NZME Limited
Annual Report 2021

Plain-text annual report

NZME LIMITED ANNUAL REPORT KEEPING KIWIS IN THE KNOW For the year ended 31 December 2021 2 NEW ZEALAND MEDIA AND ENTERTAINMENT 2021 Financial Results Summary Business Snapshot 8 Chairman’s Report 10 Chief Executive Officer’s Report Financial Commentary 17 Our Sustainability Commitment The NZME Board 30 The NZME Executive Team 32 Corporate Governance Statutory Disclosures 5 4 12 S T N E T N O 110 DirectoryC 104 44 28 48 Consolidated Financial Statements Independent Auditor’s Report This annual report is dated 22 February 2022 and is signed on behalf of the Board of Directors by: Barbara Chapman Chairman Carol Campbell Director ANNUAL REPORT 2021 3 4 NEW ZEALAND MEDIA AND ENTERTAINMENT 2021 FINANCIAL RESULTS SUMMARY $349.2m Operating Revenue1 2020 $331.2m 5% $66.0m Operating EBITDA1 2020 $66.0m $34.4m Statutory NPAT1 2020 $14.5m 138% $23.6m Operating NPAT1 2020 $22.2m 6% 11.9cps Operating EPS1 2020 11.3cps 6% 5.0 cps Final Dividend Payable on 23 March 2022 $13.5m Net Cash Movement $47.4m 1 Operating results presented are non-GAAP measures that include the impact of NZ IFRS 16 and the IFRIC agenda decision on Software-as-a-Service (SaaS) arrangements, however, exclude exceptional items to allow for a like for like comparison between 2020 and 2021 financial years. For the avoidance of doubt, 2020 has been restated to include the impact of the IFRIC agenda decision on SaaS arrangements. Please refer to pages 38-39 of this results presentation for a detailed reconciliation. The 2020 operating and statutory results include $8.6 million (net) of Covid-19 government wage subsidy received in H1 2020. ANNUAL REPORT 2021 5 BUSINESS SNAPSHOT 10 Audio brands 1.9 million #1 Station Weekly radio total listeners1 Newstalk ZB is the number one commercial radio station1 6 million 37.4% 40.9% Over 6 million hours are listened to monthly through iHeartRadio2 NZME radio brand audience market share1 NZME radio revenue market share for 20213 32 2.2 million Print publications across New Zealand NZ Herald weekly brand audience4 191,000 Subscribers across print and digital6 2 million 55.6% 47.4% Average monthly unique audience on nzherald.co.nz5 NZME print audience market share4 NZME print advertising revenue market share for 20217 12 Real estate publications 853,000 90% OneRoof brand audience4 Increase in total digital revenue year-on-year6 497,000 91% 23.5% Average monthly unique audience on oneroof.co.nz5 Nationwide residential for-sale real estate listings8 Listings upgrades in Auckland grew from 17.6%6 O I D U A G N I H S I L B U P F O O R E N O 1 GfK RAM, Commercial Radio, Total NZ 4/2021, M-S 12mn-12mn, M-F 6am-9am, Share %, Cume 000, AP10+ 2 Adswizz Jul-Dec 2021 TLH averaged 3 PwC Radio advertising market benchmark report, Q1 2021 – Q4 2021. Note: report excludes independent broadcasters and contra revenue. 4 Nielsen CMI Q4 20 – Q3 21 Fused Nov 2021 AP15+ Note. OneRoof includes weekly print and monthly digital. 5 Nielsen Online Ratings Q4 2021 AP15+ (excludes APP) 6 NZME Analysis 7 PwC NPA quarterly performance comparison report, Q1 2021 – Q4 2021. Note: report excludes any publishers that are not part of the NPA. 8 OneRoof’s listings as a percentage of residential for-sale real estate listings on trademe.co.nz. Note: From June 2021 onwards lifestyle properties and sections were added to the OneRoof count. 6 NEW ZEALAND MEDIA AND ENTERTAINMENT ANNUAL REPORT 2021 7 8 NEW ZEALAND MEDIA AND ENTERTAINMENT CHAIRMAN’S REPORT Kia ora and welcome to the New Zealand Media and Entertainment Annual Report for the year ended 31 December 2021. New Zealand experienced another difficult previous year. It has been pleasing to see helping Kiwis stay safe against COVID-19 year in 2021 with COVID-19 re-emerging NZME’s continued digital transformation and go about their daily lives. Through this in the community in August, resulting in in 2021 with 37% growth in digital revenue campaign we evidenced how seriously we full lockdowns and intra-country border across the business. restrictions effectively isolating our largest city – Auckland. As I reflect on 2021, I am very proud of what NZME has been able Statutory Net Profit After Tax in 2021 was up $20 million to $34.4 million, partly as a result of the gain on sale of GrabOne of take our responsibility to be a trusted voice for New Zealand and effectively use the influence we have through our platforms to make a positive impact for all Kiwis. to achieve in what has been an incredibly $15.4 million. Operating NPAT1 was In 2021, NZME kept a close eye on the challenging and uncertain trading and $23.6 million – an improvement of 6% on legislation passed by the Australian operating environment for our customers the year prior. and our people. Through The 90% Project we evidenced how seriously we take our responsibility to be a trusted voice for New Zealand and effectively use the influence we have through our platforms to make a positive impact for all Kiwis. government requiring Google and Facebook (“Global Digital Platforms”) to negotiate with news publishers to pay for their content. In the absence of similar legislation in New Zealand we are actively engaging with the New Zealand Commerce Commission and the Global Digital Platforms to arrive at a satisfactory outcome for NZME. Just over three years ago the company’s net debt position was around $100 million, which led the Board to focus strongly on debt reduction as part of its capital management In 2020, NZME softened the impact of the I was incredibly proud of the important plan. I am very pleased to report that over the initial COVID-19 outbreak by responding role NZME played in keeping Kiwis in the past three years NZME has repaid all its debt know, particularly given the challenges and was in a net cash position of $13.5 million New Zealand faced with the emergence as at 31 December 2021. quickly and effectively. We prioritised the health and safety of our people, made some difficult restructuring decisions and reduced costs where we could. With this preparation, in 2021 the management team were able to continue their commitment to NZME’s 2023 strategy and continue steering the business back to pre-pandemic levels and a growth trajectory. of COVID-19 in our communities. A particular highlight was taking the lead to initiate “The 90% Project”, a NZ Herald campaign to drive the double vaccination of New Zealand’s eligible population to 90% by Christmas 2021. NZME also ran an internal campaign, #RollUpYourSleevesNZ, to encourage our staff to support the Continued strong cash flows during 2021 enabled NZME to re-commence dividend payments to shareholders with a fully imputed and fully franked 3.0 cents per share interim dividend declared in August 2021. Based on the business outlook and capital requirements, the Board has declared a fully imputed and fully franked final dividend of 5.0 cents Overall Operating Revenue1 was solid at important vaccination message. $349.2 million, up 5% higher on 2020. This included a significant recovery in advertising revenue, up 13% on the The initiative was a huge success, with per share bringing the total dividends 90% of the eligible population receiving declared in relation to the 2021 year to two doses of the vaccine by 16 December, 8.0 cents per share. 1 Operating results presented include the impact of NZ IFRS 16 and the IFRIC agenda decision on Software-as-a-Service (SaaS) arrangements, however, exclude exceptional items to allow for a like for like comparison between 2020 and 2021 financial years. For the avoidance of doubt, 2020 has been restated to include the impact of the IFRIC agenda decision on SaaS arrangements. Please refer to pages 38-39 of this results presentation for a detailed reconciliation. The 2020 operating and statutory results include $8.6 million (net) of COVID-19 government wage subsidy received in H1 2020. ANNUAL REPORT 2021 9 KEEPING KIWIS IN THE KNOW The 90% Project An audacious bid by the NZ Herald team to see 90% of the eligible population immunised by Christmas, helping Kiwis reach the target by 16 December 2021. Myth-busting in an age of misinformation NZME used its news and social platforms to ensure audiences were delivered accurate facts, and fair and balanced journalism. KICK NZME's new digital brand, Kāhu and Te Rito NZME launched Kāhu in 2021, NZ KICK, developed by youth and Herald’s digital platform showcasing focused on content formats and Māori journalism across Aotearoa. Te Impact of COVID-19 on business Deep dives into how businesses are coping during COVID-19, including the self-isolation business trial strategies for New Zealand's Rito is a collaboration to train twenty- campaign youth audience, broadcast across five new cadets, to help future-proof multiple platforms. journalism as a career pathway and enhance content diversity. Following the settlement of the GrabOne sale in October 2021 and the repayment of debt, NZME’s balance sheet is in a strong position. With these factors in mind, the Board determined that it would commence a $30 million on-market share buyback programme. The disclosure document was issued on 17 December 2021 with the buyback of up to 21,428,571 shares. A further announcement will be made ahead of the on-market share buyback to confirm the commencement. NZME is committed to delivering shareholder value by focusing on our guiding principles, our key strategic priorities and achieving the targets we have set for 2023. Alongside Net Debt Reduction Net Debt / (Cash) (LHS) 1.8 1.5 ) m $ ( t b e D t e N 120 100 80 60 40 20 - -20.0 2.0 1.6 1.2 0.8 0.4 0.0 o i t a R e g a r e v e L 0.6 - 2018 2019 2020 2021 I ) A D T B E g n i t a r e p O h t n o M 2 1 / t b e D t e N ( resuming the payment of dividends and On behalf of the Board, I would like to the expected execution of the on-market express our sincere thanks to our people, buyback, we remain in a strong position our customers, partners and shareholders to make future capital investments that align with our strategic priorities and fuel for your commitment and ongoing support during what has been another disrupted NZME for growth. and challenging year. Barbara Chapman Chairman 10 NEW ZEALAND MEDIA AND ENTERTAINMENT CHIEF EXECUTIVE OFFICER’S REPORT New Zealand Media and Entertainment remained steadfast in its goal of keeping Kiwis in the know, despite significant uncertainty in 2021 due to COVID-19. Our people have continued to demonstrate an outstanding commitment to our purpose, ensuring we are delivering quality journalism and entertainment for our audiences. The 2021 year started with promising signs of recovery, with June 2021 revenues returning to 2019 levels. However, the reintroduction of restrictions across the nation in August reduced overall business confidence and momentum, impacting NZME’s advertising revenues through until the end of October. Throughout this time the business remained agile, ensuring we continued to service our audiences and our advertising customers whilst keeping Kiwis in the know. The Operating EBITDA1 for 2021 of $66.0 million, was in line with last year’s result. This is pleasing given the impact of COVID-19 restrictions on revenue in the second half of the year, particularly without the benefit of the government wage subsidies that helped offset impacts in 2020. NZME’s Key Strategic Priorities I am pleased to report that we continued to make strong progress across NZME's three strategic pillars: Audio, Publishing and OneRoof. NZME’s share of total radio audience grew nearly two percentage points to 37.4% in 2021 compared to 35.6% in 20202. We worked hard to provide Kiwis with the best local audio content and we are extremely proud that Newstalk ZB has the number one breakfast show3 and is New Zealand's number one radio station for the 14th year running3.5. We also announced exciting line- up changes to NZME’s radio brands Flava, The Hits and ZM. Radio revenue share grew 0.5% in 2021 to 40.9%4 and NZME radio advertising revenue grew 10% year-on-year. Revenue from iHeartRadio, New Zealand’s leading digital audio platform, increased 51% year-on-year. iHeartRadio broadens our audio reach across both terrestrial radio and digital audio, positioning NZME as New Zealand’s leading audio company. The NZ Herald remained the number one daily newspaper in New Zealand5 as NZME continued to engage audiences across both print and digital news publications. The execution of the publishing division’s digital media strategy continued to perform strongly, resulting in strong digital subscription and advertising revenue growth. NZME reached 191,000 total subscribers, up 13% compared to 2020. 83,000 of those subscribers were paid digital-only subscribers, an increase of 54% year-on-year. This was supported by strong growth in total monthly digital users in 20216. Digital and print publishing advertising revenue grew 26% and 5% respectively compared to 2020, with digital making up 46% of total publishing advertising revenue in 2021. We were pleased to acquire BusinessDesk in 2022 and welcome their team to NZME. The acquisition is strongly aligned with NZME’s strategic priorities and we are excited to accelerate the digital growth of BusinessDesk and further cement NZME as the home of New Zealand’s premier business offerings. OneRoof grew digital national residential listings penetration7 to 90.5% compared to 88.6% in 2020. Residential for-sale listings upgrade conversion rates for Auckland and Regional markets increased to 23.5% and 5.4% respectively. This resulted in OneRoof’s digital revenue increasing 90% year-on-year as NZME’s digital real estate platform continues to show strong growth. OneRoof’s print advertising revenue remained flat year-on-year, impacted by the reintroduction of COVID-19 restrictions in the second half of 2021. We continue investment to increase brand awareness and monetisation, striving to become ‘Your Complete Property Destination’. The GrabOne sale was completed on 29 October 2021. The business and assets were sold for $17.5 million which, after settling merchant liabilities and sale costs, resulted in a net cash inflow of $13.1 million. During the year Jason Winstanley was appointed as the new Chief Radio Officer and Paul Hancox as the new Chief Commercial Officer. Both were internal appointments, exhibiting the talent of our people and the wealth of experience that they bring. In addition, Carolyn Luey was appointed Chief Digital and Publishing Officer. Carolyn has significant experience across telecommunications, technology and media. 2021 Financial Results The first half of 2021 showed positive signs of recovery compared to 2019 revenue levels. By June 2021, monthly advertising revenue exceeded the corresponding period in 2019. The reintroduction of COVID-19 restrictions across the country in Q3 2021 impacted advertising revenue and print retail sales. Despite these challenges, NZME 1 Operating results presented are non-GAAP measures that include the impact of NZ IFRS 16 and the IFRIC agenda decision on Software-as-a-Service (SaaS) arrangements, however, exclude exceptional items to allow for a like for like comparison between 2020 and 2021 financial years. For the avoidance of doubt, 2020 has been restated to include the impact of the IFRIC agenda decision on SaaS arrangements. Please refer to pages 38-39 of this results presentation for a detailed reconciliation. The 2020 operating and statutory results include $8.6 million (net) of Covid-19 government wage subsidy received in H1 2020. 2 GfK Radio Audience Measurement, Commercial Stations, NZME excl. Partners, M-S 12mn-12mn, Market Share %, S4 2020 – S4 2021, AP10+.3 GfK RAM, Commercial Radio, Total NZ 4/2021, M-F 6am-9am, Share %, AP10+ 3.5 GfK RAM, Commercial Radio, Total NZ S1 2016 - S4 2021, M-S 12mn-12mn, Share %, AP10+ Note: TNS Radios survey 2008-2015.4 PwC Radio advertising market benchmark report, Q1 2020 – Q4 2021. Note: report excludes independent broadcasters and contra revenue. 5 Nielsen CMI Q4 20 – Q3 21 Fused Nov 2021 AP15+. 6 Nielsen Online Ratings monthly average Jan-Dec 2021 compared to Jan-Dec 2020. 7 OneRoof’s listings as a percentage of residential for-sale real estate listings on trademe.co.nz. Note: From June 2021 onwards lifestyle properties and sections were added to the OneRoof count. ANNUAL REPORT 2021 11 NEW ZEALAND’S LEADING AUDIO COMPANY Create New Zealand’s best local audio content Grow broadcast and digital reach Grow market revenue share and digital revenue NEW ZEALAND’S HERALD The #1 News brand for all New Zealanders Subscriber first Be a safe, scalable destination for advertisers YOUR COMPLETE PROPERTY DESTINATION Strengthen core residential listings business Be indispensable to agents Expand the portfolio ended the year strongly with both November and December advertising revenue exceeding 2019 levels. 