U.S. Markets open in 5 mins

Edited Transcript of NEC.AX earnings conference call or presentation 20-Feb-19 10:30pm GMT

Half Year 2019 Nine Entertainment Co Holdings Ltd Earnings Call

Jun 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Nine Entertainment Co Holdings Ltd earnings conference call or presentation Wednesday, February 20, 2019 at 10:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Greg D. Barnes

Nine Entertainment Co. Holdings Limited - CFO

* Hugh John Marks

Nine Entertainment Co. Holdings Limited - CEO & Executive Director

================================================================================

Conference Call Participants

================================================================================

* Brian Han

Morningstar Inc., Research Division - Senior Equity Analyst

* Entcho Raykovski

Crédit Suisse AG, Research Division - Research Analyst

* Eric Choi

UBS Investment Bank, Research Division - Director and Australian Telco and Media Lead Analyst

* Fraser Mcleish

MST Marquee - Head of Australian Media, Online and Telecommunications and Telco & Media Analyst

* Lucy Huang

BofA Merrill Lynch, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Hugh John Marks, Nine Entertainment Co. Holdings Limited - CEO & Executive Director [1]

--------------------------------------------------------------------------------

Well, good morning, everyone. I'm Hugh Marks, the CEO of Nine Entertainment, and I'd like to welcome you to our company's FY '19 interim results briefing. Barnesy, our CFO, is also with me here today.

In terms of the agenda of this call, I'll touch on our operating results for the past 6 months before handing over to Greg to talk through the result in more detail. And I'll then speak further to the merger with Fairfax and the exciting strategic opportunities now available to Nine as a business and how current trading results are proving the model for the Australian media business of the future.

The slide on Page 4 illustrates Nine's suite of assets, all assets that benefit from working together and how we create and distribute content in our approach to the advertising market and our connection, most importantly, with audiences. Nine's content now reaches more Australians than that of any other Australian media company, and that scale will become more important as the advertising market continues to change, particularly given that our audiences are highly engaged and, in many cases, they have logged in to view our content. So not only do we have the capacity to take advertisers' messages regularly to mass audiences of 1 million people plus, but increasingly, we can customize that message in an addressable individual way, meaning we can extract a premium for our inventory.

The mix of Nine's business was fundamentally changing, and that changing mix was accelerated by the merger. And you can see in this latest result, as shown on Slide 5, around 54% of Nine's revenue was derived from the traditional broadcasting business. The remaining 46% of our portfolio comprising businesses in a clear, long-term growth phase: Stan, 9Now, Digital and Publishing, and Domain. This is a fundamental and a permanent shift in our business, and it's a shift that will continue to accelerate in the coming years. It's a shift from which Nine and our shareholders are well positioned to benefit into the future, the growth in our business coming from premium and addressable advertising, and subscription and transactional revenues. This growth will drive our long-term future.

We are managing our broadcast business for profitability, and we will continue to do so. In fact, all of our core wholly owned businesses of television, Metro Media and 9Now increased their operating margins this half, television, to its highest levels since relisting in 2013. And we expect this to continue.

At the same time, in the details of this result, we can clearly see the long-term growth trends in each of our nonbroadcast divisions: Digital and Publishing, Domain and Stan. And that is exciting for us.

Coming back to this result, it's certainly been a more difficult period for Free to Air in Australia, but Nine's share performance has been outstanding. Despite no summer sport in this half, Nine again attracted the #1 Metro FTA revenue share for the period. And this has helped to vindicate our decision to migrate from cricket to tennis at a reduced season cost of some $50 million to $60 million per year. Margin management in Free to Air television will be paramount to the future performance of the business, and Nine has proven its ability to invest in the type of content that generates the best margins.

Nine's Digital and Publishing business reported strong growth in revenues and EBITDA, up 39% for the period on a pro forma basis, driven by outstanding results from both 9Now and our Metro Media business. For 9Now, BVOD in Australia has continued to grow strongly, with industry revenues up 41% for the half and with 9Now continuing to outperform that market growth, increasing revenue for the period by 51%. Metro Media reported growth as digital continued its positive trajectory as the print side of business stabilizes, underpinned by strong readership and associated growth in subscription revenues. Strong margin management is also a feature of the Digital and Publishing business result.

We're very excited about the prospects for Domain. While listing volumes are lower in the key markets that impact the business today, underlying depth and yield improvements have largely offset market declines and will result in strong leverage when the cycle returns to normal. And Domain continues to invest in the long-term growth of its business, both geographically and through the expanding consumer solutions business. As part of the Nine Group, we expect this opportunity will be expedited.

And Stan, what a great period for subscriber ad Stan has had. Now at around 1.5 million active subscribers with content like Who is America, Younger and more recently, our local commission, Bloom, and of course the Disney titles, underpinning Stan's stronger subscriber growth period today. Stan will exit financial year '19 on a profitable run rate, meaning it is heading for its first year of annual profit in FY '20. We're more excited than ever by what Stan is achieving.

