Full Year Results to 31 December 2018
1
MEDIA RELEASE
19 February 2019
NZME LIMITED FULL YEAR 2018 FINANCIAL RESULTS
Progress on strategy in a challenging market
NZME Limited (NZME) today reported financial results for the full year 2018 that reflected
good progress on its strategy of growing new revenue streams, despite modest declines in
revenue from traditional sources in a difficult New Zealand advertising market.
FY 2018 key points
Trading Revenue
1
declined 2% in FY 2018 to $378.4 million.
Trading EBITDA
1
of $54.7 million, down 17% compared to FY 2017, impacted by
incremental operating costs for the new Digital Classifieds of $6.1 million. Excluding
Digital Classifieds, Trading costs
1
declined 1% and EBITDA declined 8%.
Statutory NPAT declined 44% on FY 2017 to $11.6 million. Trading NPAT
1
of $18.9
million and Trading EPS
1
of 9.6 cents, compared to $26.7 million and 13.6 cents
respectively in FY 2017.
To support investment in growth and strengthen the balance sheet, no final dividend
declared, as previously signalled to the market. Total FY 2018 dividends of 2.0 cents
per share, fully imputed.
NZME’s Chairman Peter Cullinane said, “Trading conditions remained challenging in FY 2018
but despite this, our revenue decline slowed. We have made significant progress to strengthen
the Company by investing in a number of promising new revenue opportunities to grow long-
term shareholder value. We continue to actively assess opportunities for improvement and
growth that arise from the ongoing media industry consolidation”.
NZME’s audience of 3.3 million New Zealanders
2
represents 80% of the New Zealand
population. The NZ Herald daily brand audience exceeded 1 million
3
and engagement on
nzherald.co.nz, as measured by time spent per visit, improved across FY 2018
4
. NZME’s
Radio audience and revenue share was stable in a weaker Agency market.
NZME Chief Executive Michael Boggs said, “We are pleased with the results given the economic
headwinds we faced in our business 2018. Given this backdrop, retaining revenue in Print was
a standout. We are also excited about the strong audience and listings growth in OneRoof, and
its early stage contribution to revenue.”
NZME’s advertising revenue faced ongoing structural pressures in print advertising, intensified
by weaker business and consumer confidence, which impacted New Zealand Agency advertising
demand in Radio, Digital and Print.
1
Trading measures are non-GAAP measures that are explained and reconciled in NZME Full Year 2018 Results
Presentation dated 19 February 2019. Trading Revenue is presented on a consistent basis with 2017, and excludes
the impact of NZ IFRS 15 adjustments. Trading EBITDA excludes exceptional items of $9.2m.
2
Nielsen CMI October Fused Q4 17 to Q3 18 (population 10+ years).
3
Nielsen CMI Q4 17 – Q3 18 AP 15+, represents a combination of Print readership and Digital audience.
4
Nielsen Market Intelligence Domestic Traffic (1 Jan 18 – 31 Dec 18).
2
Despite these pressures, there were bright spots in Print advertising, such as the Travel
category, assisted by the cruise ship industry. An improved final quarter saw the rate of
decline in Print advertising revenue slow from previous years.
Radio revenue was impacted by weak Agency demand, despite Direct Radio revenue
returning to growth in H2 2018. In FY 2018, NZME maintained its 39% share of the radio
advertising market
5
and continued to focus on having the best offer in the market to inform,
entertain and attract listeners.
NZME’s radio audience share was stable in FY 2018 at 35%
6
. NZME’s leading brands
maintained their strong presence, with NewstalkZB remaining the number one radio station in
New Zealand. iHeart Radio grew its registered users by 18% over the year to more than
831,000
7
.
Digital advertising revenue growth slowed in FY 2018, impacted in the second half by weak
Agency demand. The Digital market continues to evolve but retains highly attractive
fundamentals and NZME expects the channel to remain a long-term driver of growth
8
.
Since launch in late March 2018, NZME’s real estate classifieds portal, OneRoof, made
significant progress, growing real estate listings and audience to support the generation of
$0.7 million in revenue in FY 2018, with $0.5 million of this in Q4 2018.
“Our revenue numbers were encouraging given just how tough some parts of the market were
in FY 2018. Spending on growth initiatives continues to impact earnings ahead of revenue
generation but these investments offer very exciting prospects as we progress our strategy”,
said Mr Boggs.
Outlook
The trend for advertising bookings in Q1 2019 has improved with bookings tracking at 2%
lower than the previous corresponding period, compared with a 4% year on year decline
experienced in the same period in FY 2018. The Agency market remains challenged, however,
trends are improving.
The launch of digital subscriptions is on track for Q2 2019, with modest revenue expectations
in FY 2019. OneRoof is expected to deliver further listings, audience and revenue growth in
FY 2019.
NZME is continuing its focus on cost reduction, which will support ongoing investment in
Digital Classifieds and digital subscriptions. Consequently, net cost reduction is likely to be
modest.
In line with the capital management policy announced in November 2018, NZME is targeting
a reduction in debt of between $10 million and $15 million in FY 2019.
5
PwC Radio Advertising Benchmark Report, Q3 18.
6
GfK Radio Audience Measurement, Commercial Stations. NZME & Partners in Major Markets Trended to T4/2018.
Station Share %, AP 18-54.
7
iHeartMedia, 2017- 2018; Adobe Analytics, 2018.
8
PwC Outlook NZ Entertainment Outlook 2018 – 2022.
3
FY 2019 Strategic priorities
NZME’s long term strategy is based on a three-horizon model, focusing on: (1) optimising
core businesses; (2) growing new revenue streams that leverage existing audience and
customer relationships; and (3) re-imagining revenue models that address unmet customer
needs.
In FY 2019, NZME intends to focus on horizon 2 – revenue growth – in three main areas:
1. Leading the future of news and journalism in New Zealand
2. Increasing radio capability and performance
3. Creating New Zealand’s leading real estate platform
nzherald.co.nz will continue to deliver the majority of day-to-day news and current affairs
free of charge to an audience of 1.7 million
9
, and the launch of digital subscriptions in Q2
2019 will give readers the opportunity to access premium content on subscription, including
the best content from four top global publishers.
NZME will continue to enhance radio sales skills to support integrated selling. It will pursue
digital audience and revenue growth through leveraging iHeart capability and will develop
new shows to further build radio audience.
OneRoof will focus on securing further market listings and property categories, ongoing
development of user features and tools to enhance listings engagement, and leading New
Zealand’s property market commentary and insights.
All FY 2018 results materials can be found at:
www.nzx.com/markets/NZSX/securities/NZM/announcements
ENDS
For further information:
Michael Boggs
Chief Executive Officer
T: +64 9 367 6123
Email: Michael.Boggs@nzme.co.nz
Alexa Preston
GM Corporate Finance & Investor Relations
T: +64 21 997 902
Email: alexa.preston@nzme.co.nz
Briefing Audio Recording:
There will be an audio recording of the full year results briefing, to be held at 10:00 a.m.
NZDT on Tuesday, 19 February 2019, including Q&A, made available later in the day at:
www.nzme.co.nz/investor-relations/presentations-webcasts
About NZME
NZME is a leading New Zealand media and entertainment business that reaches more than 3.3
million kiwis
2
. Whether reading, listening or watching, our audience gets the content they want
– where and when they want it. NZME offers advertisers a unique opportunity to access its
growing audience via a fully integrated multi-platform presence. NZME is listed on the NZX
Main Board (code NZM) with a foreign exempt listing on the ASX (code NZM).
9
Nielsen Online Ratings, December 2018.
---
1
NZX/ASX RELEASE
19 February 2019
NZME LIMTED FULL YEAR 2018 FINANCIAL RESULTS
Progress on strategy in a challenging market
Key features of the FY 2018 results:
Trading Revenue
1
declined 2% from FY 2017 to $378.4 million.
Trading EBITDA
1
of $54.7 million, down 17% compared to FY 2017.
Incremental operating costs for new Digital Classifieds of $6.1 million for the year.
Excluding Digital Classifieds, Trading Costs
1
declined 1% and Trading EBITDA
1
declined 8% compared to FY 2017.
Statutory NPAT declined 44% on FY 2017 to $11.6 million.
Trading NPAT
1
of $18.9 million and Trading EPS
1
of 9.6 cents, compared to $26.7
million and 13.6 cents respectively in FY 2017.
To support growth investment and strengthen the balance sheet, no final dividend
declared, as previously signalled to the market. Total FY 2018 dividends 2.0 cents per
share, fully imputed.
Audience of 3.3 million
2
represents 80% of the New Zealand population. NZ Herald
daily brand audience greater than 1 million
3
.
Weakened business confidence impacted advertising revenue in H2 2018, particularly
in the Agency channel.
Digital Classifieds growth – OneRoof listings and early stage revenue encouraging.
Substantial progress towards launching digital subscriptions in Q2 2019.
Financial summary ($m)
FY 2018 FY 2017 % Change
Trading Revenue
1
378.4 387.7 (2%)
Other Income 4.1 3.7 9%
Costs (327.7) (325.3) (1%)
Trading EBITDA
1
54.7 66.2 (17%)
Trading NPAT
1
18.9 26.7 (29%)
Statutory NPAT 11.6 20.9 (44%)
Total dividends (cps) 2.0 9.5 (79%)
1
Trading measures are non-GAAP measures that are explained and reconciled in NZME Full Year 2018 Results
Presentation dated 19 February 2019. Trading Revenue is presented on a consistent basis with 2017, and excludes the
impact of NZ IFRS 15 adjustments. Trading EBITDA excludes exceptional items of $9.2m.
2
Nielsen CMI October Fused Q4 17 to Q3 18 (population 10+ years).
3
Nielsen CMI Q4 17 – Q3 18 AP 15+, represents a combination of Print readership and Digital audience.
2
FULL YEAR 2018 SUMMARY
NZME Limited (NZME) reported financial results for the full year ended 31 December 2018
that reflected a modest decline in revenue in a difficult market and further investment in
developing its growth businesses.
Despite a challenging Agency advertising market NZME’s overall revenue decline was 2%.
NZME has made significant progress on the revenue growth strategies of OneRoof and digital
subscriptions, but the costs of these new businesses continue to impact profitability at the
group level.
The decline in Trading Revenue
1
slowed to 2% in FY 2018, from 4% in FY 2017. Print
revenue, benefiting from an extra publishing week in FY 2018 and a strong print travel
sector, declined 4% and Radio and Experiential revenue declined 3% due to challenges in the
Agency advertising market. These declines were not entirely offset by 6% growth in Digital
revenue. All channels were affected by a 4% decline in New Zealand Agency advertising
demand across the New Zealand market, in line with weak business confidence.
NZME’s audience of 3.3 million New Zealanders
2
represents 80% of the New Zealand
population. The NZ Herald daily brand audience exceeded 1 million
3
and engagement on
nzherald.co.nz, as measured by time spent per visit, improved across FY 2018
4
. NZME’s
Radio audience and revenue share was stable in a weaker Agency market. DRIVEN and YUDU
continue to show potential and OneRoof enjoyed strong audience and listings growth.
Trading EBITDA
1
declined 17% on FY 2017. Total Trading costs
1
increased 1% compared to
FY 2017, with efficiency improvements offset by additional costs associated with the
additional publishing week in FY 2018, an increase in contractual property operating expenses
and a $6.1 million incremental investment in the Digital Classified businesses.
Statutory NPAT declined 44% on FY 2017 to $11.6 million and Statutory EPS declined to 9.7
cents. Trading NPAT
1
of $18.9 million and Trading EPS
1
of 9.6 cents were 29% lower than FY
2017.
Net debt was $98.3 million at 31 December 2018, down $7.8 million from $106.1 million at
30 June 2018 and up $8.1 million from $90.2 million at 31 December 2017. Net cash flow
was impacted by reduced Trading EBITDA
1
, changes in working capital and the timing of FY
2017 tax payments. Capital expenditure was $14.1 million in FY 2018, compared to $15.1
million in FY 2017. Net debt to Trading EBITDA
1
was 1.8 times. NZME retains undrawn bank
facilities of $51.7 million.
In November 2018, NZME’s debt was refinanced and the Company adopted a debt reduction
target to support financial strength. Consequently, no final dividend was declared in respect
of FY2018. Total dividends for FY2018 were 2.0 cents per share, fully imputed.
4
Nielsen Market Intelligence Domestic Traffic (1 Jan 18 – 31 Dec 18).
3
CHANNEL RESULTS
Revenue by channel $m FY 2018 FY 2017 % Change
Print 211.6 221.3 (4%)
Radio and Experiential 106.8 110.1 (3%)
Digital 60.0 56.3 6%
Total trading revenue 378.4 387.7 (2%)
Print
Print revenue was $211.6 million in FY 2018, a decline of 4% from FY 2017. Print remains
NZME’s largest revenue segment, representing 56% of total NZME Trading Revenue
1
,
comprised of Print advertising revenue (30% of Trading Revenue
1
), Print circulation revenue
(22%) and other Print revenue sources (4%).
Print revenue in FY 2018 benefited from an additional publishing week, nonetheless, the
underlying rate of decline in Print revenue continued to ease. Excluding the additional trading
week Print revenue declined 5%.
Print advertising revenue of $114.2 million was 6% lower than FY 2017, impacted by
structural deterioration in print advertising. The Print Agency advertising market, which
represents 30% of NZME’s Print advertising revenue, suffered a double digit drop in Agency
advertising spend during FY 2018. Despite these market pressures, there were encouraging
segments in Print advertising, such as the travel category, assisted by the cruise ship
industry.
The 6% decline in Print advertising revenue in FY 2018 was lower than the 9% and 10%
declines seen in FY 2017 and FY 2016 respectively. The decline in Print advertising revenue
against the previous corresponding period eased to 3% in the second half of 2018, from 9%
in the first half, aided by improving trends in the final quarter of the year.
Circulation revenue declined 2% in FY 2018. After adjusting for additional trading days,
circulation revenue declined approximately 4%. Circulation volume declined, however yields
were maintained through cover price increases in July 2018.
Other Print revenue, relating to printing and distribution services provided to external parties,
decreased 6% year-on-year due to lower third-party circulation volumes.
NZME experienced readership growth for its Print mastheads in FY 2018. The New Zealand
Herald remains the most-read newspaper in the country
5
.
The New Zealand Herald’s daily brand audience, which includes digital, remained above 1
million in FY 2018
3
, reflecting the strength of the New Zealand Herald brand and NZME’s
success in growing audience reach.
5
Nielsen CMI, NZ Herald AIR trend Q4 2017 – Q3 2018, AP15+.
4
Direct Print costs and contribution
To improve understanding of the contribution from the three business segments NZME has
reported ‘direct costs’ and ‘contribution’ for each channel. Direct Print costs include printing
and distribution costs, occupancy costs at the Ellerslie print plant and agency commission
specifically related to Print products. Direct costs exclude integrated head office, content
generation and sales costs.
Direct Print costs declined 4% in FY 2018 to $72.9 million, reflecting lower volumes and the
ongoing benefits from plant upgrades, offset to some extent by the additional publishing
week in FY 2018. Print contribution, that is Print revenue less direct Print costs, was $138.7
million in FY 2018, a decline of 5%.
Radio and Experiential
Radio and Experiential revenue of $106.8 million in FY 2018 was 3% lower than FY 2017.
Direct Radio advertising revenue showed positive trends in 2018, growing 2% in H2 2018.
However, Agency revenue declined 7% in FY 2018 due to weakness in Agency market
demand, in line with weaker business confidence. The Agency channel represents an
estimated 30% of Radio advertising revenue. NZME maintained its 39% share of the radio
advertising market
6
.
NZME continued to focus in FY 2018 on having the best radio offer in the market to inform,
entertain and attract listeners. This was supported by new talent and programming
enhancements in 2018, including a new drive show on ZM and a new breakfast show on
Coast, with benefits anticipated over the next 12 to 18 months.
Radio audience share was stable in FY 2018 at 35%
7
. NZME’s leading brands maintained their
strong presence, with NewstalkZB remaining the number one radio station in New Zealand.
In digital radio, iHeart Radio grew its registered users by 18% over the year to more than
831,000
8
and total listening hours increased 16% year on year to 3.2 million
9
. Other Revenue
(including iHeart and Events) was 7% higher in FY 2018 at $6.9 million.
NZME remains focussed on its strong brands to deliver consistent radio revenue growth
through: building audience across brands and digital platforms; and enhancing radio sales
skills and execution.
Direct Radio costs and contribution
Direct Radio and Experiential costs increased 1% in FY 2018, to $31.9 million. Radio and
Experiential contribution was $75.0 million in FY 2018, a decline of 5%.
6
PwC Radio Advertising Benchmark Report, Q3 18.
7
GfK Radio Audience Measurement, Commercial Stations. NZME & Partners in Major Markets Trended to T4/2018.
Station Share %, AP 18-54.
8
iHeartMedia, 2017- 2018; Adobe Analytics, 2018.
9
AdsWizz and StreamGuys, 2017-2018.
5
Direct Radio and Experiential costs include: radio licence fees, transmission costs, iHeart
licence fees, radio talent costs, and agency commission specifically related to Radio products,
and exclude integrated head office, content generation and sales costs.
Digital and e-Commerce
Digital and e-Commerce revenue grew 6% in FY 2018 to $60.0 million, with Digital revenue,
including Digital Classified revenue, growing 9% to $48.9 million and e-Commerce revenue of
$11.0 million, down 4%.
The growth rate of the digital advertising market slowed during FY 2018, impacted by a
contraction in the overall Agency advertising market. The Agency channel represents
approximately 50% of Digital advertising revenues. Digital Agency revenue grew 15% in H1
2018 and declined 7% in H2 2018, with 3% growth year on year. Direct Digital revenue grew
8% in FY 2018.
Industry display and mobile revenue growth, compared to the previous corresponding period,
slowed from an estimated 10% in FY 2017 to 5% in FY 2018. NZME’s display and mobile
revenue growth, compared to the previous corresponding period, slowed from 19% in FY
2017 to 3% in FY 2018. Digital advertising demand and revenue trends improved late in the
year.
The Digital market continues to evolve but retains highly attractive fundamentals and NZME
expects the channel to remain a long-term driver of growth
10
.
Digital includes the three Digital Classified portals, OneRoof (real estate), DRIVEN (autos)
and YUDU (jobs). DRIVEN and YUDU continue to show potential, but the priority remains on
OneRoof, which has greater revenue opportunity in the near term.
OneRoof is New Zealand’s newest real estate platform incorporating superior user experience
and search functionality.
Since launch in March 2018, OneRoof has made significant progress on growing real estate
listings and audience to support the generation of $0.7 million in revenue in FY 2018, with
$0.5 million of this in Q4 2018.
