Nine Entertainment shares surge on guidance upgrade

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Nine Entertainment Co has told shareholders it expects a hefty boost in earnings for the first half of the financial year driven by a fresh round of cost-cutting and an unexpected recovery for the advertising market.

The television, radio and newspaper company flagged further cost cuts across its broadcast and publishing divisions on Thursday as it revealed events such as State of Origin and the NRL Finals had helped increase advertising revenue for the first quarter.

Nine CEO Hugh Marks said the company expects a 30 per cent lift in earnings pre specific items for the half year.Credit:James Brickwood

Nine is the owner of The Sydney Morning Herald and The Age. In early trading shares rose by as much as 8.5 per cent to $2.56, their highest levels since mid 2018.

"We are certainly trading more positively than we would have anticipated just three months ago
and are very pleased with the operating performance and trends in each of our business units," Mr Marks said. "Despite this, given our limited visibility on the second half advertising market, we do not believe we are in a position to provide guidance on earnings for the full year. We expect to be in a better position to address this at our half year results in February."

Mr Marks said he expects the advertising boost to contribute a 30 per cent increase in first half earnings before interest, tax, depreciation and amortisation pre specific items, compared to $251 million in the previous corresponding period.

Media companies like Nine, owner of this masthead, have had a difficult year because of a sharp fall in advertising spending caused by factors linked to the coronavirus pandemic. Nine renegotiated a new broadcast deal with the NRL while other companies such as Seven West Media and Southern Cross Austereo were forced to renegotiate deals with their banks. News Corp Australia, which owns The Australian, The Daily Telegraph and The Herald Sun stopped printing hundreds of regional and community newspapers.

Nine swung to a $575 million loss for the 2020 financial year and revenue slid 7 per cent to $2.1 billion due to the advertising market downturn.

Nine chairman Peter Costello said the challenges Nine had faced because of the coronavirus pandemic had made it clear the company needed to address long-term issues which were threatening its competitiveness.

"The first was sports rights," Mr Costello said. "There has been a tendency in Australia to think that the value of sports rights will always, and invariably, increase. In fact, the challenges of the COVID environment showed that, in some circumstances, that value has declined. We were forced to address this co-operatively with the NRL during the year.

"The other great challenge in this industry is the market power of the global digital platforms,
like Facebook and Google. If we are not adequately compensated, simply, it will become uncommercial to make all the premium content we now make."

Nine's virtual annual general meeting took place as streaming service Stan announced it had secured the rights to Wimbledon and Roland-Garros. Nine launched Stan Sport on Monday after acquiring the broadcast rights to the rugby union.

Mr Marks said television division costs are expected to be down double digits in the first half of the new financial year, but will spike due to the return of the NRL. Mr Marks said the television costs would be down 4 per cent overall for the full year.

However, he added the company will aim to reduce costs by $230 million from now until 2024. Mr Marks flagged $100 million in cost cuts to the television division in February but was forced to target $266 million in cost savings in the calendar year after the coronavirus caused large falls in revenue.

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