Annual Report 2020 YOUNG RICH NOVEMBER 2018 AUSTRALIA’S WEALTHIEST UNDER 40 Liftout inside Kayla Itsines FITNESS QUEEN She built a $490 million fortune without breaking a sweat. So why aren’t there more women entrepreneurs? By Julie-anne Sprague Plus DESIGN SPECIAL AUSTRALIA’S MOST FINELY CRAFTED HOUSE | ROBOTIC PUPPIES & MORE FUTURE FUN Impact of COVID-19 The outbreak of COVID-19 in Australia had a marked impact on Nine’s FY20 results, particularly in the 4th quarter. The effective shut-down of the country in mid-March had a significant impact across all of Nine’s businesses. Nine quickly transitioned the majority of its work-force to ‘work at home’ with minimal interruption. Notwithstanding, Nine’s crucial newsrooms across the country remained open throughout, consistently providing premium news coverage for all Australians. Nine, 9Now, Stan and our core publishing mastheads, all recorded marked growth in audiences which has continued into FY21. However, the broad advertising market came under significant pressure through the fourth quarter, which negatively impacted revenue across Nine Network, Radio and Publishing. In response, Nine was quick to focus on both short and long term cost initiatives across all of its businesses, as well as expediting the $100 million, 3-year linear TV cost out that was announced with Nine’s interim results in February. In total, across the entire business in calendar 2020, Nine estimates it will remove ~$225 million of cash costs aimed at minimising the impact of the COVID- related advertising downturn. In addition, the Government waived payment of Nine's annual FTA spectrum charges across calendar 2020 which resulted in a P&L saving of $1.3 million in FY20. The JobKeeper allowance was received for Pedestrian Group, CarAdvice, Nine Events and Domain. In FY20, the benefit totalled $6.1 million, as an offset to expenses. Further details of the impacts and initiatives are included in the commentary for the individual segments. Overview In FY20, Nine continued to focus on investing in its long-term growth assets and improving the operating performance of its traditional media portfolio, despite the difficult operating environment. The core growth assets of Stan, 9Now, Digital Publishing and Domain, now all scale businesses in their own right with strong market positions, contributed 32% of Group Revenue1 and 43% of EBITDA1 for the year. The traditional Free To Air business contributed around 35% of Group EBITDA, down from 50% in FY19 (pro forma4 basis)1. Together, these changes reflect the continuing evolution of Nine’s business to the digital platform. Result in brief In FY20, on a continuing business basis, Nine reported Group EBITDA of $397 million, which, on a like-basis (pre AASB16), was down 16% on FY19. Revenues across the Group fell by 7% to $2.2 billion, as the operating environment impacted on all advertising markets. Net Profit after Tax was $141 million, which equated to a decline of 19% on a like (pre-AASB16) basis. After a Specific Item (non-recurring) cost of $665 million, after tax, the bulk of which related to non-cash accounting adjustments, a Statutory Loss of $509 million was reported. Earnings per share was 8.3c and a fully franked dividend of 7c per share was declared across the year. Revenue2 split FY20 Strong growth in EBITDA3 contribution from digital video 8% 25% 12% 4% 51% 300 250 200 150 100 50 0 -50 Broadcast Domain 9Now Digital & Publishing Stan -42% -19% -19% +36% FY19 FY20 Broadcast 9Now Digital & Publishing Domain Stan Corporate Associates +49% Year to June, $m, continuing business basis Revenue Group EBITDA NPAT, before Specific Items and Minorities NPAT, before Specific Items Statutory Net Profit after Tax, after Specific Items Earnings per Share, before Specific Items – cents Dividend per Share – cents FY20 2,170.6 396.7 155.9 140.8 (508.8) 8.3 7.0 FY193 Variance FY203 2,171.6 2,341.74 354.6 423.84 176.0 160.4 9.4 7.0 224.84 198.34 216.6 11.64 10.0 -7% -16% -22% -19% NM -19% -30% Operating free cash flow for the year, pre Specific Items, was $373 million. Net Debt on a wholly-owned basis at 30 June 2020 was $291 million, compared with $121 million 12 months earlier. During the year, $170 million was paid in dividends to shareholders, $139 million was paid as consideration for Macquarie Media, approximately $30 million was received from the sale of non-core assets and $117 million was spent on capex, including $64 million on the new premises in North Sydney. Reported, wholly owned basis 30 June 2020 30 June 2019 Net Debt, $m Net Leverage 291.2 0.9X 120.7 0.4X variance +$170.5m +0.5X 1 Reported basis, post AASB16. 2 Reflects split based on economic share of revenue (Domain 59%). 3 Pre AASB16, accounting for leases. All % variances are calculated on a Pre-AASB16 (consistent) basis. 4 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. Where Australia Connects With Australia’s most trusted and loved brands spanning News, Sport, Lifestyle and Entertainment, we pride ourselves on creating the best content, accessed by consumers when and how they want, while celebrating our ability to give shared experiences to audiences. Overview Operational Highlights Chairman’s Address Chief Executive Officer’s Address Operational Review Corporate Responsibility Nine Cares Board of Directors Financial Report IFC 2 4 6 8 25 28 30 32 Directors’ Report Auditor’s Independence Declaration Remuneration Report Operating and Financial Review Financial Statements Directors’ Declaration Independent Auditor’s Report Shareholder Information Corporate Directory 33 38 39 60 66 134 135 140 IBC 1 NINE ANNUAL REPORT 2020 Operational Highlights 2020 It has always been Nine’s role to provide Australians with the best possible, premium content BROADCAST Australia’s leading broadcast brands across television, broadcast Video on Demand, and radio #1 FTA RATINGS1 AND REVENUE2 SHARE 6% REDUCTION IN FTA COSTS IN FY20 #1 BVOD AUDIENCE2 AND REVENUE3 SHARE OVERHAUL OF RADIO BUSINESS POST ACQUISITION 1 12 months to June 2020, 25-54s, All People, prime time, main channel. OzTAM data 2 12 months to June 2020, OzTAM data 3 12 months to June 2020. ThinkTV data DIGITAL AND PUBLISHING One of Australia’s leading digital publishers 13.8m TOTAL DE- DUPLICATED METRO AUDIENCE ACROSS PRINT AND DIGITAL4 READER REVENUE ~59c IN EVERY $ RECEIVED DIGITAL REVENUE CONTRIBUTES ~41% OF TOTAL REVENUE 8% REDUCTION IN METRO MEDIA COSTS5 4 EMMA data 12 months to March 2020 5 excluding Weatherzone, Events 2 STAN Australia’s leading local SVOD business ~2.2m ACTIVE SUBSCRIBERS (AS AT END AUGUST) 54% GROWTH IN SUBSCRIPTION REVENUE $50m EBITDA AND CASH IMPROVEMENT ON PRIOR YEAR 60+ EXCLUSIVES RELEASED ACROSS THE YEAR, FROM MORE THAN 15 DIFFERENT DISTRIBUTORS DOMAIN (59%) One of Australia's leading property technology and services businesses 6% INCREASE IN CONTROLLABLE YIELD INTRODUCTION OF NEW, INNOVATIVE PRICING STRUCTURE 23% GROWTH (YEAR ON YEAR) IN ORGANIC TRAFFIC TO DOMAIN 5% REDUCTION IN LIKE-FOR-LIKE COSTS 3 NINE ANNUAL REPORT 2020 Chairman’s address We are confident that Nine will continue to occupy its place at the forefront of the media landscape as we move post-2020 This was an extremely difficult year for Australian business. The global economy went into reverse and Australia moved into recession for the first time in 30 years. The magnitude of the domestic downturn was sharp and steep as much of the economy was closed by Government in response to the pandemic. In the second half of the financial year, large parts of the Australian population were in lockdown. 4 Media companies began shedding staff and closing publications. Other companies, but not ours, qualified for significant JobKeeper subsidies as their revenues fell 50%. The ASX 200 index fell by over a third from peak to trough. We will long remember the COVID-19 pandemic of 2020, its impact on our way of life, and the downturn in the economy it caused. The severe downturn dramatically affected advertising revenue. Whilst Nine has growing subscription businesses in Stan and Publishing, the majority of our revenue still comes from advertising through free-to-air television, digital video-on-demand, and publishing. In 2020, our ratings and audiences were up across all our platforms, but overall advertising dollars were down very significantly as companies cut their advertising budgets in response to the downturn. Given the circumstances, the outcome for the year with EBITDA pre-Specific Items and post AASB16 of close to $400 million, was a very pleasing result. It compares extremely well with our domestic competitors. What this period has demonstrated is the benefit of diversity, the diversity we have been developing in our business over the past few years. Previous decisions to develop sources of revenue outside advertising have proven their worth in this economic downturn. We launched Stan when Subscription Video- on-Demand did not exist in Australia. Our focus on reader revenue in Publishing has been successful and is gathering momentum. Our growing subscription-based business helped us, and together with advertising on platforms that are structurally in growth, we weathered the storm. As a result, we are now exceptionally well- placed to emerge from this period a stronger and more focused company. We continue to shift more of our business to a digital platform. At the same time, we have been improving the relative operating performance of our traditional media segments. Across almost all our operating platforms, we have gained audience and revenue share. And we have been able to bring forward years of planned cost reduction. Underlying trends in the industry, which we anticipated and prepared for, continue to gather pace. Increased audiences in streaming and the migration to digital across both our Broadcast and Publishing businesses, stand us in good stead for the future. We are confident that Nine will continue to occupy a place at the forefront of the Australian media landscape as we move post-2020. The challenges of the recent period also crystallised the need to deal with some long-term issues which were threatening our competitiveness. The first was sports rights. There has been a tendency in Australia to think that the value of sports rights will always and invariably increase. In fact, the challenges of the COVID environment showed that, in some circumstances, that value declines. We were forced to address this co-operatively with the NRL during the year. We have re- aligned values in a way that is fair both to the sport and the broadcaster. The other great challenge in this industry is the market power of the global digital platforms like Facebook and Google. They are not subject to the content rules that apply to Free to Air broadcasters in the Australian market. They make very little Australian content and contribute very little to Australian employment. Nonetheless, they are able to use the premium content we produce to attract audiences in the Australian market. We have consistently invested in premium content – in FY20 as much as $1 billion across our business. The large global companies We are hopeful that we are through the worst of this crisis. Our focus on the business has been unrelenting. Notwithstanding the unprecedented conditions, we have continued to improve the relative performance of the traditional businesses, we have contained costs, and we have delivered on our longer-term goal of diversifying our revenue streams with new and growing digital assets. PETER COSTELLO, AC Chairman are committed to paying dividends to our shareholders and intend to maintain a payout ratio of 60-80% through the cycle. Our balance sheet remains strong, our operating performance is clearly ahead of our peers and our Company is increasingly well-positioned for its digital future, underpinning our confidence that payment of a final dividend this year was appropriate. I would like to acknowledge the tireless leadership and dedication of our whole team led by CEO, Hugh Marks. Over the past five years, Nine has transitioned from a Free-to-Air television network to a diversified and increasingly digitised content company without parallel in the local market. This transition will benefit our shareholders into the future. Hugh has a strong and stable team around him who have helped to shape the Company to the business it is today. We have also had comforting stability on our Board throughout the year. All our Directors have remained committed and focused and they continue to contribute in their individual ways. I want to thank them for their efforts. We have a broad diversity of skills and experience across the Board, which overall has been a great support to the management team throughout this testing period. use this content to generate revenue, but they do not pay for it at a rate that fairly shares the cost of making it or fairly shares the value they get from it. We cannot be expected to bear all the cost when it is being monetised by others. If we are not adequately compensated we will, regrettably, reduce our investment in this content. Simply, it will become uncommercial to make all the premium content we now make. This outcome would not worry Facebook or Google since it would not affect their global businesses in any significant way. But it will affect Australian creators, Australian consumers, and Australian culture. We know these companies have enormous market power and enjoy significant regulatory benefits including tax advantages that Australian companies do not have. So we are pleased the Government has recognised this problem and supports moves to address it. In July 2020, the ACCC released its draft mandatory code designed to facilitate fair bargaining between Facebook, Google and media businesses over the use of their news content. Of course, the final detail will be important, but we commend the ACCC on its work and the Government for its firm position on this issue – also supported by the Opposition. Local Australian production will benefit, but we believe the ultimate beneficiaries from this will be Australian consumers. We have already paid an interim dividend of 5c per share and, notwithstanding the difficult operating environment, we will pay a further 2c in October, both of which are fully franked. This equates to a payout ratio of just over 80% of Net Profit after Tax, before Specific Items. We 5 NINE ANNUAL REPORT 2020 CEO’s address We have the best suite of assets, and the smartest team to exploit those assets Whilst 2020 was no doubt a challenging year for media, not only in Australia but around the world, our operating strength and the results of the strategic decisions we have made over the past 5 years, have sheltered us from the worst of the market impact of COVID-19. Our relative position has been further enhanced, and we will emerge from current events as a more focussed and stronger business that’s well- positioned for long term growth. At the core of Nine’s business is content – news, sports and general entertainment. It has always been Nine’s role to provide Australians with the best possible, premium content. Historically, audiences were only able to be reached through linear distribution platforms, be that free-to-air television or print. Now we are faced with the dual threat, and opportunity, of digital platforms, meaning audiences can now consume an expanding variety of content in the way they chose to, including the content owned by Nine. This fundamental change has meant we have had to look at the degree to which we need to adapt our business model for the future. Challenging us not just to think about how we take advantage of new platforms to reach audiences but more fundamentally, also our approach to what genres we spend money on and why, and even the nature of the content that we create. In television, this means moving to higher margin content that has broader distribution potential and in publishing, to content that resonates with subscribers. So, while our content investment has been relatively stable over the past five years, the nature of that investment has changed significantly. We have focussed on platforms we can monetise, and that are growing and on the content that works across those platforms. We also need to control more rights to our content, to ensure we can determine and capitalise on all forms of distribution. That focus has paid off. Nine’s exposure to the growth platforms in the market – primarily digitally based, and video-centric, coupled with our majority stake in Domain, now exceeds that of our traditional free-to- air television and print businesses. And in the year to June 2020, this combined digital contribution from Stan, 9Now, Domain and Publishing grew by around 40%, to almost half of our EBITDA total. The health and economic events of 2020 have acted to expedite this process. Audiences have grown across all of our platforms – publishing audiences have migrated to digital; streaming through 9Now has become a larger component of our television audiences and Stan’s subscriber numbers and engagement have grown substantially this year. And while many of these trends were already occurring, the evolution has accelerated. We estimate that the average Australian watches around 120 hours of long-form video content or television each month, which is about 5% more than we watched in 2015. But with a definition of television that encapsulates free-to-air, and video on demand, both advertiser-supported like 9Now and subscription, like Stan. As a result of our strategy, notwithstanding the arrival of more international players into the Australian television market, Nine, across all our platforms, has retained around a 24% share of all television viewing. Clear evidence that we are evolving our business model to address changes in audience behaviour. 6 As markets recover, we expect this migration of audiences to be ongoing and, as a result, we will continue to focus our content investment on those growing platforms. This has meant that we have had to make some difficult decisions in our legacy businesses. During the year, we announced plans to remove up to $160 million of costs from our linear television business – around $100 million of which would be achieved by the end of calendar 2020, and the remaining $60 million within three years. Much of this can be achieved by doing what we do smarter and by not doing things that give us limited returns, but we have also looked at sports costs and sales structures and the process is ongoing. Our cost performance over the past couple of years has been creditable, and the underlying business has prospered. We will continue to reallocate resources towards the parts of our business that promise the greatest returns. Quality news is a constant across our portfolio of assets. This year has thrown our news teams enormous challenges and each time they have risen to the challenge. From the depth of their coverage of the Summer bushfire disasters, the consistency of their coverage through and of the COVID-19 pandemic and the resilience they showed, without exception, through the US, and subsequently global, protests and riots, Nine’s extended news teams did not miss a beat. I commend them all for their dedication and for ensuring that Australians are kept up to date with all the breaking news. I’d also like to call out our People and Culture, and Technology teams at this point. These two groups particularly have carried enormous extra loads through this recent health crisis. The People and Culture team was quick to act, ensuring the physical and mental health and safety of our employees, while our Technology team ensured a smooth technical transition as people, some of whom had never worked remotely before, moved to work from home, in a seamless manner. Notwithstanding all the disruption of COVID-19, there were some outstanding operational highlights in FY20. Nine won the TV ratings so clearly across the year and achieved a 20-year high revenue share. Stan surged through 2 million subscribers, The Sydney Morning Herald, The Age and the Financial Review gained share on both an audience and revenue basis and 9Now held a 50% share in a market that continues to outperform. So while the ad market was bleak, Nine’s performance was far from it. I continue to believe that we have the best suite of assets, and the smartest team to exploit those assets. It’s been a challenging year. But, our staff and the Board have been unwavering in their commitment and support as we continue to redefine our business. Thank you HUGH MARKS Chief Executive Officer 7 NINE ANNUAL REPORT 2020 Broadcast Australia’s leading broadcast brands, across television and radio 8 Broadcast Nine’s Broadcast division, which comprises Nine Network, 9Now and Nine Radio (previously Macquarie Media) reported EBITDA of $197 million on revenues of $1.1 billion for the year. EBITDA1 contribution - FY20 Broadcast results2, $m e u n e v e R 1400 1200 1000 800 600 400 200 0 40% Broadcast 9Now Digital & Publishing Domain Stan 13% 300 200 100 0 FY19 FY20 TV 9Digital Radio EBITDA (RHS) 1. Economic interest adjusted basis, post AASB16, excludes corporate costs. 2. Like-for-like basis, pre AASB16. 9 NINE ANNUAL REPORT 2020 Broadcast The positive operating momentum of Nine’s free-to-air business continued into FY20 10 Free To Air Television The positive operating momentum of Nine’s free-to-air (FTA) business continued into FY20 with growth in both ratings and revenue share across the year. From March however, the broad advertising market was significantly impacted by the effective shut-down of much of Australia due to the COVID-19 pandemic, and this manifested itself in a very weak FTA ad market in the fourth quarter. Overall, the metro FTA market declined by 14% across the year, which included a decline of 34% in the June quarter. Nine recorded a Television revenue decline of 13% in FY20 – Nine’s share of metro revenues for the year was 39.8%1, up from 39.6%1, marking Nine’s highest share since 2000, including a second half share of 41.4%1. In February, Nine announced a $100 million, 3-year cost-out program for its linear television business, focussing on costs that would not impact on the quality and depth of news coverage, nor inhibit Nine’s ability to continue to invest in the growth opportunities around digital and video. This program reflected the impact of audience migration on linear television and the re-focussing of Nine’s broader investment towards the growth components of the business. The COVID-19 situation resulted in an expedition and expansion of this program, with an updated three-year target of 1. Think TV, metro FTA share, 12 months to June 2020. $160 million. Specifically, this program is focussing on reduced sports and international content costs, as well as broader operational efficiencies which will benefit from the move of Channel 9 Sydney to North Sydney. In FY20, Nine recorded a 6% decline in its television cost base, or ~$50 million. This performance was driven by a second half cost decline of 16%, as the benefits of the cost out program began to be realised. Notwithstanding this cost performance, EBITDA declined by 42% to $124 million, pre AASB16, of $138 million on a reported basis – the strong relative operating performance of Nine on both a share and cost basis, masked by the very weak overall TV market. FY20 was one of Nine’s best ratings years ever. For the year to June, Nine was the #1 free-to-air network in all of the key demographics. Network ratings for the year – commercial share #1 All People #1 #1 25-54s 16-39s #1 GB + CH 38.6% 38.2% 37.1% 38.7% +0.7pts +0.1pts -0.1pts -0.3pts OzTAM data, 12 months to end of June 2020, 6pm–midnight For the second year in a row Married At First Sight cemented its place as Australia’s No.1 series. No other show on television dominates the national conversation the way MAFS does. 11 NINE ANNUAL REPORT 2020 Broadcast Firefighters from FBNSW run for safety as the Green Wattle Creek fire exploded from the bush in Orangeville filling the air with millions of embers. Photo by Nick Moir 5th December 2019. Sydney Morning Herald Across the year, Nine’s 6pm news service is almost always one of the top five shows for the night, attracting a metro free-to- air audience of almost 1m people each night. The Nine News and Current Affairs brands have extended their reach through Nine's regional network as well as its digital publishing platforms, nine.com.au and 9News.com, while Nine’s video content reaches audiences via FaceBook, Twitter and Instagram as well as the Metro Media publishing titles. News was front and centre in television in FY20, with the Australian bushfire crisis over summer, closely followed by the global COVID-19 pandemic and the US race riots. Through these periods, Nine’s average nightly news audiences increased, during the first-wave virus coverage by as much as 25%, as Australians turned to their most trusted news providers. Nine continues to focus on being the primary supplier of news to all Australians, across all demographics, and distribution platforms. In FY20, Nine broadcast around 63 hours of television news and current affairs each week. During these crisis periods, Nine's commitment to news increased to as much as 68 hours, with bulletins extended both morning and night. Reach of Nine’s News during this period was a massive 17.9 million Australians, or 70% of the population. Nine’s year began with the Australian Open – the prestigious event delivered two weeks of consistently high audiences and gave Nine a flying start to the year. Celebrating its 41st season in 2019, 60 Minutes ended the year as Australia’s No. 1 weekly public affairs program. In 2019, 60 Minutes achieved a national average audience of 1.030 million viewers per episode. 12 Sport remains a core part of Nine’s programming strategy. In FY20, Nine broadcast more than 1000 hours of premium sport across the year, in addition to around 350 hours of other sports-related content. During the year, after a 9-week interruption, Nine resumed the broadcast of Rugby League in May 2020. Under the revised contract with the NRL, Nine expects a P&L benefit, resulting from the changes in rights fees and associated production and services arrangements, of an average of around $27 million each year, in FY21 and FY22. The revised contract sets a level of rights costs that will enable Nine to sustainably invest in Rugby League for the future. For season 2020 to date, with many games played in extraordinary circumstances with reduced crowds and carefully monitored teams, Nine’s NRL broadcasts have reached an average of around 3 million league supporters each week, a fertile audience for advertisers chasing a tight demographic. Season 2020 will be shortened by 5 rounds, with the finals and State of Origin series now expected to be played in October and November 2020 respectively. Nine’s 2020 Summer of Tennis reached a national audience of 14.5 million people, or more than half of the total Australian population. Year on year, the national average audience for the lead tournament, the Australian Open, grew across all demographics, with Total People up around 17% and Nine’s targeted people aged 25- 54s, recording growth of almost 22%, on Nine’s first broadcast in 2019. Australians were front and centre in 2020, with the Nadal v Kyrgios 4th round match attracting the highest audience of the tournament, peaking at 3.4 million viewers and an average audience of 2.5 million viewers. Tennis also attracted a growing digital audience. Across the Summer, 9Now recorded 10.6 million stream starts (up 70% on 2019) and a total of 258 million minutes streamed, more than double 2019. The strong lead-in from tennis ensured Nine’s start to the ratings season. Nine’s March quarter ratings and revenue share in 2020 were both at record levels, as Nine’s dating juggernaut, Married At First Sight, delivered an average of 2.2 million viewers per episode, across linear and streaming platforms. The record-breaking Season 15 of The Block, in late 2019, attracted average cross-platform audiences of 1.7 million per episode as Australians again embraced the enduringly successful formula of the country’s favourite renovation show. Moreover, it remains the best example of what can be achieved with premium original content and an integrated sales effort that brought around 30 advertising partners into the show, almost half of whom have been with the show for more than 3 seasons. Lego Masters also had an excellent return for season 2020. The smash-hit program dominated its timeslot in all the key demographics, including Total People across every broadcast of the 11 episode series, also posting year-on-year growth in metro audiences across the key demographics. In FY20, Nine had a strong and consistent schedule of premium entertainment content across the full calendar year with Married at First Sight, Lego Masters, The Voice, Australian Ninja Warrior and The Block. Not only does this create an unrivalled proposition for advertisers with consistent and proven product and clear demographic strengths, but it also enables Nine to explore new content initiatives around this core. Remarkably, Nine’s schedule of stripped content was little impacted by COVID-19, with the filming of most of the shows completed prior to lockdown. Other elements of Nine’s key content, like Travel Guides and Hamish and Andy, will return as advertising markets recover. 13 NINE ANNUAL REPORT 2020 Broadcast #1 COMMERCIAL BVOD SITE BY UNIQUE AUDIENCE Source: Nielsen, June 2020 #1 BVOD REVENUE SHARE Source: Think TV, Yr to June 2020 #1 COMMERCIAL BVOD SITE BY ENGAGEMENT Source: Nielsen, June 2020 9Now In 2020, 9Now, Nine’s advertiser-supported live streaming and catch-up service continued to grow on all key metrics, operational and financial. During the year, 9Now broadened its content offering, which resulted in further growth in audiences and engagement. destination. The deal included content like Chicago Hope, The Arrangement and Suits spin-off, Pearson. Since this expansion, 9Now has recorded clear growth in daily active users, whilst viewers of this investment content have tended to watch markedly more hours. In FY20, industry-wide Broadcast Video On Demand (BVOD) revenue grew by 31% to $170 million. Across the year, Nine increased its share of industry revenues to more than 50%, reflective of its market-leading proposition. As a result, 9Now reported revenue growth of 32%, and a 36% increase in EBITDA to around $50 million. This success has been primarily driven by the broad performance of Nine’s schedule. In particular, the popularity of Married At First Sight and Love Island helped to underpin a 42% increase in streams for the year. There was also strong growth in live streaming across the year – particularly for sports, news and Nine's key platform shows. In November, Nine signed a multi-year deal to acquire content from NBC Universal – including scripted and unscripted, library content and feature films. This deal markedly amplified the offering of 9Now, marking its transformation from a catch-up service, to an advertiser-supported entertainment 9Now’s unique single sign-in process has enabled the development of a proprietary database which has become a key asset for Nine. Together with data from Nine’s publishing assets and Domain, Nine now has access to more than 12.1 million registered, unique audience IDs. As a result, 9Now can offer 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 – premium content, auditable measurement systems and addressability. With Nine, 9Now and Stan, Nine now has significant, profitable assets across all key video platforms – Linear Television, Broadcast Video on Demand (BVOD) and Subscription Video On Demand (SVOD). For its third series, Australian Ninja Warrior headed south to Melbourne, where it drew a cross-platform average audience of more than 1.7 million viewers per episode. 14 Nine Radio Nine acquired the minorities in Macquarie Media in November 2019. With 54.5%, it was Nine’s decision at that time that the business would be better served by being part of the Nine Group, from both a sales and news perspective, with the radio news bulletins subsequently rebranded 9News. Key assets include 3AW (Melbourne), 2GB (Sydney), 4BC (Brisbane) and 6PR (Perth). It has been a difficult year for Nine Radio. Whilst from a ratings and audience perspective, Nine’s talk stations maintained their lead audience positions, profitability was disappointing. Metro radio market revenues declined by 20% across the year, and 30% in the June half. Nine’s revenue decline of 22% reflected a clear loss of share during the year. Costs for the year were down by 8%, or $8 million. Much of this decline related to cost savings on consolidation, augmented by further initiatives post the onset of COVID-19. As a result, Radio EBITDA declined markedly to $10 million (post AASB16). Nine has made a number of significant changes during the year. On the core talk network, particularly in Sydney, a number of key personnel changes have occurred since acquisition. The previously loss-making Macquarie Sports Radio Network has been replaced with a music format playing the best of 70s, 80s and 90s, with a return to the airwaves of heritage brands 2UE, Magic and 4BH. With these changes now implemented, Nine is confident that, combined with the extension of the 9News brand and the restructuring of the sales team, this will result in improved returns when advertising market conditions improve. 3AW’s Ross Stevenson and John Burns are the undisputed kings of breakfast radio, having notched up 147 consecutive ratings survey wins, before John Burns’ retirement at the end of July. Ben Fordham consistently dominated the drive timeslot on 2GB. In June of this year, he began hosting the breakfast slot, after the retirement of Alan Jones. 15 NINE ANNUAL REPORT 2020 Digital & Publishing One of Australia’s leading digital publishers Nine’s Digital & Publishing division includes Metro Media (The Sydney Morning Herald, The Age and the Financial Review) and Nine’s other Digital Publishing titles including Pedestrian Group, CarAdvice/Drive and nine.com.au. Together, Digital & Publishing reported revenue of $525 million and a combined EBITDA of $92 million post AASB16. Surfers and swimmers climbed and squeezed around barriers to use Tamarama Beach during the Coronavirus shutdown of beaches. Dawn Photo: Nick Moir. 16th April 2020 16 EBITDA1 contribution - FY20 Digital & Publishing results2, $m Broadcast 9Now Digital & Publishing Domain Stan e u n e v e R 700 600 500 400 300 200 100 0 25% 1. Economic interest adjusted basis, post AASB16, excludes corporate costs. 2. Like-for-like basis, pre AASB16. 