By the end of FY 2018, four out of the five major New Zealand agency groups were on
oneroof.co.nz and residential ‘for sale’ listings had grown to be approximately 66% of Trade
Me’s national residential ‘for sale’ listings and 87% Trade Me’s Greater Auckland residential
‘for sale’ listings. OneRoof has also seen increasing listings engagement, saved property
searches and enquiry rates.
OneRoof has enjoyed strong audience growth since launch, supported by listings and the
integrated content and advertising strategy. Audience growth was given a significant boost in
early December 2018 with the release of the OneRoof Quarterly Property Report. An
estimated 40% of audience comes as referral from nzherald.co.nz, 40% direct to site or via
organic search and around 50% of audience is mobile.
10
PwC Outlook NZ Entertainment Outlook 2018 – 2022.
6
In e-Commerce, GrabOne revenue of $11.0 million in FY 2018 reflected stabilisation in the
second half due to a higher degree of personalisation and targeted direct marketing.
Following an 8% revenue decline in H1 2018, e-Commerce revenue grew in H2 2018, to
finish year just 4% lower than FY 2017. This represents a notable stabilisation in revenue
compared to the 18% revenue decline experienced in FY 2017 and 16% decline in FY 2016,
reflecting the change in the GrabOne business model over this time.
Direct Digital and e-Commerce costs
Direct Digital and e-Commerce costs include fulfilment costs, production costs, bank
merchant fees related to GrabOne, agency commission specifically related to Digital products
and costs associated with the Digital Classifieds.
Excluding incremental Digital Classified costs, Direct Digital and e-Commerce costs increased
24% in FY 2018 to $10.3 million, reflecting growth in production and fulfilment costs.
Incremental Digital Classified costs were in line with expectations at $6.1 million in FY 2018.
FINANCE AND CORPORATE
Costs
At the group level, total Trading costs
1
increased 1% in FY 2018 to $327.7 million, which
included incremental Digital Classified costs of $6.1 million. Excluding incremental Digital
Classified costs, underlying costs declined 1% in FY 2018. H2 costs were impacted by the
additional publishing week in FY 2018 and an increase in contractual property operating
expenses.
Exceptional items of $9.2 million in FY 2018 included redundancy costs of $5.3 million, the
write-off of the $2.2 million investment in Ratebroker due to underperformance in the
Ratebroker business, and other one-off costs of $1.7 million.
Cash flow and net debt
Cash flow from operations was $46.9 million in FY 2018, compared to $56.2 million in the
prior year, impacted by reduced Trading EBITDA
1
and increased working capital.
Capital expenditure of $14.1 million for FY 2018 was in line with expectations and down
modestly on the prior year. In FY 2019, capex is expected to decline to around $12 million
due to the completion of a number of key technology integration projects.
Year-end net debt increased $7.9 million from 31 December 2017, reflecting reduced
operating cash flow, higher tax payments, exceptional items and dividend payments.
Tax paid was higher in FY 2018 due to the timing impact of FY 2017 tax payments. In FY
2019, tax payments are expected to be in line with accounting tax expense.
7
Capital management
Following the completion of the Board’s capital review in November 2018, NZME announced a
revised Capital Management Policy, which supports long-term strategic objectives and
operational priorities to maximise shareholder value.
The near-term objective is to reduce gearing while maintaining investment in growth
opportunities and continue paying dividends, when trading and investment conditions permit.
Net debt was $98.3 million at 31 December 2018, compared to $106.1 million at 30 June
2018 and $90.2 million at 31 December 2017. The ratio of net debt to rolling 12-month
Trading EBITDA
1
was 1.8 times at 31 December 2018.
NZME is targeting a net debt reduction of between $10 million and $15 million per annum, to
bring the leverage ratio to within the target range of 1.0 to 1.5 times rolling 12-month
Trading EBITDA
1
.
Subject to achieving the annual debt reduction target, and having regard to NZME’s capital
requirements, operating performance, financial position and cash flow at the time, NZME
intends to pay dividends of 30% to 50% of reported NPAT.
As part of the capital review, new bank facilities of $150 million were established in
November 2018 with expiry extended to 1 January 2022. Reflecting the intention to reduce
gearing, the size of the new bank facility will be reduced progressively over its term, lowering
facility costs over that time. NZME retains significant headroom under its existing facilities,
with undrawn bank facilities as at 31 December 2018 of $51.7 million.
Consistent with the revised policy the Board has elected not to declare a final dividend with
respect to FY 2018. Total dividends for FY 2018 will therefore remain at the 2.0 cents per
share, fully imputed, paid in October 2018 in relation to the first half of FY 2018.
Board
Barbara Chapman and Sussan Turner were appointed as Independent Directors during the
year. The Board comprises five directors with a strong mix of experience and skills to support
the development and implementation of strategy.
Industry consolidation
In October 2018, NZME resolved to not appeal the Court of Appeal’s decision in relation to
the proposed merger of NZME and Nine Entertainment Co. Holdings Limited’s (previously
Fairfax Media Limited) New Zealand subsidiary, Stuff Limited. This brings the merger process
to a conclusion.
Industry consolidation has been a powerful trend in the media sector and is expected to
continue. As has always been the case, NZME is actively seeking to take advantage of
opportunities that may arise, where it supports strategic objectives and adds value for
shareholders.
8
FY 2019 STRATEGIC PRIORITIES
NZME’s long term strategy is based on a three-horizon model, focusing on: (1) optimising
core businesses; (2) growing new revenue streams that leverage existing audience and
customer relationships; and (3) re-imagining revenue models that address unmet customer
needs.
In FY 2019, NZME intends to focus on horizon 2 – revenue growth – in three main areas:
1. Leading the future of news and journalism in New Zealand
2. Increasing radio capability and performance
3. Creating New Zealand’s leading real estate platform
Leading the future of news and journalism in New Zealand
In line with the strategy to leverage audience reach and brand strength to grow new revenue
streams, NZME intends to launch paid content on its digital mastheads in Q2 2019.
Audience willingness to pay for digital content has increased significantly in recent years.
NZME will adopt the “freemium” model with day-to-day news and current affairs provided
free of charge and in-depth analysis and opinion available on subscription. The technology
partnership with Washington Post Arc has enabled NZME to tailor content and enhance the
personalisation of the New Zealand Herald online experience.
In FY 2018, NZME invested in premium and in-depth journalism and utilised data to target
content and lift user engagement. nzherald.co.nz now has more than 520,000 registered
online users.
The strategy is to build technology, content and audience to deliver revenue. The current
technology focus is on optimising user experience. The new platform will deliver access to
the best content from four top global publishers and an unrivalled local team of premium
journalists across business, politics, news, sport, lifestyle and entertainment.
nzherald.co.nz intends to maintain its 1.7 million strong current audience
11
with a model that
ensures the majority of content remains free.
Increased premium content, and digital audience engagement will support NZME’s target to
deliver 10,000 digital subscribers within the first year. Digital subscriptions are also expected
to improve print subscriber retention.
The FY 2019 net investment in digital subscriptions is expected to be $1.2 million, including
costs associated with global syndicated content, launch and ongoing marketing support.
NZME expects paid subscriptions to make a positive contribution to EBITDA in the second
year following launch.
11
Nielsen Online Ratings, December 2018.
9
Increase radio capability and performance
The New Zealand Radio market is highly competitive. NZME is the second largest radio
operator in New Zealand, with a weekly radio audience of 2.0 million
12
. NZME also has the
exclusive license for the iHeart Radio platform in New Zealand and is well positioned to take
advantage of the growing digital radio market.
Improvements in NZME’s radio audience share and sales execution offers a meaningful
revenue opportunity in the medium term. In FY 2019, NZME will continue to enhance radio
sales skills to support integrated selling. It will pursue digital audience and revenue growth
through leveraging iHeart capability and will develop new shows to further build radio
audience.
The success metrics of the strategy are to deliver growth in radio revenue, improve audience
share in the key 18-54 demographic and continue to grow iHeart registered users and
streaming hours.
Creating New Zealand’s leading real estate platform
NZME sees a significant opportunity to capitalise on its existing real estate advertising
presence to grow shareholder value by creating New Zealand’s leading real estate platform.
Real Estate is NZME’s largest revenue vertical representing $32.8 million in revenue
(excluding OneRoof) in FY 2018.
OneRoof has made significant progress in the last 12 months including technology build, rapid
listings and audience growth and, largely in the last quarter of FY 2018, initial revenue of
$0.7 million.
To further leverage NZME’s strong real estate position, Real Estate products have now been
co-branded OneRoof to facilitate integrated sales and content offerings.
In FY 2019, the focus is on securing further market listings and property categories, ongoing
development of user features and tools to enhance listings engagement, and leading New
Zealand’s property market commentary and insights, to support continued revenue growth.
OUTLOOK
Improving trends for Advertising bookings in Q1 2019. Bookings are tracking down 2%,
compared with the 4% decline experienced in the same period in FY 2018. The Agency
market remains challenged, however, trends are improving.
The launch of digital subscriptions is on track for Q2 2019 with modest revenue
expectations and estimated net investment of $1.2m in FY 2019. OneRoof is expected to
deliver further listings, audience and revenue growth in FY 2019.
12
Gfk Radio Audience Measurement, Commercial stations, NZME and Partners, Cumulative Audience T4 2018.
10
NZME is continuing its focus on cost reduction. Savings made in Q4 2018 will impact FY
2019. However, given the ongoing investment in Digital Classifieds and digital
subscriptions, net cost reduction is likely to be modest.
NZME will continue to enhance radio sales skills to support integrated selling and Radio
revenue growth.
In line with the Capital Management Policy announced in November 2018, NZME is
targeting a reduction in debt of $10m to $15m in FY 2019.
Industry consolidation is expected to continue to present opportunities for NZME.
All FY 2018 results materials can be found at:
www.nzx.com/markets/NZSX/securities/NZM/announcements
ENDS
For further information:
Michael Boggs
Chief Executive Officer
T: +64 9 367 6123
Email: Michael.Boggs@nzme.co.nz
Alexa Preston
GM Corporate Finance & Investor Relations
T: +64 21 997 902
Email: alexa.preston@nzme.co.nz
Briefing Audio:
There will be an audio recording of the full year results briefing, to be held at 10:00 a.m.
NZDT on Tuesday, 19 February 2019, including Q&A, made available later in the day at
www.nzme.co.nz/investor-relations/presentations-webcasts
About NZME
NZME is a leading New Zealand media and entertainment business that reaches more than
3.3 million kiwis
2
. Whether reading, listening or watching, our audience gets the content they
want – where and when they want it. NZME offers advertisers a unique opportunity to access
its growing audience via a fully integrated multi-platform presence. NZME is listed on the NZX
Main Board (code NZM) with a foreign exempt listing on the ASX (code NZM).
---
CONSOLIDATED
FINANCIAL STATEMENTS
NZME Limited
FOR THE YEAR ENDED 31 DECEMBER 2018
Page 2
Directors’ Statement 3
Consolidated Income Statement 4
Consolidated Statement of Comprehensive Income 5
Consolidated Balance Sheet 6
Consolidated Statement of Changes in Equity 7
Consolidated Statement of Cash Flows 8
Notes to the Consolidated Financial Statements*
Basis of Preparation 9
Group Performance 12
Operating Assets & Liabilities 22
Capital Management 32
Taxation 48
Group Structure and Investments in Other Entities 51
Other Notes 56
Independent Auditor’s Report 58
* In an attempt to make these financial statements easier to read, the notes to the financial statements have been grouped into seven
sections; aimed at grouping items of a similar nature together. The Basis of Preparation section presents a summary of material
information and general accounting policies that are necesary to understand the basis on which these consolidated financial statements
have been prepared. Accounting policies specific to a particular note are included in that note and are shaded for ease of reference. Key
judgments and estimates relevant to a particular note are also included in the relevant note, and are clearly marked as such. A summary
of the key judgments and estimates is also included under the Basis of Preparation section on pages 9 to 11.
CONTENTS
Consolidated Financial Statements
for the year ended 31 December 2018
Page 3
The directors are pleased to present the consolidated financial statements of NZME Limited (the “Company”) and its
subsidiaries (together the “Group”) for the year ended 31 December 2018, incorporating the consolidated financial
statements and the auditor’s report.
The directors are responsible, on behalf of the Company, for presenting these consolidated financial statements in
accordance with applicable New Zealand legislation and generally acceptable accounting practices in New Zealand in
order to present consolidated financial statements that present fairly, in all material respects, the financial position of the
Group as at 31 December 2018 and the results of the Group’s operations and cash flows for the year.
The consolidated financial statements for the Group as presented on pages 4 to 57 are signed on behalf of the Board of
Directors, and are authorised for issue on the date below.
For and on behalf of the Board of Directors
DIRECTORS’ STATEMENT
Peter Cullinane Carol Campbell
Director Director
Date: 18 February 2019
Page 4
Note
2018
$’000
2017
$’000
Revenue2.1
388,269
390,688
Finance and other income2.1
769
926
Total revenue and other income
2.1
389,038
391,614
Expenses from operations before finance costs, depreciation, amortisation2.2.1
(343,459)
(332,839)
Depreciation & amortisation2.2.2
(24,555)
(24,946)
Finance costs2.2.3
(4,636)
(4,497)
Profit / (loss) from continuing operations before income tax expense16,388
29,332
Income tax expense5.1
(4,816)
(8,447)
Profit for the year11,572
20,885
Profit for the year is attributable to:
Owners of the Company
11,735
20,885
Non-controlling interests
(163)
-
Profit for the year11,572
20,885
Cents
Cents
Earnings per share attributable to the ordinary shareholders of the
Company
Basic / diluted earnings per share2.3
6.0 10.7
The above Consolidated Income Statement should be read in conjunction with the accompanying notes.
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2018
Page 5
Note
2018
$’000
2017
$’000
Profit for the year11,572
20,885
Other comprehensive income
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations4.2
32
(15)
Items that will not be reclassified to profit or loss
Exchange and other differences applicable to non-controlling interests
-
-
Other comprehensive income, net of tax32
(15)
Total comprehensive income11,604
20,870
Total comprehensive income attributable to:
Owners of the Company
11,767
20,870
Non-controlling interests
(163)
-
11,604
20,870
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the
accompanying notes.
C O N S O LI DATE D S TATE M E NT
OF COMPREHENSIVE INCOME
for the year ended 31 December 2018
Page 6
Note
2018
$’000
2017
$’000
Current assets
Cash and cash equivalents4.7
11,717
9,570
Trade and other receivables3.3
58,694
55,323
Inventories
1,866
1,926
Tax receivable
898
-
Total current assets73,175
66,819
Non-current assets
Intangible assets3.1
329,911
330,553
Property, plant and equipment3.2
47,14 5
56,031
Capital work in progress3.2.1
8,758
8,694
Other financial assets6.3.2
3,788
5,988
Total non-current assets389,602
401,266
Total assets462,777
468,085
Current liabilities
Trade and other payables3.4
52,036
56,894
Current tax provision
-
7,567
Total current liabilities52,036
64,461
Non-current liabilities
Trade and other payables3.4
13,665
13,565
Interest bearing liabilities4.5
109,992
99,788
Deferred tax liabilities5.2
448
1,239
Total non-current liabilities124,105
114,592
Total liabilities176,141
179,053
Net assets286,636
289,032
Equity
Share capital4.1
360,363
360,363
Reserves4.2
2,998
2,385
Retained earnings
(77,662)
(73,716)
Total Company interest285,699
289,032
Non-controlling interests937
-
Total equity286,636
289,032
The above Consolidated Balance Sheet should be read in conjunction with the accompanying notes.
CONSOLIDATED BALANCE SHEET
as at 31 December 2018
Page 7
Attributable to owners of the company
Note
Share
capital
$’000
Reserves
$’000
Retained
earnings
$’000
To t a l
$’000
Non-
controlling
interests
$’000
To t a l
Equity
$’000
Balance at 1 January 2017
360,363(5,198)(69,606)
285,559
-
285,559
Profit for the year--20,885
20,885
-
20,885
Other comprehensive income -(15)-
(15)
-
(15)
Total comprehensive income
-(15)20,885
20,870
-
20,870
Dividends paid--(18,622)
(18,622)
-
(18,622)
Supplementary dividends paid--(2,785)
(2,785)
-
(2,785)
Tax credit on supplementary dividends--2,785
2,785
-
2,785
Transfer from transactions with
non-controlling interest reserve
4.2-6,373(6,373)
-
-
-
Share based payments expense4.2-1,225-
1,225
-
1,225
Balance at 31 December 2017
360,3632,385(73,716)
289,032
-
289,032
Balance at 1 January 2018
360,3632,385(73,716)
289,032
-
289,032
Profit for the year--11,735
11,735
(163)
11,572
Other comprehensive income -32-
32
-
32
Total comprehensive income
-3211,735
11,767
(163)
11,604
Dividends paid--(15,681)
(15,681)
-
(15,681)
Supplementary dividends paid--(1,864)
(1,864)
-
(1,864)
Tax credit on supplementary dividends--1,864
1,864
-
1,864
Share based payments expense4.2-581-
581
-
581
Equity transactions with non-controlling
interests
---
-
1,100
1,100
Balance at 31 December 2018
360,3632,998( 7 7,6 62)
285,699
937
286,636
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
C O N S O LI DATE D S TATE M E NT
OF CHANGES IN EQUITY
for the year ended 31 December 2018
Page 8
C O N S O LI DATE D S TATE M E NT
OF CASH FLOWS
for the year ended 31 December 2018
Note
2018
$’000
2017
$’000
Cash flows from operating activities
Receipts from customers
378,082
3 87, 2 28
Payments to suppliers and employees
(338,289)
(336,626)
Dividends received
143
128
Interest received
80
139
Interest paid
(4,096)
(5,804)
Income taxes paid
(14,078)
(5,610)
Net cash inflows / (outflows) from operating activities
4.7
21,842
39,455
Cash flows from investing activities
Payments for property, plant and equipment
(6,000)
(4,881)
Payments for intangible assets including software
(8,080)
(10,165)
Proceeds from sale of property, plant and equipment
30
27
Payments for investment in other entities
(49)
-
Net cash inflows / (outflows) from investing activities(14,099)
(15,019)
Cash flows from financing activities
Proceeds from borrowings
107,400
84,000
Repayments of borrowings
(96,900)
(96,486)
Payments for borrowing cost
(415)
-
Dividends paid to Company's shareholders
(15,681)
(18,622)
Net cash inflows / (outflows) from financing activities(5,596)
(31,108)
Net increase / (decrease) in cash and cash equivalents
2 ,147
(6,672)
Cash and cash equivalents at beginning of the year
9,570
16,242
Cash and cash equivalents at end of the year
4.7
11,717
9,570
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
Page 9
1.1 REPORTING ENTITY AND STATUTORY BASE
NZME Limited (NZX and ASX:NZM) is a for-profit company limited by ordinary shares which are publicly traded on the
NZX Main Board and the Australian Securities Exchange as a Foreign Exempt Listing. NZME Limited is incorporated and
domiciled in New Zealand. It is registered under the Companies Act 1993 and is a FMC reporting entity under Part 7 of the
Financial Markets Conduct Act 2013. The entity’s registered office is 2 Graham Street, Auckland, 1010, New Zealand.