So certainly been a huge 6 months for Nine. We have really changed our game. We've changed the composition of our team and the size of the markets we are playing in. We have changed the profile of our business to enable us to focus on both top line and bottom line growth.

In an evolving media market, we have a unique suite of complementary assets, many of which, as I've said, are in growth phase, and all of which enhance our ability to create the best content and to leverage that content across as broad an audience as possible.

So at this point, I'll hand over to Greg to talk through the financials of the result in greater detail. Barnesy.

--------------------------------------------------------------------------------

Greg D. Barnes, Nine Entertainment Co. Holdings Limited - CFO [2]

--------------------------------------------------------------------------------

Thanks, Hugh. Good morning, everyone.

As you know, the merger between Nine and Fairfax was implemented on the 7th of December 2018. That obviously adds a lot of complexity to this set of results.

To simplify the presentation, I'm going to step through the statutory numbers very briefly before moving to pro forma results, which will be presented using our proposed segmentation for the merged business. A series of reconciliations are included in the appendices to assist you with your modeling.

So looking at Slide 9, the statutory results are there. These include the results from the traditional Nine business for the full 6-month period as well as results for Fairfax and Stan since the transaction was completed.

I should clarify that FY '18 comparisons don't have any contribution from either Fairfax or Stan.

You'll see that we've separated discontinued businesses as required under the accounting standards. This reflects our intention to invest -- to divest ACM, Stuff in New Zealand as well as events. Hugh will update you on these processes shortly.

On this basis, Nine reported group revenue of $710 million and net profit after tax and minorities of $109 million from continuing operations. We also reported net favorable specific items of $63 million, leading to a statutory net profit for the half of $172 million.

Slide 10 details the composition of specific items. Most are pretty self-explanatory, but I'm going to touch on the Stan adjustment for a moment.

Essentially in acquiring Fairfax and, therefore, 100% of Stan, we need to recognize a notional gain on sale before consolidating Stan into our results at fair value. This gain is effectively the current fair value of Nine's initial 50% equity interest in Stan relative to its book value.

Now turning to Page 12. From here on in, we are focusing on the pro forma group results, which are presented on a continuing business basis. We think this best represents the underlying performance of the group. The pro forma consolidated results for Nine, Fairfax and Stan for the full 6 months results exclude specific items. They also include actual synergies delivered in the period since the transaction was completed.

So on this basis, Nine reported revenue of $1.2 billion, down 3%, with group EBITDA of $252 million, up 6%.

I'll talk to individual performances in more detail in a moment, but in summary, the headline results reflect the profitable decision to move away from cricket, strong growth from the Digital and Publishing division as well as a marked improvement in Stan. Corporate costs also fell to $14 million as merger synergies began to kick in. Pro forma group net profit after tax was $126 million for the half, up 5% year-on-year. As a result, we declared a interim dividend of $0.05 per share, which will be fully franked. This is in line with last year, and we expect us to pay a similar level of dividend in the second half.

Now Page 13 illustrates the divisional results as we intend to report them in the future. You'll also find our results presented under the historic Fairfax and Nine structures in the appendices.

So we might go to Page 14. Nine's Broadcast division comprises our Free to Air business and the consolidated result of Macquarie radio. Together, they contributed around 54% of group revenue for the half, providing a well-established and stable call base from which the group can grow.

Macquarie radio reported last week, so I won't spend a lot of time here. In summary, the results demonstrate that the news talk network continues to outperform the broader radio market. Reported revenue was broadly flat at $68 million, while EBITDA of $15 million was down slightly reflecting the initial P&L investment in the sports radio network.

Now Page 15 steps through the performance of our television business. Television revenues were $564 million. Around $27 million of the reported revenue decline was attributed to the inclusion of an additional week and the NRL sublicensing in the comparable period. The balance reflects the absence of cricket revenues and a decline in the Metro Free To Air ad market of 5% over the half. Nine's share of the Metro ad revenues for the 6 months was 39.3%, which gave Nine the #1 market position for the period. As expected, premium revenues were lower due to the absence of any cricket-related spend. But ex sport, premier revenues were up 10%.

Free To Air costs were down by 13% or more than $60 million a year, the absence of cricket being the primary driver as well as our continued focus on costs generally.

So adjusting for the extra week in the prior period, EBITDA for the half was broadly flat, again highlighting our ability to manage the business through the cycle. Importantly, our margins improved by 1.6 percentage points to 28.6%.

So turning to Page 16. The Digital and Publishing business comprises Metro Media, 9Now and Nine Digital. Together, these contributed around 30% of group revenue and 23% of group EBITDA for the half. Importantly, we saw growth in both revenue, and particularly in EBITDA, which was up 39% during the period.

You can see a further breakdown of the Metro Media result on Page 17. Total readership of the group's mastheads grew strongly in the half, with 80% to 90% of audiences now consuming the digital editions. This audience strength contributed to improved results.

