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Edited Transcript of NZM.NZ earnings conference call or presentation 24-Aug-20 10:00pm GMT

·43 min read

Half Year 2020 NZME Ltd Earnings Call AUCKLAND Oct 26, 2020 (Thomson StreetEvents) -- Edited Transcript of NZME Ltd earnings conference call or presentation Monday, August 24, 2020 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * David Mackrell NZME Limited - CFO * Michael Raymond Boggs NZME Limited - CEO * Paddy Walker NZME Limited - IR Manager ================================================================================ Conference Call Participants ================================================================================ * Arie Dekker Jarden Limited, Research Division - Head of Research * Roger Colman ================================================================================ Presentation -------------------------------------------------------------------------------- Paddy Walker, NZME Limited - IR Manager [1] -------------------------------------------------------------------------------- Ladies and gentlemen, welcome to New Zealand Media and Entertainment's 2020 Half Year Results webcast. My name is Paddy Walker, Investor Relations Manager at NZME. And presenting on the call today will be NZME's Chief Executive Officer, Michael Boggs; and NZME's Chief Financial Officer, David Mackrell. (Operator Instructions) I will now hand you over to Michael Boggs, who will start the presentation. -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [2] -------------------------------------------------------------------------------- Good morning. Michael Boggs here, the CEO of NZME. Thank you for joining us for our 2020 half year results briefing. If you're on the webcast, you'll be able to view our presentation pack as we talk through the results. In terms of the agenda, I'll take you through our results summary, an explanation of the impact of COVID-19 on the business to date, the market dynamics and our channel performance. I'll then hand over to David, who will take you through the interim financial results. I'll then discuss our strategic priorities and our outlook for the remainder of 2020 and beyond. We'll then have time for your questions. Slide 3 summarizes our half year result. We are pleased to report strong performance with growth in operating EBITDA and net profit after tax as we've quickly navigated the impacts of COVID-19. As you'll see, operating revenue was $157.8 million, down 13% year-on-year. Pleasingly, we achieved stable digital revenue. However, COVID-19 significantly impacted advertising revenues and retail newspaper sales in the second quarter. The business continues to withstand the impacts of the pandemic and has rebounded swiftly from the initial and most disruptive impacts, including many weeks in lockdown. We are pleased with the positive momentum seen in our key strategic priorities. In particular, New Zealand Herald Premium subscriptions continue to rise with more than 82,000 subscribers, 43,000 of which are paid, with the remainder utilizing their print bundle entitlement. We were pleased to have achieved overall circulation revenue growth with combined print and digital subscription and circulation revenues growing year-on-year. OneRoof has now more residential for sale listings in Auckland than any other site and more than 83% of New Zealand's listings. We are pleased to report growth in operating EBITDA, up $1.3 million or 5% on a comparable basis to $28.9 million. This result is supported by the 16% reduction in our operating cost base for the half. We note that the operating result includes an $8.6 million wage subsidy, which was received from the New Zealand government and this is classified in other revenue. It also incorporates IFRS 16 adjustments in both periods. A reconciliation to previously reported and statutory results can be found in the supplementary information to this presentation. Combined with our continued focus on cost efficiencies, a number of swift actions were taken in the second quarter to mitigate the impacts of COVID-19 on the business. We will discuss these in more detail shortly. Operating impact was $6.8 million, up $2.7 million compared to the prior half year. This translated to operating earnings per share of $0.035, up from $0.021 in the comparable period. Statutory net profit after tax was $3 million, up $2.1 million on a comparable basis. Our ongoing focus on capital management resulted in a $19.5 million reduction in net debt, bringing it to $55.2 million. Overall, this result highlights the underlying strength of the business, supported by our prudent approach to capital management and our ongoing focus on costs. It also highlights the ability of the business to respond with resilience and agility when faced with extraordinary circumstances. Now looking at Slide 4. As one of this country's leading media businesses, New Zealanders trust NZME's brands to keep them in the know, especially during times of crisis. The New Zealand government's 4 level alert system was introduced to assist the country in containing COVID-19. Businesses deemed to be an essential service were permitted to continue operations during the lockdown period, provided health and safety guidelines were followed. NZME is deemed an essential service and continues to provide the country with leading news journalism throughout this difficult time. Due to the extensive impacts of COVID-19 on the New Zealand economy, many key revenue streams have been significantly impacted since the end of March. As shown on the chart, total advertising revenue noticeably came under pressure in the first quarter. And by April, was down 47% for the month, that's year-on-year, in May, down 39%. There was further recovery seen in June, down 23% and July and August have shown continued improvements in this trend. Due to the lockdown restrictions imposed, NZME experienced a 35% reduction in newspaper retail sales in the second quarter. Partially offsetting this impact, though, newspaper subscription revenue grew from Q1 to Q2. That's the first time since 2017 as demand for access to quality news at home increased. NZME implemented a number of initiatives to mitigate these impacts on the business. And I'll now discuss these in more detail on Slide 5. Firstly and importantly, we prioritized the implementation of appropriate measures to protect the health and safety of our people. This also included regular transparent communication with our team, our suppliers and our stakeholders. Secondly, we swiftly initiated a number of actions to directly mitigate the impacts of COVID-19 on profitability and cash flow. We temporarily suspended products, including a number of newspaper inserted magazines and community newspapers. In March, we ceased broadcasting Radio Sport, given the immediate cancellation of all major sporting code activity due to the lockdown here and internationally. We implemented a wide-scale workforce restructuring project. This has resulted in a reduction of over 200 positions. This represented approximately 15% of our workforce. Directors and employees were asked to take a voluntary temporary 15% to 20% reduction in salary. And this was accepted by nearly all of NZME's