Backlash for NZME after lower forecast

AUCKLAND: NZME shares dropped near a twoyear low after the company forecast a 21% decline in fullyear operating earnings and said it probably would not pay a final dividend.

The owner of The New Zealand Herald newspaper and Radio Network stations effectively borrowed money to cover its interim dividend payments due to the timing of a tax bill. But under a new policy announced yesterday it wants to cut debt by $10 million to $15 million a year.

The board, chaired by Peter Cullinane, wants the company to reduce its leverage ratio to 1to1.5 times trading earnings before interest, tax, depreciation and amortisation (ebitda) from 1.7 times as at June 30.

Once it achieves that lower leverage ratio, the board plans to pay dividends of 30% to 50% of reported net profit, down from 60% to 80% of underlying earnings. When NZME was spun out of APN News & Media, it was pitched as a dividend play, offering a juicier return than the 40% to 60% of underlying net profit its former parent was paying at the time.

‘‘Developing new revenue streams to offset structural decline in some advertising markets and maximising longterm shareholder value remains a key focus,’’ the company said in a statement.

‘‘NZME also continues to maximise the efficiency of the business to support ongoing operating competitiveness as well as reinvestment in growth initiatives.’’

The shares fell 7.7%, or 5c, to 60c, the lowest level since January 2017. They are down 32% so far this year.

NZME has been reinvesting to find new income streams as the media industry goes through a fundamental shift.

The media group gave up on a planned merger with rival Stuff last month after getting knocked back by the Court of Appeal.

NZME warned trading ebitda would likely fall as much as 21% this calendar year, forecasting earnings of $52 million to $56 million. That was down from $66.2 million in 2017. Firsthalf ebitda fell 18%.

Ad revenue fell 4% in the three months through September, although it said fourthquarter bookings were showing some improvement.

The company expected net debt to be $100 million at the end of the year, down from $106 million as at June 30. It also refinanced its $160 million debt facilities, extending the term by two years to January 2022 and lowering the cap to $150 million.

The new facility is at a higher interest margin of 60 basis points.