100 80 60 40 20 0 17 FY19 FY20 Metro Media 9Digital EBITDA (RHS) NINE ANNUAL REPORT 2020 During the peak of the COVID-pandemic, Nine dropped its paywall for related articles, allowing all Australians to keep abreast of the rapidly evolving environment. Image: Emergency nurse and incident response manager at St Vincent’s Hospital, Darlinghurst, Sydney 12th May 2020, Kate Geraghty. Sydney Morning Herald In a difficult broader advertising market, Nine grew its digital advertising revenues by 4%. This was offset, however, by a 19% decline in print, reversing the improved trend of the previous year. The effectiveness of print for categories like travel and luxury goods exacerbated the impact of the general slowdown and also resulted in a number of the print titles being paused during the height of the lockdown. Digital advertising outperformed the broader ad market, driven both by the benefits of consolidation within the Nine Group as well as the advertising sales agreement with Google which resulted in an increased share of digital revenues. Metro Media’s strong history on costs continued in FY20, with total costs declining by 8%, on a like-for-like basis. With the sale of ACM in June 2019, Nine retains no ownership of print plants, which provides increased flexibility in the Group cost base. Since the end of the year, Nine has renegotiated its printing contracts to a variable model, giving full optionality on volumes, products and frequencies. Digital & Publishing There were a number of key achievements in FY20 for Metro Media, as the business continues to evolve to its digital future. Firstly, reader revenues which include subscriptions, circulation, syndication and reader events now account for 59c in each $1 of revenue, greatly reducing the Group's historical reliance on advertising. Secondly, in FY20, digital revenues accounted for a growing 41% of total revenues, as the business migrates away from the legacy print business. Both of these are trends which will help to ensure the long term prosperity of the business. However, the COVID crisis resulted in significant, broad advertising market weakness, more than offsetting the strong growth in subscription revenues. As a result, Metro Media reported a revenue decline of 6% which, notwithstanding a 5% decrease in costs, resulted in an EBITDA decline to $88 million, post AASB16. 2020 was a big year for news, with events like the summer bushfire crisis and the global COVID-19 pandemic capturing the interest of all Australians. Nine’s commitment to quality and consistency of content, and specifically news, was quickly reflected in improving readership and subscription trends. In the year to June, Nine’s portfolio of Metro mastheads reached a total de-duplicated audience of 13.8 million people across print and digital platforms, with The Sydney Morning Herald, The Age and the Financial Review all clear leaders in their respective sectors. This growth in readership translated to increased subscription revenue, which across the Group's titles, increased by ~5%. Through the lock-down period, and the associated restrictions to general access, the migration from print to digital accelerated with digital subscribers growth of more than 20%, June 2020 on June 2019, for all three key titles. YOUNGRICH NOVEMBER 2018 AUSTRALIA’S WEALTHIEST UNDER 40 Liftout inside Kayla Itsines FITNESS QUEEN She built a $490 million fortune without breaking a sweat. So why aren’t there more women entrepreneurs? By Julie-anne Sprague 18 Plus DESIGN SPECIAL AUSTRALIA’S MOST FINELY CRAFTED HOUSE | ROBOTIC PUPPIES & MORE FUTURE FUN AFRGA1 A001THERIGHTMEDICINEVACCINESAVIOURORCHIMERA?FindingawaytoliveandworkinaCOVID-19worldAustralianleadersinsisteliminationisanunrealisticgoalJohnKehoep12,AFRViewp38LEADERSHIPSUPPRESSORERADICATE?ExhaustedEuropegoeshyperlocalasUSlosescontrolHansvanLeeuwenp15,Worldp11GLOBALHOTSPOTSTRATEGIESScientistsquestionlastingimmunityasmarketsbetoncurePerspectivep14,ChristopherJoyep26Virusthreatenstospiraloutofcontrol●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●PhillipCoorey,PatrickDurkinandDavidMarin-GuzmanContinuedp417Jul13579111315SOURCE: DHHSVictoria daily COVID-19 casesWorrying trend100200300400500Thealarmingspreadofthecorona-virusbeyondMelbournehasforcedVictoriatodispatchcontacttracingteamstotheregionstogetontopofthevirusbeforeitgetsoutofcontrol.Themove,10daysafterMelbournewasputintoitssecondweeks-longlockdown,cameamidgrowingfrustra-tionswithinfederalgovernmentthatVictoria’scontact-tracingprotocolshavebeentooslowandinefficient.Seniorsourcessaiditwouldbetwodaysbeforeitwouldbeknownwhethertheoutbreakof2462activecasescouldbecontainedorwouldspreadfurther.InNSWPremierGladysBerejiklianannouncedtargetedmeasurestoheadoffitsgrowingoutbreak,banningdan-cingatweddingsandcorporateeventsandrollingouttightenedrestrictionstoallindoorhospitalityvenuestoprevent‘‘mingling’’andcontrolapotentialsecondwaveofCOVID-19.AsVictorianPremierDanielAndrewsannouncedaone-dayrecordof428newcasesinhisstateandthreeadditionaldeaths–andeconomistswarnedthesecondlockdownwaslikelytohitVictoria’semploymentevenharderthanthefirstlockdown–PrimeMinisterScottMorrisonsaiditwasimperativethatanyonediagnosedwithcoronavirusbeisolatedonthesameday.Anyonethatpersonhadbeenincontactwithneededtobetracedandtestedinthenext24hours.‘‘Now,ifyou’reworkingwithinthat,youcangetontopofiteasily,’’MrMor-risonsaid.TherehavebeenreportedlapsesinVictoria’scontacttracingandthe1000AustralianDefenceForcepersonnelwhoarrivedinMelbourneonFridaywillhaveakeyroleinbolsteringthetracingregime.Healthauthoritiessaideachnewcaserequiredupto10closecontactstobeinterviewed,meaningVictoria’sact-ivecasesrequiredupto25,000calls,andcallcentrestafffromTelstra,Med-ibank,Qantasandthebankshadbeenbroughtintoassist.NSW,whichfederalsourcesclaimhasbettercontacttracingprotocols,recordedeightnewcasesonFriday.MrAndrews–whonowfacesathirdinquiryintohishandlingofthepan-demic–saidtheywerecarefullywatch-ingregionalVictoriawhichnowhadmorethan40activecaseswithTheAustralianFinancialReviewwww.afr.com|18-19July2020$4INCGSTAFRWEEKENDChanticleerbackpageWeekendFinp35BigthingsgrowPaulKelly’sSinatramomentWeekendNewsBrandoftheYearChook’sDIYfunddoesitagainSuperChanticleerCareeringThelabourforceremainsaslow-motiontrainwreckwithpeoplestilllosingtheirjobsevenbeforewefindoutwhathappenstoJobKeeper.LauraTinglep39●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●(cid:31)‘Legacybusinesses’forIRexemptionsp2(cid:31)Nodancing,nomingling,nosingingp5(cid:31)AndrewMohlStaythecoursep38RidingtechboomThesmartwaytoinvestintechSmartInvestorp25MarketsTechstocksmorethanatrendp24OutoftheshadowsOld-schoolinfluencerMarkLeibleropensupExclusiveAndrewClarkp32DesperateTrump,intransigentXiadduptodangerforAustraliaPerspectivep16RainforestluxuryQueensland’sScenicRimhikeLife&LeisureToughflightrulesChinaSeastorm$10,000one-wayfaresasinboundflightslimitedto30passengersNewsp3AFRGA1 A001THERIGHTMEDICINEVACCINESAVIOURORCHIMERA?FindingawaytoliveandworkinaCOVID-19worldAustralianleadersinsisteliminationisanunrealisticgoalJohnKehoep12,AFRViewp38LEADERSHIPSUPPRESSORERADICATE?ExhaustedEuropegoeshyperlocalasUSlosescontrolHansvanLeeuwenp15,Worldp11GLOBALHOTSPOTSTRATEGIESScientistsquestionlastingimmunityasmarketsbetoncurePerspectivep14,ChristopherJoyep26Virusthreatenstospiraloutofcontrol●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●PhillipCoorey,PatrickDurkinandDavidMarin-GuzmanContinuedp417Jul13579111315SOURCE: DHHSVictoria daily COVID-19 casesWorrying trend100200300400500Thealarmingspreadofthecorona-virusbeyondMelbournehasforcedVictoriatodispatchcontacttracingteamstotheregionstogetontopofthevirusbeforeitgetsoutofcontrol.Themove,10daysafterMelbournewasputintoitssecondweeks-longlockdown,cameamidgrowingfrustra-tionswithinfederalgovernmentthatVictoria’scontact-tracingprotocolshavebeentooslowandinefficient.Seniorsourcessaiditwouldbetwodaysbeforeitwouldbeknownwhethertheoutbreakof2462activecasescouldbecontainedorwouldspreadfurther.InNSWPremierGladysBerejiklianannouncedtargetedmeasurestoheadoffitsgrowingoutbreak,banningdan-cingatweddingsandcorporateeventsandrollingouttightenedrestrictionstoallindoorhospitalityvenuestoprevent‘‘mingling’’andcontrolapotentialsecondwaveofCOVID-19.AsVictorianPremierDanielAndrewsannouncedaone-dayrecordof428newcasesinhisstateandthreeadditionaldeaths–andeconomistswarnedthesecondlockdownwaslikelytohitVictoria’semploymentevenharderthanthefirstlockdown–PrimeMinisterScottMorrisonsaiditwasimperativethatanyonediagnosedwithcoronavirusbeisolatedonthesameday.Anyonethatpersonhadbeenincontactwithneededtobetracedandtestedinthenext24hours.‘‘Now,ifyou’reworkingwithinthat,youcangetontopofiteasily,’’MrMor-risonsaid.TherehavebeenreportedlapsesinVictoria’scontacttracingandthe1000AustralianDefenceForcepersonnelwhoarrivedinMelbourneonFridaywillhaveakeyroleinbolsteringthetracingregime.Healthauthoritiessaideachnewcaserequiredupto10closecontactstobeinterviewed,meaningVictoria’sact-ivecasesrequiredupto25,000calls,andcallcentrestafffromTelstra,Med-ibank,Qantasandthebankshadbeenbroughtintoassist.NSW,whichfederalsourcesclaimhasbettercontacttracingprotocols,recordedeightnewcasesonFriday.MrAndrews–whonowfacesathirdinquiryintohishandlingofthepan-demic–saidtheywerecarefullywatch-ingregionalVictoriawhichnowhadmorethan40activecaseswithTheAustralianFinancialReviewwww.afr.com|18-19July2020$4INCGSTAFRWEEKENDChanticleerbackpageWeekendFinp35BigthingsgrowPaulKelly’sSinatramomentWeekendNewsBrandoftheYearChook’sDIYfunddoesitagainSuperChanticleerCareeringThelabourforceremainsaslow-motiontrainwreckwithpeoplestilllosingtheirjobsevenbeforewefindoutwhathappenstoJobKeeper.LauraTinglep39●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●(cid:31)‘Legacybusinesses’forIRexemptionsp2(cid:31)Nodancing,nomingling,nosingingp5(cid:31)AndrewMohlStaythecoursep38RidingtechboomThesmartwaytoinvestintechSmartInvestorp25MarketsTechstocksmorethanatrendp24OutoftheshadowsOld-schoolinfluencerMarkLeibleropensupExclusiveAndrewClarkp32DesperateTrump,intransigentXiadduptodangerforAustraliaPerspectivep16RainforestluxuryQueensland’sScenicRimhikeLife&LeisureToughflightrulesChinaSeastorm$10,000one-wayfaresasinboundflightslimitedto30passengersNewsp3 The recent outcome of the Digital Platforms Inquiry was welcomed by Nine and is of particular significance to Metro Media. Nine prides itself on the quality of its journalism and depth of its coverage but in a world where distribution is proliferating, Nine needs to be able to monetise that content across all available platforms. The findings of the ACCC concur with Nine’s position and through FY21, Nine is expecting the ACCC’s proposed Code to be implemented across the industry. This will enable and ensure future investment in Nine’s journalists and editorial process which in turn will ensure the future of news in Australia. A benefit for all Australians. 9Digital 9Digital comprises Nine’s digital publishing assets – namely our core digital sites including network home (nine.com.au) as well as Pedestrian Group (Nine’s publishing platform targeting young Australians) and CarAdvice/Drive (the number one publisher of new car editorial content in Australia). Across the portfolio, both revenue and costs recorded double-digit declines, resulting in an EBITDA contribution of $4 million. It is expected that Nine will further refine this portfolio in the future, focussing investment on areas which present clear opportunities and consistencies with the rest of Nine’s business. 19 NATAGEA001selecteddesignsOFF%50uptosummersaleonnow1300546438|KINGLIVING.COM$3.70RRPDECEMBER30,2018INDEPENDENT.ALWAYS.Thechangingfaceof2018EXTRAMAN,WHATAYEARSummersuperquizEXTRAWORDPERFECTFIVEYEARSONSilencesettlesonSchumacherSPORTLASTMENSTANDINGPhoto:APCumminsandLyonprovidelateresistancewithIndiaclosetovictoryFULLCOVERAGESPORTPLUS10MOMENTSTHATSHAPEDAUSTRALIANCRICKETToxicpesticidetestforschoolExclusiveDebbieCuthbertsonContinuedPage2TheEducationDepartmentorderedtestingforcontaminationbyatoxicpesticideataBellarinePeninsulasecondaryschoolamidfearsofalarmingratesofcanceramongformerstudents.Thecontaminationconcernsoverthenow-bannedpesticidedieldrin,usedintheareadecadesago,comeaslawyersprepareatestcaseforaclassactionoverthedeathofafor-merstudentatBellarineSecondaryCollege’sDrysdalecampus.Threemajorprojectsareintrainnearby:a$117millionroadbypass,a$5millionupgradetothetown’ssportingcomplexandexpansionofneighbouringStIgnatiusCatholicCollege.Andmuchofthearea’sformerfarmlandhasbeenredevelopedintohousingestates.Testinghasshownthesecondarycollegeissafe.Ageologist’sreportfoundsamplesdidcontaintracesofdieldrin,butwellbelowlevelsthatwouldaffecthumanhealth.Nonetheless,GordonLegal,thefirmlaunchedbylawyerPeterGordon–whohasledsomeofAustralia’sbiggestclassactions–isrepresentingthewidowofaformerstudentattheschool,whodiedin2016fromarareformofbloodcancer.Thelawfirmwouldnotcomment,butconfirmeditwasintheearlystagesofassemblingacaseinvolvingScottBeyer,whogrewupinOceanGroveandattendedBellarineSecondaryCollegeuntil2002.MrBeyer,afatheroftwo,hadangioimmunoblasticT-celllymphoma,arareformofthebloodcancer.Hewasfirstdiagnosedin2013andhadastemcelltransplantin2015afterthecancerreturned.HediedinApril2016,aged32.SeveralfellowformerBellarineSecondaryCollegestudents,whowereinthesameagegroupbutgrewupintheneighbouringtownofBarwonHeads,havediedofcancerinthepastthreeyears,oneofHodgkinlymphoma.ThefamilyofBarwonHeadsnurseGeorgieStephenson,whodiedin2017aged26afterasecondboutofleukaemia,havepushedforanswersaboutwhatmighthavecausedhercancer,andthoseofherpeers.(GeorgiedidnotattendBellarineSecondaryCollege.)Theysaytheyhaveheardofmorethan20youngpeopleinthearea,manyofwhomattendedthehighschoolandarenowintheirlate20sandearly30s,whohavebeendiagnosedwithcancer,mainlyblooddisorders,inrecentyears.Inearly2017,principalAlisonMurphywroteintheschoolnewsletterinresponsetoconcernsWeatherTODAYShowerortwo18–23TOMORROWPartlycloudy15–25Page35?@HOMEDELIVERYCall136666Subscribeonline@theage.com.au/subscribeTelephone(03)86672000Classifieds132243AFRGA1 A001Lowebacksbudgetblowout(cid:31)RBA:debtrisemanageableandinpublicinterest(cid:31)No‘creatingmoney’(cid:31)Deficitcouldhit$200b(cid:31)ASXjumps●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●MatthewCranstonEconomicscorrespondentFederal government underlying budget cash balance (% GDP)SOURCE: UBS*Forecasts21*20*1918171615141312110-2-4-6-8-10-$213b-$83bContinuedp6ReserveBankgovernorPhilipLowehasgiventheMorrisongovernmentthegreenlighttoincreasedebtlevelsandlockinabudgetdeficitofmorethan$200billiontomorrowtosupporttheeconomyduringitsrecoveryfromtheviruscrisis.ButtheRBAgovernorrejectedtheideathatthecentralbankshoulddir-ectlyfundgovernmentspendingbyprintingmoney.DrLowesaidthegovernment’s$20.4billionextensionoftheJobKeeperandJobSeekerschemes,worthabout1percentofGDPoverthenextsixmonths,waswelcomeandthatcontinuingthesupportnowwasessen-tialtokeepspendinganddebtmoremanageableintothefuture.‘‘Thebiggestpolicymistaketomakeatthemomentwouldbetowithdrawsupporttooearly,’’DrLowesaidinaspeechdeliveredyesterdayfromhisSydneyoffice.‘‘Thegovernmentcanplayanimportantroleherebyusingitsbal-ancesheettosmooththingsoutandreducetheseverityofthedownturn.Indoingso,ithelpsnotonlyinthepresentbutinthefutureaswell.’’TheS&P/ASX200Indexrallied154.7points,or2.6percent,to6156,itshighestlevelsinceMarch6onnewsofthegovernment’sJobKeeperexten-sion.Itisnow14percentoffitsrecordlevel,whiletheAustraliandollarjumped0.5percenttoUS70.49¢,thehighestit’sbeensinceJulylastyear.UBSanalystssaidtheJobKeeperandJobSeekersupportnowreducedtheso-calledfiscalcliffinDecember,whengovernmentassistancestops,to$84billionor17percentofquarterlyGDP,downfromabout$100billion.Economistsraisedtheirdeficitpre-dictionsforthisfinancialyeartobetween$170billionand$240billion.Westpac’sBillEvanssaidthegovern-mentwouldlikelyhavea$240billiondeficitthisfinancialyear,inclusiveofanother$30billionworthofannounce-mentsbytheOctoberbudget.UBSforecasta$213billiondeficit,whileRBSCapitalMarkets$200bil-lion.Nomuraestimates$170billionwithoutanyfurtherbudgetslippage.DrLowesaidthatwiththelowestbor-rowingratessinceFederation,gooddemandforAustraliangovernmentbonds,andanoverallgrossdebttoGDPatlessthan50percent–‘‘muchlowerthaninmanyothercountries’’–thegov-ernmentwasinagoodpositiontokeepborrowingandprovidefiscalsupportforasustainableeconomicrecovery.‘‘Foracountrythathasgotusedtolowbudgetdeficitsandlowlevelsofpublicdebt,thisisquiteachange,’’DrLowesaidafterreferringtotheMor-risongovernment’sJobSeekerandJobKeeperprograms.‘‘Butitisachangethatisentirelymanageableandaffordableandit’stherightthingtodo.’’HerejectedthesuggestionthatthecentralbankdirectlyfundthisfiscalRevampwillpush2.5moffJobKeeper●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●PhillipCooreyPoliticaleditorContinuedp4Around2.5millionworkersarefore-casttolosetheJobKeeperwagesub-sidybyearlynextyearunderanextensionandrevampbasedonfore-castsofmanybusinessesrecoveringandothersgoingunder.Atacostof$16.6billion,thegovern-menthasredesignedandextendedtheJobKeeperschemeforsixmonthsafteritwasduetoexpireonSeptember27.Theextension,beginningSeptember28,willinvolvetheflat$1500fort-nightlywagesubsidybeingdecreasedandsplitintotwotiersthatwillfallfur-therovertime.Therewillalsobetoughereligibilitycriteria.Forthefirstthreemonths,anewtoptierof$1200willbepaidtothosedoing20ormorehoursofworkaweekandthosedoinglesswillreceive$750.FromJanuary1toMarch28,thetierswillbereducedfurtherto$1000and$650.Thefortnightly$550top-uptotheJobSeekerunemploymentbenefitwillbereducedby$300butextendedforatleastthreemonthsatacostof$3.8bil-lion.PrimeMinisterScottMorrisonsaidhewas‘‘leaningheavilyintothenotion’’thatitwouldcontinuebeyondDecember.Thechanges,whichrelyontheassumptionVictoriawillbegintoemergefromitsCOVID-19lockdowninwww.afr.com|Wednesday22July2020$4INCLUDESGSTFINANCIALREVIEWStepForwardHowCOVID-19isremakingworkplacesFinancialReviewFutureBriefingp11WagyuoffASICmenuExclusive|ThecorporateregulatorhasdecidednottoappealtotheHighCourtitscaseagainstWestpacforallegedresponsiblelendingfailures,theso-called‘‘shirazandwagyu’’case.ThedecisioncomesaftertheheadsoftheReserveBankofAustraliaandTreasurybothprivatelywarneditwouldexacerbateeconomicuncertaintycausedbyCOVID-19.Instead,theAustralianSecuritiesandInvestmentsCommissionplanstowritetoTreasurerJoshFrydenbergrecommendingreformingthecreditlawstoclarifyresponsiblelendingrules.JohnKehoeNewsp3●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●PwCpartnersshoptheirtalentstorivalsExclusive|ElevenpartnersfromPwC,whogeneratedanestimated$44mil-lioninannualfees,haveapproachedrivalsabouttakingthemonasagrouphireastheyseekbetterworkandpaybeyondthebigfourfirm.TheoutfitsapproachedincluderivalconsultinggiantsKPMG,AccentureandDeloitte.PwC,thecountry’sbiggestprofes-sionalservicesfirmbyrevenue,recentlyrestructureditsconsultingdivision,whichisbelievedtobeafactorbehindthemove.TheapproachesoccurredastheCOVID-19pandemichitthebigfirms’profitsandledtoashiftinclientspendingtotechnologyconsult-ingservicesoverother‘‘discretionary’’formsofconsulting.(cid:31)Accounting&Consultingp35(cid:31)JenniferHewettVictestsnegativep2(cid:31)NewsMonetarypolicyminutesp6(cid:31)MarketsGovernor’sQ&Asessionp26(cid:31)FeaturesDrLoweinhisownwordsp36(cid:31)TheAFRViewGrowoutofdebtp38(cid:31)DavidRowep38,ChanticleerbackpageAndrewswarnsagainstmaskrevolt●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●PatrickDurkinContinuedp8VictorianPremierDanielAndrewsiswarningagainstapublicrevoltoverhismandatorymaskorder,arguingthatdespitethestate’ssecondworstday,with374newcasesandthreeaddi-tionaldeaths,thestrategytosuppressthecoronavirusisworking.MrAndrews–whohasalreadylockedhornswithlawyersHWLEbsworthoverworkingfromhome–referencedaFacebookpostbySydneylawyersG&BLawyers,whourgedMel-burnians‘‘Don’twearamask’’andgeta$200finebecausethe‘‘Victoriangov-ernmentwon’tfightyouincourt’’.Butthepostwassubsequentlyremoved:‘‘AttherequestoftheNSWLawSociety,I,NathanBuckley,PartnerofG&BLawyershaveremovedthepost,’’hewrote.‘‘Itwasnottheprovisionoflegaladvice,’’hesaid.‘‘Itwastheexpressionofmyownpersonalpoliticalbeliefs.’’RetailersincludingMyer,Bunnings,Officeworks,TargetandKmartwillenforcea‘‘nomask,noentry’’rulefromtomorrow.ButGerardDwyer,theheadoftheunionforretailandfastfoodworkers,warnedyesterdaythatmembershavebeentolditisnottheirjobtoenforcethelawandtheyshouldserveshopperseveniftheyarenotwearingamask.‘‘IfVictoriadoesnothavetheresourcestoenforcethelaw,perhapsitshouldcallontheCommonwealthtoofferADFpersonneltoassist,’’hesaid.VictorianMPTimSmithalsotold2GBradioinSydneyhequestionedwhytheorderappliedwhiledrivingacar,inopenspacesorwhileexercising.‘‘Idothinkpeoplearegoing,‘you’vegottobekiddingme,ifI’mgoingforawalkaroundtheblockwhyonearthdoIneedtowearamaskifI’monmyown?’,’’hesaid.ButMrAndrewswarnedagainstany‘Scary’numbersVictoria’sfailureshaveforcedlast-minutechangestotomorrow’seconomicstatementandwearetoldthenumberswillbe‘‘scary’’.PhillipCooreyp4●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●(cid:31)NewsReports,businessreactionp4-5(cid:31)NewsFirstvaccinemaynotbebestp8(cid:31)NSWHunterregionviruswarningp9(cid:31)OpinionMaskingcomplexityp38EverybodygetsasayatSantosgasprobeKnittingnannaBeaBleile.WarrumbungleShirecouncillorKodiBradytoreintoSantos’pro-posed$3.6billionNar-rabrigasproject,tellingaNSWplan-ningcommissiontheprojectwouldturntheregionintoa‘‘toxicdump’’andinevitablypoisonaquifers.Itwastheseconddayofhearingsandall59speakersincludingfarmers,residentsandenvironmentalistsrubbishedSan-tos’claimsthatitcansafelyextractcoalseamgasfromtheLiverpoolPlainswithoutdamagingtheenvironment.(cid:31)NewsSocialistKnittingNannap3(cid:31)CompaniesSantoswrite-downp14Reliefrally|Youngfirst-timehomeownerSarahD’Arcy(above)isoneofmillionsofAustraliansbreathingasighofreliefthattheJobKeeperwagesschemewillcontinueevenifherpaymentwilldropfrom$1500afortnightto$1200.Theeventsalesco-ordinatorattheHiltonSydneyhotelwentfromafull-timejobtothreedaysaweekinMarchasbusinessshrankbutsheisstillgratefulforthehelpJobKeeperhasprovided.Newsp5PHOTO:PETERBRAIGAFRGA1 A001THERIGHTMEDICINEVACCINESAVIOURORCHIMERA?FindingawaytoliveandworkinaCOVID-19worldAustralianleadersinsisteliminationisanunrealisticgoalJohnKehoep12,AFRViewp38LEADERSHIPSUPPRESSORERADICATE?ExhaustedEuropegoeshyperlocalasUSlosescontrolHansvanLeeuwenp15,Worldp11GLOBALHOTSPOTSTRATEGIESScientistsquestionlastingimmunityasmarketsbetoncurePerspectivep14,ChristopherJoyep26Virusthreatenstospiraloutofcontrol●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●PhillipCoorey,PatrickDurkinandDavidMarin-GuzmanContinuedp417Jul13579111315SOURCE: DHHSVictoria daily COVID-19 casesWorrying trend100200300400500Thealarmingspreadofthecorona-virusbeyondMelbournehasforcedVictoriatodispatchcontacttracingteamstotheregionstogetontopofthevirusbeforeitgetsoutofcontrol.Themove,10daysafterMelbournewasputintoitssecondweeks-longlockdown,cameamidgrowingfrustra-tionswithinfederalgovernmentthatVictoria’scontact-tracingprotocolshavebeentooslowandinefficient.Seniorsourcessaiditwouldbetwodaysbeforeitwouldbeknownwhethertheoutbreakof2462activecasescouldbecontainedorwouldspreadfurther.InNSWPremierGladysBerejiklianannouncedtargetedmeasurestoheadoffitsgrowingoutbreak,banningdan-cingatweddingsandcorporateeventsandrollingouttightenedrestrictionstoallindoorhospitalityvenuestoprevent‘‘mingling’’andcontrolapotentialsecondwaveofCOVID-19.AsVictorianPremierDanielAndrewsannouncedaone-dayrecordof428newcasesinhisstateandthreeadditionaldeaths–andeconomistswarnedthesecondlockdownwaslikelytohitVictoria’semploymentevenharderthanthefirstlockdown–PrimeMinisterScottMorrisonsaiditwasimperativethatanyonediagnosedwithcoronavirusbeisolatedonthesameday.Anyonethatpersonhadbeenincontactwithneededtobetracedandtestedinthenext24hours.‘‘Now,ifyou’reworkingwithinthat,youcangetontopofiteasily,’’MrMor-risonsaid.TherehavebeenreportedlapsesinVictoria’scontacttracingandthe1000AustralianDefenceForcepersonnelwhoarrivedinMelbourneonFridaywillhaveakeyroleinbolsteringthetracingregime.Healthauthoritiessaideachnewcaserequiredupto10closecontactstobeinterviewed,meaningVictoria’sact-ivecasesrequiredupto25,000calls,andcallcentrestafffromTelstra,Med-ibank,Qantasandthebankshadbeenbroughtintoassist.NSW,whichfederalsourcesclaimhasbettercontacttracingprotocols,recordedeightnewcasesonFriday.MrAndrews–whonowfacesathirdinquiryintohishandlingofthepan-demic–saidtheywerecarefullywatch-ingregionalVictoriawhichnowhadmorethan40activecaseswithTheAustralianFinancialReviewwww.afr.com|18-19July2020$4INCGSTAFRWEEKENDChanticleerbackpageWeekendFinp35BigthingsgrowPaulKelly’sSinatramomentWeekendNewsBrandoftheYearChook’sDIYfunddoesitagainSuperChanticleerCareeringThelabourforceremainsaslow-motiontrainwreckwithpeoplestilllosingtheirjobsevenbeforewefindoutwhathappenstoJobKeeper.LauraTinglep39●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●(cid:31)‘Legacybusinesses’forIRexemptionsp2(cid:31)Nodancing,nomingling,nosingingp5(cid:31)AndrewMohlStaythecoursep38RidingtechboomThesmartwaytoinvestintechSmartInvestorp25MarketsTechstocksmorethanatrendp24OutoftheshadowsOld-schoolinfluencerMarkLeibleropensupExclusiveAndrewClarkp32DesperateTrump,intransigentXiadduptodangerforAustraliaPerspectivep16RainforestluxuryQueensland’sScenicRimhikeLife&LeisureToughflightrulesChinaSeastorm$10,000one-wayfaresasinboundflightslimitedto30passengersNewsp3AFRGA1 A001THERIGHTMEDICINEVACCINESAVIOURORCHIMERA?FindingawaytoliveandworkinaCOVID-19worldAustralianleadersinsisteliminationisanunrealisticgoalJohnKehoep12,AFRViewp38LEADERSHIPSUPPRESSORERADICATE?ExhaustedEuropegoeshyperlocalasUSlosescontrolHansvanLeeuwenp15,Worldp11GLOBALHOTSPOTSTRATEGIESScientistsquestionlastingimmunityasmarketsbetoncurePerspectivep14,ChristopherJoyep26Virusthreatenstospiraloutofcontrol●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●PhillipCoorey,PatrickDurkinandDavidMarin-GuzmanContinuedp417Jul13579111315SOURCE: DHHSVictoria daily COVID-19 casesWorrying trend100200300400500Thealarmingspreadofthecorona-virusbeyondMelbournehasforcedVictoriatodispatchcontacttracingteamstotheregionstogetontopofthevirusbeforeitgetsoutofcontrol.Themove,10daysafterMelbournewasputintoitssecondweeks-longlockdown,cameamidgrowingfrustra-tionswithinfederalgovernmentthatVictoria’scontact-tracingprotocolshavebeentooslowandinefficient.Seniorsourcessaiditwouldbetwodaysbeforeitwouldbeknownwhethertheoutbreakof2462activecasescouldbecontainedorwouldspreadfurther.InNSWPremierGladysBerejiklianannouncedtargetedmeasurestoheadoffitsgrowingoutbreak,banningdan-cingatweddingsandcorporateeventsandrollingouttightenedrestrictionstoallindoorhospitalityvenuestoprevent‘‘mingling’’andcontrolapotentialsecondwaveofCOVID-19.AsVictorianPremierDanielAndrewsannouncedaone-dayrecordof428newcasesinhisstateandthreeadditionaldeaths–andeconomistswarnedthesecondlockdownwaslikelytohitVictoria’semploymentevenharderthanthefirstlockdown–PrimeMinisterScottMorrisonsaiditwasimperativethatanyonediagnosedwithcoronavirusbeisolatedonthesameday.Anyonethatpersonhadbeenincontactwithneededtobetracedandtestedinthenext24hours.‘‘Now,ifyou’reworkingwithinthat,youcangetontopofiteasily,’’MrMor-risonsaid.TherehavebeenreportedlapsesinVictoria’scontacttracingandthe1000AustralianDefenceForcepersonnelwhoarrivedinMelbourneonFridaywillhaveakeyroleinbolsteringthetracingregime.Healthauthoritiessaideachnewcaserequiredupto10closecontactstobeinterviewed,meaningVictoria’sact-ivecasesrequiredupto25,000calls,andcallcentrestafffromTelstra,Med-ibank,Qantasandthebankshadbeenbroughtintoassist.NSW,whichfederalsourcesclaimhasbettercontacttracingprotocols,recordedeightnewcasesonFriday.MrAndrews–whonowfacesathirdinquiryintohishandlingofthepan-demic–saidtheywerecarefullywatch-ingregionalVictoriawhichnowhadmorethan40activecaseswithTheAustralianFinancialReviewwww.afr.com|18-19July2020$4INCGSTAFRWEEKENDChanticleerbackpageWeekendFinp35BigthingsgrowPaulKelly’sSinatramomentWeekendNewsBrandoftheYearChook’sDIYfunddoesitagainSuperChanticleerCareeringThelabourforceremainsaslow-motiontrainwreckwithpeoplestilllosingtheirjobsevenbeforewefindoutwhathappenstoJobKeeper.LauraTinglep39●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●(cid:31)‘Legacybusinesses’forIRexemptionsp2(cid:31)Nodancing,nomingling,nosingingp5(cid:31)AndrewMohlStaythecoursep38RidingtechboomThesmartwaytoinvestintechSmartInvestorp25MarketsTechstocksmorethanatrendp24OutoftheshadowsOld-schoolinfluencerMarkLeibleropensupExclusiveAndrewClarkp32DesperateTrump,intransigentXiadduptodangerforAustraliaPerspectivep16RainforestluxuryQueensland’sScenicRimhikeLife&LeisureToughflightrulesChinaSeastorm$10,000one-wayfaresasinboundflightslimitedto30passengersNewsp3 NINE ANNUAL REPORT 2020 Stan Australia’s leading local SVOD business Stan is Nine’s Subscription Video On Demand (SVOD) platform. With more than 2 million subscribers, Stan is the lead local player in what continues to be a rapidly expanding market. FY20 was a big year for Stan, with continued strong growth in active subscribers and the Group’s first period of both EBITDA and cash profit. Stan finished the year with more than 2 million active subscribers (2.2 million by end of August), and with a revenue run rate of more than $275 million. Like Nine’s other video businesses, the disruption of COVID-19 had a positive impact on Stan’s audiences, both in terms of additional subscriptions and increased usage. During the year, Stan added more than 450,000 active subscribers, particularly through the March-June period, when many Australian’s were confined to their homes. And as the subscriber numbers have grown, so too has their engagement with Stan. Total streams increased by more than 50% across the year, while during the second half, average weekly viewing hours per subscriber increased by around 20%. EBITDA1 contribution - FY20 8% Stan results2, $m Broadcast 9Now Digital & Publishing Domain Stan e u n e v e R 300 250 200 150 100 50 0 40 30 20 10 0 -10 -20 -30 FY19 FY20 Revenue EBITDA (RHS) 1. Economic interest adjusted basis, post AASB16, excludes corporate costs. 2. Like-for-like basis, pre AASB16. 20 As audiences continue to look for broader content options and the convenience of on-demand, Stan has positioned itself as a key aggregator of premium exclusive and library content from studios and production houses from around the world, as well as a creator of key local franchises. In FY20, Stan’s 60+ first-run exclusive shows, the key ones that drive subscriber uptake, were sourced from 17 different distributors from around the world. In addition, Stan launched five Stan originals – all of which have also been distributed into overseas markets. Particularly popular were Lionsgate's Love Life, Paramount's Yellowstone and Normal People from Element Pictures as well as Stan Originals like The Gloaming, The Commons and The True History of the Kelly Gang which captured the imagination of audiences both in Australia and overseas. Stan's extensive library of internationally and locally-sourced content, including the Iconic Series, helped drive both subscriber take-up and engagement. Weekly total active subscribers millions 2.5 2.0 1.5 1.0 0.5 0 Mar 2015 Mar 2016 Mar 2017 Mar 2018 Mar 2019 Mar 2020 The very strong growth in subscribers underpinned revenue growth of 52% for the year to $242 million. This resulted in an EBITDA (and cash) profit of $31 million, a $50 million improvement on FY19. Stan continues to consistently reach the milestones it has set for the business. Across content, subscribers and profitability, Stan has consistently reached or exceeded expectations. In a market which continues to grow rapidly, Stan is in a unique and exciting position. 21 NINE ANNUAL REPORT 2020 Domain One of Australia's leading property technology and services businesses 22 Nine holds a 59% stake in separately ASX-listed Domain Group, home to Domain, Allhomes, Commercial Real Estate and CommercialView. Domain’s portfolio also includes agent products Homepass, Pricefinder and Real Time Agent as well as consumer solutions Domain Loan Finder and Domain Insure. The underlying cycle of the property market was significantly interrupted early in calendar 2020 by both the extensive summer bushfires, and the outbreak of COVID-19, which saw an effective shutdown of the property marketplace. Notwithstanding an overall listing market that was down in the double-digits, Domain performed strongly, benefitting from its newly introduced pricing model, increased depth penetration and ongoing cost focus. In FY20, Domain reported EBITDA of $84 million (down 16% like- for-like) on revenue of $262 million. In Domain’s core residential business, which accounts for around 62% of Group Revenues, revenue fell by 7%, against the backdrop of a market decline in new listing volumes of around 11%. After a stronger start to calendar 2020, the challenges relating to COVID-19 heavily impacted on the property market and Domain through the fourth quarter. The Group’s new flexible pricing model enabled a partially offsetting 6% increase in controllable yield. Domain continues to focus on lifting its value proposition for vendors and agents – resulting in growth of 39% in unique digital audience to 6.6 million, and a record number of new depth contracts with agents. Domain’s focus on delivering a superior value proposition, utilising its evolving data and analytics as well as its market-specific approach should underpin longer-term growth opportunities as the property market recovers. The general market weakness also impacted across all arms of Domain’s Media, Developers and Commercial operations, with revenue down 9%. This reflected a challenging market environment for Developers and Commercial property, and a general softness in advertising markets. During the year, Domain acquired Real Time Agent, providing enhanced digital tools for the property transaction process. This proved particularly timely through a period when social distancing requirements interrupted the traditional property sale process, requiring innovative solutions. Underlying revenue from Agent Services increased by 1% in FY20 as Domain continues to invest in products to differentiate and enrich both the agent and consumer experience. There was strong revenue growth in Domain‘s fledgling Consumer Solutions business to $6 million. This growth was underpinned by Domain Loan Finder, which delivered growth in both new home loans and refinancing. Domain’s print revenues declined by 41% to $27 million as a number of the Group’s products were paused for much of the second half reflecting the impact of COVID-19 on the property market. Notwithstanding Print continues to deliver strategic value to Domain, from both an agent and consumer perspective. Like Nine, Domain was quick to act when the extent of the COVID became evident. Central to this was Domain’s Project Zipline initiative which resulted in a reduction in cash salary costs, as employees elected to take part of their salary in share rights. Domain also provided a range of support packages to its agent customers, the cost of which was broadly offset by a $5 million benefit relating to JobKeeper. On a like-for-like basis, total costs declined by 5%, reflecting a continuation of Domain’s multi-year strategy to drive cost discipline, partially offset by investment in growth initiatives. During the year, Domain continued to grow its audiences, and focus on providing innovative solutions for both agents and consumers. Notwithstanding the difficult operating environment, depth and yield improvements have continued, which will result in strong leverage when the cycle returns to normal. EBITDA1 contribution - FY20 Domain results2, $m 14% 400 350 300 Broadcast 9Now Digital & Publishing Domain Stan e u n e v e R 250 200 150 100 50 0 FY19 FY20 140 120 100 80 60 40 20 0 1. Economic interest adjusted basis, post AASB16, excludes corporate costs. 2. Like-for-like basis, pre AASB16. 