company overview
4.2 Basis of preparation and presentation of the Financial Information
The Financial Information has been prepared and presented in accordance with the recognition and measurement principles of Australian Accounting Standards, issued by the Australian Accounting Standards Board, which are consistent with International Financial Reporting Standards (IFRS) and interpretations issued by the International Accounting Standards Board (IASB). The Prospectus includes Forecast Financial Information based on the best estimate assumptions of the Directors. The Forecast Financial Information presented in this Prospectus is unaudited. The basis of preparation and presentation of the Forecast Financial Information, to the extent applicable, is consistent with the basis of preparation and presentation for the Historical Financial Information with the exception of the information presented for Nine Digital for the historical periods, which has not been adjusted on a similar basis to the Pro Forma Forecast Result and Pro Forma Forecast Cash Flows (in relation to expected changes to business arrangements with Microsoft, certain of which only become effective on 1 July 2014) for the reasons discussed in Sections 4.2.1 and 4.3.2.
The Financial Information is presented in an abbreviated form insofar as it does not include all of the presentation and disclosures required by Australian Accounting Standards and other mandatory professional reporting requirements applicable to general purpose financial reports prepared in accordance with the Corporations Act.
NEC’s accounting policies have been consistently applied throughout the periods presented, and are set out in the Significant Accounting Policies section.
The financial information presented in this Section 4 should be read in conjunction with the risk factors set out in Section 5 and other information contained in this Prospectus.
4.2.1 Preparation of the Historical Financial Information
The Statutory Historical Financial Information has been extracted from the audited consolidated financial statements of NEC for FY11, FY12 and FY13. These financial statements are available on the Offer website (www.nineentertainmentshareoffer.com). The Pro Forma Historical Financial Information has been prepared for the purposes of inclusion in this Prospectus. The Pro Forma Historical Financial Information has been derived from the audited consolidated financial statements of NEC for FY11, FY12 and FY13 and pro forma adjustments have been made to reflect the impact of historical acquisitions, divestments and/or other transactions to reflect NEC’s operations following Completion and to eliminate abnormal and/or non-recurring items and reflect standalone public company costs as described in Section 4.3.2. In particular, pro forma adjustments have been made to reflect the following significant transactions:
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In September 2012, NEC disposed of its wholly owned subsidiary, Australian Consolidated Press Limited (referred to in this Prospectus as ACP or ACP Magazines) and certain intangible assets to Bauer Media for gross sale proceeds of $525.0 million. In addition to the disposal of ACP, NEC also disposed of its interest in carsales.com.au in FY11 and investments including iSelect (previously owned by Mi9) and Cudo (previously owned by Mi9) in FY13;•
In February 2013, NEC entered into the Scheme resulting in the restructure of all senior and mezzanine debt in exchange for shares and cash, unless otherwise forgiven, as described in Section 10.6 and established the New Senior Facilities as described in Section 10.7.1. Accordingly, as a result of the Scheme, the issued share capital of NEC was altered to that disclosed in Section 4.5.1;•
In July 2013, NEC acquired Channel 9 South Australia Pty Limited (referred to in this Prospectus as the operations of WIN Adelaide, or Adelaide) and an option to acquire Swan Television Radio Broadcasters Pty Ltd (referred to in this Prospectus as the operations of WIN Perth, or Perth) for total consideration of $150.0 million. This option was subsequently exercised and NEC completed the acquisition of WIN Perth on 30 September 2013 for total consideration of $223.0 million. To finance the acquisition, NEC entered into a $198.7 million debt facility which NEC intends to repay in full with the proceeds of the Offer; and•
NEC has agreed with Microsoft to acquire the 50% of shares in Mi9 which NEC did not already own on terms which include cash payments totaling US$39.4 million effective from 1 November 2013. As a consequence of the agreement, NEC consolidated Mi9 from 1 November 2013 with no non-controlling interest being recorded in the pro forma historical or forecast results. The transfer of shares in Mi9 and progress payments of the consideration will take place in three equal tranches. The first payment was made on 1 November 2013 at the same time as the first tranche of shares was transferred to NEC. The second and third tranches will occur on 1 July 2014 and 1 July 2015. As detailed in Section 3.4.2.3 the terms of Mi9’s business arrangements with Microsoft changed upon termination of the joint venture. The financial impact of these changes is further described in Sections 4.3.2, 4.4.1 and 4.8 below.Investors should note that the Pro Forma Historical Financial Information for FY11, FY12 and FY13 includes contributions from the Mi9 business (as actually operated in those periods) as if the acquisition of the 50% of shares in Mi9 which NEC did not own had been made as of 30 June 2010. NEC expects that changes to its business arrangements with Microsoft will result in: the transfer of Mi9’s New Zealand websites to Microsoft, changes in revenue arrangements with respect to Bing searches and other Microsoft products in Australia, and new content arrangements with Microsoft with effect from 1 July 2014. The full year impact of these expected changes in the Mi9 business arrangements has been reflected in the Pro Forma Forecast Result as if the changes took effect from 1 July 2013 (notwithstanding that certain of these changes will only apply from 1 July 2014), in order to provide investors with a more meaningful indication of Mi9’s FY14 earnings reflecting these changed arrangements. Given the different operating model that results from the Mi9 transaction and changes to the mix of Mi9’s revenue streams that existed historically, NEC has concluded that there is not a meaningful, appropriate or reasonable basis to reflect similar adjustments across the historical periods presented in the Prospectus in an accurate manner.
