We saw contrasting 2015-16 results and outlooks for the next year from the Nine Network (NEC) and its new regional TV affiliate, Southern Cross Austero (SXL) yesterday.
The former reported, as expected, a weak profit and a gloomy outlook, while the latter was upbeat, predicting a solid rise in earnings in the June half of 2017, after a decent rise in profit for the year to June, 2016.
Despite the superior performance and more confident outlook, Southern Cross directors were far more circumspect that Nine’s board was when it came to dividends. Southern Cross’s dividend for the year is 6.5 cents a share, up a solid 12.5% with the final of 3.5 cents (up half a cent).
Nine boosted its payout 30% from 9.2 cents to 12 cents a share. Nine’s boost though came with the higher interim, the 4 cents a share final was actually down from 5 cents a share last year.
But Nine also hinted that the payout this year might be static to lower. Nine says the 2016-17 full year payout will be “at the lower end of the targeted 80%-100% payout range- implying no change in dividend if earnings do not improve, or a small fall if they go backwards.
Nine saw earnings head south as its “disappointing” ratings performance so far in 2016, weak revenues and one off costs ate into the bottom line.
The network had already warned of the likelihood of an earnings slide a few months ago and that is what was unveiled yesterday. Profit fell 7% to $120 million with earnings from television down 11% and digital profits up nearly 20%.
Nine’s overall revenue was down 6.5% to $1.282 billion, due to “challenging market conditions in free to air television and refocused digital business”, which is not expected to ease any time soon with Nine saying it expects to see the metropolitan advertising market to “be flat-to-down marginally over the full year”. (that was after a fall in the year to June 30).
Nine CEO Hugh Marks said in a statement: “The ratings and revenue performance of our core free-to-air business was disappointing in the first six months of calendar 2016, due to a combination of the challenging ad market and poor programming outcomes.”
In other words, Seven and Ten did much better than we did. And while Seven pointed to a 15% to 20% fall in earnings before interest, tax, depreciation and amortisation in 2016-17 because of higher sports rights costs, Nine was more circumspect about its outlook.
Nine didn’t give specific guidance like Seven did (although it too faces higher sports rights costs from the start of its new NRL broadcast deal next year). It did say it was investing in way more local production for the 2017 ratings battles,with a collection of new programs across most genres, it was expecting better returns from its digital offerings, including the Stan streaming video venture with Fairfax Media (in which Nine invested $37 million in the year).
But Nine will book a one off cost in this current half which will cut statutory profit. Nine said it had "reached in-principle agreement with Warner Bros to exit this arrangement, with formal contracts to be signed in the coming weeks. This agreement will require a further provision of $86m to be booked in the first half of FY17, the majority of which will be payable over FY18 and FY19. The agreement crystalises what would otherwise be a recurring liability, giving Nine certainty in relation to the obligation and increased flexibility in relation to future content spend”.
This means it will be spared the almost constant impairing of weak or poor ratings programs it had been forced to buy from Warner under the agreement. That will be a big load off the company’s finances. There was a $46 million charge in the 2015-16 financial accounts.
Southern Cross, CEO, Grant Blackley was far more upbeat and confident about his company’s outlook.
He’s the man most tipped to replace Hugh Marks at Nine if the Nine board decides that new blood is needed. Blackley used to run the Ten Network, so he has the big network experience needed at Nine.
Nine already owns 9.9% of Southern Cross (at a cost of $89 million) and moved to a regional affiliate deal mid-year replacing the one with Bruce Gordon’s WIN, which now has a deal with Ten. Southern Cross is still Ten’s affiliate in northern NSW).
Southern Cross said net profit rose 19% to $77.2 million and it expects “considerable growth”over the next year because of the impact of the affiliate deal with Nine. Revenue rose 5.1% to $642.3 million and debt fell to $340 million (down 33%). Nine also slashed its debt to $177 million from more than half a billion the previous year. Southern Cross boosted its 2016-17 profit hopes, with the company forecasting a 6% to 9% rise in EBITDA to a range of $177 million to $183 million for the full year, from $161.4 million for 2015-16.
First (December) half is forecast to end up in the narrow range of $92 to $94 million – hardly more than the $91.4 million achieved in the December, 2015 six month period, and that is normally sees the biggest earnings occur because of the December Christmas selling season).
This means Southern Cross is expecting a surge in earnings in the June 30, 2017 half year – which is normally the toughest time of the year for TV and radio companies. It clearly sees the benefit of the Nine affiliation deal lifting second half earnings next year.
Southern Cross shares jumped 14% to on the very upbeat upgrade and ended up 11.8% at $1.375, Nine shares rose a more circumspect 4%, but then fell to end the day up 1% at $1.03.