people. We've also accelerated annual leave utilization, which again was supported by our people. In terms of our key contracts and property leases, we negotiated temporary reductions when possible, and we reduced overall discretionary business spend. To preserve cash, we significantly reduced capital expenditure in the first half, and we'll continue to do so for the remainder of the financial year by deferring projects. I will now outline the government assistance received by NZME in response to COVID-19 on Slide 6. The New Zealand government announced its wage subsidy scheme on March 17. This was to assist businesses who had experienced a minimum 30% decline in actual or predicted revenue over the period of a month when compared to the same month last year. NZME applied for and received a wage subsidy amounting to $8.6 million. This helped to support NZME's role as an essential service, while partially offsetting the significant revenue decline. NZME is unlikely to be eligible for further wage subsidies based on current revenue expectations. In addition to this, the New Zealand government provided broadcasting cost relief for a period of 6 months from May to October. This will amount to a cost reduction of around $1.7 million over this period, but is not included in operating earnings given the IFRS 16 accounting treatment for these broadcasting leases. NZME will also receive advanced payment in the second half of this year, representing a prepayment for 12 months of advertising by the New Zealand government. We'll now move to discussing NZME's recent performance compared to the New Zealand media market. As you'll see on Slide 8, this shows the magnitude of COVID-19's impact on agency advertising revenues on the left-hand chart. The size of the total agency market was down more than 30% year-on-year in the month of April, May and June. We note the trend improved in June, and we expect to see continued recovery from Q3 onwards. Digital and newspaper agency advertising were the most affected, down 15.4% and 14.2%, respectively, year-on-year for the first 6 months to June 2020. The radio agency market revenues were down slightly less at 11% for the half. It should be noted that the market displayed small year-on-year improvements prior to the impact of COVID-19. Both radio and newspaper agency advertising market revenues were up more than 7% year-on-year in the first quarter. The chart on the right is the ANZ Business Confidence Index for New Zealand and had shown initial signs of recovery in July 2020 after being negatively impacted by COVID-19 earlier in the year. The July confidence score of negative 29.8% is better than the 2019 average of negative 34.1% after progressively improving since April 2020. Now moving on to our revenue performance compared to the market on Slide 9. NZME achieved share gains in our key revenue streams during the half. It is great to report that we outperformed market revenue growth year-on-year in the first half in radio, print and digital advertising, resulting in gains in market share to 39.7%, 46.8% and 24.3%, respectively. This is a testament to the progress we are making as a business towards our strategic objectives. I'll now take you through the performance of each revenue channel in further detail, starting with Radio on Slide 11. We were pleased to see the continuation of growth in Radio revenue this year prior to the impact of COVID-19. These impacts led to a total Radio revenue decline for the half of 18% year-on-year to $43.7 million. Our consistent growth in revenue share highlights the strength of NZME's talent, brands and content strategies. We've seen 39% revenue growth this half for our digital audio platform, iHeartRadio. This growth has been achieved through a 12% increase in registered users, now more than 1 million; and a 34% year-on-year increase in average monthly listening hours, now almost 5 million. Our Radio contribution decreased $6.7 million to $29.1 million. In terms of our radio audience, more than 2 million New Zealanders continue to tune in to our stations each week, as shown on the first chart on Slide 12. The second and third charts on Slide 12 show our Radio market share for the specific demographics we target with our talk and our music brands. Our talk brand, Newstalk ZB is the #1 talk station and home to the most popular breakfast show in the country, the Mike Hosking Breakfast. For talk radio, we achieved a 0.8% year-on-year increase in total market share, bringing it to 14.8%. Our Music radio market share was down 0.9% in the same period to 25% of the total radio market. In June, we made several exciting enhancements to optimize our radio brands, including talent and content changes to support future growth and music listener market share. I'll discuss these further in the strategy section. We note that we would normally be able to update you with the second radio survey of the year at this stage. However, our research company, GfK, has had to put the second radio survey on hold due to the COVID-19 lockdown. Turning now to print on Slide 13, results are being disrupted due to COVID-19's impacts on advertising and retail sales with total print revenue down 22% for the half. However, we are pleased to report that NZME maintained print advertising revenue market share during this challenging period at 46.8% for the 6 months to June. Print circulation revenue declined 5% due to an 8% decrease in volume, partially offset by a 3% increase in yield in the half. Retail sales volumes were particularly impacted by the COVID-19 lockdown, decreasing 25% year-on-year in the half. Due to an increase in demand for quality news from home, subscriber volumes increased from Q1 to Q2 for the first time since 2017 and were down 4% for the half. As mentioned at the full year, in 2019, Stuff removed a number of publications previously printed by NZME. This has impacted other print revenue in the first half, decreasing it by 49% to $3.6 million. We expect an annual impact on third-party print revenue of approximately $5 million. However, this will be substantially offset by reduced direct print costs. As we show in further detail on Slide 14, print readership remains strong, with a New Zealand Herald brand audience of more than 1.6 million. In total, NZME Print publications reached more than 1.2 million weekly readers. Although we saw a decrease in readership in the first quarter of 2020, initial indications are that this has since improved with the current demand for quality journalism. After a slight decline in Q2, we expect yield to lift again as trends in retail sales improve and commercial subscribers return after the lockdown. Moving on to Digital on Slide 15. We are pleased with our results given the tough circumstances seen so far this year. Digital revenue held for the half at $28.3 million after growing 7% in Q1 as growth in digital subscriptions and classifieds revenues offset the impacts of COVID-19 on advertising revenue. The market for digital display advertising decreased 10.4% in the 6 months to June 2020. This compares to NZME's 8% decline in digital advertising revenue and translates to a growth in digital display market share from 22.8% to 24.3% year-on-year. We attribute these achievements