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APN to take $54 mln charge on NZ mastheads, sees 5.1% drop in NZME's 2015 earnings

APN News & Media will take a $54 million impairment on its New Zealand newspaper mastheads in its 2014 results and forecast a 5.1 percent decline in 2015 earnings for NZME, the local media business it has carved out for a separate listing.

Sydney-based APN has bundled its New Zealand business, which include The New Zealand Herald, The Radio Network and GrabOne, under one banner with the ultimate aim to list it on the NZX before the end of the year.

The traditional media industry is under pressure, as businesses are yet to figure out how to make money from online news, while audiences and advertisers are increasingly difficult to capture. NZME is chasing revenue growth by boosting its digital and e-commerce offerings, and expanding its promotional events, such as iHeartRadio concerts. It expects new initatives and digital revenue to bring in $55 million in the 2015 financial year.

NZME's 2015 earnings before interest, tax, depreciation and amortisation are expected to fall 5.1 percent to $70.8 million, it said. Publishing Ebitda will drop 10.3 percent to $46.4 million, as a decline in revenue from advertising and circulation offsets a pickup in digital and the benefit of a printing contract with Fairfax. Radio Ebitda would rise 5 percent to $27.5 million, on rising advertising and digital sales, while e-commerce sales are forecast to be unchanged at $4 million.

In the medium term NZME is looking to dilute publishing's income share to 42 percent from 58 percent, lift radio to 30 percent from 29 percent, digital and e-commerce to 21 percent from 11 percent, and triple activations and events to 6 percent.

The breakdown of the New Zealand digital landscape shows Fairfax's Stuff.co.nz and NZME's news are neck and neck for digital news, while Stuff sport is ahead, in terms of monthly unique audience based on Nielsen Netview figures. NZME is considering possible digital subscriptions, or paywalls, for its news site and flags a 2015 launch.

Across its radio operations NZME takes the two of the top three local stations by market share and expects 8.1 percent Ebitda annually between 2013 and 2015. It is betting on future growth in its online streaming station, iHeartRadio.

An initial public offer of 60 percent of NZME would generate some A$308.6 million of gross proceeds, based on the carrying value of the unit. Of that, some A$169.4 million would be raised through the float, and a further NZ$150 million from a 'note payable' as a result of restructuring the New Zealand unit, according to the offer documents APN released when it was attempting to raise US$250 million in an unsecured note offer to American investors. It has since abandoned the US notes plan, after they were assigned a sub-investment, or junk grade rating, by the major three rating agencies.

In August, the New Zealand unit posted an 8 percent decline in first-half revenue to A$201.6 million, and a 9 percent fall in Ebitda to A$34.6 million, reflecting the sale of South Island and Wellington community newspapers, and several magazine titles, including the weekly Listener magazine, to Germany's Bauer Media.

Shares of dual listed-APN last traded at 74 Australian cents on the ASX and were unchanged at 81 cents on the NZX.