Nine Entertainment Co. Holdings Limited (NEC.AX) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining us for our full year 2025 results briefing. I'm Matt Stanton, CEO of Nine Entertainment, and joining me here today is our acting CFO, Graeme Cassells. I'd like to start off by acknowledging the traditional custodians of country throughout Australia and their connections to land, sea and community. We pay our respects to their elders past, present and emerging and extend that respect to all First Nations people today. For myself, I am on the land of the Cammeraygal people of the Eora nation. Nine is incredibly well positioned owning the preeminent content assets in Australian media, which are increasingly working together in ways that no one else can replicate, working to maximize the breadth, depth and impact of our premium content, the uniqueness and usability of our data and the opportunities that this presents to advertisers. Our business model continues to progress as we focus on investing in the opportunities of our growth assets of Stan, 9Now, Digital Publishing and Drive while optimizing the operating performance of our broadcast and print businesses. After a challenging first half, we were really pleased with the progress we made through the year. Not only did this result in growth in second half EBITDA, driven by growth in Total TV, Stan and Publishing, it also stands in good stead going forward. As our business becomes more digital with digital revenue growth of 6% for the year, our ability to exploit the opportunities of our integrated consumer platform becomes more wide reaching. Subscription revenues grew by 10% for the year, underpinned by growth at both Stan and in digital subscription revenues at Publishing. Stan particularly benefited as we brought the streaming and broadcast teams closer together, clearly evident through the Olympics but with more synergies coming through in the second half through content sharing and cross-promotion. We removed around $80 million of costs from the business across the year, of which circa $60 million is classified as ongoing, ahead of initial guidance of $50 million. This was a result of our focused program of improving efficiencies across our business whilst continuing to invest in the areas of growth. Throughout the year, we rolled out our refocused strategic model, aligning the businesses across 3 key verticals: Streaming and Broadcast, Publishing, and Marketplaces. We restructured our executive team, bringing a great depth of talent into our business and continue to focus on our cultural transformation. At the start of calendar 2025, we introduced the overlay of increased operating effectiveness, which we called Nine 2028, focusing on both revenue and cost. Early signs of the success of this program were visible in our second half results. We believe there are opportunities to continue to grow each of our core businesses, Streaming and Broadcast through increased penetration of the digital video market, reflective of our growing audiences; Publishing through continued growth in digital subscription revenues as well as broader commercial agreements with the global platforms; and Marketplaces, both through drive and partnerships with their third-party marketplaces businesses. In FY '25, we completed an amazing Olympics and Paralympics, bringing the games to all Australians however they wanted it. Of particular note was the significant tech update we completed in the run-up to the games at 9Now and the step change in subscribers we have experienced at Stan Sport. This whole of Nine approach played out later in the year with our purchase of the Premier League rights, which cements Stan Sport as a scale play in subscription sports streaming and further highlights Nine's commitment to premium content. Our digital growth strategy was further progressed with the introduction of advertising to Stan Sport for the recent Lions Tour. In FY '25, we also grew digital publishing revenues at our mastheads ahead of the rate of decline in print, standing us in good stead as our digital subscriptions continue to grow. In May, we reached an agreement to sell our 60% stake in Domain, finally accepting an offer, which we believe was in the best interest of Nine shareholders and more than reflected the current value of the holding to Nine being a 60% premium to the 60-day VWAP. The sale enables us to return significant capital to our shareholders on a tax-effective basis as well as strengthening our own balance sheet. Looking forward, we believe that we are the natural media partner for marketplace content, and we'll look for further opportunities in this space. We continue to be energized by the opportunities of the Nine business through our premium content, growing audiences and market-leading data proposition, and we will continue to invest organically in our core business to ensure we remain at the forefront of media in Australia. Nine's unwavering focus on the content that drives audiences and engagement was reflected in strong audience results in FY '25, and Page 5 shows just some of the highlights. For the second year in a row, we recorded growth in Total Television audiences across the year, both including and excluding the Olympic weeks. Key properties like the Australian Open, the NRL, Married at First Sight and our suite of news products have all reported growth in both Streaming and Broadcast audiences. And importantly, this growth across the year extended to the younger demographics with 10% growth in the average 16 to 39 audiences and almost 12% in the 25 to 54s. At Stan, content consumption based on minutes watched grew on both a total and per [ subscriber ] basis. At the mastheads, sessions and articles read per week per subscriber increased year-on-year, which resulted in ongoing subscription revenue growth with the AFR growing at an average of 11% per year over the past 3 years. This strong audience performance is testament to Nine's 3,500-plus employees who are focused on creating and distributing trusted, entertaining and thought-provoking content for the Australian community, of which more than 70% is produced locally. In a content world increasingly dominated by global players who have little regard for veracity or relevance, Nine continues to invest in content that matters to Australia, ensuring it is available as broadly as possible across multiple platforms. In doing so, we are helping to shape the fabric of our society. At this point, I'd like to ask Graeme to talk through the group financials.