to the strength of our digital strategy and our brands. We've seen excellent growth in New Zealand Herald Premium now with more than 82,000 subscribers and delivering revenue of $2.4 million in the half year. Our third strategic priority is to build New Zealand's leading real estate platform. And as already noted, OneRoof now has more residential for sale listings in Auckland than any other site. OneRoof contributed $1.4 million of digital revenue this half. Revenues from our e-commerce site, GrabOne, have quickly recovered from COVID-19, and the platform is now delivering year-on-year growth. The 3% growth seen here in direct digital expenses is largely due to higher fulfillment costs. This is due to growth in subscription revenue as well as higher GrabOne credit card and merchant fees. Our digital audience remains strong at more than 2.4 million users per month across our platforms and our monthly unique audience for the New Zealand Herald site alone of more than 1.6 million. I would now like to pass over to David, our CFO, to take you through the financial results for the half year. -------------------------------------------------------------------------------- David Mackrell, NZME Limited - CFO [3] -------------------------------------------------------------------------------- Thanks, Michael, and thanks again to all who have joined us on today's call. Let me begin with Slide 17, where we are pleased to report growth in operating EBITDA and operating impact for the half year. Operating revenue was $157.8 million, representing a decline of 13% on the comparable period. The decline, as discussed, is largely a result of the impacts of COVID-19. This operating result includes the $8.6 million of wage subsidy received from the New Zealand government, which has been classified as other revenue. Operating EBITDA grew 5% to $28.9 million for the half, supported by a 16% decrease in operating expenses. These cost reductions were achieved through a combination of an ongoing focus on cost efficiencies and the swift actions taken to mitigate the impacts of COVID-19 on the business. We note that we have now incorporated IFRS 16 adjustments into our operating results. A reconciliation to our 2020 half year results, excluding the first adjustments as well as our statutory results has been provided in the appendix to this presentation. Operating EBITDA, excluding IFRS 16 adjustments grew 12% to $21.8 million. Operating impact increased $2.7 million to $6.8 million, and operating earnings per share increased $0.014 to $0.035 per share in the half. Turning now to Slide 18 to look at our expenses. NZME continuously focuses on improving cost efficiencies. This focus, combined with the swift actions implemented to mitigate the impacts of COVID-19 on the business, resulted in a 16% reduction in operating expenses for the half year, reducing total operating expenses by $24.6 million. Key areas of cost reduction include people and contributors expenses down 11% or $8.2 million year-on-year as a result of the wide-scale workforce restructuring undertaken in the first half. Print and distribution expenses were 24% lower, partly due to an 8% reduction in print volumes, largely related to the temporary suspension of some print products due to COVID-19. Agency commission and marketing expenses decreased year-on-year in line with segment revenues, excluding the wage subsidy. And property costs decreased $0.6 million due to negotiated lease-related reductions, transmission cost relief and savings in repairs and maintenance. Finally, the slight increase in IT and communication costs was due to costs relating to the implementation of new systems during 2019. Exceptional items increased year-on-year due to redundancies as a result of the workforce restructuring. Given the magnitude of cost reductions achieved this half, we wanted to outline our expectation of the resulting ongoing cost reduction and have described this on Slide 19. While some of the impacts of actions taken in response to COVID-19 were temporary, management expect to achieve a permanent reduction in cost base as a result of permanent product changes and improved efficiency following restructuring. Costs were down $24.6 million for the first half with approximately $7 million relating to permanent cost reductions and the balance relating to variable or temporary reductions. We expect the annualized permanent cost base reduction to be $20 million per annum. Let's now look at our summarized balance sheet on Slide 20. Net working capital, excluding cash, decreased by $11 million at June 30, 2020 due to lower revenue and activity, resulting in a lower receivables balance, partially offset by lower payables. In June, we agreed to exceed our bank facilities after the 18 months to July 1, 2023, including additional covenant headroom over the term of the facility. We achieved a significant reduction in net debt over the half, down $19.5 million to $55.2 million at June 30, 2020. We expect the reduction in net debt in the second half to be lower than the first as net working capital is expected to grow as revenue and activity recovers. Overall, total net assets increased $2.6 million to $119.1 million at June 30, 2020. Moving now to the cash flow summary on Slide 21. Cash flow from operations was $27.7 million compared to $18.3 million in the comparable period. This increase was primarily due to the reduction in working capital. Capital expenditure was lower at $3.3 million in the half. And following a review in response to COVID-19 is expected to be approximately $7 million for the full year 2020. Reported lease liability principal repayments were lower than the prior period due to IFRS 16 adjustments to account for transmission cost relief received from the government and other negotiated lease reductions. Slide 22 shows our progress towards our capital management objectives of reducing debt and gearing while maintaining investment and growth opportunities across the business. NZME's reduced net debt of $55.2 million as of June 30, 2020, equates to a leverage ratio of 1x operating EBITDA down from 1.5x at December 31, 2019. We note that our new bank facilities limit dividend payments until after June 30, 2021. I will now hand back to Michael to take you through our strategic priorities and outlook. -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [4] -------------------------------------------------------------------------------- Thank you, David. I'll now take you through NZME's performance against our 3 strategic priorities, including what's been achieved so far this year. Firstly, on Slide 23, we have provided an overview of key metrics for each priority, displaying how our focus on growth has delivered results. The first chart on the left shows the total number of monthly digital users across our digital platforms, currently more than 2.4 million. At times of crisis, New Zealanders turned to NZME to keep them in the know with leading news and journalism. In terms of our first strategic priority, we have seen impressive growth in our New Zealand Herald Premium digital subscriber base, as shown on the second chart. The green bars represent paid digital subscribers; and gray, those that have utilized their print entitlement