent. As such, any detrimental change in key assumptions would result in an impairment. The estimated recoverable amount of the Metropolitan Media and Macquarie Media CGUs are in excess of the carrying amount of intangible and tangible assets. Any reasonable adverse change in key assumptions would not lead to impairment. ACCOUNTING POLICY 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. Licences Licences are carried at cost less any accumulated impairment losses. The Directors regularly assess the carrying value of licences 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. Mastheads and Brand names The Group’s mastheads and brand names operate in established markets with limited licence conditions and are expected to continue to complement the Group’s new media initiatives. On this basis, the Directors have determined that the majority of mastheads and brand names have indefinite useful lives as there is no foreseeable limit to the period over which the assets are expected to generate net cash inflows for the Group. These assets are not amortised but are tested for impairment annually. Customer Relationships Customer relationships purchased in a business combination are amortised on a straight-line basis over their useful lives, which are between two and 12 years. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 81 NINE ANNUAL REPORT 2019 ACCOUNTING POLICY 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. Costs incurred to develop software for internal use, and websites are capitalised and amortised over the estimated useful life of the software or website. Costs related to design or maintenance of software for internal use and websites are expensed as incurred. Intangible assets, excluding development costs, created within the business are expensed in the year in which the expenditure is incurred. Only intangible assets with a finite life are amortised. 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 Profit or Loss and Other Comprehensive Income when the net asset is derecognised. Key judgements, estimates and assumptions The Group determines whether goodwill, and other identifiable intangible assets with indefinite useful lives are impaired at least on an annual basis. Other intangible assets are reviewed at least annually to determine whether any indicators of impairment exist, and if necessary an impairment analysis is performed. Impairment testing requires an estimation of the recoverable amount of the cash-generating units to which the goodwill and other intangible assets with indefinite useful lives are allocated. Refer above for key assumptions used. 3.7 Provisions At 1 July 2018 Acquisition of subsidiaries (Note 6.1)2 Amounts provided/(Utilised) during the period At 30 June 2019 Represented by: Current Non-current Total at 30 June 2019 EMPLOYEE ENTITLEMENTS $’000 ONEROUS CONTRACTS $’000 62,845 55,405 (5,059) 113,191 81,791 31,400 113,191 18,412 141 4,235 22,788 16,075 6,713 22,788 OTHER1,3 $’000 10,588 52,099 (13,233) TOTAL $’000 91,845 107,645 (14,057) 49,454 185,433 33,194 16,260 49,454 131,060 54,373 185,433 1. Included in other provisions are provision for properties (make good and deferred leases) of $18.9 million, provision for defamation of $9.3 million, provision for redundancies of $1.6 million, and provision of services to be provided to Nine Live following its disposal. 2. Balances of provisions of subsidiaries acquired during the period. Refer Note 6.1 for details. 3. Includes current contingent consideration of $11.7 million and non-current contingent consideration of $2.8 million in respect of Domain’s acquisition of Commercialview.com.au Limited (refer to Note 6.1) 82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20193 Operating assets and liabilities (continued)3.6 Intangible assets (continued)At 1 July 2017 Amounts provided/(Utilised) during the period At 30 June 2018 Represented by: Current Non-current Total at 30 June 2018 EMPLOYEE ENTITLEMENTS $’000 ONEROUS CONTRACTS $’000 60,011 2,834 62,845 37,174 25,671 62,845 3,991 14,421 18,412 8,645 9,767 18,412 OTHER $’000 19,962 (9,374) 10,588 6,496 4,092 10,588 TOTAL $’000 83,964 7,881 91,845 52,315 39,530 91,845 ACCOUNTING POLICY 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. 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. Onerous contracts The Group is carrying provision for onerous contracts, where due to changes in market conditions, the expected benefit is lower than the committed contractual terms. This includes an onerous provision for the cost of the rent for Willoughby (and other property related costs) which the Group considered to be in excess of a market rent as part of a sale and lease back transaction. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 83 NINE ANNUAL REPORT 2019 ACCOUNTING POLICY continued Other Other provisions include the value of services which are to be provided to Nine Live following its disposal. These services are expected to be provided over the next two years. The current year provision also includes make good provisions, deferred lease incentives and onerous lease provisions. The make good provisions and deferred lease incentives are amortised over the shorter of the term of the lease or the useful life of the assets, being up to 20 years. Property leases are considered to be an onerous contract if the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Where a decision has been made to vacate the premises or there is excess capacity and the lease is considered to be onerous, a provision is recorded. The current year provision also includes amounts payable in connection with restructuring, including termination benefits, on-costs, outplacement and consultancy services. Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Other provisions include defamation and various other costs relating to the business. Defamation provisions are based on management estimates of the costs expected to be incurred. Key judgements, estimates and assumptions Onerous contract provisions The Group has recognised an onerous contract provision in relation to the Willoughby sale and leaseback. The provision is calculated as the excess of the cost of the lease (and other property-related costs) over what the Group considers to be market cost. 3.8 Commitments Year ended 30 June 2019 Capital expenditure Operating lease commitments — Group as lessee <1 YEAR $’000 1-5 YEARS $’000 >5 YEARS $’000 TOTAL $’000 49,369 71,056 1,200 170,252 — 50,569 149,587 390,895 Operating lease commitments — Group as lessor1 (11,355) (18,066) Television and Subscription Video on Demand program and sporting broadcast rights 277,856 599,022 — — (29,421) 876,878 Total Commitments 386,926 752,408 149,587 1,288,921 84 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20193 Operating assets and liabilities (continued)3.7 Provisions (continued)<1 YEAR $’000 1-5 YEARS $’000 >5 YEARS $’000 TOTAL $’000 Year ended 30 June 2018 Capital expenditure Operating lease commitments — Group as lessee Operating lease commitments — Group as lessor1 18,430 33,371 — 2,010 74,576 — Television program and sporting broadcast rights 220,197 669,520 — 71,864 — 60,000 20,440 179,811 — 949,717 Total Commitments 271,998 746,106 131,864 1,149,968 1. The Group has commercial subleases on office premises and amounts disclosed above represent the future minimum rentals receivable under non-cancellable operating leases at the year-end. The Group has entered into two Agreements for Lease with Winten Property Group to move the Sydney operations to 1 Denison Street, North Sydney. The parties to the current agreements are required to enter lease agreements once the building construction is finalised and the Group is able to take possession of its areas of the building, which is expected to occur in early 2020, in respect of 10 floors and late 2020 in respect of a further 4 floors. The rent which will be payable is dependent on the floor space which the Group occupies and this is still subject to final determination. Based on the Group’s best estimate the annual rent will be approximately $17.9 million per annum (with an annual increase which approximates CPI). The minimum lease term is expected to be 12 years (from first commencement) with options for up to a further 10 years should the Group wish to exercise them. The operating lease commitments in the table above do not include the commitments which will arise if the Group enters this lease agreement. Operating lease commitments include leases for telecommunications rental agreements, 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. ACCOUNTING POLICY 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. Operating lease payments are recognised as an expense in the Statement of Profit or Loss and Other Comprehensive Income on a straight-line basis over the lease term. 3.9 Other Assets Current Deferred consideration — sale of subsidiaries Other Total other assets 2019 $’000 10,000 13,508 23,508 2018 $’000 — 1,228 1,228 ACCOUNTING POLICY Deferred consideration is classified as an asset or liability that is a financial instrument and is within the scope of AASB 9 Financial Instruments. It is measured at fair value with the changes in fair value recognised in the statement of profit or loss in accordance with AASB 9. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 85 NINE ANNUAL REPORT 2019 4 Capital structure and management 4.1 Interest-bearing Loans and Borrowings Current Bank facilities unsecured1 Total non-current interest-bearing loans and borrowings Non-current Bank facilities unsecured1 Total non-current interest-bearing loans and borrowings 1. Bank facilities include unamortised financing costs of $2,060,000 (2018: $2,354,000). 2019 $’000 2018 $’000 195,375 195,375 316,577 316,577 — — 157,646 157,646 During the period the Group entered into a syndicated bank facility of $200 million which will mature in June 2020. At 30 June 2019, $195.6 million of the facility was drawn. Syndicated bank facilities totalling $650 million (2018: $450 million) are available to the Group for its 100% owned subsidiaries with varying maturities from February 2020 to February 2023. At 30 June 2019, $315.6 million of these facilities were drawn (2018: $160,000,000). The interest rate for drawings under this facility is the applicable bank bill rate plus a credit margin. On acquisition of Fairfax (Refer Note 6.1) and included in the table above, the Group also has exposure to the following: • A $250.0 million syndicated bank facility is available to a controlled entity, Domain Holdings Australia Limited, with tranches maturing in October 2020 and October 2021. At 30 June 2019, $163 million was drawn. The interest rate for drawings under this facility is the applicable bank bill rate plus a credit margin. • A $45.0 million revolving cash advance facility is available to a controlled entity, Macquarie Media Limited, until September 2020. At 30 June 2019, $35.8 million was drawn. The floating interest rate is reset every 30 days. A $25.95 million bank guarantee facility is also available to the Group’s 100% owned subsidiaries on a rolling annual basis. As at 30 June 2019, $14,648,454 was drawn (2018: $11,725,000). A $6 million revolving cash advance facility is available to the Group on a rolling annual basis. At 30 June 2019 the facility was not drawn (2018: Nil). The interest rate for drawings under this facility is the applicable bank bill rate plus a credit margin. Corporate facilities The corporate facilities available to the Group for its 100% owned subsidiaries 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. 