The Nine Entertainment Co Holdings Ltd (ASX: NEC) share price has responded poorly to the release of the company's full-year earnings report for the 2020 financial year (FY20) this morning. At the time of writing, the Nine share price is down 3.4% to $1.70 after closing at $1.76 yesterday.
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What does Nine Entertainment do?
Nine is a diversified media conglomerate which owns the Channel 9 television channels and assets, as well as the 9Now online streaming service. The company also owns the old Fairfax Media Group, publisher of several newspapers such as The Sydney Morning Herald, The Age and The Australian Financial Review. Additionally, the company owns the Stan streaming service as well as a 60% chunk of Domain Holdings Australia Ltd (ASX: DHG).
What did Nine report this morning?
It was a mixed bag of results for Nine in FY20. Revenues were up 17% from FY19's $1.848 billion to $2.171 billion for FY20.
Group earnings before interest, tax, depreciation and amortisation (EBITDA) growth were also positive, coming in at $396.7 million, up 13% from $349.9 million in FY19. However, the earnings before tax and depreciation (EBIT) metric was down 11% to $246.8 million. Basic earnings per share (EPS) were also down, falling 37% from 13.1 cents in FY19 to 8.3 cents for FY20.
That saw group net profits after tax fall 17% from $187.1 million in FY19 to $155.9 million for FY20.
Of Nine's different groups, Broadcasting, Digital & Publishing and Corporate, all fell in terms of the percentage of contributing revenue. In their place, the Stan and Intersegment divisions rose in their revenue contributions. Revenue from Stan, in particular, was impressive, growing 54% from $157.1 million in FY19 to $242.1 million for FY20. In FY20, the company reported that the combined contribution from Stan and 9Now, as well as the digital components of Domain and Publishing, grew by 40% to roughly 48% of the company's total EBITDA.
The company noted that "advertising markets across all mediums were significantly impacted by COVID-19 from March 2020 onwards". In response, Nine implemented a "$266 million cash cost out program" over the 2020 calendar year.
Turning to dividends, Nine has announced that a final, fully franked dividend of 2 cents per share will be paid on 20 October (down from 5 cents per share in FY19), which takes the total dividends for FY20 to 7 cents per share. That represents a payout ratio of approximately 80% of net profits after tax, at the top of Nine's 60-80% payout ratio target band.
FY21 outlook
Nine hasn't provided any concrete guidance for the 2021 financial year but does note the following: "Whilst advertising market conditions remain challenging through the start of FY21, the market is performing ahead of earlier expectations and appears poised to recover when the COVID conditions stabilize."
Nine also informed investors that it expects free to air (FTA) revenues to "be down ~15%" in the September quarter, accompanying a ~5% decrease in costs.
However, Nine does expect the Broadcast Video on Demand (BVOD) market to "continue to grow in FY21" after the company experienced 13% and 30% growth in June and July respectively.