23 Core digital Consumer Solutions Print Corporate EBITDA (RHS) NINE ANNUAL REPORT 2020 Nine Sydney: Creating a Better Workplace 2020-21 will be a transformative period for Nine’s Sydney operations, as current operating sites at Willoughby, Pyrmont, Australia Square and North Richmond will be consolidated into a single creative campus – Nine Sydney at 1 Denison Street, North Sydney. It will be a transformative move not just for Nine’s people in Sydney but for the whole of Nine, regardless of location as it will also act as the catalyst for new digital and technological ways of working. The 1 Denison building will be North Sydney’s first premium-grade, large-scale commercial office tower. It is a purpose-built facility, with Nine as the anchor tenant, occupying 14 of the 37 floors across a 60,000 square metre building. Nine’s occupancy will encompass around 24,000 square metres including office space, studios, meeting rooms and other dedicated facilities. There will be approximately 2,000 workpoints, catering to the needs of all the business divisions. Nine’s tenancy has been designed to facilitate creativity and collaboration and will be fully interconnected with internal stairs reaching throughout the low-rise and mid-rise Nine Sydney will be a 5 Green Star building, meaning it complies with the highest environmental and sustainability standards. Green Star is Australia’s trusted mark of quality for the design, construction and operation of sustainable buildings, fit-outs and communities. There will be multiple content-creation spaces built primarily for our television business. The automated technology assets in these studios will be world-leading, enabling flexible, scalable, virtualisation and simplification of content curation and manipulation. The model is designed to simultaneously create and distribute content across multiple platforms. Bespoke newsrooms for The Sydney Morning Herald and the Financial Review have also been created benchmarked against world standards. These newsrooms will be open plan, fostering an inclusive and collaborative culture. 24 Nine’s new integrated Broadcast Newsroom modelled on the successful BBC Hub and Spoke design Corporate Responsibility CORPORATE RESPONSIBILITY People Governance Community Nine’s Corporate Responsibility strategy is based on the three key pillars illustrated above – People, Governance and Community. Corporate Responsibility is an ongoing focus and Nine will continue to evolve and improve its practices over time. People and Culture The talent, quality and capability of our people has never been more evident than in FY20. In this unprecedented year, the importance of our ability to tell diverse stories to our audience was paramount. From fires to floods to COVID-19, we delivered news, current affairs, sports and entertainment to our audience and readers through the strength of our passionate, creative and ambitious people. Our People and Culture strategy starts with our purpose – to be where Australia connects. In order to ensure our people connect, not only with their audience but also each other, we must build and maintain an environment where every person feels confident and comfortable that no matter their background, experience, gender, race, sexual orientation or education, their opinion will be heard. It is through this connection that we ensure we continually create great content, that is distributed broadly and engages our advertisers and audience. Centred around our strategic pillars of Create, Distribute and Engage, the People and Culture strategy aims to: • Build capability (leadership, functional and creative) to create competitive advantage for Nine; • Create the enabling infrastructure to optimise performance through collaboration and the leveraging of our platforms and scale; and • Engage our people through building trust and our reputation as an employer of preference internally and externally. Caring for our People This year has been one of the most challenging for our people. Through fires, floods, COVID-19, protests and riots our people were consistently on the frontline to ensure that the stories that needed to be told were delivered to our audiences across all our platforms. To do this safely, in FY20 we conducted a full review of our safety systems and processes. This approach highlighted the genuine care our people have for each other, as well as presenting an opportunity for us to move from compliance to best practice. As a result of the review, we invested in the capability of our safety team, bringing in experienced leaders to continue to build our safety strategy and support the development of our leaders in behavioural safety. Further leading indicators have been introduced, such as high potential incidents, and these are measured and shared with the People and Remuneration Committee and Leaders on a quarterly basis. We have further strengthened our approach to risk management by using risk assessment tools to add rigour and structure to our approach to the management of key incidents such as through COVID-19, and the protests in the US and UK in May and June. Recognising the ongoing need for support for mental health for our people, we accredited a further fifteen mental health first aiders, building on the network established in FY19. We created a Broadcast-focused program, allowing those who support other employees and also participants in reality television programs (such as producers and publicity) to be developed in the particular skills required to support mental health. NEC Board NEC Management NEC Total Employees 57% 7 43% 58% 739 42% 55% 5,157 45% Female Male Female Male Female Male 25 NINE ANNUAL REPORT 2020 Corporate Responsibility In addition to the support provided to our people, we continued to extend support to participants in reality television. In FY20, we introduced a dedicated support hotline, partnering with our employee assistance program provider, Converge International. This dedicated hotline was provided to current and former participants of all our reality programs, including Married at First Sight, Love Island and The Block and was in addition to the support provided to participants through our production partners. During the 2020 production of The Block, we piloted a ‘Peer Support’ program, whereby a suitably qualified former participant provided a level of support to participants drawing on their own experience on the program. This provided participants with support from someone who could empathise with the experiences of the participants given the unique environment and challenges associated with the creation of a program like The Block. Our health and safety reporting will continue to evolve. The metrics below are indicative of the low level of workplace injuries and will be included in future reports. Total injury numbers Lost time injury Lost time injury frequency rate Total recorded injury frequency rate Hazards identified EAP (employee assistance plan) usage FY20 29 15 1.94 3.76 74 ~5% COVID-19 In March 2020, we responded swiftly to the evolving COVID-19 crisis. We prepared our people to work remotely, including running work-from-home drills across the business. This allowed for a smooth transition to remote work from 16 March 2020, at which point we encouraged our people who could work from home to do so. In a business like ours, not everyone could work remotely, and additional precautions were put in place to support those who were required to be in the office daily. This included increased deep cleaning, access to hand sanitiser and wipes, restriction of access to critical areas (such as news floors), and separation of teams into ‘red’ and ‘blue’ to ensure business continuity. Additional resources were created to support our people during these unusual times, as many were experiencing remote working for the first time. Easily accessible over the intranet or through local communication channels, this included how to set up a home office, leading people remotely, tips for working at home with children, managing stress and communication tips. Frequently Asked Questions relating to COVID-19 were updated regularly and remained on the home page since early March. Virtual development was also shared to support our people, including Leading at a Distance, and Time Management: Working from Home. 26 As we shifted to return to the workplace, Leader and Employee Guidelines were created to help our people consider their own return to the workplace in a way that acknowledged their individual needs and concerns, and those of the business. We recognised the different experiences our people had with COVID-19, including the level of uncertainty generated during this time, we encouraged leaders to reach out to their people individually, knowing a one size fits all approach would not work. With the benefits of remote working and the flexibility that allowed, many of our employees, in consultation with their leaders, chose to continue their flexible working arrangements, including staggered start and finish times and working from home. We anticipate these arrangements to continue and fundamentally change our approach to the way we work. Women @ Nine Women @ Nine continued to strengthen in FY20. Encompassing initiatives for our people focused on inspiring and developing our current and future leaders, Women @ Nine demonstrates our ongoing commitment to, and recognition of the importance of, strong, visible leadership from inspirational female leaders. In FY20, we once again maintained equal gender representation in our Non-Executive Directors on the Board, whilst women occupy 42% of the roles at our Executive Leadership level. In FY20, we updated our gender objectives to include: • At least 30% of Board positions to be held by women; • At least 40% of Senior Executive and Management positions to be held by women; and • Achieve gender balance in leadership and talent development. To support our objectives, in FY20, Women @ Nine grew from mentoring and networking to also include formal development and recognition through the introduction of Women Leading @ Nine and the internal Women of Influence Awards. In FY20, we piloted the Women Leading @ Nine program with 20 mid-to-senior level high potential female leaders. Facilitated by an external partner, the 6-month program was designed to help these talented leaders accelerate their leadership journey through applying a strengths-based approach to development, coupled with three face-to-face workshops, coaching and individual challenges. Participants were also paired with a Senior Executive for individual mentoring. Feedback from participants was positive, with many participants able to articulate business actions they have already taken as a direct consequence of the program. We will continue to monitor the career progression of these participants as a metric of the success of the program. Women of Influence Leveraging the foundation of the Australian Financial Review Women of Influence Awards, and the internal program previously run at Fairfax, we restructured the internal Awards to reflect the merged Nine. New categories included ‘Leading the Way’, ‘Up and Comer’, and ‘Cultural Influencer’, whilst the ‘Agenda Setter’, ‘Innovators’ and ‘Woman of Influence’ categories were maintained. A total of 133 nominations were received from across all parts of Nine, with Leader, Peer and Self nominations invited. The Executive judging panel identified 26 finalists who were presented to CEO, Hugh Marks and non-Executive Director Catherine West for final assessment. The Awards were presented at an intimate event to coincide with International Women’s Day. Developing our People We recognised that, following the merger in 2018 and in light of the constant evolution of the media industry and Nine’s increasing focus on our digital growth assets, a reset of leadership expectations and capabilities was required to reflect the modern leadership needs of the business. This resulted in new leadership development programs, ‘Take the Lead’, a bespoke program created to reflect the leadership needs for Nine at all levels, and to build the connection of our people through cross-functional cohorts. 50 participants commenced the program in FY20, and we will continue to roll the program out to a further 100 leaders over FY21 (subject to any COVID-19 related restrictions). In addition to our leadership programs, our Sales team launched a new ‘Sales Academy’ – a custom internally led training and development program designed to upskill our sales professionals. With a focus on the integration of recently merged teams, the Sales Academy delivered twelve modules across all platforms including Broadcast, Digital, Publishing & Radio. The modules provided exposure across the breadth of the business, enabling the sales team to have a broader understanding of Nine, improve sales skills, and have conversations with clients about cross-platform solutions for the first time. Modules were delivered nationally through a series of face to face and online sessions utilising 37 of our own people who were themselves developed in training and facilitation skills. More than 550 of our employees have now taken part in the Sales Academy, with positive feedback from participants, with 91% of participants recommending the sessions to others. The Sales Academy is now recognised in the media advertising industry and we are working on tailoring our training modules to be used in agencies externally. As the needs of our sales team change, particularly in relation to changes in market conditions and expectations, we will continue to evolve content to ensure the Sales Academy continues to deliver relevant capability build into FY21. Supporting our People Recognising the challenges that caring responsibilities present, particularly when caring for school-age children during school holidays, in FY20 we partnered with KidsCo Australia to provide onsite vacation care for primary school-aged children. KidsCo provided qualified school teachers who developed an engaging STEAM-based curriculum utilising the unique brand assets of Nine (for example ‘Nine’s The Voice’, News for a day). Subsidised by Nine, the program was run in Sydney and Melbourne, with ‘virtual’ vacation care introduced during the COVID-19 restrictions. 243 employees used the program, with 366 children making the most of the activities. Corporate Governance Nine’s Corporate Governance Statement demonstrates the extent to which Nine has complied with the ASX’s Corporate 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 (https://www.nineforbrands.com.au/investors/). 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. In respect of its radio business, Nine is bound by the Commercial Radio Code of Practice and the Commercial Radio Guidelines which also promote editorial accuracy and guide reporting on sensitive topics such as mental illness. 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. There are similar restrictions on Nine’s commercial radio licences. 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. 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. 27 NINE ANNUAL REPORT 2020 Nine Cares Nine is committed to providing charities and communities with the right support As one of Australia’s most connected media companies, Nine is committed to providing charities and communities with the right support. This primarily comes in the form of media exposure, but also through employee engagement opportunities, as well as the two days of incremental leave granted for charity work to each employee across Nine. 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. Across FY20 we have provided support and coverage across Nine’s different platforms. In the wake of COVID-19, Nine knew that it would be a very tough period for everyone. We opened up additional inventory across our network to support key messages around hygiene, mental health, family assistance, and a variety of support networks. Since we opened this inventory, we have provided over 43 million digital impressions. We connected our sales force to support Gotcha 4 Life, taking on the #COLIV19 challenge. Employees were required to reach out to 19 people in 19 days via a video chat to check in and see how they were. Our most senior members of the team participated in this cause and drew increased attention to it by posting daily updates on their extensive LinkedIn networks. We have also provided in-program support across the NRL via Gotcha 4 Life ambassador, Gus Worland. 28 $23m Broadcast CSAs $3.1m Nine Radio CSAs $3.2m Publishing $22.8m Telethons $27m Publicity/Editorial $79.1m Total FY20 CSA = community service announcement 9 News and A Current Affair are instrumental vehicles to share stories and raise awareness. Across FY20, some of the key stories we promoted and shared included Children’s Hospital Telethons, The Sunrise Orphanage in Cambodia which raised over $700,000 in donations and coverage of Ocean Heroes Australia, bringing awareness for a cause that injects joy to children living with autism. Nine continues to support the Mark Hughes Foundation, which raises awareness and funding for Brain Cancer research. We supported the Beanie for Brain Cancer campaign across our broadcast properties, through in-program promotion and utilised our own talent to wear and post themselves wearing the beanies. We also encouraged all staff to participate by sharing links to where beanies could be purchased. This year $2.6 million was raised across the period. Nine Cares continues its involvement in communities around Australia by 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 capital cities. The Fairfax Foundation The Fairfax Foundation, established in 1959 with an independent charter, provides assistance to current and former employees and their dependants through a range of grants and other benefits. The Foundation provided $956,796 in financial grants and other benefits to eligible beneficiaries (employees and former employees of Nine and associated eligible companies) during the 2020 financial year. The image shows the new ‘Transition to Work’ space, constructed for the Exodus Foundation, and furnished entirely by TCN Willoughby on the transition to 1 Denison Street. The Exodus Foundation provides real and direct assistance to address the cause and effect of homelessness, intergenerational poverty and unemployability. 29 NINE ANNUAL REPORT 2020 Board of Directors Peter Costello, AC 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 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 Independent Non-Executive Director 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 of 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, Domain Holdings Australia, Woolworths South Africa, and Chairman of Saltbush Capital Markets. In May 2019, he was appointed Non-Executive Director of the Bank of Queensland, and as Chairman of the Bank in October 2019. He is also a Non-Executive Director of Dexus and Allianz Australia. Mr Allaway has a Bachelor of Arts/Law degree from the University of Sydney. 30 Catherine West Independent Non-Executive Director 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. She is a consultant to media companies internationally and to the healthcare sector. Ms West is a Graduate Member of the Australian Institute of Company Directors, Vice-President of the Sydney Breast Cancer Foundation at Chris O’Brien Lifehouse, a director of the NIDA Foundation Trust and a Governor of Wenona School. Ms West holds a Bachelor of Laws (Hons) and Bachelor of Economics degree from the University of Sydney. Samantha Lewis 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 is a chartered accountant, with extensive experience in accounting, finance, auditing, risk management, corporate governance, capital markets and due diligence. Ms Lewis has been a non-executive director since 2014, and in addition to Nine Entertainment, serves on 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. Prior to becoming a non-executive director, Ms Lewis spent 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. Mickie Rosen Independent Non-Executive Director Mickie Rosen served on the Fairfax Board from March 2017, before moving on to the Nine Board when Nine and Fairfax merged in December 2018. Ms Rosen has three decades of strategy, operating, and advisory experience at the intersection of media, technology, and e-commerce. She has built and led businesses for iconic global brands such as Yahoo, Fox, and Disney, as well as early-stage companies such as Hulu and Fandango. Ms Rosen currently serves on public, private, and non-profit boards, including Ascendant Digital Acquisition Company and TechStyle Fashion Group, and she advises early to growth-stage companies. 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 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. 31 NINE ANNUAL REPORT 2020 Nine Entertainment Co. Holdings Limited ABN 60 122 203 892 Financial Report for the year ended 30 June 2020 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 33 38 39 60 67 68 69 70 71 Directors’ Report Directors’ Report The Directors present the financial report for the year ended 30 June 2020. 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 Peter Costello Nick Falloon Hugh Marks Title Independent Non-Executive Chairman Independent Non-Executive Deputy Chairman Chief Executive Officer Patrick Allaway Independent Non-Executive Director Samantha Lewis Independent Non-Executive Director Mickie Rosen Catherine West Independent Non-Executive Director Independent Non-Executive Director Date Appointed 6 February 2013 7 December 2018 6 February 2013 7 December 2018 20 March 2017 7 December 2018 9 May 2016 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 (since November 2017). 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, he had ownership and management interests in a number of independent companies producing content for broadcast and pay TV, talent management and digital production. 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 is also a director of Domain Holdings Australia (since February 2020). Mr Marks received a Bachelor of Commerce and Bachelor of Laws from the University of New South Wales. 33 NINE ANNUAL REPORT 2020 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 17 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, Domain Holdings Australia, Woolworths South Africa, and Chairman of Saltbush Capital Markets. In May 2019, he was appointed Non-Executive Director of the Bank of Queensland, and as Chairman of the Bank in October 2019. He is also a Non-Executive Director of Dexus Funds Management (since February 2020) and Allianz Australia (since July 2020). 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 and Risk Management Committee and a member of the People and Remuneration Committee. Ms Lewis is a chartered accountant with extensive experience in accounting, finance, auditing, risk management, corporate governance, capital markets and due diligence. Ms Lewis has been a non-executive director since 2014, and in addition to Nine Entertainment, serves on 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. Prior to becoming a non-executive director, Ms Lewis spent 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. 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 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, Ms West was responsible for all of Sky’s content relationships, distribution, commercial activities and joint ventures. She is a consultant to media companies internationally and to the healthcare sector. Ms West is a Graduate Member of the Australian Institute of Company Directors, Vice President of the Sydney Breast Cancer Foundation at Chris O’Brien Lifehouse, a director of the NIDA Foundation Trust and a Governor of Wenona School. Ms West holds both a Bachelor of Laws (Hons) and Bachelor of Economics degree from the University of Sydney. 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. 34 Directors’ 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 AND RISK MANAGEMENT COMMITTEE PEOPLE AND 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 14 14 14 14 14 14 14 Company Secretary 14 14 14 13 14 14 14 5 5 5 5 5 5 5 5 4 4 4 4 4 4 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. 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. There have been no significant changes in the nature of activities during the financial year. Dividends Nine Entertainment Co. Holdings Limited paid an interim dividend of 5 cents per share, fully franked, in respect of the half year ended 31 December 2019 amounting to $85,269,663 on 20 April 2020. Since the year end, the Company has proposed a dividend of 2 cents per share, fully franked, payable in October 2020 in respect of the year ended 30 June 2020 amounting to $34,107,865. The Company declared and paid a final dividend of 5 cents per share, fully franked, in respect of the year ended 30 June 2019 amounting to $85,269,663 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 Level 9, 1 Denison Street, North Sydney NSW 2060. Review of Operations On 7 December 2018, the Group merged with Fairfax Media Limited (“Fairfax”). The 2019 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 2020, the Group reported a consolidated net loss after income tax of $574,967,000 (2019: profit $233,880,000). This included a loss after tax of $66,189,000 from discontinued operations (2019: profit $17,314,000). The Group’s revenues from continuing operations for the year to 30 June 2020 increased by $222,222,000 (11%) to $2,187,296,000 (2019: $1,965,074,000). 35 NINE ANNUAL REPORT 2020 The Group’s earnings before interest, tax, depreciation and amortisation (EBITDA) and before specific items (Note 2.4) for continuing operations for the year ended 30 June 2020 was a profit of $396,693,000 (2019: profit of $349,862,000). The Group’s cash flows generated in operations for the year to 30 June 2020 were $377,411,000 (2019: $221,570,000). Further information is provided in the Operating and Financial Review on pages 60 to 65. COVID-19 The COVID-19 pandemic created an uncertain economic environment which caused significant volatility across the Group during the last three months of FY20, continuing into FY21. The Group has responded during this period by focusing on the health and well-being of employees whilst taking quick and decisive measures to mitigate the significant impact on profitability and ensure a strong balance sheet going into FY21. During the period, the Group announced a $225 million cash cost out program for the remainder of FY20. The program included savings related to the postponed NRL season and renegotiation of the NRL contract, content format and timing, operational savings as well as reductions in working capital and CAPEX, with the main objective being to conserve cash reserves in a time of significant uncertainty. In addition, the Group entered an additional short term borrowing facility totalling $47.5 million and Domain entered into an additional facility of $80 million (see below for details) to ensure sufficient availability of funds in the short-term. This has resulted in a strong cash balance of $187.4 million and available debt facilities, net of amounts drawn, of $389.5 million (including Domain Holdings) as at 30 June 2020. Given the diversified nature of the Group, certain business units have been more heavily impacted than others. The advertising market across our FTA, radio and digital platforms has experienced significant disruption, whilst government restrictions have also significantly impacted the housing market and related listings for the Domain business. However, the digital subscription, Stan and 9Now businesses have continued to perform strongly across this period. The Group has also benefitted from Government benefits in the form of waived spectrum fees, which resulted in a P&L benefit of $1.3 million in FY20 and will benefit FY21 by $9.5 million, and JobKeeper allowance across a number of the Group’s smaller digital and events businesses, as well as Domain, which totalled to $6.1 million in FY20, with a further $8.4 million expected in FY21. In addition, whilst under Group ownership, Stuff NZ received a total of NZ$4.2 million in government subsidies related to the New Zealand government Wage Subsidy program. As a result of the significant impact of COVID-19 on the FTA, digital advertising and property markets, an impairment charge of $588.7 million was recognised in FY20 primarily related to Nine Network, Domain and Digital. In determining this impairment, Management have made judgements regarding the expected timing and extent of market recovery from COVID-19, as well as the probability of further outbreaks and the related impact on the Group’s businesses. Significant Changes in the State of Affairs Acquisitions During the financial year, the Group acquired the remaining 45.6% stake in Macquarie Media Limited which it did not already own, for a total consideration of $113.9 million, with the acquisition completed on 21 November 2019. The Group acquired the remainder of Macquarie Media Limited to consolidate its position as a supplier of news and current affairs across all of the Group’s key platforms. Macquarie Media Limited has previously been consolidated into the Group’s results as a result of the Fairfax merger in December 2018. Discontinued operations and disposals Following the acquisition of Fairfax on 7 December 2018, the Board agreed to sell the Events, Australian Community Media (ACM) (including printing operations) and Stuff NZ, wholly owned businesses of Fairfax. Consequently, the Group classified these businesses as a disposal group held for sale and as discontinued operations. During the year ended 30 June 2019, the Group disposed of the Events business, on 31 May 2019, and the Australian Community Media business, including printing operations, on 30 June 2019. Stuff NZ was sold on 31 May 2020. Refer to Note 6.1 for details. Profit after tax from discontinued operations includes the loss on disposal of Stuff NZ ($42.4 million) and finalisation of the ACM disposal ($6.7 million), including working capital adjustments and the termination of a related printing operations agreement ($14.0 million). Debt Refinancing On 31 January 2020, the Group refinanced its existing facilities for 100% owned entities. The new facilities, totalling $625 million, comprise 3 and 4 year revolving cash advance facilities ($272.5 million in each facility) and a one year $80 million working capital facility. The facilities replace the $650 million facility available to the 100% owned entities at 30 June 2019 (refer to the June 2019 financial statements for further details). In light of the economic uncertainty caused by the COVID-19 pandemic, Nine reached agreement on 30 June 2020 with its banking group for a new one-year debt facility of $47.5 million. The Group also has exposure to the debt facilities of a controlled entity, Domain Holdings Australia Limited (Domain). During the year, Domain refinanced its syndicated bank facility of $225 million, maturing in November 2022 and November 2023, and entered an additional facility of $80 million, maturing in October 2021, as a response to COVID-19. Domain also agreed financial covenant waivers with its banking group for 30 June 2020 and 31 December 2020. The next covenant testing date on these facilities is therefore 30 June 2021. Domain Group was in compliance with its financial covenants at 30 June 2020 and is forecasting covenant compliance at 31 December 2020 and 30 June 2021. There are no material changes to the terms of the facilities or the permitted uses of the facilities. The interest rate for drawings under these facilities is the applicable bank bill rate plus a credit margin. 36 Directors’ Report Significant Events after the Balance Sheet Date 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 38. 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. 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 Chairman Sydney, 27 August 2020 Hugh Marks Chief Executive Officer and Director 37 NINE ANNUAL REPORT 2020 Auditor’s Independence Declaration 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 Auditor’s Independence Declaration to the Directors of Nine Entertainment Co. Holdings Limited As lead auditor for the audit of the financial report of Nine Entertainment Co. Holdings Limited for the financial year ended 30 June 2020, 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 Partner 27 August 2020 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 38 Remuneration Report – Audited 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. Changes to the CEO Remuneration 3.4. Remuneration Mix (at target) 3.5. Fixed Remuneration 3.6. Short-Term Incentive (STI) Plan 3.7. Long-Term Incentive (LTI) Plan 3.8. Additional CEO Long-Term Incentive (CEO-LTI) Plan 4. Linking Pay to Performance 4.1. Impact of Nine’s 2020 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 39 NINE ANNUAL REPORT 2020 Letter from Committee Chair On behalf of the Board, I am pleased to present the Company’s Remuneration Report for the financial year ended 30 June 2020 (FY20). This year has been an extraordinary one for a number of reasons. The soft advertising market and global outbreak of COVID-19 during the financial year, which resulted in an effective shutdown of the country, had a significant impact on our business and therefore our FY20 results. As businesses and industries were forced to close, and Australians were instructed to stay home during the initial lockdown period, we saw an adverse impact on advertising revenues across our platforms in television, radio, digital and publishing. At the same time, audiences actually increased across these platforms, expediting the digital shift across television and publishing. Linked to this shift, we recorded strong growth in subscription revenues both in Stan and Publishing through our digital mastheads, and similarly strong growth at 9Now. As the COVID-19 crisis was upon us, our CEO Hugh Marks and the rest of the Executive team were very quick to respond and prioritised dealing with the global pandemic from a people, financial and business perspective. Whilst putting in place measures to protect the health and wellbeing of our people as a priority, the team focused on ensuring the business could adapt and continue to thrive. To minimise the revenue impact of COVID-19 the Company implemented a range of cost saving initiatives across all our businesses. This program was significant, and included both short term and structural cost reductions. Specifically, it included no short-term incentives for FY20 being paid to Executive KMP and other participants on the Nine STI plan. Notwithstanding the unprecedented conditions, the Executive team continued to deliver on our strategy to diversify our revenue base, particularly migrating towards a greater reliance on, and therefore investment in, our digital assets, whilst containing costs across the entire business. This strategy was successful in FY20 delivering 40% growth in EBITDA from our digital assets, which accounted for almost half of the group total. For FY20, Nine delivered a Group EBIT of $246.8 million for continuing businesses, which was 11% below last year. Net Profit After Tax and before Specific Items for continuing businesses is $155.9 million for the year, down 17%. CEO Remuneration During the year the Board reviewed the remuneration arrangement of our CEO, Hugh Marks. The Board was of the view that an increase in remuneration was appropriate for Mr Marks and approved an increase effective from 1 July 2019. The Board increased the base salary (with a commensurate increase in his potential STI and LTI) and added an additional “at risk” equity allocation with the introduction of an additional CEO Long-Term Incentive Plan (CEO-LTI) based on digital transformation of the business. Further details on the change to Mr Marks remuneration is in section 3.3, and details of the CEO-LTI in section 3.8. In FY20 there were no other changes to the structure of Executive incentive arrangements and no changes to Non-Executive Director fees. Short-Term Incentives The STI Plan in FY20 for Executive KMP remained unchanged, 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 our strategy. Overall, performance for FY20 was greatly affected by a weak advertising market and then COVID-19. The Company introduced a number of cost saving initiatives to counter the decline in revenue however the Group EBITDA target was not met and no STI was earnt based on this measure. Included in these cost saving initiatives was a management-led decision that no other STI based on individual objectives would be paid to Executive KMP and other management on the Nine STI plan. Long-Term Incentives The FY18 Long-Term Incentive Plan (LTI) grant was tested at the conclusion of FY20. The required targets for the FY18 LTI grant were Total Shareholder Return (TSR) and Earnings Per Share Growth (EPSG) measured over a three year performance period. The LTI participants received a total of 37% of the maximum possible benefits under the FY18 Long-Term Incentive Plan. The remainder of the FY18 LTI Rights lapsed. The EPSG target (50% of total grant) was not achieved, resulting in no vesting of this portion of the grant. The TSR performance (50% of total grant) was above the 50th percentile, resulting in vesting of 74% of the rights attributable to that hurdle equating to 37% of the maximum rights available. 