You can see here that Metro Digital revenues continue to grow. They grow strongly, up 12% for the period. We saw growth in both advertising and subscription revenues, and Digital now comprises around 35% of total revenues. At the same time, there's been a real stabilization in the print advertising side of the business, which now comprises less than 30% of Metro Media revenues and just 22% of new Digital and Publishing division.

Overall costs declined by 3% with a real focus on every line. The print sharing agreement with News was implemented late in the period, and we expect it to contribute around $8 million to Metro Media in the full year.

On Slide 18, you can see that 9Now continues to go from strength to strength. 9Now outperformed the market, with revenues of 51% in a BVOD market that was up 41%. This resulted in a market share of 47.5% for the period. As a result, 9Now delivered EBITDA growth of 54% compared to the same time last year. This is despite the timing benefit of nearly $1.5 million of costs in the prior period results, which were picked up in the second half of FY '18. Meaning that underlying profit growth was closer to 75%, and that's more reflective of 9Now's leverage to revenue growth over time.

Of course, Domain reported last week, and Page 19 summarizes these results.

All in all, given the cyclical property environment and Domain's exposure to the Melbourne and Sydney markets, it was a pretty solid result. The core business delivered flat earnings despite auction volumes being down around 20% in Sydney and in Melbourne. Domain's continued focus on growing users and engagement drove growth in this -- in its depth products and, therefore, in yield. As a result, Domain's digital revenue -- digital residential revenues grew by 9%.

Turning now to Stan, on Page 20. As Hugh mentioned earlier, it's been a very strong period for Stan, with active subscribers growing to around 1.5 million. Stan's leverage to subscriber growth is again evident with revenue growth of 50%, well in excess of cost which grew by 19%. This led to a significant improvement in operating performance and sets the business up for the second half and beyond.

Now before moving to discuss cash flows, I wanted to just flag appendix 6, which shows the results from the businesses that are held for sale, namely Stuff in New Zealand, ACM and Events. As you can appreciate, it's been a pretty tough period for these businesses with ACM impacted by the ongoing drought and Stuff by the current state of the New Zealand ad market. The outlook for the second half is better, which will include benefits from the printing deal with News Limited and other cost initiatives. Our view of value for these businesses has not changed.

Moving now to cash flows on Page 21. We provided an estimate of pro forma operating cash flows on a continuing business basis. In this slide, we have focused on the wholly owned business only so it ties into wholly owned net debt, which I'm going to talk to on the next slide.

In short, operating cash flow before accounting for the final payment to Warner Bros. of $33 million was $168 million or 91% of EBITDA before Associates. This again highlights the peaking of our working capital and would have been stronger had it not been for the catch-up payment in license fees for the prior year.

Now turning to Page 22. We've reconciled the net debt position for the wholly owned group, which we think is a more relevant measure. We have done this by working forward the combined opening debt of Nine, Fairfax and Stan of $101 million to a closing net debt of $228 million for the wholly owned business.

Before the operating -- beyond the operating cash flow movements, the combined business distributed dividends of $85 million to shareholders and acquired the minority interest in CarAdvice for $27 million. You can also see the $58 million in cash consideration as part of the Fairfax acquisition as well as transaction and restructuring costs incurred by both businesses.

So in summary, our balance sheet is in good shape. Our wholly owned business -- on a wholly owned basis, our leverage is about 0.6 of a turn of EBITDA. Our programming schedule rebuild is now behind us, leaving us with a more flexible cost base and more predictable cash flows. We have resolved a number of legacy obligations, and we expect our balance sheet to further strengthen as divestments are completed and synergies are delivered.

I'm going to leave it at that and hand back to Hugh and update you on the -- he'll update you on the merger and current trading. Thank you.

--------------------------------------------------------------------------------

Hugh John Marks, Nine Entertainment Co. Holdings Limited - CEO & Executive Director [3]

--------------------------------------------------------------------------------

Well, it's been 11 weeks since implementation, and I'm pleased to report that we are in excellent shape. All of our business units are running smoothly, and they're focused on their core deliverables. We're making good progress on how each of the businesses can work together to enhance the benefits from being part of the broader group. And in particular, I'm really pleased with the way all of our people have embraced the change and are focused on getting the most out of the opportunities that are presented.

As we updated in mid-December, the bulk of the originally cited cost synergies of around $50 million were pretty much achieved by implementation. Of the $35 million costs removed by Day 1, around half related to corporate functions, with the balance primarily sales and Digital and Publishing. We've spoken in the past about noncore assets, and you will have seen, as Greg mentioned, this result that the Community Media, New Zealand and Events businesses are all classified as assets held for sale. We have appointed Macquarie as our advisers, and we're well advanced in the process for each of these, all good assets in their own right but assets that we believe make more sense being run in another mix as part of a different portfolio mix. We are confident that there are attractive opportunities for each of these businesses as we stand here today.