to become New Zealand Herald Premium digital subscribers. The third chart and the strategic priority 2 shows the significant growth in iHeartRadio average monthly total listening hours, great progress towards leading digital audio. We've been working hard to deliver New Zealand's leading real estate platform with OneRoof, and we are very happy to now host more residential for sale real estate listings in Auckland than any other site, with the chart showing that we exceeded our closest competitor, represented at 100%. Moving now to Slide 24, covering "Leading the Future of News and Journalism in New Zealand." Our first focus here is to grow digital subscription revenues. To achieve this, we are focused on growing subscription volumes, whilst maintaining New Zealand Herald site audience and engagement. We are happy to report that digital subscription revenue for the half was $2.4 million, representing an annualized revenue run rate of $7.5 million based on our current subscriber volumes. As we presented on the previous slide, we have maintained our digital audience of over 2.4 million. In the month of July, NZME's total digital audience overtook that of its closest competitor. We have recently invested in business and regional journalism to enhance our content offering and to support further growth in subscriber volumes and revenues. Our second focus is to enhance our digital product and revenues, enabling us to return digital advertising revenue to growth. As previously mentioned, we are pleased to report that total digital revenues held flat for the half year-on-year despite the impacts of COVID-19. We have seen great benefits from our New Zealand Herald app upgrades that took place during the year. They offer enhanced personalization, allow off-line reading and a net purchasing of premium subscription access. Our third focus here is on improving trends and print revenue through retention of subscribers and advertising revenues. Despite the COVID-19 impacts on advertising revenues, we were pleased to see that print subscriber volume grew from Q1 to Q2. Supporting the achievement of our strategic priority to lead the future of news and journalism in New Zealand, we were really honored to see the New Zealand Herald recognized at the 2020 Voyager Media Awards, taking the triple crown of Newspaper of the Year, Website of the Year and Best News Website or App. In addition, for the second year running, NZME was also awarded the top Asia Pacific prize at the annual INMA media awards. That was the prize of the Best Global Media Brand in the Asia Pacific. Now let's look at our second strategic priority of growing radio and leading digital audio on Slide 25. Our first focus has been to enhance radio sales capability to support growth and radio revenue. As discussed earlier in the briefing, we were happy to see radio revenue and growth year-on-year prior to the impact of COVID-19. Equally so, we achieved growth in radio market share to 39.7% for the first half, up from 39.3% in the comparable period. Our focus on returning radio revenue to growth will continue as we move towards recovery from COVID-19. Our second focus is to improve our radio content offering, supporting growth in music radio market share in the 25- to 54-year-old demographic. In June this year, we completed and launched a number of brand optimization, talent and content changes to help us achieve this objective. We began by reassessing and clarifying our target audience segmentation, the outcome of which you can see below each brand displayed on the right-hand side of this chart. We launched a completely new station, Gold, and undertook content changes arising from this process, including Coast’s new feel good sound and Flava's old school hip hop and R&B. Our third focus for Radio has been to maximize the potential of the iHeartRadio product through achieving revenue growth and increased iHeartRadio podcast consumption. As mentioned, we are pleased to achieve iHeartRadio revenue growth of 39% in the half, supported by significant growth in registered users and average listening hours. While still small from a revenue perspective, it is a focus as part of our future radio strategy. Moving on to our final strategic priority on Slide 26, creating New Zealand's leading real estate platform with OneRoof. In order to achieve this, we are working to develop OneRoof as a prominent national brand by improving listing needs, audience and engagement metrics. We are very pleased to hold more than 83% of New Zealand's residential for-sale listings. OneRoof's digital audience continues to grow, and importantly, less than 1/4 of its audience is now referred from the New Zealand Herald site, indicating it has increased brand strength. Further supporting the achievement of these metrics, inquiries to agents by the OneRoof platform are up more than 50% year-on-year. This growth and inquiries also supports our second focus for OneRoof, which is to deliver a data-driven agent promotion product. Furthermore, we've seen an 89% increase in agent profile product revenue as we've expanded the product range to include data based on user search behavior and into these wider network data points and geolocation. We continue to work on maximizing the potential of our existing real estate products by achieving revenue growth and improved contribution. As you'll see in the table on the right, we are pleased with an increase in first half revenues to $1.4 million and also an improved OneRoof contribution compared to the first half of last year despite the market disruption we've seen. COVID-19 has significantly impacted the real estate industry, as seen by the decline in our total real estate revenue with a 29% decrease in total market property sales volumes due to COVID-19 in the half. We are seeing recovery and growth. OneRoof's June 2020 listings revenue was approximately 3x we have seen in June last year. Our focus on future growth continues, and development this half has built the foundation for further audience growth with the launch of virtual viewings, open homes and auctions during lockdown. Additionally, our new OneRoof local print products have already driven growth in print revenue market share. We are pleased with our progress in all 3 strategic priorities, and we're excited about the future growth potential in each. We look forward to updating you later in the year on these initiatives. To conclude, let us now look at our outlook on Slide 27. In recent months, we've seen a stronger-than-anticipated recovery from COVID-19. However, we do remain cautious regarding the future economic environment. We expect NZME's total advertising revenues to be down 16% year-on-year in Q3 2020. As always, cost containment remains a focus for the business. Based on our current expectations of recovery, we expect to deliver a full year 2020 operating EBITDA between $60 million and $63 million, inclusive of IFRS 16. Looking out further, based on continued improvement in economic conditions on COVID-19 recovery, improved revenue trends and permanent cost reductions, we would expect profit growth in 2021. Based on this outlook and NZME's capital requirements, the Board expects to be able to consider a dividend payment when facility terms