40 Remuneration Report – Audited Changes for FY21 During the year the People and Culture Committee and the Board reviewed the Executive Remuneration Framework and made some changes to the STI and LTI Plans for FY21. The changes to the STI plan include: • an equal weighting to the Group Financial and Individual Objectives components. This enables the continued focus on the overall Group result whilst providing greater flexibility to focus executives on delivery of key transformation and strategic objectives of the Group within their area of responsibility; • the Individual Objectives will continue to be a combination of financial and non-financial measures, but there will now be a requirement of at least one mandatory non-financial measure included for all participants on the STI plan; and • the Group Financial performance measure for STI will be Group EBIT in FY21 (as opposed to EBITDA previously). There is one change to the LTI plan for FY21. The Earnings Per Share (EPS) performance hurdle which represents 50% of the performance required for vesting, will change from a compound annual growth rate (CAGR) approach to a point-to-point measure. This change removes the volatility and uncertainty around the recovery of COVID-19, and we are measuring the EPS performance from a pre COVID-19 starting point. If the Executive team achieves the EPS point-to-point target at the end of FY23, Nine will have come out of the COVID-impacted period in a strong financial position, and with a higher quality earnings base. Otherwise the STI and LTI structures for FY21 remain the same as FY20. On behalf of the Board I would like to commend and thank our CEO Hugh Marks and every single member of the Nine team for their extraordinary efforts and commitment to Nine in an unprecedented year, and for continuing to execute the strategic priorities of the business whilst managing and mitigating the challenges presented. 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 41 NINE ANNUAL REPORT 2020 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 2020. 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 table details movements during the 2020 financial year and current KMP and Directors. Key Management Personnel Name Position Term 2020 Non-Executive Directors (NEDs) Peter Costello Nick Falloon Patrick Allaway Samantha Lewis Mickie Rosen Catherine West Executive Director Chairman (independent, Non-Executive) Full year Deputy Chairman (independent Non-Executive) Full year Director (independent Non-Executive) Director (independent Non-Executive) Director (independent Non-Executive) Director (independent Non-Executive) Full year Full year Full year Full year Full year Hugh Marks Chief Executive Officer Other Executive KMP Paul Koppelman1 Chief Financial Officer From 2 September 2019 Michael Stephenson Chief Sales Officer Full year Other Executive KMP Greg Barnes2 Chief Financial Officer Up to 31 August 2019 1 Mr Koppelman commenced as Chief Financial Officer on 2 September 2019. Effective 10 July 2020 Mr Koppelman resigned and ceased to be an employee of the Company. 2 Mr Barnes ceased to be an employee of the Company on 31 August 2019. 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 3.5. Performance Measure Performance and delivery of key responsibilities as set out in the position description. At risk portion Link to Strategic Objective Not applicable 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. 42 Remuneration Report – Audited Performance Measure Group Financial measure: 60% – Group Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) before specific items. 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. 100% – Transformation and Strategic Objectives. Measured over a three-year performance period. Component Annual short-term incentive (STI) Cash payments and deferred shares. Further detail in Section 3.6. Long-term incentive (LTI) Performance rights used to align the reward of executives to the returns generated for Nine shareholders. Further detail in Section 3.7. Additional CEO Long term incentive (LTI) Performance rights used to align the reward of the CEO to the returns generated for Nine shareholders through a focus on strategic transformation. Further detail in section 3.8. At risk portion Link to Strategic Objective 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. Chief Executive Officer only: 25% of fixed remuneration. The group financial measure rewards Group performance. The Group EBITDA measure was chosen because it contributes to the determining 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 driving growth in revenues and audiences, meeting the growth targets for 9Now and Stan, integrating Macquarie Radio into Nine, and meeting cost management initiatives. A portion is paid in cash (67%) and a portion (33%) delivered as Nine shares deferred for up to two years to ensure continued alignment to shareholder outcomes. 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. Creates a strong link with the creation of shareholder value. Transformation and strategic objectives are chosen to focus on key initiatives to position Nine for medium to long term growth and sustainability. The objectives for the FY20 grant focus on transformation of Nine into a digital focused business, demonstrated by increasing digital audience and engagement and growth in digital revenue and subscription revenue. Total Remuneration 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. 43 NINE ANNUAL REPORT 2020 2.1 Summary of Executive Remuneration outcomes The table below is a summary of remuneration outcomes for financial year 2020. Fixed remuneration • Following a review by the Board, Hugh Marks received an increase in fixed remuneration to $1,550,000 Short-term incentive (STI) Long-term Incentive (LTI) Award vesting (from $1,400,000) effective 1 July 2019. Further details are in section 3.3. • Paul Koppelman commenced with the Company as the Chief Financial Officer on 2 September 2019 on a fixed remuneration of $850,000. On 10 July 2020 the Company announced the resignation of Mr Koppelman. • During FY20 there was no increase to Michael Stephenson’s fixed remuneration. • During the financial year, the Company announced to the market that cost initiatives were being implemented to counter the impact of COVID-19. One of these initiatives was the removal of short-term incentives for FY20. This was a Management led decision resulting in no STI being paid to Executive KMP and other management on the Nine STI plan. • The Group financial target (60%) was not achieved as this was impacted by the decline in the advertising market and then further impacted in H2 by COVID-19. • Management continued to drive performance against the agreed measures of the Individual component (40%). These measures were assessed against the specific targets but any achieved outcomes were forfeited. • LTI grants were made in line with plan rules for Executive KMP in financial year 2020. • LTI grants made in financial year 2018 were tested at 30 June 2020 in line with the plan rules. • TSR requirements were achieved at above threshold level performance, resulting in 74% 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 Nine and Fairfax merger. That is, EPSG was calculated by applying legacy Nine up to the merger date (7 December 2018) and the merged entity thereafter. The EPSG target was not achieved, resulting in no vesting of this portion of the grant (50% of total grant). • This resulted in participants receiving a total of 37% of the possible benefits under the FY18 LTI plan. The remainder of the FY18 Rights lapsed. Non-executive director fees • The total amount paid by Nine to Non-Executive Directors in financial year 2020 was $1,140,000. This is well below the aggregate fee pool of $3m approved by shareholders at the AGM on 21 October 2013. 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, reward delivery against our objectives and align to 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. 44 Remuneration Report – Audited 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 is also consideration of other Australian listed companies of a similar size, complexity and prominence. The table in section 3.4 summarises the Executive KMP remuneration structure and mix under the Company’s Remuneration Framework. 3.3 Changes to the CEO Remuneration Following a review by the Board, the remuneration arrangement for the CEO increased effective 1 July 2019. The review took into consideration: • relevant market information for media industry peers, other industry peers of the Nine TSR comparator group and companies of similar market capitalisation; • the CEO had not received any increase in remuneration since his appointment to the role in 2015; • the increased scope and responsibility following the merger with Fairfax Media; • criticality to the success of the business by leading Nine in its transformation from a TV broadcasting business to a large and diversified multimedia business; and • the CEO’s position as an industry leader in the media sector which is an industry that is undergoing extreme disruption. The new total remuneration for the CEO is above the 75th percentile for industry peers and between the median and the 75th percentile for listed companies of similar size, complexity and prominence. The Board increased the base salary (with a commensurate increase in his potential STI and LTI) and added an additional “at risk” equity allocation with the introduction of an additional CEO Long-Term Incentive Plan (CEO-LTI). The CEO-LTI for FY20 will be measured on the performance of Nine’s digital transformation objectives over a 3 year performance period. For more information on the new CEO-LTI plan see section 3.8. A summary of the new remuneration package is tabled below: Remuneration Components New from 1 July 2019 Previous arrangement Fixed Remuneration (FR) (base pay, non-monetary benefits, superannuation) Short Term Incentive Plan (STI) Long Term Incentive Plan (LTI) CEO Additional LTI Plan (CEO-LTI) Total Targeted Remuneration ‘At Risk’ Remuneration 3.4 Remuneration Mix (at target) Chief Executive Officer $1,550,000 $1,400,000 100% of FR (target) 100% of FR (target) 25% of FR (target) $5,037,500 69.2% 100% of FR (target) 100% of FR (target) n/a $4,200,000 66.6% Fixed Remuneration Short-Term Incentive Long-Term Incentive 30.8% 30.8% 38.4% 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 69.2% Total at Risk 50% 45 NINE ANNUAL REPORT 2020 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%) 3.5 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. 3.6 Short Term Incentive Plan (STI) Purpose and overview STI funding STI Opportunity (at target) • 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. • 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 objectives. CEO Other Executive KMP % of fixed remuneration 100 50 Group Financial Measures • Group EBITDA pre specific items (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. • 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 <95% 95% 100% 105% 110% >115% % Payout (of Group Financial Component) vs Target Payout Subject to Board consideration 50% 100% 110% 125% 150% 46 Remuneration Report – Audited 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 FY20 were focused on driving growth in revenues and audiences, meeting growth targets for 9Now and Stan, integrating Macquarie Radio into the business, and meeting cost management initiatives. Payouts based on individual measures are detailed below. Performance Assessment based on delivery of Individual 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 2020. Assessment and Board discretion Date Payable/ of Vesting Percentage Cash Deferred Shares Following results release 1 year following end of performance period 2 years following end of performance period 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 any Shares will be acquired on-market to satisfy awards under this component of the STI Plan. • 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 fair outcomes that reflect management’s delivery of financial performance, with 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 individual objectives. • The Board has the discretion to clawback awards made under the Short Term Incentive plan to ensure that participants do not unfairly benefit, including in the event of fraud, dishonesty or a breach of obligation to the Company. In addition, the Board may also clawback awards in the case of material risk issues arising or where any information becomes available after awards are granted, which suggests that the outcome was not justified. 47 NINE ANNUAL REPORT 2020 3.7 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): • 26 November 2018 – FY19 grant • 1 December 2019 – FY20 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 four 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, at the Board’s discretion, entitle the Participant to receive cash to the value of a Share. No amount is payable on conversion. LTI opportunity (at target) CEO Other Executive KMP % of fixed remuneration 100 50 Performance Period The Performance Period for each grant is three financial years from the financial year of granting. For the FY20 grant, the performance period is the three year period from 1 July 2019 to 30 June 2022. (Vesting Date). Vesting Dates 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). Vesting Conditions 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 Earnings Per Share Growth (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. 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 48 Vesting 50% 25% 0% Vesting 50% 16.5% 0% Remuneration Report – Audited Vesting Conditions continued 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. Cessation of employment (Employment Conditions) If the Participant is not employed by Nine or any Nine Group member on a particular Vesting Date due to the Participant: • having been summarily dismissed; • resigning (subject to the Board exercising discretion to allow rights to be retained); or • having terminated his/her employment agreement otherwise than in accordance with the terms of that agreement, any unvested Performance Rights held on or after the date of termination will lapse. If the Participant has ceased to be employed by 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. Disposal restrictions 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. Clawback provision The Board has the discretion to clawback awards made under the Long Term Incentive plans to ensure that participants do not unfairly benefit, including in the event of fraud, dishonesty or a breach of obligation to the Company. In addition, the Board may also clawback awards in the case of material risk issues arising or where any information becomes available after awards are granted (whether vested or unvested), which suggests that the initial grant or result was not justified. Change of control The Board has the discretion to accelerate vesting of some or all of a Participant’s Performance Rights in the event of certain transactions which may result in a change of control of Nine Entertainment Co. Holdings Ltd. The discretion will be exercised having regard to all relevant circumstances at the time. Unvested Performance Rights will remain in place unless the Board determines to exercise that discretion. Amendments 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. 49 NINE ANNUAL REPORT 2020 3.8 Additional CEO Long Term Incentive (CEO-LTI) Plan The CEO-LTI plan involves the annual grant of conditional rights to only the CEO of Nine. Overview Grant Date The CEO Long-Term Incentive Plan is an equity incentive plan used to align the CEO’s remuneration to the returns generated for Nine shareholders. Subject to receiving shareholder approval at the 2020 Annual General Meeting, rights will be granted to the CEO. The nature and structure of the CEO-LTI grant is materially consistent with the Group LTI plan except for the vesting conditions. Consideration Nil Performance Rights Performance rights are awarded based on the fixed amount to which the CEO 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 CEO to receive cash to the value of a Share. No amount is payable on conversion. CEO-LTI opportunity 25% of fixed remuneration ($387,500) Performance Period Three years. For the FY20 grant, the performance period is from 1 July 2019 to 30 June 2022. (Vesting Date). Vesting Date Subject to the Vesting Condition below and Employment Conditions described above, Performance Rights held by the CEO will vest on the Vesting Date (with no opportunity to retest). Vesting Condition Performance Rights granted will vest based on the Board’s assessment of performance against strategic measures set by the Board. For the FY20 grant, performance will be based on targets supporting our digital strategy, including targets relating to: • Digital audience growth in reach and engagement; • Digital revenue growth; and • Subscription revenue growth. The number of rights that vest will be based on the Board’s assessment of performance, on an aggregated level, across a group of quantitative measures. 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 their assessment upon vesting of any performance rights. 50 Remuneration Report – Audited 4. Linking Pay to Performance 4.1 Impact of Nine’s 2020 performance on remuneration This year was no doubt a challenging year for Nine, the media industry as a whole and the global economy. The outbreak of COVID-19, and the subsequent decline in the advertising market impacted our revenues and overall FY20 result. The Company implemented a range of cost saving initiatives to minimise the impact that COVID-19 had on our revenues. This included no short-term incentives for FY20 to be paid to Executive KMP and other participants on the Nine STI plan. The FY20 Group EBITDA target, which represented 60% of the STI opportunity, was not achieved. This was mainly due to the weak external advertising market, primarily as a result of the impact of COVID-19. At the beginning of the year, Executives were provided with clear targets for their Individual Objectives (representing 40% of STI opportunity) that were important to the delivery of the company’s strategic plan and objectives. For FY20, these measures were mainly focused on driving growth in revenues and audiences, meeting the growth targets for 9Now and Stan, integrating Macquarie Radio into the business and meeting cost management initiatives. The performance of each Executive’s Individual Objectives was assessed against the specific targets but any achieved outcomes for STI purposes were forfeited. 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 Net profit after tax before specific items 30 June 201 Reported $m 30 June 192 Pro-Forma $m 30 June 182 Pro-Forma $m 30 June 193 $m 2,187.3 396.7 18% 220.4 155.9 2,341.7 423.8 18% 318.8 224.8 2,364.0 385.1 16% 287.1 170.6 1,965.1 349.9 18% 265.6 187.1 30 Jun 18 $m 1,403.9 257.2 18% 218.2 156.7 30 Jun 17 $m 1,244.9 205.6 17% 164.7 123.6 Earnings per share – cents 8.3 cents 11.6 cents 10.0 cents 13.0 cents 18.0 cents 14.0 cents Opening share price Closing share price Dividend 30 Jun 20 Cents/Share 30 Jun 19 Cents/Share 30 Jun 18 Cents/Share 30 June 19 Cents/Share 30 June 18 Cents/Share 30 June 17 Cents/Share 188 138 7 248 188 10 138 248 10 248 188 10 138 248 10 105 138 9.5 Executive KMP STI Payments 30 Jun 20 30 Jun 19 30 Jun 18 30 June 19 30 June 18 30 June 17 Awarded Forfeited (at target) 0% 100% 69% 31% 129% — 69% 31% 129% — 94% 6% 1 FY20 results are presented pre specific items and on a continuing operations basis. 2 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. 3 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 $8.7m pre-tax, $6.1m after tax. 51 NINE ANNUAL REPORT 2020 4.2 Short-Term Incentives (STI) In FY20, the Executive KMP short-term incentive plan was allocated 60% for 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. As described in section 4.1, as part of the cost saving initiatives implemented across the business to counter the impact of COVID-19, no short-term incentives were paid for FY20 to Executive KMP and other management on the Nine STI plan. The proportions of target and maximum STI that were awarded and forfeited by each Executive KMP in relation to the current financial year and last year are set out below. Executive KMP Hugh Marks Paul Koppelman1 Michael Stephenson Former Executive KMP Greg Barnes2 Proportion of Target STI (%) Proportion of Maximum STI (%) Awarded % Forfeited % Awarded % Forfeited % 0% 69% 0% — 0% 70% 0% 70% 100% 31% 100% — 100% 30% 100% 30% 0% 46% 0% — 0% 47% 0% 47% 100% 54% 100% — 100% 53% 100% 53% FY20 FY19 FY20 FY19 FY20 FY19 FY20 FY19 1 Mr Koppelman commenced as Chief Financial Officer on 2 September 2019. On 10 July 2020 the Company announced the resignation of Mr Koppelman. 2 Mr Barnes ceased to be an employee of the Company on 31 August 2019. 4.3 Long-Term Incentives (LTI) Plan FY18 LTI Grant Date Test Date 1 December 2017 30 June 2020 FY19 LTI 26 November 2018 30 June 2021 FY20 LTI 1 December 2019 30 June 2022 FY20 CEO-LTI To be granted following shareholder approval 30 June 2022 Performance Hurdles • 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 • 100% - Digital Transformation Measures Vesting outcome (%) 37% NA NA NA The performance period of the FY18 Long Term Incentive Plan (granted 1 December 2017) commenced on 1 July 2017 and concluded on 30 June 2020. Performance was assessed at the conclusion of the FY20 year, and as a result of performance over the three year period, 37% vesting was achieved. The Total Shareholder Return (TSR) hurdle was achieved above the threshold level of performance. The TSR result was at the 62nd percentile compared to the comparator group, resulting in 74% 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 Nine and Fairfax merger. That is, EPSG was calculated by applying legacy Nine up to the merger date (7 December 2018) and the merged entity thereafter. The EPSG targets for the FY18 LTI plan were 1% per annum for threshold performance and 5% per annum for stretch performance. The EPSG targets were not achieved, resulting in no vesting of this portion of the grant (50% of total grant). The portion of rights (63% of total FY18 grant) that did not meet the required performance hurdles were forfeited and lapsed. There is no retesting of the hurdles. 52 Remuneration Report – Audited 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 2020 were as follows: Fixed Remuneration1 Target STI Target LTI Additional CEO LTI Notice Period by Executive Notice Period by Company Restraint Hugh Marks $1,550,000 $1,550,000 $1,550,000 $387,500 12 months 12 months 12 months Paul Koppelman2 $850,000 $425,000 $425,000 Michael Stephenson $840,000 $420,000 $420,000 — — 6 months 12 months 12 months 12 months 12 months 12 months 1 Fixed remuneration comprises of base cash remuneration, superannuation and other benefits. 2 Mr Koppelman commenced as the Chief Financial Officer on 2 September 2019. On 10 July 2020 the Company announced the resignation of Mr Koppelman. 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 aligns their interests with those of key stakeholders, complies with WHS obligations and effectively manages 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 35 of the Directors’ Report. Further information on the PRC’s role, responsibilities and membership is included in the committee charter which is available at www.nineforbrands.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 PwC as the Company’s remuneration advisor during the 2020 financial year. There were no remuneration recommendations provided to the Committee by PwC or any other consultants in the 2020 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.nineforbrands.com.au). 53 NINE ANNUAL REPORT 2020 d $ e t a e R l e c n a m r o f r e P l $ a t o T s $ t n e m y a P n o i t a n m r e T i m r e t - g n o L 5 $ s e v i t n e c n i 4 $ I T S d e r r e f e D g n o L i e c v r e S 3 $ e v a e L l a u n n A 2 $ e v a e L - r e p u S n $ o i t a u n n a 1 $ r e h t O s $ u n o B h s a C s $ e e F d n a y r a a S l . 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 0 2 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 S T I F E N E B M R E T - G N O L - T S O P T N E M Y O L P M E 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 s e m o c t u o n o i t a r e n u m e r P M K 0 2 0 2 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 l c s i d d e l i a t e D . 7 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 1 . 7 54 , 6 5 0 6 4 6 — 5 3 9 9 6 , 8 0 8 8 5 , 3 0 0 , 1 2 , 0 5 2 0 5 8 0 8 7 8 1 3 , — 4 3 8 , 1 3 1 3 5 0 2 , — — 0 2 2 7, 4 6 , 9 6 4 9 7 3 , 1 9 1 Y F — , 7 9 9 8 2 5 , 1 0 2 Y F s k r a M h g u H r o t c e r i D e v i t u c e x E 8 2 6 5 0 1 — 5 1 9 3 4 0 4 , 9 9 7 4 2 3 2 , , 4 8 0 8 4 2 3 , — , 4 2 2 4 8 8 , 5 8 6 2 0 0 , 1 , 5 7 5 8 5 3 , 1 — — — — — — — 2 4 5 9 8 , 3 7 2 6 4 1 , — — — 8 2 8 9 2 2 , 0 2 0 7, 9 , 4 9 6 0 4 4 , 1 — , 3 7 8 3 9 0 , 1 , 1 5 2 0 8 8 1 5 6 0 4 , 2 1 1 , 8 5 2 , 1 8 5 5 0 3 5 , , 1 5 2 0 8 8 , 2 2 5 2 2 9 — — — — 5 6 2 , 1 1 6 8 5 2 , 8 5 6 3 1 , — — — ) 0 5 4 9 ( , ) 1 1 9 8 1 ( , — 3 0 0 , 1 2 1 3 5 0 2 , 1 7 4 , 1 0 0 0 5 2 , ) 3 9 5 0 1 ( , 1 3 5 0 2 , — — — — — 1 9 4 0 3 , 2 0 5 7, 1 0 0 2 4 5 , 0 8 9 6 9 1 , 9 6 4 9 1 8 , 9 1 Y F — — — — 9 1 Y F 4 2 2 , 1 9 6 0 2 Y F l 6 n a m e p p o K l u a P 8 9 9 8 1 8 , 0 2 Y F n o s n e h p e t S l e a h c M i 0 0 0 5 1 3 , 4 4 6 7, 5 8 9 1 Y F — 0 0 5 6 4 1 , 0 2 Y F 7 s e n r a B g e r G P M K e v i t u c e x E r e m r o F 1 6 0 7, 9 0 2 3 , 1 8 8 0 5 4 8 , 0 0 2 4 5 , — , 9 1 7 5 8 1 , 3 0 2 Y F P M K e v i t u c e x E l a t o T P M K r e h t O 3 5 3 7, 4 0 6 , — 0 9 1 , 8 3 3 , 1 0 0 8 5 1 4 , 8 5 6 3 1 , 0 3 3 2 , 3 9 5 , 1 6 — , 0 0 2 9 5 1 , 1 , 2 8 5 6 5 0 3 , 9 1 Y F s e t o N 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 . . 8 3 d n a . 7 3 s n o i t c e s n i d e n i l t u o e r a s 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 . t n e m y o p m e l f o . 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 d e s a e c d n a d e n g s e r i l n a m e p p o K r M 0 2 0 2 l y u J 0 1 n o e v i t c e ff E . 9 1 0 2 r e b m e t p e S 2 n o r e c ffi O l i a c n a n F i i f e h C s a d e c n e m m o c l n a m e p p o K r M . e c i t o n o t t n e m e l t i t n e l a u t c a r t n o c i s h s a w i h c h w , y r a a s l s ’ r a e y e n o f o e c i t o n i d a p s a w s e n r a B r M . 9 1 0 2 t s u g u A 1 3 n o 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 d e s a e c s e n r a B r M . p u o r G e h t s s o r c a y c n e t s i s n o c e r u s n e o t r a e y t n e r r u c e h t g n i r u d l y g o o d o h t e m n o s v o r p i i L S L e h t d e t s u d a j s a h t n e m e g a n a M , r e g r e m x a f r i a F e h t f o t l u s e r a s A . 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 . l n a m e p p o K r M r o f e c n a w o l l a t n e r d n a n o i t a c o e r l a s t n e s e r p e R 1 2 3 4 5 6 7 Remuneration Report – Audited d e d r a w a s t n e m e e l s e r a h s d e r r e f e d d n a h s a c e h t h t o b e d u c n l i s t n u o m a I T S . 0 2 Y F o t d r a g e r n i s e v i t u c e x e ’ s y n a p m o C e h t y b l e b a v e c e r i y l l a u t c a n o i t a r e n u m e r e h t f o s l i a t e d i s e d v o r p l e b a t e h t e s u a c e b y l l i a p c n i r p 1 7. n o i t c e s n i e r u s o c s d l i y r o t u t a t s e h t m o r f s r e f f i d l e b a t e h T . d e d u c n l i e r a r a e y e h t g n i r u d d e t s e v e v a h i h c h w s I T L l y n O . r a e y l i a c n a n i f e v i t c e p s e r e h t r o f . s r a e y e r u t u f n i t s e v t o n y a m r o y a m i h c h w I T L r o f l e u a v a s e d u c n l i 1 7. n o i t c e s n i 0 $ 2 0 2 r o f ” d e n r a e “ n o i t a r e n u m e R m r e t g n o L 4 $ s e v i t n e c n i d e r r e f e D r e h t O 3 $ I T S 2 $ n o i t a r e n u m e r s $ u n o b h s a c f o e c n a w o l l a d n a y r a a s l d e x F i 1 $ s u n o b h s a C s $ e e F d n a y r a a S l 3 6 2 , 1 6 1 , 2 , 1 2 5 2 8 4 — 8 3 6 7, 5 9 4 , — , 2 8 6 4 9 7 , 2 1 2 2 8 9 4 2 1 , 6 9 7 , 1 7 5 1 , 8 3 9 3 , , 2 6 7 3 5 7 6 , , 4 0 8 9 5 5 2 , — — 0 0 8 5 2 1 , 7 7 3 7, 6 6 , 1 2 3 8 0 6 1 8 1 7, 2 2 3 , 0 8 7 8 1 3 , — — — — 0 2 0 7, 9 0 0 8 5 1 4 , 5 4 7 9 4 1 , 5 6 3 2 5 , 8 5 2 9 4 , — 4 1 4 7, 3 8 7 2 5 1 , , 7 1 4 6 3 2 3 4 6 7, 6 , 7 9 9 8 2 5 , 1 — , 9 8 6 6 2 0 2 , — 4 2 4 5 4 7 , 8 9 9 8 1 8 , , 9 4 4 6 1 0 , 1 , 9 1 4 3 9 0 3 , 0 2 2 7, 4 6 — — — — 0 8 9 6 9 1 , , 7 9 9 8 2 5 , 1 , 9 6 4 9 7 3 , 1 4 2 4 5 4 7 , — 8 9 9 8 1 8 , 9 6 4 9 1 8 , , 9 1 4 3 9 0 3 , 8 3 1 , 3 4 0 3 , , 0 0 2 4 4 8 , 8 3 9 8 9 1 , 2 0 2 Y F 9 1 Y F 0 2 Y F 9 1 Y F 0 2 Y F 9 1 Y F 0 2 Y F 9 1 Y F r o t c e r i D e v i t u c e x E l 5 n a m e p p o K l u a P s k r a M h g u H P M K r e h t O 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 f o 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 i g n w o l l o f 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 s i 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 . t n e m y o p m e l . s e c n a a b l e v a e l i e c v r e s g n o l d n a e v a e l l a u n n a n i t n e m e v o m d n a n o i t a u n n a r e p u s o t s e t a e r l n o i t a r e n u m e r r e h t O . I T S s a h c u s s t fi e n e b h s a c s e d u c n l i s u n o b h s a C 1 2 3 t i s a t n a v e e r l e b o t d e r e d s n o c i s i n o i t a m r o f n i i s h T . w o e b l l e b a t e h t n i t u o t e s s i ) ” 0 2 Y F “ ( 0 2 0 2 e n u J 0 3 d e d n e r a e y e h t n i s e v i t u c e x e t n e r r u c o t d e d r a w a n o i t a r e n u m e r l a u t c a e h T 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 - n o N 2 7 . e r a h s e h t n o d e s a b l d e t a u c a c l n e e b s a h s t h g R i e s e h t o t d e t u b i r t t a e u a v l e h T . 0 2 0 2 e n u J 0 3 o t p u e c n a m r o f r e p n o d e s a b d e r u s a e m e r e w i h c h w t u b 0 2 0 2 e n u J 0 3 o t t n e u q e s b u s d e t s e v i h c h w s t h g R i 4 . g n i t s e v n o e u a v l h s a c e h t f o n o i t i a m x o r p p a n a s a 0 2 0 2 l y u J 1 3 t a s a e c i r p . 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 d e s a e c d n a d e n g s e r i l n a m e p p o K r M 0 2 0 2 l y u J 0 1 n o e v i t c e ff E . 9 1 0 2 r e b m e t p e S 2 n o r e c ffi O l i a c n a n F i i f e h C s a d e c n e m m o c l n a m e p p o K r M 5 55 NINE ANNUAL REPORT 2020 7.3 Performance Rights and Share Interests of Key Management Personnel 2020 Rights over shares held by Executive KMP The number of Performance Rights granted to Executive KMP as remuneration, the number vested and lapsed 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. Lapsed during the year No. Share Rights Outstanding at End of Year No. Executive Director Hugh Marks Other Executive KMP Paul Koppelman2 Michael Stephenson Former Executive KMP Greg Barnes3 958,904 584,795 250,000 175,439 291,096 177,527 10,433 1 Dec 17 1.136 1 Jul 20 354,794 604,110 — 26 Nov 18 1.065 1 Jul 21 760,869 1 Dec 19 1.163 1 Jul 22 230,978 1 Dec 19 1.163 1 Jul 22 584,795 760,869 230,978 1 Dec 17 1.136 1 Jul 20 92,500 157,500 — 26 Nov 18 1.065 1 Jul 21 228,260 1 Dec 19 1.163 1 Jul 22 1 Dec 17 1.136 1 Jul 20 77,804 213,292 26 Nov 18 1 Dec 18 1.065 1.065 1 Jul 21 1 Jul 21 104,403 10,433 175,439 228,260 — 73,124 — 1 Rights which vested subsequent to 30 June 2020 but which were measured based on performance up to 30 June 2020. 2 Mr Koppelman resigned and ceased to be an employee of the Company on 10 July 2020. The 230,978 Performance Rights granted to Mr Koppelman on 1 December 2019 were forfeited and lapsed on resignation. 3 Mr Barnes ceased to be an employee of the Company on 31 August 2019. In accordance with the termination agreement Mr Barnes retains a time-based pro rata number of rights. 56 Remuneration Report – Audited 2020 Shareholding of Key Management Personnel The Board has a policy of encouraging directors to acquire shares to the value of one year’s base fees, to be acquired within 5 years of appointment. Shares held in Nine Entertainment Co. Holdings Limited by KMP and their related parties are as follows: As at 1 July 2019 Ord Granted on conversion of Share Rights Ord Granted as STI Ord Other Net Changes Ord Held directly as at 30 June 2020 Ord Held nominally as at 30 June 2020 Ord 301,786 396,222 40,000 — 73,542 40,000 — — — — — — — — — — — — — — — 80,000 — 20,000 — 301,786 51,142 345,080 — — — — 40,000 80,000 73,542 60,000 1,687,061 1,372,549 173,250 (916,216) 2,034,364 282,280 Non-Executive Directors Peter Costello Nick Falloon Catherine West Mickie Rosen Patrick Allaway Samantha Lewis Executive Director Hugh Marks Other Key Management Personnel Paul Koppelman — — — 105,000 — 105,000 Michael Stephenson 149,368 357,843 52,728 (40,852) 161,244 357,843 Total 2,687,979 1,730,392 225,978 (752,068) 2,246,750 1,645,531 Greg Barnes who is a former Executive KMP held 1,145,616 shares at the date he ceased to be employed by Nine (31 August 2019). Related Body Corporate – Domain Holdings Australia Limited (Domain) equity holdings of Directors The following table represent the number of Domain ordinary shares and Domain rights over shares held by Directors of Nine and their related parties. Director Related Body Corporate Relevant Interest as at 1 July 2019 Relevant Interest as at 30 June 2020 Nick Falloon1 Domain Holdings Australia Limited 101,239 ordinary shares 101,239 ordinary shares 31,105 shares rights Patrick Allaway Domain Holdings Australia Limited 87,000 ordinary shares — 1. Domain ran a program where employees and Directors could voluntarily sacrifice a portion of their cash salary for a 6 month period, and in return would be granted an allocation of share rights to this value. The period of the arrangement is from 4 May to 1 November 2020. Further details of the Domain program can be found in the Domain Annual Report. Mr Falloon took up the offer and sacrificed 25% in cash fees and received 31,105 share rights which are anticipated to vest on the 7 November 2021. 57 NINE ANNUAL REPORT 2020 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 2020 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 & Risk Committee chair Audit & Risk Committee member People & Remuneration Committee chair People & 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 2020 financial year. The table below includes fees for the period, when they held the position of NEDs. Directors’ Fees Paid by Domain Holdings Australia Limited In the following statutory table representing fees paid to Nine NEDs, Mr Falloon and Mr Allaway (until 1 February 2020) 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 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, and the Audit & Risk Committee from 1 February 2020 (replacing Mr Allaway). The Chairman’s fee on the Domain Board is $250,000 per annum. The Chairman does not receive any additional fees for being a member of Committees at Domain. Mr Allaway retired from the Domain board on 1 February 2020 and was 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. Mr Marks, Nine’s CEO, joined the Domain Board on the 1 February 2020 as a Non-Executive Director. Mr Marks receives no fees for his services on the Domain Board. 