This leaves us with our 4 key business units that, together, make up the new Nine group. Our broadcasting business remains central and comprises both Nine and our investment in Macquarie Media. Our Television business is operating in a market that is softer than we anticipated, but we've been consistently making the right decisions to maintain the profitability of the business for the long term, exiting higher-cost commitments for better-yielding outcomes.

We're improving our ratings while reducing our costs. In fact, Nine's start to 2019 has been its strongest in 10 years, and with the January revenue share of nearly 45% and an increase in our prime-time audience on Nine of more than 5% year-to-date.

Now note the prime-time revenue represents 72% of our television revenues, and this will be achieved in a year when we expect costs to come down by circa 4%.

Over the past 3 years, the cost base of our Free To Air business has declined by 18%, and our EBITDA is up by 34%. And importantly, there is still more work to do.

We have proven an ability to maximize our share through our focus on premium revenue and relationships with our advertisers and through our innovations in technology like 9Galaxy. Combined with our investment in Macquarie Media, our aim through the cycle is to hold the profitability of our broadcast business.

Now based on our current assumptions, in financial year '19, EBITDA from broadcasting is expected to be broadly in line with pro forma financial year '18, excluding the impact of the extra week.

Digital and Publishing is a business which we expect will be in consistently strong growth for the foreseeable future. In this result, we saw clear evidence of a print business which has successfully evolved into a digital publishing business, with strong subscription and digital advertising growth far outpacing what was a very modest decline in print advertising.

The innovative deal with Google underpins digital ad volumes and yield and is still in its early days.

9Now continues to outperform the growth of the BVOD market, a market which is evolving so quickly that ad revenues are struggling to keep up with subscriber numbers and usage. And as we saw with this result, on average, around 75% of incremental revenues flow through to group EBITDA.

Cost measures continue to be reflected in increased profitability across all of digital publishing, and we believe there is still more to be done as well as the benefit of the merged group synergies that will flow through, of course, over the next 2 financial years.

Next is Domain. With Nine's proven ability as a brand builder and Domain's position in the property vertical, we believe that together we have an amazing opportunity to take Domain to the next level.

This was a solid result for Domain, broadly holding profitability in a cyclically slow listing environment. When the cycle does turn, the leverage will be significant and will be further supported by the work Nine will undertake with Domain in the current calendar year. We expect to announce details of our initiatives with Domain over the next few months.

And finally, Stan. Stan gathered momentum across the half, accelerating into summer, supported by a growing catalog from multiple international suppliers and with strong domestic commissions. This has driven record subscriber take-up and enabled us to lift prices. As a result, we have more than made up the incremental costs of the broader content slate on offer, and the business is expected to move into profitability next year.

Adding all these together, 9Now comprises a core broadcast business with improving margins, supporting 3 businesses with strongly positive growth prospects over the next few years.

So in terms of the FY '19 result, Nine is expecting to report pro forma group EBITDA on a continuing business basis of at least $420 million, which equates to growth of at least 10% from the FY pro forma base -- FY '18 pro forma base of $385 million. And it's expected that positive momentum will continue at the group level in financial year '20.

So I think I've probably said enough. So maybe we will open the lines now -- well, not maybe. We will definitely open the lines to questions.

I hand over to the operator, thanks.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from Eric Choi with UBS.

--------------------------------------------------------------------------------

Eric Choi, UBS Investment Bank, Research Division - Director and Australian Telco and Media Lead Analyst [2]

--------------------------------------------------------------------------------

So I just had 3, and apologize if I missed anything [that's relating] this result. The first question just in your FY '19 outlook. Have you commented on what the assumptions around TV market growth and Nine's market share is? That's the first. And then just secondly, it looks like you're guiding to group earnings being sequentially down about $80 million to $90 million, second half versus first half. And given you've given us broadcasting outlook as well, it looks like you're guiding for broadcast to be roughly around that same amount. And so do you think digital and Stan would likely be up sequentially? So does that mean that you're factoring Domain to be down sequentially? And then just the last question with the asset sales. Just wondering once you complete them, what's the preference with respect to sort of user proceeds? Would it be returning it to shareholders or would it be sort of increasing new stakes in things like MRN and Domain?

--------------------------------------------------------------------------------

Hugh John Marks, Nine Entertainment Co. Holdings Limited - CEO & Executive Director [3]

--------------------------------------------------------------------------------

Well, maybe I'll take question 1. Greg, you might take question 2. Look, in terms of question one, certainly, what we found was that the ad market that we experienced through that first half has continued into the quarter that we're in at the moment. We still believe that's actually improved a bit, and we still believe that we will see further improvement into the fourth quarter. We've actually found that our revenues, Nine's revenue, we're anticipating, in fact, revenue growth of about 3% year-on-year in the quarter -- in this March quarter that we're in at the moment. So the market conditions have continued, stabilized, and we still expect to improve going into the election cycle and to the end of year.

