NZME pays smaller dividend than expected as earnings sink, reviewing policy
By Paul McBeth
Aug. 23 (BusinessDesk) - NZME will pay a smaller interim dividend than analysts expected as first-half earnings almost
halved on declining print revenue and as weak business confidence dented radio agency advertising.
The Auckland-based media group will pay an interim dividend of 2 cents per share on Oct. 26 with an Oct. 16 record, down
from 3.5 cents a year earlier. First NZ Capital had predicted a dividend of 3 cents and Forsyth Barr forecast a 2.8
cents per share payment.
NZME chair Peter Cullinane and chief executive Michael Boggs said the dividend reflected "lower earnings available for
distribution, partly due to the investment in digital classifieds and continued revenue challenges".
Underlying profit dropped 44 percent to $5.5 million, or 2.8 cents per share, meaning the dividend ratio was in the
middle of NZME's policy to pay 60-to-80 percent of underlying profit.
That policy is up for review, with the newspaper publisher and radio operator hiring an external adviser to assess the
company's capital management and to help refinance $160 million of banking facilities that expire in 2020.
"Part of that advice will involve reviewing our capital structure and dividend policy," it said.
NZME has been reinvesting into its business to find new income streams as the media industry goes through a fundamental
shift where global giants such as Facebook and Google have cornered the market in online advertising, while newspaper
publishers have tended to give their content away for free, undermining the value of their paid hard-copy publications.
The media group will launch a 'freemium' model in the second half of this year, giving away day-to-day news and current
affairs to drive traffic, while charging for indepth analysis and opinion.
"A key focus will be on enhancing user experience and offering subscription bundles for print and online content that
provide value to customers," it said.
That investment has included digital ad products such as the OneRoof property, Yudu jobs and Driven cars brands, which
it will pitch against Trade Me's dominant online classified business.
"While we are broadly satisfied with our revenue performance, our earnings were lower partly due to our strategy to
increase spending in specific areas to pursue medium term growth," Boggs said. "These investments are integral to
achieving our medium term growth objectives."
Annual earnings before interest, tax, depreciation and amortisation will "reflect underlying business decline and
investment in digital classifieds," he said.
NZME's cash flow statement shows it increased capital spending to $7.1 million from $6.8 million a year earlier at a
time when operating cash flow more than halved to $3.1 million due to the timing of a tax bill. That saw it draw down
more heavily on bank debt to cover $11.8 million of dividend payments.
FNZC said in an earnings preview that it's too early to make "significant judgments" on NZME's new investments, but "it
will be interesting to see if NZME adjusts dividend policy in favour of ongoing debt repayment and greater investment in
the digital initiatives".
The stock had been trading at a dividend yield of 11 percent at a time when low interest rates have attracted investors
wanting stable returns. It last traded at 83 cents, and has declined 5.7 percent so far this year.
The media company's net profit dropped 53 percent to $3.7 million on a 3 percent decline in revenue to $185.7 million.
The bottom line was weighed down by increased redundancy costs of $2.1 million and $400,000 spent on external
consultants "assisting with the proposed merger with Stuff Ltd and the continuing integration and co-location of NZME".
NZME and Fairfax Media Group's Stuff are appealing the rejection of a merger.
The company's drag on earnings, which missed analysts' expectations, came from a 6 percent decline in print revenue to
$103.6 million and a 3 percent fall in radio revenue to $48.8 million.NZME said deteriorating business and consumer
confidence weighed on advertising markets in the period. Digital and e-commerce revenue grew 17 percent to $23.9
That contraction in the wider advertising market has continued into the third quarter, although NZME has increased its
The company said cost cutting programmes are slowing and are "not expected to be sufficient to offset softening
advertising revenue in the underlying business". It will also incur extra costs from investments in digital classifieds,