Thanks, Matt, and good morning, everyone. For the year to June, Nine reported group revenue of $2.7 billion, growth of 2% on the prior comparable period and group EBITDA of $486 million. Included in this result was second half EBITDA growth of 8%. Group net profit after tax and minorities and before specific items was $166 million. On a statutory basis and inclusive of a specific item cost of $61 million, net profit for the year was $133 million. Slide 8 details the composition of specific items, which totaled a pretax cost of $89 million for the year, of which almost 60% were noncash accounting adjustments. Looking at the second half, further restructuring costs were $10 million, of which around half related to redundancies. The impairments related mainly to Nine Radio but also included around $5 million relating to the changed ownership structure of 9Rush. The waterfall chart on Page 9 illustrates what we've achieved in terms of underlying costs. Reported costs ex Domain were $82 million higher pre the impact of Paris Games. Costs were broadly flat. Within this, Nine offset the impacts of returning costs, investment in growth businesses, Stan and Drive, as well as inflation relating to employee salaries and the higher Australian Open contract with an extensive program of initiatives, a total saving of more than $80 million, of which around $60 million is regarded as ongoing. We expect to take a further $90 million of underlying costs out, equating to a total annualized saving of $150 million by the end of FY '27. On Page 10, we've reconciled net debt of the wholly owned group from the starting position at 1 July 2024 of $489 million to the $451 million we've reported for the 30th of June 2025. For the year to June, cash flow from operating activities was $381 million, excluding the Domain Group, with the breakdown of this shown in detail in Appendix 2. Since the end of FY '25, aside from the normal cash flows from operations, Nine will receive circa $1.4 billion net of tax from CoStar relating to the sale of our Domain stake whilst committing to pay a total of $840 million in franked dividends to shareholders, comprising both a special dividend of $0.49 as well as a fully franked final dividend of $0.04 per share, both dividends to be paid in late September.