--------------------------------------------------------------------------------

Greg D. Barnes, Nine Entertainment Co. Holdings Limited - CFO [4]

--------------------------------------------------------------------------------

Yes, okay. And on question 2, Eric, I have got the guts of the question. I mean -- I think our guidance, if you have a look at the ASX statement in the slide, it'll be relatively clear. We are guiding to 10% growth year-on-year at least, and that's north of $420 million EBITDA on a pro forma basis. Your question specifically around broadcast, I think we've probably been -- in television, I think we've probably been more specific there than anything, actually. If you look at it -- we're looking at a pretty, well, stable business year-on-year from an EBITDA perspective, adjusted for the additional week. So that will give you a good read-through there. The business did about $238 million of EBITDA in television last year, so that will give you a good guide. And then Domain. Look, Domain, there's invariably a little bit of uncertainty around the market, but it was rough guide. I think, what we saw in the first half is a reasonable steer in the second, and that's how we think about the business in the next 6 months. And then you asked a question, question three, which I didn't quite get. But it was about asset sales. And I think you were referring to what we might do with the proceeds? Was that the question, Eric?

--------------------------------------------------------------------------------

Eric Choi, UBS Investment Bank, Research Division - Director and Australian Telco and Media Lead Analyst [5]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Hugh John Marks, Nine Entertainment Co. Holdings Limited - CEO & Executive Director [6]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Greg D. Barnes, Nine Entertainment Co. Holdings Limited - CFO [7]

--------------------------------------------------------------------------------

So look, it's -- at the end of day, it's early days. I think the comment I would make is we have got a strong balance sheet and that balance sheet is going to continue to strengthen as we sort of work through our working capital cycle. I mean, any proceeds there just further strengthen that balance sheet. Well, let's just see how the sale process pans out. I think we'll have a lot of clarity by the time we're sitting here again in August, and we'll be able to give you a steer then. But I think the key message I'd give you is we've got a very good balance sheet. It's strengthening, and this will give us even further flexibility and optionality once we have clarity on the process and how it's going to play out.

--------------------------------------------------------------------------------

Hugh John Marks, Nine Entertainment Co. Holdings Limited - CEO & Executive Director [8]

--------------------------------------------------------------------------------

Yes, and in terms of market share, Eric, again, we've started with our strongest rating period that we've had in a decade. And that will certainly enable us to continue to pick up short-term money and will certainly benefit quarter 4 and the year beyond. So we're expecting -- and obviously, we've got [no comm] games in the comparable period and no Winter Olympics in February. So we're expecting to continue to increase our share through this half.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

Your next question comes from Lucy Huang with Merrill Lynch.

--------------------------------------------------------------------------------

Lucy Huang, BofA Merrill Lynch, Research Division - Analyst [10]

--------------------------------------------------------------------------------

I just have a couple of questions. Firstly, you guys are guiding to a 4% decline in Free To Air cost, so that's improvement on your previous guidance. Just wondering where these cost savings are coming from. And then secondly, in terms of Metro Media, just wondering if you can provide an indication as to how the digital subscriptions are tracking, and in terms of the cost base, whether there's further scope for cost reductions to come through, particularly with like the deal that you're doing with News Corp. And then thirdly, just in relation to Stan. Just post Christmas season, are you seeing a level of churn happening with subscriptions? And then in terms of the next 6 months, what kind of level of investment are you expecting to stay into content?

--------------------------------------------------------------------------------

Greg D. Barnes, Nine Entertainment Co. Holdings Limited - CFO [11]

--------------------------------------------------------------------------------

Okay, maybe I'll take the 4% costs. You want me to kick off?

--------------------------------------------------------------------------------

Hugh John Marks, Nine Entertainment Co. Holdings Limited - CEO & Executive Director [12]

--------------------------------------------------------------------------------

[Go for your life.]

--------------------------------------------------------------------------------

Greg D. Barnes, Nine Entertainment Co. Holdings Limited - CFO [13]

--------------------------------------------------------------------------------

So 4% cost reduction in television. Look, we just continue to work every line there. We've obviously saved a chunk of money and increased the flexibility of our spend going forward by moving beyond cricket to tennis, and we're really happy with how that sport launched as seen this year. We continue to work out lower cost per hours through programming, and operationally, we're working through every single line. So I wouldn't highlight one specific thing. I think like everything in these sort of businesses, it's around the margins where we're just eking out 1% here and there, and the business is very, very focused on it. And we've -- look, we've scaled back some things in the, I guess, corporate team and things like that is probably the other area where -- in the sort of divisional corporate team where we've been able to take cost savings as well. So that was the first question. The second question was on Metro Media. So I think you asked 2 questions around subscription and then cost base there and what the News Limited deal can do. So I might answer second and let you talk to subscription. So News Limited, the deal with -- the print deal with News, I should say, the outsourcing arrangement, is effectively going to deliver around $8 million of cost savings for the year. It was pretty late in this period where we launched into that arrangement. So you can assume $2 million to $3 million in the current half EBITDA result, with the balance to flow through in the second half. And Hugh, you might want to touch on subscriptions and how they're progressing?