Refer to Section 4.3.2 for reconciliation between the Statutory Historical Results and Pro Forma Historical Results. Refer to Section 4.6.2 for reconciliation between the Statutory Historical Cash Flows and Pro Forma Historical Cash Flows. Refer to Section 4.5.1 for reconciliation between the Statutory Historical Balance Sheet of NEC and the Pro Forma Historical Balance Sheet. The Historical Financial Information presented in this Prospectus has been reviewed by Ernst & Young Transaction Advisory Services Limited but has not been audited. Investors should note the scope and limitations of the Independent Limited Assurance Report on Historical Financial Information (refer to Section 8).
The FY11, FY12 and FY13 audited consolidated financial statements of NEC have been audited by Ernst & Young, who have issued unqualified opinions in respect of all years. Investors should note that the audited consolidated financial statements for FY11 and FY12 were prepared on a going concern basis, and Ernst & Young’s audit reports for those years included an “Emphasis of Matter” in that regard. Following the Scheme in February 2013, the events that led to the uncertainty in respect of the going concern were no longer applicable, and no such Emphasis of Matter was included in NEC’s FY13 audited consolidated financial statements or in Ernst & Young’s audit report on those financial statements.
4.2.2 Preparation of the Forecast Financial Information
The Forecast Financial Information has been prepared solely for inclusion in this Prospectus. The Pro Forma Forecast Result and Pro Forma Forecast Cash Flows have been derived from the Statutory Forecast Result and Statutory Forecast Cash Flows of NEC after adjusting for pro forma transactions and other adjustments to reflect NEC’s operations following Completion and to eliminate abnormal and/or non-recurring items and to reflect standalone public company costs as set out in Sections 4.3.2 and 4.6.2. Both the Statutory Forecast Result and Statutory Forecast Cash Flows consist of unaudited actual results for the two months to 31 August 2013 and the Director’s best estimate forecasts for the 10 months to 30 June 2014.
The Pro Forma Forecast Result reflects NEC’s 100% ownership of Mi9 as if the acquisition of the 50% of shares in Mi9 which NEC did not own had been made as of 30 June 2010. It also takes into account the expected impact on Mi9’s earnings of changes to the terms of Mi9’s business arrangements with Microsoft following termination of the joint venture (as summarised in Section 3.4.2.3) as if those changes took full effect from 1 July 2013, notwithstanding that certain of these changes will only apply from 1 July 2014. The full year impact of the expected changes in these Mi9 business arrangements has been reflected in the Pro Forma Forecast Result in order to provide investors with a more meaningful indication of Mi9’s FY14 earnings reflecting these changed arrangements. The Forecast Financial Information has been prepared by the Directors based on an assessment of current economic and operating conditions and best estimate assumptions regarding future events and actions as set out in Sections 4.8.1 and 4.8.2. The Forecast Financial Information is subject to the risks set out in Section 5. The inclusion of these assumptions and risks is intended to assist investors in assessing the reasonableness and likelihood of the assumptions occurring, and is not intended to be a representation that the assumptions will occur. The Forecast Financial Information presented in this Prospectus has been reviewed by PricewaterhouseCoopers Securities Ltd but has not been audited. Investors should note the scope and limitations of the Independent Limited Assurance Report on Forecast Financial Information (refer to Section 9).
NEC believes the best estimate assumptions, when taken as a whole, to be reasonable at the time of preparing the Prospectus. However, this information is not fact and investors are cautioned not to place undue reliance on the Forecast Financial Information. Investors should be aware that the timing of actual events and the magnitude of their impact might differ from that assumed in preparing the Forecast Financial Information and that this may have a material positive or material negative effect on NEC’s actual financial performance or financial position. In addition, the assumptions upon which the Forecast Financial Information is based are by their nature subject to significant uncertainties and contingencies, many of which will be outside the control of NEC, the Directors and management and are not reliably predictable. Accordingly, none of NEC, the Directors or any other person can give investors any assurance that the outcomes discussed in the Forecast Financial Information will arise.
The Forecast Financial Information in this Section 4 should be read in conjunction with the specific assumptions as set out in Section 4.8.2, the general assumptions as set out in Section 4.8.1, the sensitivity analysis as set out in Section 4.9, the risk factors as set out in Section 5 and other information in this Prospectus.