Having been in the seat now for 9 months, I am more convinced than ever about the opportunities ahead for Nine. Nine 2028 is all about reshaping the business in recognition of the growth in digital video, a changing mix of short- and long-form content, convergence of delivery platforms, and the continued development of technology and AI to drive growth. To date, we have talked about the significant performance improvement element, but we're also focused on growth opportunities, underpinned by continuing investment in the digital video market, a streaming-first approach, a sharper focus on commercialization and an executive team aligned around group value creation. Across our 3 business units, we see strength and opportunities. Nine's strong competitive position will continue to create opportunities to grow our share of the digital video market through both advertising and subscription. During the year, we have brought our Streaming and Broadcasting businesses closer together, optimizing our content, utilization and cross-platform promotion and bringing ads to Stan Sport. As a leading metro and business publisher, with growing subscriber bases, we will continue to focus on the delivery of premium and differentiated content and on ensuring we are compensated by all of those who access the content. We continue to see further opportunities in consumer and premium marketplace businesses and not just Domain. In Australia, as Nine's growing, audience and data capabilities make Nine a partner of choice for any company that is focused on building awareness and audience from both a top-of-funnel and targeted perspective. Slide 12 is intended to give you some insight as how we are strategically thinking about capital allocation going forward. Our primary focus in the short to medium term is investing organically in our business, with a view to accelerating our ability to generate value for consumers and advertisers through our digital assets by utilizing our content and data. We are expediting the investment in our integrated consumer platform, aiming to bring all of our users together with one single sign-on on one consumer data platform. We are upskilling our analytics capability and our AI deployment, both of which are expected to create opportunities across content and advertising. Across the year, we have deployed enterprise AI tools across all of Nine, including Google's Gemini AI platform, with more than 80% of employees already utilizing it, driving increased efficiency and effectiveness across the group. We will be relaunching a new and improved Nine Ad Manager, as we continue to see a significant opportunity to bring Australia's 2 million-plus SMEs onto the Nine platform in a more seamless and profitable way. We have also agreed to invest in the digitalization of Nine archives, digitalizing almost 200 years of publishing and 70 years of broadcast content, making Nine the most potent and reliable source of Australia's story. As the content is digitalized, Australia's history will be available like never before. There will be opportunities to license this unique content to third parties, while we also expect to be able to use AI tools to enable the creation of incremental content and experiences. These planned investments are expected to total around $50 million in FY '26. Whilst our primary focus is on strengthening the core, we will continue to review our portfolio of assets, reflecting on the optimal use of capital. From a strategic perspective, each component of our portfolio must offer Nine scale, diversity of earnings and the ability for us to have -- use our core competencies to grow the business. In terms of incremental capital management, we will continue to reassess this opportunity based on our perception of excess capital, reflecting on the market valuation for Nine balanced with other opportunities. Turning now to our divisional results. On Slide 14, we focus on our Streaming and Broadcast business. The newly released Streamscape data for the June quarter illustrates the power of Total Television, also clearly showing that Nine Streaming and Broadcast assets lead the market in total minutes consumed on TV screens across total people and the younger demographics. Nine properties account for more TV viewing than any other platform group, representing 20.2% of the total, more than double that of our international competitors, making Nine the key partner for advertisers looking to reach the living room in the crucial 5:30 to 9 p.m. time slot. That means that around 1/3 of all Australian content viewed on the TV screen by the all-important 25 to 54 year olds comes from Nine. Focusing on this opportunity over the past 6 months since Amanda Laing joined in April, we have made much progress. As examples, we have committed to utilizing our content more efficiently, with the recent example being the airing of Love Island UK, traditionally a 9Now show, on Stan. And for example, over the past 2 weekends, we have also demonstrated the power of the Nine Group through our launch of the Premier League on Stan Sport, supported by one free-to-air game each weekend straight off the back of the NRL broadcast on a Saturday night and integrations across Wide World of Sports and Nine's news products as well as coverage across Nine Radio and Publishing. As a result, 567,000 watched the Man City v Spurs match across Nine and Stan, with a reach of over 1.5 million, bringing incremental subscribers to Stan Sport. This was more than double our usual audience in that time slot with the added benefit of boosting late audiences into the NRL. The results have been extraordinary, with the second weekend delivering the most sports viewers on a single day in Stan's history, ahead of the first Sunday of the 2024 Olympics as well as the most watched football match in Stan's history. No one else can launch events like we can. And we've launched ads into Stan Sport, which means that Nine's advertisers are now able to reach audiences across live broadcast, live streaming and on-demand platforms, creating the most powerful video platform in Australia.

Looking now at the results for Total TV. Across FY '25, Nine recorded audience growth for Total TV in both total people and 25 to 54s. We recorded growth in broadcast TV and BVOD audiences across the 6 months to December as well as the 6 months through June. In both halves, Nine's exposure to premium content and revenues ensured we outperformed the Total TV ad market. In the second half, Nine's revenues grew by 4% against a total TV market which was broadly flat. For the year, Nine recorded Total TV revenue growth of 3% to $1.2 billion, with almost 20% of this revenue coming from 9Now. It's worth noting that Nine's metro broadcast TV revenue share for the year of 42.5% was an all-time high for any network. Reported full year costs increased by $80 million. Increased sports costs accounted for around $85 million of incremental costs in FY '25, specifically, the Olympics and Paralympics and the first year of the new Australian Open rights contract, offset by the absence of cricket. On an underlying basis, savings of an estimated $23 million more than offset inflation and strategic investments in premium content and technology. Total TV EBITDA momentum improved markedly in the second half with the first half decline followed by EBITDA growth of 16% in H2. Stan's reported 31% growth in EBITDA for the year was underpinned by our strong subscriber performance, which kicked off with a successful Olympic campaign but was augmented by Stan's slate of entertainment and sports content. Revenue growth of 10% was due to a combination of higher average subscriber numbers particularly for Stan Sport and higher ARPU. The current subscriber number of around 2.5 million includes newly acquired Premier League subscribers following a transaction with Optus Sport as it ramps up. Stan's margins also expanded across the year. Sports costs were markedly higher, reflecting the Olympics coverage as well as the new year for contract. However, partially offsetting this, Stan worked hard across its overall cost base keeping entertainment costs down on the prior comparable period. With costs up a combined 7% across the business, Stan reported a record EBITDA result of $60 million. The 6% ARPU increase primarily reflected the strong performance of Stan Sport. Average paying subscribers across the year were marginally higher, while average sports subscribers grew by a low double-digit percentage, pre Premier League. This was driven primarily by the Olympics and Paralympics as well as the final season of Yellowstone. However, subscriber retention remains strong throughout the year with Grand Slam Tennis, rugby and UEFA competitions as well as strong H2 entertainment slate with Stan exclusives and Stan Originals leading the H2 entertainment performance. Stan introduced advertising to Stan Sport with the Lions Tour and also recently implemented a $5 price increases at Stan Sport following the acquisition of English Premier League and other football properties from Optus Sport.