--------------------------------------------------------------------------------

Hugh John Marks, Nine Entertainment Co. Holdings Limited - CEO & Executive Director [14]

--------------------------------------------------------------------------------

Yes, and Stan. And I think the other thing about costs, obviously, Lucy, is we did change out of cricket into tennis, so we'll go over the full year, of course, at a much lower cost base. And of course, that has an impact in revenue in the first half, but we say and found -- and as we've said publicly, that we sold our tennis commitment very well this year, in fact, $45 million that we wrote into tennis. And we actually also slightly grew audience, and as importantly, grew our digital audiences. So we're expecting that tennis revenue to continue to increase in the coming years. In relation to digital subscriptions, I think the Metro Media business had a really good half. As you can see from the results, an increase -- I think was about 13% in subscriptions and it's a real focus under the merged business. And in fact, you'll see out in the market, I think, started yesterday, a marketing campaign for the Metro Media business and a continued focus on driving that subscription line. So it will certainly be a focus for the business in this half and beyond. And I think the really interesting thing about Stan in this half is, as we sit here today, Stan's actually a bigger business than we anticipated and is driving greater revenues than we anticipated. So we've been able to increase our content commitments, obviously, including things like the Disney deal. But we've been able to increase our subscriber growth, and our revenue's bigger than what we anticipated. And that's what's really driving that turnaround into profitability, in addition with the price increase that has just gone through the market. We do have costs to anticipate. It was a huge period of growth over summer, and we've put through a price increase as a result. We do anticipate some churn over the course of the coming months. But what you're seeing is actually we're getting the operating leverage starting to come through in that business, and it was really important that we delivered on that commitment to get into profitability. So Stan, as we stand here today, is a bigger business and more successful than we would have anticipated even 6 months ago. And we've been able to make those decisions to actually increase its scale, but at the same time achieve profitability. And that has been a really outstanding result.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

Your next question comes from Entcho Raykovski with Crédit Suisse.

--------------------------------------------------------------------------------

Entcho Raykovski, Crédit Suisse AG, Research Division - Research Analyst [16]

--------------------------------------------------------------------------------

I've got 3, hopefully, fairly straightforward. Firstly, just wanted to understand what synergies you've got factored into the FY '19 guidance. Is it about 7.5 -- sorry $17.5 million, so sort of half of that $35 million run rate?

--------------------------------------------------------------------------------

Greg D. Barnes, Nine Entertainment Co. Holdings Limited - CFO [17]

--------------------------------------------------------------------------------

We'd hope to do a little bit better than that, actually, but that's not a bad guide.

--------------------------------------------------------------------------------

Entcho Raykovski, Crédit Suisse AG, Research Division - Research Analyst [18]

--------------------------------------------------------------------------------

Okay. And secondly, just your comfort level around the positive Stan contribution in the FY '20? I mean, still, for the time being, obviously, it's loss-making at the EBITDA line. You've talked about leverage. But are there any swing factors that need to go your way to get to that positive EBITDA number?

--------------------------------------------------------------------------------

Hugh John Marks, Nine Entertainment Co. Holdings Limited - CEO & Executive Director [19]

--------------------------------------------------------------------------------

Look, Entcho, we're seeing it come through already as we stand here today. We've seen, obviously, a significant decrease in the amount of money that Stan's had to draw. I think, in this half the loss will be -- we're talking low single digits or...

--------------------------------------------------------------------------------

Greg D. Barnes, Nine Entertainment Co. Holdings Limited - CFO [20]

--------------------------------------------------------------------------------

It'll probably be half of what you saw in the first half.

--------------------------------------------------------------------------------

Hugh John Marks, Nine Entertainment Co. Holdings Limited - CEO & Executive Director [21]

--------------------------------------------------------------------------------

Thereabouts. So we're seeing that leverage come through. And we're seeing the revenues and the paying numbers come through. We're seeing the subscriber numbers, Stan, even with that growth that it had, and with the price increase still adding net subscriber's week-on-week. So really, our level of confidence about that FY '20 number is high.

--------------------------------------------------------------------------------

Entcho Raykovski, Crédit Suisse AG, Research Division - Research Analyst [22]

--------------------------------------------------------------------------------

Great. And a final one for me. Significantly improving trends in Print and Metro Media. I know it's a smaller part of the business now, but what's driving this?