permit, which is after the 30th of June 2021. We look forward to providing you with further updates on our strategic priorities at an Investor Day planned for Q4. That concludes today's presentation. Thank you for joining us. We will now be happy to take your questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Paddy Walker, NZME Limited - IR Manager [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question is from Arie Dekker. -------------------------------------------------------------------------------- Arie Dekker, Jarden Limited, Research Division - Head of Research [2] -------------------------------------------------------------------------------- Yes. And look, congratulations, it's a very, very solid result in the conditions. Just firstly, net debt is down to $55 million. Where do you sort of see that given your guidance range is reasonably tight? Where do you sort of see that sitting at the end of the year? -------------------------------------------------------------------------------- David Mackrell, NZME Limited - CFO [3] -------------------------------------------------------------------------------- So Arie, as we pointed out, we think it will slow a little bit in terms of debt reduction in the second half as some of the working capital reduction will reverse given the activity -- the expectation that activity and revenue will start to -- will recover, and we've seen that already a little. So our expectation is that it will be somewhere under $50 million. -------------------------------------------------------------------------------- Arie Dekker, Jarden Limited, Research Division - Head of Research [4] -------------------------------------------------------------------------------- Okay. Great. Then just in terms of CapEx, I mean, obviously, this year is COVID-impacted, and you've sort of said that you're keeping sort of the lid on it through FY '20. I sort of assume that you'd be spending sort of maybe $7 million or $8 million this year. I mean, you've obviously taken a lot of cost out of -- of pruning cost out of the operating cost base. Do you think you can operate at sort of $7 million or $8 million CapEx going forward with the asset base you've got and also with the digital initiatives that you have today? Not thinking about future ones and supporting them or do you think it will go back up in FY '21? -------------------------------------------------------------------------------- David Mackrell, NZME Limited - CFO [5] -------------------------------------------------------------------------------- So I think -- what we've done is taken a review post-COVID. I think what -- and some of that represent some deferral of activity and some slowing of the development that we're doing. So I think it will go up a little, but I think we'll be able to keep it under where it have been tracking before. -------------------------------------------------------------------------------- Arie Dekker, Jarden Limited, Research Division - Head of Research [6] -------------------------------------------------------------------------------- So around $10 million might be the new sort of level and more like $8 million this year? -------------------------------------------------------------------------------- David Mackrell, NZME Limited - CFO [7] -------------------------------------------------------------------------------- So more like $7 million in this year and then we're working through what it will look like in 2021. -------------------------------------------------------------------------------- Arie Dekker, Jarden Limited, Research Division - Head of Research [8] -------------------------------------------------------------------------------- Okay. Sure. Just on OneRoof, obviously, the market was massively impacted in first half, and you managed to keep revenues, I guess, broadly flat on the second half of last year. What's the revenue momentum like in this quarter for that business? Are you getting year-on-year growth? -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [9] -------------------------------------------------------------------------------- Arie, it's Michael here. Yes. Thank you. You're right. We are -- despite the being 29% less sales in the first half, we did manage to hold on to all the revenue. You might have seen in the presentation, just on Page 28. In the month of June, we're up 3x revenue on the year before. So we are absolutely seeing the momentum return to real estate and importantly to the OneRoof upgrades that we're seeing in the business, and we're tracking well currently for the rest of the year. -------------------------------------------------------------------------------- Arie Dekker, Jarden Limited, Research Division - Head of Research [10] -------------------------------------------------------------------------------- Okay. So in terms of that goal for the OneRoof contribution, in terms of breakeven, there's no reason to think it won't be breakeven in second half '20? -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [11] -------------------------------------------------------------------------------- That's certainly a focus for us, absolutely. -------------------------------------------------------------------------------- Arie Dekker, Jarden Limited, Research Division - Head of Research [12] -------------------------------------------------------------------------------- And just in terms of investing in that business across either CapEx or in terms of the direct expenses with the momentum you're seeing, are you also going to look your rate of investment into that business over the next 12, 18 months? -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [13] -------------------------------------------------------------------------------- Some of the deferral in CapEx has been in the OneRoof area. While we saw revenues down in the first half, one of the things I can share, as we've alluded to, is that we do want to hold an Investor Day in the last quarter of this year. So in fact, in November. And so I think we'll be able to give you a lot more insight to the business and the expectations there moving forward. But we certainly see it as a key growth area for the business moving forward. -------------------------------------------------------------------------------- Arie Dekker, Jarden Limited, Research Division - Head of Research [14] -------------------------------------------------------------------------------- Sure. And just on the real estate performance, the next part. So thanks for providing that visibility on the total real estate revenue. Obviously, this half has been impacted as you've highlighted. Is there a seasonality? So if you think about second half '19, is there seasonality in your print revenue from real estate? Or is that $20 million, $19 million being, I guess, front? Is that sort of consistent with what you gave in second half as well? -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [15] -------------------------------------------------------------------------------- Yes, it is. So last year was about $40 million in total across the whole business from a real estate perspective. So pretty even first half, second half. Depending on how the market goes, how we recover out of