Turning now to Page 17. I thought it was worth highlighting some of the key metrics and strategic achievements of the Nine Publishing group. We're really pleased with the performance of our Publishing businesses, both in FY '25 and over the past few years. We have now reached a point where digital subscription revenue growth is exceeding the print decline and in fact, ex Meta, total revenue growth from digital more than offset the impact of print. Over the past 3 years, our Metro business has recorded double-digit growth in digital subscription revenues, a testament to our content strategy, while we have marginally reduced costs. In FY '25, our EBITDA margin of 33% is as good as any major publisher worldwide. It is something we are proud of and a base with which we are committed to continue to grow. To this end, over the past 6 months, we have continued to invest in our technology and product, launching vertical video shorts and interactive story formats, while we've also launched incremental premium content through good food and digital puzzles, all designed to underpin future subscription revenue growth. Our newsrooms are now structured around digital first, and we have utilized AI features for using content management and personalization. Drive through focused business has underpinned marketplace revenue growth of more than 100% through growth in listings and audience.

In terms of results, Publishing reported revenue of $526 million and a combined EBITDA of $153 million, which was flat on FY '24. This result, which includes the impact of the absence of Meta revenues, was a testament to the value of Nine's premium content, the strengths of the group's subscriber base as well as the work we have done to realign and refocus the cost base. This result also included a single-digit million-dollar adjustment to defamation provisions relating to the case brought against Nine by Ben Roberts-Smith. Nine.com.au and Pedestrian were impacted by recent restructurings with lower revenue more than offset by reduced costs. We continue to be positive about the outlook for Drive, which grew its revenue by 15%, underpinned by a marked increase in listings revenue, a key part of Nine's investment in Marketplaces. On Page 19, we take a closer look at our masthead business. We were very pleased with our digital subscriber performance both in terms of subscriber numbers and ARPU, resulting in digital subscription revenue growth of around 15%. Increases in subscriber numbers and price at The Age, the Sydney Morning Herald and the Australian Financial Review more than offset the decline in print mastheads sale revenue. Nine's Metro mastheads were, however, impacted by the softness in the broader advertising market. Print advertising declined by 10%, reflecting softness in travel, retail, luxury and education. While the digital advertising revenue decline of 5% was mainly reflective of weakness in programmatic. With a growing registered user base and the data-based opportunities around deeper advertising integrations, Nine is focused on incremental advertising opportunities going forward. Strong cost management at the mastheads helped reduce costs $18 million or 6%. Across the year, the cost focus yielded benefits mainly across people and printing and distribution. The mastheads of continued targeted investment in our key growth areas focused on ensuring a recent audience and subscription strength is maintained. Turning now to Audio. After a strong rebound in H1, H2 profits from Audio were impacted by a loss of advertising revenue share in a market which was broadly flat. Digital revenues remained a positive with growth of 31%. Reflecting on this result, Nine has announced a new commercial structure from 1 July. This increased focus on direct sales allows Nine to both play to its strengths of scale and reach across platforms while providing greater capability to unlock more advertising opportunities in what talk radio does best, live, local and deeper brand connections with listeners. Turning now to Page 21. With the completion of the CoStar takeover earlier this week, Domain is no longer required to file detailed accounts with ASX in FY '25. The 7% growth in EBITDA included a flat second half result as the listings market softened and cost normalized. In FY '26, Domain will be treated as a discontinued business, so it won't be included in our reported results again. We've included a pro forma P&L for Nine ex Domain in FY '25 in Appendix 4.