NZME Limited (the “Company” or “Parent”) and its subsidiaries’ (together the “Group”) principal activity during the financial
year was the operation of an integrated media and entertainment business.
1.2 GENERAL ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance with New Zealand Generally Accepted
Accounting Practice (“NZ GAAP”). They comply with New Zealand equivalents to International Financial Reporting
Standards (“NZ IFRS”) and other applicable Financial Reporting Standards, as appropriate for for-profit entities. The
consolidated financial statements also comply with International Financial Reporting Standards (“IFRS”). The consolidated
financial statements have also been prepared in accordance with Part 7 of the Financial Markets Conduct Act 2013 and the
NZX Listing Rules.
The principal accounting policies adopted in the preparation of the financial statements are either set out below, or in the
relevant note. These policies have been consistently applied to all the years presented, unless otherwise stated. These
consolidated financial statements are presented for the Group and were approved for issue by the Board of Directors on 18
February 2019.
1.2.1 Basis of measurement
These financial statements have been prepared under the historical cost convention with the exception of certain items for
which specific accounting policies are identified.
1.2.2 Comparatives
Certain prior period information has been re-presented to ensure consistency with current year disclosures and to provide
more meaningful comparison.
1.2.3 Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (functional currency). The consolidated financial statements are
presented in New Zealand dollars, which is the Company’s functional and the Group’s presentation currency, and rounded
to the nearest thousand, except where otherwise stated.
1.2.4 Goods and Services Tax (‘GST’)
The income statement has been prepared so that all components are stated exclusive of GST. All items in the balance
sheet are stated net of GST, with the exception of receivables and payables, which include GST invoiced. In the statement
of cash flows, receipts from customers and payments to suppliers are shown exclusive of GST.
NOTES TO THE CONSOLIDATED FINANCIAL
S TATE M E NT S
1.0 BASIS OF PREPARATION
Page 10
1.3 SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS
The preparation of the consolidated financial statements requires the use of certain significant judgments, accounting
estimates and assumptions, including judgments, estimates and assumptions concerning the future. The estimates and
assumptions are based on historical experiences and other factors that are considered to be relevant. The resulting
accounting estimates will by definition, seldom equal the related actual results and are reviewed on an ongoing basis. A list
of those areas of significant estimation or judgment and a reference to the notes containing further information is provided
below:
Areas of significant accounting estimates or judgmentsNote
Impact of Performance Rights on earnings per share2.3
Determination of the number of reportable segments2.4.1
Intangible assets with indefinite useful lives3.1
Assumptions used in testing for impairment of indefinite life intangible assets3.1.1
1.4 SIGNIFICANT CHANGES
1.4.1 Proposed Merger with Stuff Limited
On 25 September 2018 the Court of Appeal upheld the High Court’s decision to decline the proposed merger of NZME
Limited and Stuff Limited.
On 24 October 2018 the Company announced that it would not appeal the Court of Appeal’s decision.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 11
1.5 NEW STANDARDS AND INTERPRETATIONS ADOPTED IN THE CURRENT PERIOD
The Group adopted NZ IFRS 15
Revenue from Contracts with Customers for the first time on 1 January 2018. The Group
applied NZ IFRS 15 retrospectively with the cumulative effect of applying the standard for the first time recognised at the
date of initial application (1 January 2018). Comparative figures for the period ended 31 December 2017 have therefore
not been restated. The Group did not identify any significant changes in the timing of revenue recognition as a result of
the adoption of NZ IFRS 15 and accordingly there was no adjustment for the cumulative effect against opening retained
earnings at 1 January 2018. The Group did, however, identify instances resulting in revenue relating to certain types
of contracts being recognised at the gross amount that have been presented at an amount net of related expenses
historically. This resulted in an increase in both revenue and expenses, with no impact on net profit. Refer to note 2.1.1 for
further information on the impact of the adoption of NZ IFRS 15 on the period ended 31 December 2018.
1.6 STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE
NZ IFRS 16
Leases replaces NZ IAS 17 and is effective for the period commencing 1 January 2019. It requires a lessee
to recognise a lease liability reflecting future lease payments and a ‘right-of-use asset’ for virtually all lease contracts.
Included is an optional exemption for certain short-term leases and leases of low-value assets. Work has been undertaken
to review all of the lease commitments of NZME to determine the impact NZ IFRS 16 will have on EBITDA. Currently we
believe that the Group EBITDA will increase by between $16 million to $18 million when the standard is adopted as the
leased assets are transferred to the balance sheet and interest and depreciation replaces the current operating lease
expense.
All other standards, interpretations and amendments issued but not yet effective are either not applicable to the Group or
not material.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 12
NOTES TO THE CONSOLIDATED FINANCIAL
S TATE M E NT S
2.0 GROUP PERFORMANCE
2.1 DISAGGREGATION OF REVENUE AND OTHER INCOME
Print
$’000
Radio &
Experiential
$’000
Digital &
e-Commerce
$’000
To t a l
$’000
For the year ended 31 December 2018
Advertising114,159107,6 1358,932
280,704
Circulation & subscription81,498--
81,498
External printing & distribution8,805--
8,805
Other7,1375,6891,022
13,848
Segment revenue from integrated media and
entertainment activities
211,599113,30259,954
384,855
Shared services centre
3,414
Total revenues from external customers388,269
Dividends
143
Rental income from sub-leases
516
Gain on disposal of Property, Plant and Equipment
30
Other income689
Finance income
80
Total finance and other income769
Total revenue and other income 389,038
Print
$’000
Radio &
Experiential
$’000
Digital &
e-Commerce
$’000
To t a l
$’000
For the year ended 31 December 2017
Advertising121,012105,03756,048
282,097
Circulation & subscription83,263--
83,263
External printing & distribution9,571--
9,571
Other7,4735,034279
12,786
Segment revenue from integrated media and
entertainment activities
221,319110,07156,327
3 87,7 17
Shared services centre
2,971
Total revenues from external customers390,688
Dividends
128
Rental income from sub-leases
632
Gain on disposal of Property, Plant and Equipment
27
Other income787
Finance income
139
Total finance and other income926
Total revenue and other income 391,614
Page 13
2.1.1 Impact of NZ IFRS 15 adoption
As discussed in Note 1.5, the Group adopted NZ IFRS 15
Revenue from Contracts with Customers for the first time on
1 January 2018. Although the Group did not identify any significant changes in the timing of revenue recognition as a
result of the adoption of NZ IFRS 15, following a detailed analysis of the agency vs principal rules and changes to the
requirements relating to non-cash consideration (particularly as they relate to barter transactions), the Group identified
instances where revenue is now recognised at the gross amount and not net of the related expense as it would previously
have been reported. This results in an increase in both revenue and expenses, with no impact on net profit. The table below
shows the amount by which each financial statement line item is affected in the current year by NZ IFRS 15 as compared to
NZ IAS 18 and the related interpretations that were in effect before the change.
NZ IAS 18
$’000
Adjustment
$’000
NZ IFRS 15
$’000
For the year ended 31 December 2018
Revenue381,8076,462
388,269
Finance and other income769-
769
Total revenue and other income
382,5766,462
389,038
Expenses from operations before finance costs, depreciation, amortisation(336,997)(6,462)
(343,459)
Depreciation & amortisation(24,555)
-
(24,555)
Finance costs(4,636)
-
(4,636)
Profit before income tax expense
16,388-
16,388
Accounting policies
Given that NZ IFRS 15 was adopted at 1 January 2018, the Group applies the following accounting policies in relation
to revenue:
Advertising
The Group operates an integrated media and entertainment business and contracts with customers to provide
advertising on multiple platforms consisting of a series of distinct services that are substantially the same.
Advertising is often bundled to include print, radio and/or digital components. In most cases each component
of the bundle is treated as a distinct performance obligation and the transaction price is allocated on a relative
stand-alone selling price basis. Experiential campaigns are a type of bundling focused on providing an experience
utilising a mix of traditional advertising mediums with bespoke elements like competitions, product sampling,
street performances etc. These activities are highly integrated and inter-dependent and are therefore a single
performance obligation with revenue recognised over the period of the campaign. These campaigns often include
elements that are provided by external parties and the Group acts as the principal in those instances. These
campaigns are typically run over a short period of time and are typically completed and billed for in the same
reporting or billing period. Where the Group provides advertising for non-cash consideration, revenue is recognised
at the fair value of the consideration received, unless the Group cannot reasonably estimate the fair value of the
non-cash consideration; in which case revenue is recognised by reference to the stand-alone selling price of the
advertising promised to the customer. When advertising is exchanged for advertising, revenue is recognised on a
gross basis as set out above.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 14
Subscriptions
The Group enters into contracts with customers to deliver a specified publication on specified days. The
performance obligation is satisfied, and revenue is recognised, when the publication is delivered.
Circulation
The Group enters into contracts with customers to deliver specified publications on specified days which the
customer will on-sell to the public. The performance obligation is satisfied when the publication is delivered.
Certain customers have a right to return any unsold publications which is treated as variable consideration.
Customers are required to report unsold publications using an online system on a weekly basis. The Group
therefore includes in the transaction price an estimate of the unsold publications using the most likely amount
method based on the weekly reporting from customers to the extent that it is highly probable that a significant
reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the
variable consideration is subsequently resolved.
External printing and distribution
The Group enters into contracts with customers to print their publications and, in certain cases, distribute those
publications on their behalf; including maintaining a distribution network. The printing, delivery and maintenance
of a distribution network are distinct performance obligations. The performance obligation to print a publication
is satisfied when those publications are printed. Similarly, the performance obligation to deliver a publication is
satisfied when it is delivered. The performance obligation to maintain a distribution network is a service that is
largely the same on a monthly basis and is satisfied, and revenue recognised, in equal increments over the billing
period.
e-Commerce (GrabOne)
The Group acts as an agent for merchants selling their products or services to the public using the GrabOne
platform. The Group does not control the product or service before it is transferred to the purchaser. Revenue is
recognised in the amount of any fees or commissions the Group expects to be entitled to in exchange for arranging
for the product or service to be provided by the merchant.
Shared services centre
The Group provides back-office support services to customers. Revenue is therefore recognised in equal
increments over the billing period.
Deferred revenue
When a customer pays for goods or services in advance, the Group recognises a Deferred Revenue liability which is
reduced, and revenue recognised, as the Group satisfies each distinct performance obligation.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 15
Significant financing component
The Group does not expect, at contract inception, that the period between transferring the promised goods or
services from contracts with customers and when the customer pays for those goods and services to be more
than one year. The Group applies the practical expedient in NZ IFRS 15 to not adjust the promised amount of
consideration it expects to receive for those goods or services for the effects of a significant financing component.
Incremental cost of obtaining a contract
The Group applies the practical expedient in NZ IFRS 15 to recognise the incremental cost of obtaining a contract (such
as commission) when incurred if the amortisation period is one year or less. If material, the Group will recognise an asset
for any incremental cost of obtaining a contract with a customer if the Group expects to recover those costs and the
amortisation period is expected to be more than one year. Those costs will be amortised on a systematic basis that is
consistent with the transfer of the good or service to which the asset relates.
Costs to fulfil a contract
If the costs incurred in fulfilling a contract with a customer are material and not within the scope of another
standard, the Group recognises an asset from the costs incurred if all of the following criteria are met:
• The costs relate directly to the contract;
• The costs generate or enhance resources that the Group will use to satisfy the performance obligations in
that contract; and
• The costs are expected to be recovered.
Those costs will be amortised on a systematic basis that is consistent with the transfer of the goods or services
promised in that contract.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 16
2.2 EXPENSES
2018
$’000
2017
$’000
2.2.1 Expenses from operations before finance costs, depreciation, amortisation
Employee benefits expense
154,509
157,3 50
Production and distribution expense
72,997
75,045
Selling and marketing expense
52,728
47,56 9
Rental and occupancy expense
22,023
21,986
Costs in relation to one-off projects
1,632
2,970
Redundancies and associated costs
5,289
4,314
Asset write-downs and business closures
89
275
Impairment of Financial Asset
2,249
-
Repairs and maintenance costs
7, 5 41
6,973
Travel and entertainment costs
4,007
4,180
Other
20,395
12,177
Total expenses from operations before finance costs, depreciation, amortisation343,459
332,839
2.2.2 Depreciation & amortisation
Depreciation
14,664
15,559
Amortisation
9,891
9,387
Total depreciation & amortisation24,555
24,946
2.2.3 Finance costs
Interest and finance charges – other entities
4,517
4,391
Borrowing cost amortisation
119
106
Total finance costs4,636
4,497
2.2.4 Fees paid to auditors
Fees paid to the Group’s auditors, PricewaterhouseCoopers, consist of:
Audit or review of financial statements
A
383
368
Other services
Other assurance services
B
22
51
Tax services
C
71
109
Other services
D
26
125
Total other services119
285
Total fees paid to auditors502
653
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 17
A
Includes the fee for both the audit of the annual financial statements and the independent review of the
interim financial statements.
B
Includes regulatory and other assurance services, including New Zealand circulations and payroll assurance.
C
Includes services relating to transactional advice, tax compliance services.
D
Includes Treasury advisory services in 2018 and due diligence and advisory services relating to the proposed
merger with Stuff Limited in 2017.
2.3 EARNINGS PER SHARE
Significant judgment: Under the Group’s Total Incentive Plan (“TIP”) as discussed in Note 4.3, Performance Rights
were issued to certain participating employees that, for the 2017 TIP, will at the discretion of the Board either
convert into fully paid ordinary shares or be settled in cash; and for the 2016 TIP, will convert into fully paid ordinary
shares. Under the TIP, where Performance Rights are settled in shares, the Company would either repurchase those
shares from the market or issue new shares. Any new shares issued would have a dilutive effect on the Earnings Per
Share calculations noted below. It is currently the intention of the Company to either repurchase shares from the
market or settle the rights in cash and not to issue new shares.
2018
$’000
2017
$’000
Reconciliation of earnings used in calculating basic / diluted earnings per share (“EPS”)
Profit attributable to owners of the parent entity
11,735
20,885
Profit attributable to owners of the parent entity used in calculating EPS11,735
20,885
2018
Number
2017
Number
Weighted average number of shares
Weighted average number of shares in the denominator in calculating basic EPS
196,011,282 196,011,282
Adjusted for calculation of diluted EPS
-
-
Weighted average number of shares in the denominator in calculating diluted EPS 196,011,282
196,011,282
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 18
2018
Cents
2017
Cents
Basic / diluted earnings per share
Attributable to owners of the parent entity
6.0
10.7
Total basic / diluted earnings per share attributable to owners of the parent entity6.0
10.7
Accounting policies
Basic earnings per share
Basic earnings per share is determined by dividing:
• the profit or loss attributable to owners of the Company; by
• the weighted average number of ordinary shares outstanding during the financial year, adjusted for
bonus elements in ordinary shares issued during the financial year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share by taking into
account:
• the after-tax effect of dividends, interest and other changes in income or expense associated with
dilutive potential ordinary shares; and
• the weighted average number of additional ordinary shares that would have been outstanding
assuming the conversion of all dilutive potential ordinary shares.
(Note that there are no dilutive potential ordinary shares in 2018 (2017: nil))
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 19
2.4 SEGMENT INFORMATION
2.4.1 Determination and description of segments
Significant judgments: The Group has one reportable segment – being “Integrated Media and Entertainment”. All
significant operating decisions are based upon analysis of NZME as one operating segment. The Executive Team
and the Board of Directors have been identified as the Chief Operating Decision Maker. The Group’s major products
and services are split by channel only at the revenue level into Print, Radio & Experiential and Digital & e-Commerce
which is the way in which revenue is reported to the Chief Operating Decision Maker. Although the Group operates
in many different markets within New Zealand, for management reporting purposes the Group operates in one
principle geographical area being New Zealand as a whole.
Integrated Media and Entertainment incorporates the sale of advertising, goods and services generated from the
audiences attached to the Group’s media platforms.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 20
2.4.2 Segment revenues and results
The segment information provided to the Directors and Executive Team for the year ended 31 December 2018 is as follows:
2018
$’000
2017
$’000
Revenues from external customers by channel
Print
211,599
221,319
Radio & Experiential
113,302
110,071
Digital & e-Commerce
59,954
56,327
Segment revenue from integrated media and entertainment activities384,855
3 87,7 17
Revenue from shared services centre
3,414
2,971
Total revenues from external customers388,269
390,688
Dividend income
143
128
Rental income from sub-leases
516
632
Expenses from operations before finance costs, depreciation, amortisation
and exceptional items
(334,200)
(325,280)
Total Segment Adjusted EBITDA
A
54,728
66,168
Depreciation and amortisation
(24,555)
(24,946)
Interest income
80
139
Finance cost
(4,636)
(4,497)
Exceptional items
Loss on disposal of properties
B
(59)
(248)
Redundancies and associated costs
C
(5,289)
(4,314)
Costs in relation to one off projects
D
(1,632)
(2,970)
Impairment of Financial Asset
E
(2,249)
-
Profit / (Loss) before tax from continuing operations16,388
29,332
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 21
A
Adjusted Earnings before Interest, Tax, Depreciation and Amortisation (Adjusted EBITDA) from continuing operations
which excludes exceptional items, is a non-GAAP measure that represents the Group’s total segment result which is
regularly monitored by the Chief Operating Decision Maker. Exceptional items are those gains, losses, income and
expense items that are not directly related to the primary business activities of the Group which are determined
in accordance with the NZME Exceptional Items Recognition Framework adopted by the Audit & Risk Committee.
Exceptional items include redundancies, impairment, one-off projects and the disposal of properties or businesses.
These items are excluded from the segment result that is regularly reviewed by the Chief Operating Decision Maker.
B
Loss on disposal of properties is the final adjustment on Greymouth land in 2018 and the loss on sale of land in
Ouruhia and Greymouth in 2017.
C
The redundancies and associated costs relate to the restructuring and integration of the New Zealand operations.
D
2018 costs relate to the provision for historical pay adjustments, residual costs in relation to the Stuff Limited merger
appeal and one off project costs. 2017 costs primarily relate to external consultants assisting with the proposed
merger with Stuff Limited and the continuing integration and co-location of NZME.