--------------------------------------------------------------------------------

Hugh John Marks, Nine Entertainment Co. Holdings Limited - CEO & Executive Director [23]

--------------------------------------------------------------------------------

I think with everything. We're a content company. I think over the last 18 months under the guidance of the Fairfax team and Chris Janz and the editors, they've really been focused on creating great content, sort of #1 of our mantra. And I think that's coming through as you sort of experience the mastheads as a consumer. So I think that's working. That's resonating with audiences. We're seeing growth in audience consumption. And of course, with that growth leads into consumption, with the great sales of our business. And again, being part of the bigger Nine group, we're able to contribute to -- and this is, of course, still early days, so it'll come through in the half, and next year, we're able to continue to -- the revenue proposition for those business is well based on those audience results. So all in all -- and you're getting growth in subscription. So all in all, there's really positive developments coming through in every aspect of that business, from creativity to the quality of the product to the quality of the digital experience to digital subscribers. And again, Nine will be able to contribute to the ad revenue component of that business as well. So it is a small part of that Digital and Publishing business. And I think the things that we've tried to really get people to focus on and that we're very focused on, if you think about it this way, roughly 22 -- I can't remember the exact percentage of that business, is print advertising. So the rest of that business is digital revenue. And Digital revenue -- every line of that digital revenue, including 9Now, is growing. So that business has very strong fundamentals as it goes into the future.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

Your next question comes from Fraser Mcleish with MST Marquee.

--------------------------------------------------------------------------------

Fraser Mcleish, MST Marquee - Head of Australian Media, Online and Telecommunications and Telco & Media Analyst [25]

--------------------------------------------------------------------------------

Can you just comment on the sort of timing of the price rise and why you thought it was the right time now? And are you going to sort of put most of that back into content for the next phase of subscriber growth? This is my first question. Next one, just on the sale of assets. From press reports, it sounds like a lot of interest in regional and then the Events. But can you just comment on New Zealand and what your options might be for that, please? And then just one, Greg. Just on the D&A, $40 million, I think, for the half, which was a bit low, I thought. Is that a good guidance for the full year?

--------------------------------------------------------------------------------

Hugh John Marks, Nine Entertainment Co. Holdings Limited - CEO & Executive Director [26]

--------------------------------------------------------------------------------

In terms of Stan, Fraser, look, I think we certainly saw strong growth, and our research showed great positive research goals for Stan as a result of the programming. We knew we were still behind Netflix in terms of its pricing in market so we thought it was the right time for us to start to go, "You know what, our product is, we will argue, in some respects better, but at least the equal of the Netflix product in market and we should be matching them in terms of price." And certainly, the results that we've seen through that process are very encouraging. So certainly, for us, with that growth that we had over summer and with the underlying, I think, what we perceive to be the quality of the service, seem like the right time to do something that we'd always planned on doing. It was just a question of whether it was 1 month or another month or a bit later. So that was in relation to Stan. In terms of your second question...

--------------------------------------------------------------------------------

Greg D. Barnes, Nine Entertainment Co. Holdings Limited - CFO [27]

--------------------------------------------------------------------------------

Asset sales in New Zealand.

--------------------------------------------------------------------------------

Hugh John Marks, Nine Entertainment Co. Holdings Limited - CEO & Executive Director [28]

--------------------------------------------------------------------------------

Look, there are number of parties -- put aside the Events business. I think we had 20 parties looking at that business. We're pretty close now to proceeding, I think, with a few of those through to the final due diligence period. In terms of community media, obviously, there's a long list of potential parties there. But there will be some that will be very focused on what the opportunity is, which is effectively to do in regional Australia what we're experiencing through this result in Metro Media. So to take more than one ad line to combine that as a product to market ease for advertiser in getting their message across in the market while not having to book through too many sources. We will see that to continue to be a development in the market, and that's where parties with a biggest scale to market will really start to benefit. So there's a number of parties, obviously, line up New Zealand. Pretty much a similar list with some different players. We'll look at New [Zealand area,] is in the ACM business. And we've gone through a lot of work, and Macquarie being really helpful with this to help us really build what looks like a sustainable 3-year -- 3- to 4-year EBITDA and cash flow forecast for those businesses. And as we've done that, again, we can see things happening in those businesses similar to the Nine business, where we've got some digital revenues coming through, New Zealand probably has a stronger digital component than the community media business in Australia, so those things give us great confidence that there will be interest in both businesses. And as we stand here today, I expect that to be the case.

--------------------------------------------------------------------------------

Greg D. Barnes, Nine Entertainment Co. Holdings Limited - CFO [29]

--------------------------------------------------------------------------------

And depreciation. To your third question, yes, I think that's a reasonable guide. If you think about a lot of our CapEx investment these days is in technology and developing our webpages and 9Galaxy and things like that. So they have a shorter useful life. So you'll probably see depreciation tick up a little bit, but I don't think it's material. I think $40 million is a good guide.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

(Operator Instructions) Your next question comes from Brian Han with MorningStar.

--------------------------------------------------------------------------------

Brian Han, Morningstar Inc., Research Division - Senior Equity Analyst [31]

--------------------------------------------------------------------------------

I wanted to ask about the impact of election spending this time around. With all the BVOD and secondary channels that you have, would there be a change in the way you manage inventory and yield so as to better handle the crowding out impact of election on normal ad spend?