I'd also like to say a few words about the current regulatory environment. Australians have a deep connection with Nine. In an uncertain world, Australians are increasingly reliant on Nine to be informed. It continues to be a time of enormous change that's impacting every Australian, and local media companies are not immune from this. The Albanese government is largely continuing its regulatory agenda in the media and tech environment from the previous parliamentary term. It includes much needed reforms, such as the news media bargaining incentive and ex-ante laws for ad tech, both of which Nine fully supports. We are pleased the government continues to be committed to the news media bargaining incentive and look forward to the consultation paper, which we understand will be released soon. We are aligned with the PM on getting this done. And there are emerging threats to local media and journalism with generative AI platforms scraping our news platform to train their systems without Nine's permission or any payment. This too will require decisive political action to ensure that this theft cannot go on without consequence or commercial arrangement. Australians want to see firm and decisive action to support journalism and local media because of the fundamental role we play in our society and safeguarding our democracy. I'll now turn to current trading. We remain positive about the momentum in our business, underpinned by our core digital and subscription assets, which we expect will result in continued growth in EBITDA in H1 FY '26 on H1 FY '25. However, at this stage, we have limited visibility regarding advertising market conditions into H2 FY '26. The Paris Games last year have impacted on Nine's Total TV comparables in quarter 1 FY '26. In the first clean month of September, Nine is expecting total TV revenues to be broadly flat year-on-year, with double-digit growth at 9Now offsetting a low single-digit decline at Nine Broadcast TV. While the Total TV market remains very short, we're expecting quarter 2 to continue on broadly the same trajectory as September, reflecting on some anticipated impact from the recent interest rate cuts, the relatively soft comparables and number of briefs currently in the market. As 9Now grows in relative importance, expected to be more than 20% of Nine's Total Television revenues in FY '26 and as underlying free-to-air audiences remain resilient, Nine's confident in its ability to grow its Total Television revenues through the cycle builds. Cost comparables in FY '26 will be similarly impacted by the absence of the Paris Olympics, the inclusion of the Milano-Cortina Winter Games and the restructure of the operating model at 9Rush. On a reported basis, Nine is expecting Total Television costs to be down in the low to mid-single-digit percentages in FY '26 on FY '25. Excluding the impact of the FY '25 Paris Games, the FY '26 Milano Games and the 9Rush structure, Total Television costs are expected to be broadly flat in FY '26 on FY '25. Cost initiatives will continue through 2026 with underlying inflation and targeted investment in technology and content offset by ongoing cost efficiencies across the business. Boosted by the recent Premier League deal, FY '26 is expected to be another year of growth at Stan with revenue growth expected to more than offset higher costs. At Nine Publishing, digital subscription revenue growth is expected to continue in low mid-teen percentages in quarter 1 on pcp, while we intend to make further targeted investment in content and technology across both the mastheads and Drive to support our longer-term growth ambitions. Nine Audio's Q1 advertising revenues are expected to decline in the high single to low double digit on a percentage basis against an Olympic-impacted quarter 1 FY '25. Through 2026 and beyond, Nine will increase its focus on organic investment opportunities, focusing on further accelerating Nine's group strategy, using the power of the Nine Group to deepen our connection with audiences and advertisers by harnessing our unique data and premium content to drive growth. As we have demonstrated, particularly over these past 6 months, Nine is in a great position to capitalize on our assets whether it be our digital growth assets of the AFR, The Age, SMH and Stan or our Total TV assets, which have growing audiences. We continue to have to remind the market that across streaming and broadcast, Stan and Nine continue to command more TV screen viewing than any of the international streamers and free video channels. We are Australia's leading content provider across multiple platforms and have a great opportunity ahead of us. We own the preeminent content assets in Australian media, which are increasingly working together in ways that no one else can replicate, working together to maximize the breadth, depth and impact of our premium content, the uniqueness and usability of the associated data and the opportunities that presents to advertisers. We will continue to make and distribute the content which shapes Australia's culture and society. So now Graeme and I will take your questions. Operator, if you could pass through our first question. Thank you.