E
Impairment costs are in relation to the investment in Ratebroker (see note 6.3.2).
As the Group has one operating segment, the assets and liabilities as reported on the consolidated balance sheet are also
the segment assets and liabilities, and the income tax expense in the consolidated income statement is also the segment
income tax.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 22
3.1 INTANGIBLE ASSETS
Significant judgment: The Directors have determined that masthead brands and brands have indefinite lives and
are therefore not amortised. Refer to the accounting policies below for further information.
Goodwill
$’000
Software
$’000
Masthead
Brands
$’000
Radio
Licences
$’000
Brands
$’000
To t a l
$’000
As at 1 January 2017
Cost166,39749,309146,9767 7,4 5759,079
499,218
Accumulated amortisation and impairment(95,614)(38,439)-(35,389)-
(169,442)
Net book value
70,78310,870146,97642,06859,079
329,776
For the year ended 31 December 2017
Opening net book amount70,78310,870146,97642,06859,079
329,776
Additions -1,932-90-
2,022
Disposals-----
-
Amortisation-(6,434)-(2,953)-
(9,387)
Transfers from capitalised work in progress-8,142---
8,142
Net book value
70,78314,510146,97639,20559,079
330,553
As at 31 December 2017
Cost166,39759,384146,9767 7,5 4759,079
509,383
Accumulated amortisation and impairment(95,614)(44,874)-(38,342)-
(178,830)
Net book value
70,78314,510146,97639,20559,079
330,553
For the year ended 31 December 2018
Opening net book amount70,78314,510146,97639,20559,079
330,553
Additions -2,103---
2 ,103
Disposals-----
-
Amortisation-(6,935)-(2,956)-
(9,891)
Transfers from capitalised work in progress-7,14 6---
7,14 6
Net book value
70,78316,824146,97636,24959,079
329,911
As at 31 December 2018
Cost166,39768,633146,9767 7,5 4759,079
518,632
Accumulated amortisation and impairment(95,614)(51,809)-(41,298)-
(188,721)
Net book value
70,78316,824146,97636,24959,079
329,911
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
3.0 OPERATING ASSETS & LIABILITIES
Page 23
Accounting policies
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net
identifiable assets of the acquired business at the date of the acquisition. Goodwill is not amortised but rather is
subject to periodic impairment testing (refer to note 3.1.1 below).
Software
Costs incurred in developing systems, acquiring software and licences are capitalised to software.
Costs capitalised include materials, services, payroll and payroll related costs of employees involved in the
development. Amortisation is calculated on a straight line basis over the useful life of the asset (typically 3 to 10
years).
Radio licences
Commercial radio licences are accounted for as identifiable assets and are initially recognised at cost. The current
New Zealand radio licences expire on 31 March 2031 and are being amortised on a straight line basis to that date.
Masthead brands
Masthead brands, being the titles, logo’s and similar items of the integrated media assets of the Group are
accounted for as identifiable assets and are initially recognised at cost. The Directors believe the masthead brands
have indefinite lives as there is no foreseeable limit over which they are expected to generate net cash inflows for
the Group. Accordingly, masthead brands are not amortised but are tested for impairment each year (refer to note
3.1.1 below).
Brands
Brands are accounted for as identifiable assets and are initially recognised at cost. The Directors have considered
the geographic location, legal, technical and other commercial factors likely to impact the assets’ useful lives and
consider that they have indefinite lives. Accordingly, brands are not amortised but are tested for impairment each
year (refer to note 3.1.1 below).
3.1.1 Year-end impairment review
Significant judgment: As disclosed in note 2.4 the Directors have determined that the Group has one reportable
segment – being “Integrated Media and Entertainment”. The Directors have also determined that this is the only
cash generating unit (“CGU”) for impairment testing because this is the lowest level for which there are separately
identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets.
Accordingly all goodwill and intangibles with indefinite useful lives are allocated to one CGU. This note also
includes details of certain key estimates and assumptions made during the impairment testing process.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 24
A comprehensive impairment review was conducted at 31 December 2018. The recoverable amount of the CGU (which
includes goodwill and indefinite life intangible assets) is determined based on the higher of fair value less costs to sell
and value in use calculations using management budgets and forecasts. The recoverable amount of the CGU is compared
against the carrying value of the CGU to determine whether there has been impairment.
Key estimates and assumptions
20182018
20172017
Post-tax
discount rate
Long-term
growth rate
Post-tax
discount rate
Long-term
growth rate
Integrated Media and Entertainment CGU9.5%0.0%9.5%0.0%
Forecast prepared over the forecast period (2019 – 2023)
The forecasts used in impairment testing have been prepared by management for that specific purpose. Actual
results may differ materially from those forecast or implied. The forecasts are not, and should not be read as, a
forecast of, or guidance as to, the future financial performance and earnings of the Group.
Revenue forecasts are prepared based on management’s current expectations, with consideration given to internal
information and relevant external industry data and analysis. In particular:
• Print revenues are forecast to decline in line with management expectations for this channel.
• Digital revenues, excluding sums forecasted to be received from the Digital Classifieds, are forecast to grow in
line with management expectations for this channel.
• Radio and experiential revenues are forecast to grow by between 3.0% and 5.1% each year.
• Revenue from Digital Classifieds launched in 2018 is expected to increase over time. The average revenue
forecast for the purposes of impairment assessment is $6.5 million per year over the forecast period.
• Expenses are forecast to reduce by between 2.9% and 1.5% each year.
Based on the above assumptions the directors have not identified any impairment. The recoverable amount of the CGU
exceeds its carrying amount by $16 million.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 25
3.1.2 Impact of reasonably possible change in key assumptions
The forecasts used in impairment testing require assumptions and judgments about the future, such as discount rates, long
term growth rates, forecasted revenues, to which the model is sensitive and which are inherently uncertain.
Management have identified the following reasonably possible changes to key assumptions which could result in
impairment:
• Radio revenues grow at a lower rate than expected.
• Digital Classifieds revenues grow at a lower rate than expected.
• Cost reduction is not at the forecasted level.
The following changes in the assumptions would be required to cause the recoverable amount of CGU to be equal to its
carrying amount.
• A reduction in radio revenue forecasts of 0.4% to a range between 2.6% to 4.7%.
• A reduction in the average Digital Classifieds revenue forecast to $4.6m per year over the five year forecast
period.
• Forecast cost reductions are smaller by a total of $7.5 million over the five year forecast period.
Note: the above disclosure assumes that each of the changes is in isolation and assumes that all other factors are
consistent.
The Group compares the net book value of assets with the market capitalisation value at each balance date. The share
price at 31 December 2018 was $0.50 equating to a market capitalisation of $98.0 million. This market value excludes any
control premium and may not reflect the value of 100% of NZME’s net assets. The book value of NZME’s net assets at 31
December 2018 was $286.6 million ($1.46 per share). Management considered the reasons for this difference, whether all
relevant factors had been allowed for in their value in use model, and engaged a third party expert to assist in validating
their assessment of the recoverable amount.
Accounting policy
Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested
annually for impairment and at the end of each reporting period if there is an indication that they may be impaired.
Intangible assets that are subject to amortisation are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount may exceed its recoverable amount. An impairment charge is
recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which
are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Currently,
the group has only one CGU, being Integrated Media and Entertainment. Non-financial intangible assets, other
than goodwill, that suffer impairment are reviewed for possible reversal of the impairment at each reporting date.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 26
3.2 PROPERTY, PLANT AND EQUIPMENT
Freehold
land
A
$’000
Buildings
A
$’000
Plant and
equipment
$’000
To t a l
$’000
As at 1 January 2017
Cost or fair value1,38114,562329,569
345,512
Accumulated depreciation and impairment-(2,217)(274,7 79)
(276,996)
Net book amount
1,38112,34554,790
68,516
Year ended 31 December 2017
Opening net book amount1,38112,34554,790
68,516
Additions-2733,076
3,349
Disposals(216)(8)(60)
(284)
Depreciation-(2,302)(13,257)
(15,559)
Transfers from capitalised work in progress-(29)38
9
Net book amount
1,16510,27944,587
56,031
As at 31 December 2017
Cost or fair value1,16514,764330,021
345,950
Accumulated depreciation and impairment-(4,485)(285,434)
(289,919)
Net book amount
1,16510,27944,587
56,031
Year ended 31 December 2018
Opening net book amount1,16510,27944,587
56,031
Additions-23626
649
Disposals-(89)-
(89)
Depreciation-(1,780)(12,884)
(14,664)
Transfers from capitalised work in progress-105,208
5,218
Net book amount
1,1658,44337,537
47,14 5
As at 31 December 2018
Cost or fair value1,16514,697335,602
351,464
Accumulated depreciation and impairment-(6,254)(298,065)
(304,319)
Net book amount
1,1658,44337,537
47,14 5
A
Freehold land and buildings include leasehold improvements with a net book value of $8,311,993 (2017: $9,901,993)
carried at cost. All other freehold land and buildings are held at fair value based on independent valuations. If land
and buildings were stated on the historical cost basis, the net book value of land would have been $442,270 (2017:
$442,270) and the net book value of buildings would have been $327,038 (2017: $336,973). The last revaluation was
performed for the year ended 31 December 2015.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 27
3.2.1 Capital work in progress
2018
$'000
2017
$'000
As at 1 January8,694
7,16 0
Additions
12,428
9,685
Transfers to intangible assets
( 7,14 6)
(8,142)
Transfers to property plant and equipment
(5,218)
(9)
As at 31 December8,758
8,694
Capital work in progress, which historically was included under property, plant and equipment, is transferred to the
relevant asset category once the project is completed. Capitalised work in progress is not depreciated or amortised prior
to being transferred to the relevant asset category.
Accounting policies
Land is not depreciated. Depreciation on other assets is calculated using the straight line method to allocate their
cost or revalued amounts, net of their residual values, over their estimated useful lives, as follows:
• Furniture and fittings • 3 to 25 years
• Buildings • 10 to 50 years
• Leasehold improvements • 2.5 to 50 years
• Motor vehicles • 5 to 10 years
• Plant & equipment • 1.5 to 25 years
The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each balance sheet date.
Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in
the income statement.
Land and buildings (excluding leasehold improvements) are recorded at fair value, based on periodic valuations by
external independent valuers, less subsequent depreciation for buildings. Independent valuations are performed
with sufficient regularity to ensure that the carrying value of assets is materially consistent with their fair value.
Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the
asset and the net amount is restated to the revalued amount of the asset. Increases in the carrying amounts arising
on revaluation of land and buildings are credited to revaluation reserves in equity. To the extent that the increase
reverses a decrease previously recognised in the income statement, the increase is first recognised in the income
statement. Decreases that reverse previous increases of the same asset are first charged against the revaluation
reserves directly in equity to the extent of the remaining reserve attributable to the asset. All other decreases are
charged to the income statement.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 28
Plant and equipment, furniture and fittings and motor vehicles are stated at historical cost less depreciation.
Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs
are included in the assets carrying amount or recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the Group and the cost of the item can
be reliably measured. All other repairs and maintenance are charged to the income statement during the financial
period in which they are incurred.
Impairment of assets
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount
is greater than its estimated recoverable amount. Assets that are subject to depreciation are tested for impairment
whenever changes in circumstances indicate that the asset’s carrying amount may exceed its recoverable amount.
An impairment charge is recognised for the amount by which the asset’s carrying amount exceeds its recoverable
amount. Assets that suffer an impairment are reviewed for possible reversal of the impairment at each reporting
date.
3.3 TRADE AND OTHER RECEIVABLES
2018
$’000
2017
$’000
Trade receivables
48,153
44,811
Provision for impairment
(766)
(592)
47,3 87
44,219
Amounts due from related companies (note 7.1.2)
940
1,028
Other receivables and prepayments
10,367
10,076
Total current trade and other receivables58,694
55,323
Movements in the provision for impairment are as follows:
Balance at beginning of the year
592
1,042
Provision for impairment expense
566
430
Receivables written off
(392)
(880)
Provision for impairment766
592
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 29
3.3.1 Classification
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of
business. Receivables and other financial assets are classified as subsequently measured at amortised cost on the basis
of both the Group’s business model for managing the financial assets and the contractual cash flow characteristics of the
financial asset. If collection of the amounts is expected in one year or less they are classified as current assets.
3.3.2 Fair values of trade and other receivables
Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their fair
value.
3.3.3 Impairment and risk exposure
The maximum exposure to credit risk at the reporting date is the higher of the carrying value and fair value of each
receivable. The Group does not hold any collateral as security. Refer to note 4.8.3 for credit risk and note and 4.9 for fair
value information.
Accounting policies
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the
effective interest method, less provision for impairment.
Receivables are monitored on an individual basis and the Group considers the probability of default upon initial
recognition of the receivable and throughout the period and provides for receivables expected to be impaired.
The amount of loss is recognised in the income statement within other expenses. When a trade receivable is
uncollectible, it is written off against the provision account for trade receivables. Subsequent recoveries of
amounts previously written off are credited against other income in the income statement.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 30
3.4 TRADE AND OTHER PAYABLES
2018
$’000
2017
$’000
Current payables
Lease liability
A
833
833
Amounts due to related companies (note 7.1.2)
359
1,194
Employee entitlements
7,73 2
7, 2 11
Trade payables and accruals
43,112
47,6 56
Total current trade and other payables52,036
56,894
Non-current payable
Lease liability
A
13,665
13,565
Total non-current trade and other payables13,665
13,565
A
Lease liability includes lease incentives received on operating leases.
Refer to note 4.8 for information regarding risk exposure, note 4.9 for further fair value considerations and note 4.6 for
lease commitments.
Accounting policies
Trade and other payables
Trade payables, including accruals not yet billed, are recognised when the Group becomes obliged to make future
payments as a result of a purchase of assets or services. Trade payables are carried at amortised cost which is
the fair value of the consideration to be paid in the future for goods and services received. Trade payables are
unsecured and are generally settled within 30 to 45 days.
Leases
Operating leases are other leases under which all the risks and benefits of ownership are effectively retained
by the lessor. Operating lease payments, excluding contingent payments are charged to the income statement
on a straight line basis over the period of the lease, net of lease incentives, which are classified as payables and
amortised over the life of the associated lease.
Lease incentives are presented as part of the lease liabilities and are recognised in the income statement on a
straight line basis over the lease term.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 31
Employee entitlements
a) Wages and salaries and annual leave
Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be wholly settled
within 12 months from the reporting date are recognised in payables and accruals in respect of employees’ services
up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled.
Amounts to be settled more than 12 months after the reporting date are recognised as a non-current payable.
Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or
payable.
b) Short-term incentive plans
A liability for short-term incentives is recognised in trade payables when there is an expectation of settlement and
at least one of the following conditions is met:
• there are contracted terms in the plan for determining the amount of the benefit;
• the amounts to be paid are determined before the time of completion of the financial statements; or
• past practice gives clear evidence of the amount of the obligation.
Liabilities for short-term incentives are expected to be settled within 12 months and are recognised at the amounts
to be paid when they are settled.
Refer to note 4.3 for disclosures relating to share based payments and note 7.1.1 for key management
compensation.
3.5 NET TANGIBLE ASSETS
Net tangible assets per share is a non-GAAP measure that is required to be disclosed by the NZX Listing Rules.
The calculation of the Group’s net tangible assets per share and its reconciliation to the consolidated balance sheet is
presented below:
2018
$’000
2017
$’000
As at 31 December
Total assets
462,777
468,085
Less intangible assets
(329,911)
(330,553)
Less total liabilities
(176,141)
(179,053)
Net tangible assets(43,275)
(41,521)
Number of shares issued (in thousands)
196,011
196,011
Net tangible assets per share (in $)($0.22)
($0.21)
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 32
4.2 RESERVES
2018
$’000
2017
$’000
Share based payments reserve
Balance at the beginning of the year
1,369
144
Share based payment expense
581
1,225
Balance at end of the year
1,950
1,369
Asset revaluation reserve
Balance at beginning of the year
722
722
Balance at end of year722
722
Foreign currency translation reserve
Balance at beginning of the year
294
309
Net exchange difference on translation of foreign operations
32
(15)
Balance at end of year326
294
Transactions with non-controlling interests reserve
Balance at beginning of the year
-
(6,373)
Transfer to retained earnings
-
6,373
Balance at end of year-
-
Total reserves2,998
2,385
4.1 SHARE CAPITAL
2018
Number
2017
Number
2018
$’000
2017
$’000
Authorised, issued and paid up share capital
Balance at the beginning of the year
196,011
196,011
360,363
360,363
Balance at the end of the period196,011
196,011
360,363
360,363
Accounting policy
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options
are shown in equity as a deduction, net of tax, from the proceeds.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
4.0 CAPITAL MANAGEMENT
Page 33
4.3 SHARE BASED PAYMENTS
20182017
Average
price per right
(Cents)
Number
of rights
Average
price per right
(Cents)
Number
of rights
As at 1 January
0.58 2,647,644
0.58 745,301
Granted (2016 TIP)
A
- -
0.58 70,236
Granted (2017 TIP)
B
0.90 (366,508)
0.90 1,933,927
Forfeited
C
- -
0.58 (101,820)
Exercised
- -
- -
As at 31 December 0.80 2,281,136
0.81 2,647,644
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
4.2.1 Nature and purpose of reserves
Share based payments reserve
The share based payments reserve is used to recognise the fair value of the performance rights issued but not yet vested
as described in note 4.3.
Asset revaluation reserve
The asset revaluation reserve is used to record increments and decrements on the revaluation of non-current assets, as
described in note 3.2. In the event of the sale of an asset, the revaluation surplus is transferred to retained earnings.
Foreign currency translation reserve
Exchange differences arising on translation of any foreign controlled entities are taken to the foreign currency translation
reserve, as described in the basis of preparation.
Transactions with non-controlling interests reserve
The 2017 movement was the transfer to another category of equity as there were no non-controlling interests in the
Company at 31 December 2017.
Page 34
A
Included in the number of rights granted for the year ended 31 December 2017 are 70,236 rights granted at a price
of $0.58 per right relating to the 2016 TIP based on the final number of rights approved by the Board in March 2017.
Under the 2016 Plan, the participants will be entitled to additional shares (not reflected in the rights above) when
the rights are exercised (on 31 December 2019) for any dividends foregone during the period 1 January 2017 to 31
December 2019. For dividends declared during the period 1 January 2018 to 31 December 2018, this will result in an
additional 81,568 shares being issued to the participants (2017: 96,862).
B
The number of shares granted in 2017 in respect of the 2017 TIP was an estimate based on information available at
the time the Financial Statements were prepared. In 2018 the actual shares to be granted were determined with the
sum being lower than originally calculated.