the current interim lockdowns that we're in, I think the industry is really hoping that they may see some of the pickup from the beginning of the year flow through into the second half. -------------------------------------------------------------------------------- Arie Dekker, Jarden Limited, Research Division - Head of Research [16] -------------------------------------------------------------------------------- That's fantastic. Great. Just on the digital subscriptions, is that 43,000 at June 30 or is that at current? -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [17] -------------------------------------------------------------------------------- It's at current. -------------------------------------------------------------------------------- Arie Dekker, Jarden Limited, Research Division - Head of Research [18] -------------------------------------------------------------------------------- Okay. Yes. And then I guess, just in terms of -- I mean, obviously, you've been running that for a while now. Are you forming a view in terms of like the strategy on yield? I mean, obviously, you've got initiatives to get people onto the platform, and I think the current one online is 70% off for 5 or 8 weeks or whatever it is rather than just sort of giving it away for a period. But in terms of where you're sort of going in terms of, like, I guess, the yield strategy, do you think you can lift the average yield you're getting per subscriber? Or do you actually sort of see it maybe even landing a little bit lower and going for more subscribers? -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [19] -------------------------------------------------------------------------------- I think it truly is a mix of both here, Arie. So right at the moment, obviously, we're having lower yields as people come on. When we're seeing high growth, people come on in an introductory offer and then move to a regular price. We want to continue to grow this. And we saw in this half, the combination of our print circulation and subscription revenues and our digital subscription revenues for the first time overtake print advertising revenues. So we truly do want to continue to ensure that the consumers who are paying for a product are continuing, obviously, to like the content. And we think that's a great place for us to continue to grow the business moving forward. So we truly are having a mix of continuing growth of subscribers, but we will look to continue to manage yield over the months and years ahead, but we've got a balance of both. -------------------------------------------------------------------------------- Arie Dekker, Jarden Limited, Research Division - Head of Research [20] -------------------------------------------------------------------------------- And what percentage of the 43,000 would be on an annual subscription? -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [21] -------------------------------------------------------------------------------- About 1/3 of them are on an annual subscription. -------------------------------------------------------------------------------- Arie Dekker, Jarden Limited, Research Division - Head of Research [22] -------------------------------------------------------------------------------- And in terms of your target for year-end, would 60,000 be sort of achievable? Or would that be a little [slightly above] by year-end? -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [23] -------------------------------------------------------------------------------- Since our ASM, I believe we've added around 7,000 in the last just over 2 months. So that's the indicative run rate in the current environment, but we'll continue to push as hard as we can. -------------------------------------------------------------------------------- Arie Dekker, Jarden Limited, Research Division - Head of Research [24] -------------------------------------------------------------------------------- Yes, sure. Okay. Nearly done, just in terms of Stuff, obviously, there's been a change of ownership there. Now that, that merger, I guess, has sort of been put off at least for now, I mean, what is the strategy with regards to either cooperating or maybe even more -- competing more aggressively with them? I mean are you sort of looking at moving the Herald more aggressively into places like Wellington and Christchurch? -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [25] -------------------------------------------------------------------------------- So I think we are, obviously, very strong competitors. While our main competitors are global international players, at the same time, we do compete in a number of the same space as our sales in Stuff. We're pleased that we've gained share during the period across both print, radio and digital, and we'll continue to do so. During the recent months, we've looked to invest in R&D spend in further business journalism and in regional journalism, specifically in Wellington and Christchurch. And again, that's so that we can continue to engage a wider audience and grow our share overall. -------------------------------------------------------------------------------- Arie Dekker, Jarden Limited, Research Division - Head of Research [26] -------------------------------------------------------------------------------- Yes. That makes sense. And then just a final one, just in terms of the dividend and looking at that after June 30 next year. I mean I guess with sort of what you laid out in terms of policy and with what the banks are sort of enabling you to do, are you sort of suggesting that there is a very good prospect that you will move to that sort of 30% to 50% payout after June 30, '21? Or is it too early to be that committal? -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [27] -------------------------------------------------------------------------------- Well, I think if you go to the outlook here, this year, we've said an EBITDA range of $60 million to $63 million, subject, obviously, to some economic condition recovery from COVID-19. And obviously, the capital requirements of the business at the time, we do expect to have growth into next year from an EBITDA perspective. Now obviously, that would put us in a, again, a continued strength from a capital management policy overall. And that would then allow us to be in a position for the Board to consider paying a dividend. So I think that's a really good signal in itself. -------------------------------------------------------------------------------- Paddy Walker, NZME Limited - IR Manager [28] -------------------------------------------------------------------------------- Our next question is from Roger Colman. (Operator Instructions) -------------------------------------------------------------------------------- Roger Colman, [29] -------------------------------------------------------------------------------- Superb IR efforts. I'm just finding some things that were used to be published, which is [you] versus Stuff. You used to do that at your IR presentations. And now that we've got the new [reporting] in real estate and autos, I wonder if we could in the future have unique visitors, total time on-site or whatever other metrics you can