2021 operating revenue1 was $349.2 million, up 5% compared to 2020. Excluding the government wage subsidies received in 2020 of $8.6 million (net), the growth year- on-year was 8%. Operating expenses1 were 7% higher in 2021 in line with increased volumes and higher revenue, but pleasingly remain well below 2019 as a result of the initiatives implemented in 2020 to permanently reduce the cost base by $20 million. We remain focused on ensuring that our cost base remains efficient and appropriate. NZME's revenue mix shifted with a higher proportion of digital revenue in 2021. Digital revenue grew $21.6 million to $79.5 million 2021 or 37% compared to 2020. It was very pleasing to deliver this growth as we execute our digital transformation strategy. Advertising revenue grew 13% to $248.5 million in 2021 compared to $220.1 million in 2020. Radio advertising revenue was 10% higher than 2020 with the first half of the year up 17% on the same period in 2020. Print advertising revenue recovered marginally year-on-year, with the majority of advertising revenue growth coming from a 26% lift in publishing digital advertising revenue. We are positioned exceptionally well to offer our customers one of the broadest integrated media offerings in the country and our teams have done a great job catering to our customers' advertising needs across NZME’s platforms. The continued growth in digital subscriptions revenue more than offset the decline in print retail sales to deliver a 3% growth in publishing reader revenue for the year. Conclusion The positive results achieved in 2021 have been made possible by the dedication of our team of people, and through the support of our customers and business partners. I would also like to thank the millions of Kiwis who choose to engage with our news and entertainment platforms every day. On behalf of myself and the executive team, I would like to thank the NZME Board for their ongoing support and guidance, which has been particularly valuable as we have navigated our way through the challenges of recent years. Michael Boggs Chief Executive Officer 12 NEW ZEALAND MEDIA AND ENTERTAINMENT FINANCIAL COMMENTARY Financial Results NZME’s Operating NPAT1 for 2021 was reduced term of the lease liabilities. Statutory NPAT1 for 2021 was $34.4 million, compared to $14.5 million in 2020. 2021 Statutory NPAT included a $15.4 million $23.6 million, up 6% year-on-year resulting A portion of the right of use asset related in an operating earnings per share of to the sub-leased part of the Auckland 11.9 cents versus 11.3 cents in 2020. and Whangarei offices was reclassified gain on sale of GrabOne. Operating EBITDA1 In 2021 the company reviewed the was $66.0 million in 2021, flat year-on-year. accounting treatment of configuration and Operating Revenue2 was $349.2 million in 2021, up 5% compared to $333.2 million in 2020. Operating revenue in 2020 included $8.6 million (net) of government wage subsidies received in first half of 2020. customisation costs in relation to Software as a Service (SaaS) arrangements as a result of IFRS Interpretations Committee’s (IFRIC’s) agenda decision in April 2021. As a result, the company has changed its accounting policy in regard to the Operating Expenses1 increased 7% to capitalisation of these costs. The change $283.2 million, largely due to increased in policy has resulted in an increase agency commission and marketing costs in expenses of $1.7 million in 2021 and in line with an increase in revenue. In $1.4 million in 2020, together with to finance lease receivables. Operating cash flow was $51.8 million in 2021, $3.8 million lower than 2020 primarily due to higher income tax paid in the year. Capital expenditure was $6.5 million in 2021 which was $1.5 million higher than 2020 given the pause on investment in 2020 in response to the initial outbreak of COVID-19. Taking into consideration the impact of the change in accounting policy in relation to addition, there were higher selling costs corresponding adjustments to the balance SaaS related arrangements, future capital associated with the growing OneRoof sheet. 2021 financial results have been expenditure is expected to be between business. Print and distribution costs1 prepared to reflect the changed policy and $8 million and $10 million per annum. increased 11% compared to 2020 with 2020 financial results have been restated. 2020 including temporary cost savings Further detail has been provided in note Divisional Performance in response to the COVID-19 impacts. 1.2.3 of the financial statements for the NZME is an integrated multi-channel media Content expenses increased by 9%, as a restatement of the 2020 balance sheet business focused on engaging audience result of increased music royalties and and page 38 and 39 of the NZME 2021 and customers with top quality content digital content costs which supported Full Year Results Presentation for a detail across multiple verticals, brands and higher revenue. reconciliation of the operating results. products. The key divisions of the business Depreciation and amortisation1 on owned Balance Sheet and Cash Flow assets decreased by $1.1 million for the year as the overall asset base reduced and some assets became fully amortised. The company finished the year with a net cash position of $13.5 million representing an improvement of Finance costs1 were 12% lower at $7.3 million $47.7 million compared to the as a result of lower average interest $33.8 million net debt position at bearing debt, with the majority of this cost the end of 2020. align with the company’s strategic priorities: Audio (broadcast and digital audio), Publishing (print and digital news and journalism) and OneRoof (real estate print and the OneRoof digital platforms). To understand the performance of each division, a framework has been developed to allocate various shared cost pools on an relating to the interest expense on leases. Net working capital excluding cash appropriate basis. Exceptional items1 in 2021 totalled net continued to be a net liability with $10.8 million gains which included the increases in tax payable, deferred $15.4 million profit on the sale of GrabOne, revenue and other accruals offsetting the offset by $2.0 million relating to workforce reduction in merchant liabilities as a result restructuring costs, and $1.7 million of one- of the sale of GrabOne. off projects and other exceptional costs. Plant property and equipment, intangibles In 2020, exceptional items totalled a net and other non-current assets decreased cost of $8.0 million, predominately made due to depreciation and amortisation up of workforce restructuring costs in exceeding capital expenditure. Right response to COVID-19. of use assets declined in line with the 1 Operating results presented are non-GAAP measures that include the impact of NZ IFRS 16 and the IFRIC agenda decision on Software-as-a-Service (SaaS) arrangements, however, exclude exceptional items to allow for a like for like comparison between 2020 and 2021 financial years. For the avoidance of doubt, 2020 has been restated to include the impact of the IFRIC agenda decision on SaaS arrangements. Please refer to pages 38-39 of this results presentation for a detailed reconciliation. The 2020 operating and statutory results include $8.6 million (net) of Covid-19 government wage subsidy received in H1 2020. ANNUAL REPORT 2021 13 The audio division includes NZME’s radio brands The growth in revenue was supported by average and digital audio platform iHeartRadio. monthly listening hours increasing to over O I D U A Total audio revenue was $105.7 million in 2021, up 6% year-on-year. Audio revenue in 2020 included $3.7 million of government wage subsidy received in the first half. Radio advertising revenue grew 10% to $101.0 million, with the first half of the year showing signs of recovery with 17% growth compared to the first half of 2020. Revenue for the second half of 2021 was impacted by the reintroduction of COVID-19 restrictions but was still 4% higher than the second half 2020. NZME’s share of total audience grew to 37.4% in 2021 compared to 35.6% in 20202 as optimisation initiatives, talent and content changes made in 2020 led to audience engagement in 2021. This was accompanied by an increase in radio revenue market share to 40.9% compared to 40.4% in 20203. We are extremely pleased to have received recognition at the NZ Radio Awards with Newstalk ZB the number one radio station and breakfast talk show in New Zealand4. Our digital audio platform, iHeartRadio, celebrated a continued growth trajectory in 2021 with revenue increasing 51% year-on-year. 6 million5. NZME holds a leading position in the podcast market and has the leading commercial podcast network in New Zealand6. ) $ ( s n o i l l i M ) m $ ( e u n e v e R 270.0 260.0 250.0 240.0 230.0 220.0 210.0 200.0 190.0 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 - Radio Market Revenue3 Market Revenue NZME Share 41.5% 41.0% 40.5% 40.0% 39.5% 39.0% 38.5% 2019 2020 2021 Digital Audio Revenue1 +51% +42% 2019 2020 2021 1 NZME Analysis. 2 GfK Radio Audience Measurement, Commercial Stations, M-S 12mn - 12mn, NZME excl. Partners, Market Share %, S4 2020 – S4 2021, AP10+. 3 PwC Radio advertising market benchmark report, Q1 2019 – Q4 2021. Rolling 4-quarter average for market share. Note: report excludes independent broadcasters and contra revenue. 4 GfK RAM, Commercial Radio, Total NZ 4/2021, M-S 12mn-12mn, M-F 6am-9am, Share %, AP10+. 5 Adswizz Jul-Dec 2021 TLH averaged. 6 Triton NZ Podranker December 2021. 14 NEW ZEALAND MEDIA AND ENTERTAINMENT G N I H S I L B U P The publishing division includes NZME’s print and digital news and journalism products. Total publishing revenue was $212.0 million in 2021, up 5% compared to 2020. Publishing revenue in 2020 included $4.5 million government wage subsidy received in the first half. Overall, reader revenue increased by 3% with digital subscription revenue growing 75%. This more than offset a 12% decline in print retail sales revenue and a 1% reduction in print subscriber revenue. Total subscribers across print and digital grew to 191,000, up from 169,000 in 2020, including 83,000 digital-only subscribers. NZ Herald Daily and Weekly Brand audience was 11.8% and 15.1% higher respectively compared to the prior corresponding period2. Monthly digital users grew 8% to 2.8 million and the unique audience of nzherald.co.nz also increased 10% to 2.1 million3. The increase in brand audience across NZME’s publishing platforms was pleasing, as we deliver on being New Zealand’s most trusted publisher. Print advertising revenue grew 5% to $65.0 million in 2021. Although print advertising revenue remained lower than 2019 levels, NZME ended the year maintaining its strong print revenue market share position at 47.4%4, up from 47.1% in 20204. Digital advertising revenue grew 26% to $56.1 million in 2021 with strong demand from advertising customers. Subscriptions Mix1 Print Only Digital Entitled Digital Only s r e b i r c s b u S f o r e b m u N 200,000 150,000 100,000 50,000 - ) m $ ( e u n e v e R 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 - 2019 2020 2021 Digital Publishing Revenue1 Digital Subscriber Revenue Digital Publishing Advertising Revenue +32% +17% 2019 2020 2021 1 NZME Analysis. 2 Nielsen CMI Q4 20 – Q3 21 AP15+ compared to Q4 19 – Q3 20. 3 Nielsen CMI fused Q4 20 – Q3 21, Nov 2021, AP 15+ Note: Dec is not released until March 2021. 4 PwC NPA quarterly performance comparison report, Q1 2020 – Q4 2021. Note: report excludes any publishers that are not part of the NPA. ANNUAL REPORT 2021 15 F O O R E N O The OneRoof division includes the OneRoof property website and all NZME’s real estate dedicated print publications. Total OneRoof revenue increased 15% to $21.5 million. OneRoof revenue in 2020 included $0.7 million government wage subsidy received in the first half. Digital revenue grew 90% year-on-year as OneRoof’s digital platform continued to grow. This year saw a continued focus on using a data led approach to provide agents with valuable tools and insights to engage with their customers and the audience. OneRoof’s digital platform has its highest listings penetration in Auckland and showed strong growth in other parts of New Zealand, ending the year with a nationwide listings penetration of 91%, up approximately two percentage points on 20202. OneRoof’s growing ecosystem and engaged audience led to an increase in listing upgrade conversions, with Auckland listings conversion increasing from 20.9% in Q4 2020 to 27.7% in Q4 2021. Other regions ended the year strongly with upgrades increasing to 7.0% in Q4 2021, up from 4.3% in the prior corresponding period. Leveraging OneRoof’s print publications across 19 local markets, the focus is on fuelling OneRoof’s growth through continued investment in brand awareness and engagement with relevant audience. ) m $ ( e u n e v e R 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 - 30% 25% 20% 15% 10% 5% - Digital OneRoof Revenue1 +90% +53% 2019 2020 2021 OneRoof Digital Residential for-sale Listings Upgrade %1 Auckland Regional Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 Q2 21 Q3 21 Q4 21 1 NZME Analysis. 2 OneRoof’s listings as a percentage of residential for-sale real estate listings on trademe.co.nz. Note: From June 2021 onwards lifestyle properties and sections were added to the OneRoof count. 16 NEW ZEALAND MEDIA AND ENTERTAINMENT Te Herora o Aotearoa Auckland’s Sky Tower lit up with vaccination messages as part of the 90% Project. Photo / Chris Tarpey FULLY VAXXED ANNUAL REPORT 2021 17 OUR SUSTAINABILITY COMMITMENT Keeping Kiwis in the know requires a commitment to sustainable practices and the well-being of our community, people and environment. We are committed to protecting the craft of immunised in Aotearoa by Christmas We continue our sustainability journey journalism and broadcasting to keep Kiwis 2021. The 90% Project and supporting and look forward to the development of in the know. In 2021, again impacted by the #RollUpYourSleevesNZ activation is one initiatives to ensure we have meaningful, ongoing impacts of COVID-19, we felt this of NZME’s proudest achievements. sustainable practices for the wider more keenly than ever, with a pandemic that required an accelerated need for the business to share its platforms to ensure our communities were connected, and our people kept safe. Our people were supported throughout lockdowns and alert levels with an community, the wellbeing of our people and the environment. increased focus on Wellbeing and Due to the ongoing impacts of COVID-19 in Engagement. This work continues into 2022 2021, progress is likely to be affected when where a number of the initiatives planned compared to other years. The 90% Project – a bold initiative driven will be brought to life as restrictions ease. by the NZ Herald and supported across the The following tables outline the progress entire business - successfully drove a call to we've made to date on these, as well as our action to see 90% of our eligible population environmental initiatives. We are committed to protecting the craft of journalism and broadcasting to keep Kiwis in the know. OUR COMMUNITIES OUR PEOPLE OUR ENVIRONMENT We connect and empower our communities. We provide a workplace that fosters innovation, engagement and inclusion. We take our responsibility to the environment seriously. Responsible reporting Promoting a healthy, diverse and safe workplace Recycling Connecting communities Championing the craft Best practice Sharing our platforms Equipping our people Responsibility NZME’s sustainability programme is aligned to the guidelines set out in the UN Sustainable Development Goals – an international blueprint to achieve a better and more sustainable future for everyone. 