C
Two participants in the 2016 TIP departed in 2017 prior to the completion of the Service Period and forfeited their
rights under the 2016 TIP.
Share rights outstanding at the end of the year have the following expiry date and fair value at grant date:
Performance rights
Value of right
at grant date
(Cents)
2018
$’000
2017
$’000
Grant dateVesting date
20 December 201631 Dec 2017 0.58
414
414
25 September 201731 Dec 2018 0.90
1,411
1,741
As at 31 December1,825
2,155
Share based payment expense recognised
in the current period (refer to note 4.2)
581
1,225
20182017
Weighted average remaining time until rights outstanding
at the end of the period vest
12 months12 months
Weighted average remaining time until rights outstanding
at the end of the period automatically converts to ordinary
shares
21 months34 months
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 35
% of EBITDA% of target opportunity awarded
< 95%0%
> 95% to 100%Pro-rata vesting between 25% and 100%
> 100% to 110%Pro-rata vesting between 100% and 150%
% of BU Goal achieved% of target opportunity awarded
< 95%25%
> 95% to 100%Pro-rata vesting between 25% and 100%
> 100% to 110%Pro-rata vesting between 100% and 150%
4.3.1 Background
Total incentive plan (“TIP”)
The TIP is designed to align the reward outcomes with the shareholders’ interest and to support the achievement
of the Group’s business strategy and was approved by the Board on 20 December 2016. Under the TIP, and at the
absolute discretion of the Board, the CEO and other executive key management personnel are eligible to participate
in the TIP. Eligible participants have a target award opportunity, which varies between 50% and 100% of fixed
remuneration, depending on the participant’s role and responsibilities. A new TIP opportunity will be offered at the
commencement of each financial year. The award is dependent on performance over a one year period (“performance
period”) and there is no opportunity for retesting. Performance is formally evaluated after the date that the full year
financial performance is announced to the market.
4.3.2 2018 TIP
No TIP has been offered for the 2018 Financial Year.
4.3.3 2017 TIP
Performance measures
•
Financial performance conditions (50%): Performance will be measured against earnings before interest, tax,
depreciation and amortisation (“EBITDA”). This portion is determined based on actual EBITDA against budgeted
EBITDA on the following scale:
•
Business Unit Goals (25%):This portion is determined based on actual achievement against Business Unit (“BU”)
Goals on the following scale:
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 36
•
Individual performance conditions (25%): This portion is determined against individual performance conditions, as
determined for each participant. The TIP award is earned if all of the individual performance conditions have been
achieved, although the Board has discretion to award less than a 100% of the target for partial performance and more
than a 100% of the target for exceptional performance.
Awards under the TIP are granted to participants following the assessment of performance. To the extent that performance
measures are met:
•
50% of awards are made in cash; and
• 50% of awards are granted in rights to acquire fully paid ordinary shares in the Company for nil consideration
(“Rights”).
The performance period for the 2017 awards is a twelve month period which commenced on 1 January 2017. Subject to
remaining employed by the Company for a further one year period following the performance period (“service period”),
rights will vest. The vested rights cannot be exercised for a further two years (“deferral period”). Vested rights will
automatically convert into ordinary shares for nil consideration at the end of the deferral period without the requirement
for the participant to exercise their rights. At the discretion of the Board, validly exercised rights may be satisfied in cash,
rather than in shares. Participants are not entitled to receive any dividends for the rights they hold, but the Board may,
at its sole discretion, allocate shares or make a cash payment to participants equal to the value of dividends that were
payable whilst holding the unvested and / or vested rights. The Company may reduce unvested equity awards in certain
circumstances such as gross misconduct, material misstatement or fraud. The Board may also reduce unvested awards
to recover amounts where performance that led to payments being awarded is later determined to have been incorrectly
measured or not sustained. Awards are normally forfeited if the participant leaves before the end of the performance
period, except in limited circumstances that are approved by the Board on a case-by-case basis. If a participant leaves
during the service period, the rights that will vest will be determined on a pro-rata basis based on when they leave during
the service period. If a participant leaves during the deferral period, no rights will be forfeited, but rights will still only
convert into ordinary shares at the end of the deferral period.
The fair value of the rights at grant date was estimated based on the NZME share price as at 25 September 2017, being the
date after the Board approved the TIP and the terms were communicated to the eligible participants. The number of rights
awarded are based on the Volume Weighted Average Price (“VWAP”) of the Company’s shares for the first 5 trading days of
the Performance Period.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 37
• Performance Period1 January 2017 to 31 December 2017
• Service Period1 January 2018 to 31 December 2018
• Vesting Period (being the Performance Period and the Service Period)1 January 2017 to 31 December 2018
• Deferral Period1 January 2019 to 31 December 2020
• Share price at grant date90 cents
• VWAP59.4 cents
It is assumed that all participating employees will remain employed with the Company until the end of the vesting period.
4.3.4 2016 TIP
Performance measures
• Financial performance conditions (75%): Performance will be measured against earnings before interest, tax,
depreciation and amortisation (“EBITDA”). This portion is determined based on actual EBITDA against budgeted EBITDA
on the following scale:
% of EBITDA% of target opportunity awarded
< 95%0%
> 95% to 100%Pro-rata vesting between 25% and 100%
> 100% to 110%Pro-rata vesting between 100% and 150%
• 50% of awards are made in cash; and
• 50% of awards are granted in rights to acquire fully paid ordinary shares in the Company for nil consideration
("Rights").
• Non-financial performance conditions (25%) : Performance will be measured against specific measures, as determined
for each participant at the commencement of the performance period.
• Awards under the TIP are granted to participants following the assessment of performance. To the extent that
performance measures are met:
Model inputs
The following is a summary of the key inputs in calculating the share-based payment expense under the 2017 TIP:
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 38
The performance period for the 2016 awards is a 6 month period which commenced on 1 July 2016. Going forward,
the performance period will be a 12 month period commencing at the start of the financial year. Subject to remaining
employed by the Company for a further one year period following the performance period (“service period”), rights will
vest and will be kept in trust for a further two years (“deferral period”). Vested rights will automatically convert into ordinary
shares for nil consideration at the end of the deferral period without the requirement for the participant to exercise their
rights. Participants will receive an additional allocation of shares when rights are exercised equal to the dividends paid on
vested rights over the vesting period and the deferral period. The Company may reduce unvested equity awards in certain
circumstances such as gross misconduct, material misstatement or fraud. The Board may also reduce unvested awards
to recover amounts where performance that led to payments being awarded is later determined to have been incorrectly
measured or not sustained. Awards are normally forfeited if the participant leaves before the end of the performance
period, except in limited circumstances that are approved by the Board on a case-by-case basis. If a participant leaves
during the service period, the rights that will vest will be determined on a pro-rata basis based on when they leave during
the service period. If a participant leaves during the deferral period, no rights will be forfeited, but rights will still only
convert into ordinary shares at the end of the deferral period.
The fair value of the rights at grant date was estimated based on the NZME share price as at 20 December 2016, being the
date after the Board approved the TIP and the terms were communicated to the eligible participants. The number of rights
awarded are based on the Volume Weighted Average Price (“VWAP”) of the Company’s shares for the first 5 trading days of
the performance period.
Model inputs
The following is a summary of the key inputs in calculating the share-based payment expense under the 2016 TIP:
• Performance Period1 July 2016 to 31 December 2016
• Service Period1 January 2017 to 31 December 2017
• Vesting Period (being the Performance Period and the Service Period)1 July 2016 to 31 December 2017
• Deferral Period1 January 2018 to 31 December 2019
• Share price at grant date58 cents
• VWAP70 cents
It is assumed that all participating employees will remain employed with the Company until the end of the vesting period.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 39
Accounting policies
Total incentive plan (TIP)
The fair value of rights granted under the TIP plan is recognised as an employee benefits expense with a
corresponding increase in equity over the vesting period, being the performance period and the service period. The
fair value is measured at grant date and the number of rights are determined using the volume weighted average
price of NZME’s shares on the NZX over the first 5 trading days of the performance period.
The fair value at grant date is determined taking into account the share price, any market performance conditions
and any non-vesting conditions, but excluding the impact of any service and non-market performance vesting
conditions.
Non-market vesting conditions are included in assumptions about the number of rights that are expected to
vest. At each reporting date, the Group revises its estimate of the number of rights that are expected to become
exercisable.
The employee benefits expense recognised each period takes into account the most recent estimate. The impact of
the revision to the original estimates, is recognised in profit or loss with a corresponding adjustment to equity.
4.4 DIVIDENDS
4.4.1 Dividends paid
On 21 February 2018, the Board of Directors declared a fully imputed final dividend for the year ended 31 December 2017
of 6 cents per share, paid on 3 May 2018 to registered shareholders as at 18 April 2018 (total sum paid $11,761,000). The
Board of Directors also declared a supplementary dividend of 1.06 cents per share, paid on 3 May 2018 to registered
shareholders as at 18 April 2018, to those shareholders who are not tax residents in New Zealand and who hold less than
10% of the shares in the Company (total sum paid $1,404,000). On 22 August 2018, the Board of Directors declared a fully
imputed interim dividend of 2.0 cents per share, paid on 26 October 2018 to registered shareholders as at 16 October 2018
(total sum paid $3,920,000). The Board of Directors also declared a supplementary dividend of 0.3529 cents per share,
paid on 26 October 2018 to registered shareholders as at 16 October 2018, to those shareholders who are not tax residents
in New Zealand and who hold less than 10% of the shares in the Company (total sum paid $460,000). The payment of a
supplementary dividend effectively puts non-resident shareholders in the position they would have been had they received
imputation credits (which are only available to resident shareholders).
4.4.1 Dividends declared after balance date
On 18 February 2019, the Board of Directors confirmed that NZME Ltd would not be declaring a final dividend for the 2018
financial year.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 40
4.4.3 Franking and imputation credits
2018
$’000
2017
$’000
Imputation credits available for subsequent reporting periods based on the New Zealand 28% tax
rate for the Group
NZ$ 8,259
NZ$ 8,519
Franking credits available to the Company for subsequent reporting periods based on the
Australian 30% tax rate for the Group
AU$ 0
A
AU$ 0
A
A
Although the Company does not have any franking credits available for use, other entities within the Group have
AU$10,828,676 (2017:AU$10,828,676) available that might become available to the Company in future periods.
4.5 Interest bearing liabilities
2018
$’000
2017
$’000
Non-current interest bearing liabilities
Bank loans – secured
110,500
100,000
Deduct:
Capitalised borrowing costs
(508)
(212)
Total non-current interest bearing liabilities109,992
99,788
Net debt
Non-current interest bearing liabilities
110,500
100,000
Capitalised borrowing costs
(508)
(212)
Cash and cash equivalents
(11,717)
(9,570)
Total debt less cash and cash equivalents98,275
90,218
The change in the bank loans - secured balance for the year ended 31 December 2018 of $10,500,000 is due to proceeds
from borrowings / repayments of borrowings as reflected in the consolidated statement of cash flows. The change in
capitalised borrowing costs of $507,760 for the year ended 31 December 2018 is due to the new costs incurred in relation
to the new loan facility and the amortisation of those capitalised borrowing costs over the period of the loan.
The Group is funded from a combination of its own cash reserves and NZ$150 million bilateral bank loan facility, which
NZME refinanced on 21 November 2018, of which $110.5 million (2017: $100 million) is drawn and $39.5 million (2017: $60
million) is undrawn as at 31 December 2018. The new facility limit will step down by $10 million annually from 1 January
2020. This facility expires on 1 January 2022.
The interest rate for the drawn facility is the applicable bank screen rate plus credit margin.
The NZME Bilateral Facilities contain undertakings which are customary for a facility of this nature including, but not limited
to, provision of information, negative pledge and restrictions on priority indebtedness and disposals of assets. The assets
of the Group are collateral for the interest bearing liability.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 41
In addition, the Group must comply with financial covenants (a net debt to EBITDA ratio and an EBITDA to net interest
expense ratio) for each 12 month period ending on 30 June and 31 December. The Group has complied with these
covenants.
Accounting policies
Borrowings are initially recognised at fair value less attributable transaction costs and subsequently measured at
amortised cost. Any difference between cost and redemption value is recognised in the income statement over the
period of the borrowing on an effective interest basis.
Costs incurred in connection with the arrangement of borrowings are deferred and amortised over the period of the
borrowing. These costs are netted off against the carrying value of borrowings in the balance sheet.
4.6 COMMITMENTS
4.6.1 Lease commitments
The group leases certain premises under operating leases. The leases have varying terms, escalation clauses and renewal
rights. Excess space is sub-let to third parties under non-cancellable operating leases.
2018
$’000
2017
$’000
Commitments for minimum lease payments in relation to rental commitments
contracted for at the reporting date and not recognised as liabilities, payable:
Not later than one year
16,332
16,389
Later than one year but not later than five years
55,014
48,973
Later than five years
55,336
62,185
Commitments not recognised in the financial statements126,682
127,5 47
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 42
4.7 CASH FLOW INFORMATION
2018
$’000
2017
$’000
Reconciliation of cash
Cash at end of the year, as shown in the statements of cash flows, comprises:
Cash and cash equivalents11,717
9,570
Reconciliation of net cash inflows (outflows) from
operating activities to profit / (loss) for the year:
Profit / (loss) for the year
11,572
20,885
Depreciation and amortisation expense
24,555
24,946
Borrowing cost amortisation
119
106
Non-cash lease transactions
99
142
Net loss on sale of non-current assets
59
216
Change in current / deferred tax payable
(9,263)
2,837
Revaluation / impairment of financial assets
2,249
-
Share based payment expense
581
1,225
Changes in assets and liabilities net of effect of acquisitions:
Trade and other receivables
(2,801)
(187)
Inventories
61
299
Prepayments
(571)
(1,505)
Trade and other payables and employee benefits
(4,818)
(9,509)
Net cash inflows / (outflows) from operating activities21,842
39,455
Accounting policy
For the purposes of presentation on the statement of cash flows, cash and cash equivalents includes cash on hand
and short term deposits held at call with finance institutions, net of bank overdrafts.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 43
4.8 FINANCIAL RISK MANAGEMENT
4.8.1 Capital and risk management
The Group’s objectives when managing capital are to:
•
Safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders
and benefits for other stakeholders; and
• Maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares or sell assets to reduce debt.
Refer to note 4.5 for undrawn facilities to which the group has access to as well as the net debt calculation that is used by
the group to manage capital requirements.
The Group’s activities expose it to a variety of financial risks: market risk (including interest rate risk, and price risk), credit
risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets
and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses different
methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of
interest rate and ageing analysis for credit risk.
Financial risk management is carried out by the Group Treasury function. The Group Treasury function meet regularly with
the Group CFO to cover specific areas, such as interest rate risk and credit risk, use of derivative financial instruments and
non-derivative financial instruments, and investment of excess liquidity. Due to the Group’s limited operations in foreign
jurisdictions, the Group does not have a significant foreign exchange exposure.
4.8.2 Market risk
Cash flow and fair value interest rate risk
Long term borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed
interest rates expose the Group to fair value interest rate risk. The Group makes decisions regarding variable or fixed rate
debt as and when debt contracts are entered into. Current interest bearing debt is fixed for 30 days on a rolling basis.
Based on the outstanding net floating debt at 31 December 2018, a change in interest rates of +/-1% per annum with all
other variables being constant would impact post-tax profit and equity by $1.1 million lower / higher (2017: $1.0 million
lower/higher).
Price risk
The Group is not exposed to significant price risk. There is some risk associated with other financial assets however this is
not deemed to be significant as other financial assets are categorised as level 3 in the fair value hierarchy and have been
impaired, where applicable, to the present value of expected future cash flows.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 44
4.8.3 Credit risk
Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents and deposits with banks and
financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables
and committed transactions. For banks and financial institutions, the creditworthiness is assessed prior to entering into
arrangements and approved by the Board. For other customers, NZME’s credit control department assesses the credit
quality, taking into account financial position, past experience and other factors. The utilisation of credit limits is regularly
monitored and the Group does not normally obtain collateral from its customers.
The table below sets out additional information about the credit quality of trade receivables net of the provision for
doubtful debts:
Past due
Current
$’000
Less than one
month
$’000
One to three
months
$’000
Three to six
months
$’000
Over six
months
$’000
Total
$’000
2018
Expected loss rate0.0%0.7%
4.6%11.9%42.0%
Trade Receivables31,16811,802
2,4931,868822
48,153
Impaired receivables(84)
(115)(222)(345)
(766)
31,16811,718
2,3781,646477
47,3 87
Past due
Current
$’000
Less than one
month
$’000
One to three
months
$’000
Three to six
months
$’000
Over six
months
$’000
Total
$’000
2017
Expected loss rate0.0%0.6%
4.6%13.7%3 7. 2 %
Trade Receivables30,30810,601
1,9291,258715
44,811
Impaired receivables(65)
(89)(172)(266)
(592)
30,30810,536
1,8401,086449
44,219
Trade receivables are generally settled within 30 to 45 days. The Directors consider the carrying amount of trade
receivables approximates their net fair value. Receivables are monitored on an individual basis and the company considers
the probability of default upon initial recognition of the receivable and throughout the period and provides for receivables
considered to be impaired.
As of 31 December 2018, trade receivables of $4,501,000 (2017: $3,375,000) were past due but not impaired.
The maximum exposure to credit risk at 31 December 2018 is equal to the carrying amount of cash and cash equivalents
and trade and other receivables. The Group is not exposed to any concentrations of credit risk within cash and cash
equivalents or trade and other receivables.
Credit risk further arises in relation to financial guarantees given to certain parties from time to time.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 45
4.8.4 Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding
through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the
dynamic nature of the underlying business, Group Treasury aims at maintaining flexibility in funding by keeping committed
credit lines available. Management monitors rolling forecasts of the Group’s liquidity reserve on the basis of expected cash
flows.
The tables below analyse the Group’s financial liabilities including interest to maturity into relevant maturity groupings
based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the tables
are the contractual undiscounted cash flows.
Less than
one year
$’000
Between one
and two years
$’000
Between two
and five years
$’000
Over
five years
$’000
31 December 2018
Trade payables and accruals43,112 - - -
Bank loans 4,1934,193114,693 -
Gross liability47,3 0 54,193114,693-
Less: interest(4,193)(4,193)(4,193)
Total financial liabilities
43,112 - 110,500-
31 December 2017
Trade payables and accruals47,6 56---
Bank loans 4,0224,022104,022 -
Gross liability51,6784,022104,022-
Less: interest(4,022)(4,022)(4,022)
Total financial liabilities
47,6 56-100,000-
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 46
4.9 FAIR VALUE MEASUREMENT
The Group measures and recognises the following assets and liabilities at fair value on a recurring basis:
• Financial assets at fair value through profit or loss (FVTPL);
• Land and buildings (excluding leasehold improvements).