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 year ended 30 June 2019. ACCOUNTING POLICY 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. 86 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20194.2 Share capital Issued share capital Ordinary shares authorised and fully paid Movements in issued share capital — ordinary shares Carrying amount at the beginning of the financial period Purchase of Rights Plan shares Vesting of Rights Plan shares (Note 4.4) Issue of shares (834,020,062 ordinary shares fully paid) (Note 6.1) Carrying amount at the end of the financial year Balance at beginning of the financial period 2019 $’000 2018 $’000 2,126,216 2,126,216 745,027 (4,707) 3,091 1,382,805 2,126,216 745,027 745,027 748,627 (4,661) 1,061 — 745,027 30 JUNE 2019 NO. OF SHARES 30 JUNE 2018 NO. OF SHARES 871,373,191 871,373,191 Issue of ordinary shares fully paid through acquisition of Fairfax Media Limited (Note 6.1) 834,020,062 — Balance at the end of the financial period 1,705,393,253 871,373,191 At 30 June 2019, a trust controlled by the Company held 2,756,094 (30 June 2018: 2,614,950) ordinary fully paid shares in the Company. During the year, 2,500,000 shares were acquired by the Trust. The shares were purchased for the purpose of allowing the Group to satisfy performance rights to certain senior management of the Group. Refer to Note 4.4 for further details. Terms and Conditions of Contributed Equity Ordinary shares entitle the holder to participate in dividends and the proceeds of winding up or sale of the Company in proportion to the number of shares held. ACCOUNTING POLICY 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 provides 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 plan trust, 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. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 87 NINE ANNUAL REPORT 2019 4.3 Dividends paid and proposed 4.3(a) Dividends appropriated during the financial year During the year Nine Entertainment Co. Holdings Limited (“Nine”) paid an interim dividend of 5.0 cents per share, fully franked (amounting to $85,131,858) in respect of the year ended 30 June 2019 and a final dividend of 5.0 cents per share, fully franked (amounting to $43,557,105) in respect of the year ended 30 June 2018. 4.3(b) Proposed Dividends on Ordinary Shares not recognised as a liability The final cash dividend fully franked, proposed for 2019 of 5.0 cents per share amounts to $85,131,858 (2018: final dividend, fully franked of 5.0 cents per share amounting to $43,557,105). 4.3(c) Franking credits available for subsequent years The franked dividends declared after 30 June 2019 will be franked out of existing franking credits or out of franking credits arising from the receipt of franked dividends and the payment of tax in the year ending 30 June 2020. The franking credits available for subsequent years as at 30 June 2019 was $8,203,764 (2018: $38,067,759). This balance represents the franking account balance as at 30 June 2019. After adjusting for franking credits which arise from the payment of income tax payable balances as at the end of the financial year, the franking account balance is $18,737,853. Nine had an exempting account balance of $41,069,000 for the year ended 30 June 2019 (2018: $41,069,000). Nine became a former exempting entity as a consequence of the IPO in December 2013. As a result, Nine’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. ACCOUNTING POLICY 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. 4.4 Share-based payments Under the executive long-term incentive plan, performance rights (“Rights”) have been granted to executives and other senior management who have an impact on the Group’s performance. On 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. Details of the plan are included in the Remuneration Report on pages 32 to 52. The total expense recognised for share-based payments during the financial year for the Group was $5,068,733 (2018: $3,899,000), including $1,320,669 in relation to a non-wholly owned subsidiary. Movement during the year The following table sets out the number of Rights outstanding as at 30 June. Outstanding at 1 July Granted during the year Forfeited during the year1 Vested2 Lapsed during the year Outstanding at 30 June3 2019 NUMBER 7,189,072 2018 NUMBER 7,544,012 2,286,747 3,205,820 (208,497) (694,031) (3,950,811) (2,233,182) — (633,547) 5,316,511 7,189,072 1. These Rights were forfeited by executives that left during the year. 2. These Rights vested subsequent to 30 June but were measured based on performance up to 30 June. This includes 455,712 (2018: 360,829 Rights) in relation to executives that left in prior years which will be cash-settled. 3. This includes 181,458 (2018: 341,095 Rights) in relation to executives that left in prior years which will be cash-settled if they vest at the end of the testing period. 88 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20194 Capital structure and management (continued)During the year ended 30 June 2019, the Group granted 486,539 shares to senior management as part payment of their short- term incentives for the year ended 30 June 2018. The total cost of $1,060,874 was expensed in the Consolidated Statement of Profit or Loss and Other Comprehensive Income in the year ended 30 June 2018. ACCOUNTING POLICY 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 in employee benefit expense, together with a corresponding increase in share-based payment reserves, over the period in which the performance and/or service conditions are fulfilled. 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. 4.5 Financial instruments 4.5(a) Financial risk management The Group’s principal financial instruments, other than derivatives, comprise cash and short-term deposits and credit facilities (refer to Notes 3.1 and 4.1). 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. Derivative instruments that the Group uses to hedge risks such as interest rate, foreign currency and commodity price movements include: • Interest rate swaps; and • forward foreign currency contracts. The Group’s risk management activities are carried out centrally, under policies as approved by the Board, in cooperation with the Group’s operating units so as to maximise the benefits associated with centralised management of Group risk factors. 4.5(b) 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 finance for the business at a reasonable cost; and • sufficient funds available to the business to implement its capital expenditure and business acquisition strategies; and • compliance with all financial covenants. Where excess funds arise with respect to the funds required to enact the Group’s business strategies, consideration is given to increased dividends or buyback of shareholder equity. 4.5(b)(i) 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 3.1 3.2 3.4 I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 89 NINE ANNUAL REPORT 2019 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 a 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. Fair values hierarchy has been determined as follows for financial assets and financial liabilities of the Group at 30 June 2019. Level 1: Investment in listed equities (refer to Note 7.1). 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 derivative financial assets and financial liabilities at balance date: 2019 2018 NOTE CARRYING AMOUNT $’000 FAIR VALUE $’000 CARRYING AMOUNT $’000 FAIR VALUE $’000 Derivative financial liabilities Option over controlled entity — current* Option over controlled entity — non-current 6.3 6.3 Total derivative financial instruments — liabilities — 12,405 12,405 — 12,405 12,405 26,228 603 26,831 26,228 603 26,831 Loan facilities — current Syndicated facility secured — at amortised cost 4.1 195,375 195,375 Loan facilities — non-current Syndicated facility unsecured — at amortised cost 4.1 Total loan facilities 316,577 511,952 316,577 511,952 157,646 157,646 157,646 157,646 * (2018: Option in relation to the acquisition of the remaining 40.78% shares in CarAdvice, which the Group exercised in November 2018). 4.5(b)(ii) Market risk factors 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. 90 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20194 Capital structure and management (continued)4.5 Financial instruments (continued)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. CONTRACTUAL MATURITY (NOMINAL CASH FLOWS) 2019 2018 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 Option over controlled entity (Note 6.3) — current Option over controlled entity (Note 6.3) — non-current Other financial assets1 — — — 12,405 Cash assets 256,121 — — — — Trade and other receivables 403,716 4,731 9,531 Other financial liabilities1 Trade and other payables 433,142 72,639 Contingent consideration 11,650 2,812 — — Debt facilities (including interest)2 208,974 271,431 48,868 — — — — — — — 26,228 — — 603 36,375 — — — — 285,469 4,973 165,800 — — — — 225,460 25,460 7,262 1,401 — — — 5,300 134,094 35,774 — — 1. For floating rate instruments, the amount disclosed is determined by reference to the interest rate at the last repricing date. 2. This assumes the amount drawn down at 30 June 2019 remains drawn until the facilities mature. 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. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 91 NINE ANNUAL REPORT 2019 2019 2018 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 Financial assets Cash and cash equivalents Trade and other receivables 2.0 N/A 256,121 — 256,121 N/A 417,978 417,978 2.0 5.86 36,375 — 36,375 126,916 293,023 419,939 Financial liabilities Trade and other payables N/A N/A 505,781 505,781 N/A N/A 259,583 259,583 Syndicated facilities — at amortised cost 2.65 511,952 — 511,952 3.31 157,646 — 157,646 Interest rate sensitivity analysis There will be no material impact on net profit after tax if interest rates were higher or lower by 1% with all other variables held constant. A sensitivity of 1% was selected as it is considered reasonable given the current level of both the short-term and long- term Australian financial market. 4.5(c) 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. Refer Note 3.2 for details on the Group’s policy on impairment, its ageing analysis of trade receivables and the allowance for expected credit losses. 4.5(c)(i) 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. 4.5(c)(ii) 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. 92 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20194 Capital structure and management (continued)4.5 Financial instruments (continued)ACCOUNTING POLICY The Group uses derivative financial instruments such as foreign currency contracts 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. 