18 NEW ZEALAND MEDIA AND ENTERTAINMENT Let’s vaccinate NZ by Xmas WE DID IT NEW ZEALAND Eligible population: 4.21m i 90% Fully vaccinated 90.0% Fully vaccinated 94.3% One dose only 90% Fully vaccinated: 86% • Tairāwhiti 82% • Taranaki 86% • Hawke’s Bay 87% • MidCentral 89% • Whanganui 84% OUR COMMUNITIES We connect and empower our communities. With the presence of COVID-19 in New Zealand during 2021, NZME (as an essential service) had a critical role to play to keep Kiwis informed and connected. In 2021 NZME used its extensive range of publications, radio networks and digital platforms to connect and support communities across New Zealand. Three significant campaigns were undertaken - The 90% Project, #RollUpYourSleevesNZ, and a partnership with World Vision to raise money for India to deliver aid. The NZ Herald launched The 90% Project in September 2021 in an audacious bid to see 90% of the eligible population immunised in Aotearoa by Christmas. NZME utilised all platforms to reach as many people as possible, to encourage vaccination, and drive vaccination knowledge and understanding. By 16 December, 90% of the eligible population in NZ were fully vaccinated having had received two doses of the vaccine. With the live NZ Vaccine Tracker at the top of print and digital NZ Herald platforms, Kiwis were able to see the nation’s target in real time. The tracker would refresh daily, gathering data direct from a Ministry of Health data feed. Pictures / Alex Burton, Dean Purcell, Michael Craig, George Heard, Sylvie Whinray, Brett Phibbs #RollUpYourSleevesNZ launched simultaneously with The 90% Project and was a NZME-wide campaign using the power of our platforms to keep Kiwis in the know, sharing our platforms with our wider community to support the message to get vaccinated. NZME staff were encouraged to participate by showing their rolled- up sleeves and using the hashtag #RollUpYourSleevesNZ on their own social media accounts. NZME recognises the responsibility that comes with acting as a voice of record for New Zealand and, in addition to the activity driven out of COVID-19, we continued to use our reach to address key topics and conversations important to New Zealanders, as well as partner with several organisations to champion charitable causes. Case Study: Launched in 2021, Kāhu applies a cultural lens to stories affecting Māori and is establishing meaningful connections with iwi and Māori communities. The intention is to launch a Pasifika section in the future. ANNUAL REPORT 2021 19 INITIATIVE PROGRESS RESPONSIBLE REPORTING AND BROADCASTING Through best practice broadcasting and journalism, we will provide a diverse and balanced reporting platform, promoting the law and holding the powerful to account. CONNECTING COMMUNITIES We are deeply involved in our communities and as one of New Zealand’s largest media platforms we will facilitate conversations about the topics that matter to Kiwis. Where justified in the interests of freedom of expression, open justice and holding the powerful to account, NZME invests in legal challenges to suppression, take down orders, access to court files and other media law challenges. In 2021 NZME participated in more than 30 legal challenges, some of which involved continued investment in opposing or appealing to the High Court, Court of Appeal and the Supreme Court. In 2021 NZME was involved and will continue its involvement with the Open Justice Project, which provides NZME with additional funding for court reporting through Public Interest Journalism funding. NZME strives to adhere to our Editorial Code of Ethics and the principles and standards of the NZ Media Council and the Broadcasting Standards Authority (BSA). The table below shows a decrease in 2021 from 2020, of the number of complaints upheld by regulators. Regulator Number of Upholds BSA 2020 One 2021 Nil Media Council Four One uphold and one partial uphold We have maintained our commitment to our communities through the presence of local journalists and broadcasters. We employ 550 journalists and broadcasters nationwide, up from 526 in 2020. We increased diversity of content and contributors across our platforms. Initiatives in 2021 included: • The launch of Kāhu, NZ Herald’s digital platform showcasing Māori journalism from our newsrooms across Aotearoa. • The Herald, E-Tangata and Tawera Productions joined forces to bring together ‘Waka’, a six-part online video series which traces the cultural revival of the craft through four teams across the Pacific. • NZME confirmed a media partnership with Auckland Unlimited across four major summer cultural festivals – Diwali, Lantern Festival, Tāmaki Herenga Waka Festival and Pasifika. • Basic te reo Māori pronunciation and pepeha sessions. • Cultural workshops and site visits for our journalists, including Sikh Temple visit and cultural workshops with different communities in NZ, such as the NZ Jewish Council and members of the Fijian Indian community. We continue to participate in and support Local Democracy Reporters (NZ On Air funded journalists), hosting two (of eight) democracy reporters in our newsrooms in 2021. We have utilised our platforms to fight for New Zealanders including the disadvantaged, facilitating conversations that matter and holding the powerful to account. Refer to example case studies on page 20. SHARING OUR PLATFORMS In 2021 we have championed and supported charitable causes, providing support to: We will use our wide reach across New Zealand to provide a range of opinion and ensure a diversity of voices. Attitude Trust, Cure Kids, Himalayan Trust – Everest Day, Prostate Cancer Foundation of New Zealand, Ronald McDonald House, Rotorua Community Hospice, Variety Warm Hearts Appeal and World Vision. 20 NEW ZEALAND MEDIA AND ENTERTAINMENT OUR COMMUNITIES CONTINUED Case Study: ‘The Country’ (radio, print and digital) has over many years been a companion to farmers and families and had a mission to use that privileged position to focus on mental health. ‘The Country’ launched Rural Mental Health Week, aimed at getting more Kiwis from New Zealand’s rural communities talking about mental health. Case Study: #RollUpYourSleevesNZ was a NZME-wide campaign using the power of our platforms to keep Kiwis in the know and support the message to get vaccinated. Case Study: Red Nose Day is Cure Kids’ biggest annual appeal where Kiwis come together to help fund high- impact, New Zealand-based medical research to save, extend and improve the lives of children diagnosed with serious life-impacting and life-limiting health conditions. Case Study: When the Delta strain of COVID-19 overwhelmed India, The NZ Herald and World Vision responded immediately. Building on our experience of working together in the past, a successful fundraising campaign was instigated, inspiring our audience to give generously. The India COVID-19 campaign raised a record $606,000, which was used for oxygen, medical supplies and other urgently needed essential services. ANNUAL REPORT 2021 21 Case Study: Te Wiki o te Reo Māori highlights included the launch of Te Reo advocate and the Flava radio host Stacey Morrison’s new podcast series called ‘Up to Speed with Te Reo Māori’ on iHeartRadio. Case Study: Seven graduates of the New Zealand Broadcasting School in Canterbury have designed and built ‘KICK’, a youth-focused digital audio network that lives on iHeartRadio, extending across all major digital platforms. The KICK team have support from across the NZME business and are a breeding ground for the future of radio, content by ‘youth,’ for ‘youth.’ 22 NEW ZEALAND MEDIA AND ENTERTAINMENT OUR PEOPLE We provide a workplace that fosters innovation, engagement and inclusion. NZME strives to maintain its position as an volunteering to provide guidance and and Inclusion Committee in 2021 employer of choice in the media industry. support to anyone that is facing a are outlined on the table on page 23. Our people, policies and practices challenging time either at home or work. We have established a Head of Cultural provide our people with opportunities These advocates are trained on how Partnerships in our newsroom to for learning and development, the ability to support team members and provide continue to promote cultural (including to choose how to manage a healthy information regarding our relevant NZME content) partnerships and support the work-life balance, a focus on diversity policies and guidance and where to seek newsroom to improve cultural diversity and inclusion and a commitment to professional advice and support. and awareness. health, safety and wellness. We are proud of the quality and speed of delivery to ensure our people were safe and able to contribute and support government initiatives as an essential service, through COVID-19 lockdowns and restriction periods regionally and nationwide. NZME continued to support a diverse We are working on initiatives across range of lifestyle choices (including NZME to improve representation of parenting and caring for others) through Māori and Pasifika, including our intern enabling flexible working options for our programmes. A ground-breaking people. During and post lockdowns and initiative was announced in 2021, with restrictions, our people were equipped the formation of Te Rito, an industry with resources and skills needed to collaboration to train and develop In 2021 we introduced a new employee work from home. The mental health of 25 new journalism cadets – including engagement tool. Our people were our people during lockdowns and those from Māori, Pasifika, LGBTQ and surveyed frequently with greater levels restriction periods was critical and other communities traditionally under- of engagement after each survey, and it we had professional external represented in media. aided us to understand how our actions support, training, and regular email and communications were resonating communication from our CEO. with our people. The Wellbeing Advocates initiative was focus on improving ethnic and cultural launched in 2021 with 41 of our people diversity in our people and the content established as Wellbeing Advocates, we produce. The efforts of our Diversity NZME has recognised the need to GENDER / LEVEL AGE GROUP CONTRACT TYPE 44% 40% 56% 60% 70% 30% 47% 53% ALL PEOPLE BOARD EXECUTIVE PEOPLE LEADERS 45-54 21% F M 0 55+ 18% <24 10% FULL TIME 68% 25-34 26% LENGTH OF SERVICE ETHNICITY 35-44 25% CONTRACTOR 6% CASUAL 18% PART TIME 8% 250 200 150 100 50 0 < 1 Y 1 -2 Y 3 - 5 Y 6 - 10 Y 11 - 20 Y 21 - 30 Y 31 Y + 0% 20% 40% 60% 80% 100% European Māori Indian Chinese Other Asian Pacific Peoples Other Ethnicity Middle Eastern/Latin America/African Undeclared INITIATIVE PROGRESS ANNUAL REPORT 2021 23 PROMOTING A HEALTHY, DIVERSE AND SAFE WORKPLACE We will embed a high performing health and safety culture and will regularly report on our performance. We will strive for a collaborative and welcoming place to work that celebrates diversity. We will adopt and strengthen policies for the promotion of gender equality. CHAMPIONING THE CRAFT We will ensure we are mentoring the next generation of journalists and broadcasters. We will develop our people to maintain and grow the craft. EQUIPPING OUR PEOPLE We will commit to offering our staff relevant and impactful training to create new opportunities for growth and innovation. We have been highly focused on safety engagement in 2021, and have seen an increase in the number of employees proactively reporting incidents. Please refer to page 41 for further detail. We have been focused on engaging our leadership team in health, safety and wellbeing and stepping in and taking preventative actions as soon as an issue is identified. The Diversity and Inclusion Committee hosted a calendar of events including: • Chinese New Year and the Chinese Moon Festival • International Women’s Day panel event • Rainbow Diversity, supporting the Rainbow Pride Parade • Samoan Language Week - celebrating Samoan independence • Matariki Event • Te Wiki o te Reo Māori • Diwali – Festival of Lights • Wellbeing Week NZME has maintained the Rainbow Tick certification mark (awarded to organisations that demonstrate diversity and inclusion, measured through a thorough assessment process). NZME supports initiatives that reduce the gender pay gap across the business. We are striving for diversity at Board, Executive and People Leader levels. In 2021, for gender, we have at Board level F60%:M40%, at Executive level F30%:M70% and for our People Leaders F53%:M47%. For ethnicity, we have at Board level all members identifying as European and at Executive level 9% identifying as Chinese and 91% as European, and for our People Leaders we have 89.9% European, 6.8% Māori, 2.4% Indian, and 0.9% identifying as Other. Cultural and ethnic diversity remains a focus and we have engaged with a cultural consultant to commence cultural strategy work in 2022. We have mandated at least 20% of interns be non-European and have collaborated with other media outlets to form the Te Rito partnership to train cadets. We are focused on diversity within our recruitment process. NZME supports flexible working for diverse needs and/or shared responsibility in the household. Policies and initiatives in 2021 to support this included surveying our people to understand what was important to them. NZME was voted Top Graduate Employer in the media and communications category and the second best-reviewed company in the country in the Top 100 Graduate Employers in GradNewZealand’s 2021 Student Survey. 19 interns and cadets were employed at NZME in 2021. We highlighted our broadcast and journalistic talent through a series of campaigns. NZME grew its digital audio brand KICK with the intention of incubating new, youth focused content formats and strategies. Refer to case study on page 21. A total of 115 hours of media law and regulation training was undertaken by our journalists and broadcasters at NZME in 2021. In addition, the Board of Directors undertook Media Law training to assist in their knowledge and understanding of the legal issues encountered in journalism. Refer to page 27 for our Awards list celebrating the talent and commitment of our people. Our people undertook a total of 136,011 hours of training in 2021 which is a significant increase. This increase is due to several training initiatives that did not occur in 2020 and a greater ability to capture this information within NZME. Learning and development continued through our Editorial Learning and Development programme, health and safety training, creative and production training, people training (leadership, effective communication, and recruitment for example) finance, digital and sales operation training. 24 NEW ZEALAND MEDIA AND ENTERTAINMENT Case Study: NZ Herald Science Reporter Jamie Morton answered our questions on what COP26 meant for New Zealanders. NZ Herald ran explainers, features and stories in the lead-up to, and during, the COP26 climate summit in Glasgow. OUR ENVIRONMENT We take our responsibility to the environment seriously. Case Study: Covering Climate Now: NZ Herald Science Reporter Jamie Morton, asked how can we make New Zealand’s energy sector greener? NZME continues to review the actual and potential impact its business practices have on the environment. NZME has put in place policies and methods to enable it to measure this impact. This has, and will continue to enable NZME to reduce environmental impacts through recycling, reduction of greenhouse gas emissions and sustainable procurement policies. Some of our environmental initiatives were positively impacted by COVID-19 lockdowns (for example, less travel) in 2020 which created a low baseline and consequently in 2021 we have seen increases in travel around New Zealand due to reactivation of our client loyalty programme events. Similarly, production was reduced in 2020 due to COVID-19 restrictions and the higher production in 2021 lead to small increases in plastic and general waste. Initiatives to reduce plastic and general waste were implemented in the second half of 2021 and will deliver benefits in 2022. It is pleasing to see a reduction in electricity usage through improved efficiency at the Ellerslie print plant. We look to expand these initiatives further in 2022. NZME is closely monitoring and reviewing the development of the climate- related disclosures framework enacted in October 2021 through the Financial Sector (Climate-related Disclosure and Other Matters) Act. NZME notes the Xternal Reporting Board intends to issue its first climate standard by the end of 2022 and NZME will be required to commence reporting for the full year ending 31 December 2023. NZME is preparing for this by engaging in the consultation process for development of the climate standards and undertaking an assessment of climate-related risks to the business throughout 2022. Kiwis’ concern over environmental issues continued to increase in 2021 and as a media organisation we are cognisant of our responsibility to demonstrate leadership and use our platforms to inform, raise awareness of the issues and participate in the debate. We will continue to seek ways to reduce our environmental footprint through 2022 and beyond. INITIATIVE PROGRESS ANNUAL REPORT 2021 25 RECYCLING We will separate our internal waste streams – including paper, food and green waste, and recyclables – to optimise value and reduce environmental impacts. BEST PRACTICE We will maintain our print operation’s Environmental Management System. We will collaborate with our suppliers and partners to ensure best practice sustainable operations. RESPONSIBILITY We will share our platform to promote environmental issues impacting Kiwis including carbon emissions and climate change. In 2021, NZME continued to identify and initiate the recycling of batteries, ink and toner cartridges at more of our offices. NZME supported Plastic-Free July and Recycling Week in October throughout the organisation. The Ellerslie print plant launched a Plastic Reduction Project in 2020 across both its production and distribution teams, to reduce plastic usage. This is a phased project which is expected to lead to a decline in plastic used in the production process in the future. 