Gyngell gloomy on Nine ad revenue before shares sale

David Gyngell told confidants in private meetings that the Nine Network was suffering ­severe advertising pressure.

Nine Entertainment chief executive David Gyngell.

Nine Entertainment chief executive David Gyngell told confidants in private meetings between late April and late May that the network was suffering ­severe advertising pressure and had a weak forecast.

The Australian can reveal his admission to senior industry executives coincided with his sale of $1.5 million worth of shares in the company on May 20 — two weeks before a shock downgrade saw Nine’s stock plummet.

Revelations of the discussions where Mr Gyngell lamented the weak advertising market appear to contradict his claim that the earnings downgrade late last Friday came as a surprise to him.

On May 20, Mr Gyngell notified the ASX that he had sold 731,707 shares for $1.5m. At the time, the share price was about $2.13.

After the market closed last ­Friday, Nine Entertainment released a profit downgrade, falling in a range of 6.7 per cent to 8.3 per cent, from the $311m guidance issued at the November annual general meeting to between $285m and $290m.

“May and June has been disappointing and the advertising market has been softer than we thought,” Mr Gyngell told The Australian this week. His decision to sell the shares before the company’s earnings downgrade saw him save about $420,000, with Nine’s share price falling 16 per cent when trading resumed on Tuesday.

The Australian has learnt from sources present at a series of meetings with Mr Gyngell in late April, late May and early June that the chief executive spoke openly about the weak advertising outlook.

One source present at a meeting described his temperament as “depressed” with the state of the advertising market and the future of free-to-air television.

The Australian also understands Mr Gyngell has discussions with Nine Entertainment’s chief operating officer and chief financial officer Simon Kelly and Nine Network chief operating officer Brett Dickson on a regular basis about advertising revenue. They monitor sales on a day-by-day basis.

The Australian asked Nine Entertainment’s spokeswoman Victoria Buchan about the nature of his conversations with industry executives; when Mr Gyngell first became aware an earnings downgrade was a possibility; and whether it was appropriate for him to sell shares on May 20 ahead of an earnings update issued to the market. Ms Buchan declined to comment. The sale of Mr Gyngell’s shares required ­approval from Nine chairman David Haslingden, who has not spoken publicly about the matter.

The Corporations Act 2001 prohibits the trading in shares, ­options, debentures and other ­securities of a company by any person who is in possession of price-sensitive information regarding that company that is not generally available. Nine’s securities trading policy states “a breach of this policy will be regarded seriously and may lead to disciplinary action, including dismissal”.

Mr Gyngell has denied any wrongdoing and said the sale of his shares was in compliance with the company’s share-trading ­policy.

In a letter dated June 10, 2015, the Australian Securities & Investments Commission posed a series of questions to Nine’s board, including whether it had been aware of any information material to the entity’s share price that had not been disclosed, but was known by some in the market.

Nine’s spokeswoman told The Australian this week that Mr ­Gyngell only became aware of the need for a profit downgrade on Friday afternoon.

“If we had been aware of a downgrade anytime prior to ­Friday afternoon we would have announced at that time,” she said. “That is the ASX disclosure obligation, which we have at all times abided by.

“(The) board didn’t meet and there is no requirement for a board meeting. We advised the chairman out of courtesy — the obligation is to advise the ASX as soon as we become aware of the need to downgrade.”

If ASIC finds any suspected misconduct by Mr Gyngell or the board of Nine, it will open a formal investigation to determine the seriousness of the offence which could result in punitive action under the regulator’s enforcement powers. ASIC could also refer a case to the Australian ­Securities Exchange.

It’s understood Nine has acknowledged ASIC’s information request, and is compiling a ­detailed dossier, with assistance from specialist Sydney-based corporate law firm Gilbert + Tobin.

There is significant shareholder disquiet about the earnings downgrade, which caught many by surprise, particularly as the new guidance sent Nine’s share price plummeting in the immediate aftermath. However, Nine’s shares gained 2.1 per cent on Wednesday, and held steady yesterday, closing up 0.3 per cent to $1.71.

But Seven West Media continues to be caught in the downdraft of Nine’s bleak outlook for the ­advertising market, with the stock falling for the third consecutive day, closing down 0.97 per cent, or 1c, to $1.02.