Analysis Of Nine Entertainment Co. Holdings Limited

Brief Summary – NEC Limited

This report provides a detail information about the whole analysis of Nine Entertainment Co. Holdings Limited. NEC is an Australia based media company involved in television broadcasting, internet, program production, subscription television and many other media sectors. The report contains a company’s overview in summarised form along with the details of its board of directors.

It also provides information about the financing and investing decisions taken by the enterprise during the year 2016-2017 along with the details of its external auditors. In the later part of the report, ASX CGC recommendations, key investors of the firm and the measures taken by NEC to maintain its ethical standards are discussed. In the last, financial analysis of the company is done using the technique named as ratio analysis followed by the conclusion.

Brief Summary – NEC Limited

Nine Entertainment Co. Holdings Limited. Is publically listed company operating its business is Australia. It was the successor of an Australia based media group named as Publishing and Broadcasting Ltd. PBL was created by Sir Frank Packer, who had developed the first TV network of Australia known as Channel 9. PBL was established in 2006 after the transfer of media interest to a new joint venture between CVC Asia Pacific and PBL. NEC is engaged in providing media services like broadcasting through television, internet and digital services and many other media sectors. There are basically two segments in which company operates named as Television and Digital (Reuters.com. 2018).

NEC is also engaged in selling advertising suite of Microsoft across the country and New Zealand. It has a good and a long lasting connection or strategic relationship with Microsoft. The brand of the company includes Nine Digital, Nine Network Television and other business which includes CarAdvice, Pdestrain.tv, RateCity and Literacy Planet. It is listed on Australian Securities Exchange and is traded with a ticker NEC.AX.

NEC operates in entertainment and media industry in Australia. As per the statistics, the media market of Australia has always shown a growth in past years. In the time frame of 10 years, the market value of the sector has continuously increased and the industry has performed well. As far as the financial performance of NEC is concerned, the company has made a revenue worth $1237.8 million which was slightly lower than the revenue earned in 2016 that is $1282.4 million.

NEC made a net loss of $203,438 million in 2017 whereas the same was reported as a profit at $324,755 million in 2016. Along with this, the earnings per share of Nine Entertainment has also became negative due to the loss made. In 2016, the EPS was $0.04 cents which turns out to be -$0.23in 2017 (Nineentertainmentco.com.au. 2017).

Board of directors

Board of directors

Characteristics of Board

The directors of Nine Entertainment are educated and proficient people who have ample of experience in media industry and their respective fields. The role of company’s directors is to approve the Nine’s strategies and various business plans. In addition to that, the board is held responsible for approving the annual report of the company which includes its financial statements, corporate governance statement and the remuneration report of the directors. NEC’s board consists of majority of independent directors except from February 2017 to March 2017.

In that period there were two non-independent directors and 2 independent directors. Also, before and during this period, the board was actively putting efforts in securing additional independent directors in order to create a proper balance between both types of directors. The chairman Peter Costello is been responsible to look after the workings of the board and review them timely.

The chief executive officer of Nine Entertainment Hugh Marks, has a strong career history and he motivates and assists the employees to achieve their personal as well as organizational targets. To add further in the responsibilities, the board is required to act legally and ethically on all the matters related to the business and must make sure that all the ethical standards are been maintained (Nineentertainmentco.com.au. 2017). 

NEC’s board of directors apply the concept of delegation of authority where the power in been delegated in the hands of Chief Executive Officer and other senior management staff. Each member of the team or the staff is well qualified and experienced to handle the responsibility assigned. The board is also capable of assessing and reviewing the performance of each team.  NEC has its formal board charter which reflects the role and responsibility of its members, assignment of duties between the management and board and the operating procedures.

There are various committees of NEC formed for respective purposes. For framing the remuneration policies and incentive plans, the charter has a committee of people and remuneration. In addition to this, to prepare the audit reports, reviewing the accounting policies, overseeing the final accounts of the company and to manage and approve the risk management strategies and to ensure the auditor independence.

The company sectary of Nine Entertainment is also appointed by the board of directors and they all have the direct access to approach the sectary whenever they want. The role of CS include monitoring the policy of board and reviewing the procedures followed along with the accountability to the board on all the matters related to corporate governance. Overall, NEC has the qualified directors and their composition is also as per the ASX recommendations.

Characteristics of Board

Investment and financing decisions

On September 2016, Nine Entertainment acquired the CarAdvice.com Pty Ltd, a leading publisher engaged in publishing the online automotive editorial content. The company purchases 59.22% shares with the voting interests in CarAdvice.com. In consideration, NEC invested or paid $17.3 million cash along with the acquisition costs of $153,150. The basic purpose of acquiring or making investment in such company is to expand the business in automotive sector. At the year ended 30 June 2017, the company decided to declare the fully franked interim dividend of 4.5 cents per share amounted to $39,151,434 and proposed a final dividend of 5.0 cents per share amounted to $46,568,660 that are fully franked.

Recommendations of ASX CGC

The ASX Corporate Governance Council provides eight recommendations and principles that are required to be followed by every listed company. Being an Australian company and ASX listed, NEC also complies its corporate governance practices with the principles of ASX CGC (Asx.com.au. 2018). The key recommendations are:

NEC’s audit function

Ernst & Young LLP is the external auditor of the company who is responsible for auditing the annual reports of NEC. E&Y is a financial service provider company which offers several number of professional services like enterprise risk management, auditing, assurance, mergers and acquisitions, transaction support and many more (Bloomberg.com. 2018).