get out of the industry bodies. So we can see how you're catching other people. -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [30] -------------------------------------------------------------------------------- Yes. Thanks, Roger. Absolutely happy to include more information like that. One of the things you might have heard just as we went through the presentation is that for the month of July, we did actually beat our nearest competitor, Stuff, in total traffic overall. And so that's something that we continue to be focused on, but we'll continue to provide more information. -------------------------------------------------------------------------------- Roger Colman, [31] -------------------------------------------------------------------------------- Yes. David, on the $7 million of restructuring, the extraordinaries by the line, what do you expect second half to be in that figure? -------------------------------------------------------------------------------- David Mackrell, NZME Limited - CFO [32] -------------------------------------------------------------------------------- So at this stage, it looks like most of that will befall in the first half. I don't expect us to have much in the second half at all. -------------------------------------------------------------------------------- Roger Colman, [33] -------------------------------------------------------------------------------- Right. And then with respect to the interest margin on your debt, first relook, I'm looking at around 5%. As you fall under a 1x net debt-to-EBITDA figure, are there any ratchets down on the EBIT margin? -------------------------------------------------------------------------------- David Mackrell, NZME Limited - CFO [34] -------------------------------------------------------------------------------- So just in terms of debt margin, you're probably a little high there. And certainly, there is stick down points as we achieve leverage ratios. -------------------------------------------------------------------------------- Roger Colman, [35] -------------------------------------------------------------------------------- Right. Right. So what's your rough interest margin on your bank debt you charge -- you're paying now on market interest rates, around 3%, 4%? -------------------------------------------------------------------------------- David Mackrell, NZME Limited - CFO [36] -------------------------------------------------------------------------------- Yes, something more in that range. -------------------------------------------------------------------------------- Roger Colman, [37] -------------------------------------------------------------------------------- Right. And has it kind of ratchet down to the 2s? -------------------------------------------------------------------------------- David Mackrell, NZME Limited - CFO [38] -------------------------------------------------------------------------------- It certainly ratchets down, yes. -------------------------------------------------------------------------------- Roger Colman, [39] -------------------------------------------------------------------------------- Yes. Okay. Right. The next question relates to the low yield on your vendor paid advertising to date. I think you launched the site March 2018. So has there been -- [has all those cheap launch things expired in the Auckland market?] -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [40] -------------------------------------------------------------------------------- So what you're referring to, Roger, is the ability for free listings on the OneRoof site? Is that right? -------------------------------------------------------------------------------- Roger Colman, [41] -------------------------------------------------------------------------------- Yes, yes, yes. And also our vendor paid advertising, the yield on that. -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [42] -------------------------------------------------------------------------------- Yes. So our continued focus right at the moment is to have free base listings on the site. And we are obviously doing vendor-paid advertising as where we're seeing the upgrades. That is by far the majority of the revenue that's now being reported in OneRoof. We're seeing in Auckland, on average, about 15% of the listings on the site being upgraded and that is increasing every month. -------------------------------------------------------------------------------- Roger Colman, [43] -------------------------------------------------------------------------------- Right. Okay. And the cash advantage on government advertising, could you summarize the idea of what impact that's got for this calendar year? -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [44] -------------------------------------------------------------------------------- Yes. So effectively, what the government said was they'll take the average of what they paid over the last 18 months, and they'll make it a prepayment. So effectively a cash advance. We have already received the first half of that, and it is less than $2 million in total and for the 100% of it. -------------------------------------------------------------------------------- Roger Colman, [45] -------------------------------------------------------------------------------- Right. The company's financial position and trading position is exceptional in the Australasian media market at the moment. You've got 2 pretty weakened competitors, Stuff and Bauer Group and its new owners, right? I mean it's a pretty dark alley. One, you go more aggressively and stab them in the back during the darkness of this recession and develop titles to replace the editorial readership that exist in listener, North and South, any Stuff's stuff that's not been published. Would it be possible for the Board to give you approval to go a bit harder, given the relative earnings that you've got now and balance sheet back? -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [46] -------------------------------------------------------------------------------- Well, I think the first thing is we are pleased that we are taking share at the moment, and we want to continue to do that. You refer to magazines, for example, so if you had the pleasure of being in New Zealand, in the next week, you would see on a magazine stand, a glossy Viva Magazine, which you could buy at the counter, which is the first time we've ever done that. We've also launched OneRoof local publications, which are distributed to letter boxes, home listings, which was direct competition to our product. And as I said earlier, we are putting further journalism resources into both Wellington and Christchurch as ways for us to continue to grow the business. -------------------------------------------------------------------------------- Roger Colman, [47] -------------------------------------------------------------------------------- Keeping on the radio business, your music market share. You've changed the management in the group, right? Okay, tick. And we move on to -- from that, is the weak signal weakness -- I understand the lack of frequency is in Christchurch is -- any way rectifying that [in support] of your low