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, any gain or loss from remeasuring the hedging instrument at fair value is recognised immediately in profit or loss as a finance cost. 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 and loss. Any adjustment to the carrying amount of a hedged interest-bearing financial instrument is recognised over the remaining term of the hedging relationship using the Effective Interest Rate method. 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. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 93 NINE ANNUAL REPORT 2019 2019 $’000 2018 $’000 46,236 74,489 19,742 65,978 (9,177) 65,312 282,544 274,978 84,763 82,493 918 3,285 (27,900) — (347) (18,243) — (8) 4,583 (1,057) (2,047) (2,020) 1,958 65,312 5 Taxation 5.1 Taxes Current tax expense/(benefit) Deferred tax expense relating to the origination and reversal of temporary differences Income tax expense Reconciliation of tax expense to prima facie tax payable Profit/(loss) from continuing operations Prima facie income tax/(benefit)expense at the Australian rate of 30% Tax effect of: Share of associates’ net profits Difference between tax and accounting profit from disposal of properties Non-assessable gain on the consolidation of Stan (refer to Note 2.4) Deferred tax liability movement in investment and tangible assets Impairment and write-down of investments and revaluation of derivative financial instruments 6,636 Adjustments in respect of current tax of prior years Post, digital and visual effects offset Research and development tax offset Other items — net Income tax expense 5.2 Deferred tax assets and liabilities Deferred tax relates to the following: (945) (1,396) (1,411) 2,028 65,978 CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Employee benefits provision Other provisions and accruals Property, plant and equipment Intangible assets Tax losses Business related costs deductible over five years 2019 $’000 33,958 27,720 (9,183) 2018 $’000 15,071 20,869 1,321 (376,049) (139,918) 69,000 15,042 — 168 2019 $’000 (763) (7,097) (7,721) 848 — 1,289 Accelerated depreciation — program stock (78,714) (73,843) (4,870) Other 3,846 3,283 (1,428) Net deferred income tax liabilities (314,380) (173,049) (19,742) 2018 $’000 123 843 — 1,676 — — 14,270 (7,735) 9,177 94 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2019 ACCOUNTING POLICY 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. Tax consolidation Nine Entertainment Co. Holdings Limited (“Nine”) and its 100% owned Australian subsidiaries are part of a tax consolidated group. As a result, 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. Nine has recognised the current tax liability of the tax consolidated group. Members of the tax consolidated group are part of 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. 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. 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. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 95 NINE ANNUAL REPORT 2019 6 Group Structure 6.1 Business Combinations Acquisitions for the year ended 30 June 2019 Fairfax Media On 7 December 2018, the Group merged with Fairfax, by acquiring all of the outstanding shares in Fairfax, in return for the issue of 0.3627 shares in Nine and 2.5 cents cash per Fairfax share (total of 834,020,062 shares and $57,487,000 cash consideration). The Group merged with Fairfax as a diversified portfolio of assets and cross-platform capabilities of the Combined Group is set to drive enhanced audience engagement in a changing and dynamic media market. The Group has elected to measure the non-controlling interests in Fairfax at its share of identifiable net assets. Assets acquired and liabilities assumed As part of the merger, the Group also acquired the remaining 50% interest in Stan Entertainment Pty Limited (“Stan”) (previously 50% held associate). The goodwill on the Fairfax merger has been allocated between Fairfax and Stan as Stan became a wholly-owned subsidiary of the Group after the merger. The provisional values assigned to the identifiable assets and liabilities of Fairfax and Stan as at the date of acquisition were: FAIRFAX MEDIA LIMITED AND ITS CONTROLLED ENTITIES FAIR VALUE RECOGNISED ON ACQUISITION $’000 NOTE Assets Cash and cash equivalents Receivables Assets held for sale Income tax receivable Other financial assets Equity accounted investments Other assets Property, plant and equipment Defined benefits Finite life intangible assets Indefinite life intangible assets 50% interest in Stan (including goodwill) Assets held for sale — discontinued operations Total assets Liabilities Payables Interest bearing liabilities Current tax liabilities Provisions Deferred tax liabilities Liabilities held for sale — discontinued operations Total liabilities Total net assets Non-controlling interest measured at its share of identifiable net assets Goodwill Purchase consideration 96 (i) (ii) (ii) 77,914 181,807 9,469 15,895 2,471 2,161 17,000 64,532 1,843 205,057 637,453 237,400 298,734 1,751,736 (129,140) (291,898) (17,790) (107,646) (204,254) (140,453) (891,181) 860,555 (185,309) 782,046 1,457,292 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 2019(i) Trade receivables acquired with a fair value of $181,807,000 had a gross contractual amount of $191,457,000 and based on estimate at acquisition date $2,462,318 is not expected to be collected. (ii) Following the acquisition, Stuff NZ, Australian Community Media (“ACM”) (including print operations) and Events businesses qualify and were held for sale and discontinued operations. In May 2019, the Group completed the sale of the Events businesses and ACM was disposed on 30 June 2019. Refer to Note 6.7. STAN ENTERTAINMENT PTY LTD Assets Cash and cash equivalents Inventories Indefinite life intangibles Finite life intangible assets Property, plant and equipment Other assets Deferred tax asset including on tax losses (recognised on acquisition) Total assets Liabilities Payables Provisions Total liabilities Total identifiable net assets at fair value Goodwill on acquisition Deemed fair value of 100% interest FAIR VALUE RECOGNISED ON ACQUISITION $’000 33,582 108,336 71,452 39,678 207 1,196 45,990 300,441 (139,832) (1,111) (140,943) 159,498 315,302 474,800 From the date of acquisition, Fairfax contributed $518,242,000 of revenue and $30,163,000 to profit before tax from continuing operations of the Group and Stan contributed $100,137,000 of revenue and losses of $14,385,000 to profit before tax from continuing operations of the Group. If the combination had taken place at the beginning of the financial period, revenue from continuing operations for the Group would have been $1,098,727,000 and profit before tax from continuing operations for the Group would have been $138,974,000. The initial accounting for the acquisition of Fairfax and Stan was provisionally determined at 31 December 2018. At the date of finalisation of the annual report for the year ended 30 June 2019 the necessary market valuations and other calculations had not been finalised, and the fair value of the assets and liabilities, including deferred tax balances and goodwill were therefore only provisionally determined based on the directors’ best estimate of the likely value. In accordance with AASB 3 Business Combination, the Group has 12 months from the date of acquisition to finalise the purchase price accounting and the allocation of fair value to goodwill and other indefinite life intangible assets. The goodwill of $1,097,348,000 comprises the value of expected synergies arising from the acquisition. Goodwill is allocated across each CGU (Domain, Metropolitan Media, Macquarie Media and Stan). Refer to Note 3.6(a). None of the goodwill/indefinite life intangibles recognised are expected to be deductible for income tax purposes. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 97 NINE ANNUAL REPORT 2019 Purchase consideration Share-based payment Shares issued at fair value (Note 4.2) Cash consideration Total consideration Analysis of cash flows on acquisitions Transaction costs of the acquisition (included in cash flows from investing activities) Net cash acquired with Fairfax and Stan (included in cash flows from investing activities) Cash consideration Total net cash $’000 17,000 1,382,805 57,487 1,457,292 $’000 (21,205) 111,496 (57,487) 32,804 Transaction costs of $21,205,000 (excluding redundancies) were expensed and are included in specific items (Note 2.4). Acquisition of remaining 40% interest in CarAdvice.com Pty Ltd In November 2018 the Group exercised its option to acquire the remaining 40.78% of the shares and voting interests in CarAdvice. com Pty Ltd (“CarAdvice”) for a cash consideration of $26.5 million plus acquisition costs. The option exercise price was determined at the date of the exercise of the option based on EBITDA of CarAdvice at that time. CarAdvice has been 100% consolidated from the date of initial acquisition of its 59.22% shares, as the Group had obtained effective control and the exercise of the put and call option was considered probable. On 10 April 2019 the Group acquired the remaining 41.3% of 112 Pty Ltd (the business known as “Drive”) which it did not already own in return for 12% of shares in CarAdvice. During the year ended 30 June 2019, the Group recognised an expense of $0.2 million which is reflected in specific items relating to the revaluation of the fair value of the put and call option in relation to CarAdvice prior to it being settled. Acquisition of Commercialview.com.au Limited On 14 December 2018, Commercial Real Estate Media Pty Limited (a controlled subsidiary of Domain Holdings Australia Limited) acquired 100% of the share capital in Commercialview.com.au Limited. The consideration for the acquisition is to be paid in three tranches with two of the three being contingent on the future financial performance of the Commercial Real Estate Media and Commercialview.com.au businesses. The first tranche payment of $4.2 million was settled on 21 December 2018 and comprised 1,924,039 Commercial Real Estate Media shares and a net cash payment of $0.6 million respectively. Tranches two and three are due to be settled in early 2020 and 2021 respectively. The maximum consideration for the transaction across the three tranches is $17.2 million of which a maximum of $1.9 million is payable in cash and the remainder in newly issued shares in Commercial Real Estate Media. The expected consideration for the transaction is $10.2 million, up to $1.9 million in cash with the balance in Commercial Real Estate Media Pty Limited shares. The contingent consideration for tranches two and three is recognised as a financial liability on the balance sheet and is measured at fair value through the profit and loss (see Note 3.7). The contingent consideration is recognised in accordance with AASB 132 Financial Instruments: Presentation as a financial liability as the number of shares to be paid is variable, based upon the post-acquisition financial performance of the combined business. Goodwill of $8.2 million and non-controlling interest of $0.1 million were recognised at the time of acquisition. The goodwill comprises expected synergies arising from the acquisition. 