 The financial report of NEC is been audited by the auditors which includes the consolidated statements like balance sheet, cash flow and income statement. According to the auditors, the report is been audit as per the Australian Auditing Standards and is in compliance with the Corporation Act 2001. It gives the true and fair view of the financial position of the company as on June 30, 2017. In addition to this, E&Y is independent of the group as per the the ethical requirements of APES 110 ‘Code of Ethics for Professional Accountant’ and provisions of the Act. E&Y was entitled to get a total remuneration of $1,355,031 in year 2017.

Ethical judgements and Ethics

Key measures taken are as follows:

• NEC holds the license of commercial television which bound the company by Commercial Television Code of Practice. This code make sure that NEC complies with the AANA Advertiser Code of Ethics and AANA Advertiser Code of Marketing and Communication with children. NEC provides training to its employees in this regard so that they can properly comply with the laws.
• The company has established a code of conduct which is applicable to all the directors, senior management and employees that provides a clear guidance on company’s ethical standards and value to shareholders (com.au. 2017). 

Key Shareholders and Investors

The above list shows the largest investors and shareholders of NEC Ltd. it can be clearly seen that HSBC has the highest stake of 32.79% followed by J P Morgan with a holding of 14.49%. Citicorp also holds almost same percentage of the shares in NEC (Nineentertainmentco.com.au. 2017). 

Ratio analysis

Liquidity ratios

The current and quick ratio of the company are almost same as there is no inventory in the past two years. However, an increase is been there in both the ratios as in 2016, they were reported at 1.36:1 and in 2017, it increased to 1.90:1. This indicates that the liquidity position of the company has increased (Jenter and Lewellen, 2015).

Investment and financing decisions

Asset Management ratios

Debtor turnover shows the efficiency of the enterprise in collecting its accounts receivables. In case of NEC, the ratio has been slightly increased in 2017 from 4.52 to 4.54 and also there was a reduction in collection period from 81 days to 80 days. The total assets turnover ratio has also shown an increasing trend and it rises from 0.55 to 0.61 during the year, reflecting that more revenue is generated with the assets (Higgins, 2012). 

Capital structure ratios

The D/E ratio shows the amount of debt taken by the company against its equity. NEC’s D/E ratio has been increased from 0.18 to 0.30 showing an increase in its debt and reduction in its equity. The ICR of the company became negative due to the loss made by the company in 2017. In 2016, it was 6.07 times which reduces to -14.16 times in 2017. The total debt to total assets ratio has also increased from 10% to 15% showing high proportion of debt taken by the company (Ferrarini, Hinojales and Scaramozzino, 2017).

Profitability ratios

Talking about the profitability of NEC, it can be said that company has faced a reverse trend in 2017 as compare to its performance in 2016. It has made a loss amounted to $203,438 million which make all of its ratios negative (Kimmel, Weygandt and Kieso, 2010). The NPR reduces from 25% to -16% along with the reduction in return on equity 26% to -21%. Similar trend is been shown in the OPR and ROA of the company (Gibson, 2011). 

Market value ratios

The book value per share of the company has been reduced during the year. BVPS reduces from 1.40 to 1.12 due to the reduction in shareholder’s equity. The market price increases from $0.91 to $1.3 per share. Talking about dividend yield, it shows a reduction due to the decrease in the value of dividends per share declared by the company. EPS and P/E ratio became negative in 2017 with -0.23 cents and $-5.56 due to the loss incurred (Bragg, 2012). 

Cash flow management ratios

NEC’s OCFR has become negative in 2017 reflecting a huge reduction as compare to 2016. Prior to 2017, the ratio was 12% which significantly falls to -1% in 2017. This is because of the cash used in company’s operating activities worth $4186 million. Hence, company needs to manage its flow of cash (Godwin and Alderman, 2012). 

Conclusion

The above report concludes that NEC needs to take measures to improve its financial position. Apart from its assets efficiency and liquidity, company must take efforts to increase its profits and improve its stock performance and position in the market. Apart from that, it properly follows the ASX CGC guidelines and operates in a prescribed legal framework. It has also established ethical standards and complied with them properly. However, NEC needs to focus on enhancing its financial position and performance.

References

Asx.com.au. (2018). Corporate Governance Principles and Recommendations with 2010 Amendments.

Bloomberg.com. (2018). Ernst & Young LLP: Private Company Information – Bloomberg. 

Bragg, S. M. (2012). Business ratios and formulas: a comprehensive guide (Vol. 577). 3rd ed. New Jersey: John Wiley & Sons.

Ferrarini, B., Hinojales, M. and Scaramozzino, P. (2017). Leverage and Capital Structure Determinants of Chinese Listed Companies.

Gibson, C. H. (2011). Financial reporting and analysis. USA: South-Western Cengage Learning.

Godwin, N., and Alderman, C. (2012). Financial ACCT2. USA: Cengage Learning.

Higgins, R. C. (2012). Analysis for financial management. New York: McGraw-Hill/Irwin.

Jenter, D. and Lewellen, K. (2015). CEO preferences and acquisitions. The Journal of Finance, 70(6), pp.2813-2852.

Kimmel, P. D., Weygandt, J. J., and Kieso, D. E. (2010). Financial accounting: tools for business decision making. New Jersy: John Wiley & Sons.

Nineentertainmentco.com.au. (2017). Board of Directors.

Nineentertainmentco.com.au. (2017). Corporate Governance Statement 2017.

Nineentertainmentco.com.au. (2017). Nine Entertainment Company annual report 2016/2017.

Reuters.com. (2018). Nine Entertainment Co Holdings Ltd (NEC.AX).

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