2021 saw a year-on-year increase in plastic usage at the plant from 49 tonnes (restated) to 52 tonnes reflecting normalised production levels (yet showing a reduction from 77 tonnes in 2019). The team continues to work towards identifying a practical alternative for the plastic used to protect the bundles of papers. Consultation with suppliers is continuing with a goal of finding a more environmentally friendly alternative. The team continues to work to improve our processes and minimise the volumes directed to landfill. Refer to the case study on page 26 as an example of where we removed plastic wrap. A Waste Committee chaired by the Ellerslie plant’s General Manager was formed in 2020 to reduce the general waste from the print plant. In 2021 36.5 tonnes of general waste was from the plant, a slight reduction from 37 tonnes in 2020. This Committee is tasked with a number of actions to ensure an annual decline in general waste from the plant. In 2021 this began with a waste audit which presented the site with a number of actions and waste reduction goals. The COVID-19 lock-downs in 2021 restricted progress towards our waste reduction goals. We were successful in removing and replacing the waste compactor with an open bin. That allowed for constant surveillance of the contents directed to landfill and for any recyclable items to be redirected. It also provided an opportunity to trace the source and modify the behaviour. At the Ellerslie plant the number of general waste bins has been reduced and recycling stations have been ordered. Bulk cages are in place in the production areas to capture recyclable waste streams. NZME’s print operations were again awarded the Toitu Enviromark Gold certificate in 2021. We are continuing to evolve a responsible sourcing policy and work with a number of sustainable suppliers. Employees travelled 3.5 million kms within NZ in 2021, this is up from 3.3 million kms (restated number) in 2020, due to reintroducing our client travel reward programme in 2021 (no programme was completed in 2020). Encouragingly there was a reduction of more than 40 motor vehicles from the NZME motor vehicle fleet and we continue to look for ways to further maximise efficiencies in this area. In 2021 carbon emissions from our motor vehicle fleet were 372 tCO2e down from 544 tCO2e in 2020. Our newspaper distribution network generated 2,423 tCO2e in 2021, this decreased by 12% from 2020. The NZ Herald continued to take part in the annual Covering Climate Now – a global news media initiative highlighting the need for action against climate change. Refer to the case study on page 24 as an example of the coverage of COP26 in Glasgow. DRIVEN (driven.co.nz) assembled automotive leaders and industry representatives to discuss the clean car feebate scheme with the government. See case study on page 26. The numbers in this table have not been independently audited. 26 NEW ZEALAND MEDIA AND ENTERTAINMENT Case Study: DRIVEN led conversations through a live panel, to talk about unravelling the tangle of detail around New Zealand’s clean car electric vehicle feebate scheme. Case Study: In 2021, our Ellerslie team worked to reduce the amount of plastic used to protect our newspapers as they are delivered. NZ Herald subscribers in Auckland were offered newspaper boxes as shown below, made of polyethylene, to ensure newspapers were kept dry and reducing the use of plastic wrap. ANNUAL REPORT 2021 27 2021 AWARDS We are proud of our people and their • Best Reporting - General: • Best News or Sports Journalist: achievements. In 2021 we celebrated the Tom Dillane Barry Soper, Newstalk ZB craft of broadcasting and journalism with the following award wins: INMA Categories won by NZME: • Best Brand Awareness Campaign, National Brad, 1st Place: NZ Herald - ‘Headspace’ • Best Use of Print, Groups, 1st Place: NZME ‘Viva Magazine’ • Best Use of Data to Automate or Personalise: Groups, 1st Place: NZME ‘Corona Surf Reports’ Voyager Media Awards Categories won by NZME: • News App of the Year • News Website of the Year • Best Reporting - Personal Finance: • Best Sports Reader, Presenter Tamsyn Parker • Political Journalist of the Year: Matt Nippert • Regional Journalist of the Year: Kurt Bayer Pride in Print Awards Categories won by NZME: or Commentator: The Alternative Commentary Collective • Best Sports Story - Team Coverage: The America’s Cup World Series Auckland • Best New Broadcaster - Journalist: Aaron Dahmen - Newstalk ZB • Gold Award - Coldset Publications • Best New Broadcaster - Off-Air: category for the NZ Herald Compact Alex Lansdown - The Hits Network GradNewZealand Categories won by NZME: • Top Grad Employer in the media and communications category NZ Radio Awards Categories won by NZME: • Best Station Imaging: ZM Network (Alistair Cockburn, Brynee Wilson) • Best Station Trailer: ZM’s $100k Secret Sound • The Johnny Douglas Award: Joel Harrison - ZM and Static 88.1 • Best Feature Writing - General: • Network Station of the Year: (Canvas, NZ Herald) Greg Bruce: Newstalk ZB Goodwill Hunting • Sir Paul Holmes Broadcaster of the Year: • Feature Writer of the Year - (Short-form): Mike Hosking, Newstalk ZB NZ Herald Nicholas Jones • Best Music Breakfast Show - Network: • Best Newspaper Magazine: ZM’s Fletch, Vaughan & Megan • Sales Team of the Year: NZME Auckland • Best Single Commercial: Taupo Violence Intervention New York Festival Categories won by NZME: Travel, NZ Herald • Best Music Breakfast Show - Local: • World’s Best Radio Programmes: • Regional Newspaper of the Year: The Hits Dunedin (Callum Procter, Silver Award Rotorua Daily Post Patrina Roche) • Best Photographer - News: • Best Music Host - Local: Brett Phibbs The Hits Bay of Plenty (Will Johnston) • Best Photographer - Sport: • Best Talk Presenter - Other: Brett Phibbs Marcus Lush, Nights Newstalk ZB • Photographer of the Year: Brett Phibbs • ‘The Blackie Award’: The Hits ‘The Siri Prank’ • Best Reporting - Crime and Justice: • Outstanding Contribution to Broadcasting: Kurt Bayer Phil Gifford - Newstalk ZB 2021 NZ Marketing Awards Categories won by NZME: • Media/Publishing Sector Award: Flava Old School Hip Hop & RnB Monique Hodgson, Megan Sagar, John Pelasio 28 NEW ZEALAND MEDIA AND ENTERTAINMENT THE NZME BOARD Barbara Chapman Independent Chairman Barbara Chapman served as Chief Executive and Managing Director of ASB Bank Limited from 2011 until February 2018. She has extensive business experience gained through a successful career in banking and insurance. During her career she has held a number of senior and executive roles in retail banking, marketing, communications, human resources and life insurance. Barbara is passionate about people and culture, and promoting best practice in community, governance and sustainability. She is the Chairman of Genesis Energy Limited and holds an independent directorship on the board of Fletcher Building Limited and Bank of New Zealand. She is also Deputy Chair of The New Zealand Initiative and Patron of the New Zealand Rainbow Tick Excellence Awards. Barbara was appointed Chairman of the NZME Board in June 2020. Carol Campbell Independent Director Carol Campbell is a Chartered Accountant and Fellow of CAANZ, and Chartered member of the Institute of Directors. Carol was a partner at Ernst & Young for over 25 years and has been a professional director for the last 10 years. Carol has extensive financial experience and a sound understanding of efficient board governance and chairs NZME’s Audit and Risk Committee. Carol is a director of NZ Post Limited, Kiwibank Limited, T&G Global Limited, Asset Plus Limited, Chubb Insurance Limited and a number of other private companies. ANNUAL REPORT 2021 29 David Gibson Independent Director David Gibson has a strong background in strategy and finance with over 20 years investment banking experience, including as Co-Head of Investment Banking in New Zealand for Deutsche Bank and Deutsche Craigs. During his finance career David has advised on many of New Zealand’s largest capital market transactions, including within the media industry. David is director of Trustpower Limited, Goodman (NZ) Limited and Rangatira Limited. Sussan Turner Independent Director For the past 25 years Sussan has held senior leadership roles across media companies, including Group CEO of MediaWorks, Managing Director of Radio Otago and CEO of RadioWorks. She is currently Group CEO and Director of Aspire2 Group Limited, one of the leading private tertiary education groups in New Zealand and is passionate about building executive teams and company cultures. Sussan has extensive experience as a director and is currently Pro-chancellor of Auckland University of Technology. Guy Horrocks Independent Director Guy established himself as an early pioneer of the mobile app industry co-founding the world’s first commercial iPhone app company in 2007, Polar Bear Farm. He is one of a number of high powered, experienced New Zealand entrepreneurs who’ve built internationally successful digital enterprises – only to return to New Zealand to escape the worst of the impacts of COVID-19 on their adopted homes. With clients including Expedia, DreamWorks, HBO, OREO, CNN, Time Magazine as well as NZ Herald, Horrocks helped launch over 100 mobile apps with his award winning mobile agency Carnival Labs, many of which were featured by Apple. Guy Horrocks has since launched a new real-time data warehouse called SOLVE. 30 NEW ZEALAND MEDIA AND ENTERTAINMENT THE NZME EXECUTIVE TEAM Michael Boggs Chief Executive Officer Michael was appointed CEO of NZME in March 2016. Prior to that he held the Chief Financial Officer position at NZME. Michael’s core focus at NZME has been to develop and implement a group wide strategy to accelerate growth across NZME’s brands particularly in the areas of subscription and classified offerings, digital and video content, while ensuring the sustainable growth of the company’s print and radio platforms. Michael has extensive senior executive experience including as Chief Financial Officer at leading insurance company Tower Limited. While at Tower, Michael managed the company’s multibillion-dollar assets, its Pacific Islands operations, earthquake recovery programme and the sale of Tower’s life insurance, health insurance and investment management businesses. This industry leading work was recognised in 2014 when Michael was awarded CFO of the year at the annual New Zealand CFO Awards. Michael also has significant background in the telecommunications and technology sectors with executive roles in the finance, commercial and business functions of major organisations including Telstra’s New Zealand operations. Shayne Currie Managing Editor Shayne was appointed Managing Editor in 2015 and is responsible for NZME’s 300-plus journalists and the company’s editorial and news strategy. His role includes overseeing NZME’s unique mix of digital, print, audio and visual storytelling across the NZ Herald, nzherald.co.nz, Newstalk ZB, NZME’s five regional daily newspapers and more than 17 community titles. In 2019, Shayne helped oversee the successful launch of NZ Herald Premium digital subscriptions and he has helped lead some of the most significant projects at the Herald in the past 15 years including the launch of the Herald on Sunday in 2004 and the Herald’s move to compact format in 2012. In 2019, Shayne celebrated his 30th year in journalism, including two decades in senior editorial leadership roles across New Zealand. In 2016 he was awarded the Wolfson Scholarship at Cambridge University in the UK, studying audience patterns in the digital age. Paul Hancox Chief Commercial Officer Paul was appointed as Chief Commercial Officer in 2021. Prior to this, Paul was part of the NZME Executive Team as Chief Revenue Officer, where he was accountable for agency and key customer revenues, including programmatic, trading and integration performance. In his new role, he continues to oversee his existing portfolio in addition to direct clients, and is accountable for revenue growth across NZME platforms. Prior to joining the Executive team, Paul led a significant commercial portfolio at NZME as Head of Agency, Enterprise, Events, Partnerships, Government and Rural, a role he took up in January 2018. Paul previously spent 9 years in various senior roles at MediaWorks including as Group Head of Revenue where he successfully designed, implemented and managed the integration of the TV and radio sales teams. Paul brings with him 25 years of experience in the media industry including a 9-year stint with The Radio Network early in his career, operating in a variety of roles including as Newstalk ZB and Radio Sport Sales and Marketing Manager. Carolyn Luey Chief Digital and Publishing Officer Carolyn was appointed Chief Digital and Publishing Officer in August 2021. After 5 years at NZME, Carolyn left as Chief Operating Officer in December 2016. She then went on to senior transformational roles at MYOB and Vodafone where she was Chief Consumer Officer. With extensive experience as a strategic business leader in large New Zealand telecommunications, technology and media companies, Carolyn brings a wealth of knowledge and understanding of how best NZME can deliver growing digital audience engagement for our commercial partners. ANNUAL REPORT 2021 31 David Mackrell Chief Financial Officer David was appointed Chief Financial Officer of NZME in March 2019, leading NZME’s Finance, Technology and Strategy functions. He moved to NZME from Heartland Bank where he was Chief Financial Officer. David started his professional career at Ernst & Young as an Auditor before joining Air New Zealand in 1992. His career at Air New Zealand spanned 25 years and a large gamut of senior financial and commercial roles, and was the Deputy Chief Financial Officer for 12 years. Paul Maher Chief of OneRoof Paul was appointed to the newly created Chief of OneRoof role in February 2021. OneRoof is New Zealand’s fastest growing multi-channel real estate and property platform, and Paul’s appointment reflects the continued growth of OneRoof as a key pillar in NZME’s strategy. Paul has extensive commercial leadership experience in numerous senior roles in New Zealand’s leading media companies including Commercial Director and Business Strategy Director at TVNZ and Chief Executive of MediaWorks Television. His commercial media experience includes establishing media communications agency Starcom MediaVest Group in New Zealand and leading the group’s business as CEO of Canada, China and then the North Asia region. Paul has over thirty years business experience and has previously served on the board of Freeview New Zealand and Chair of the Kiwi Premium Media Exchange (KPEX) and Think TV New Zealand. Katie Mills Chief Marketing Officer Katie joined the NZME Executive Team in December 2018 assuming leadership of the company’s Marketing and Communications functions. She is also responsible for the creative function of NZME including Sound, Vision and Creative departments. Prior to joining NZME, Katie held the role of Group Marketing Director at Aspire2 Group Limited and was previously General Manager (Global) Marketing & Communications at Opus International Consultants. Along with Katie’s wide marketing industry experience, she also brings to her role, more than 20 years of media- specific experience. 15 of those years were spent at MediaWorks in senior leadership positions including as Head of Marketing, successfully developing, and delivering marketing and brand strategies for a portfolio of radio, digital, event and television ventures. Allison Whitney General Counsel and Company Secretary Allison joined NZME in 2013. As General Counsel she heads up the legal team and manages the provision of legal advice and company secretarial services across NZME; and leading NZME’s Culture & Performance function. Prior to commencing her role at NZME, Allison held roles both in-house and in private practice, including five years as Legal Counsel at Westpac, six years as Group Legal Advisor to a London-based international media group and three years in private practice at Kensington Swan. Allison brings over 20 years of legal experience to her role spanning areas from corporate and commercial to intellectual property, consumer, and media law. Matthew Wilson Chief Operations Officer Matt was appointed Chief Operations Officer in December 2016. In this role, Matt is responsible for NZME’s print product performance; driving NZME’s Operations functions including print, distribution, print and digital subscriptions and advertising production. Prior to that, Matt’s role was GM Print Operations for NZME. His passion for media has resulted in over two decades of experience working across NZME’s newspaper brands, including finance roles in print, commercial, content and corporate through to leading the Newspaper Sales, Print and Herald product functions. During his time, Matt has led the consolidation of newspaper sales and distribution functions across NZME, the development of NZME’s highly successful distribution services business, and customer streams for the launch of Herald on Sunday and NZH Premium digital subscribers. Matt’s focus on operating performance has driven a strong passion for NZME’s people, their engagement and the culture fostered in the company. Jason Winstanley Chief Radio Officer Jason was appointed as Chief Radio Officer in October 2021. Jason is one of New Zealand’s most experienced audio executives with extensive experience across music and talk radio. He has led high profile and successful music radio brands including 7 years as Assistant Content Director at ZM and 5 years as Content Director of The Hits. He also led the successful transition of ‘Classic Hits’ to the ‘The Hits’ brand in 2014. In his most recent role as Head of Talk for NZME, Jason has led Newstalk ZB to record audience growth and continued commercial success. Jason’s role includes responsibility for the radio business and the content delivery to support audience and revenue growth across NZME’s radio networks. 