58 Remuneration Report – Audited NED Remuneration for years ended 30 June 2020 and 2019 Financial year Nine Non-Executive Director Fees $ Domain Fees $ Superannuation6 $ Total $ Non-Executive Directors Peter Costello Nick Falloon1, 2, 3 Catherine West Mickie Rosen1 Patrick Allaway1, 4, 5 Samantha Lewis Former Non-Executive Directors David Gyngell1 Janette Kendall1 Total NED 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 329,499 319,469 143,493 74,868 164,384 164,384 123,288 68,966 141,552 76,747 164,384 164,384 — 54,795 — 60,883 — — 211,626 131,718 — — — — 69,687 67,439 — — — — — — 10,501 20,531 26,611 19,625 15,616 15,616 11,712 6,552 340,000 340,000 381,730 226,211 180,000 180,000 135,000 75,518 20,068 231,307 13,698 15,616 15,616 157,884 180,000 180,000 — — 5,205 60,000 — — 5,784 66,667 1,066,600 984,496 281,313 199,157 100,124 1,448,037 102,627 1,286,280 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. It should be noted that in response to the impact of COVID-19, Domain ran a program where employees and Directors could voluntarily sacrifice a portion of their cash salary for a 6 month period, and in return would be granted an allocation of share rights to this value. The period of the arrangement is from 4 May to 1 November 2020. Further details of the Domain program can be found in the 2020 Domain Annual Report. Mr Falloon took up the offer and sacrificed in total 25% in cash fees and received 31,105 share rights which are anticipated to vest on 7 November 2021. For the purposes of FY20 this equated to a fair value amount of $6,342. The fees sacrificed are not represented in the above table. 4 Mr Allaway joined the Audit and Risk Management 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 & Risk committee. This amount is disclosed separately and was paid by Domain. Mr Allaway retired from the Domain Board on 1 February 2020. 6 Superannuation is inclusive of $20,104 (FY19: $12,513) for Mr Falloon and $6,620 (FY19: $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 arrangement has been entered into by a Nine Group member: • Sebastian Costello, the son of Peter Costello, is employed on a part time basis as a journalist and presenter on commercial, arm’s length terms. 59 NINE ANNUAL REPORT 2020 Operating and Financial Review 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 Group EBIT from Continuing Operations (before specific Items) 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 n/m: not meaningful 1 EBITDA plus share of associates 2 Bank facilities unsecured, less cash at bank 3 Net Debt/Group EBITDA (before Specific Items) 2020 $m 2019 Proforma $m 2019 Statutory $m 2,170.6 2,341.7 1,848.1 VARIANCE 2020 TO 2019 PROFORMA $m (171.1) % (7.3%) 396.7 423.8 349.9 (27.1) (6.4%) (149.9) 246.8 (26.3) 155.9 (664.7) (508.8) 377.4 396.9 1.0x (85.3) 338.5 (19.6) 224.8 n/m n/m n/m n/m n/m (73.7) 276.2 (10.5) 187.1 29.5 216.6 221.6 255.8 0.7x (64.6) (91.7) (6.7) (68.9) n/m n/m n/m n/m n/m 75.7% (27.1%) 34.2% (30.6%) n/m n/m n/m n/m n/m On 7 December 2018, the Group merged with Fairfax Media Limited (“Fairfax”). Consequently, while the results for the year to 30 June 2020 include the consolidated results from continuing operations of Fairfax and Stan for the full period, the 2019 statutory results include the results of these businesses from 7 December to 30 June 2019 only. Therefore Pro Forma results have been presented to best demonstrate relative underlying performance year on year. The Pro Forma results presented consolidate the results for the former Nine and Fairfax businesses for the full 12 months of 2019, including the consolidation of Stan. Pro Forma results include synergies realised since the merger was completed. Whilst interest costs of the Fairfax Group for the period prior to merger have been included, interest costs associated with the transaction are also from the period since the merger was completed. Pro Forma results represent non-IFRS information. Commentary on the review of operations is on movements from Pro Forma results where Pro Forma information has been presented. Furthermore, given the Group’s transition to AASB 16 Leases from 1 July 2019, results have been presented to EBIT to minimise the impact of this accounting standard change when comparing divisional results. Due to the adoption of AASB 16, the EBIT figure for FY20 is $0.3 million higher than it would have been under accounting standards applied prior to FY20. Further information in relation to AASB 16 is set out in Note 3.10. Revenue from Continuing Operations before Specific items decreased by 7% to $2,170.6 million driven by a weak advertising market in Broadcast and Digital and Publishing and decreased listing volumes in Domain, resulting primarily from the impact of COVID-19. These declines have been offset to some extent by an increase in Stan revenues. Group EBITDA before Specific Items (from Continuing Operations) decreased by $27.1 million (6%) to $396.7 million. This consists of an underlying decline of $69.2 million primarily due to the impact of COVID-19 on revenues net of cost saving programs initiated by the Group, offset by a positive impact of $42.1 million due to the transition to AASB 16 from 1 July 2019. 60 Specific Items (refer to note 2.4) relate principally to the impact of COVID-19 on the advertising and housing markets and an associated review of carrying values, as well as asset acquisitions/disposals and group restructuring. These include: $591.8 million in intangible impairments (Nine Network $310.8 million, Other $40.9 million, CarAdvice $46.8 million, Pedestrian TV $5.0 million and Domain $188.2 million); $48.4 million in restructuring and redundancy costs; $61.4 million in provisions relating to program inventory and sports rights; as well as Specific Items reported by Domain. Depreciation and Amortisation increased from $85.3 million to $149.9 million. Net Finance Costs increased from $19.6 million in the prior year to $26.3 million in the current year. Both of these movements are principally as a result of the impact of the introduction of AASB 16 Leases with a $41.9 million increase in depreciation and an $11.6 million increase in finance costs. In addition, FY19 Pro Forma results exclude Purchase Price Accounting adjustments. Operating Cash Flow increased year on year largely due to the consolidation of Fairfax since the date of the merger. The Group continues to consolidate its operations around its core business, with the acquisition of the remaining 45.6% of Macquarie Radio ($113.9 million) and the sale of the Weatherzone ($30 million) and Stuff NZ (NZ$1) businesses. In addition, capital expenditure during the period increased to $138.9 million, primarily reflecting investment in Nine’s new Sydney headquarters at 1 Denison Street, North Sydney. The Group made dividend payments of $170.5 million or 10 cents per share, to shareholders during the year. Net Debt of the wholly owned Group at 30 June 2020 was $291.2 million (excluding lease liabilities) which, based on wholly-owned EBITDA, resulted in net leverage of 0.9x, well within bank covenants. Segmental Results The results of the continuing operations are set out below: 2020 $m 2019 Proforma $m 2019 Statutory $m VARIANCE 2020 TO 2019 PROFORMA $m % Revenue1 Broadcasting Digital and Publishing Domain Stan Corporate 1,054.3 606.9 267.8 242.1 14.2 1,221.8 637.3 335.6 157.1 19.1 1,160.3 425.6 168.1 100.1 10.9 (167.5) (30.4) (67.8) 85.0 (4.9) Total Revenue from Continuing Operations1 2,185.4 2,370.9 1,865.0 (185.5) EBIT Broadcasting Digital and Publishing Domain Stan Corporate Share of Associates 104.4 93.0 41.7 17.9 (11.1) 0.9 214.1 108.5 66.0 (24.1) (23.0) (2.9) Group EBIT Continuing Operations 246.8 338.6 1 Before the elimination of inter-segment revenue and excluding interest income. 201.5 78.0 28.4 (11.5) (17.4) (2.9) 276.1 (109.7) (15.5) (24.3) 42.0 11.9 3.8 (91.8) (13.7%) (4.8%) (20.2%) 54.1% (25.7%) (7.8%) (51.2%) (14.3%) (36.8%) (174.3%) (51.7%) (131.0%) (27.1%) 61 NINE ANNUAL REPORT 2020 A summary of each division’s performance is set out below. As noted above, Pro Forma results (referred to as “2019 Pro Forma” throughout) have been presented which consolidate the results for the former Nine and Fairfax businesses for the full 12 months of 2019, including the consolidation of Stan. The commentary in relation to the businesses acquired as part of the merger with Fairfax is compared with the Pro Forma results, to enable like-for-like comparison and in order to provide context on the operating performance and environment of each of the businesses. Broadcasting Revenue EBIT Margin 2020 $m 2019 Proforma $m 2019 Statutory $m 1,054.3 1,221.8 1,160.3 104.4 10% 214.1 18% 201.5 17% VARIANCE 2020 TO 2019 PROFORMA $m (167.5) (109.7) % (13.7%) (51.2%) (7.6) pts Nine’s Broadcasting division, which comprises Nine Network and Nine Radio (previously Macquarie Media), reported EBIT of $104.4 million on revenues of $1,054.3 million for the year. Nine Network reported a revenue decline from $1,090.0 million to $951.8 million for the year primarily as a result of FTA advertising markets being heavily impacted by COVID-19. The FTA advertising market declined by 14.1%1 across the year, with a first half decline of 7.0%1 and second half decline of 21.9%1 reflecting the significant impact of COVID-19. After a first half Metro FTA share of 38.7%2, Nine’s second half share of 41.4%2 was up 1.4 pts on the previous corresponding period (pcp) and resulted in a full year revenue share of 39.8%1. Costs improved by 5% or $48.5 million for the year. The onset of COVID-19 resulted in an increased focus on second half costs, and an expedition of the group’s previously announced cost-out program. There was also a one-off benefit of approximately $30 million relating to the interruption of the NRL season. As a result, Nine Network EBIT fell by 47% or $89.7 million for the year, to $100.9 million. Nine Radio reported EBIT of $3.5 million (2019: $23.5 million) on revenue of $102.5 million (2019: $131.8 million). On a comparable basis, the 22% decline in revenue was driven by a Metro radio market which declined by 20%3, coupled with a lower market share. Radio costs declined by 9% or $9.2 million reflecting synergies since Nine acquired the minority interests in November 2019. Since taking full ownership, Nine has made significant changes to its Radio business both in terms of personnel, as well as the consolidation of back- office functions, sales and news into Nine and the reformat of the loss-making Sports Network to easy-listening. Digital and Publishing Revenue EBIT Margin 2020 $m 606.9 93.0 15% 2019 Proforma $m 2019 Statutory $m 637.3 108.5 17% 425.6 78.0 18% VARIANCE 2020 TO 2019 PROFORMA $m (30.4) (15.5) % (4.8%) (14.3%) (1.7) pts Nine’s Digital and Publishing division includes Metro Media and 9Now, as well as Nine’s other Digital Publishing titles, including Pedestrian Group, CarAdvice and nine.com.au. Digital and Publishing reported revenue of $606.9 million and a combined EBIT of $93.0 million. Metro Media contributed revenue of $426.3 million (2019: $454.4 million) and EBIT of $53.7 million (2019: $73.2 million) for the year to 30 June 2020. The 6% decline in revenue was weighted towards a second half decline of 11%. Audiences grew strongly across all mastheads, albeit with accelerating growth in digital subscriptions (revenue up 9% or $6.7 million), partially at the expense of print (revenue down 1% or $0.5 million). Advertising revenue was impacted by the COVID-19 crisis, with print advertising revenues down 19% or $25.4 million, partially offset by 4% or $2.5 million growth in digital advertising across the year. The sale of Weatherzone accounted for a $10.5 million decrease in revenue. Costs at Metro Media declined by $16 million as the Group’s ongoing focus on costs resulted in a further decline in expenses offset by the sale of Weatherzone and the re-inclusion of the residual Events business not disposed which accounted for a net $7.5 million increase in costs. For the full year to June 2020, EBIT fell by $19.5 million or 27% to $53.7 million driven by the negative impact of COVID-19. 1 Source: Think TV, Metro Free To Air revenue, 12 months to June 2020. 2 Source: Think TV, Metro Free To Air revenue share, 12 months to June 2020. 3 Source: Commercial Radio Australia, 12 months to June 2020. 62 Operating and Financial Review In a BVOD market which grew by 314% for the year to $162.5 million, 9Now further increased its share to approximately 50% resulting in revenue growth of 32% to $81.7 million. Users and engagement continued to grow, with Monthly Active Users up 24% and Minutes Streamed up 42%, partially reflecting the incremental content acquisitions made during the period. Overall, 9Now increased its EBIT contribution from $30.6 million to $49.0 million. Other key components of Digital & Publishing together contributed revenue of $98.9 million, and negative EBIT of ($9.7) million with softer advertising conditions, predominantly due to COVID-19, impacting performance.. Domain (ASX: DHG) Revenue EBIT Margin 2020 $m 267.8 41.7 16% 2019 Proforma $m 2019 Statutory $m 335.6 66.0 20% 168.1 28.4 17% VARIANCE 2020 TO 2019 PROFORMA $m (67.8) (24.3) % (20.2%) (36.8%) (4.1) pts Despite some signs of a recovery in the property market in early calendar 2020, the impact of COVID-19 on the economy, and the associated Government measures, had a negative impact on Domain’s operating performance particularly through Q4. Across the year to June 2020, new ‘for sale’ listing volumes were down by 11% nationally. Domain increased its controllable yield by 6% which, coupled with the Group’s favourable mix (greater exposure to Sydney and Melbourne), resulted in a 4% decline in like-for-like residential revenues. The market weakness also impacted on Domain’s Commercial, Developer and Print operations – the latter being suspended through Q4. Operating costs declined by 16% or $43.5 million across the year, driven by the divestment of Compare and Connect, Star Weekly and MyDesktop. Underlying savings of $20.7 million stemmed primarily from printing and marketing, as well as overall cost management. In the year to 30 June 2020, full-year EBIT was down by 37% from $66.0 million in 2019 due to the negative impact of COVID-19. During the year, Domain continued to focus on its core business of residential and commercial real estate, improving its offering for both agents and vendors/purchasers whilst continuing to prudently invest in its Consumer Solutions adjacencies. Stan Revenue EBIT Margin 2020 $m 242.1 17.9 7% 2019 Proforma $m 2019 Statutory $m 157.1 (24.1) (15%) 100.1 (11.5) (11%) VARIANCE 2020 TO 2019 PROFORMA $m 85.0 42.0 % 54.1% (174.3%) 22.7 pts Across the full year, Stan grew its active subscriber numbers to around 2.1 million, with an acceleration of subscriber growth through the second half. Stan’s consistent roll-out of exclusive content like Normal People and Love Life and local content like The Commons complemented the Group’s offering of back-catalogue content, particularly its Iconic Series. Usage per subscriber continues to increase, with average weekly viewing hours per subscriber up by more than 20% in the last quarter. The combination of the strong subscriber growth and the $2 price rise from March 2019 increased Stan’s revenue by 54% across the full year to 30 June 2020 and resulted in EBIT of $17.9 million for the year, an improvement of $42.0 million on the previous year. Share of Associates profit Share of Associates profit increased from a loss after tax of $2.9 million to a profit after tax of $0.9 million, largely reflecting the discontinuation of the Group’s investment in the Australian Money Channel. Review of Financial Position At 30 June 2020, the Net Assets of the Group were $1,885.9 million which is $887.5 million lower than as at 30 June 2019. This decline primarily reflected the write-downs detailed in the Specific Item commentary. 4 Source: KPMG Data. BVOD market includes 9Now, 10Play and 7Plus 63 NINE ANNUAL REPORT 2020 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 FTA and Radio, Nine’s share of those advertising sectors, the regulatory environment and the ability to secure key programming contracts. Nine’s ability to control costs, particularly associated with content. • 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. Nine’s ability to control costs, particularly associated with printing and distribution. • 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. Business Strategies and Future Prospects The Group is focusing on the following business growth strategies: • Consolidation of position as leading distributor of video content The Group intends to build on Nine’s position as a leading supplier of premium video content, through its FTA, Subscription (through Stan) and Broadcast Video On Demand (through 9Now) businesses. 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. Through growth in audiences, the Group’s goal is to increase its revenue via both subscriptions and advertising. The Group is committed to supporting the continued growth of Stan and 9Now, particularly through cross-promotion across Nine’s multiplatform ecosystem. In addition, the Group intends to make use of its data assets to improve yields and the effectiveness of advertising. • Growth of digital businesses The Group intends to continue to migrate its audiences across both Broadcasting and Publishing onto its digital platforms. This will drive the Group’s ability to offer a broader range of advertising options and subscription options. Continued migration to digital platforms builds the Group’s data asset which enables it to enhance the effectiveness of its advertising and support the growth of its own businesses • Growth of 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 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, as the relatively soft listing environment of the past two years returns to more normal levels. • Optimisation of performance of the Group’s traditional media assets As Nine focuses on growing its digital assets, the Group will continue to focus on optimising the performance of its traditional media assets. Nine has announced a 3-yr $150 million cost out program for its FTA business, has restructured much of its Radio business since acquisition and continues to achieve cost efficiencies across its print publishing assets. Content investment will also be more targeted towards content that works across multiple platforms, and exclusivity of content. • 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 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. 64 Operating and Financial Review 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: • Longer term impact of COVID-19, including the timing and extent of recovery and potential for future outbreaks; • 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; • Declines in property market conditions; and • Securing access to premium content. 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. 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 at film and television production studios, and in sporting competitions broadcast by Nine), defamation and other execution risks, including those that significantly impact production (such as COVID-19 in FY20). 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 level 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. Domain – Domain is a separate company which has minority investors and is listed on the ASX. As such, decisions by the board and the actions of the company must be made having regard to their best interests. This may mean that if their interests diverge from those of Nine, Domain may adopt an approach contrary to the preferences of Nine. Cyber security and data privacy – while Nine has policies and procedures in place to address cyber 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. 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. 65 NINE ANNUAL REPORT 2020 Nine Entertainment Co. Holdings Limited Financial Statements 30 June 2020 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 67 68 69 70 71 Note Index 1. About this Report 2. Group Performance 1.1 Significant 2.1 Segment events during the period information 3. Operating Assets and Liabilities 4. Capital Structure and Management 5. Taxation Structure 7. Other 6. Group 3.1 Cash and cash equivalents 4.1 Financial Liabilities 5.1 Taxes 6.1 Business 7.1 Other financial combinations assets 1.2 Basis of preparation 2.2 Revenue 3.2 Trade 4.2 Share capital and other income from continuing operations and other receivables 5.2 Deferred tax assets and liabilities 6.2 Investments accounted for using the equity method 7.2 Defined benefit plan 1.3 The notes to the financial statements 2.3 Expenses from continuing operations 3.3 Program rights and inventories 4.3 Dividends paid and proposed 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 3.10 Changes in accounting policies and accounting standards – AASB 16 Leases 6.3 Investment 7.3 Auditors’ in controlled entities remuneration 6.4 Deed of cross guarantee 7.4 Contingent liabilities and related matters 6.5 Parent entity disclosures 7.5 Events after the balance sheet date 6.6 Related party transactions 7.6 Other significant accounting policies 6.7 Discontinued Operations 66 Consolidated Statement of Profit or Loss and Other Comprehensive Income Continuing operations Revenues Expenses Finance costs Share of profit/(loss) of associate entities Net (loss)/profit from continuing operations before income tax expense Income tax expense Net (loss)/profit from continuing operations after income tax expense Discontinued operations Note 2.1 2.3 2.3 6.2(c) 5.1 2020 $’000 2019 $’000 2,187,296 1,965,074 (2,641,926) (1,662,541) (27,793) 928 (17,132) (2,857) (481,495) 282,544 (27,283) (508,778) (65,978) 216,566 (Loss)/Profit after tax from discontinued operations 6.7 (66,189) 17,314 Net (loss)/profit for the period Net (loss)/profit for the period attributable to: Owners of the parent Non-controlling interest Net (loss)/profit for the period 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 and unlisted equities (net of tax) Loss on defined benefit plan Other comprehensive loss for the period 7.1 7.2 (574,967) 233,880 (590,033) 15,066 221,229 12,651 (574,967) 233,880 (168) 145 (489) (4,176) (4,688) 566 28 (1,031) (4,423) (4,860) Total comprehensive (loss)/income attributable to equity holders (579,655) 229,020 Total comprehensive (loss)/income attributable to: Owners of the parent Non-controlling interest Total comprehensive (loss)/income for the period Earnings per share (in cents) Basic (loss)/profit attributable to ordinary equity holders of the parent Diluted (loss)/profit attributable to ordinary equity holders of the parent Earnings per share from continuing operations (in cents) Basic (loss)/profit attributable to ordinary equity holders of the parent Diluted (loss)/profit attributable to ordinary equity holders of the parent 2.5 2.5 2.5 2.5 (594,721) 15,066 (579,655) ($0.35) ($0.34) ($0.31) ($0.31) 216,369 12,651 229,020 $0.17 $0.16 $0.15 $0.15 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 67 NINE ANNUAL REPORT 2020Consolidated Statement of Profit or Loss and Other Comprehensive Incomefor the year ended 30 June 2020 Consolidated Statement of Financial Position Current assets Cash and cash equivalents Trade and other receivables Program rights & 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 & 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 Financial liabilities Current income tax liabilities Provisions Liabilities held for sale – discontinued operations Total current liabilities Non-current liabilities Payables Financial liabilities 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 6.7 3.2 3.3 6.2 7.1 3.5 3.6 7.2 3.4 4.1 3.7 6.7 3.4 4.1 5.2 3.7 4.5 2020 $’000 187,394 258,061 229,758 28,739 10,978 3,622 — 2019 $’000 256,121 403,716 267,690 36,327 23,508 1,583 90,772 718,552 1,079,717 13,511 118,571 25,766 5,460 415,172 14,262 109,902 26,145 5,949 165,322 2,325,244 2,958,405 12,449 14,805 2,930,978 3,649,530 370,527 106,791 9,983 161,154 — 648,455 74,096 749,192 266,814 22,405 2,700 1,115,207 1,763,662 1,885,868 4.2 2,123,146 (61,531) (311,611) 1,750,004 135,864 1,885,868 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 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 68 Consolidated Statement of Financial Positionas at 30 June 2020 Consolidated Statement of Changes in Equity l a t o T y t i u q e 0 0 0 $ ’ , 3 2 3 3 7 7 2 , - n o N 0 0 0 $ ’ s t s e r e t n i g n i l l o r t n o c 4 4 6 2 9 1 , , 9 7 6 0 8 5 2 , , 1 1 8 8 4 4 6 9 2 6 , 4 0 6 6 , ) 0 9 1 , 6 ( l a t o T 0 0 0 $ ’ 0 0 0 $ ’ i d e n a t e R i s g n n r a e 0 0 0 $ ’ r e h t O e v r e s e r 0 0 0 $ ’ e v r e s e r s t n e m y a p d e s a b – e r a h S 0 0 0 $ ’ I C O V F t a s t e s s a l i a c n a n i f n o i t a l s n a r t l e u a v r i a F f o e v r e s e r y c n e r r u c i n g e r o F s t h g R i ) 8 8 6 4 ( , — ) 8 8 6 4 ( , — , ) 7 6 9 4 7 5 ( 6 6 0 5 1 , ) 3 3 0 0 9 5 ( , ) 3 3 0 0 9 5 ( , — — ) 5 5 6 9 7 5 ( , 6 6 0 5 1 , , ) 1 2 7 4 9 5 ( ) 3 3 0 0 9 5 ( , — — — — ) 9 5 7 7, 1 1 ( ) 6 7 3 5 5 ( , ) 3 8 3 2 6 ( , — — 3 1 9 3 , ) 0 0 8 5 ( , 8 6 7 2 , — — — — 3 1 9 3 , — — — ) 0 0 8 5 ( , 8 6 7 2 , — 0 5 1 — — — — ) 2 2 9 0 9 1 ( , ) 3 8 3 0 2 ( , ) 9 3 5 0 7 1 ( , ) 9 3 5 0 7 1 ( , ) 0 0 7 0 6 ( , ) 3 8 6 , 1 ( — — — — — — — — ) 0 3 7 2 ( , — — 8 6 7 2 , — ) 0 2 5 4 ( , ) 0 2 5 4 ( , — — — — — — — , 8 6 8 5 8 8 , 1 4 6 8 5 3 1 , , 4 0 0 0 5 7 , 1 ) 1 1 6 , 1 1 3 ( ) 4 0 4 4 5 ( , 9 5 9 4 , ) 0 1 7 0 1 ( , ) 3 3 3 2 ( , , 9 3 0 9 0 1 , 1 , 6 0 7 6 0 1 , 1 — — — ) 3 3 3 2 ( , ) 3 3 3 2 ( , — — , 9 3 0 9 0 1 , 1 3 0 6 8 5 3 , 1 7 1 , 3 6 2 6 4 , , 6 0 7 6 0 1 , 1 , 0 7 2 6 5 3 1 7 1 , 3 6 2 6 4 , ) 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 — — ) 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 9 3 8 3 1 ( , ) 2 0 7 9 ( , ) 8 8 6 8 2 1 ( , ) 8 8 6 8 2 1 ( , — — — — — 5 2 1 , 3 — — — — — ) 1 9 0 3 ( , — 9 6 0 5 , — — ) 4 6 7 ( — ) 4 6 7 ( ) 6 2 4 5 ( , ) 6 2 4 5 ( , — — — — — — — ) 8 6 1 ( ) 8 5 0 , 1 ( 0 0 0 $ ’ e v r e s e r ) 8 6 1 ( — ) 0 5 1 ( — — — — — — ) 6 7 3 , 1 ( ) 4 2 6 , 1 ( — — — — — — — — 0 3 7 2 , ) 0 0 8 5 ( , — — — — — — — — — — ) 7 8 5 8 ( , , 3 0 8 4 3 1 , 2 n a P l 0 0 0 $ ’ s e r a h S y t i u q e 0 0 0 $ ’ d e t u b i r t n o C ) 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 s e r e t n i g n i l l o r t n o c - n o n f o i n o i t i s u q c A y t i u q e o t e v r e s e r m o r f s r e f s n a r T d o i r e p e h t r o f ) s s o l ( / t i f o r P 9 1 0 2 l y u J 1 t A t s e r e t n i g n i l l o r t n o c - n o n h t i w s n o i t c a s n a r 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 l s r e d o h e r a h s o t s d n e d v D i i ) 1 7 9 6 ( , 8 9 9 , 1 5 7 ) 7 5 6 , 1 1 ( , 3 0 8 4 3 1 , 2 0 2 0 2 e n u J 0 3 t A 9 1 0 2 l y u J 1 t A — — 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 ( s d r a d n a t s ) 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 6 6 5 6 6 5 — — — — — — — — — — — — — 1 9 0 3 , ) 7 0 7 4 ( , — — — ) 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 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 6 9 2 6 , 4 0 6 6 , ) 0 9 1 , 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 . 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 69 NINE ANNUAL REPORT 2020Consolidated Statement of Changes in Equityfor the year ended 30 June 2020 Consolidated Statement of Cash Flows 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 Funding to associates Proceeds from sale of controlled entities, including transaction costs Net cash flows (used in)/from investing activities Cash flows from financing activities Proceeds from borrowings, net of costs Repayments of borrowings Purchase of rights plan shares Payments of the principal portion of leases Dividends paid to non-controlling interest Dividends paid to shareholders of the group 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 Note 2020 $’000 2019 $’000 2,780,822 2,454,441 (2,294,639) (2,166,544) 6.2 3.1 6.1 6.1 4.3 3.1 5,467 1,619 (27,330) (88,528) 377,411 (85,310) (53,557) 807 (132,864) (6,454) 382 (276,996) 880 6,909 (15,605) (58,511) 221,570 (26,524) (35,979) 28,172 (7,362) (7,200) 127,757 78,864 761,442 417,769 (691,473) (355,360) (5,800) (42,389) (20,383) (170,539) (169,142) (68,727) 256,121 187,394 (4,707) — (9,704) (128,686) (80,688) 219,746 36,375 256,121 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. 70 Consolidated Statement of Cash Flowsfor the year ended 30 June 2020 Notes to the Consolidated Financial Statements 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 2020. 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 2020 was authorised for issue in accordance with a resolution of the directors on 27th August 2020. The Directors have the power to amend and reissue the financial report. 1.1 Significant events during the period COVID-19 The COVID-19 pandemic created an uncertain economic environment which caused significant volatility across the Group during the last three months of FY20. Given the diversified nature of the Group, certain business units have been more heavily impacted than others. The advertising market across the Group’s FTA, radio and digital platforms has experienced significant disruption, whilst government restrictions have also significantly impacted the housing market and related listings for the Domain business. As a result of the significant impact of COVID-19 on the FTA, digital advertising and housing markets, an impairment charge of $588.7 million was recognised in FY20. The Group benefitted from Government benefits in the form of waived spectrum fees, which resulted in a P&L benefit of $1.3 million in FY20 and will benefit FY21 by $9.5 million, and JobKeeper allowance across a number of the Group’s smaller digital and events businesses, as well as Domain, which totalled $6.1 million in FY20, with a further $8.4 million expected in FY21. In addition, whilst under Group ownership, Stuff NZ received a total of NZ$4.2 million in government subsidies related to the New Zealand government Wage Subsidy program. Acquisitions and Disposals On 31 May 2020, the Group disposed of its 100% interest in Stuff Limited (“Stuff NZ”) for consideration of NZ$1. Since the Fairfax merger in December 2018, Stuff New Zealand has been held for sale and recognised as a discontinued operation in accordance with AASB 5 Non-current Assets Held for Sale and Discontinued Operations. Following the disposal, a loss on disposal was recognised within the Discontinued Operations line of the Group’s Consolidated Statement of Profit or Loss and Other Comprehensive Income. During the financial year, the Group acquired the remaining 45.6% stake in Macquarie Media Limited which it did not already own, for a total consideration of $113.9 million, with the acquisition completed on 21 November 2019. The Group acquired the remainder of Macquarie Media Limited to consolidate its position as a supplier of news and current affairs across all of the Group’s key platforms. Macquarie Media Limited has previously been consolidated into the Group’s results as a result of the Fairfax merger in December 2018. Refer to note 6.1 for further detail. Debt Refinancing On 31 January 2020, the Group refinanced its existing facilities for 100% owned entities. The new facilities totalling $625 million comprise 3 and 4 year revolving cash advance facilities ($272.5 million in each facility) and a one year $80 million working capital facility. The facilities replace the $650 million facility available to the 100% owned entities at 30 June 2019 (refer to the June 2019 financial statements for further details). In light of the economic uncertainty caused by the COVID-19 pandemic, Nine reached agreement on 30 June 2020 with its banking group for an additional one year debt facility of $47.5 million and Domain entered into an additional facility of $80 million. There are no material changes to the terms of the facilities or the permitted uses of the facilities. The interest rate for drawings under this facility is the applicable bank bill rate plus a credit margin. Refer to note 4.1 for details. AASB 16 Leases The Group has applied AASB 16 Leases from 1 July 2019. AASB 16 sets out the principles for recognising, measuring and disclosing leases and requires leases to account for most leases under a single on-balance sheet model. This has resulted in the recognition of $284 million of right-of-use assets and $312 million of right-of-use liabilities on transition. The Group adopted AASB 16 using the modified retrospective transition method which resulted in no adjustment to opening retained earnings. Refer to note 3.10 for details. 71 NINE ANNUAL REPORT 2020Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 1. About this Report continued 1.2 Basis of preparation This financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has been prepared using the going concern basis of accounting and the historical cost convention, except for derivative financial instruments and investments in listed equities which have been measured at fair value and investments in joint ventures and associates which have been accounted for using the equity method. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’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 2019 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. On 7 December 2018, the Group merged with Fairfax Media Limited (“Fairfax”). The 2019 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 financial statements from 7 December 2018. 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 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. 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 which 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. 72 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 2. Group Performance 2.1 Segment Information 2019 comparative financial information includes Fairfax and Stan operations for the period from 7 December 2018 to 30 June 2019. Segment Revenue 2020 $’000 2019 $’000 EBITDA before specific items2 Depreciation and amortisation2 EBIT before specific items2 2020 $’000 2019 $’000 2020 $’000 2019 $’000 2020 $’000 2019 $’000 Broadcasting 1,054,323 1,160,344 147,602 225,867 (43,231) (24,378) 104,371 201,488 Digital and Publishing 606,921 425,574 141,682 100,139 (48,682) (22,141) 93,000 Domain Group 267,844 168,072 86,035 48,220 (44,334) (19,823) Stan 242,113 100,137 31,028 (4,866) (13,152) (6,636) 41,701 17,876 77,998 28,397 (11,502) Segment total 2,171,201 1,854,127 406,347 369,360 (149,399) (72,978) 256,948 296,381 Corporate Associates Total Group1 14,214 10,823 (10,582) (16,641) — — 928 (2,857) (534) — (731) (11,116) (17,371) — 928 (2,857) 2,185,415 1,864,950 396,693 349,862 (149,933) (73,709) 246,760 276,153 1 Includes intersegment revenue of $14,855,000 (2019: $16,884,000) 2 From 1 July 2019, the Group adopted AASB 16. 