Your first question is from Eric Choi with Barrenjoey.

Do you mind if I ask 3, Matt and maybe 1 on cap management, 1 on Domain, 1 on Stan? Do you want them one by one, Matt, or at all at once?

Go one by one if that's okay.

Sure. Sounds good. Maybe on capital management, your gearing is about 1.3x now, but post the Domain proceeds, I think you'll be net cash, probably [ $200 million ]. Just wondering, does it make more sense to use those proceeds to [ shore up ] your share price first, maybe through buybacks before you'd ever consider M&A or maybe just to cover it off, that $200 million of cash also coincidentally matches Southern Cross' market cap, but should we ignore whatever we read in the Australian?

Good start, Eric. Thank you. Let's just go through. Look, we are, as I've just gone through, very focused on our core assets at this point in time. So look, we've had some good success over the last year, especially in the second half. So the program we've got, Nine 2028, is around both looking at our cost base and being more efficient there but also our revenue as well. So there's lots of revenue opportunities as well. And we're very buoyed by the progress we've been making, the growth in the additional video market, the digital subscriptions and the opportunities in marketplace is still that we have ahead. So I think that's where our focus is, I suppose to your point, and we'll see what happens to the share price from there. But that is our focus going forward. That's it. I think, look, on the second question, I think we don't react to market speculation as you can see. So that's not something that we put in the papers. I can tell you that for sure.

Got you. That makes a lot of sense, Matt. Just on Domain, if you chat to the industry, they're sort of saying Domain might have an extra $150 million to spend every year with CoStar and they might want to market Homes.com. Just thinking about it, like News Corp publications might not want to promote Domain or Homes.com. So just wondering if that bodes positively for NEC taking a portion of that $150 million?

Yes, I think potentially it does. I mean I think we've got very strong relationships. We obviously know them very well, domain. I mean, it's literally cut -- the transaction happens through today. So look, we think there's opportunities with Domain. We would be a natural partner for all marketplaces to be fair. And whether it's a top-of-the-funnel type advertising or actually more targeted advertising through referrals and content and so forth, we're very happy to work with them. Just to be clear, we haven't actually been able to sort of engage actually until about now really with Domain through this because of the process they've been going through. So we're really looking forward to working with Domain and others around opportunities we would have with them.

Awesome. And just last one on Stan, really good result. And I know there's rounding, but it looks like there was about 200,000 growth in the paying subs. I was wondering if you could split that between underlying versus EPL. And the reason I ask is, obviously, you're guiding to single-digit EBITDA contributions in FY '26. But if we think about it going forward, if that EPL cost base is relatively fixed and you've only transferred, say, maybe 100,000 subs versus an EPL viewing audience much larger than that, it would suggest that the EBITDA growth or leverage from EPL from FY '27 onward is much, much higher.

Yes. Look, it's not quite straightforward as saying we had 2.3 and we got a 2.5. There's a bit of churn that goes on there. For example, at the beginning of the year, we had a lot of uplift from the Olympics into Stan Sport. And then that obviously tails off through -- we would have had entertainment shows like Yellowstone come out, but then we've got Outlander come in. So there's a bit of mix that goes on with the cost base. Love Island was a good example of a good uplift for us. The Lions Tour was very strong for us, and I think the churn levels have been good through there. So it's a bit difficult to say that 200,000 that we've said is exactly to do with EPL. There's a number in there. I mean rough, rough, if you're thinking through, you probably -- is about right, but it's not exactly that. I think the opportunity, though, we're very pleased with where we are with the Premier League deal that we've got. And yes, I think as we go from '26 into '27, that will hold up our subs more but also importantly, hold up the ARPU of the business. So you think we moved our Stan Sport price from $15 to $20 because of the addition of the Premier League into that suite because we've got scale in that market now. So the scale of that -- of the Stan Sport is very sizable now, where we got Champions League. We got Premier League. We got all the tennis. We've got the Olympics. We've got the Winter Olympics coming. You've got the rugby, et cetera, et cetera. So we've got a -- the good thing for us about that win, if you like, was the fact that now Stan Sport is real a good scale player and a good opportunity for us.

[Operator Instructions] Your next question comes from Entcho Raykovski with E&P.