4.9.1 Fair value hierarchy
NZ IFRS 13 requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either
directly or indirectly; and
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
4.9.2 Recognised fair value measurements
2018
$’000
2017
$’000
Recurring fair value measurements (Level 3)
Financial assets
There are no financial assets carried at fair value. Other financial assets of $3,787,765 (2017:
$5,988,765) are held at cost and therefore have been excluded from this table.
Non-financial assets
Freehold land and buildings
Freehold land
1,165
1,165
Buildings (excluding leasehold improvements)
131
377
Total non-financial assets1,296
1,542
All fair value measurements referred to above are in Level 3 of the fair value hierarchy and there were no transfers between
levels. The Group’s policy is to recognise transfers between fair value hierarchy levels as at the end of the reporting period.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 47
4.9.3 Disclosed fair values
The Group also has a number of assets and liabilities which are not measured at fair value but for which fair values are
disclosed in these notes.
The carrying amounts of trade receivables and payables are assumed to approximate their fair values due to their short-
term nature. There are no outstanding non-current receivables as at 31 December 2018 or 31 December 2017 (level 3).
The fair value of interest bearing liabilities disclosed in note 4.5 is estimated by discounting the future contractual cash
flows at the current market interest rates that are available to the group for similar financial instruments. For the period
ending 31 December 2018, the borrowing rates were determined to be between 3.3% and 4.5% (2017: between 3.3% and
4%), depending on the type of borrowing. The fair value of borrowings approximates the carrying amount, as the impact of
discounting is not significant (level 2).
4.9.4 Valuation techniques used to derive at level 2 and 3 fair values
Recurring fair value measurements
The fair value of financial instruments that are not traded in an active market is determined using valuation techniques.
These valuation techniques maximise the use of observable market data where it is available and rely as little as possible
on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is
included in level 2.
If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
The Group obtains independent valuations for its freehold land and buildings (classified as property, plant and equipment
in note 3.2), less subsequent depreciation for buildings, with sufficient regularity to ensure that the carrying value of the
assets is materially consistent with their fair value. All resulting fair value estimates for properties are included as Level 3.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 48
5.1 INCOME TAX
2018
$’000
2017
$’000
Reported income tax expense / (benefit) comprises:
Current tax expense / (benefit)
6,318
10,529
Deferred tax expense / (benefit)
(791)
(1,972)
(Over) / under provision in prior years
(711)
(110)
Income tax expense4,816
8,447
Income tax is attributable to:
Profit from continuing operations
4,816
8,447
Total income tax expense4,816
8,447
Income tax expense differs from the amount prima facie payable as follows:
Profit from operations before tax
16,388
29,332
Prima facie income tax at 28%
4,589
8,213
Non assessable asset sales and exempt distribution receipts
(35)
(27)
Non-deductible expenses
980
675
Differences in international tax rates
(7)
(8)
Other
-
(296)
(Over) / under provision in prior years
(711)
(110)
Income tax expense4,816
8,447
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
5 .0 TA X AT I O N
Page 49
5.2 DEFERRED TAX
Deferred tax assets and liabilities are attributable to:
Balance
$’000
Recognised
in income
$’000
Recognised
in equity
$’000
Other
movements
$’000
Balance
$’000
2017
Tax credits3---
3
Employee benefits1,433765--
2 ,198
Doubtful debts291(126)--
165
Accruals/restructuring1,102(560)--
542
Intangible assets (529)37--
(492)
Property Plant and Equipment(5,370)1,720--
(3,650)
Other(141)136--
(5)
(3,211)1,972--
(1,239)
2018
Tax credits3---
3
Employee benefits2,198(1,164)--
1,034
Doubtful debts16549--
214
Accruals/restructuring542372--
914
Intangible assets (492)37--
(455)
Property Plant and Equipment(3,650)1,497--
(2 ,153)
Other(5)---
(5)
(1,239)791--
(448)
There are unrecognised tax losses of $1,835,141 (AUD1,744,812) (2017: $1,917,077 (AUD1,744,812)) in an Australian subsidiary
of the Company which have not been recognised as there is uncertainty as to their future recoverability. The deferred tax
asset on these losses was not offset against the deferred tax liabilities of the rest of the Group because they are levied by a
different tax authority.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 50
Accounting policies
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement,
except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this
case the tax is also recognised in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the
balance sheet date in the countries where the company and its subsidiaries operate and generate taxable income.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax
regulation is subject to interpretation. It establishes provision where appropriate on the basis of amounts expected
to be paid to the tax authorities.
Deferred tax is recognised, using the liability method, on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred
tax liabilities are not recognised if they arise from the initial recognition of goodwill: deferred income tax is not
accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred
income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance
sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income
tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates,
except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by
the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes
levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an
intention to settle the balances on a net basis.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 51
6.1 CONTROLLED ENTITIES
The consolidated financial statements incorporate the assets, liabilities and results of the subsidiaries listed below. Unless
otherwise stated, they have share capital consisting solely of ordinary shares that are held directly by the Group, and
the proportion of ownership interest held equals the voting rights held by the Group. All entities are incorporated in, and
operate in, New Zealand unless otherwise stated. There were no changes in control during the year ended 31 December
2018.
2018
Ownership
interest
2017
Ownership
interest
Name of entity
Adhub Limited
C
N/A
100%
ESKY Limited
C
N/A
100%
Grabone Limited
100%
100%
Idea HQ Limited
C
N/A
100%
Mt Maunganui Publishing Co Limited
C
N/A
100%
NZME 2014 Limited
C
N/A
100%
NZME Australia Pty Limited
A
100%
100%
NZME Digital Limited
C
N/A
100%
NZME Educational Media Limited
100%
100%
NZME Finance Limited
C
N/A
100%
NZME Holdings Limited
100%
100%
NZME Investments Limited
100%
100%
NZME Online Limited
C
N/A
100%
NZME Print Limited
100%
100%
NZME Publishing Limited
100%
100%
NZME Radio Investments Limited
100%
100%
NZME Radio Limited
B
100%
100%
NZME Specialist Limited
100%
100%
NZME Trading Limited
C
N/A
100%
Regional Publishers Limited
C
N/A
100%
Sell Me Free Limited
C
N/A
100%
Sella Limited
C
N/A
100%
Stanley Newcomb & Co Limited
C
N/A
100%
The Hive Online Limited
100%
100%
New Zealand Radio Network Limited
100%
100%
The Radio Bureau Limited
100%
100%
Trade Debts Collecting Co Limited
C
N/A
100%
W & H Interactive Limited
C
N/A
100%
OneRoof Limited
D
80%
N/A
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
6.0 GROUP STRUCTURE AND INVESTMENTS IN OTHER ENTITIES
Page 52
A
Incorporated in, and operates in, Australia.
B
One “Kiwi Share” held by the Minister of Finance. The rights and obligations are set out in the NZME Radio
constitution.
C
Effective 31 May 2018, these entities were amalgamated into NZME Specialist Limited.
D
OneRoof Limited was incorporated on 20 March 2018. On 21 August, the Group transferred 20% of the share
capital in OneRoof Limited to Hougarden.com Limited as consideration for the final payment of $1.1 million for the
acquisition of the platform on which the OneRoof website and related apps are built. The acquisition of the platform
has been treated as an asset acquisition and the subsequent issue of shares has been accounted for as an equity
settled share-based payment transaction valued at the fair value of the asset received.
Accounting policies
The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through its power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-
consolidated from the date that control ceases. The acquisition method of accounting is used to account for
business combinations by the Group.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are
eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with
the policies adopted by the group. Non-controlling interests in the results and equity of subsidiaries are shown
separately in the consolidated income statement, statement of comprehensives income, statement of changes in
equity and balance sheet respectively.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 53
6.2 INTERESTS IN OTHER ENTITIES
6.2.1 Associates, joint ventures and joint operations
The Group has the following associates, joint ventures and joint operations:
2018
Ownership
interest
2017
Ownership
interest
Name of entity
Chinese New Zealand Herald Limited
A
50%
50%
Eveve New Zealand Limited
A
40%
40%
KPEX Limited
A
25%
25%
New Zealand Press Association Limited
A
38.82%
38.82%
Restaurant Hub Limited
A
40%
40%
The Beacon Printing & Publishing Company Limited
A
21%
21%
The Gisborne Herald Company Limited
(held through Essex Castle Limited as a trust company for NZME Publishing Limited)
A
49%
49%
The Radio Bureau
B
50%
50%
The Wairoa Star Limited
A
40.41%
40.41%
Ratebroker Limited
D
50%
20%
The Newspaper Publishers Association of New Zealand Incorporated
C
Online Media Standards Authority Incorporated
C
New Zealand Press Council
C
Radio Broadcasters Association Incorporated
C
A
These entities are classified as joint ventures or associates. Because the effects of equity accounting are immaterial,
these investments are carried at cost (refer note 6.3.2).
B
The Radio Bureau is classified as a joint operation and the Group has included its direct right to the assets, liabilities,
revenues and expenses of joint operations and its share of any jointly held or incurred assets, liabilities, revenues and
expenses in these consolidated financial statements.
C
These are bodies with which entities in the Group have memberships, but no ownership interest.
D
In January 2018, the Group acquired an additional 30% of the shareholding in Ratebroker Limited from existing
shareholders. The Group has joint control of Ratebroker Limited and classifies it as a joint venture. (See note 6.3.2)
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 54
Accounting policies
Associates
Associates are all entities over which the Group has significant influence but not control or joint control. Where the
impact of the equity method of accounting is material, interests in associates are accounted for in the consolidated
financial statements using the equity method (see below), after initially being recognised at cost. The Group’s
investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition.
Joint arrangements
Under IFRS 11 Joint Arrangements investments in joint arrangements are classified as either joint operations or joint
ventures. The classification depends on the contractual rights and obligations of each investor, rather than the legal
structure of the joint arrangement.
For material joint operations, the Group recognises its direct right to the assets, liabilities, revenues and expenses
of joint operations and its share of any jointly held or incurred assets, liabilities, revenues and expenses. These have
been incorporated in the financial statements under the appropriate headings.
Where the impact of the equity method of accounting is material, interests in material joint ventures are accounted
for using the equity method (see below) after initially being recognised at cost in the consolidated balance sheet.
Equity method of accounting
Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to
recognise the group’s share of the post-acquisition profits or losses of the investee in profit or loss, and the Group’s
share of movements in other comprehensive income of the investee in other comprehensive income. Dividends
received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of
the investment.
When the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity,
including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has
incurred obligations or made payments on behalf of the other entity.
Unrealised gains on transactions between the group and its associates and joint ventures are eliminated to the
extent of the Group’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees have been
changed where necessary to ensure consistency with the policies adopted by the Group.
The carrying amount of equity-accounted investments is tested for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
Where the effects of equity accounting are immaterial, investments are carried at cost.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 55
6.3.2 Other financial assets
2018
$’000
2017
$’000
Shares in other corporations
3,788
5,988
Total other financial assets3,7885,988
Shares in other corporations consist of investments in entities that are not consolidated or equity accounted
(see also note 6.2.1). These investments are carried at cost.
NZME has written off its investment in Ratebroker Limited.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Page 56
7.1 RELATED PARTIES
7.1.1 Key management compensation
2018
$’000
2017
$’000
Total remuneration for Directors and other key management personnel:
Short term benefits
5,429
5,935
Termination benefits
499
364
Dividends (relating to shares held in the Company during the year)
70
33
Share-based payments
581
1,225
6,579
7,5 57
The table above includes remuneration of the Board of Directors and the Executive Team, including amounts paid to
members of the Executive Team who left during the year. Where a staff member was acting in a position on the Executive
Team, that portion of their remuneration has been included in the table above.
7.1.2 Other transactions with related parties
During the year, the Group purchased print services worth $2,363,784 (2017: $3,385,000) from Beacon Printing &
Publishing Company Limited, a company in which the Group holds an interest in and paid $300,695 (2017: nil) to Beacon
Printing & Publishing Company Limited for redundancies as per the print agreement between the parties.
In November 2015, the Company, Fairfax Media, TVNZ and MediaWorks launched a new local advertising exchange service,
KPEX Limited, offering media agencies and clients a programmatic option for purchasing online advertising. The group
received advertising revenue of $2,571,450 (2017: $2,768,773) and paid commission of $306,342 (2017: $412,931).
The Group has commitments to provide future services (such as house advertising, occupancy space at NZME offices,
business as usual finance and human resources support) to certain joint ventures and associates. During the year such
services were provided to Eveve, valued at $27,992 (2017:$66,879), Restaurant Hub, valued at $260,040 (2017:$281,923)
and Ratebroker, valued at $nil (2017: $1,174,394). The outstanding balances for future services are included in the table
below, along with other receivables and payables.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
7.0 OTHER NOTES
Page 57
2018
Receivables
$’000
2017
Receivables
$’000
2018
Payables
$’000
2017
Payables
$’000
Balances with related parties
KPEX Limited
940
1,028
127
148
Chinese New Zealand Herald Limited
-
-
19
43
Eveve New Zealand Limited
-
-
124
28
Restaurant Hub Limited
-
-
89
449
Ratebroker Limited
-
-
-
526
Total related party receivables and payables940
1,028
359
1,194
7.2 CONTINGENT LIABILITIES
7. 2 .1 C l a i m s
The Group did not have any significant contingent liabilities as at 31 December 2018.
7.3 SUBSEQUENT EVENTS
The directors are not aware of any material events subsequent to the balance sheet date.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand
T: +64 9 355 8000, F: +64 9 355 8001, pwc.co.nz
Independent auditor’s report
To the shareholders of NZME Limited
We have audited the consolidated financial statements which comprise:
the consolidated balance sheet as at 31 December 2018;
the consolidated income statement for the year then ended;
the consolidated statement of comprehensive income for the year then ended;
the consolidated statement of changes in equity for the year then ended;
the consolidated statement of cash flows for the year then ended; and
the notes to the consolidated financial statements, which include the principal accounting policies.
Our opinion
In our opinion, the accompanying consolidated financial statements of NZME Limited (the Company),
including its subsidiaries (the Group), present fairly, in all material respects, the financial position of
the Group as at 31 December 2018, its financial performance and its cash flows for the year then ended
in accordance with New Zealand Equivalents to International Financial Reporting Standards (NZ
IFRS) and International Financial Reporting Standards (IFRS).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs
(NZ)) and International Standards on Auditing (ISAs). Our responsibilities under those standards are
further described in theAuditor’s responsibilities for the audit of the consolidated financial
statementssection of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
We are independent of the Group in accordance with Professional and Ethical Standard 1 (Revised)
Code of Ethics for Assurance Practitioners(PES 1) issued by the New Zealand Auditing and Assurance
Standards Board and the International Ethics Standards Board for Accountants’Code of Ethics for
Professional Accountants(IESBA Code), and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
Our firm carries out other services for the Group in the areas of taxation compliance and taxation
advisory services, advisory services in connection with treasury policy, and other assurance services
including circulation and payroll assurance services. The provision of these other services has not
impaired our independence as auditor of the Group.
PwC
Our audit approach
Overview
An audit is designed to obtain reasonable assurance
whether the financial statements are free from material
misstatement.
Overall Group materiality: $1,277,000, which represents
5% of profit before tax, excluding exceptional expense
items incurred during the year.
We chose profit before tax as the benchmark because, in
our view, it is the benchmark against which the
performance of the Group is most commonly measured
by users, and is a generally accepted benchmark. We
have adjusted this benchmark for exceptional expenses
(refer to note 2.4.2) to reduce volatility and to reflect the
underlying performance of the Group.
We have determined that there is one key audit matter
being the impairment testing of intangible assets.
Materiality
The scope of our audit was influenced by our application of materiality.
Based on our professional judgement, we determined certain quantitative thresholds for materiality,
including the overall Group materiality for the consolidated financial statements as a whole as set out
above. These, together with qualitative considerations, helped us to determine the scope of our audit,
the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both
individually and in aggregate on the consolidated financial statements as a whole.
Audit scope
We designed our audit by assessing the risks of material misstatement in the consolidated financial
statements and our application of materiality. As in all of our audits, we also addressed the risk of
management override of internal controls including among other matters, consideration of whether
there was evidence of bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an
opinion on the consolidated financial statements as a whole, taking into account the structure of the
Group, the accounting processes and controls, and the industry in which the Group operates.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the consolidated financial statements of the current year. The key audit matter below was
addressed in the context of our audit of the consolidated financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on this matter.
PwC
Key audit matter
How our audit addressed the key audit matter
Impairment testing of intangible assets
As outlined in note 3.1, total non-amortising
intangible assets, including goodwill ($70.8
million), masthead brands ($147.0 million),
and brands ($59.1 million) have a combined
carrying value of $276.9 million at 31
December 2018 and represent 60% of the
total assets of the Group.
In completing the annual impairment
assessment, the recoverable amount of the
CGU, being the higher of its value in use and
its fair value less costs of disposal ('FVLCD'),
is calculated and compared with the relevant
net assets of the Group. Management
utilised a value in use model reflecting the
strategic direction of NZME to determine the
value of the business using discounted cash
flows. Management considered the reasons
for the lower recoverable amount if it were
determined on a FVLCD basis, as indicated
by the market capitalisation of NZME at
balance date and engaged a third party
expert to assist in validating their
assessment of the recoverable amount.
The impairment assessment is complex in
nature and includes key estimates and
assumptions made by management,
particularly in the following areas:
The assessment that the NZME business
constitutes one CGU.
The expected future trading results of
the business which are based on budget
for 2019 and the forecasts for the
following four years which have been
approved by the Board of Directors.
The weighted average cost of capital of
9.5% used as the discount rate in the
model.
The application of a 0% long term
growth rate for the purposes of
impairment testing.
Considering sensitivity by determining
other reasonably possible scenarios and
assessing the impact on the valuation of
these scenarios.
The impairment assessment completed by
management calculated the recoverable
amount of the business as higher than the
carrying value of applicable net assets and
no impairment was identified.
In their sensitivity analysis management
identified that there were assumptions for
We gained an understanding of the strategic objectives of
the business to assess the appropriateness of using a
value in use model. We also gained an understanding of
how the business is managed and how the results are
reported to management and the Directors in order to
understand management’s determination that NZME
constitutes one CGU.
We gained an understanding of the business process and
controls applied by management in their impairment
assessment. We considered the factors identified by
management as contributing to the difference between
the market capitalisation of the Group and the carrying
value of net assets, and we reviewed the third party
expert’s report obtained by management to assist in
validating key judgements.
