NZME shares dropped near a two-year low after the company forecast a 21 percent decline in full-year operating earnings and said it probably won’t pay a final dividend.

The company also warned investors to expect lower dividends long term.

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

The board, chaired by Peter Cullinane, the former Saatchi & Saatchi boss who founded the Lewis Road Creamery business, wants the company to reduce its leverage ratio to 1-to-1.5 times trading earnings before interest, tax, depreciation and amortisation (ebitda) from 1.7 times as at June 30. 

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

“Developing new revenue streams to offset structural decline in some advertising markets and maximising long-term shareholder value remains a key focus,” the company said in a statement.` “NZME also continues to maximise the efficiency of the business to support ongoing operating competitiveness as well as reinvestment in growth initiatives.”

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

NZME has been reinvesting to find new income streams as the media industry goes through a fundamental shift. While global giants such as Facebook and Google have cornered the market in online advertising, newspaper publishers have tended to give their content away for free, undermining the value of their paid hard-copy publications.

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

NZME warned trading ebitda will likely fall as much as 21 percent this calendar year, forecasting earnings of $52-56 million. That’s down from $66.2 million in 2017. First-half ebitda fell 18 percent.

Ad revenue fell 4 percent in the three months through September, although it said fourth-quarter bookings were showing some improvement. 

The company expects net debt to be $100 million at the end of the year, down from $106 million as at June 30. It also refinanced its $160 million debt facilities, extending the term by two years to January 2022 and lowering the cap to $150 million. The new facility will step down by $10 million a year from January 2020. 

The new facility is at a higher interest margin of 60 basis points, which NZME said reflected market movements. Its borrowing rates were between 3.3 percent and 3.9 percent in the six months ended June 30. 

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