32 NEW ZEALAND MEDIA AND ENTERTAINMENT CORPORATE GOVERNANCE GOVERNANCE FRAMEWORK The Company is listed on the NZX Main Board and has a Foreign The Company also has an Editorial Code of Ethics highlighting that Exempt Listing on the ASX (both under the ticker code “NZM”). our principal responsibilities are to the community and the truth The ASX Foreign Exempt Listing category is based on a principle and our undertaking to maintain the highest ethical standards in of substituted compliance recognising that, for secondary listings, our journalism while balancing the right of the individual with the the primary regulatory role and oversight rests with the home public’s right to know. exchange and the supervisory regulator in that jurisdiction. As such, NZME is required to comply with a limited set of ASX Securities Trading Policy Listing Rules. The Company’s corporate governance framework, as described in this section, therefore primarily takes into consideration contemporary standards in New Zealand, incorporating the NZX Corporate Governance Code (“NZX Code”). The Group is committed to having a strong governance framework and therefore complies with the recommendations of the NZX Code (unless specifically stated otherwise). The corporate governance policies referred to in this section reflect the Group’s governance framework as at 31 December 2021 (unless otherwise stated) and are available on the Company’s website. The Board of NZME has approved this corporate governance statement. PRINCIPLE 1 - CODE OF ETHICAL BEHAVIOUR Directors should set high standards of ethical behaviour, model this behaviour and hold management accountable for these standards being followed throughout the organisation. Code of Conduct & Ethics The Company’s Code of Conduct & Ethics governs the Company and its subsidiaries’ commercial operations and the conduct of directors, employees, consultants and all other people when they represent the Company and its subsidiaries. The Code of Conduct & Ethics comprises certain fundamental principles and demonstrates the high standards of conduct expected of us. The current Code of Conduct & Ethics was updated on 11 April 2019. Reporting of breaches of the Code is encouraged and steps for doing so are set out in the Code of Conduct & Ethics and the Whistleblower Policy. The Securities Trading Policy details the Company’s trading policy and guidelines, including trading restrictions on dealing in the Company’s quoted financial products. This policy applies to the directors and all employees. The Securities Trading Policy places additional trading restrictions on the directors, the Chief Executive Officer (“CEO”) and his direct reports (and employees reporting directly to them) and all participants in the NZME Incentive Plans. PRINCIPLE 2 - BOARD COMPOSITION & PERFORMANCE To ensure an effective Board, there should be a balance of independence, skills, knowledge, experience and perspectives. Role of the Board and Board Charter The business and affairs of the Company is managed under the direction and supervision of the Board currently comprised (and as at 31 December 2021 was comprised) of independent Chairman, Barbara Chapman, and independent directors; Carol Campbell, David Gibson, Sussan Turner and Guy Horrocks. The directors acknowledge their duty to act in good faith and in the best interests of the Company. The objective of the Company is to generate growth, corporate profit and shareholder gain from the activities of the Group. In pursuing this objective, the role of the Board is to assume accountability for the success of the Company by taking overall responsibility for the strategic direction and monitoring of operational management of the Group in accordance with good corporate governance principles. More details regarding the main functions of the Board and the distinction from the roles of management can be found in the The Company has provided training on the Code of Conduct & Ethics in the form of a video series on key points relevant Board Charter available on the Company’s website. No person ceased to be a director of the Company during the financial year to employees. ended 31 December 2021. ANNUAL REPORT 2021 33 Director Nomination and Appointment Diversity and Inclusion Directors are appointed by the Company’s shareholders, with The Group believes that a diverse and inclusive workforce rotation and retirement being determined by the Constitution. is essential for it to be able to deliver its strategic objectives The Board may appoint directors to fill casual vacancies. Directors and continue to meet its responsibilities to its customers, appointed to fill casual vacancies are required to retire and stand its employees, the communities in which it works, and its for election at the first annual shareholders’ meeting after their shareholders. appointment. The Governance & Remuneration Committee recommends to the Board potential candidates for appointment as directors. The Committee follows the nomination and appointment processes set out in the Governance & Remuneration Committee The Group is currently operating in accordance with, and applying the principles of, its Diversity and Inclusion Policy which is available on the Company’s website. Charter available on the Company’s website. The Company enters The Our People section on pages 22 and 23 of the Annual Report into written agreements with each newly appointed director sets out more detail about our diversity and inclusion objectives establishing the terms of their appointment. Director Independence and Profiles and progress towards achieving them. In accordance with the Diversity and Inclusion Policy, the Board assesses those objectives and NZME’s progress towards achieving them on an annual basis. All of the Company’s directors, including the Chair, are The Board is comfortable with the Company’s 2021 performance independent directors for the purposes of the NZX Listing Rules with respect to its Diversity and Inclusion Policy and objectives as none of them are executives of the Company or have direct or but notes the ongoing nature of efforts to meet those objectives. indirect interests or relationships that could reasonably influence, or could reasonably be perceived to influence, in a material way, their decisions in relation to the Company. The profile for each director is available on the Company’s website and on page 28-29 of the Annual Report. Information about director attendance at meetings and ownership interests is set out on pages 34 and 44 of the Annual Report. The table below includes the quantitative breakdown as to the gender composition of NZME’s Board and Officers as at the balance date. As at Board Officers 1 31 December 2021 31 December 2020 Male 2 1 Female 3 3 Male 7 5 Female 3 4 Director Access to Training, Information and Advice Performance Review On appointment the Company’s directors are offered induction The Chair meets annually with directors of the Company to training as to the responsibilities of the directors and to enable discuss their performances. The Board reviews its performance the director to become familiar with the Company’s operations as a whole, and the performance of its committees, and sites. Further training on pertinent topics is provided to the on an annual basis. The Board may choose to use external Board during the year. All directors have access to the advice facilitators, where appropriate, to assist with reviewing the and assistance of the General Counsel on the Board’s affairs performance of directors, the Board and its committees. and governance matters. In addition, all directors may access such information and seek independent advice as they consider necessary to fulfil their duties and responsibilities. 1 The term ‘Officer’ is defined in the NZX Listing Rules as a person, however designated, who is concerned or takes part in the management of the Issuer’s business, but excludes (i) a person who does not report directly to the Board or (ii) a person who does not report directly to a person who reports to the Board. NZME has interpreted this to mean the Chief Executive and any person reporting to the Chief Executive or the Board directly. The numbers above therefore include the CEO and other members of the Group Executive Team. 34 NEW ZEALAND MEDIA AND ENTERTAINMENT CORPORATE GOVERNANCE CONTINUED PRINCIPLE 3 - BOARD COMMITTEES The Committee is also responsible for communicating and engaging with the external auditors and for oversight and review The Board should use committees where this will enhance its of the risk management framework. For further information, effectiveness in key areas, while retaining Board responsibility. also refer to the Committee’s charter which is available on the The Board has two standing Committees; the Audit & Risk Company’s website. Committee and the Governance & Remuneration Committee, As at 31 December 2021, directors Barbara Chapman and David to assist in carrying out its responsibilities. The Committees Gibson were members of the Audit & Risk Committee and it was operate under Board approved charters which are available on chaired by Carol Campbell. Employees and external parties may the Company’s website. attend meetings of the Audit & Risk Committee at the invitation The Board may establish other committees from time to time to deal with specific projects or matters relating to the Company’s various activities. of the Audit & Risk Committee. Governance & Remuneration Committee The Governance & Remuneration Committee ensures that The Board does not have a separate Health and Safety Committee, remuneration policies and practices are consistent with the strategic but Health and Safety is considered by the full Board. The Board goals of the Group and are relevant to the achievement of those goals. did not identify a need for any other standing Board committees. The Committee also reviews the remuneration of the CEO and, in The Company also has an NZME Takeover Response Manual (not publicly available) as recommended by Recommendation 3.6 of the NZX Code. Audit & Risk Committee The Committee consists of three independent directors (one of whom has an accounting and financial background). The functions of the Committee are to: consultation with the CEO, the remuneration packages of executives reporting directly to the CEO. The Governance & Remuneration Committee also makes recommendations to the full Board regarding the composition of the Board, filling of vacancies, appointing additional directors to the Board, and to review and adopt corporate governance policies and practices which reflect contemporary standards in New Zealand, incorporating principles and guidelines issued by the Financial • Review, consider and if necessary, investigate any reports Markets Authority and the NZX. For further information, refer to the or findings arising from any audit function either internally Committee’s charter available on the Company’s website. or externally; As at 31 December 2021, director Sussan Turner was a member of • Evaluate financial information submitted to it, along with the Governance & Remuneration Committee and it was chaired relevant policies and procedures; and by David Gibson. Employees and external parties may attend • Assess the effectiveness of risk management throughout the Group. meetings of the Governance & Remuneration Committee at the invitation of the Governance & Remuneration Committee. Board & Committee Attendance 1 January 2021 to 31 December 2021 Director Barbara Chapman Carol Campbell David Gibson Guy Horrocks Sussan Turner Board 15 of 15 15 of 15 15 of 15 15 of 15 14 of 15 Audit & Risk Governance & Remuneration 3 of 4 4 of 4 4 of 4 N/A N/A N/A N/A 6 of 6 N/A 6 of 6 ANNUAL REPORT 2021 35 PRINCIPLE 4 - REPORTING & DISCLOSURE The Board should demand integrity in financial and non- • Whistleblower Policy financial reporting, and in the timeliness and balance of corporate disclosures. Market Disclosure Policy The Board has policies and procedures in place to keep investors and staff informed of material information about the Company and to ensure compliance with the continuous disclosure obligations under the Financial Markets Conduct Act 2013 and the NZX Listing Rules. • Securities Trading Policy • Audit & Risk Committee Charter • Governance & Remuneration Committee Charter • Risk Management Policy Financial Reporting and Disclosure The Company is committed to providing financial reporting that is balanced, clear and objective. The Audit & Risk Committee The Market Disclosure Policy (available on the Company’s website) oversees the quality, integrity and timeliness of external reporting. is designed to ensure that: • There is full and timely disclosure of the Company’s activities and price sensitive information to shareholders and the market; and • All stakeholders (including shareholders, the market The Group’s Consolidated Financial Statements for the year ended 31 December 2021 are set out on pages 48 to 103 of the Annual Report. Also refer to the reports from the Chair and the CEO in this Annual Report and the NZME Full Year 2021 Results Presentation (available on the Company’s website) for additional information. and other interested parties) have an equal opportunity to Non-Financial Reporting and Disclosure receive and obtain externally available information issued by The Company provides non-financial disclosures relating to the Company. The Company will immediately notify the market of any material information concerning the Company in accordance with legislative and regulatory disclosure requirements. Corporate governance documents Health and Safety, Risk Management, our interaction with our communities, people and our environment – see our Sustainability Commitment. We also include information about our performance against our operational priorities during the year. NZME’s Sustainability Commitment aligns with the UN Sustainability Development Goals – an international blueprint The following documents have been adopted by the Company to achieve a better and more sustainable future for everyone. and are available on the Company’s website under the Corporate Combined with our promise to keep Kiwis in the know, NZME’s Governance section: • NZME Constitution • Board Charter • Code of Conduct & Ethics • Remuneration Policy • Diversity and Inclusion Policy • • Editorial Code of Ethics Fraud Policy • Market Disclosure Policy commitment to sustainable practices contributes to the prosperity of our business and our communities, people and the environment. In 2021 we measured our progress against key initiatives and objectives for each of the three pillars of our Sustainability Commitment: Our Communities, Our People and Our Environment. This is discussed on pages 17 to 27 of the Annual Report. NZME intends to continue to develop its Sustainability Commitment with the guidance of the Board. 36 NEW ZEALAND MEDIA AND ENTERTAINMENT CORPORATE GOVERNANCE CONTINUED PRINCIPLE 5 - REMUNERATION The remuneration of directors and executives should be While the Company does not pay equity-based remuneration to transparent, fair and reasonable. Remuneration Policy The Company’s Remuneration Policy (available on its website) outlines the Company’s approach to the remuneration of its directors and executives. The Governance & Remuneration Committee is responsible for reviewing non-executive directors’ remuneration and benefits. The pool available to be paid to non- executive directors is subject to shareholder approval. The levels of fixed fees payable to non-executive directors should reflect the time commitment and responsibilities of the role. The Governance & Remuneration Committee will obtain independent advice, as necessary, and will also consider the results of market comparison and a benchmarking assessment in setting the fixed fees payable to non-executive directors. Directors’ Remuneration its non-executive directors, it encourages those directors to hold shares in the Company to better align their interests with the interests of other shareholders. The Governance & Remuneration Committee is also responsible for reviewing the remuneration of the CEO and any executive directors and, in consultation with the CEO, the remuneration packages of executives reporting directly to the CEO. The Company conducts external benchmarking analysis in order to determine the market rate for a role. The Company provides a combination of cash and non-cash benefits and takes a total remuneration approach. The Company reviews remuneration with the objective of achieving pay equity, including by gender. The fees paid to each director depends on the duties of the director, including committee work. Current fees per annum are as follows: 1 January 2021 to 31 December 2021 Chairman of the NZME Board Membership of the NZME Board Chairman of NZME Board Committees Membership of NZME Board Committees Fees ($) 150,000 100,000 20,000 10,000 Total fees paid to each director during 2021 are shown in the following table: Date appointed Chairman of the Board ($) Board Member ($) Committee Chair ($) Committee Member ($) Total ($) Barbara Chapman 18 April 2018 150,000 10,000 160,000 Carol Campbell 24 June 2016 100,000 20,000 120,000 David Gibson 8 December 2017 100,000 20,000 10,000 130,000 Guy Horrocks 8 February 2021 Sussan Turner 16 July 2018 Total fees paid 2021 89,087 100,000 89,087 10,000 110,000 609,087 ANNUAL REPORT 2021 37 Chief Executive Officer’s Remuneration Salary ($) A Bonus ($) B TIP ($) C Benefits ($) D Total ($) Michael Boggs 847,147 478,164 - 39,759 1,365,070 A Salary includes normal basic salary and paid leave. B Bonus payments are those paid during the current accounting period and excludes any bonus accrual not yet paid. C TIP relates to the value of shares issued during the year under the Group’s Total Incentive Plan. D Benefits relate to company contributions for KiwiSaver. Michael Boggs held 1,079,866 shares in the company as at 31 December 2021. In addition to the remuneration disclosed above as at 22 February 2022, Michael Boggs held 1,814,448 performance rights issued to him under the Group’s Total Incentive Plan (“TIP”). Please refer to note 4.3 of the Consolidated Financial Statements for a summary of the TIP and the performance criteria used to determine performance based payments. Employee Remuneration The Group paid remuneration including benefits in excess of $100,000 to employees (other than directors) during the year ended 31 December 2021. The salary banding for these employees are disclosed in the following table (bands with zero number of employees have been excluded). Remuneration Amount Employees Remuneration Amount Employees $100,000 - $110,000 $110,001 - $120,000 $120,001 - $130,000 $130,001 - $140,000 $140,001 - $150,000 $150,001 - $160,000 $160,001 - $170,000 $170,001 - $180,000 $180,001 - $190,000 $190,001 - $200,000 $200,001 - $210,000 $210,001 - $220,000 $220,001 - $230,000 $230,001 - $240,000 $240,001 - $250,000 $250,001 - $260,000 $270,001 - $280,000 72 60 42 43 35 15 14 16 8 9 7 9 10 4 7 7 3 $280,001 - $290,000 $290,001 - $300,000 $300,001 - $310,000 $330,001 - $340,000 $350,001 - $360,000 $360,001 - $370,000 $390,001 - $400,000 $400,001 - $410,000 $410,001 - $420,000 $420,001 - $430,000 $440,001 - $450,000 $450,001 - $460,000 $460,001 - $470,000 $570,001 - $580,000 $680,001 - $690,000 $690,001 - $700,000 $1,360,001 - $1,370,000 5 6 3 1 1 1 2 1 1 3 2 1 2 1 1 1 1 Total number of employees that were paid remuneration of $100,000+ 394 The remuneration above includes all remuneration paid to permanent employees, including fixed remuneration, employer KiwiSaver contributions, medical aid contributions, bonuses, commission, settlements and redundancies. 