2020 EBIT is presented before lease interest of $11.6 million related to this change in accounting standard. Refer to note 3.10 for details. Reconciliation of total Group revenue from continuing operations to the Consolidated Statement of Profit or Loss and Other Comprehensive Income Total Group revenue (per above, refer to Note 2.2)1 Inter-segment eliminations Total Group revenue Interest income Net gain on contingent consideration payable and sale of assets Gain on consolidation of Stan (Refer to Note 6.1) Net gain/(loss) on disposal of investments and controlled entities2 2020 $’000 2019 $’000 2,185,415 1,864,950 (14,855) (16,884) 2,170,560 1,848,066 1,461 15,275 — — 6,610 12,126 93,000 5,272 Revenue per the Consolidated Statement of Profit or Loss and Other Comprehensive Income 2,187,296 1,965,074 1 Includes intersegment revenue of $14,855,000 (2019: $16,884,000) 2 The disposal of Stuff NZ is classified as a discontinued operation refer to note 6.7 for details. 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 benefit on specific items 5.1 2.4 2.4 2020 $’000 246,760 1,461 (27,793) (64,491) 155,937 (701,923) 37,208 2019 $’000 276,153 6,610 (17,132) (78,567) 187,064 16,913 12,589 Net profit/(loss) from operations after income tax expense (508,778) 216,566 73 NINE ANNUAL REPORT 2020 2. Group Performance continued 2.1 Segment Information continued 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 (2019: none). Accounting Policy The results reflect the operations of the businesses for the period from 1 July 2019. For the financial report for the year ended 30 June 2020, 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 2020 are: • Broadcasting – includes free to air television activities and metropolitan radio networks in Australia. • Digital and Publishing – includes Other (Nine.com.au, 9Now 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. These are detailed in note 2.4. Group finance costs on bank facilities, interest income and income taxes are managed on a Group basis and are not allocated to operating segments. Lease finance costs resulting from the transition to AASB 16 Leases are 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. 74 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 2.2 Revenue and other income from continuing operations 2.2.1 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). Year ended 30 June 2020 Advertising revenue Subscription revenue Affiliate revenue Circulation revenue Program Sales Other revenue Total revenue1 Broadcasting $’000 Publishing $’000 Domain Group $’000 Stan $’000 Corporate $’000 Total $’000 957,636 347,797 242,325 — — 132,062 54,833 — — 87,990 16,098 25,756 — 39,072 — — — — 25,519 242,113 — — — — 1,054,323 606,921 267,844 242,113 — — — — — 14,214 14,214 1,547,758 374,175 54,833 87,990 16,098 104,561 2,185,415 1 Includes intersegment revenue of $14,855,000. Year ended 30 June 2019 Advertising revenue Subscription revenue Affiliate revenue Circulation revenue Program Sales Other revenue Total revenue1 Broadcasting $’000 Publishing $’000 Domain Group $’000 Stan $’000 Corporate $’000 Total $’000 1,047,648 281,959 151,855 — 70,215 70,450 — — 54,572 16,190 26,056 — 18,828 — — — — 16,217 — 100,137 — — — — — — — — — 10,823 1,481,462 170,352 70,450 54,572 16,190 71,924 1,160,344 425,574 168,072 100,137 10,823 1,864,950 1 Includes intersegment revenue of $16,884,000. 2019 revenue includes Fairfax and Stan operations for the period from 7 December 2018 to 30 June 2019. 75 NINE ANNUAL REPORT 2020 2. Group Performance continued 2.2 Revenue and other income from continuing operations continued Accounting Policy Revenue 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 is generally 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 Affiliate revenue publication date. • Revenue for digital subscriptions and Stan subscriptions is recognised over time. • 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 of advertising revenue derived by broadcast partners, payable to the Group as consideration for use of the Group’s program inventory. 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. 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 Recognised when the right to receive payment has been established. b) Interest c) Operating lease income 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). Recognised on a straight-line basis over the term of the lease. 76 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 2.3 Expenses from continuing operations Expenses Broadcasting2 Digital and Publishing2 Domain Group2 Stan Other Total expenses from continuing operations1 Included in the expenses above are the following: Depreciation and amortisation (excluding program rights)3 Salary and employee benefit expenses1 Program rights Total depreciation, salary and program rights Finance Costs Interest on debt facilities Interest on lease liabilities3 Amortisation of debt facility establishment costs Total finance costs 2020 $’000 2019 $’000 1,334,127 360,921 676,790 224,238 45,850 984,904 347,576 144,209 113,189 72,663 2,641,926 1,662,541 150,515 645,600 486,632 76,238 544,326 534,450 1,282,747 1,155,014 15,279 11,561 953 27,793 15,605 — 1,527 17,132 1 Total expenses from continuing operations are net of government grants of $6.8 million ($5.4 million of which is attributable to Domain) relating to JobKeeper, $4.5 million of which has been received prior to 30 June 2020. 2 Expenses include Specific Items, including impairment, for Broadcasting ($310.8 million), Digital and Publishing ($95.7 million), Domain Group ($188.2 million). Refer to Note 2.4 for details. (2019: Digital and Publishing ($17.7 million). 3 From 1 July 2019, the Group adopted AASB 16. Refer to note 3.10 for details. Depreciation and amortisation includes $0.6 million of depreciation related to excess lease space reported as a Specific Item in the Group’s accounts. (2019: 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). Refer to Note 2.4. 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. 77 NINE ANNUAL REPORT 2020 2. Group Performance continued 2.4 Specific items The net loss 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: Impairment of goodwill and other intangibles Impairment of other assets Restructuring and termination costs Net gain on contingent consideration payable and sale of financial asset Other specific provisions Acquisition related costs Net profit on sale of assets held for sale1 Gain on consolidation of Stan2 Other Net specific items profit/(expense) before tax from continuing operations Income tax benefit on specific items from continuing operations Net specific items profit/(expense) after tax from continuing operations 2020 $’000 (591,776) (61,412) (48,377) 15,455 (8,574) (9,169) 1,930 — — (701,923) 37,208 (664,715) 2019 $’000 (17,739) — (36,558) — — (21,205) 9,408 93,000 (9,993) 16,913 12,589 29,502 1 2020: Relates to the disposal of Healthshare (2019: relates to net profit on sale of property held in Newcastle and other assets held for sale). 2 2019: Gain arising on the consolidation of Stan following the merger with Fairfax in December 2018. Impairment of goodwill and other intangibles An impairment charge has been recognised in respect of Nine Network ($310.8 million), Other ($40.9 million), CarAdvice ($46.8 million, inclusive of $3.0 million of specific software impairments), Pedestrian TV ($5.0 million) and Domain ($188.2 million) cash generating units. The decrease in the estimated recoverable amount of these businesses compared to prior years is a result of the COVID-19 pandemic significantly impacting the markets in which the Group operates. Refer to Note 3.6 for details. In the prior year, the charge relates to impairment of the CarAdvice cash-generating unit. Impairment of other assets The impairment of other assets includes: • $36.4 million of program inventory and sports rights, principally related to the impact of COVID-19 on the 2020 NRL season and resulting contract renegotiations. • $17.2 million of PP&E (including $9.6 million related to right of use assets) relating to surplus property leases and other asset impairments no longer considered recoverable due to the relocation of the Group’s headquarters to 1 Denison Street, North Sydney. The ability to sublease surplus property has been reassessed as a result of the impact on COVID-19 on property markets. • $7.8 million of other investments and debtor write offs. Restructuring and termination costs Includes redundancy costs in relation to the Fairfax merger, Macquarie Radio acquisition and other restructuring and termination costs for the Group, including $11.5 million relating to onerous short-term property leases excess to requirements as a result of the Fairfax merger and relocation of the Group’s headquarters to 1 Denison Street, North Sydney. Net gain on contingent consideration payable and sale of financial asset Consists of $11.3 million for Domain relating to the release of contingent consideration for Commercialview Tranche 2 and Tranche 3, Review Property Tranche 3 and RTA, and a $4.1 million decrease in the Option over controlled entity. Other specific provisions Includes provision for defamation and other provisions related to prior financial periods. Acquisition related costs Costs related to the acquisition of Macquarie Media Limited (excluding redundancies) and the merger of Fairfax (excluding redundancies). In the prior year, expenses include costs related to the acquisition of Fairfax, excluding redundancies. 78 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 2.5 Earnings per share From continuing and discontinuing operations (in cents) Basic and diluted earnings per share before specific items1 Basic (Loss)/earnings per share after specific items Diluted (Loss)/earnings per share after specific items1 2020 2019 $0.08 ($0.35) ($0.34) $0.14 $0.17 $0.16 Profit/(Loss) attributable to the ordinary equity holders of the Group used in calculating the basic and diluted earnings per share ($’000) from continuing and discontinuing operations (590,033) 221,229 From continuing operations (in cents) Basic and diluted earnings per share before specific items1 Basic (Loss)/earnings per share after specific items Diluted (Loss)/ earnings per share after specific items1 $0.08 ($0.31) ($0.31) $0.13 $0.15 $0.15 Profit/(Loss) attributable to the ordinary equity holders of the Group used in calculating the basic and diluted earnings per share ($’000) (523,739) 204,135 Weighted average number of ordinary shares for basic earnings per share (‘000) 1,703,446 1,337,721 Effect of dilution: Rights Plan shares under the performance rights plan (Note 4.4) (‘000) 4,827 7,932 Weighted average number of ordinary shares adjusted for the effect of dilution (‘000) 1,708,273 1,345,653 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 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. 79 NINE ANNUAL REPORT 2020 3. Operating Assets and Liabilities 3.1 Cash and cash equivalents Cash balances representing continuing operations: a) For the purpose of the statement of cash flows, cash and cash equivalents comprise the following at 30 June: — Cash on hand and at bank Total cash and cash equivalents 2020 $’000 2019 $’000 187,394 187,394 256,121 256,121 b) Reconciliation of (loss)/profit after tax to net cash flows from operations: (Loss)/profit after tax from continuing operations (508,778) 216,566 (Loss)/profit after tax from discontinuing operations (Loss)/profit on sale of properties and other assets Depreciation and amortisation Impairment of assets Impairment of Intangibles Share based payment 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 (66,189) 71,989 150,515 42,358 591,776 2,768 (928) — 365 — 23,106 146,851 14,097 38,186 (54,927) (37,741) (6,567) 19,601 (48,912) (159) 377,411 17,314 (9,408) 83,438 17,739 — 5,069 2,857 241 1,100 (93,000) — 63,363 7,090 533 (62,478) (4,038) (36,136) (8,521) 19,742 — 221,570 80 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 3.1.1 Changes in liabilities from financing activities At 1 July 2019 Net cash flows Other changes (liability related) At 30 June 2020 At 1 July 2018 Net cash flows Debt acquired on acquisition (Refer Note 6.1) At 30 June 2019 Bank facilities $’000 511,953 69,969 2,394 584,316 157,646 62,409 291,898 511,953 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) Allowance for expected credit loss Other receivables Total current trade and other receivables Non-current Loans to related parties (Note 6.6) Other Total non-current trade and other receivables 2020 $’000 2019 $’000 251,328 (7,390) 243,938 6,302 (2,910) 10,731 258,061 4,021 9,490 13,511 384,386 (3,507) 380,879 3,457 — 19,380 403,716 5,421 8,841 14,262 A net charge from the allowance for expected credit loss (“ECL”) of $4,626,000 (2019: $74,000) has been recognised by the Group in the current period following an assessment of credit risk of the Group customer base, including any impact as a result of COVID-19. 81 NINE ANNUAL REPORT 2020 3. Operating Assets and Liabilities continued 3.2 Trade and other receivables continued The ageing analysis of trade receivables not considered impaired is as follows: 2020 2019 Total Not past due <30 days 31-60 days >61 days 243,938 380,879 222,430 339,232 17,058 24,794 1,134 9,124 3,316 7,729 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 Key judgements, estimates and assumptions 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 & inventories Non-current Program rights – cost less accumulated amortisation and impairment Total non-current program rights 2020 $’000 214,094 15,664 229,758 118,571 118,571 2019 $’000 250,648 17,042 267,690 109,902 109,902 During the year, $36.4 million of program inventory and sports rights were impaired as a result of the COVID-19 pandemic. These have been classified as Specific Items - refer to Note 2.4 for details 82 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 Accounting Policy Program Rights The Group recognises program rights which are available for use. 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. 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 income Total current trade and other payables Non-current — unsecured Program contract payables Other creditor Deferred income Total non-current trade and other payables 2020 $’000 2019 $’000 183,710 128,709 58,108 370,527 67,806 1,095 5,195 74,096 228,524 151,488 53,130 433,142 58,470 — 14,169 72,639 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. 83 NINE ANNUAL REPORT 2020 3. Operating Assets and Liabilities continued 3.5 Property, plant and equipment Freehold land and buildings $’000 Leasehold improvements $’000 Plant and equipment $’000 Work in progress1 $’000 ROU property2 $’000 ROU plant and equipment2 $’000 Total property, plant and equipment $’000 Year ended 30 June 2020 At 1 July 2019, net of accumulated depreciation and impairment Opening reclassification to Intangibles3 AASB16 Initial recognition Additions Finalisation of purchase price accounting (Note 6.1) Transfers Disposals Impairment Depreciation expense At 30 June 2020, net of accumulated depreciation and impairment Year ended 30 June 2019 At 1 July 2018, net of accumulated depreciation and impairment Additions Transfer from construction work in progress Disposals Depreciation expense At 30 June 2019, net of accumulated depreciation and impairment At 30 June 2020, net of accumulated depreciation and impairment — — 8,859 — 365 (44) — (1,734) 23,930 131 — (28) (559) 16,484 33,375 95,107 20,356 — — 194 — (13,794) — — — (8,877) — 16,865 67,940 2,465 983 97,306 — — — 165,322 — (13,794) 270,324 13,660 283,984 — — — (8,877) — — — — (16,495) (19,362) (169) 9,571 (9,767) (3,383) (3,423) (732) (8,913) (2,931) (6,195) (5,448) (23,296) 0 0 (10,236) (37,100) (5,334) (72,912) 21,638 65,958 77,797 216,540 9,309 415,172 7,914 10,630 78,370 9,602 30,128 10,699 2,059 660 — (64) (362) (4,958) (25,787) 190 12,623 (2,059) — — 16,484 33,375 95,107 20,356 — — — — — — — — 106,516 — — — — — — 66,451 24,113 — (454) (31,304) 165,322 Acquisition of subsidiaries (Note 6.1) 9,026 27,107 Cost (gross carrying amount) Accumulated depreciation and impairment 31,998 (8,068) 60,281 465,937 77,797 263,876 14,643 914,532 (38,643) (399,979) 0 (47,336) (5,334) (499,360) Net carrying amount 23,930 21,638 65,958 77,797 216,540 9,309 415,172 At 30 June 2019 Cost (gross carrying amount) Accumulated depreciation and impairment 23,912 (7,428) 57,810 421,752 20,356 (24,435) (326,645) — Net carrying amount 16,484 33,375 95,107 20,356 — — — 96 523,926 (96) (358,604) — 165,322 1 Work in progress additions primarily relate to the Group’s new headquarters of 1 Denison Street, North Sydney. 2 For further information on right of use assets, refer to note 3.10. 3 An opening balance reclassification of $13.8 million from property, plant and equipment to other intangible assets has been undertaken in relation to software asset to ensure consistency of classification across the Group. 84 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 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 • right of use property – lease term • right of use plant and equipment – up to 6 years • 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. Refer to note 3.10 for details of accounting for right of use property and right of use plant and equipment. 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. Refer to Note 3.6 for details of CGU recoverable amount assessment. 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 a distribution rather than through continuing use. Such non-current assets and disposals 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. Key judgements, estimates and assumptions The Group has applied certain judgements including which contractual arrangements represent a lease, the period over which the lease exists, the variability of future cash flows and the applicable incremental borrowing rates used to calculate the lease liability. 85 NINE ANNUAL REPORT 2020 3. Operating Assets and Liabilities continued 3.6 Intangible assets Year ended 30 June 2020 At 1 July 2019, net of accumulated amortisation and impairment Opening reclassification from Property, plant and equipment2 Finalisation of purchase price accounting (Note 6.1) Acquisition of subsidiaries (Note 6.1) Purchases Disposals Impairment Amortisation expense At 30 June 2020, net of accumulated amortisation and impairment 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 1,516,748 624,082 562,893 254,682 2,958,405 — (17,668) 20,782 — (39,849) (579,847) — 900,166 — — — — — (8,900) — 615,182 — — 225 — — — — 13,794 13,794 2,186 (15,482) 5,190 53,557 (1,999) (3,029) (77,603) 26,197 53,557 (41,848) (591,776) (77,603) 563,118 246,778 2,325,244 416,520 477,784 — 17,680 911,984 Acquisition of subsidiaries (Note 6.1) 1,122,355 146,298 563,681 — (3,217) (18,910) — — — — — — — (788) — 249,735 32,708 (507) — 2,082,069 32,708 (3,724) (19,698) (44,934) (44,934) 1,516,748 624,082 562,893 254,682 2,958,405 Purchases Disposals Impairment Amortisation expense At 30 June 2019, net of accumulated amortisation and impairment At 30 June 2020 Cost (gross carrying amount) 2,606,084 1,596,651 563,906 411,109 5,177,750 Accumulated amortisation and impairment (1,705,918) (981,469) (788) (164,331) (2,852,506) Net carrying amount 900,166 615,182 563,118 246,778 2,325,244 At 30 June 2019 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 1 This includes customer relationships of $161.8 million and capitalised development costs of software of $78.9 million being, in part, an internally generated intangible asset. 2 An opening reclassification of $13.8 million from property, plant and equipment to other intangible assets has been undertaken in relation to software assets to ensure consistency of classification across the Group. During the year an impairment charge was recognised against goodwill in respect of Nine Network ($301.9 million), Nine.com.au ($40.9 million), CarAdvice ($43.8 million), Pedestrian TV ($5.0 million) and Domain ($188.2 million) cash generating units. TV licenses were impaired by $8.9 million and $3.0 million of obsolete software intangible assets have been impaired. These have been classified as Specific Items – refer to Note 2.4 for details. 86 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 3.6(a) Allocation of non-amortising intangibles and goodwill The Group has allocated non-amortising intangibles and goodwill to the following cash-generating units (“CGUs”): Year ended 30 June 2020 Nine Network NBN Stan Domain Metropolitan Media Macquarie Media Other1 Goodwill $’000 — 3,300 315,302 444,319 71,480 44,789 20,976 Licences $’000 Mastheads and Brand names $’000 457,884 11,000 — — — 146,298 — — — 71,452 407,253 84,413 — — Total goodwill and non–amortising intangibles as at 30 June 2020 900,166 615,182 563,118 Year ended 30 June 2019 Nine Network NBN Stan Domain Metropolitan Media Macquarie Media Other1 301,913 3,300 315,302 620,261 124,444 40,818 110,710 466,784 11,000 — — — 146,298 — — — 71,452 407,028 84,413 — — Total goodwill and non-amortising intangibles as at 30 June 2019 1,516,748 624,082 562,893 1 Other goodwill is made up of Nine.com.au $6.7 million (2019: $47.6 million), Pedestrian TV $14.3 million (2019: $19.3 million), CarAdvice $nil (2019: $43.8 million). 3.6(b) Determination of recoverable amount The recoverable amount of the CGUs 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 which is based on fair value less cost of disposal calculations (and which is classified within Level 3 of the fair value hierarchy) using cash flow projections for up to ten years and a terminal growth rate applied thereafter. The Group determined Nine Network, NBN, Domain, Nine Radio (formerly “Macquarie Radio”), Metropolitan Media, Stan and each of the components of Other (Nine.com.au, Pedestrian TV and CarAdvice) to be CGUs. As at 30 June 2020, the Group adjusted the composition of Group CGUs by moving the 9Now business from the Nine.com.au CGU to the Nine Network CGU. This adjustment was undertaken following an assessment of cash inflows and other relevant factors in accordance with accounting standards. As a result of this change, accounting standards require impairment testing to be performed both before and after the change occurs. The assumptions disclosed below for the Nine Network and Nine.com.au CGUs exclude the 9Now business which has significant headroom as at 30 June 2020. The Group performed its annual impairment test in June 2020 for each CGU. The cash flow projections which are used in determining any impairment require management to make significant estimates and judgements. Each of the assumptions is subject to significant judgement about future economic conditions and the ongoing structure of industries in which the CGUs operate. Forecasted cashflows are risk-adjusted allowing for estimated changes in the business, the competitive trading environment and potential changes in customer behaviour. During the year to 30 June 2020, the Group’s performance and the economy as a whole were significantly impacted by the restrictions and economic uncertainty resulting from the COVID-19 pandemic and this uncertainty remains at 30 June 2020. Accordingly, the outlook for FY21 and beyond continues to be uncertain due to the ongoing economic impact of COVID-19 and any potential changes to customer behaviour. In addition, the following factors create uncertainty over forecasting the Group’s operating cash flows: the risk of further waves of coronavirus, such as that already experienced in Victoria subsequent to year end; uncertainties surrounding macroeconomic indicators, such as unemployment and GDP growth; and the timing and impact on the economy of the withdrawal of government support packages. Management has considered the potential impacts of COVID-19 and as a result has assumed an extended recovery period for the purposes of impairment testing, given this uncertainty. 87 NINE ANNUAL REPORT 2020 3. Operating Assets and Liabilities continued 3.6 Intangible Assets continued 3.6(c) Impairment losses recognised As a result of impairment analysis performed at 30 June 2020, management identified impairments in the Nine Network ($310.8 million), Domain ($188.2 million), CarAdvice ($43.8 million), Nine.com.au ($40.9 million) and Pedestrian TV ($5.0 million) CGUs (2019: $17.7 million CarAdvice impairment). There is headroom in the Group’s remaining CGUs (NBN, Nine Radio, Metropolitan Media and Stan). The COVID-19 pandemic has significantly impacted the markets in which the Group operates during the current year, specifically the free-to-air, radio and digital advertising markets. Given the uncertain timing and extent of recovery in these markets, management has risk adjusted forecasts and longer-term assumptions to reflect this uncertainty. As a result, goodwill and other intangible assets totalling $588.7 million have been impaired and are included within Expenses in the statement of profit and loss and other comprehensive income. This has been disclosed as a specific item in Note 2.4. 3.6(d) Key assumptions Operating cashflow projections have been determined based on expectations of future performance, considering recent trading during the COVID-19 pandemic. Significant assumptions used in the impairment testing are inherently subjective and in times of economic uncertainty the degree of subjectivity is higher than it might otherwise be. Changes in certain assumptions can lead to significant changes in the recoverable amount of these assets. In the context of this uncertain environment, the Group has based its impairment testing upon conditions existing at 30 June 2020 and what the Directors believe can reasonably be expected at that date. Key assumptions in the cash flows include revenue growth, cost of sales and operating expenses. These assumptions take into account management’s expectations of market demand and operational performance. The key assumptions on which management has based its cash flow projections when determining the value in use calculations for each CGU are set out below. Management has applied its best estimates to each of these variables but cannot warrant their outcome. Nine Network: • The advertising market for metro FTA television reflects management’s expectation of continued decline in FY21 as COVID-19 continues to impact the market, before single-digit recovery in the short to medium term. Management has assumed the economic recovery from COVID-19 commences in FY22 and is gradual over the forecast period. • Nine Network’s share of the metro FTA 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 changes in committed expenditure. • Terminal growth rate of 0.5% (30 June 2019: 1.0%) reflecting a moderated view on longer term growth potential as a result of COVID-19. • The pre-tax discount rate applied to the cash flow projections was 14.39% (30 June 2019: 13.72%) 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. NBN: • The advertising market for Regional FTA television shows continued decline in FY21 as a result of COVID-19 followed by single- digit recovery over the short to medium term. Management has assumed the economic recovery from COVID-19 commences in FY22 and is gradual over the forecast period. • Expenditure is assumed to remain relatively flat over the life of the model. • The pre-tax discount rate applied to the cash flow projections was 14.70% (30 June 2019: 14.24%) 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 2019: 0.0%). Nine.com.au: • Following the change in CGU for the 9Now business, the remaining digital platforms within this CGU are forecasted to be challenged in line with market maturity and management’s expectations of market development. • Expenditure is assumed to decline in line with revenue over the life of the model. • The pre-tax discount rate applied to the cash flow projections was 20.60% (30 June 2019: 15.76%) which reflects management’s best estimate of the time value of money and the risks specific to the digital display market. • Terminal growth rate of 0% (30 June 2019: 2.0%). 88 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 Pedestrian TV: • Following further market challenges in the short term, some market recovery in digital advertising is expected over the medium term consistent with industry market participant expectations. Management has assumed the economic recovery from COVID-19 commences in FY22 and a gradual over the forecast period. Long term revenue growth is in line with digital business industry trends, market maturity and management’s expectations of market development. • 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 16.67% (30 June 2019: 15.5%) which reflects management’s best estimate of the time value of money and the risks specific to the digital display market. • Terminal growth rate of 2% (30 June 2019: 2.0%). CarAdvice: • The impact of COVID-19 is expected to continue with further challenges to the digital advertising and new car market in which this CGU operates in the short term, followed by some market recovery expected over the medium term consistent with industry market participant expectations. Long term revenue growth is in line with business industry trends, market maturity and management’s expectations of market development. • Expenditure is assumed to remain relatively flat over the life of the model. • The pre-tax discount rate applied to the cash flow projections was 19.36% (30 June 2019: 15.5%) which reflects management’s best estimate of the time value of money and the risks specific to the digital display market. • Terminal growth rate of 0% (30 June 2019: 2.0%) reflects a moderated view on longer term growth potential as a result of COVID-19 and the market in which CarAdvice operates. Metropolitan Media: • Revenue is forecast to show continued decline in FY21 as a result of the market impact of COVID-19, after which single-digit growth is expected in the short to medium term as the market recovers. Following this, a flat market is assumed in the medium term based on 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 14.25% 2019: 19.05%) which reflects current market assessment of the time value of money and the risks specific to the relevant segments in which the CGU operates. • Terminal growth rate of 0% (2019: 0%) consistent with industry forecasts specific to the CGU. Nine Radio (formerly “Macquarie Radio”): • Revenue is based on assumptions around market growth and market share by station, considering past performance and trends, and reflects management’s expectation of continued decline in FY21 as COVID-19 continues to impact the market, before single-digit recovery in the short to medium term. • Expenditure is assumed to decline in the short term as a result of ongoing committed cost saving programs, after which they remain relatively flat over the life of the model. • The pre-tax discount rate applied to the cash flow projections was 16.61% (2019: 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 2.0% (2019: 2.5%) consistent with industry forecasts specific to the CGU. Stan: • Revenue growth is in line with subscription video on demand business industry trends. • 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 15.41% (2019: 17.0%) which reflects current market assessment of the time value of money and the risks specific risk to the Australian subscription video on demand market. • Terminal growth rate of 3.5% (2019: 3.5%) consistent with industry forecasts specific to the CGU. Domain: 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: • The outbreak of COVID-19 impacted the listing and auction volumes in the last quarter of the current financial period. The uncertainty around the near-term impacts on the industry, the economy, and the shape of recovery have resulted in continued decline expected in the near term before revenue growth returns in line with digital business industry trends, market maturity and management’s expectations of market development. • Expenditure is assumed to decline in the short term as a result of ongoing cost saving programs resulting from COVID-19, after which they 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 13.30% (2019: 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% (2019: 2.5%) consistent with industry forecasts specific to the CGU. 89 NINE ANNUAL REPORT 2020 3. Operating Assets and Liabilities continued 3.6 Intangible Assets continued 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 NBN CGU is in excess of the carrying amounts of intangible and tangible assets of the CGU. 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 recoverable amount of the Metropolitan Media, Nine Radio and Stan CGUs are in excess of the carrying amounts of intangible and tangible assets of the respective CGUs. Any reasonable adverse change in key assumptions would not lead to impairment. • The estimated recoverable amount of Nine Network, Domain, Pedestrian TV and nine.com.au CGUs are equal to the carrying value, following the impairment charges previously discussed. Any future events that results in adverse changes to forward assumptions would accordingly result in further impairment. The following changes to the impairment assessment of these CGUs are considered to be reasonably possible and would increase the impairment charge, assuming all other assumptions are held constant, by the following amounts: Assumption ($million) Nine Network Domain PedestrianTV Nine.com.au 1.0% reduction in forecasted revenue growth per annum 0.50% increase in the pre-tax discount rate 0.25% reduction in the terminal growth rates (327.2) (38.8) (12.5) (137.0) (82.5) (29.7) (1.7) (0.7) (0.2) (3.6) (0.6) (0.1) Together any adverse changes in key inputs would cumulatively result in a more significant additional impairment impact. • The estimated recoverable amount of the CarAdvice CGU is equal to the fair value of the CGU’s net tangible assets, following the impairment charges previously discussed. Any adverse change in the assumptions would not result in additional impairment being recognised for this CGU. 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 and 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 twelve years. 90 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 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 annually in the case of indefinite life intangibles, 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. As noted above, given the impact of COVID-19 in FY20 the degree of uncertainty is higher than normal. Refer above for key assumptions used. 3.7 Provisions At 1 July 2019 Amounts provided/(utilised) during the period At 30 June 2020 Represented by: Current Non-current Total at 30 June 2020 Employee entitlements3 $’000 Onerous contracts $’000 113,191 (6,567) 106,624 95,824 10,800 106,624 22,788 (7,762) 15,026 12,762 2,264 15,026 Other1,2 $’000 49,454 12,455 61,909 52,568 9,341 61,909 Total $’000 185,433 (1,874) 183,559 161,154 22,405 183,559 1 Included in other provisions are defamation provisions $23.5 million, content and royalties provisions $12.0 million, disposal related provisions $10.6 million, provisions for property $5.8 million and contingent acquisition consideration $4.2 million as detailed below (2019: provision for properties (make good and deferred leases) $18.9 million, provision for defamation $16.3 million, provision for redundancies $1.6 million, and provision of services to be provided to Nine Live following its disposal). 2 Includes current contingent consideration of $1.6 million and non-current contingent consideration of $2.6 million in respect of Domain’s acquisition of Bidtracker Group (2019: 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). 