music market share? -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [48] -------------------------------------------------------------------------------- Yes, that's true. Yes, indeed. And we did have rectified that in the last month with the acquisition of another frequency in Christchurch for Coast, which is one of our largest music brands, and that's gone live in the last month. We'll obviously continue to focus on iHeartRadio. While it's small dollars overall of the total, we are seeing very strong growth from an audience perspective. And as we've noted, we've made a number of changes, and we're seeing really good feedback from those changes that we've made. We see it in the iHeartRadio results. We just can't see it in the external GfK survey yet. -------------------------------------------------------------------------------- Roger Colman, [49] -------------------------------------------------------------------------------- Right. And then the last thing relates to the incentives inside the group. This is superb performance. How should we look at, let's say, 2021 restoration of wage levels for the staff that took the reductions? Could you give us an outline of what it's going to look like in 2021 on the current trends of how much we should expect those small expenses to increase? -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [50] -------------------------------------------------------------------------------- Well, I think the first thing is, you noted there the wage reduction. So I'm really pleased that such a large percentage of people within the company voluntarily took a 15% to 20% pay cut. So I think, again, shows the engagement from people within the business. With the restructuring that we've done, we'll have a $20 million annualized reduction in our cost base. So that's effectively the fixed cost reductions. If there were reductions in revenues still, we would still get some variable cost reductions across the business, whether it'd be in print or distributions or commissions and so on. So we will continue to see strong cost reduction into the future. And as you will have seen on the outlook statement, based on the trends that we're currently seeing and as long as those continue into next year, we would expect to deliver profit growth for the next financial year. -------------------------------------------------------------------------------- Roger Colman, [51] -------------------------------------------------------------------------------- Right. And my last question relates to DRIVEN. There's a lot of verticals that you're going for. Is it -- it's obviously very small revenues. But is there any way you can describe what you're doing in that? -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [52] -------------------------------------------------------------------------------- Yes. So DRIVEN today is monetized in 2 ways. Firstly, it's just purely through display revenues based on the great content that's on the site. And secondly, through lead generation revenues. We do have some great plans for DRIVEN. We just have deferred those based on reduced capital expenditure and all and while we're very focused on now returning the business into growth on the 3 key priorities that we have. So DRIVEN hasn't gone away, it remains an opportunity for us, and we'll continue to work through that. -------------------------------------------------------------------------------- Paddy Walker, NZME Limited - IR Manager [53] -------------------------------------------------------------------------------- Our next question is from [Xiao Yang]. -------------------------------------------------------------------------------- Unidentified Analyst, [54] -------------------------------------------------------------------------------- Just a question on the outlook for 2021. Are you talking about targeting profit growth on the $60 million to $63 million operating EBITDA, which includes the wage subsidies? -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [55] -------------------------------------------------------------------------------- Yes, that is correct. We would expect that to be above $60 million to $63 million. -------------------------------------------------------------------------------- Unidentified Analyst, [56] -------------------------------------------------------------------------------- Okay. And in terms of the $20 million in annual permanent cost out, how long do you think you can sustain that? If the business rebounds medium term, does that remain a permanent cost out? Or do you expect some reinvestment back? -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [57] -------------------------------------------------------------------------------- That is a permanent cost reduction. If, for example, we saw significant growth areas or opportunities, then we may choose to reinvest some of those but that is a permanent cost that has been taken out. And as I mentioned, there are variable costs that would change based on volume. -------------------------------------------------------------------------------- Unidentified Analyst, [58] -------------------------------------------------------------------------------- And last question, just on OneRoof. You mentioned the agent profile promotion products. Is that something that you're not monetizing? Or is that a free service to the agents? -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [59] -------------------------------------------------------------------------------- No. That is something we're monetizing, and we are seeing good growth in that product. And obviously, a key part of OneRoof is ensuring that agents get good profile on the site as well. And that's one way for them to be able to pay to get further insight. -------------------------------------------------------------------------------- Paddy Walker, NZME Limited - IR Manager [60] -------------------------------------------------------------------------------- We have one final question from Ray David, which has been sent through. Whether there will be any government subsidies expected in the second half of this year? -------------------------------------------------------------------------------- Michael Raymond Boggs, NZME Limited - CEO [61] -------------------------------------------------------------------------------- Ray, we currently have no indications of subsidies. The government has talked about a tranche to support package for the media. But at this stage, that seems to have been deferred. And I'd expect that once government is formed again, that would be reviewed for the future. -------------------------------------------------------------------------------- Paddy Walker, NZME Limited - IR Manager [62] -------------------------------------------------------------------------------- That concludes our Q&A. Thank you, everyone, for participating in the call today. We look forward to catching up with many of you over the next week or so. There will be a recording of this presentation available on our website by the end of today. -------------------------------------------------------------------------------- Operator [63] -------------------------------------------------------------------------------- Good bye.