38 NEW ZEALAND MEDIA AND ENTERTAINMENT CORPORATE GOVERNANCE CONTINUED Review of Total Incentive Plan In FY21 the Governance & Remuneration Committee undertook with NZME’s performance and value creation for shareholders over a review of executive remuneration incentives and, in particular, both the long and short term. the Company’s Total Incentive Plan (TIP), which has been in place since the Company listed in 2016. In light of the significant change in the business since 2016, the objective of this review was to be consistent with Australasian best practice by re-balancing the cash and share rights components of the TIP and introducing a true long-term incentive component to the TIP, increasing share ownership for executives and better aligning executive awards The Governance & Remuneration Committee engaged an independent remuneration specialist to review the TIP and related components of executive remuneration and this resulted in an updated TIP framework being put in place for the 2022 financial year. The table below summarises the key changes adopted in the updated TIP framework: Change Detail Rationale and Outcome Introduction of long- The LTI component measures performance Previously the TIP measured performance term incentive (LTI) conditions over three financial years with conditions over one financial year. The addition component. executives receiving share rights at the start of of a three-year performance period introduces a that period. The number of share rights each true long-term incentive component to executive executive will receive is based on the volume remuneration. weighted average sale price of NZME shares for the 20 consecutive NZX trading days after the date of release of NZME’s FY21 annual financial results. The LTI performance conditions are based on earnings per share (EPS) and total shareholder return (TSR) targets, with each condition given equal weighting. If a performance condition is met, then each share right allocated to that condition will vest and the executive will receive one share following the end of the three-year performance period, subject to them remaining employed by the Company at the end of the performance period. Re-balancing the mix Both the STI and LTI may confer share rights with Previously, the TIP mix was set at 50% in cash, between short-term the STI also including a cash bonus. payable following the end of the relevant incentive (STI) and LTI components. The total TIP opportunity for each executive is split into: - STI: 60% of TIP opportunity – 35% cash and 25% share rights - LTI: 40% of TIP opportunity as share rights financial year, and 50% in share rights that were exerciseable after a three-year restricted period. The TIP now delivers an increased proportion of incentives in share rights, rather than cash, further aligning executive remuneration with shareholder returns. ANNUAL REPORT 2021 39 Change Detail Rationale and Outcome Reduced deferral The STI component has a deferral period of one With the introduction of the LTI component period for STI share year which commences at the end of the STI measured over a three-year performance period, rights issued under performance period. If an executive remains an the Board considered a deferral period for the the TIP. employee at the end of this deferral period, share STI share rights component of one year was rights issued to them under the STI will vest and appropriate. Executives must remain employed they will receive shares. during the performance period and the deferral period in order to be eligible to receive their STI share rights. If they cease to be an employee during the deferral period, their STI share rights will not vest. Introduction of For the STI component a minimum financial EBITDA was previously only one element of the a conditional performance earnings performance condition, measured TIP calculation. It is now a minimum threshold by group EBITDA, must be achieved in order which must be met, ensuring that STI payouts are gateway – minimum for an award outcome to be considered. If this dependent upon Company performance. financial earnings performance condition is not met, executives will performance condition. not receive any STI award outcome. Introduction of For the STI component, the performance Introduction of these performance conditions new performance conditions include role specific KPIs and may ensures alignment to delivery of strategic conditions. be based on group, divisional and/or individual priorities for NZME and shareholder returns. performance aligned to NZME’s strategic priorities. Each KPI will be measured for a potential award pro rata between 50% -150%. For the LTI component, as noted above, the performance conditions are based on EPS and TSR targets set by the Board at the beginning of the three-year performance period and measured on a cumulative basis. Increased total The total on-target TIP opportunity for executives Previously the TIP opportunity was set at between reward opportunity is set as a percentage of their base remuneration. 50% and 100% of base remuneration for each based on NZME’s The range for the FY22 Offer is between 60% and executive. The Board considers that with the performance and 130% of base remuneration (with the opportunity splitting of the incentive between a STI and LTI shareholder returns. for up to 150% of the STI award) and varies and the lengthening of the performance period according to their role in the Company. and the service period, an increased total TIP opportunity is appropriate in the circumstances. 40 NEW ZEALAND MEDIA AND ENTERTAINMENT CORPORATE GOVERNANCE CONTINUED PRINCIPLE 6 - RISK MANAGEMENT Directors should have a sound understanding of the material risks This committee provides assurance that the following aspects are faced by the issuer and how to manage them. The Board should managed appropriately: regularly verify that the issuer has appropriate processes that identify and manage potential and material risks. Risk Management Framework The Audit & Risk Committee is responsible for the oversight and • Strategic and operational risk management; • Workplace Health and Safety matters; • Legal, regulatory and policy compliance; independent review of the Group’s risk management framework, • Technology and security matters; and including: • Business continuity planning. • • Review and approval of the risk management policy; Receiving and considering reports on risk management; • Assessing the effectiveness of the Group’s responses to risk; and • Providing the Board with regular reports on risk management. The Group has a formal Risk Management Policy (available on its website) and is committed to the consistent, proactive and effective monitoring and management of risk throughout the organisation, in accordance with best practice and the NZME Risk Management Framework and Guidelines. The Board is ultimately responsible for the effectiveness, oversight and implementation of the Group’s approach to risk management. The CEO is responsible for: The Group is a diversified media company and is subject to diverse types of risk including, but not limited to cyber security, legal and regulatory compliance, financial and market, government policy and political, reputation and brand, operational risks and trading conditions. The Group recognises that in order to achieve its strategic objectives it must be willing to take and accept informed risks. Risks relating to innovation, attracting and retaining talent, and content to drive audiences and address the needs of advertisers are encouraged within defined parameters. However, in doing so, it is not acceptable to trade off financial or strategic returns by compromising compliance with the law, the safety of our people, or our reputation as a responsible corporate citizen and provider of news, sport and entertainment. When setting the appetite for taking and accepting risk, the Group • The management of strategic, operational and financial risk of also considers the risk posed by inaction in what is a fast-paced the Group; and disrupted market. • Continually monitoring the Group’s progress against financial and operational performance targets; • The day-to-day identification, assessment and management of risks applicable to the Group; The Group’s approach to risk management is assessed at least annually by the Audit & Risk Committee of the Board in order to make a recommendation to the full Board on the appropriateness of the Company’s Risk Management Framework and Guidelines. • Implementation of risk management controls, processes and For additional information on financial risks, please also refer to policies and procedures appropriate for the Group; and Note 4.7 of the Consolidated Financial Statements. • Driving a culture of risk management throughout the Group. The Company’s Risk Committee (a management committee) acts as a governance forum to assist the CEO and the Executive Team in fulfilling their corporate governance responsibilities. ANNUAL REPORT 2021 41 Health and Safety The NZME Board Charter states that the role of the Board includes 5. We will actively manage risk to mental health and provide ensuring that the Group health and safety, environmental practices a work environment that is mentally healthy, supportive of and culture comply with legal requirements, reflect best practice our people and does not tolerate bullying, harassment or and are recognised by employees and contractors as key priorities unacceptable behaviour in the workplace. for the Group. As noted earlier, NZME does not have a separate Mental Health Support Board-level Health and Safety Committee as Health and Safety is dealt with by the full Board. Health and Safety advice and direction are overseen by the Culture and Performance team and a full-time Health, Safety and Health and Safety is included on the Company’s Risk Register. The Compliance Manager. The Company utilises the online safety Company’s Annual Health and Safety Plan captures the projects and management system “Damstra” as the framework for how safety objectives for the year to respond to the identified risks. is managed within the business. Damstra is used for incident The Company records and monitors critical health and safety risks in a separate Health and Safety Risk Register. Currently that register is reviewed and monitored by the Risk Committee, who meet monthly and receive and review reporting on health and safety performance, trends and updates, with key matters and reporting, contractor management, hazard and risk management, management of hazardous substances, risk monitoring and reporting. Worker engagement and involvement is recognised as an important part of growing a positive workplace health and safety culture. progress against the annual plan being reported to the Board. At NZME, being actively involved in and contributing to health and In 2021, areas of focus included continuing to manage the ongoing safety is included in the GuideMe performance review template as risks associated with the Covid-19 pandemic, continuing to engage a KPI for all employees and reviewed as part of the performance leaders in health and safety, introducing further automation of review process. Health and safety training forms part of induction safety processes at the print site and installing GPS into a greater and ongoing training schedules to ensure awareness of NZME’s number of vehicles to promote and monitor safer driving. We also health and safety obligations, critical risks and the resources focused on managing mental health risks associated with bullying available to satisfy these. NZME maintains a Wellness and Safety and harassment, harmful comments and material and Covid-19. page on its intranet with sections for safety at NZME (which In 2021 there was a continued focus on ensuring our people were aware of how to raise issues relating to bullying, harassment or unacceptable behaviour in the workplace. Reporting was improved and Wellbeing Advocates were introduced to support our people includes training manuals, emergency procedures and safety induction documents) and a Wellness section (which includes information about our Employee Assistance Programme, wellness videos and wellness success stories). and provide guidance. A best practice review of health and safety To ensure effective worker involvement, NZME has multiple policies was commenced. The Company intends to build on the effectiveness of health, safety and wellbeing across the business, by following the following five key priorities over 2022 – 2023: Health and Safety Committees in place across New Zealand that actively contribute to the management of risk and the effectiveness of controls in place around the business. Health and safety performance is communicated throughout all levels of NZME through regular leadership team meetings and internal 1. Our Leaders will be actively involved in supporting the health, business communications. safety and wellbeing of the business. Proactive Safety Leadership 2. We will have a consistent approach to managing health, safety and wellbeing across locations. Consistency Across Sites Embedding a high performing health and safety culture and regularly reporting on our performance is a key initiative forming part of our Sustainability Commitment. 3. We will maintain safety excellence within our Print Plant. Lost Time Injuries have remained flat at 2 incidents year-on-year. Print Safety Excellence 4. Our vehicle fleet will be managed and operated in a manner that significantly reduces risk to people and property. Proactive Vehicle Safety Total reported incidents have increased from 21 to 33 year-on- year (but are down on the 48 reported in 2019), with this increase being largely in the ‘no treatment’ category and for minor injuries treated solely with first aid measures. 