We tested the accuracy of the calculations in the value in
use model by reperforming the calculation of the
recoverable amount of the business, based on the same
estimates and assumptions used by management. We
then agreed the relevant net assets of the Group to the
audited carrying values.
We also assessed key estimates and assumptions made by
management. Our audit procedures included the
following:
We agreed the future cash flows included in
management’s model to the budgets and forecasts
approved by the Board of Directors.
We considered the reasonableness of key
assumptions in the cash flow forecasts, in particular
revenue growth for each channel, forecast expenses
and the terminal growth rate. This was done with
reference to the historical performance of the Group,
key initiatives being undertaken and comparison to
third party industry forecasts and available broker
reports.
We engaged an auditor’s expert to recalculate a
reasonable range for the weighted average cost of
capital used as the discount rate in the model and
determined that the discount rate used by
management was consistent with this.
We considered publicly available market information
from recent valuations of similar businesses to
compare the recoverable amount determined by
management, using discounted cash flow
methodology, to the amount which might have been
determined using a multiples approach.
We considered a range of reasonably possible
alternative scenarios, including those identified by
management. For each scenario we tested the
updated model for the accuracy of calculations
affected by the changes in assumptions including the
impact of those changes on the recoverable amount
and comparison to the relevant net asset value of the
PwC
Information other than the financial statements and auditor’s report
The Directors are responsible for the annual report. Our opinion on the consolidated financial
statements does not cover the other information included in the annual report and we do not, and will
not, express any form of assurance conclusion on other information. At the time of our audit, there
was no other information available to us.
In connection with our audit of the consolidated financial statements, if other information is included
in the annual report, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the consolidated financial statements or
our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the
work we have performed on the other information that we obtained prior to the date of our auditor’s
report, we conclude that there is a material misstatement of this other information, we are required to
report that fact.
Responsibilities of the Directors for the consolidated financial statements
The Directors are responsible, on behalf of the Company, for the preparation and fair presentation of
the consolidated financial statements in accordance with NZ IFRS and IFRS, and for such internal
control as the Directors determine is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Directors are responsible for assessing the
Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the Directors either intend to liquidate
the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements, as a whole, are free from material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (NZ) and ISAs will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
A further description of our responsibilities for the audit of the consolidated financial statements is
located at the External Reporting Board’s website at:
https://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-
report-1/
This description forms part of our auditor’s report.
which a reasonably possible change would
cause the carrying amount to exceed the
recoverable amount. These assumptions,
together with the changes that would be
required in order for the recoverable amount
to be equal to the carrying amount, have
been disclosed in note 3.1.2.
Group.
We developed an independent point estimate and
derived a range of acceptable outcomes, by
considering the level of estimation uncertainty
inherent in the New Zealand market, to evaluate
management’s value in use assessment.
We reviewed the disclosures in the financial statements to
ensure that they are compliant with the requirements of
the relevant accounting standards and we have no
matters to report.
Key audit matter
How our audit addressed the key audit matter
PwC
Who we report to
This report is made solely to the Company’s shareholders, as a body. Our audit work has been
undertaken so that we might state those matters which we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our
audit work, for this report or for the opinions we have formed.
The engagement partner on the audit resulting in this independent auditor’s report is Jonathan
Skilton.
For and on behalf of:
Chartered Accountants
18 February 2019
Auckland
---
Full Year
2018 Results
PRESENTATION
For the year ended 31 December 2018
19 February 2019
DISCLAIMER
This presentation may contain
projections or forward-looking
statements regarding a variety
of items. Such projections
or forward-looking statements are
based on current expectations,
estimates and assumptions and
are subject to a number of risks and
uncertainties. There is no assurance
that results contemplated in any
projections or forward looking
statements in this presentation will
be realised. Actual results may diff er
materially from those projected in this
presentation. No person is under any
obligation to update this presentation
at any time after its release to you
or to provide you with further
information about NZME Limited.
NZME adopted NZ IFRS 15 –
Revenue
from Contracts with Customers
on 1 January 2018 without restating
the FY17 comparatives. Various trading
measures are referred to throughout
this presentation. These trading
measures are non-GAAP measures that
are explained and reconciled in the
Supplementary Information on pages
34 and 35. Please also refer to Note
2.1.1 of the Consolidated Financial
Statements for the year ended
31 December 2018 for a more detailed
reconciliation. You should not consider
any of these in isolation from,
or as a substitute for, the information
provided in the audited Consolidated
Financial Statements for the year
ended 31 December 2018.
While reasonable care has been
taken in compiling this presentation,
none of NZME Limited nor its
subsidiaries, directors, employees,
agents or advisers (to the maximum
extent permitted by law) gives any
warranty or representation (express
or implied) as to the accuracy,
completeness or reliability of the
information contained in it nor takes
any responsibility for it. The information
in this presentation has not been,
and will not be, independently verified
or audited.
The information in this presentation is of a general nature
and does not constitute financial product advice, investment
advice or any recommendation. Nothing in this presentation
constitutes legal, financial, tax or other advice. This presentation
constitutes summary information only, and you should not rely
on it in isolation from the full detail set out in the Consolidated
Financial Statements.
2
18
24
04
17
22
06
31
11
32
FY18 Results Summary
and FY18 Operational Priorities
FY18 Financials
FY19 Strategic Priorities and Outlook
Market Dynamics
Q & A
Channel Results
Supplementary Information
AGENDA
3
FY17 $387.7m
FY17 $26.7m
FY18 total dividends
2 cents per share
2%
29%
Trading Revenue
Trading NPAT
Final Dividend
Results impacted by
Pro-active investment
in Digital Classifieds
$378.4m
$18.9m
nil
FY17 $20.9m
FY17 $66.2m
FY17 13.6cps
44%
17%
29%
Statutory NPAT
Trading EBITDA
Trading Earnings Per Share
$11.6m
$ 5 4.7 m
9.6cps
Agency market
headwinds
RESULTS SUMMARY
NZME FY18
4
ACHIEVEMENT OF OPERATIONAL PRIORITIES
NZME FY18
Return advertising
revenue to growth
Effective cost and
capital management
Continued audience
growth and
engagement
• NZ Herald audience at an all time high with a daily brand audience of more than 1 million (up 5% YoY).
1
• Engagement on nzherald.co.nz continues to grow with ongoing focus on premium content. Online engagement
grew during the year, reaching 3 minutes 16 seconds.
2
• NZME has maintained audience share in a growing radio market.
3
• NZME advertising revenue declined by 4% in FY18 impacted by significant headwinds in the New Zealand Agency
advertising market across all channels.
• Strong growth in Print travel segment.
• Direct radio revenue in growth in H2.
• $3.7m decrease in underlying costs, driven by ongoing efficiency measures.
• Capital management review finalised. Debt refinanced and extended to 2022.
• NZME targeting debt reduction of $10-$15m per annum from FY19 to bring leverage to between
1.0 and 1.5 times Trading EBITDA.
1
Nielsen CMI Q4 17 – Q3 18 AP 15+, represents a combination of Print readership and Digital audience.
2
Nielsen Market Intelligence, Domestic Traffic, 2018.
3
GfK Radio Audience Measurement,
Commercial Stations, NZME and Partners. Total Market Share T4 2018, AP 18-54.
Develop our talent
and people
Grow new revenue
streams
Stuff merger &
Industry consolidation
• Continued to further develop the profile of the journalism team ahead of the launch of digital subscriptions.
• Refresh of NewstalkZB talent line up.
• Improvement in staff engagement metrics year on year.
• OneRoof revenue $0.7m for FY18 since March 2018 launch, $0.5m generated in Q4.
• Digital subscriptions launching in Q2 19.
• Stuff merger opportunity was about efficiency and growth.
• Continue to actively assess value-adding opportunities to take advantage of industry consolidation.
5
DYNAMICS
MARKET
80% OF NEW ZEALANDERS
NZME’S AUDIENCE REACH IS 3.3 MILLION
1
Digital
2.0 Million
Weekly readers
1
Weekly listeners
2
per month
1
Unique audience of
Print
Radio
1.3 Million
2.5 Million
1
Nielsen CMI October Fused Q4 17 - Q3 18 (population 10+ years).
2
GfK Radio Audience Measurement, Commercial Stations, NZME and Partners. Cumulative Audience T4 2018.
7
NZME < Market
NZME = Market
NZME FY18 PERFORMANCE AGAINST THE MARKET
Display & Mobile Revenue
Advertising Revenue
NZME 3%
NZME -3%
Market 5%
1
Market -3%
2
YoY to Q4 18
YoY to Q3 18
YoY to Q4 18
YoY to Q3 18
Digital
Radio
28%
16%
56%
FY17 28%
FY17 15%
FY17 57%
1
IAB / PwC New Zealand Q4 18 Interactive Advertising Spend Report; digital excluding search and directories, and social media (NZ market only).
2
PwC Radio Performance Comparison Report, Q3 18.
3
PwC NPA Quarterly Performance Comparison Report, Q3 18.
NZME > Market
Advertising Revenue
NZME -6%
Market -16%
3
YoY to Q3 18
YoY to Q3 18
Print
$60.0m
$211.6m$106.8M
FY17 $387.7m2%
Trading Revenue
$378.4m
8
1
Standard Media Index
2
ANZ Business Outlook.
IN FY18
AGENCY MARKET DECLINED
• Agency represents approximately 30%
of NZME’s Print and Radio revenues and
50% of Digital revenues.
• The Agency market declined 4.2% in 2018,
impacting all advertising channels except
for Outdoor, which grew only 0.5% YoY.
• The market was particularly challenged
in H2, reflecting trends in New Zealand
business confidence.
• Print Agency market experienced the
greatest decline, down 22% YoY.
New Zealand Business Confidence
2
Net Index (% expecting improvement
minus % expecting deterioration)
YoY growth
Total Agency Demand YoY Growth %
1
20%
30
-15%
-60
-5%
-20
-10%
-30
-40
-50
0%
-10
10%
10
5%
0
15%
20
Jan-18
Jan-17
Feb-18
Feb-17
Mar-18
Mar-17
Apr-18
Apr-17
May-18
May-17
Jun-18
Jun-17
Jul-18
Jul-17
Aug-18
Aug-17
Sep-18
Sep-17
Oct-18
Oct-17
Nov-18
Nov-17
Dec-18
Dec-17
Jan-18
Jan-17
Feb-18
Feb-17
Mar-18
Mar-17
Apr-18
Apr-17
May-18
May-17
Jun-18
Jun-17
Jul-18
Jul-17
Aug-18
Aug-17
Sep-18
Sep-17
Oct-18
Oct-17
Nov-18
Nov-17
Dec-18
Dec-17
AustraliaNew ZealandNZ trend
9
New Zealand’s Prime Minister, Jacinda Ardern, guest editing
The New Zealand Herald suff rage edition, September 2018
RESULTS
CHANNEL
12
• Total Print revenue decline improved in FY18
to -4% (FY17: -7%). Print revenue decline slowed
in H2 18, helped to some extent by an extra
week’s trading.
• Growth in the travel category, assisted by the
cruise ship industry, helped off set the decline
in Agency advertising revenue.
• Circulation revenue benefited from the additional
week in FY18. Adjusting for this, circulation revenue
declined approximately 4% in FY18.
• Subscriber numbers continued to decline at modest
rates, to a degree off set by yield improvements.
• Other revenue is primarily third party print
and distribution, which remains in decline.
• Direct print costs declined by 4%, reflecting
lower volumes and the ongoing benefits from
plant upgrades. We continually evaluate our Print
portfolio to ensure that each publication remains
a net contributor to the business.
• Direct costs include printing costs,
distribution costs, agency commission,
and occupancy costs.
• Readership remained at strong levels and
NZ Herald daily brand audience exceeded
1 million across FY18.
PRINT
NZME
NZME Print ($m)FY18FY17% Change
Advertising Revenue114.2121.0(6%)
Circulation Revenue81.583.3(2%)
Other Revenue
1
15.91 7.0(6%)
Total Print Revenue211.6221.3(4%)
Direct Print Costs(72.9)(75.9)(4%)
Print Contribution138.7145.4(5%)
12
NZ HERALD READERSHIP AND AUDIENCE TRENDS POSITIVE
The NZ Herald Mon-Sat Average
Issue Readership
1
470
Readership (000s)
Q1 16 - Q4 16Q2 16 - Q1 17Q3 16 - Q2 17Q4 16 - Q3 17Q1 17 - Q4 17Q2 17 - Q1 18Q3 17 - Q2 18Q4 17 - Q3 18
430
460
420
450
410
440
400
390
380
Subscriber VolumeYield
NZME Subscriber Volume
and Yield
2
16.0
Q4 16Q1 17Q2 17Q3 17Q4 17Q2 18Q1 18Q3 18Q4 18
8.0
Yield ($)
Daily Brand Audience (000s)
Subscriber Volume (millions)
1.90
1.70
1.50
1.30
1.80
1.60
1.40
1.20
1.10
14.0
6.0
12.0
4.0
10.0
2.0
NZ Herald Daily Brand Audience
3
Q4 15 - Q3 16Q3 15 - Q2 16Q1 16 - Q4 16Q2 16 - Q1 17Q3 16 - Q2 17Q4 16 - Q3 17Q1 17 - Q4 17Q2 17 - Q1 18Q3 17 - Q2 18Q4 17 - Q3 18
950
800
900
750
650
600
850
700
1,100
1,050
1,000
1
Nielsen CMI Q4 17 – Q3 18, NZ Herald Average Issue Readership trend, AP15+
2
Subscriber volume drives revenue and represents the count of individual “paid” papers delivered, including the
NZ Herald, Herald on Sunday and Regionals (includes paid trials). Subscriber yield includes promotional volumes.
3
Nielsen CMI Q4 17 – Q3 18, AP15+.
13
14
NZME
RADIO & EXPERIENTIAL
• Radio market was challenging, particularly in H2 18,
with Radio & Experiential revenue down 4% in FY18.
• Radio Agency advertising revenue declined
7% in FY18.
• Direct channel returned to growth, growing
2% in H2 18.
• Market share of Radio revenue and audience stable
YoY at 39%
2
and 35%
3
respectively.
• iHeart registered users up 18% YoY to 831,000
4
,
total listening hours up 16% YoY to 3.2m
5
. iHeart
in a strong position to take advantage of growth
in digital listening.
• Direct radio and experiential costs increased
1% in FY18. Direct costs include radio licence
fees, transmission costs, talent costs and iHeart
licence fees.
NZME Radio & Experiential ($m) FY18 Trading
1
FY17% Change
Radio & Experiential Revenue100.0103.7(4%)
Other Revenue (including iHeart and Events)6.96.47%
Total Radio & Experiential Revenue106.8110.1(3%)
Direct Radio & Experiential Costs(31.9)(31.4)1%
Radio & Experiential Contribution75.078.6(5%)
Radio Advertising - Direct (LHS)
Radio Advertising - Agency (RHS)
Radio Advertising
(12 month rolling average) ($m)
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
T1 2016T2 2016T3 2016T1 2017T2 2017T3 2017T4 2017T1 2018T2 2018T3 2018T4 2018
NZME Major Markets 18 - 54 y/o
Station Share
3
36
Station share (%)
26
34
24
32
30
22
28
20
39.0
70.0
31.0
62.0
29.0
2 7.0
25.060.0
35.0
66.0
33.0
64.0
37.0
68.0
1
FY18 Trading result has been adjusted to remove the eff ect of NZ IFRS 15 to enable a like for like comparison with FY17.
2
PwC Radio
Advertising Benchmark Report, Q3 18
3
GfK Radio Audience Measurement, Commercial Stations. NZME & Partners in Major Markets
Trended to T4/2018. Station Share %, AP 18-54.
4
iHeartMedia, 2017-2018; Adobe Analytics, 2018.
5
AdsWhizz and StreamGuys, 2017-2018.
14
15
• Digital revenue growth slowed in H2 18, impacted
by a contraction in the Agency advertising market.
• Digital Agency revenue grew 15% in H1 and -7%
in H2, 3% YoY. In contrast, Direct digital revenue
grew 8% YoY.
• The Digital market continues to evolve and NZME
expects it to remain a long-term driver of growth
2
.
• GrabOne revenues are stabilising due to a higher
degree of personalisation and targeted
direct marketing.
• Digital and e-Commerce costs have increased in line
with incremental production and fulfilment costs.
Digital Classifieds
• Digital revenue includes Digital Classifieds and other
digital revenue. The highly encouraging OneRoof
performance is discussed on page 28 and 29.
• DRIVEN and YUDU continue to show potential but
investment in YUDU has been reallocated to support
the growth of DRIVEN and OneRoof, which has the
greatest revenue potential in the near term.
The total investment in DRIVEN and YUDU in FY18
was $2.2m off set by revenue of $0.2m.
• Incremental Digital Classified costs are
in line with expectations at $6.1m.
• FY19 Digital Classified costs are
anticipated to increase to $8.0m,
the majority of which will be
invested in OneRoof.
NZME
DIGITAL & E-COMMERCE
1
FY18 Trading results has been adjusted to remove the eff ect of NZ IFRS 15 to enable a like for like comparison with FY17.
2
PwC Outlook NZ Entertainment & Media 2018 – 2022.
NZME Digital & e-Commerce ($m) FY18 Trading
1
FY17% Change
Digital Revenue48.944.99%
e-Commerce Revenue11.011.4(4%)
Total Digital & e-Commerce Revenue60.056.36%
Direct Digital and e-Commerce costs(10.3)(8.3)24%
Incremental Digital Classifieds costs(6.1)--
Digital & e-Commerce Contribution43.648.0(9%)
Launched unique tools for buyers and sellers
FY19 focus on monetising lead generation
15
FY18
FINANCIALS
• NZME was pleased to contain the decline in trading
revenue to just 2% ($9.3m) in FY18 (-4% in FY17) in
part due to an extra publishing week.
• Revenue declines in Print and Radio were partially
off set by modest growth in Digital.
• Digital Classifieds contributed small but growing
revenue in H2 18.
• Costs increased by 1%, reflecting the $6.1m
investment in Digital Classifieds that off set
underlying cost savings in the business.
• EBITDA declined $11.5m (17%) to $54.7m.
• Excluding the net costs of the Digital Classified
business, EBITDA declined 8%.