3 During the year, the classification of long service leave provisions has been aligned across the Group, resulting in a reclassification of $21.2 million from non-current provisions to current provisions. 91 NINE ANNUAL REPORT 2020 3. Operating Assets and Liabilities continued 3.7 Provisions continued At 1 July 2018 Acquisition of subsidiaries 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 Other $’000 10,588 52,099 (13,233) 49,454 33,194 16,260 49,454 Total $’000 91,845 107,645 (14,057) 185,433 131,060 54,373 185,433 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 (other than property contracts) where, due to changes in market conditions, the expected benefit derived from the contract is lower than the committed contractual terms. Other Other provisions include: • Defamation, content and royalties’ provisions, estimated based on the expected costs to be incurred. • Disposal related provisions, including ACM printing operations termination costs and Events contra advertising, based on related disposal agreements. • Property leases, other than those accounted for in accordance with AASB 16, 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. 92 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 Accounting Policy continued • 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. Key judgements, estimates and assumptions Onerous contract provisions The Group has recognised an onerous contract provision in relation to the various short term property leases which are excess to requirements and are not covered by AASB 16. The provision is calculated as the excess of the cost of the leases (and other property related costs) over what the Group considers to be market cost. Defamation Provision The Group has recognised a defamation provision related to a number of ongoing claims and proceedings against the Group. This provision is calculated based on Management’s best estimate of the costs expected to be incurred. 3.8 Commitments Year ended 30 June 2020 Capital expenditure Operating lease commitments – Group as lessee¹ Operating lease commitments – Group as lessor² Television and Subscription Video on Demand program and sporting broadcast rights <1 year $’000 1-5 years $’000 >5years $’000 Total $’000 39,769 19,095 (10,159) 274,057 4,386 96,347 (24,263) 423,563 — 176,785 — — 44,155 292,227 (34,422) 697,620 Total Commitments 322,762 500,033 176,785 999,580 Year ended 30 June 2019 Capital expenditure Operating lease commitments – Group as lessee Operating lease commitments – Group as lessor² Television and Subscription Video on Demand program and sporting broadcast rights <1 year $’000 1-5 years $’000 >5years $’000 Total $’000 49,369 71,056 (11,355) 277,856 1,200 170,252 (18,066) 599,022 — 149,587 — — 50,569 390,895 (29,421) 876,878 Total Commitments 386,926 752,408 149,587 1,288,921 1 Includes leasing commitments of the Group’s new headquarters of 1 Denison Street North Sydney, within one year $12.7 million, within 5 years $76.9 million and after 5 years of $159.9 million which are not accounted for under AASB 16 Leases. 2 The Group has commercial subleases on office premises and amounts disclosed above represent the future minimum rentals receivable under non-cancellable operating leases at 30 June 2020. Operating lease commitments include lease of land and buildings where the lease term has not yet commenced and outgoings where the application of AASB 16 is not applicable. 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. 93 NINE ANNUAL REPORT 2020 3. Operating Assets and Liabilities continued 3.9 Other assets Current Deferred consideration — sale of subsidiaries Other Total other assets 2020 $’000 — 10,978 10,978 2019 $’000 10,000 13,508 23,508 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. 3.10 Changes in accounting policies and accounting standards – AASB 16 Leases The Group has applied AASB 16 Leases for the first time. AASB 16 replaces all existing lease accounting standards including AASB 117 Leases and became effective for the Group from 1 July 2019. The standard sets out the principles for recognising, measuring and disclosing leases and requires lessees to account for most leases under a single on-balance sheet model. As a lessee, the Group has entered into lease contracts on various properties, equipment and motor vehicles in Australia. Under AASB 16, the Group, with certain exceptions, is required to recognise a ‘right-of-use (ROU) asset’ representing its right to use the underlying assets and a related ‘lease liability’ representing the present value of future lease payments. Transition The Group adopted AASB 16 using the modified retrospective transition method from its initial application date of 1 July 2019, whereby on a lease-by-lease basis the right of use asset is measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position immediately before the date of initial application. Under this method transition reclassifications and adjustments have been recognised in the opening balance sheet at 1 July 2019 and therefore no restatement of comparatives was required. In determining the transition adjustment, the Group has applied certain judgements including which contractual arrangements represent a lease, the period over which the lease exists, the variability of future cash flows and the applicable incremental borrowing rates used to calculate the lease liability. The Group also applied the available practical expedients as follows: • Used a single discount rate to a portfolio of leases with reasonably similar characteristics; • Relied on its assessment of whether leases are onerous immediately before the date of initial application; • Applied the short-term leases exemptions to leases with a lease term that ends within 12 months at the date of initial application; • Used hindsight in determining the lease term where the contract contains options to extend or terminate the lease; • Low value exemption applied for leases less than $5,000; • Initial direct costs have been excluded in the measurement of the right of use asset; and • To not separate non-lease components from lease components and account for them as a single component. 94 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 Based on the above, the Group recognised the following during the period for continuing operations1: RIGHT-OF-USE ASSET2 LEASE LIABILITIES SUBLEASE RECEIVABLE As at 30 June 2019 AASB 16 initial recognition3 Restated as at 1 July 2019 Additions/acquisitions Derecognition of sublease Impairment Depreciation Foreign Exchange and other movements Interest expenses Payments Interest Income Receipts — 270,324 270,324 2,465 (8,913) (10,236) (37,100) — — — — — Property $'000 Technology $'000 Other $'000 — 11,266 11,266 983 — — Total $'000 — Total $'000 — 283,984 (312,213) 283,984 (312,213) 3,448 (8,913) (10,236) — 2,394 2,394 — — — (1,427) (3,907) (42,434) — — — — — — — — — — — — — — — Total $'000 — — — — 7,869 — — — — — 122 (478) 7,513 (1,834) — — — (8) (11,561) 53,949 — — As at 30 June 2020 216,540 967 8,342 225,849 (271,667) 1 The right of use asset is included in Property, Plant & Equipment in the Statement of Financial Position. Refer note 3.5. 2 The lease liabilities are included in Financial liabilities in the Statement of Financial Position. Refer note 4.1. 3 Onerous lease and straight-line provisions previously recorded totalling $28.2 million were offset against the right of use asset on initial recognition. There was no adjustment to opening retained earnings as a result of the transition to AASB 16 Leases. The operating lease commitments, as disclosed in the Group’s 2019 financial report can be reconciled to the transition lease liabilities as shown below: Operating lease commitments as at 30 June 2019 Less: Impact of discounting¹ Commitments relating to short-term leases Payments related to leases contracted but not commenced Payments related to outgoings & similar costs Commitments not treated as leases under AASB16 CPI escalations not included in AASB16 lease liability Other Add: Payments in optional extension periods not included in lease commitment Lease liability recognised as at 1 July 2019 1 The weighted average incremental borrowing rate on transition is 3.86%. Increase/ (decrease) $’000 390,895 (86,751) (7,794) (3,934) (32,170) (31,135) (13,928) (763) 97,793 312,213 95 NINE ANNUAL REPORT 2020 3. Operating Assets and Liabilities continued 3.10 Changes in accounting policies and accounting standards – AASB 16 Leases continued The following are the amounts recognised in the profit or loss: Depreciation expense of right-of-use assets Interest expense on lease liabilities Expense relating to short-term leases (included in expenses) Variable lease payments (included in expenses) Total amount recognised in profit or loss 30 June 20 AASB 16 $’000 42,434 11,561 8,186 1,519 63,700 The Group had total cash outflows for leases of $65.5 million in 2020. The Group also had non-cash additions to right-of-use assets and lease liabilities of $3.4 million. The Group has various lease contracts that have not yet commenced as at 30 June 2020. Refer to note 3.8 for further detail. The following provides information on the Group’s variable lease payments, including the magnitude in relation to fixed payments: Fixed rent Variable rent and minimum payment Variable rent only Total Fixed Payments $’000 53,949 — — 53,949 Variable Payments $’000 — 9,705 — 9,705 Total $’000 53,949 9,705 — 63,654 The Group has several lease contracts that include extension and termination options. These options are negotiated by management to provide flexibility in managing the leased-asset portfolio and align with the Group’s business needs. Management exercises significant judgement in determining whether these extension and termination options are reasonably certain to be exercised. Set out below are the undiscounted potential future rental payments relating to periods following the exercise date of extension that are not included in the lease liability recognised on transition and termination options that are not included in the lease term: Extension options expected not to be exercised Termination options expected to be exercised Total Fixed Payments $’000 108,903 — 108,903 Variable Payments $’000 1,009 — 1,009 Total $’000 109,912 — 109,912 96 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 Impact of AASB 16 on Profit after tax from continuing operations The adoption of AASB 16 has impacted the reported segment information (Note 2.1) as illustrated below. The impact on EBITDA before specific items is as follows: Broadcasting Digital and Publishing Domain Group Stan Segment total Corporate Associates Total Group The impact on Depreciation and Amortisation before specific items is as follows: Broadcasting Digital and Publishing Domain Group Stan Segment total Corporate Associates Total Group The impact on EBIT before specific items is as follows: Broadcasting Digital and Publishing Domain Group Stan Segment total Corporate Associates Total Group EBITDA BEFORE SPECIFIC ITEMS 30 June 20 Reported $’000 30 June 20 Pre AASB 16 $’000 AASB 16 Impact $’000 147,602 141,682 86,035 31,028 406,347 (10,582) 928 129,725 125,597 78,988 29,909 364,219 (10,582) 928 17,877 16,085 7,047 1,119 42,128 — — 396,693 354,565 42,128 DEPRECIATION AND AMORTISATION 30 June 20 Reported $’000 30 June 20 Pre AASB 16 $’000 (43,231) (48,682) (44,334) (13,152) (26,807) (32,566) (36,121) (12,053) AASB 16 Impact $’000 (16,424) (16,116) (8,213) (1,099) (149,399) (107,547) (41,852) (534) — (534) — — — (149,933) (108,081) (41,852) EBIT BEFORE SPECIFIC ITEMS 30 June 20 Reported $’000 30 June 20 Pre AASB 16 $’000 AASB 16 Impact $’000 104,372 93,000 41,701 17,876 102,917 93,031 42,867 17,856 256,948 256,671 (11,116) 928 (11,116) 928 246,760 246,483 1,455 (31) (1,166) 20 278 — — 278 97 NINE ANNUAL REPORT 2020 3. Operating Assets and Liabilities continued 3.10 Changes in accounting policies and accounting standards – AASB 16 Leases continued The impact on profit after tax from continuing operations is as follows: Reconciliation of EBIT before specific items to profit after tax from continuing operations 30 June 20 Reported $’000 30 June 20 Pre AASB 16 $’000 AASB 16 Impact $’000 EBIT before specific items Interest income Finance costs Income tax expense Profit before specific items Specific items Income tax benefit/(expense) on specific items 246,760 246,483 1,461 (27,793) (64,491) 155,937 1,461 (16,232) (67,876) 163,836 (701,923) (701,923) 37,208 37,208 277 — (11,561) 3,385 (7,899) — — Net profit/(loss) from operations after income tax expense (508,778) (500,879) (7,899) 98 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 Accounting Policy Accounting where Group is the lessee (AASB 16) The Group leases property, technology, vehicles and other equipment. Contract periods are generally fixed and may include multiple extension options. At contract commencement date, when the leased asset is available for use, leases are recognised as a right of use asset with a corresponding lease liability. i. Right-of-use assets (ROU) ROU assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any re-measurement of lease liabilities. ROU asset costs include the amount of lease liabilities recognised, and lease payments made at or before the commencement date less any lease incentives received. The ROU asset is depreciated over the lease term on a straight-line basis and subject to impairment. ii. Lease liabilities Lease liabilities are measured at amortised cost using the effective interest rate method calculated as the present value of lease payments over the lease term using the Group’s incremental borrowing rate if the interest rate implicit in the lease is not readily available. Interest expense is recognised in the income statement as part of “Finance costs”. Lease liabilities are re-measured to reflect changes in future lease payments associated with (a) changes in index or contracted terms, (b) extension, purchase or termination options (c) modifications and (d) residual value guarantee payments. iii. Presentation In the statement of financial position, ROU assets are included in “Property, plant and equipment” and lease liabilities in “Financial liabilities”. iv. Short-term leases and leases of low-value assets The Group applies the short-term and low-value lease exemption and does not recognise ROU assets or lease liabilities on such leases. Instead, lease payments are recognised in the income statement as part of “Expenses” on a straight-line basis over the lease term. v. Significant judgement in determining the lease term of contracts with renewal options The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group has the option, under some of its leases to lease the assets for additional terms. The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew, by taking all relevant factors into account. Accounting where Group is the lessor (AASB 16) When the Group is an intermediate lessor (enters into a sub-lease), it accounts for its interests in the head lease and the sub-lease separately. The lease classification of the sublease is determined with reference to the ROU asset arising from the head lease. Accounting where Group is the lessee (Prior year AASB 117) 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. 99 NINE ANNUAL REPORT 2020 4. Capital Structure and Management 4.1 Financial liabilities Current Lease liabilities¹ Bank facilities unsecured² Total current financial liabilities Non-current Lease liabilities¹ Bank facilities unsecured² Total non-current financial liabilities 2020 $’000 27,165 79,626 106,791 244,502 504,690 749,192 2019 $’000 — 195,375 195,375 — 316,577 316,577 1 For further information on Lease liabilities recognised on transition to AASB 16 Leases refer to note 3.10. 2 Bank facilities include unamortised financing costs of $3,905,151 (2019: $2,060,000). 100% Owned Facilities On 31 January 2020, the Group refinanced its existing facilities for 100% owned entities. The new facilities totalling $625 million comprise 3 and 4 year revolving cash advance facilities ($272.5 million in each facility) and a one year $80 million working capital facility. At 30 June 2020, $415 million was drawn. The facilities replace the $650 million facility available to the 100% owned entities at 30 June 2019 (refer to the June 2019 financial statements for further details). In light of the economic uncertainty caused by the COVID-19 pandemic, Nine reached agreement on 30 June 2020 with its banking group for an additional one year debt facility of $47.5 million. At 30 June 2020, none of this facility was drawn. A $33.3 million bank guarantee facility is also available to the Group’s 100% owned subsidiaries on a rolling annual basis. As at 30 June 2020, $24,000,493 was drawn (2019: $14,648,454). On acquisition of Macquarie Media Limited, a $36.0 million revolving cash advance facility was repaid and cancelled. There are no material changes to the terms of the facilities or the permitted uses of the facilities. The interest rate for drawings under these facilities is the applicable bank bill rate plus a credit margin. 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 guarantees from most of the Company’s wholly-owned subsidiaries (refer to note 6.3) 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 2020. Domain The Group has exposure to a $225.0 million syndicated bank facility which is available to a controlled entity, Domain Holdings Australia Limited (Domain), with tranches maturing in November 2022 ($125.0 million) and November 2023 ($100.0 million). At 30 June 2020, $173 million was drawn. The interest rate for drawings under this facility is the applicable bank bill rate plus a credit margin. During the period Domain refinanced its debt resulting in this $225.0 million facility (previously $250.0 million). In April 2020, in light of the economic uncertainty caused by the COVID-19 pandemic Domain reached agreement with its banking group for an additional debt facility of $80 million maturing in October 2021. At 30 June 2020, none of this facility was drawn. Domain Group agreed financial covenant waivers with its banking group for 30 June 2020 and 31 December 2020. The next covenant testing date on these facilities is therefore 30 June 2021. Domain Group was in compliance with its financial covenants at 30 June 2020 and is forecasting covenant compliance at 31 December 2020 and 30 June 2021. 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. 100 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 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 Carrying amount at the end of the financial year Balance at beginning of the financial period Issue of ordinary shares fully paid Balance at the end of the financial period 2020 $’000 2019 $’000 2,123,146 2,123,146 2,126,216 2,126,216 2,126,216 745,027 (5,800) 2,730 (4,707) 3,091 — 1,382,805 2,123,146 2,126,216 30 June 20 No. of shares 30 June 19 No. of shares 1,705,393,253 871,373,191 — 834,020,062 1,705,393,253 1,705,393,253 At 30 June 2020, a trust controlled by the Company held 2,011,252 (30 June 2019: 2,756,094) ordinary fully paid shares in the Company. During the year, 3,140,000 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 on 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. 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 $85,269,663) in respect of the half year ended 31 December 2019 and a final dividend of 5.0 cents per share, fully franked (amounting to $85,269,663) in respect of the year ended 30 June 2019. 4.3(b) Proposed Dividends on Ordinary Shares not recognised as a liability The Directors propose a dividend, fully franked of 2 cents per share amounting to $34,107,865 to be paid in October 2020 (2019: final dividend, fully franked of 5.0 cents per share amounting to $85,269,663). 101 NINE ANNUAL REPORT 2020 4. Capital Structure and Management continued 4.3 Dividends paid and proposed continued 4.3(c) Franking credits available for subsequent years The franking credits available for subsequent years as at 30 June 2020 was $35,980,358 (2019: $8,203,764). This balance represents the franking account balance as at 30 June 2020. 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 $37,395,350. Nine had an exempting account balance of $41,069,000 for the year ended 30 June 2020 (2019: $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 39 to 59. The total expense recognised for share-based payments during the financial year for the Group was $2,767,844 (2019: $5,068,733), including $2,659,816 (2019: $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 2020 Number 2019 Number 9,267,322 9,422,254 5,014,005 2,286,747 (326,444) (208,497) (3,950,809) (2,233,182) (2,304,503) — 7,699,571 9,267,322 1 These Rights were forfeited by executives that left during the year. 2 3,950,809 rights vested during the period which had been accounted as at and were measured based on performance up to 30 June 2019. This includes 341,095 (2019: 455,712) Rights in relation to executives that left in prior years which were cash settled. 3 This includes 565,978 (2019: 181,458) Rights in relation to executives that left in prior years which may be cash settled if they vest at the end of the testing period. During the year ended 30 June 2020, the Group granted 286,145 shares (2019: 486,539 shares) to senior management as part payment of their short-term incentives for the year ended 30 June 2020. The total cost of $526,509 (2019: $1,060,874) was expensed in the Consolidated Statement of Profit or Loss and Other Comprehensive Income in the year ended 30 June 2019. 102 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 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 date, 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. Where terms of an individual’s share-based payment is modified to settle in cash, the cumulative expense is transferred from the share-based payment reserve to Payables in the Statement of Financial Position. 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; • 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 repayment of debt, increased dividends or buy back 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 3.4 103 NINE ANNUAL REPORT 2020 4. Capital Structure and Management continued 4.5. Financial instruments continued 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 financial liabilities 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 2020. Level 1: Investment in listed equities (refer to Note 7.1). Level 2: Forward foreign exchange contracts, interest rate swaps and financial liabilities and options over listed equities. Level 3: Options over unlisted shares and options over controlled entities and CGU recoverable amount for Domain. 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: Derivative financial liabilities Option over controlled entity — non-current Total derivative financial instruments — liabilities Lease Liabilities Lease liabilities – current Lease liabilities – non-current Total lease liabilities Bank facilities – current 2020 2019 Carrying Amount $’000 Fair Value $’000 Carrying Amount $’000 Fair Value $’000 Note 2,700 2,700 27,165 244,502 271,667 2,700 2,700 27,165 244,502 271,667 12,405 12,405 12,405 12,405 — — — — — — 4.1 4.1 Syndicated facility secured – at amortised cost 4.1 79,626 79,626 195,375 195,375 Bank facilities – non-current Syndicated facility unsecured – at amortised cost 4.1 Total bank facilities 504,690 584,316 504,690 584,316 316,577 511,952 316,577 511,952 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. 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. 104 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 The contractual maturity of the Group’s 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) 2020 2019 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) — non-current Other financial assets1 Cash assets Trade and other receivables Other financial liabilities1 — 2,700 — 187,394 258,061 — 5,101 — 8,410 — — — — 12,405 — 256,121 403,716 — 4,731 — 9,531 Trade and other payables 370,527 54,848 19,248 — 433,142 72,639 Lease liabilities 28,165 34,587 89,427 175,935 — Contingent consideration Bank facilities (including interest)2 1,580 88,682 2,644 8,082 — — 11,650 512,210 — 208,974 271,431 48,868 — 2,812 — — — — — — — — — — 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 2020 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. 2020 2019 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 1.15 187,394 — 187,394 2.0 256,121 — 256,121 Trade and other receivables N/A N/A 271,572 271,572 N/A N/A 417,978 417,978 Financial liabilities Trade and other payables N/A N/A 444,623 444,623 Lease liabilities 3.86 271,667 Syndicated facilities — at amortised cost 1.54 584,316 — — 271,667 N/A 584,316 2.7 511,952 N/A 505,781 505,781 N/A N/A — — — 511,952 105 NINE ANNUAL REPORT 2020 4. Capital Structure and Management continued 4.5. Financial instruments continued 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. As at 30 June 2020, the Group does not have any material cross-currency hedges. Accounting Policy The Group uses derivative financial instruments, such as interest rate swaps and 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. 106 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 5. Taxation 5.1 Taxes Current tax expense/(benefit) 2020 $’000 49,947 Deferred tax (benefit)/expense relating to the origination and reversal of temporary differences (22,664) 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 Note 2.4) Impairment and write down of investments and revaluation of derivative financial instruments 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: 27,283 (481,495) (144,449) (214) (442) — 175,026 (676) — (1,855) (107) 27,283 2019 $’000 46,236 19,742 65,978 282,544 84,763 918 3,285 (27,900) 6,636 (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 5 years Accelerated depreciation – program stock Leases AASB 16 Other 2020 $’000 30,373 31,376 35,983 2019 $’000 33,958 27,720 (9,183) (403,853) (376,049) 64,501 9,568 (50,783) 11,460 4,561 69,000 15,042 (78,714) — 3,846 Net deferred income tax liabilities (266,814) (314,380) 2020 $’000 (3,411) 3,653 13,693 (17,037) (9,945) (5,694) 27,930 11,460 2,015 22,664 2019 $’000 (763) (7,097) (7,721) 848 — 1,289 (4,870) — (1,428) (19,742) 107 NINE ANNUAL REPORT 2020 5. Taxation continued 5.2 Deferred tax assets and liabilities continued 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. 108 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 Accounting Policy continued 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. 6. Group Structure 6.1 Business combinations Acquisitions for the year ended 30 June 2020 Acquisition of remaining 45.6% interest in Macquarie Media Limited During the period, the Group acquired the remaining 45.6% stake in Macquarie Media Limited which it did not already own, for a total consideration of $113.9 million, with the acquisition completed on 21 November 2019. The Group acquired the remainder of Macquarie Media Limited to consolidate its position as a supplier of news and current affairs across all of the Group’s key platforms. Macquarie Media Limited has previously been consolidated into the Group’s results as a result of the Fairfax merger on 7 December 2018 and therefore there was no change to the net assets recorded in relation to this entity as a result of the acquisition of the remaining 45.6% stake. Bidtracker Group On 27 November 2019, the Group (through Domain) acquired 100% of the share capital in the Bidtracker Group which operates the business Real Time Agent. The consideration of the acquisition is to be paid in three tranches, with two of the three being contingent on defined targets over FY20 and FY21. The first tranche included payment of $19.4 million which was settled in cash on 27 November 2019 and $0.5 million cash effective settlement of the intercompany loan. Tranches two and three are anticipated to be settled in September 2020 and 2021 based on the performance against defined revenue targets in FY20 and FY21 respectively. An additional amount between nil and $15.6 million in cash is payable; the maximum consideration for the transaction across the three tranches is $35.5 million, the expected total consideration for the transaction as at 30 June 2020 is between $24.0 million and $24.5 million. The contingent consideration for tranches two and three is recognised as a financial liability on the Consolidated Balance Sheet and is measured at fair value through the profit and loss. Goodwill of $20.6 million was recognised at the time of acquisition. The goodwill comprises expected synergies arising from the acquisition. 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. Disposals for the year ended 30 June 2020 Stuff NZ On 31 May 2020, the Group disposed of its 100% interest in Stuff Limited (“Stuff NZ”) for consideration of $1 resulting in a loss on disposal of $44.0 million. Since the Fairfax merger in December 2018, Stuff New Zealand has been held for sale and recognised as a discontinued operation in accordance with AASB 5 Non-current Assets Held for Sale and Discontinued Operations. Following the disposal, a loss on disposal was recognised within the Discontinued Operations line of the Group’s Consolidated Statement of Profit or Loss and Other Comprehensive Income. 109 NINE ANNUAL REPORT 2020 6. Group Structure continued 6.1 Business Combinations continued Disposal of The Weather Company Pty Ltd On 30 September 2019, the Group disposed of its 75% stake in The Weather Company Pty Ltd (“Weatherzone”) for $30 million. The transaction did not create any profit or loss on disposal as it was sold at fair value recognised under purchase price accounting on the Fairfax merger. Commerce Australia Pty Limited On 13 March 2020, the Group (through Domain) completed the disposal of its 100% share in Commerce Australia Pty Limited (MyDesktop) for a total maximum cash consideration of $14.4 million, of which $7.0 million is contingent on achieving a number of conditions in 2021. The expected consideration for this transaction is $10.5 million. The sale was part of Domain’s strategy to simplify and optimise and work in alignment with all agents. A net gain on disposal of $0.6 million being $1.3 million revenue and $0.7 million disposal costs was recognised through Other Revenue and Income in the Group’s Consolidated Statement of Profit or Loss and Other Comprehensive Income. 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 elected to measure the non-controlling interests in Fairfax at its share of identifiable net assets. 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. In accordance with AASB 3 Business Combination, the Group finalised the purchase price accounting and the allocation of fair value to goodwill and other indefinite life intangible assets within 12 months from the date of acquisition. The 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 Initial fair value recognised on acquisition $’000 Final fair value recognised on acquisition $’000 Movement $’000 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 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 77,914 181,807 16,747 15,895 2,471 2,161 17,000 55,655 1,843 207,243 637,453 237,655 294,670 Total assets 1,751,736 1,748,514 110 — — 7,278 — — — — (8,877) — 2,186 — 255 (4,064) (3,222) Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 Fairfax Media Limited and its controlled entities 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 Initial fair value recognised on acquisition $’000 Final fair value recognised on acquisition $’000 Movement $’000 (129,140) (139,504) (10,364) (291,898) (282,373) (17,790) (107,646) (204,254) (17,790) (114,838) (179,352) (140,453) (136,605) (891,181) (870,462) 860,555 (185,309) 782,046 878,052 (185,138) 764,378 1,457,292 1,457,292 9,525 — (7,192) 24,902 3,848 20,719 17,497 171 (17,668) — 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 as discontinued operations. In May 2019, the Group completed the sale of the Events businesses and ACM was disposed on 30 June 2019. On 31 May 2020, the Group completed the disposal of Stuff NZ. Refer 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) 159,498 315,302 474,800 111 NINE ANNUAL REPORT 2020 6. Group Structure continued 6.1 Business Combinations continued From the date of acquisition to 30 June 2019, 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 1 July 2018, 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 for the year ended 30 June 2019. The goodwill of $1,079,680,000 comprises the value of expected synergies arising from the acquisition. Goodwill has been allocated across each CGU (Domain, Metropolitan Media, Nine Radio and Stan). Refer to Note 3.6(a) for details. None of the goodwill/ indefinite life intangibles recognised are expected to be deductible for income tax purposes. 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 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. 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, which were due to be settled in early 2020 and 2021 respectively, were initially expected to be met and therefore total consideration assumed for the transaction across the three tranches was $10.2 million. The contingent consideration for tranches two and three was recognised as a financial liability on the Statement of Financial Position and is measured at fair value through the profit and loss. 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. 112 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 During the year ended 30 June 2020, the hurdles related to Tranches two and three were determined not to have been met and therefore a net gain on contingent consideration payable has been recognised in the Group’s Consolidated Statement of Profit or Loss and Other Comprehensive Income. This amount has been disclosed as a Specific Item as per Note 2.4. 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. Consideration 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 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. 113 NINE ANNUAL REPORT 2020 6. Group Structure continued 6.2. Investments accounted for using the equity method 6.2(a) Investments at equity accounted amount: Associated entities — unlisted shares 2020 $’000 25,766 2019 $’000 26,145 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 20 30 June 19 % INTEREST1 Australia Australia Australia Australia Australia Australia Australia Australia Adventure TV Channel Pty Ltd Television channel providers Australia Money Channel Pty Ltd Television channel providers CopyCo Pty Ltd Content licensing Darwin Digital Television Pty Ltd Television broadcast Future Women Pty Ltd Online content provider Homebush Transmitters Pty Ltd Transmission services Intrepica Pty Ltd NPC Media Pty Ltd Oztam Pty Ltd RateCity Pty Ltd Online learning service Television playout services Television audience measurement Australia Operator of a financial product comparison service Australia The Premium Content Alliance Media research and promotion Australia TX Australia Pty Ltd Television transmission Digital Radio Broadcasting Sydney Pty Ltd Digital audio broadcasting Digital Radio Broadcasting Melbourne Pty Ltd Digital audio broadcasting Digital Radio Broadcasting Brisbane Pty Ltd Digital audio broadcasting Digital Radio Broadcasting Perth Pty Ltd Digital audio broadcasting Future Energy New Zealand Limited³ Electricity Retailer Future Foresight Group Pty Ltd⁴ Weather safety and risk information provider Australia Australia Australia Australia Australia New Zealand South Africa Australian Associated Press Pty Ltd Newsagency & information service Australia Healthshare Pty Ltd⁵ Oneflare Pty Ltd RSVP.com.au Pty Limited² Online dating services Skoolbo Pte Ltd Online learning service Singapore Information technology tools Australia Home services marketplace Australia Australia 50 50 20 50 50 50 15 50 33 50 25 50 12 18 25 17 0 0 47 0 21 58 19 0 50 20 50 80 50 27 50 33 50 0 50 12 18 25 17 49 50 47 28 21 58 19 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 This entity was disposed on 30 April 2020. 