98 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20196 Group Structure (continued)6.1 Business Combinations (continued)The issuance of Commercial Real Estate Media shares as consideration for the acquisition of Commercialview.com.au was accounted for as a transaction with non-controlling interests. AASB 3 Business Combinations allows a measurement period after a business combination to provide the acquirer a reasonable time to obtain the information necessary to identify and measure all of the various components of the business combination as of the acquisition date. The period cannot exceed one year from the acquisition date. Acquisitions in the year ended 30 June 2018 Acquisition of remaining 40% interest in Pedestrian Group Pty Ltd In May 2018, the Group acquired the remaining 40% of the shares and voting interests in Pedestrian Group Pty Ltd and Pedestrian Corporation Holdings Pty Ltd (“Pedestrian”) for a cash consideration of $39.3 million plus acquisition costs. The option exercise price was determined at the date of the exercise of the option based on EBITDA of Pedestrian at that time. Pedestrian has been 100% consolidated from the date of initial acquisition of its 60% shares, as the Group had obtained effective control and the exercise of the put and call option was considered probable. During the year ended 30 June 2018, the Group recognised an expense of $17.9 million in specific items for the mark to market movements on the put and call option in relation to Pedestrian prior to it being settled. Acquisition of 80% interest in Future Women Pty Ltd In January 2018, the Group acquired 80% of the shares and voting interests in Future Women Pty Ltd (“Future Women”) for cash consideration of $2.5 million. There is a put and call option for the remaining 20% not owned by the Group that can be exercised for the years ending 30 June 2020 through to 30 June 2022. The option exercise price is to be determined at the date of the exercise of the option based on the EBITDA of Future Women. The Group has completed its fair value assessment of the assets and liabilities acquired and as a result has recognised goodwill of $598,000. This has been allocated to the Digital segment. Future Women has been 100% consolidated as the Group has gained effective control. On 1 July 2019, the Group divested 30% of its shares in Future Women and the option arrangements were restructured. ACCOUNTING POLICY The acquisition 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 acquisition date. Where equity instruments are issued in a business combination, the fair value of the instruments is their published price at the acquisition date unless, in rare circumstances, it can be demonstrated that the published price at the acquisition date 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 acquired. 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 acquisition date. 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. Key judgements, estimates and assumptions The Group has determined provisional values for goodwill and other indefinite life intangible assets based on an estimation of the recoverable amount of the cash-generating units to which these assets are allocated. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 99 NINE ANNUAL REPORT 2019 6.2 Investments Accounted for Using the Equity Method 6.2(a) Investments at equity accounted amount: Associated entities — unlisted shares 2019 $’000 26,145 2018 $’000 12,479 6.2(b) Investments in Associates and Joint Ventures Interests in associates and joint ventures are accounted for using the equity method of accounting. Information relating to associates is set out below: PRINCIPAL ACTIVITY COUNTRY OF INCORPORATION 30 JUNE 2019 30 JUNE 2018 % INTEREST1 Darwin Digital Television Pty Ltd Television broadcast Intrepica Pty Ltd Oztam Pty Ltd RateCity Pty Ltd Online learning service Television audience measurement Australia Operator of a financial product comparison service TX Australia Pty Ltd3 Television transmission Digital Radio Broadcasting Sydney Pty Ltd4 Digital audio broadcasting Digital Radio Broadcasting Melbourne Pty Ltd4 Digital audio broadcasting Digital Radio Broadcasting Brisbane Pty Ltd4 Digital audio broadcasting Digital Radio Broadcasting Perth Pty Ltd4 Digital audio broadcasting Future Energy New Zealand Limited4 Electricity Retailer Future Foresight Group Pty Ltd4 Weather safety and risk information provider Australian Associated Press Pty Ltd4 Newsagency and information service Australia Healthshare Pty Ltd4 Information technology tools Australia NGA.net Pty Ltd4 Oneflare Pty Ltd4 RSVP.com.au Pty Limited2,4 Online dating services Provider of e-recruitment software Australia Home services marketplace Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand South Africa 50 27 33 50 50 12 18 25 17 49 50 47 28 24 21 58 50 27 33 50 33 — — — — — — — — — — — Stan Entertainment Pty Ltd5 Subscription Video on Demand Australia 100 50 1. The proportion of ownership is equal to the proportion of voting power held, except where stated. 2. The Group does not have control of this company as it is not exposed, or does not have rights, to variable returns from its involvement with the investee and does not have the ability to affect those returns through its power over the investee. 3. During the year, the Group acquired a further 17% interest in TX Australia. Total consideration of $11 million was transferred, in cash, in settlement of this transaction. 4. Acquired as part of the acquisition of the Fairfax Media Limited group during the year. 5. The remaining 50% of Stan Entertainment was acquired on 7 December 2018 and therefore this entity has been fully consolidated since that date. 100 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20196 Group Structure (continued)6.2(c) Carrying amount of investments in associates Balance at the beginning of the financial year Acquired during the year Disposed during the year Share of associates’ net (loss)/profit for the year Dividends received or receivable Carrying amount of investments in associates at the end of the financial year 2019 $’000 12,479 18,211 (808) (2,857) (880) 26,145 2018 $’000 12,324 — — 1,155 (1,000) 12,479 6.2(d) Share of associates and joint ventures net profit/(loss) 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 2019 $’000 (16,982) 2018 $’000 (30,951) The Group’s current year share of losses of associates and joint ventures not recognised is $14.1 million (2018: $32.1 million). The Group’s cumulative share of losses of associates and joint ventures not recognised is $nil (2018: $127.3 million). These losses were not recognised as the carrying value of these investments was nil. 6.2(e) Share of associates and joint ventures assets and liabilities Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities 6.2(f) Impairment There was no impairment recorded during the current financial year (2018: Nil). 2019 $’000 19,340 60,350 79,690 13,828 11,999 25,827 2018 $’000 73,459 18,738 92,197 47,831 161,536 209,367 I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 101 NINE ANNUAL REPORT 2019 ACCOUNTING POLICY Associates are entities over which the Group has significant influence and which are not subsidiaries. Significant influence is the power to participate in the financial and operating policy decisions of the entity but is not control or joint control over those policies. 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 investments in the associate or joint venture are accounted for using the equity method. They are 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 Consolidated Profit or Loss and Other Comprehensive Income reflects the Group’s share of the results of operations of the associates or joint ventures. Dividends received from associates and joint ventures are recognised in the consolidated financial statements as a reduction in the carrying amount of the investment. When the Group’s share of losses in the associate or joint venture equals or exceeds its investment in the associate or joint venture, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture. 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. Impairment 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 performs an impairment test to determine 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 Consolidated Profit or Loss and Other Comprehensive Income. 6.3 Investment in controlled 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 an ASIC instrument with the parent entity are: Nine Entertainment Co. Holdings Ltd Channel 9 South Australia Pty Ltd CarAdvice.com Pty Ltd1 Ecorp Pty Ltd Future Women Pty Ltd3 FOOTNOTE PLACE OF INCORPORATION A, B A, B Australia Australia Australia A, B Australia Australia General Television Corporation Pty Limited A, B Australia Mi9 New Zealand Limited Micjoy Pty Ltd NBN Enterprises Pty Limited NBN Pty Ltd Nine Films & Television Pty Ltd New Zealand Australia Australia Australia Australia A, B A, B A, B A, B OWNERSHIP INTEREST JUNE 2019 % OWNERSHIP INTEREST JUNE 2018 % Parent Entity Parent Entity 100 88 100 80 100 100 100 100 100 100 100 59 100 80 100 100 100 100 100 100 102 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20196. Group Structure (continued)FOOTNOTE PLACE OF INCORPORATION OWNERSHIP INTEREST JUNE 2019 % OWNERSHIP INTEREST JUNE 2018 % Nine Films & Television Distribution Pty Ltd4 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 Digital Pty Ltd Pay TV Holdings Pty Limited Petelex Pty Limited Pedestrian Corporation Holdings Pty Limited Pedestrian Group Pty Limited Pink Platypus Pty Ltd Queensland Television Holdings Pty Ltd Queensland Television Pty Ltd Shertip Pty Ltd Stan Entertainment Pty Ltd2, 4 Swan Television & Radio Broadcasters Pty Ltd TCN Channel Nine Pty Ltd Television Holdings Darwin Pty Limited Territory Television Pty Ltd White Whale Pty Ltd All Homes Pty Limited2 ACT Real Estate Media Pty Ltd2 Alldata Australia Pty Ltd2 Allure Media Pty Ltd2 Australian Openair Cinemas Pty Limited2 Australian Property Monitors Pty Limited Buyradio Pty Ltd2 Commerce Australia Pty Ltd2 Commercial Real Estate Holdings Pty Ltd2 Commercial Real Estate Media Pty Limited2, 5 Commercialview.com.au Ltd2, 5 A, B A, B A, B B A, B A, B A, B A, B A, B A, B A, B B B A, B A, B A, B A, B A, B A, B A, B A, B A, B B B Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia David Syme & Co Pty Limited2, 4 A, B Australia 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 59 59 59 100 100 100 55 59 59 40 40 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 100 100 100 100 100 — — — — — — — — — — — — I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 103 NINE ANNUAL REPORT 2019 FOOTNOTE PLACE OF INCORPORATION OWNERSHIP INTEREST JUNE 2019 % OWNERSHIP INTEREST JUNE 2018 % Digital Home Loans Pty Limited2 Domain Group Finance Pty Limited2 Domain Holdings Pty Limited2 Domain Insure Pty Ltd2, 5 Domain Operations Pty Limited2 Fairfax Corporation Pty Limited2, 4 Fairfax Digital Australia & New Zealand Pty Limited2, 4 Fairfax Digital Pty Limited2, 4 Fairfax Entertainment Pty Limited2, 4 Fairfax Event Sub Pty Ltd2 Fairfax Media Limited2, 4 