42 NEW ZEALAND MEDIA AND ENTERTAINMENT CORPORATE GOVERNANCE CONTINUED PRINCIPLE 7 - AUDITORS The Board should ensure the quality and independence of the of fees relating to non-audit services provided during the year, • • • • external audit process. Refer to note 2.2.5 of the Consolidated Financial Statements for fees paid to the auditors, PriceWaterhouseCoopers, for the year ended 31 December 2021. The Audit & Risk Committee Charter requires the Committee to assess the following: The independence of the auditors; The ability of the auditors to provide additional services which may be occasionally required; including a description of potential threats to their independence and the applicable safeguards implemented by the auditor and the Company to either mitigate those threats or reduce them to an acceptable level as required by PES 1. The Audit & Risk Committee takes the nature of the services provided, the quantum of the fee, the reason for the additional services and whether the services are likely to be one-off or repetitive in nature into consideration when evaluating and concluding on auditor independence. For the year ended 31 December 2021, given the nature of the services provided and based on the Committee’s continuous monitoring of auditor independence, the Audit & Risk Committee do not believe that the non-audit services provided by the auditors The competency and reputation of the auditors; compromised their objectivity and independence. The projected audit fees; and • Review the appointment, performance and remuneration of external auditors. The Audit & Risk Committee also monitors and approves any services provided by the auditors other than in their statutory role and receives confirmation from the auditors as to their independence from the Company. This is undertaken on a service by service basis and assesses whether the service is permissible under Professional and Ethical Standard 1 (“PES 1”) issued by the New Zealand Auditing and Assurance Standards Board, ensuring that any potential threat to independence is identified and appropriate safeguards to eliminate the threat or reduce the threat to an acceptable level are established. The Audit & Risk Committee receives an annual confirmation from the auditor as to their independence from the Group. The auditor is also required to provide the Audit & Risk Committee with a detailed analysis The Company requires the external auditor to attend the Annual Shareholders’ Meeting (“ASM”) to answer questions from shareholders in relation to the audit. The Group’s auditor, PricewaterhouseCoopers, attended the last ASM on 16 April 2021. Internal Audit The Audit & Risk Committee is responsible for reviewing the integrity and effectiveness of the internal audit function. NZME operates a co-sourced internal audit programme that utilises a mix of self-certifications, scheduled control testing by Group Financial Services, ad hoc assignments, investigations by risk and compliance personnel and a structured internal audit programme executed by an external firm. Any reporting from external parties is presented to the Audit & Risk Committee and any significant findings from other internal activities are reported to the Audit & Risk Committee. ANNUAL REPORT 2021 43 PRINCIPLE 8 - SHAREHOLDER RIGHTS & RELATIONS The Board should respect the rights of shareholders and foster Following each results announcement, NZME holds an investor call constructive relationships with shareholders that encourage them to present the results and to allow investors to ask questions. This to engage with the issuer. In addition to holding its Annual Shareholders’ Meeting, NZME seeks to regularly engage with shareholders to ensure they are is usually followed by an investor roadshow during which the CEO and other members of the Executive aim to meet with as many shareholders as possible. However, in 2021, as in 2020, such post- result meetings were held virtually. In 2021 NZME also held a virtual informed about our activities and our progress against our stated priorities. NZME engages an Investor Relations Manager to ensure Investor Day. any questions or feedback from shareholders are responded to Shareholders are entitled to exercise their voting rights as provided promptly. for under the applicable legislation and listing rules. The NZME website has a dedicated Investor Relations section In order for shareholders to fully participate in shareholder containing NZX / ASX announcements, presentations and meetings, the Board will endeavour where possible, to distribute webcasts, financial reports, frequently asked questions and other a notice of shareholder meeting as soon as possible and in any information that might be useful to our shareholders. event at least 20 working days prior to any shareholder meeting. The share registry is maintained by Link Market Services and their During the financial year ended 31 December 2021, shareholders contact details are available under the Investor Relations section were given 20 working days’ notice of the annual shareholder of the Company’s website. Shareholders can elect to receive meeting of the Company held on 16 April 2021. communications electronically. 44 NEW ZEALAND MEDIA AND ENTERTAINMENT STATUTORY DISCLOSURES INTEREST REGISTER ENTRIES In accordance with section 211(1)(e) of the Companies Act 1993, particulars of general disclosures of interest in the Interest Register of NZME for current directors are set out in the table below. Disclosures during 2021 are noted in italics. Director Barbara Chapman Carol Campbell Position Chairman Deputy Chair Patron Director Director Director Director Director Director Director David Gibson Director and shareholder Company Genesis Energy Limited The New Zealand Initiative New Zealand Rainbow Tick Excellence Awards Fletcher Building Limited Bank of New Zealand T&G Global Limited Asset Plus Limited NZ Post Limited Chubb Insurance New Zealand Limited Kiwibank Limited DG Advisory Limited Director and shareholder Sidehustle Ecommerce Limited Director Director Director Director Shareholder Rangatira Limited Biostrategy Holdings Limited Trustpower Limited Goodman (NZ) Limited Solve Data, Inc. Director and shareholder Aspire2 Group Limited Shareholder Pro-Chancellor Organic Initiative Limited Auckland University of Technology (AUT) Guy Horrocks Sussan Turner Disclosures of Directors’ interests in share transactions During 2021, no disclosures were made in the Interests Register by Directors as to the acquisition of relevant interests in Company shares under section 148 of the Companies Act 1993. Directors’ interests in shares Ordinary shares held by directors and parties associated with them are as follows: Director Barbara Chapman Carol Campbell David Gibson Number of shares as at 31 December 2021 73,000 150,000 50,000 ANNUAL REPORT 2021 45 Use of Company information No notices have been received by the Board under section 145 Other than Mark O’Sullivan who received A$15,400 for his services of the Companies Act 1993 with regard to the use of Company as a director of NZME Australia Pty Limited, these directors did information received by the Directors in their capacities as not receive any fees or other benefit for their services as directors Directors of the Company or its subsidiary companies. to any of these companies. Michael Boggs, David Mackrell and Indemnities or insurance effected for directors Paul Maher receive remuneration as employees of the Company which are not related to their duties as directors of these In accordance with Section 162 of the Companies Act 1993 and companies. Peng Yin receives remuneration through his company, the Company’s Constitution, the Company has indemnified Hougarden.com Limited, which provides services to OneRoof and arranged insurance for all directors and executive officers Limited. Laura Maxwell ceased to be a Director of OneRoof to the extent permitted by law for liabilities arising out of the Limited on 15 February 2021. performance of their normal duties as directors and officers. The total amount of insurance for directors and officers contract premiums for the period was $730,000. SUBSIDIARY COMPANY INFORMATION NZME’s subsidiary companies are listed at Note 6.1 of the Consolidated Financial Statements. Directors of Subsidiary Companies As at 31 December 2021, Michael Boggs (CEO) and David Mackrell (CFO) were directors of the wholly owned subsidiaries listed in Note 6.1 of the Consolidated Financial Statements, other than NZME Australia Pty Limited. Michael Boggs and Mark O’Sullivan (a professional director resident in Australia) were directors of NZME Australia Pty Limited as at 31 December 2021. Michael Boggs, David Mackrell, Paul Maher and Peng Yin (director representing OneRoof’s minority shareholder) were directors of the subsidiary OneRoof Limited, in which an 80% interest was held, as detailed in Note 6.1 of the Consolidated Financial Statements. Entries in interest registers of Subsidiary Companies For each subsidiary company in which they act as a director Michael Boggs and David Mackrell have made general disclosures of interests in all other subsidiary companies as a result of their executive positions at the Company and their positions as directors of the other subsidiary companies. Peng Yin has made a general disclosure of interest in the OneRoof Limited Interest Register arising from his position as director and shareholder of Hougarden.com Limited and Hougarden Motors Limited. SHAREHOLDER INFORMATION Substantial Shareholders The following information is given pursuant to Sub-Part 5 of Part 5 of the Financial Markets Conduct Act 2013. According to notices given to the Company, the substantial product holders in the Company as at 7 January 2022 are noted below: Shareholder Osmium Partners LLC Auscap Asset Management Ltd. Spheria Asset Management Pty Ltd UBS Securities Australia Ltd (Collateral Account) Number of shares held % of shares held 33,013,889 18,976,962 17,844,175 13,928,980 16.71% 9.61% 9.03% 7.05% The total number of ordinary shares issued by the Company as at 31 December 2021 was 197,570,061. The Company did not have any other quoted voting products. 46 NEW ZEALAND MEDIA AND ENTERTAINMENT STATUTORY DISCLOSURES CONTINUED Top 20 shareholders As at 18 February 2022 Rank Investor Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Citicorp Nominees Pty Limited Bnp Paribas Nominees Pty Ltd Acf Clearstream Bnp Paribas Nominees Pty Ltd Brispot Nominees Pty Ltd HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Pty Limited Accident Compensation Corporation FNZ Custodians Limited Forsyth Barr Custodians Limited Pax Pasha Pty Ltd Merrill Lynch (Australia) Nominees Pty Limited HSBC Custody Nominees (Australia) Limited Bnp Paribas Noms Pty Ltd Goudy Park Capital Lp JBWERE (Nz) Nominees Limited HSBC Nominees (New Zealand) Limited Leh Soon Yong Pax Pasha Pty Ltd Michael Raymond Boggs 20 Timothy John Eakin Total Units % Issued Capital 38,726,983 32,336,739 14,806,565 13,923,766 9,592,694 8,825,456 8,384,051 8,059,925 4,020,558 3,147,959 2,604,299 2,537,815 1,682,938 1,550,999 1,492,860 1,434,114 1,323,982 1,123,173 1,079,866 1,070,138 19.60 16.37 7.49 7.05 4.86 4.47 4.24 4.08 2.04 1.59 1.32 1.28 0.85 0.79 0.76 0.73 0.67 0.57 0.55 0.54 Total 157,724,880 79.85 ANNUAL REPORT 2021 47 Holders % Issued Capital Issued Capital % 67.96 17.44 5.22 6.47 1.04 1.87 848,749 2,087,960 2,004,167 7,497,536 3,654,826 181,476,823 0.43 1.06 1.01 3.79 1.85 91.85 100.00 Spread of Quoted Security Holders As at 18 February 2022 Range of Securities Held 1-1,000 1,001-5,000 5,001-10,000 10,001-50,000 50,001-100,000 Greater than 100,000 Total Holders 3,413 876 262 325 52 94 5,022 100.00 197,570,061 OTHER INFORMATION Waivers from NZX During the financial year ended 31 December 2021, the Company was not granted any waivers from any of the NZX Listing Rules, nor did the Company rely on any previously granted or published waiver from the NZX Listing Rules. Donations In accordance with section 211(1)(h) of the Companies Act 1993, NZME notes that the Group made donations of $14,313 during the year ended 31 December 2021. Credit rating As at the date of this Annual Report NZME does not have a credit rating. Exercise of NZX disciplinary powers During the financial year ended 31 December 2021, NZX exercised its powers under Listing Rule 9.9.3 to refer two matters concerning the conduct of NZME Limited to the NZ Markets Disciplinary Tribunal. In particular: (b) NZX found that NZME had breached Listing Rules 3.1.1 and 3.20.1 by failing to release material information and information about a decision to change a director to the market promptly and without delay in relation to the resignation on 11 June 2020 of NZME’s former chair. In each case, NZME entered into a settlement agreement with NZX and, amongst other things, agreed to pay a financial penalty for the listing rule breaches, and to pay costs to NZX and the NZ Markets Disciplinary Tribunal. Each settlement agreement was approved by the NZ Markets Disciplinary Tribunal and on 20 April 2021 the Tribunal issued a public censure for the breaches referred to above. Copies of the public censure documents issued by the Tribunal are available on the NZX website at www.nzx.com under NZME’s market announcements tab. Direct director appointments under the Company’s Constitution Rule 2.4.1 of the NZX Listing Rules allows a company to include in its Constitution a right for a product holder to appoint a director to the Board under certain circumstances. As at 31 December 2021, none (a) NZX found that NZME breached Listing Rules 3.1.1 and 3.2.1 by of the Directors were appointed pursuant to Rule 2.4.1. not disclosing material information in relation to the possible purchase of Stuff, omitting material information from two market announcements made by NZME on 11 May 2020, and failing to release material information to prevent the development or subsistence of a false market that had been materially influenced by misleading information emanating from NZME in the 11 May 2020 market announcements. 48 NEW ZEALAND MEDIA AND ENTERTAINMENT NZME LIMITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 ANNUAL REPORT 2021 49 50 NEW ZEALAND MEDIA AND ENTERTAINMENT CONTENTS Directors' Statement Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements* 1.0 Basis of Preparation 2.0 Group Performance 3.0 Operating Assets and Liabilities 4.0 Capital Management 5.0 Taxation 6.0 Group Structure and Investments in Other Entities 7.0 Related Parties 8.0 Commitments and Contingent Liabilities 9.0 Subsequent Events Independent Auditor's Report 51 52 53 54 55 56 57 62 70 81 94 97 102 103 103 104 * The notes to the financial statements have been grouped into nine 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 necessary 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 boxed 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 57 to 61. ANNUAL REPORT 2021 51 DIRECTORS’ STATEMENT 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 2021, 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 2021 and the results of the Group’s operations and cash flows for the year then ended. The consolidated financial statements for the Group as presented on pages 52 to 103 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 Barbara Chapman Chairman Date: 22 February 2022 Carol Campbell Director 52 NEW ZEALAND MEDIA AND ENTERTAINMENT CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2021 Revenue Finance and other income Total revenue and other income Expenses from operations before finance costs, depreciation, amortisation Depreciation and amortisation Profit before finance costs, income tax and impairment of assetsB Finance costs Share of joint ventures and associates net loss after tax Impairment of assets Profit before income tax expense Income tax expense Net profit after tax Profit for the year is attributable to: Owners of the Company Non-controlling interests A Refer to note 1.2.3 for details of the restatement. B This is a non-GAAP measure refer to note 1.2. Note 2.1 2.1 2.1 2.2.1 2.2.2 2.2.3 6.2.2 2.2.4 5.1 2021 $’000 2020 RestatedA $’000 348,559 322,139 17,075 13,061 365,634 335,200 (286,854) (275,301) (26,319) (28,548) 52,461 (7,282) (450) (2,477) 42,252 (7,818) 34,434 34,645 (211) 34,434 31,351 (8,253) (417) (3,470) 19,211 (4,729) 14,482 14,787 (305) 14,482 Earnings per share attributable to the ordinary shareholders of the Company Basic earnings per share Diluted earnings per share Cents Cents 2.3 2.3 17.54 16.93 7.48 7.29 The above Consolidated Income Statement should be read in conjunction with the accompanying notes. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2021 ANNUAL REPORT 2021 53 Net profit after tax Other comprehensive income Items that may be reclassified to profit or loss Effective gain / (loss) on hedging instruments Hedging reclassification to profit or loss Tax impact of hedging transactions Net gain / (loss) on hedging instruments Net exchange differences on translation of foreign operations Items that will not be reclassified to profit or loss Share of revaluation of joint ventures' and associates' assets Other comprehensive income, net of tax Total comprehensive income Total comprehensive income attributable to: Owners of the Company Non-controlling interests Note 2021 $’000 2020 Restated A $’000 34,434 14,482 4.2 4.2 4.2 4.2 4.2 396 168 - 564 (17) - 547 (656) 82 70 (504) (21) 1,271 746 34,981 15,228 35,192 (211) 34,981 15,533 (305) 15,228 A Refer to note 1.2.3 for details of the restatement. The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 54 NEW ZEALAND MEDIA AND ENTERTAINMENT CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2021 2021 $’000 31 December 2020 Restated A $’000 1 January 2020 Restated A $’000 Current assets Cash and cash equivalents Trade and other receivables Inventories Derivative financial instruments Assets classified as held for sale Total current assets Non-current assets Intangible assets Property, plant and equipment Right-of-use assets Capital work in progress Other financial assets Equity accounted investments Other receivables and prepayments Derivative financial instruments Deferred tax asset Total non-current assets Total assets Current liabilities Trade and other payables Current lease liabilities Derivative financial instruments Current tax provision Note 4.6 3.5 3.6 3.9 6.3.1 3.1 3.2 3.3 3.4 6.2.2 3.5 3.9 5.2 3.7 4.5.2 3.9 13,538 45,176 1,909 25 60,648 - 60,648 138,195 26,976 67,513 4,006 815 3,623 6,879 228 3,485 251,720 312,368 53,780 11,340 - 4,689 69,809 Liabilities directly associated with assets classified as held for sale 6.3.1 - Total current liabilities Non-current liabilities Non-current lease liabilities Interest bearing liabilities Derivative financial instruments Total non-current liabilities Total liabilities Net assets EQUITY Share capital Reserves Retained earnings Total Company interest Non-controlling interests Total equity 4.5.2 4.5.1 3.9 4.1 4.2 69,809 85,445 - - 85,445 155,254 157,114 361,758 4,920 (209,478) 157,200 (86) 157,114 A Refer to note 1.2.3 for details of the restatement. The above Consolidated Balance Sheet should be read in conjunction with the accompanying notes. 