4 Future Foresight Group Pty Ltd was disposed of as part of the WeatherZone disposal. 5 This investment was disposed of on 18 February 2020. 114 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 6.2(c) Carrying amount of investments in associates Balance at the beginning of the financial year Acquired during the year Impairments Disposals 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 2020 $’000 26,145 6,743 (778) (1,805) 928 (5,467) 25,766 2019 $’000 12,479 18,211 (808) — (2,857) (880) 26,145 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 2020 $’000 928 2019 $’000 (16,982) The Group’s current year share of losses of associates and joint ventures not recognised is nil (2019: $14.1 million). The Group’s cumulative share of losses of associates and joint ventures not recognised is nil (2019: $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 $778,000 of impairment recorded during the current financial year (2019: $808,000). 2020 $’000 17,148 60,576 77,724 15,078 15,626 30,704 2019 $’000 19,340 60,350 79,690 13,828 11,999 25,827 115 NINE ANNUAL REPORT 2020 6. Group Structure continued 6.2. Investments accounted for using the equity method continued 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 Statement of Financial Position 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 Ltd⁸ 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 Nine Films & Television Distribution Pty Ltd 116 B A, B A, B A, B A, B A, B New Zealand Australia Australia Australia Australia Australia Ownership interest June 2020 % Ownership interest June 2019 % Parent Entity Parent Entity 100 88 100 50 100 100 100 100 100 100 100 100 88 100 80 100 100 100 100 100 100 100 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 Footnote Place of Incorporation Ownership interest June 2020 % Ownership interest June 2019 % 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 Ltd Swan Television & Radio Broadcasters Pty Ltd TCN Channel Nine Pty Ltd Television Holdings Darwin Pty Limited Territory Television Pty Ltd White Whale Pty Ltd 2GTHR Pty Ltd All Homes Pty Limited ACT Real Estate Media Pty Ltd Alldata Australia Pty Ltd Allure Media Pty Ltd Associated Newspapers Pty Ltd Australian Openair Cinemas Pty Limited Australian Property Monitors Pty Limited Bidtracker Holdings Pty Ltd Bodypass Trading Pty Ltd Buyradio Pty Ltd Commerce Australia Pty Ltd⁵ Commercial Real Estate Holdings Pty Ltd Commercial Real Estate Media Pty Limited³ Commercialview.com.au Ltd³ 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 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 B Australia Australia Australia Australia 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 59 59 100 100 0 59 40 40 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 59 59 59 100 100 100 59 0 100 55 59 59 40 40 117 NINE ANNUAL REPORT 2020 6. Group Structure continued 6.3 Investment in controlled entities continued David Syme & Co Pty Limited Digital Home Loans Pty Limited Domain Group Finance Pty Limited Domain Holdings Australia Limited Domain Insure Pty Ltd³ Domain Operations Pty Limited Fairfax Corporation Pty Limited Fairfax Digital Australia & New Zealand Pty Limited Fairfax Digital Pty Limited Fairfax Entertainment Pty Limited Fairfax Event Sub Pty Ltd Fairfax Media Limited Fairfax Media Events Pty Ltd Fairfax Media Group Finance Pty Ltd Fairfax Media Management Pty Limited Fairfax Media Publications Pty Limited Fairfax News Network Pty Ltd Fibre Communications Limited⁶ Find a Babysitter Pty Ltd Radio 2GB Sydney Pty Ltd (formerly Harbour Radio Pty) Ltd² Homepass Australia Pty Ltd³ Homepass Pty Ltd³ John Fairfax & Sons Pty Limited John Fairfax Pty Limited Nine Radio Pty Limited (formerly Macquarie Media Limited)² Macquarie Media Network Pty Limited Nine Radio Operations Pty Limited (formerly Macquarie Media Operations Pty Limited)² Nine Radio Syndication Pty Limited (formerly Macquarie Media Syndication Pty Limited) Map and Page Pty Ltd Mapshed Pty Ltd⁴ Metro Media Publishing Pty Ltd Metro Media Services Pty Ltd 118 Footnote Place of Incorporation A, B Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand Australia Australia Australia Australia Australia Australia Australia A, B A, B A, B A, B B A, B A, B B A, B A, B B B A, B A, B A, B A, B B Australia A, B Australia B Australia Australia Australia Australia Australia Ownership interest June 2020 % Ownership interest June 2019 % 100 36 59 59 41 59 100 100 100 100 100 100 100 100 100 100 100 0 100 100 40 40 100 100 100 100 100 100 100 0 55 59 100 36 59 59 41 59 100 100 100 100 100 100 100 100 100 100 100 100 100 55 40 40 100 100 55 55 55 55 55 59 55 59 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 Footnote Place of Incorporation Ownership interest June 2020 % Ownership interest June 2019 % MMP Community Network Pty Ltd MMP (DVH) Pty Ltd³ MMP (Melbourne Times) Pty Ltd³ MMP Bayside Pty Ltd³ MMP Eastern Pty Ltd³ MMP Greater Geelong Pty Ltd³ MMP Holdings Pty Ltd³ MMP Moonee Valley Pty Ltd³ National Real Estate Media Pty Limited National Real Estate Nominees Pty Ltd Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Neighbourly Limited⁶ New Zealand New South Wales Real Estate Media Pty Limited³ Northern Territory Real Estate Media Pty Ltd³ Property Data Solutions Pty Ltd Queensland Real Estate Media Pty Ltd³ Radio 1278 Melbourne Pty Limited Radio 2UE Sydney Pty Ltd Australia Australia Australia Australia Australia Australia B B Radio 3AW Melbourne Pty Limited² A, B Australia Radio 4BC Brisbane Pty Limited Radio 6PR Perth Pty Limited Radio Magic 882 Brisbane Pty Limited Review Property Pty Ltd South Australia Real Estate Media Pty Ltd³ Stuff Limited6 Tasmania Real Estate Media Pty Ltd³ B B B Australia Australia Australia Australia Australia New Zealand Australia The Age Company Pty Limited A, B Australia The Weather Company Pty Limited⁷ Western Australia Real Estate Media Pty Ltd³ Australia Australia 59 37 41 46 41 28 59 41 59 59 0 42 44 59 42 100 100 100 100 100 100 59 40 0 44 100 0 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 notes 4.1 and 6.4 for further detail). 1 The Group currently owns 88% of the shares in CarAdvice, however it is 100% consolidated in accordance with accounting standards. 2 These entities became a party to the Deed of Cross Guarantee during the year ended 30 June 2020. 3 This represents the Group’s effective interest in the entity which is partially owned (yet controlled) by a non-wholly owned subsidiary. 4 Mapshed Pty Ltd was disposed of on 1 October 2019. 5 Commerce Australia was disposed of on 13 March 2020. Refer note 6.1. 6 These entities were disposed of on 31 May 2020 as part of the Stuff NZ disposal. Refer note 6.1. 7 The Weather Company Pty Limited was disposed of on 30 September 2019. Refer note 6.1. 8 Future Women Pty Ltd was deconsolidated upon disposal of 30% of the Group’s shareholding and loss of control. 59 37 41 46 41 28 59 41 59 59 100 42 44 59 42 55 55 55 55 55 55 59 40 100 44 100 75 41 119 NINE ANNUAL REPORT 2020 6. Group Structure continued 6.3 Investment in controlled entities continued Accounting Policy Basis of consolidation The consolidated financial statements comprise the financial statements of the parent entity and its subsidiaries as at 30 June 2020. 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 Consolidated Statement of Financial Position respectively. 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 2020 is as follows: CLOSED GROUP1 EXTENDED CLOSED GROUP2 2020 $’000 2019 $’000 2020 $’000 2019 $’000 Consolidated Statement of Profit or Loss and Other Comprehensive Income Profit/(loss) from continuing operations before income tax (446,989) Income tax expense Net profit/(loss) after income tax from operations (19,011) (466,000) 274,972 (62,527) 212,445 (470,773) 272,528 (27,650) (498,423) (61,815) 210,713 Dividends paid during the period (170,539) (128,688) (170,539) (128,688) Adjustments to reserves — Accumulated profits at the beginning of the financial year 428,981 Accumulated profits at the end of the financial year (207,558) — 345,224 428,981 — 435,834 (233,128) — 353,809 435,834 1 Closed Group are those entities party to the Deed of Cross Guarantee. 2 Refer to Note 6.3 for details. The debt facilities for the 100% owned group (refer to Note 4.1) are supported by guarantees from most of the Company’s wholly owned subsidiaries; these guarantors are referred to as the “Extended Closed Group”. 120 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 The Consolidated Statement of Financial Position of the entities which are some members of the “Closed Group” and the “Extended Closed Group” for the year ended 30 June 2020 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 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 Financial liabilities Income tax liabilities Provisions Total current liabilities Non-current liabilities Payables Financial liabilities Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets 2020 $’000 112,831 229,150 229,758 3,622 28,342 2019 $’000 200,255 357,606 267,690 1,583 29,751 603,703 856,885 4,443 118,571 25,517 832,528 2,269 335,819 1,322,572 27,255 2,668,974 3,272,677 255,721 94,965 5,566 149,393 505,645 252,438 526,827 266,304 14,439 1,060,008 1,565,653 1,707,024 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 47,097 100,466 726,837 119,285 118,246 148,097 38,951 424,579 1,151,416 2,303,742 2020 $’000 114,978 235,279 229,758 3,622 28,676 612,313 4,443 118,571 25,766 835,424 5,460 366,245 1,322,572 27,255 2019 $’000 179,206 401,076 270,409 1,583 29,934 882,208 4,931 109,902 24,025 1,178,628 3,437 122,304 1,210,021 49,248 2,705,736 2,702,496 3,318,049 3,584,704 335,364 96,067 6,014 149,666 587,111 265,436 538,872 254,681 19,220 1,078,209 1,665,320 1,652,729 429,237 195,375 44,242 109,206 778,060 194,827 118,246 143,833 56,486 513,392 1,291,452 2,293,252 121 NINE ANNUAL REPORT 2020 6. Group Structure 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 2020 $’000 2019 $’000 58,610 24,071 2,408,637 3,059,282 2,467,247 3,083,353 869 580,510 581,379 1,885,868 2,134,803 5,829 661 309,373 310,034 2,773,319 2,134,803 8,451 (254,764) 630,065 1,885,868 2,773,319 (714,290)1 (714,290) 631,451 631,451 1 Current year loss is the result of impairments recognised in intergroup loans due to the significant intangible asset impairments recognised across the Group, as detailed in Note 2.4. 122 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 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. 2020 $’000 2019 $’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 Future Women Pty Ltd Adventure TV Channel Pty Ltd Ratecity Pty Ltd Darwin Digital Television Pty Ltd Australian Money Channel Pty Ltd 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.: Digital Radio Broadcast Sydney Pty Ltd Combined Translator Facilities Pty Ltd TX Australia Pty Ltd Oztam Pty Ltd — — 11 421 26 77 — 57 300 574 — — — — — 267 100 4,500 600 1 For the period prior to the merger with Fairfax on 7 December 2018, at which date Stan became 100% owned and was consolidated. 5,324 3,599 — — 26 77 599 493 3,614 60 112 60 55 178 72 — — — 880 123 NINE ANNUAL REPORT 2020 6. Group Structure continued 6.6 Related party transactions continued Amounts owed by related parties — Adventure TV Channel Pty Ltd NPC Media Pty Ltd Ratecity Pty Ltd Homebush Transmitters Pty Ltd Future Energy Management Ltd Darwin Digital Television Pty Ltd Amounts owed to related parties — Adventure TV Channel Pty Ltd NPC Media Pty Ltd Loans to related parties — Darwin Digital Television Pty Ltd NPC Media Ltd Other- 2020 $’000 2,750 433 148 54 — 7 2,747 2,055 2,910 4,000 21 2019 $’000 — 986 148 410 1,913 — — — 2,910 2,000 511 1 The loans granted to these related parties are non-interest bearing. Terms and conditions of transactions with related parties All of the above transactions, other than non-interest bearing loans, 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 2020, the Group has made an allowance for expected credit losses relating to amounts owed by related parties of $2.9 million. 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. 124 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 6.6(d)(ii) Compensation of key management personnel Remuneration by category Short-term employee benefits Termination payments Post-employment benefits Long-term benefits Share-based payments 2020 $ 2019 $ 4,587,831 5,399,434 880,251 184,633 178,381 922,522 — 164,221 15,988 1,753,989 Total remuneration of key management personnel 6,753,618 7,333,632 The table includes current and former key management personnel Detailed remuneration disclosures are provided in the Remuneration Report on pages 39 to 59. 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. Consequently, the Group classified these businesses as a disposal group held for sale and as discontinued operations. Stuff NZ was sold on 31 May 2020 (refer note 6.1). Australian Community Media (including printing operations) was sold on 30 June 2019, and Events was sold on 31 May 2019. Stuff NZ was sold on 31 May 2020. Refer to Note 6.1 for details. During the year to disposal, Stuff generated a profit before tax of $12.3 million, including $4.5 million of net income classified as a Specific Item. Furthermore, during this period NZ$4.2 million in government subsidies was received from the New Zealand government related to the NZ Government’s Wage Subsidy program in response to COVID-19. Profit after tax from discontinued operations includes the loss on disposal of Stuff NZ ($44.0 million) and finalisation of the ACM disposal including working capital adjustments ($6.7 million), and the termination of a related printing operations agreement ($14.0 million). 7. Other 7.1 Other financial assets Non-current Investments in listed entities Investments in unlisted entities Closing balance at 30 June 2020 $’000 3,191 2,269 5,460 1 Investments in Yellow Brick Road (ASX:YBR) and other shares held by controlled entities of the Group in other unlisted entities. These investments are carried at fair value through other comprehensive income in order to avoid volatility in the profit and loss. Non-current As at 1 July Acquired during the year Movement in fair value Closing balance at 30 June 2020 $ 5,949 — (489) 5,460 2019 $’000 3,437 2,512 5,949 2019 $ 4,468 2,512 (1,031) 5,949 125 NINE ANNUAL REPORT 2020 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 $489,000 adjusted against the investment for the year ended 30 June 2020 (2019: $1,031,000 loss). Certain of the Group’s investments are categorised as investments in listed equities under AASB 9 – 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. 7.2 Defined benefit plan Non-current Defined benefits plan1 Closing balance at 30 June 2020 $’000 14,805 14,805 2019 $’000 23,231 23,231 1 30 June 2020 balance consists of Fairfax Media Super defined benefit plan (2020: $1,934,000, 2019: $2,070,000), Macquarie Media Ltd (MML) Super defined benefit plan (2020: $277,000) and Nine Network Superannuation Plan (2020: $12,594,000, 2019: $21,161,000). Plan information Defined benefit members receive lump sum benefits on retirement, death, disablement and withdrawal. The defined benefit section of the Plan is closed to new members. All new members receive accumulation only benefits. Regulatory framework The Superannuation Industry (Supervision) (SIS) legislation governs the superannuation industry and provides the framework within which superannuation plans operate. The SIS Regulations require an actuarial valuation to be performed for each defined benefit superannuation plan every three years, or every year if the plan pays defined benefit pensions. 126 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 Responsibilities for the governance of the Plans The Plan’s Trustees are responsible for the governance of the Plans. The Trustees have 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 Plans expose 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 of the Nine Network superannuation plan 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 valuations of the defined benefits funds for the year ended 30 June 2020 were performed by Mercer Investment Nominees Limited for the purpose of satisfying accounting requirements. The details of the plan disclosed throughout relates to the Nine Network Superannuation Plan and excludes the Fairfax Media and MML Plans, on the basis that they are not considered material to the Group. 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 30 June 20 $’000 30 June 19 $’000 21,161 (1,401) 402 (1,921) (1,393) (544) 25 (3,735) 12,594 25,584 (1,008) 748 1,715 (2,827) (1,073) 22 (2,000) 21,161 127 NINE ANNUAL REPORT 2020 7. Other continued 7.2 Defined benefits plan continued 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) Present value of defined benefit obligations at 30 June 30 June 20 $’000 58,519 1,215 (1,921) 25 731 (2,925) 590 (3,735) 52,499 30 June 20 $’000 37,359 1,401 813 731 1,393 544 (2,925) 589 39,905 30 June 19 $’000 58,483 1,894 1,715 22 724 (2,473) 154 (2,000) 58,519 30 June 19 $’000 32,900 1,008 1,146 724 2,827 1,073 (2,473) 154 37,359 The defined benefit obligation consists entirely of amounts from Plans that are wholly or partly funded. Fair value of Plan assets As at 30 June 2020, total Plan assets of $52,498,000 are held in AMP Future Directions Balanced investment option. The percentage invested in each asset class at the reporting date is: As at Australian Equity International Equity Fixed Income Property Alternatives/Other Cash 1 Asset allocation as at 31 March 2019. The fair value of Plan assets includes no amounts relating to: • any of the Company’s own financial instruments; or • any property occupied by, or other assets used by, the Company. 128 30 June 20201 30 June 20191 23% 33% 20% 6% 15% 3% 22% 32% 19% 11% 13% 3% Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 Significant Actuarial Assumptions As at Assumptions to Determine Benefit Cost Discount rate Expected salary increase rate Assumptions to Determine Benefit Obligation Discount rate Expected salary increase rate 30 June 20 30 June 19 2.2% pa 2.0% pa 1.6% pa 2.0% pa 3.4% pa 2.0% pa 2.2% pa 2.0% pa Sensitivity Analysis The defined benefit obligation as at 30 June 2020 under several scenarios is presented below. Scenarios A and B relate to discount rate sensitivity. Scenarios C and D relate to salary increase rate sensitivity. • Scenario A: 0.5% pa lower discount rate assumption. • Scenario B: 0.5% pa higher discount rate assumption. • Scenario C: 0.5% pa lower salary increase rate assumption. • Scenario D: 0.5% pa higher salary increase rate assumption. % P.A. BASE CASE SCENARIO A SCENARIO B SCENARIO C SCENARIO D –0.5% pa discount rate +0.5% pa discount rate –0.5% pa salary increase rate +0.5% pa salary increase rate Discount rate Salary increase rate Defined benefit obligation ($’000s)1 1.6% pa 2.0% pa 39,904 1.1% pa 2.0% pa 41,122 2.1% pa 2.0% pa 38,738 1.6% pa 1.5% pa 38,943 1.6% pa 2.5% pa 40,896 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. 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 A A1 Employer Contributions Rate (% of Salaries) nil nil 129 NINE ANNUAL REPORT 2020 7. Other continued 7.2 Defined benefits plan continued 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). During the year to 30 June 2020, contributions of $3.7 million (net of tax) were financed from defined benefit assets; 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 21 $’000 — Maturity profile of defined benefit obligation The weighted average duration of the defined benefit obligation as at 30 June 2020 is six years (30 June 2019: six years). Expected benefit payments for the financial year ending on: 30 June 21 30 June 22 30 June 23 30 June 24 30 June 25 Following five years $’000 3,356 5,480 4,688 4,223 4,308 22,227 Accounting Policy The Group contributes to defined benefit superannuation funds which require contributions to be made to separately administered funds. The cost of providing benefits under the defined benefit plans 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. 130 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 7.3 Auditors’ remuneration Amounts to Ernst & Young (Australia): 2020 $ 2019 $ Fees for auditing the statutory financial report of the parent covering the group and auditing the statutory financial reports of any controlled entities* 2,980,455 3,070,671 Fees for assurance services that are required by legislation to be provided by the auditor — — Fees for other assurance and agreed-upon-procedures services under other legislation or contractual arrangements where there is discretion as to whether the service is provided by the auditor or another firm Fees for other services – Tax compliance and advisory Total auditors’ remuneration 99,550 90,000 370,383 368,161 3,450,388 3,528,832 * Comprised of the audit and review of the consolidated group ($2,144,455) and the audit and review of other related entities ($835,468). (2019: consolidated group ($2,400,000) and the audit and review of other related entities ($670,671)). 7.4 Contingent liabilities and related matters The consolidated entity has made certain guarantees regarding contractual leases, performance and other commitments of $24,000,493 (2019: $14,648,454). 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 predicted 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. 7.5 Events after the balance sheet date 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 Year ended 30 June 2020 The Group has applied AASB 16 and IFRIC interpretation 23 Uncertainty over income tax treatments for the first time from 1 July 2019. 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 2020 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 16 Leases The Group applied AASB 16 Leases from 1 July 2019. AASB 16 replaces the current AASB 17 Leases standard. Refer to note 3.10 for details of the transition to AASB 16 Leases. 131 NINE ANNUAL REPORT 2020 7. Other continued 7.6 Other significant accounting policies continued Accounting Policy continued • IFRIC interpretation 23 Uncertainty over income tax treatments (effective date 1 January 2019) The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 Income Taxes. It does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following: • Whether an entity considers uncertain tax treatments separately • The assumptions an entity makes about the examination of tax treatments by taxation authorities • How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates • How an entity considers changes in facts and circumstances An entity must determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty needs to be followed. The Group applies significant judgement in identifying uncertainties over income tax treatments. Since the Group operates in a complex environment, it assessed whether the Interpretation had an impact on its consolidated financial statements. The Group determined, based on its tax compliance, that it is probable that its tax treatments (including those for the subsidiaries) will be accepted by the taxation authorities. The interpretation did not have an impact on the consolidated financial statements of the Group • Other Certain new accounting standards, amendments and interpretations have been issued that are not yet effective for the financial year ended 30 June 2020. However, the Group intends to adopt the following new or amended standards and interpretations, if applicable, when they become effective with no significant impact being expected on the Consolidated Financial Statements of the Group: • Amendments to References to Conceptual Framework in IFRS Standards. • Definition of a Business (Amendments to AASB 3 Business Combinations). • Definition of Material (Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors). Year ended 30 June 2019 • 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 was 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. 132 Notes to the ConsolidatedFinancial Statementsfor the year ended 30 June 2020 Accounting Policy continued 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 $2.3 million to opening retained earnings as at 1 July 2018. There was no material current year impact on revenue or profit, nor any balance sheet line items, resulting from the implementation of AASB 15. • AASB 9 Financial Instruments AASB 9 was issued in phases, with the phased approach reflecting a number of versions of the standard being issued. The Group early adopted the version of AASB 9 (issued in June 2014) on 1 July 2014, which provided guidance on the classification and measurement of financial assets. On the adoption of AASB 9 (2014), those financial assets classified as either amortised cost, fair value through other comprehensive income or fair value through profit & loss were measured as such under AASB 9. The final complete standard, AASB 9 (2014), became effective for the Group from 1 July 2018, the impact of which was as follows: Impairment Under AASB 9 the impairment model requires a 12-month expected credit loss provision (doubtful debts) to be recognised when financial instruments, including trade debtors, are first recognised. Subsequently, if there is a significant increase in credit risk, then a lifetime expected credit loss provision needs to be recognised. There was no material impact to the Group’s credit loss provision as a result of adopting AASB 9. 7.6(b) Other significant accounting policies 7.6(b)(i) Foreign currency translation Both the functional and presentation currency of Nine Entertainment Co. Holdings Limited and its Australian subsidiaries is Australian dollars ($). 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. 133 NINE ANNUAL REPORT 2020 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 2020. 2. in the opinion of the Directors, the consolidated financial statements and notes that are set out on pages 66 to 133 and the Remuneration Report in pages 39 to 59 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 2020 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 72 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, 27 August 2020 Hugh Marks Chief Executive Officer and Director 134 Independent Auditor’s Report to the Members 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 Independent Auditor's Report to the Members of Nine Entertainment Co. Holdings Limited Report on the Audit of the 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 2020, the consolidated statement of comprehensive income, consolidated statement of changes in equity 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 true and fair view of the consolidated financial position of the Group as at 30 June 2020 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 Australian 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 ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical 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 Matters Key audit matters are those matters that, in our professional judgment, 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. 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. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 135 NINE ANNUAL REPORT 2020 Page 2 1. Carrying value of intangible assets Why significant How our audit addressed the key audit matter At 30 June 2020, the Group’s consolidated statement of financial position included goodwill and other intangible assets amounting to $2,325m, representing 64% of total assets. As disclosed in Note 3.6 to the financial statements, the Directors have assessed goodwill and other intangible assets for impairment and recorded an impairment charge of $591.8m for the year. This assessment involved critical accounting estimates and assumptions, based upon conditions existing as at 30 June 2020, specifically concerning factors such as forecast cashflows, discount rates and terminal growth rates. The estimates and assumptions relate to future performance, market and economic conditions. At 30 June 2020 the Group’s performance and the economy as a whole, were impacted by the restrictions and economic uncertainty resulting from the COVID-19 pandemic. Significant assumptions used in the impairment testing referred to above are inherently subjective and in times of economic uncertainty the degree of subjectivity is higher than it might otherwise be. Changes in certain assumptions can lead to significant changes in the recoverable amount of these assets. In this situation the disclosures in the financial report provide particularly important information about the assumptions made in the impairment testing and the market conditions at 30 June 2020. As a result, we consider the impairment testing of goodwill and other intangible assets and the related disclosures in the financial report to be particularly significant to our audit. For the same reasons we consider it important that attention is drawn to the information in Note 3.6. 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 assets met the requirements of Australian Accounting Standards. • Evaluation of the determination of each Cash Generating Unit (“CGU”) with respect to the independent cash inflows generated by each CGU. • Consideration of the effects of the change in cash- generating unit as disclosed in Note 3.6 on impairment testing. • Testing 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. • Consideration of the adequacy of the disclosures relating to intangible assets in the financial statements, including those made with respect to judgements and estimates, in particular those concerning the uncertainties caused by COVID-19. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 136 Independent Auditor’s Reportto the Directors of Nine Entertainment Co. Holdings Limited Page 3 2. Valuation of program rights Why significant How our audit addressed the key audit matter At 30 June 2020, the program rights balance of $333m included $214m of current and $119m 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. As disclosed in Note 3.3 to the financial statements, the Directors’ assessment of the recoverability of program rights involves judgement, relating to forecasting the amount 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. 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. • 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. • Assessment of the impact of COVID-19 on the amount, timing of rights payments, and forecasts of future revenue to be generated by these rights. This assessment included those for sporting rights acquired and expensed during the year. • 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. Information Other than the Financial Report and Auditor’s Report Thereon The directors are responsible for the other information. The other information comprises the information included in the Company’s 2020 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 with 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. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 137 NINE ANNUAL REPORT 2020 Page 4 Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian 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. Auditor's Responsibilities for the Audit of the 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 auditor’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 with the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: ► Identify 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. ► Obtain an understanding of internal control relevant to the 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 auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. ► Evaluate the overall presentation, structure 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. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 138 Independent Auditor’s Reportto the Directors of Nine Entertainment Co. Holdings Limited Page 5 ► 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 with the directors regarding, among other 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, actions taken to eliminate threats or safeguards applied. 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. Report on the Audit of the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 7 to 27 of the directors' report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Nine Entertainment Co. Holdings Limited for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with 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 27 August 2020 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 139 NINE ANNUAL REPORT 2020 Shareholder Information Shareholder Information Top 20 Shareholders Twenty largest shareholders as at 8 September 2020. Name 1. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 2. JP MORGAN NOMINEES AUSTRALIA PTY LIMITED 3. BIRKETU PTY LTD 4. CITICORP NOMINEES PTY LIMITED 5. NATIONAL NOMINEES LIMITED 6. BNP PARIBAS NOMS PTY LTD 7. CS THIRD NOMINEES PTY LIMITED 8. BNP PARIBAS NOMINEES PTY LTD 9. CITICORP NOMINEES PTY LIMITED 10. BOND STREET CUSTODIANS LIMITED 11. NAVIGATOR AUSTRALIA LTD 12. UBS NOMINEES PTY LTD 13. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2 14. PACIFIC CUSTODIANS PTY LIMITED 15. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA 16. UBS NOMINEES PTY LTD 17. CS FOURTH NOMINEES PTY LIMITED 18. POWERWRAP LIMITED 19. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 20. HSBC CUSTODY NOMINEES (AUSTRALIA) 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. Substantial shareholders The substantial shareholders as at 8 September 2020. Name BIRKETU PTY LTD/BRUCE GORDON PENDAL GROUP FRANKLIN RESOURCES INC/LEGG MASON FIL LIMITED NATIONAL AUSTRALIA BANK 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 Voting rights Shares 538,261,094 261,401,038 254,760,442 190,770,931 114,133,941 28,234,477 20,638,182 19,774,653 10,943,554 8,535,447 7,732,291 6,954,181 5,271,349 5,240,911 5,038,615 4,197,824 3,839,366 2,959,651 2,745,664 2,661,899 Total Shares 254,760,442 151,262,076 125,050,615 97,384,206 85,483,498 NO. OF HOLDERS 8,617 9,232 3,151 3,766 216 24,982 676 % 31.56 15.33 14.94 11.19 6.69 1.66 1.21 1.16 0.64 0.50 0.45 0.41 0.31 0.31 0.30 0.25 0.23 0.17 0.16 0.16 % 14.94 8.87 7.33 5.71 5.01 % 34.49 36.95 12.62 15.07 0.86 100.00 2.71 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. 140 Corporate Directory Corporate Directory Nine Entertainment Co. Holdings Limited ABN 60 122 203 892 Annual General Meeting Nine will be holding its Annual General Meeting as a virtual meeting in 2020, as a result of the restrictions on travel and public gatherings which are currently in force. The AGM will be held on 12 November 2020, commencing at 10am AEST. Information on how to join the virtual AGM will be available with the Notice of Meeting. Financial Calendar 2021 Interim Result 24 February 2021 Preliminary Final Result 25 August 2021 Annual General Meeting 11 November 2021 Company Secretary Rachel Launders Registered office Nine Entertainment Co. Holdings Limited Level 9, 1 Denison Street, North Sydney, NSW 2060 Ph: +61 2 9906 9999 Share Registry Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 Ph: 1300 888 062 (toll free within Australia) Ph: +61 2 8280 7670 Fax: +61 2 9287 0303 Email: 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 NINE ANNUAL REPORT 2020 This page has been left intentionally blank.