Fairfax Media Events Pty Ltd2, 4 Fairfax Media Management Pty Limited2, 4 Fairfax Media Publications Pty Limited2, 4 Fibre Communications Limited2 Find a Babysitter Pty Ltd2 Harbour Radio Pty Ltd2 Homepass Australia Pty Ltd2, 5 Homepass Pty Ltd2, 5 John Fairfax & Sons Pty Limited2, 4 John Fairfax Pty Limited2,4 Macquarie Media Limited2 Macquarie Media Network Pty Limited2 Macquarie Media Operations Pty Limited2 Macquarie Media Syndication Pty Limited2 Map and Page Pty Ltd2 Mapshed Pty Ltd2 Metro Media Publishing Pty Ltd2 Metro Media Services Pty Ltd2 MMP Community Network Pty Ltd2 MMP (DVH) Pty Ltd2, 5 MMP (Melbourne Times) Pty Ltd2, 5 MMP Bayside Pty Ltd2, 5 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia A, B A, B A, B A, B B A, B A, B A, B A, B New Zealand B Australia A, B A, B Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 104 36 59 59 41 59 100 100 100 100 100 100 100 100 100 100 100 55 40 40 100 100 55 55 55 55 55 59 55 59 59 37 41 46 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20196 Group Structure (continued)6.3 Investment in controlled entities (continued) FOOTNOTE PLACE OF INCORPORATION OWNERSHIP INTEREST JUNE 2019 % OWNERSHIP INTEREST JUNE 2018 % MMP Eastern Pty Ltd2, 5 MMP Greater Geelong Pty Ltd2, 5 MMP Holdings Pty Ltd2, 5 MMP Moonee Valley Pty Ltd2, 5 National Real Estate Media Pty Limited2 National Real Estate Nominees Pty Ltd Australia Australia Australia Australia Australia Australia Neighbourly Limited2 New Zealand New South Wales Real Estate Media Pty Limited2, 5 Northern Territory Real Estate Media Pty Ltd2, 5 Property Data Solutions Pty Ltd2 Queensland Real Estate Media Pty Ltd2, 5 Radio 1278 Melbourne Pty Limited2 Radio 2UE Sydney Pty Ltd2 Radio 3AW Melbourne Pty Limited2 Radio 4BC Brisbane Pty Limited2 Radio 6PR Perth Pty Limited2 Radio Magic 882 Brisbane Pty Limited2 Residential Connections Pty Ltd2, 5 Review Property Pty Ltd2 South Australia Real Estate Media Pty Ltd2, 5 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Stuff Limited2 B New Zealand Tasmania Real Estate Media Pty Ltd2, 5 Australia The Age Company Pty Limited2, 4 A, B Australia The Weather Company Pty Limited2 Western Australia Real Estate Media Pty Ltd2, 5 Australia Australia 41 28 59 41 59 59 100 42 44 100 42 55 55 55 55 55 55 30 59 40 100 44 100 75 41 — — — — — — — — — — — — — — — — — — — — — — — — — A. These controlled entities have entered into a deed of cross guarantee with the parent entity under ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 – the “Closed Group” (refer to Note 6.4). B. Members of the “Extended Closed Group” (refer to Note 4.1 and 6.4 for further detail). 1. The Group currently owns 88% of the shares CarAdvice, however it is 100% consolidated in accordance with accounting standards. 2. The Group acquired Fairfax and its controlled entities as well as the remaining 50% of Stan Entertainment on 7 December 2018. These entities joined the Group as part of that acquisition. Refer to Note 6.1. 3. The Group divested 30% of its ownership in Future Women on 1 July 2019. As at 30 June 2019, Future Women was consolidated. 4. These entities became a party to the Deed of Cross Guarantee on 5 June 2019. 5. This represents the Group’s effective interest in the entity which is partially owned (yet controlled) by a non-wholly owned subsidiary. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 105 NINE ANNUAL REPORT 2019 The following entities joined the Deed of Cross-Guarantee on 5 June 2019 and were the subject of a notice of disposal on 30 June 2019 on completion of the sale of the Australian Community Media business: PLACE OF INCORPORATION OWNERSHIP INTEREST JUNE 2019 % OWNERSHIP INTEREST JUNE 2018 % Agricultural Publishers Pty Ltd Fairfax Regional Media (Tasmania) Pty Ltd Newcastle Newspapers Pty Ltd Regional Publishers Pty Ltd Regional Publishers (Western Victoria) Pty Limited Rural Press Pty Ltd Rural Press Printing Pty Ltd Rural Press Printing (Victoria) Pty Ltd Rural Publishers Pty Ltd The Federal Capital Press of Australia Pty Ltd Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia — — — — — — — — — — — — — — — — — — — — ACCOUNTING POLICY Basis of consolidation The consolidated financial statements comprise the financial statements of the parent entity and its subsidiaries as at 30 June 2019. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Controlled entities are de-consolidated from the date control ceases. Subsidiary acquisitions are accounted for using the acquisition 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. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated profit or loss and other comprehensive income, consolidated statement of changes in equity and balance sheet respectively. 106 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20196 Group Structure (continued)6.3 Investment in controlled entities (continued)6.4 Deed of cross guarantee Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 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 Statement of Consolidated Profit or Loss and Other Comprehensive Income of the entities which are members of the “Closed Group” and the “Extended Closed Group” for the year ended 30 June 2019 is as follows: CLOSED GROUP1 EXTENDED CLOSED GROUP2 2019 $’000 2018 $’000 2019 $’000 2018 $’000 Consolidated Statement of Profit or Loss and Other Comprehensive Income Profit/(loss) from continuing operations before income tax 274,972 268,399 272,528 268,399 Income tax expense (62,527) (62,159) (61,815) (62,159) Net profit/(loss) after income tax from operations 212,445 206,240 210,713 206,240 Dividends paid during the period (128,688) (81,504) (128,688) (81,504) Adjustments to reserves Accumulated profits at the beginning of the financial year Accumulated profits at the end of the financial year — 345,224 428,981 — — 220,488 353,809 345,224 435,834 — 229,073 353,809 1. Closed Group are those entities party to the Deed of Cross Guarantee. 2. Refer to Note 6.3. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 107 NINE ANNUAL REPORT 2019 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 2019 is as follows: CLOSED GROUP EXTENDED CLOSED GROUP Current assets Cash and cash equivalents Trade and other receivables Program rights and inventories Property, plant and equipment held for sale Other assets Income tax receivables 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 equities Property, plant and equipment Intangible assets Other assets Total non-current assets Total assets Current liabilities Trade and other payables Interest-bearing loans and borrowings Income tax liabilities Provisions Derivative financial instruments 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 108 2019 $’000 179,206 401,076 270,409 1,583 29,934 — 2018 $’000 22,394 277,864 190,427 18,528 27,065 — 882,208 536,278 2019 $’000 200,255 357,606 267,690 1,583 29,751 — 856,885 4,931 109,902 23,803 1,178,563 — 104,376 1,127,450 49,248 2,598,273 3,455,158 394,580 184,694 47,097 100,466 — 2018 $’000 22,394 277,864 166,026 18,528 27,065 — 511,877 169,890 69,710 12,479 86,438 — 104,982 846,144 62,159 1,351,802 1,863,679 220,313 — 33,587 50,854 26,228 4,931 109,902 24,025 1,178,628 3,437 122,304 1,210,021 49,248 2,702,496 3,584,704 429,237 195,375 44,242 109,206 — 726,837 330,982 778,060 119,285 118,246 148,097 — 38,951 424,579 1,151,416 2,303,742 34,123 157,646 174,020 603 39,369 405,761 736,743 1,126,936 194,827 118,246 143,833 — 56,486 513,392 1,291,452 2,293,252 132,180 69,865 12,479 86,428 4,468 104,982 846,144 62,159 1,318,705 1,854,983 223,647 — 33,586 50,854 26,228 334,315 34,123 157,646 174,016 603 39,369 405,757 740,072 1,114,911 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20196 Group Structure (continued)6.4 Deed of cross guarantee (continued)6.5 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 (loss)/income Net (loss)/profit for the year Total comprehensive (loss)/income for the year PARENT ENTITY 2019 $’000 2018 $’000 24,071 3,059,282 3,083,353 661 309,373 310,034 2,773,319 2,134,803 8,451 630,065 2,773,319 631,451 631,451 50,796 1,106,728 1,157,524 479 269,951 270,430 887,094 751,998 7,794 127,302 887,094 (477) (477) I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 109 NINE ANNUAL REPORT 2019 6.6 Related party transactions 6.6(a) Transactions with related parties The following table provides the total value of transactions that were entered into with related parties for the relevant financial year. 2019 $’000 2018 $’000 Rendering of services to and other revenue from — Associates of Nine Entertainment Co. Stan Entertainment Pty Ltd — revenue1 Stan Entertainment Pty Ltd — interest income1 Ratecity Pty Ltd Darwin Digital Television Pty Ltd Australian Money Channel NPC Media Pty Ltd Receiving of services from related parties — Associates of Nine Entertainment Co.: Australian Associated Press Pty Ltd Digital Radio Broadcasting Sydney Pty Ltd Digital Radio Broadcasting Melbourne Pty Ltd Digital Radio Broadcasting Perth Pty Ltd Digital Radio Broadcasting Brisbane Pty Ltd Homebush Transmitters Pty Ltd RSVP.com.au Pty Limited Dividends received from — Associates of Nine Entertainment Co.: Oztam Pty Ltd Amounts owed by related parties — Stan Entertainment Pty Ltd2 NPC Media Pty Ltd Ratecity Pty Ltd Homebush Transmitters Pty Ltd Future Energy Management Ltd Loans to related parties — Stan Entertainment Pty Ltd2 Darwin Digital Television Pty Ltd3 NPC Media Ltd3 Other3 5,324 3,599 26 77 599 493 3,614 60 112 60 55 178 72 880 — 986 148 410 1,913 — 2,910 2,000 511 10,251 6,626 71 — — — — — — — — — — 1,000 1,486 — 148 — — 126,916 2,910 — 192 1. For the period prior to the merger with Fairfax on 7 December 2018, at which date Stan became 100% owned and was consolidated. 2. The loans granted to the related party and amounts owed by related parties are now eliminated on consolidation post the Fairfax and Nine merger and the Group acquiring 100% control of Stan Entertainment Pty Ltd. 3. The loans granted to these related parties are non-interest bearing. 110 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20196 Group Structure (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 and settlement occurs in cash. For the year ended 30 June 2019, the Group has not made any material allowance for expected credit losses 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. 6.6(b) 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. 6.6(c) Controlled entities, associates and joint arrangements Investments in associates and joint arrangements are set out in Note 6.2. Interests in significant controlled entities are set out in Note 6.3. 6.6(d) Key management personnel 6.6(d)(i) Transactions with key management personnel 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. 6.6(d)(ii) Compensation of key management personnel REMUNERATION BY CATEGORY Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments Total remuneration of key management personnel Detailed remuneration disclosures are provided in the Remuneration Report on pages 32 to 52. 