create distribute engage ifc The Year in Brief 2 Chairman’s Address 4 Chief Executive Officer’s Address 6 Divisional Results 8 Operational Review 16 Nine Cares create 17 Governance 18 Board of Directors 20 Directors’ Report distribute 25 Remuneration Report 44 Operating and Financial Review 48 Financial Report engage 108 Shareholder Information ibc Corporate Directory During FY17, Nine achieved its goal of turning the Network performance around, after a disappointing year in FY16. Momentum in Free To Air TV turned positive for Nine in Q2, and this improvement continued throughout the remainder of the financial year. The success of Nine’s broadcast content has, in turn, driven take-up and use of 9Now which has grown exponentially to over 4 million registered users, and is becoming a valuable contributor to the P&L. Nine’s Subscription Video on Demand platform Stan, has matured significantly over the past 12 months and now holds a clear number 2 position in the market. Nine’s digital publishing business has been successfully repositioned post the Microsoft relationship, laying the foundations for growth into the future. All of Nine’s businesses are built around the key content verticals of news, sport, lifestyle and entertainment. Result In Brief In FY17, on a revenue decline of 4%, Nine reported Group EBITDA of $206 million, up 2% on FY16. Driving this growth was an underlying cost decrease of 1%, and a reported cost decrease of 4% which included the Government regulated licence fee relief of $33 million. Net Profit after Tax increased by 3% to $123.6 million compared to the Pro Forma FY16 result. Earnings per share similarly increased by 4%. The Statutory Net Loss after Specific Items, which were predominately accounting-led and non-cash, was $203 million. $m FY17 FY16 Variance Revenue 1,237.8 1,282.4 -3.5% Group EBITDA 205.6 201.7 +1.9% NPAT 123.6 120.3 +2.8% Statutory NPAT, after Specific Items (203.4) 324.8 nm Operating Free Cash Flow 117.8 157.4 -25.2% Earnings per Share, before Specific Items — cents 14.2 13.7 +3.7% Dividend per Share — cents 9.5 12.0 -20.8% Operating free cash flow for the year, before Specific Items, Interest and Tax, was $118 million. This was before the cash impact of the Warners provision ($48 million), but includes both the net impact of the NRL prepayment, as well as the cash costs of the ACMA licence fees, which were paid in H2 FY17 but related to the FY16 year. Net Debt at 30 June 2017 was $225 million – during the year, $74 million was returned to shareholders through dividends, $124 million was received via the sale of the Group’s stakes in Southern Cross Media and Sky News, and $91 million was invested in the business, including Stan and CarAdvice. Reported, as at 30 June 2017 30 June 2016 Net Debt, $m 224.5 177.6 +$46.9m Net leverage 1.1x 0.9x Interest Cover 36.7x 40.1x Highlights Broadcast Video on Digital Content Television demand Publishing Production Australia’s leading Unique mix of leading local Diverse portfolio of leading Television content production FTA network in the key advertising and subscription digital platforms across and distribution advertiser demographics based on demand television News, Sport, Entertainment services and Lifestyle Create great content Distribute it broadly Engage audiences and advertisers As the home of some of Australia’s most trusted and loved brands spanning News, Lifestyle, Entertainment and Sport, we pride ourselves on creating the best content, accessed by consumers when and how they want it to ensure they are entertained, informed and connected each and every day. Roll out of Ongoing Industry wide 9Galaxy, state of cost focus licence fee the art, automated reduction advertising platform Operational Highlights 2017 Launch of 4.3m registered Long form Video Launch of new #1 broadcast Australia’s users of 9Now streams up 114% lifestyle brand 800,000 network in 25-54 new sports across the year active users demographics phenomenon, of Stan (source: 12 months to June 2017, ex Olympics, 6am-midnight) Australian Ninja Warrior Highlights Broadcast Video on Digital Content Television demand Publishing Production Australia’s leading Unique mix of leading local Diverse portfolio of leading Television content production FTA network in the key advertising and subscription digital platforms across and distribution advertiser demographics based on demand television News, Sport, Entertainment services and Lifestyle Create great content Distribute it broadly Engage audiences and advertisers As the home of some of Australia’s most trusted and loved brands spanning News, Lifestyle, Entertainment and Sport, we pride ourselves on creating the best content, accessed by consumers when and how they want it to ensure they are entertained, informed and connected each and every day. Roll out of Ongoing Industry wide 9Galaxy, state of cost focus