TRADING RESULTS
NZME
$mFY18 Trading
1
FY17% Change
Revenue378.43 87.7(2%)
Other Income4.13.79%
Total Revenue & Other Income382.4391.4(2%)
Costs(327.7)(325.3)1%
EBITDA54.766.2(17%)
Depreciation and amortisation(24.6)(24.9)(2%)
EBIT30.241.2(27%)
Net Interest(4.6)(4.4)5%
NPBT25.636.9(31%)
Tax(6.7 )(10.1)(34%)
Trading NPAT18.926.7(29%)
Trading earnings per share (cps)9.613.6(29%)
1
The statutory results reflect the impact of NZ IFRS 15 Revenue from Contracts with Customers on Revenue. For presentation
purposes the FY18 Trading result is provided on a basis consistent with the FY17 result to enable a like-for-like comparison.
Refer to page 34 of this presentation and note 2.1.1 of the Consolidated Financial Statements for further detail.
18
COSTS
NZME
$mFY18 TradingFY17 Trading% Change
People costs & contributors156.5162.2(4%)
Print & distribution costs63.266.9(5%)
Agency commission & marketing35.935.03%
Property21.120.82%
Content15.813.616%
IT & communications12.411.76%
Other16.715.111%
Total Costs excl. Digital Classifieds Costs321.6325.3(1%)
Incremental Digital Classified costs6.1--
Total Trading Costs3 2 7.7325.31%
$mFY18FY17
Redundancies5.34.3
Write off of Ratebroker2.2-
Other1.73.2
Total Exceptional Items9.27. 5
EXCEPTIONAL ITEMS
Costs
• Underlying costs
1
down 1%, largely in the areas
of people costs and print and distribution costs.
H2 costs impacted by additional publishing
week and an increase in contractual property
operating expenses.
• Print and distribution costs reduced in line with
lower print volumes and eff iciency benefits from
plant upgrades.
• Marketing costs are higher due to the increase
in external marketing of radio brands.
• Increased content costs reflect investment in video
production and fulfilment costs.
• A $6.1m incremental investment in Digital
Classifieds was made in FY18 in people, marketing,
data and technology licensing.
Exceptional items
• Redundancy costs of $5.2m includes cost
of restructuring undertaken in Q4 18, the benefits
of which will be reflected in people costs in FY19.
• Investment in Ratebroker, the majority of which was
non-cash, written off due to under-performance
in the business.
• Other exceptional items in FY18 include
make good of historical holiday pay
obligations, costs associated with
one off restructuring projects and
residual costs relating to the Stuff
merger appeal.
1
Costs excluding incremental Digital Classified Costs
19
• The Capital Management Policy, announced
in November 2018, supports long-term strategic
objectives and operational priorities to maximise
shareholder value.
• The objective is to reduce gearing while maintaining
investment in growth opportunities and continuing
to pay dividends, where trading and investment
conditions permit.
• New bank facilities of $150m were established
in November 2018 with an expiry of 1 January 2022.
As at December 2018 net debt was $98.3m and
gearing was 1.8 times. NZME is targeting a net debt
reduction of $10 – $15m per annum to bring the
leverage ratio to within the target range of 1.0 to 1.5
times rolling 12-month Trading EBITDA.
• NZME retains significant headroom under
its existing facilities. Undrawn bank facilities
as at 31 December 2018 were $51.7m.
BALANCE SHEET
NZME
$mDec 18Jun 18Dec 17
Trade, other receivables and inventory60.654.257. 2
Trade and other payables(52.0)(50.0)(56.9)
Current tax (liability) / receivable0.92.6( 7.6 )
Net working capital (excluding cash)9.46.8( 7.3 )
Fixed, intangible and other assets389.6395.3401.3
Net interest bearing liabilities(98.3)(106.1)(90.2)
Other liabilities(14.1)(14.8)(14.8)
Net Assets286.6281.3289.0
Rolling 12 month Trading EBITDA54.761.266.2
Trading net interest cover12.014.515.2
Net debt to trading EBITDA1.81.71.4
20
21
• Year end net debt increased $7.9m from
31 December 2017 due to reduced trading EBITDA
($11.5m), investment in working capital, tax, and
dividend payments.
• A net $8.6m increase in working capital was
primarily related to a decrease in staff incentive
accruals due to FY18 performance, an increase
in technology prepayments, lower accruals, and
higher trade debtors. The increase in trade debtors
was in part due to the extra publishing week
in December 2018.
• Capital expenditure was in line with expectations.
FY19 capital expenditure is expected to be lower
at ~$12m due to the completion of a number of key
technology integration projects.
• Exceptional items in the cash flow summary exclude
the non-cash impairment of Ratebroker of $2.2m.
• Tax paid was higher in FY18 due to the timing of
FY17 tax payments. FY19 cash tax is expected to be
in line with accounting tax expense.
CASH FLOW
NZME
$mFY18 TradingFY17 Trading
Trading EBITDA54.766.2
Share based payment scheme (non-cash)0.81.7
Movement in payables and receivables(8.6)(11.7)
Trading cash from operations46.956.2
Net interest expense(4.0)(3.9)
Capital expenditure(14.1)(15.1)
Exceptional items( 7.0 )( 7.6 )
Dividends paid(15.7)(18.6)
Tax paid(14.1)( 5.7 )
Movement in net debt
1
( 7.9 )5.3
DIVIDEND POLICY
Subject to achieving the annual debt reduction target, and having regard to
NZME’s capital requirements, operating performance and financial position
at the time, NZME intends to pay dividends of 30% to 50% of reported
NPAT
2
.
1
Movement in net debt excludes borrowing costs of $0.1m in FY18 (and borrowing costs and other financing charges of $0.4m in FY17).
2
Full dividend policy is available at www.nzme.co.nz/investor-relations/dividends/
21
PRIORITIES AND OUTLOOK
FY19 STRATEGIC
FOCUSED ON GROWTH
2019 STRATEGIC PRIORITIES
Creating New Zealand's leading
real estate platform
Leading the future of news and
journalism in New Zealand
Increasing radio capability
and performance
123
23
24
FY19 Focus
New Zealand’s destination for
trusted premium news content
Launch digital subscriptions
Enhancing print subscriber
value proposition
Key success metrics
Paid content launch
Q2 2019
Targeting 10,000 digital
subscribers within the first year
Increased premium content and
digital audience engagement
Improved print
subscriber retention
LEADING THE FUTURE OF NEWS
AND JOURNALISM IN NEW ZEALAND
1. NEWS
1
Nielsen CMI Q4 17 - Q3 18 (population 15+ years)
2
nzherald.co.nz 1.74m, Stuff .co.nz 1.75m monthly UA in December 2018 (Nielsen Online Ratings, December 2018).
NZME is New Zealand’s leading publisher with The New Zealand
Herald's daily brand audience, across print and digital, at more
than 1 million
1
. nzherald.co.nz is now on par with stuff .co.nz
2
as New Zealand’s #1 local website.
24
25
DIGITAL ACCESS FREE TO THE MAJORITY
OF PRINT SUBSCRIBERS
Investment
FY19 net investment in digital subscriptions
is expected to be $1.2m including costs
associated with global syndicated content,
launch and ongoing marketing support.
Forecasting to be EBITDA positive in Year 2.
PROGRESS AND LAUNCH
DIGITAL SUBSCRIPTIONS
TECHNOLOGYCONTENTAUDIENCE
• Technology platform
implemented in
partnership with
Washington Post Arc.
• Current focus is
on optimising user
journeys and user
experience, testing
and delivering print
and digital bundles.
• Access to the best
stories from four top
global publishers.
• Strong team of
premium journalists
across business,
politics, news,
sport, lifestyle and
entertainment.
• Audience of 1.7
million
1
to be
maintained with
Freemium model.
• Majority of content
remains free.
• 520,000+ registered
users.
1
Nielsen Online Ratings, December 2018.
25
Relative Radio Audience Size
by Demographic
1
85%
70%
80%
65%
55%
45%
35%
75%
60%
50%
40%
30%
Average Age
% Male
20253035404550556065
FY19 Focus
Enhance radio sales skills to
support integrated selling
Digital audience and revenue
growth leveraging iHeart capability
Successfully develop an engaged
following for new shows
Key success metrics
Radio revenue in growth
Improved audience share in the key
18-54 demographic
Continue to grow iHeart registered
users and streaming hours
NZME is the second largest radio operator in New Zealand, with a weekly radio
audience of 2.0 million
1
. NZME has the exclusive licence for the iHeart Radio
platform in New Zealand and is well positioned to take advantage of the growing
digital radio market.
INCREASING RADIO CAPABILITY AND PERFORMANCE
2. RADIO
1
Gfk Radio Audience Measurement, Commercial stations, NZME and Partners, Cumulative Audience T4 2018.
26
RADIO & EXPERIENTIAL
NZME
TECHNOLOGYSALES CAPABILITYAUDIENCE
• New content formats
including podcasts
and Alexa skills.
• Radio specialists
• Improved radio
sales training
• Regional focus
• Cross channel
bundling
• New NewstalkZB
line-up
• Embed new
music shows
• iHeart registered
users 831,000+
27
• Launched end March 2018.
• Listings from four out of five major agency groups now
on oneroof.co.nz.
• ~66% of Trade Me’s nationwide residential "For Sale" listings
on site, ~87% of Trade Me's Greater Auckland residential
"For Sale" listings.
• Audience engagement with listings increasing (views, saved
properties and enquiry rates.)
• Strong audience growth supported by integrated content
and advertising.
• Exceeded Trade Me Property’s audience on 3 December 2018
with the release of the inaugural OneRoof Quarterly
Property Report.
2
• 40% of audience coming direct to site or via organic search, 40%
referral rate from nzherald.co.nz. 50%+ of audience is mobile.
• 58,000+ app downloads.
1
OneRoof is a joint venture between NZME (80% share) and the developer of the platform (20% share). The entity is fully consolidated in the NZME Consolidated Financial Statements.
2
Nielsen Market
Intelligence, Domestic Traff ic (1 Jan 18 - 31 Dec 18).
OneRoof
1
is New Zealand’s newest real estate platform incorporating superior user experience and search functionality.
OneRoof "For Sale" Listings as % of Trade Me
Residential "For Sale" Listings
0%
10%
20%
30%
40%
50%
60%
70%
Apr-18May-18Jun-18Jul-18Aug-18Sep-18Oct-18Nov-18Dec-18
Weekly Unique Browsers
2
50
100
150
200
250
300
350
400
450
500
Apr-18Mar-18May-18Jun-18Jul-18Aug-18Sep-18Oct-18Nov-18Dec-18
Weekly unique Browsers (000s)
trademe.co.nz/propertyhomes.co.nzrealestate.co.nzoneroof.co.nz
LISTINGS + AUDIENCE
REVENUE
LISTINGS
AUDIENCE
CREATING NEW ZEALAND'S LEADING REAL ESTATE PLATFORM
28
FY19 Focus
Secure further market listings and
launch new property categories
(e.g. new homes)
Continue to develop user
features and tools to enhance
listings engagement
Lead property market
commentary and insights
Continue revenue growth
through premium listings
and agent products
Key success metrics
Growth in listings as a % of market
Improved audience listings
engagement
Meaningful revenue growth
($m)FY18
Revenue0.7
Direct Costs(3.9)
OneRoof contribution(3.2)
Other Real Estate Revenue (Print, Digital & Radio, excl. OneRoof)32.8
• OneRoof revenue of $0.7m in FY18, $0.5m in Q4 18.
• Real Estate represents NZME’s largest revenue vertical.
• Real Estate products have been co-branded OneRoof to facilitate
integrated sales and content offerings.
Premium listings
Native content
Sponsorship
Bundled cross-channel packages
Agent profiles
Actively Monetising
CREATING NEW ZEALAND'S LEADING REAL ESTATE PLATFORM
REVENUE
29
OUTLOOK
• Advertising bookings for Q1 19 are tracking at -2% YoY compared with
-4% for FY18.
• The Agency market remains challenged however trends are improving.
• NZME is continuing to focus on cost reduction. Savings made in Q4 18
will benefit FY19. However, given the ongoing investment in Digital Classifieds
and digital subscriptions, net cost reduction is likely to remain modest.
• The launch of digital subscriptions is on track for Q2 19 with modest revenue
expectations and estimated net investment of $1.2m in FY19.
• OneRoof is expected to deliver further listings, audience and revenue
growth in FY19.
• NZME will continue to enhance radio sales skills to support integrated selling
and Radio revenue growth.
• In line with the Capital Management Policy announced in November 2018,
NZME is targeting a reduction in debt of $10m to $15m in FY19.
• Industry consolidation is expected to continue to present opportunities
for NZME.
30
Q & A
Mike Hosking, NewstalkZB Breakfast Host
INFORMATION
SUPPLEMENTARY
CHANNEL DIRECT COSTS
NEW MEASURE TO ENHANCE UNDERSTANDING OF OUR
BUSINESS AND STRATEGY
DIRECT COSTS HAVE BEEN ATTRIBUTED TO EACH SEGMENT
WHERE POSSIBLE AS FOLLOWS:
Print direct costs include:
• Print and distribution costs
• Occupancy costs at the Ellerslie
print plant
• Agency commission specifically
related to Print products
Digital direct costs include:
• Fulfilment costs
• Production costs
• Merchant fees related to
GrabOne
• Costs associated with the
Digital Classifieds
• Agency commission specifically
related to Digital products
Radio direct costs include:
• Radio licence fees
• Transmission costs
• iHeart licence fees
• Radio talent costs
• Agency commission specifically
related to Radio products
Centralised costs that have not
been attributed to a specific
segment include:
• Head office and back office
services (IT, Finance, HR,
Marketing etc.)
• Occupancy costs for all
properties other than the
Ellerslie print plant
• Integrated sales team costs
• Content costs
$
33
34
1
For a detailed explanation of the NZ IFRS 15 adjustment
please refer to Note 2.1.1 of the Consolidated Financial
Statements.
2
Segment revenue in the FY18 Financial Statements
column agrees with the segment revenue
as disclosed in note 2.4.2 of the Consolidated Financial
Statements for the period ended 31 December 2018. The
FY18 Trading segment revenue excludes the NZ IFRS 15
adjustment to ensure a like-for-like comparison with the
FY17 information that is not restated for the eff ects of NZ
IFRS 15.
3
Other Income consists of revenue from the shared
service centre of $3.4m and other income of $0.7m as
disclosed in note 2.4.2 of the Consolidated Financial
Statements.
4
Costs in the FY18 Financial Statements column agree
to expenses from operations before finance costs,
depreciation and amortisation as disclosed in the
Consolidated Income Statement.
5
Net interest expense is made up of finance cost
of $4.6m (as disclosed in the Consolidated Income
Statement) less finance income of $80k as disclosed in
note 2.4.2.
6
Trading tax payable has been calculated using
NZME’s eff ective tax rate on NPBT, excluding
non-deductible exceptional items, of 29%.
7
Exceptional Items consist of redundancies,
the impairment of a financial asset and
costs in relation to one-off projects
(as disclosed in the note 2.4.2 of the
Consolidated Financial Statements).
NZME FY18
RECONCILIATION OF TRADING RESULT TO
CONSOLIDATED FINANCIAL STATEMENTS
$m
FY18
Trading
NZ IFRS
15
1
Exceptional
Items
7
FY18 Financial
Statements
Segment revenue
2
- Print211.6--211.6
- Radio106.86.5-113.3
- Digital60.0--60.0
Other Income
3
4.1--4.1
Total Revenue and Other Income382.56.5-388.9
Costs
4
(327.7)(6.5)(9.2)(343.4)
EBITDA54.7-(9.2)45.5
Depreciation and amortisation(24.6)--(24.6)
EBIT30.2-(9.2)20.9
Net interest expense
5
(4.6)--(4.6)
NPBT25.6-(9.2)16.4
Tax
6
(6.7 )-1.9(4.8)
Minority interest0.2--0.2
NPAT19.1-( 7.3 )11.7
Earnings per share (cps)9.7-(3.7 )6.0
34
35
1
Segment revenue agrees with the segment
revenue as disclosed in note 2.4.2 of the
Consolidated Financial Statements for the
year ended 31 December 2018.
2
Other Income consists of revenue from the
shared service centre of $3.0m and other
income of $0.7m as disclosed in note 2.4.2
of the Consolidated Financial Statements.
3
Costs in the FY17 Financial Statements column agree
to Expenses from operations before finance costs,
depreciation and amortisation as disclosed in the
Consolidated Income Statement.
4
Net interest expense is made up of Finance Cost
of $4.5m (as disclosed in the Consolidated Income
Statement) less Finance income of $0.1m
as disclosed in note 2.4.2.
5
Trading tax payable has been calculated using
NZME's eff ective tax rate on NPBT excluding
exceptional items of 29%.
RECONCILIATION OF TRADING RESULT TO
CONSOLIDATED FINANCIAL STATEMENTS
NZME FY17
$m
FY17
Trading Result
Exceptional
Items
FY17
Statutory Result
Segment revenue
1
- Print221.3-221.3
- Radio110.1-110.0
- Digital56.3-56.3
Other Income
2
3.7-3.7
Total Revenue and Other Income391.4-391.4
Costs
3
(325.3)( 7. 5 )(332.8)
EBITDA66.2( 7. 5 )58.6
Depreciation and amortisation(24.9)-(24.9)
EBIT41.2( 7. 5 )33.7
Net interest expense
4
(4.4)-(4.4)
NPBT36.9( 7. 5 )29.3
Tax
5
(10.1)1.7(8.4)
NPAT26.7(5.8)20.9
Earnings per share (cps)13.6(3.0)10.7
35
---
NZME Limited
Results for announcement to the market
Reporting Period 12 months to 31 December 2018
Previous Reporting
Period
12 months to 31 December 2017
Amount (000s) Percentage change
Revenue from ordinary
activities
$NZ 388,269 -0.6%
Profit (loss) from ordinary
activities after tax
attributable to security
holder
$NZ 11,735 -43.8%
Net profit (loss)
attributable to security
holders
$NZ 11,735 -43.8%
Final Dividend Amount per security Imputed amount per
security
nil nil nil
Record Date
Dividend Payment Date
Comments: A brief For the 12 months to 31 December 2018, NZME
Limited’s reported profit from ordinary activities after
tax was NZ$11.6 million compared to a profit of
NZ$20.9 million in the comparative period.
The net profit after tax for the 12 months to 31
December 2018 of NZ$11.6 million is down 44.6% from
the net profit after tax for the 12 months to 31
December 2017 of $20.9 million.
Net assets per share as at 31 December 2018 was
NZ$1.46 compared to NZ$1.47 as at 31 December
2017
Net tangible assets per share as at 31 December 2018
was NZ$(0.22) compared to NZ$(0.21) as at 31
December 2017.
Refer to the attached audited Consolidated Financial Statements for the twelve
months ended 31 December 2018 for NZME Limited and its subsidiaries and the
Results Presentation for a more detailed analysis and explanation.
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