2019 $ 2018 $ 5,399,434 5,714,876 164,221 15,988 136,154 25,012 1,753,989 2,650,117 7,333,632 8,526,159 6.7 Discontinued operations Following the acquisition of Fairfax on 7 December 2018, the Board agreed to sell Stuff NZ, Australian Community Media (ACM) (including printing operations) and Events, wholly-owned businesses of Fairfax. Following the acquisition, the Group classified these businesses as a disposal group held for sale and as discontinued operations. Australian Community Media (including printing operations) was sold on 30 June 2019, and Events was sold on 31 May 2019. The sale of Stuff NZ is expected to be completed within a year from the date of the initial acquisition. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 111 NINE ANNUAL REPORT 2019 7 Other 7.1 Other financial assets Non-current Investments in listed entities1 Closing balance at 30 June 2019 $’000 5,949 5,949 1. Investments in Yellow Brick Road (ASX: YBR) and other shares held by controlled entities of the Group in other listed entities. These investments are carried at fair value through other comprehensive income. Non-current As at 1 July 2018 Acquired during the year Movement in fair value Closing balance at 30 June 2018 $’000 4,468 4,468 2019 $’000 4,468 2,512 (1,031) 5,949 ACCOUNTING POLICY The investment in listed equities is classified as a Level 1 instrument as described in Note 4.5(b). Fair value was determined with reference to a quoted market price with a mark to market loss of $1,031,000 (2018:$1,178,000 loss) adjusted against the investment for the year ended 30 June 2019. 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. 112 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20197.2 Defined benefits plan Non-current Defined benefits plan1 Closing balance at 30 June 2019 $’000 23,231 23,231 2018 $’000 25,584 25,584 1. 30 June 2019 balance consists of Fairfax Media Super defined benefits plan (2019: $2,070,000) and Nine Network Superannuation Plan (2019: $21,161,000, 2018: $25,584,000). The disclosure below is only in relation to the Nine Network Superannuation Plan. 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. The plan disclosed throughout relates to the Nine Network Superannuation Plan and excludes the Fairfax Media Plan, on the basis that it is not considered material to the Group. 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 55% 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 2019 was performed by Mercer Investment Nominees Limited for the purpose of satisfying accounting requirements. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 113 NINE ANNUAL REPORT 2019 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 assumptions Actuarial gains arising from liability experience Employer contributions Contributions to accumulation section Net defined benefit asset 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 received/(paid) Contributions to accumulation section 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/(gains) arising from changes in financial assumptions Actuarial (gain)/losses arising from liability experience Benefits paid Taxes, premiums and expenses received/(paid) 30 JUNE 2019 $’000 30 JUNE 2018 $’000 25,584 (1,008) 748 1,715 (2,827) (1,073) 22 (2,000) 21,161 22,851 (667) 708 2,484 (459) 647 20 — 25,584 30 JUNE 2019 $’000 30 JUNE 2018 $’000 58,483 55,320 1,894 1,715 22 724 (2,473) 154 (2,000) 58,519 1,903 2,484 20 741 (1,878) (107) — 58,483 30 JUNE 2019 $’000 30 JUNE 2018 $’000 32,900 32,469 1,008 1,146 724 2,827 1,073 (2,473) 154 667 1,196 741 459 (647) (1,878) (107) Present value of defined benefit obligations at 30 June 37,359 32,900 The defined benefit obligation consists entirely of amounts from Plans that are wholly or partly funded. 114 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20197 Other (continued)7.2 Defined benefits plan (continued)Fair value of Plan assets As at 30 June 2019, total Plan assets of $58,519,000 are held in AMP Future Directions Balanced investment option. The percentage invested in each asset class at the reporting date is: AS AT Australian Equity International Equity Fixed Income Property Alternatives/Other Cash 1. Asset allocation as at 31 March 2019 (2018: 31 March 2018). The fair value of Plan assets includes no amounts relating to: • any of the Company’s own financial instruments; or • any property occupied by, or other assets used by, the Company. Significant Actuarial Assumptions AS AT Assumptions to Determine Benefit Cost Discount rate Expected salary increase rate Assumptions to Determine Benefit Obligation Discount rate Expected salary increase rate 30 JUNE 20191 30 JUNE 20181 22% 32% 19% 11% 13% 3% 21% 33% 12% 6% 20% 8% 30 JUNE 2019 30 JUNE 2018 3.4% p.a. 2.0% p.a. 2.2% p.a. 2.0% p.a. 3.6% p.a. 2.0% p.a. 3.4% p.a. 2.0% p.a. Sensitivity Analysis The defined benefit obligation as at 30 June 2019 under several scenarios is presented below. Scenarios A and B relate to discount rate sensitivity. Scenarios C and D relate to salary increase rate sensitivity. • Scenario A: 0.5% p.a. lower discount rate assumption. • Scenario B: 0.5% p.a. higher discount rate assumption. • Scenario C: 0.5% p.a. lower salary increase rate assumption. • Scenario D: 0.5% p.a. higher salary increase rate assumption. % P.A. BASE CASE SCENARIO A SCENARIO B SCENARIO C SCENARIO D –0.5% P.A. DISCOUNT RATE +0.5% P.A. DISCOUNT RATE –0.5% P.A. SALARY INCREASE RATE +0.5% P.A. SALARY INCREASE RATE Discount rate Salary increase rate Defined benefit obligation ($’000s)1 2.2% p.a. 2.0% p.a. 37,358 1.7% p.a. 2.0% p.a. 38,626 2.7% p.a. 2.0% p.a. 36,144 2.2% p.a. 1.5% p.a. 36,353 2.2% p.a. 2.5% p.a. 38,395 1. Includes defined benefit contributions tax provision. The defined benefit obligation has been recalculated by changing the assumptions as outlined above, whilst retaining all other assumptions. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 115 NINE ANNUAL REPORT 2019 Asset-liability matching strategies No asset and liability matching strategies have been adopted by the Plan. Funding arrangements The financing objective adopted at the 1 July 2018 actuarial investigation of the Plan, in a report dated 21 December 2018, 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 EMPLOYER CONTRIBUTIONS RATE (% OF SALARIES) A A1 nil nil Plus any compulsory or voluntary member pre-tax (salary sacrifice) contributions. For A1 members, the employer 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); • except that one year of required Employer SG Contributions (not exceeding $1 million per month or $12 million in aggregate, gross of tax) will be financed from Defined Benefit Assets from 1 April 2019 to 31 March 2020 (or starting at a date as agreed between the Trustee and the Employer but no later than 1 July 2019); and • any additional employer contributions agreed between the Employer and a member (e.g. additional salary sacrifice contributions). Expected Contributions FINANCIAL YEAR ENDING Expected employer contributions 30 JUNE 2020 $’000 — Maturity profile of defined benefit obligation The weighted average duration of the defined benefit obligation as at 30 June 2019 is six years (30 June 2018: six years). EXPECTED BENEFIT PAYMENTS FOR THE FINANCIAL YEAR ENDING ON: 30 June 2020 30 June 2021 30 June 2022 30 June 2023 30 June 2024 Following five years 116 $’000 3,585 3,324 5,138 4,674 4,801 21,522 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20197 Other (continued)7.2 Defined benefits plan (continued)ACCOUNTING POLICY 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. 7.3 Auditor’s remuneration 2019 $ 2018 $ Amounts paid or payable for services by the auditor of the parent entity, Ernst & Young Australia, for: Audit and review of the financial report of the consolidated entity 2,400,000 561,365 Audit and review of the financial reports of other related entities Taxation services Assurance related services Total auditor’s remuneration 670,671 368,161 90,000 — 411,877 23,600 3,528,832 996,842 7.4 Contingent liabilities and related matters The consolidated entity has made certain guarantees regarding contractual leases, performance and other commitments of $14,648,454 (2018:$11,725,000). All contingent liabilities are unsecured. The probability of having to meet these commitments is remote and there are uncertainties relating to the amount and the timing of any outflows. Certain entities in the Group are party to various legal actions and exposures that have arisen in the ordinary course of business. Appropriate provisions have been recorded, however the outcomes cannot be predicated with certainty. Prior to the acquisition of Fairfax by the Group, Fairfax had been the subject of or undertaken a range of corporate actions. Those actions are likely to have required the exercise of judgement in assessing the approach which should be taken, or the treatment of the corporate action or the effect of it, including from a tax or accounting standpoint. There is a risk that other parties and stakeholders, including a regulatory authority such as the ATO, could hold a different view and may seek that adjustments be made that could have an adverse impact on the Group. In relation to key known judgements, the Group is satisfied that appropriate support, including external advice where appropriate, has been provided and no provisions have been raised in respect of such judgements. The parent entity is a party to the Deed of Cross Guarantee entered into with various Group companies. Refer to Note 6.4 for further details. Refer to Note 3.8 for disclosure of the Group’s commitments. 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. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 117 NINE ANNUAL REPORT 2019 7.5 Events after the balance sheet date Acquisition offer for Macquarie Media Limited On 12 August 2019, the Group announced to the ASX an offer to acquire the remaining shares in radio broadcaster Macquarie Media Limited it did not own. The Group obtained its majority shareholding in Macquarie Media Limited following its merger with Fairfax Media in December 2018. The offer will result in the Group paying $113.9 million (at $1.46 per share) for the remaining 45.5 percent stake, provided a minimum of 90% shareholders accept the offer, allowing the Group to compulsory acquire the remainder. The acquisition will be 100 percent financed from cash reserves and existing debt facilities. Subject to getting sufficient Macquarie Media Limited shareholder acceptances, the transaction is due to complete by December 2019. 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. 