--------------------------------------------------------------------------------

Hugh John Marks, Nine Entertainment Co. Holdings Limited - CEO & Executive Director [32]

--------------------------------------------------------------------------------

Look, it's an interesting question. We certainly haven't seen, apart from -- pardon me, United Party, we haven't seen a lot of activity in the market to this point. I think we started to see some bookings start to come through, I think, over the course of the last week. But it's still early in that lead up to an election probably as we will anticipate in May. How will we handle the inventory? As much as we would like to be able to designate to advertisers about where they should book, we're still obviously responsive to what they see as the best results for their business. You will see -- and I think, particularly with our 9Now, because we can do addressable advertising, I think you will see some more election advertising on 9Now as people start to target. And of course, we will try and get a better yield for the targeting certain demographics or, in fact, certain regions, which again we can do through 9Now. So yes, the yield at 9Now has been what we've found to be generally -- put aside the election advertising, generally the really positive development, specifically for Nine over this period. And that will certainly continue to play out in this next half. I still think that we're a little way away, so that is why it gives us confidence about that fourth quarter. We will see some more of that revenue start to come into the market, which has been softer and -- due to a range of factors, which I think are fairly well known, from the housing cycle to a slightly weaker consumer demand.

--------------------------------------------------------------------------------

Greg D. Barnes, Nine Entertainment Co. Holdings Limited - CFO [33]

--------------------------------------------------------------------------------

I think maybe just to add to that. Just thinking beyond the election. Some of the investment we've been doing around 9Galaxy enables the television sales team to also -- all the agencies to trade through 9Galaxy for 9Now, which is really going to help underpin what we've seen as great growth out of 9Now. So it's something that will underpin that growth in the future. It's going to be the ability to sell some of that inventory because the sell-through rates -- there's still inventory to be sold. So I think that's a real development there that will underpin growth from that part of the business over time.

--------------------------------------------------------------------------------

Hugh John Marks, Nine Entertainment Co. Holdings Limited - CEO & Executive Director [34]

--------------------------------------------------------------------------------

Certainly, with Married At First Sight, when you've got 500,000 or 600,000 streams coming through every day. So we're certainly delivering a lot of available inventory into the market at the moment.

--------------------------------------------------------------------------------

Greg D. Barnes, Nine Entertainment Co. Holdings Limited - CFO [35]

--------------------------------------------------------------------------------

Absolutely.

--------------------------------------------------------------------------------

Brian Han, Morningstar Inc., Research Division - Senior Equity Analyst [36]

--------------------------------------------------------------------------------

Okay. And just one more question. On the price increase and the imminent profitability of Stan, does that mean you think some sort of competitive equilibrium has been reached in the SVOD market and that you're not concerned about what Foxtel and Amazon might come up with in that space going forward?

--------------------------------------------------------------------------------

Hugh John Marks, Nine Entertainment Co. Holdings Limited - CEO & Executive Director [37]

--------------------------------------------------------------------------------

Look, I think, [age] service is different. Amazon, I think, is a bit of a different operation. That's really part of a broader product list, generally, the way Amazon operates around the world. And you'll see that in Australia, but I think not yet. In terms of Foxtel, look, they're really going down a slightly different path. They are really focusing on their core product, and you're seeing that with the new Foxtel marketing that's coming out into the market quite recently, and the launch of Kayo, which is a higher-priced, but very focused sports streaming service. Excellent service but at the 25 point price -- $25 or $35 price point, a different service to what these streaming services are. So what you're finding -- and we saw this in the States and we're seeing it in the U.K., we're seeing it in the international markets, consumers are getting pretty good at packaging together the sorts of services they want to get a full entertainment proposition at home. Now Stan, the investment that's being made is Stan as a brand. That's what the audience resonates with. We've got very good at really understanding what content makes that great service and represents that brand, but it is Stan as a brand that consumers are buying. So it's got a very strong position in market. As I said, its research goals are very high. It's well managed by a great team, and we're really confident. Basically, every result that we've come to market, Stan is out-achieving where we thought it would be. So I don't really -- Amazon, I think, is a different thing. I don't -- I wouldn't get too confused by that. Foxtel, again, very focused on what they do well. I think the SVOD market at present, and this is the great advantage we have, is Netflix and Stan together.

--------------------------------------------------------------------------------

Greg D. Barnes, Nine Entertainment Co. Holdings Limited - CFO [38]

--------------------------------------------------------------------------------

And just remember, Brian, just on Stan, in terms of where we've increased prices, it does trade -- it has sold at a discount to Netflix, and I think when you look at the subscriber growth and the depth of content now on that business. What we're really doing is closing that pricing gap. This isn't anything more than that. So I think there's real confidence around the business and a real belief that price increase can be sustained and with relatively minimal impact on churn.

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

There are no further questions at this time. I'll now hand back for closing remarks.

--------------------------------------------------------------------------------

Hugh John Marks, Nine Entertainment Co. Holdings Limited - CEO & Executive Director [40]

--------------------------------------------------------------------------------

Okay. Well, everyone, thank you that -- for that. That wraps up our interim year results briefing.

I'd like to thank you all for your continued interest in Nine, and of course, we look forward to reporting back to you at our next results in August.