licence fee the art, automated reduction advertising platform Nine Entertainment Co. 1 Chairman’s Address The strategy of Nine is to `Create With the expected interruption of an Our company worked tirelessly with the Great Content. Distribute It Broadly. Olympic Games, the year got off to industry to support this comprehensive Engage Audiences and Advertisers’. This a slow start in audience terms but package. The formation of Think TV year, we have made a great deal of Nine won the first week out of the Rio was an important part of the successful progress in implementing that strategy. Olympics and continued to build its campaign. We are particulalrly pleased Our core broadcast television business ratings over the course of the year. to see the licence fee – a third layer of has delivered high ratings within the New programs such as This Time Next tax on Free to Air television - replaced confines of lower overall costs. Through Year, True Story with Hamish and Andy by a spectrum charge. New international the emergence and growth of our and Australian Ninja Warrior were players were not subject to this tax, and On Demand platforms, 9Now and Stan, well received. This performance also have shown they are adept at avoiding and our digital publishing portfolio, we expedited the take-up of our catch up other regulation that still applies to local are significantly broadening our reach. service, 9Now, with 4.3 million registered players. And great content has been a big part users now accounting for often more Free to Air TV’s competitive landscape of the reason why we are engaging than 10% of a program’s audience. is shifting, as the $6 billion video market broader audiences through our multiple Our Subscription Video On Demand evolves. YouTube, Facebook, Apple and platforms. service, Stan, has continued its steady Netflix as well as players like Foxtel march to break-even, with active all compete in this space. We intend subscribers growing 50% across the year. to compete with premium content Our video audiences are now being and provide a trusted and brand-safe accessed not only by the traditional environment for audiences. This is an linear broadcast but by subscription and important advantage for us. advertising video on demand platforms We are constantly reviewing the way as well. we remunerate and reward our people. In the August results, Nine reported Net Whilst there have been no substantive Profit pre Significant Items of $124 million, changes this year to our incentive and a full year dividend of 9.5 cents scheme, we continually accept feed-back per share, fully franked. This totalled from the market and our shareholders. $83 million, and equated to a payout We need to ensure the competitiveness ratio of 82% leaving aside the impact of of our employee compensation, to enable licence fee reduction, the cash benefit Nine to attract and retain a market for which will flow through to Nine at the leading team of executives, fit for the end of this calendar year. As we detailed modern media world, and competing for at our full year result, we expect to pay this key talent with large international a similar dividend in FY18 of around technology companies. Remuneration and 9.5 cents per share. On a longer term fitness for purpose in this environment will basis, we expect dividends will be in the remain a firm Board agenda through the range of 50-70% of Net Profit After Tax, next financial year. ex Specific Items, ensuring we maintain As I indicated at the last Annual General our strong balance sheet and have Meeting, during the year we looked flexibility to take new opportunities as at the remuneration of Directors. We they arise. bench-marked Directors' fees against From an industry perspective, the comparable companies. This had not most important milestone of 2017 been done since the original fees were was the passing of the Government’s set before our IPO in December 2013. Media Reform package. We commend As a result, Directors' fees were reduced the Government for persevering in by around 20-25%. It is of course, in all painstaking negotiations which have shareholders’ interests to remunerate the delivered a wide-reaching series of Board appropriately in order to attract reforms that will remove some of the the best calibre of Director – however, archaic barriers that have hamstrung the changing media landscape has the domestic industry for too long. resulted in all lines of our group costs Technology has changed the way being examined, and this new level is Australians consume their media. The more consistent with our media peers. passing of this package will allow Australian companies to make commercial decisions to embrace new forms of media and to take on international players that up until now were able to trade into the Australian market free of the constraints that affect local companies.