7.6 Other significant accounting policies ACCOUNTING POLICY 7.6(a) Changes in accounting policies and disclosures The Group has applied AASB 15 and AASB 9 for the first time from 1 July 2018. The nature and effect of the changes as a result of adoption of these new accounting standards are described below. Several other amendments and interpretations apply for the first time in 2019 but do not have a material impact on the financial statements of the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective. • AASB 15 Revenue from Contracts with Customers AASB 15 replaces all existing revenue recognition standards including AASB 118 Revenue and became effective for the Group from 1 July 2018. It establishes a five-step framework for determining whether, how much and when revenue is recognised, in particular due to the performance obligation criteria. The Group’s key business activities are: the provision of advertising on television, digital platforms and newspapers; circulation and subscription revenue for newspapers, magazines and other publications; together with the provision of subscription on demand video streaming. The Group adopted AASB 15 using the modified retrospective method of adoption with the date of initial application of 1 July 2018. Under this method, the Group elected to apply the standard to all uncompleted contracts as at 1 July 2018. The cumulative effect of initially applying AASB 15 is recognised as at 1 July 2018 as an adjustment to the opening balance of retained earnings. Therefore, the comparative information was not restated and continues to be reported under AASB 118 and related interpretations. The pre-tax effect of adopting AASB 15 as at 1 July 2018 and the reasons for the changes were as follows: Total adjustments to liabilities Deferred revenue and tax payable Total adjustment to equity Retained profits REFERENCE INCREASE/(DECREASE) $’000 (a) (a) 2,333 (2,333) a. Before adopting AASB 15, the Group recognised Television revenue when the associated advertisement had been broadcast. Digital revenue was recognised when the media services had been performed, which is similar to the recognition criteria for circulation and subscription revenue. Under AASB 15, revenue for Television is recognised by reference to when an advertisement has been broadcast and specific viewer metrics contained in the agreement with the customer have been met. The adjustment to the retained profits was determined by first ascertaining when an advertising contract is considered fulfilled. The Group analysed sales data to determine the time it took to fulfil its obligations within the advertising contracts to customers. All performance obligations that were not met after the end of a campaign were considered deferred revenue, with a reduction of $2.3 million to opening retained earnings as at 1 July 2018. There was no material current year impact on revenue or profit, nor any balance sheet line items, resulting from the implementation of AASB 15. 118 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20197 Other (continued)• AASB 9 Financial Instruments AASB 9 was issued in phases, with the phased approach reflecting a number of versions of the standard being issued. The Group early adopted the version of AASB 9 (issued in June 2014) on 1 July 2014, which provided guidance on the classification and measurement of financial assets. On the adoption of AASB 9 (2014), those financial assets classified as either amortised cost, fair value through other comprehensive income or fair value through profit & loss were measured as such under AASB 9. The final complete standard, AASB 9 (2014), became effective for the Group from 1 July 2018, the impact of which is as follows: Impairment Under AASB 9 the impairment model requires a 12-month expected credit loss provision (doubtful debts) to be recognised when financial instruments, including trade debtors are first recognised. Subsequently, if there is a significant increase in credit risk, then a lifetime expected credit loss provision needs to be recognised. There was no material impact to the Group’s credit loss provision as a result of adopting AASB 9. 7.6(b) New accounting standards and interpretations A number of new accounting standards have been issued or amended which were not yet effective but early adoption is permitted however the Group has not early adopted any new or amended standards in preparing these consolidated financial statements. Of those standards that are not yet effective, AASB 16 Leases is expected to have a significant impact on the Group’s financial statements in the period of initial application. • AASB 16 Leases The Group must apply AASB 16 Leases for the year ended June 2020. AASB 16 replaces the current AASB 17 Leases standard. AASB16 provides a single lease accounting model for identifying and measuring lease arrangements with a term of 12 or more months, unless the underlying asset is of low value. A contract contains a lease if it conveys the right to control the use of an identified asset for a period of time. The Group, as lessee, will be required to recognise a right-of-use (ROU) asset representing its right to use the underlying asset and a lease liability representing the present value of future lease payments. The Income Statement will include depreciation of the ROU asset and interest expense on the lease liability. The pattern of expense recognition changes with higher cost in the earlier stages of the lease as a result of the interest calculated on the lease liability that amortises over the lease term. Lessor accounting under AASB 16 is substantially unchanged from AASB 17. Transition The Group will apply the modified retrospective approach as permitted by AASB 16. Under this approach, there is no requirement to restate the prior year comparatives financial statements and there are two methods of calculation the ROU asset on a lease by lease basis. The Group will measure the ROU asset for all existing operating leases as equal to the lease liability on transition. Existing lease incentive balances on transition will be offset against the new ROU asset. Judgement has been applied by the Group in determining the incremental borrowing rate, which contractual arrangement represent a lease, the period over which the leases exist and the variability of the future cash flow. Based on the transition approach chosen, the Group will recognise lease liabilities of between $289 million and $319 million (pretax). After adjusting for amounts currently recorded on the balance sheet (representing deferred lease incentives), the Group will recognise ROU assets of between $281 million and $311 million (pre-tax), (this range excludes held for sale leases). In conjunction with its non-wholly owned controlled entities, the Group is currently finalising the impact in of adopting AASB 16. These estimates may be materially different to the actual impact on initial application on 1 July 2019 due to changes in the application of practical expedients, recognition exemptions and changes to material judgmental areas. IFRIC interpretation 23 Uncertainty over income tax treatments (effective date 1 January 2019) — This interpretation addresses accounting for income taxes when tax treatments involve uncertainty and specifically addresses whether an entity considers uncertain tax treatments individually or collectively, whether the entity assumes the taxation authorities have full knowledge of all information and how the entity measures uncertainty. The Group is still assessing the impact of this on results in the financial statements. I D R E C T O R S ’ R E P O R T A U D I T O R S ’ I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T O P E R A T I N G A N D F I N A N C A L I R E V E W I N O T E S T O T H E F I N A N C A L I S T A T E M E N T S 119 NINE ANNUAL REPORT 2019 7.6(c) Other significant accounting policies 7.6(c)(i) Foreign currency translation Both the functional and presentation currency of Nine Entertainment Co. Holdings Limited and its Australian subsidiaries is Australian dollars ($). 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 Profit or Loss and Other 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. 120 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedfor the year ended 30 June 20197 Other (continued)7.6 Other significant accounting policies (continued)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 Chief Executive Officer and the Chief Financial Officer for the year ended 30 June 2019; 2. in the opinion of the Directors, the consolidated financial statements and notes that are set out on pages 60 to 120 and the Remuneration Report on pages 32 to 52 in the Directors’ 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 2019 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 Company 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 on page 64 of 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 6.4 will be able to meet any obligations or liabilities 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 Sydney, 22 August 2019 HUGH MARKS Chief Executive Officer and Director I D R E C T O R S ’ D E C L A R A T I O N I N D E P E N D E N T A U D I T O R S ’ R E P O R T S H A R E H O L D E R I N F O R M A T I O N C O R P O R A T E I D R E C T O R Y 121 NINE ANNUAL REPORT 2019 INDEPENDENT AUDITOR’S REPORT to the Directors of Nine Entertainment Co. Holdings Limited 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Independent Audit or’s Report t o t he Members of Nine Ent ert ainment Co. Holdings Limit ed Report on t he Audit of t he Financial Report Opinion We have audited the financial report of Nine Entertainment Co. Holdings Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2019, the consolidated statement of comprehensive income, consolidated statement of changes in equit y and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) giving a t rue and fair view of the consolidated financial position of the Group as at 30 June 2019 and of its consolidated financial performance for the year ended on that date; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Aust ralian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the et hical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other et hical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Mat t ers Key audit matters are those matters that , in our professional judgement, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. 122 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation I D R E C T O R S ’ D E C L A R A T I O N I N D E P E N D E N T A U D I T O R S ’ R E P O R T S H A R E H O L D E R I N F O R M A T I O N C O R P O R A T E I D R E C T O R Y We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. 1. Carrying value of int angible asset s Why significant How our audit addressed t he key audit mat t er As 30 June 2019, the Group’s consolidated statement of financial position included goodwill and other intangible assets amounting to $2,958m, representing 67% of total assets. This included $2,082m of goodwill and intangible assets recognised on the acquisition of Fairfax Media, for which purchase price accounting remains provisional. As disclosed in Note 3.6 to the financial statements, the Directors have assessed goodwill and other intangible assets for impairment or the reversal of prior year impairment. This assessment involved critical accounting estimates and assumptions, specifically relating to discounted future cash flows. These estimates and assumptions, are summarised in Note 3.6. We considered this to be a key audit matter given the carrying value of these assets relative to total assets and the significant judgements and assumptions involved in the impairment tests. Our audit procedures included the following: • • • Assessment as to whether the models used by the Directors in their impairment testing of the carrying values of intangible asset met the requirements of Aust ralian Accounting Standards. Evaluation of the determination of each Cash Generating Unit (“ CGU” ) with respect to the independent cash inflows generated by each CGU. Assessment of the mathematical accuracy of the models. • Consideration of the underlying assumptions regarding future cash flows used in the models by comparing these to the Board approved five-year business plans and long-term capital and content investment plans. • Consideration of the historical accuracy of the Group’s forecasting. • Assessment of the discount rates and growth rates (including terminal growth rates) applied in the models, with involvement from our valuation specialists and with reference to external data such as broker forecasts and valuations. • Consideration of the sensitivity analysis performed by the Group, focusing on the areas in the models where a reasonably possible change in assumptions could cause the carrying amount to differ from its recoverable amount and therefore indicate impairment or a reversal of prior year impairment. • Considered the adequacy of the disclosures relating to intangible assets in the financial statements, including those made with respect to judgements and estimates. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 123 NINE ANNUAL REPORT 2019 2. Valuat ion of program right s Why significant How our audit addressed t he key audit mat t er At 30 June 2019, the program rights balance of $361m included $251m of current and $110m of non-current program rights. These program rights constitute free to air broadcast rights in the Nine television business and subscription video on demand rights in the STAN business. Our audit procedures included the following: • Assessment as to whether the recognition, measurement and amortisation methodology applied by the Group to program rights met the requirements of Australian Accounting Standards. As disclosed in Note 3.3 to the financial statements, the Directors’ assessment of the valuation of program rights involves judgement, relating to forecasting the quantum of future revenue to be derived from the usage of those program rights. We considered this a key audit matter due to the carrying value of the program rights asset and the inherent subjectivity that is involved in forecasting future revenue. • Comparison of forecast revenue for significant program rights to the carrying value of the respective program rights. • Assessment of the forecast revenue to be derived from the usage of program rights by assessing the assumptions applied in the Group’s forecast with reference to recent historical performance of program rights and actual revenue earned subsequent to year end. • Consideration of the adequacy of the disclosures in the financial report relating to the valuation of program rights, including those made with respect to judgements and estimates. 124 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation INDEPENDENT AUDITOR’S REPORT continuedto the Directors of Nine Entertainment Co. Holdings Limited3. Fairfax Media Limit ed acquisit ion and associat ed mat t ers Why significant How our audit addressed t he key audit mat t er As outlined in Note 6.1 to the financial statements, on 7 December 2018, the Group acquired Fairfax Media Limited (“ Fairfax” ), consideration being the issue of 0.3627 shares in the Group and 2.5 cents cash for each Fairfax share (total of 834,020,062 shares and $57,487,000 cash consideration). This transaction has been treated as a business combination, with the Group recognising the fair value of the assets acquired and liabilities assumed on that date. Accounting for this t ransaction was complex, requiring the Group to exercise judgement in identifying and determining the fair value of the acquired assets and liabilities As outlined in the disclosure included in Note 6.1, the Group’s accounting for the acquisition in the year-end financial report remains provisional. The Group also classified certain operations and assets acquired as held for sale. This was considered to be a key audit matter due to the value of the acquisition and the judgement involved in accounting for the transaction and determining the provisional fair values of the related assets and liabilities. Our audit procedures included the following: • Assessment of the Group’s conclusion that the acquisition represents a business combination in accordance with Australian Accounting Standards. • With the involvement of our valuation specialists, considered the provisional allocation of the purchase price to the acquired assets and liabilities. • • Assessment of whether the criteria set out in Australian Accounting Standards, for amounts to be classified as discontinued operations and disposal groups held for sale, were met and assessment of the valuations applied to these assets. Assessment of the competency, qualifications, objectivity and methodologies of the independent experts engaged by the Group to identify and determine the provisional fair values of the assets acquired and liabilities assumed. • Our audit procedures relating to the Group’s impairment testing of the acquired intangible assets are addressed in the Carrying value of intangible assets Key Audit Matter above. • Assessment of the adequacy of the related disclosures within the financial report relating to the acquisition. I D R E C T O R S ’ D E C L A R A T I O N I N D E P E N D E N T A U D I T O R S ’ R E P O R T S H A R E H O L D E R I N F O R M A T I O N C O R P O R A T E I D R E C T O R Y A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 125 NINE ANNUAL REPORT 2019 Informat ion Ot her t han t he Financial Report and Audit or’s Report Thereon The directors are responsible for the other information. The other information comprises the information included in the Group’s 2019 Annual Report other than the financial report and our auditor’s report thereon. We obtained the Directors’ Report that is to be included in the Annual Report, prior to the date of this auditor’s report, and we expect to obtain the remaining sections of the Annual Report after the date of this auditor’s report. Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection wit h our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilit ies of t he Direct ors for t he Financial Report The Directors of the Company are responsible for the preparation of the financial report that gives a t rue and fair view in accordance with Aust ralian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement , whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Audit or's Responsibilit ies for t he Audit of t he Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an audit or’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance wit h the Aust ralian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: · Ident ify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 126 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation INDEPENDENT AUDITOR’S REPORT continuedto the Directors of Nine Entertainment Co. Holdings Limited· · · · · Obtain an understanding of internal control relevant to t he audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our audit or’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, st ructure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate wit h the Directors regarding, among ot her matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated to the Directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation I D R E C T O R S ’ D E C L A R A T I O N I N D E P E N D E N T A U D I T O R S ’ R E P O R T S H A R E H O L D E R I N F O R M A T I O N C O R P O R A T E I D R E C T O R Y 127 NINE ANNUAL REPORT 2019 Report on t he Audit of t he Remunerat ion Report Opinion on t he Remunerat ion Report We have audited the Remuneration Report included in pages 32 to 52 of the Directors' Report for the year ended 30 June 2019. In our opinion, the Remuneration Report of Nine Entertainment Co. Holdings Limited for the year ended 30 June 2019, complies with section 300A of the Corporations Act 2001. Responsibilit ies The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance wit h section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young Christopher George Partner Sydney 22 August 2019 128 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation INDEPENDENT AUDITOR’S REPORT continuedto the Directors of Nine Entertainment Co. Holdings LimitedSHAREHOLDER INFORMATION Twenty largest shareholders as at 12 September 2019 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 BIRKETU PTY LTD J P MORGAN NOMINEES AUSTRALIA PTY LIMITED CITICORP NOMINEES PTY LIMITED NATIONAL NOMINEES LIMITED BNP PARIBAS NOMINEES PTY LTD BNP PARIBAS NOMS PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED CITICORP NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA PACIFIC CUSTODIANS PTY LIMITED BOND STREET CUSTODIANS LIMITED WARBONT NOMINEES PTY LTD NAVIGATOR AUSTRALIA LTD UBS NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2 AMP LIFE LIMITED DAVID GYNGELL BOND STREET CUSTODIANS LIMITED 20 POWERWRAP LIMITED Options There were no options exercisable at the end of the financial year. Escrowed shares There were no shares in escrow at the end of the financial year. 12 SEP 2019 538,999,953 254,760,442 238,160,120 233,666,312 119,331,514 27,169,680 20,908,077 17,286,754 15,065,208 14,638,510 7,914,397 6,957,869 6,362,408 5,838,794 5,649,824 5,415,312 4,384,919 3,228,048 2,902,429 2,767,786 %IC 31.61 14.94 13.97 13.70 7.00 1.59 1.23 1.01 0.88 0.86 0.46 0.41 0.37 0.34 0.33 0.32 0.26 0.19 0.17 0.16 I D R E C T O R S ’ D E C L A R A T I O N I N D E P E N D E N T A U D I T O R S ’ R E P O R T S H A R E H O L D E R I N F O R M A T I O N C O R P O R A T E I D R E C T O R Y 129 NINE ANNUAL REPORT 2019 Substantial shareholders Substantial shareholders as shown in substantial shareholding notices received by the Company as at 12 September are: NAME Bruce Gordon/Birketu/WIN1 Pendal Group Legg Mason Australia FIL Limited Vanguard Group 1. In addition, Birketu has economic interests in 19,118,280 shares pursuant to swaps. RANGE 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and Over Total Unmarketable Parcels TOTAL SHARES 240,839,806 127,830,325 125,591,175 97,384,206 85,323,332 NO. OF HOLDERS 13,371 8,752 2,609 2,754 189 27,675 4,941 % 14.12% 7.50% 7.36% 5.71% 5.00% % 48.31 31.62 9.43 9.95 0.68 100.00 17.85 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. Buy-back There is no current on-market buy-back. 130 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 12 November 2019 at the offices of Ashurst Australia, 5 Martin Place, Sydney NSW 2000 Financial Calendar 2020 Interim Result February 2020 Preliminary Final Result August 2020 Annual General Meeting November 2020 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: Ph: Fax: 1300 888 062 (toll free within Australia) +61 2 8280 7670 +61 2 9287 0303 Email: Website: www.linkmarketservices.com.au registrars@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# NEC-19001 I D R E C T O R S ’ D E C L A R A T I O N I N D E P E N D E N T A U D I T O R S ’ R E P O R T S H A R E H O L D E R I N F O R M A T I O N C O R P O R A T E I D R E C T O R Y NINE ANNUAL REPORT 2019 

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