11,560 43,882 1,480 - 56,922 2,165 59,087 142,773 34,978 85,382 2,220 815 4,162 1,079 - 1,913 273,322 332,409 43,838 10,931 16 1,575 56,360 7,338 63,698 96,521 45,379 310 142,210 205,908 126,501 361,758 3,485 (238,867) 126,376 125 126,501 14,416 52,449 1,943 - 68,808 - 68,808 146,029 39,902 75,538 9,774 815 3,308 1,329 248 1,661 278,604 347,412 51,483 11,076 - 254 62,813 - 62,813 84,807 89,149 - 173,956 236,769 110,643 360,768 2,984 (253,539) 110,213 430 110,643 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2021 ANNUAL REPORT 2021 55 Attributable to owners of the company Note Share capital $’000 Reserves Retained earnings $’000 $’000 Non- controlling interests $’000 Total $’000 Total equity $’000 Balance at 1 January 2020 360,768 2,984 (247,712) 116,040 430 116,470 Change in accounting policy 1.2.2 (5,827) (5,827) - (5,827) Restated balance at 1 January 2020 360,768 2,984 (253,539) 110,213 430 110,643 Net profit / (loss) after tax Other comprehensive income Total comprehensive income Deferred tax on share based payments Share based payments expense 4.2 - - - - - - 14,787 14,787 (305) 14,482 746 746 - 1,095 - 746 - 746 14,787 15,533 (305) 15,228 (115) (115) - - 1,095 (350) - - - (115) 1,095 (350) 2017 TIP settlement 990 (1,340) Balance at 31 December 2020 361,758 3,485 (238,867) 126,376 125 126,501 Balance at 1 January 2021 361,758 3,485 (238,867) 126,376 125 126,501 Net profit / (loss) after tax Other comprehensive income Total comprehensive income Dividends paid Supplementary dividends paid Tax credit on supplementary dividends paid Transfer from revaluation reserve Share based payments expense 4.4.2 4.4.2 4.2 4.2 - - - - - - - - - 34,645 34,645 (211) 34,434 547 547 - - - (671) 1,559 - 547 - 547 34,645 35,192 (211) 34,981 (5,927) (5,927) (678) (678) 678 671 - 678 - 1,559 - - - - - (5,927) (678) 678 - 1,559 Balance at 31 December 2021 361,758 4,920 (209,478) 157,200 (86) 157,114 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 56 NEW ZEALAND MEDIA AND ENTERTAINMENT CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2021 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Government grants Dividends received Interest received on bank facilities Interest received on leases Interest paid on bank facilities Interest paid on leases Income taxes paid Net cash inflows from operating activities Cash flows from investing activities Note 2021 $’000 2020 Restated A $’000 346,859 324,146 (281,074) (267,857) 328 89 43 102 (2,100) 3.5.4 4.5.2 (5,097) (7,308) 51,842 4.6 9,900 2 67 - (3,175) (4,833) (2,674) 55,576 Payments for property, plant and equipment and intangible assets (including work in progress) (6,505) (4,997) Proceeds from sale of GrabOne Limited’s assets and certain liabilities 6.3.1 17,500 Proceeds from sale of property, plant and equipment 1,853 - 30 Net cash inflows / (outflows) from investing activities 12,848 (4,967) Cash flows from financing activities Proceeds from borrowings Repayments of borrowings Payments for borrowing cost Dividends paid to Company's shareholders Payments for lease liability principal Net cash outflows from financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year 4.5.1 4.5.1 4.5.1 4.4.2 4.5.2 Cash and cash equivalents at end of the year 4.6 37,000 10,000 (83,000) (53,500) - (5,927) (490) - (10,785) (9,475) (62,712) (53,465) 1,978 (2,856) 11,560 13,538 14,416 11,560 A Refer to note 1.2.3 for details of the restatement. The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2021 57 1.0 BASIS OF PREPARATION 1.2.2 Change in accounting policy 1.1 REPORTING ENTITY AND STATUTORY BASE NZME Limited (NZX:NZM 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’ In March 2021 the IFRS Interpretations Committee (IFRIC), which is responsible for interpreting the application of IFRS, published an agenda decision on Configuration or Customisation Costs in a Cloud Computing Arrangement (ratified by the International Accounting Standards Board (IASB) in April 2021). The ratified decision is that costs are to be expensed, as incurred, unless they relate to activities that create an intangible asset that the Group controls, and the intangible asset meets the recognition criteria. Costs to be expensed that are paid to the suppliers (or contractors of the supplier) of the cloud-based supplier can, under certain circumstances, be recorded as prepayments for services and amortised over the expected terms of the cloud computing arrangement. (together the “Group”) principal activity during the financial year was Prior to the agenda decision the Group capitalised costs incurred the operation of an integrated media and entertainment business. in configuring or customising certain suppliers’ application 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”). software in cloud computing arrangements as intangible assets as the Group considered that it would benefit from those costs over the expected terms of the arrangements. Prior to a project’s completion, costs to be capitalised were held in capital work in progress. Following the publication of the agenda decision the Group has reconsidered its accounting treatment, adopted the principles set out in the IFRIC agenda decision and has changed its accounting policy in relation to Software-as-a-Service (SaaS) arrangements, see note 3.1. The consolidated financial statements have also been prepared in As a result of this change in accounting policy, the Group has accordance with Part 7 of the Financial Markets Conduct Act 2013 determined that certain intangible assets should be de-recognised and the NZX Listing Rules. The Group has used non-GAAP measures which are not prepared in accordance with New Zealand International Financial Reporting Standards (NZ IFRS) in relation to the following: • profit before finance costs, income tax and impairment of assets (income statement); • total segment adjusted EBITDA (note 2.4.2); and • net tangible assets (note 3.8). These measures should not be viewed in isolation, nor considered as a substitute for measures reported in accordance with NZ IFRS. Non-GAAP financial measures may not be comparable to similarly titled amounts reported by other companies. 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 22 February 2022. 1.2.1 Basis of measurement These consolidated financial statements have been prepared under the historical cost convention with the exception of certain items for which specific accounting policies are identified. as the costs did not create separate intangible assets controlled by the Group. The change in accounting policy has been applied retrospectively by restating the opening equity position (as at 1 January 2020) and the comparative financial statements. To determine the level of restatement required, the Group identified all SaaS arrangements for which configuration and customisation costs had been capitalised, but not fully amortised at 1 January 2020, to determine which no longer met the requirements for capitalisation under the Group’s revised accounting policy. The Group has presented a balance sheet as at 1 January 2020 as the retrospective application had a material impact on the opening balance sheet of the preceding period. The impact of this change in accounting policy is presented below. 1.2.3 Comparatives The change in the accounting policy for software has resulted in the restatement of the consolidated balance sheet as at 31 December 2020, the opening consolidated balance sheet at 1 January 2020, the consolidated income statement for the year ended 31 December 2020 and the consolidated statement of cash flows for the year ended 31 December 2020. The restatement adjustments are detailed in the following tables. 58 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED CONSOLIDATED BALANCE SHEET As at 31 December 2020 Intangible assets Capital work in progress Deferred tax asset Deferred tax liability Net assets Retained earnings Total equity As at 1 January 2020 Intangible assets Capital work in progress Deferred tax asset Deferred tax liability Net assets Retained earnings Total equity SaaS Previously reported $’000 adjustment Reclassification (note 1.2.2) of deferred tax $’000 $’000 Restated $’000 150,478 (7,705) 2,275 - 260 132,088 (233,280) 132,088 150,263 13,633 - 605 116,470 (247,712) 116,470 (55) 2,173 - (5,587) (5,587) (5,587) (4,234) (3,859) 2,266 - (5,827) (5,827) (5,827) - - (260) (260) - - - - - (605) (605) - - - 142,773 2,220 1,913 - 126,501 (238,867) 126,501 146,029 9,774 1,661 - 110,643 (253,539) 110,643 ANNUAL REPORT 2021 59 CONSOLIDATED INCOME STATEMENT AND COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2020 Expenses from operations before finance costs, depreciation, amortisation SaaS Previously reported $’000 adjustment Reclassification (note 1.2.2) of impairment $’000 $’000 Restated $’000 (274,279) (1,343) 321 (275,301) Depreciation and amortisation (30,224) 1,676 - (28,548) Profit before finance cost, income tax and impairment of assets Impairment of assets Profit before income tax expense Income tax expense Net profit after tax 30,697 (3,149) 18,878 (4,636) 14,242 333 - 333 (93) 240 321 31,351 (321) (3,470) - - - 19,211 (4,729) 14,482 Earnings per share attributable to the ordinary shareholders of the Company Basic earnings per share Diluted earnings per share Previously reported Cents SaaS adjustment (note 1.2.2) Cents Restated Cents 7.36 7.17 0.12 0.12 7.48 7.29 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2020 Previously reported $’000 SaaS adjustment (note 1.2.2) $’000 Restated $’000 Payments to suppliers and employees (266,514) (1,343) (267,857) Net cash inflows from operating activities 56,919 (1,343) 55,576 Payments for property, plant and equipment and intangible assets (including work in progress) (6,340) 1,343 (4,997) Net cash outflows from investing activities (6,310) 1,343 (4,967) 60 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED In addition to the restatement of comparatives required as a result of the change in the software accounting policy some prior period information has been re-presented to ensure consistency with current year disclosures and to provide more meaningful comparison. The prior period information that has been re-presented is: 1.3 SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS The preparation of the consolidated financial statements requires the use of certain significant judgements, accounting estimates and assumptions, including judgements, estimates and assumptions concerning the future. The estimates and assumptions are based on • The Income statement has been amended so that “impairment historical experiences and other factors that are considered to be of software” is now “Impairment of assets”, the 2020 relevant. The resulting accounting estimates will by definition, seldom comparative now includes $321,375 of impairment to right-of- equal the related actual results and are reviewed on an ongoing basis. use assets that was in the “Expenses from operations before A list of those areas of significant estimation or judgement and a finance costs, depreciation, amortisation” in 2020. reference to the notes containing further information is provided below: • • In note 2.1 $5,301,952 of digital advertising revenue has been reclassified to other revenue. The Impairment of right-of-use-assets has been moved from Areas of significant accounting estimates or judgements Note Determination of the number of reportable segments 2.4.1 note 2.2.2 and included in the impairment of assets grouping Intangible assets with indefinite useful lives in note 2.2.4. • Other lease adjustments in note 4.5.2 have been included with “Changes in scope or lease terms and other adjustments”. 1.2.4 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. 1.2.5 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. 3.1 3.1 3.1.1 Identification of intangible assets in relation to the integration and customisation of SaaS arrangements Assumptions used in testing for impairment of indefinite life intangible assets Right-of-use assets; discount rates and lease terms 3.3 1.4 NEW STANDARDS AND INTERPRETATIONS As detailed in note 1.2.2 the Group changed its accounting policy for software intangible assets to ensure compliance with the IFRIC decisions for configuration and customisation costs incurred in relation to the implementation of SaaS arrangements. There have been no other changes to accounting policies and no other new standards adopted during the period. Certain new accounting standards, amendments to accounting standards and interpretations have been published that are not mandatory for 31 December 2021 reporting periods and have not been early adopted by the Group. These standards, amendments or interpretations are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. ANNUAL REPORT 2021 61 1.5 COVID-19 The global pandemic that was declared by the World Health Organisation on 11 March 2020 continues to impact the world while New Zealand remains relatively isolated with closed borders. In the first half of the year New Zealand experienced three short regional lockdowns with little impact on the Group’s results while the extensive lockdown in Auckland, and to a lesser degree various regional lockdowns, during the period from 18 August 2021 to 3 December 2021 has had a larger impact although the impact was significantly less than in 2020. • Rent concessions of $1,800,708 are included in finance and other income in the income statement of which $1,377,300 is in respect of transmission tower rental savings under the Government’s Media Relief package. The gain recognised in the income statement resulted from the Group’s adoption of the practical expedient to NZ IFRS 16 where the reduction in lease liabilities from rent concessions could be recognised as a gain in the income statement. There remains a heightened level of uncertainty given the continued presence of COVID-19. No Government assistance has been received in 2021. The 2020 The risks and uncertainty faced by the Group relate to (and are not comparatives include the following amounts in relation to Government limited to): assistance received by NZME in response to the pandemic: • Government wage subsidy: $9,899,738 which is included in the income statement in finance and other income. Note 2.4.2 (footnote B) provides a further detail of the treatment of the total amount received. • • the impact of wider economic pressures in New Zealand and globally; and a potential outbreak at one of the Group’s facilities warranting closure may significantly affect operations. 62 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 2.0 GROUP PERFORMANCE 2.1 DISAGGREGATION OF REVENUE AND OTHER INCOME For the year ended 31 December 2021 Advertising 78,271 104,593 65,631 248,495 Print $’000 Radio $’000 Digital & e-Commerce $’000 Total $’000 Circulation and subscription External printing and distribution Other Segment revenue from integrated media and entertainment activities Revenue from shared services centre Events Total revenue from external customers Government grants Rental income from owned and sub-leased property Loss on disposal of property, plant and equipment Lease rent concessions Other lease adjustments Gain on sale of transmission site Gain on sale of GrabOne Limited's assets and certain liabilities Other income Finance income Total finance and other income Total revenue and other income 70,323 4,655 2,407 - - 779 11,598 - 7,245 81,921 4,655 10,431 155,656 105,372 84,474 345,502 1,156 1,901 348,559 328 317 (23) 361 115 465 15,367 16,930 145 17,075 365,634 ANNUAL REPORT 2021 63 Print $’000 Radio $’000 Digital & e-Commerce $’000 Total $’000 75,451 72,710 4,994 2,628 94,037 50,612 220,100 - - 873 6,621 - 9,414 79,331 4,994 12,915 155,783 94,910 66,647 317,340 3,409 1,390 322,139 2 9,900 455 22 1,801 34 780 12,994 67 13,061 335,200 For the year ended 31 December 2020 Advertising Circulation and subscription External printing and distribution Other Segment revenue from integrated media and entertainment activities Revenue from shared services centre Events Total revenue from external customers Dividends Government grants A Rental income from owned and sub-leased property Gain on disposal of property, plant and equipment Lease rent concessions A Other lease adjustments Compensation for franking credits Other income Finance income Total finance and other income Total revenue and other income A See the COVID-19 note (note 1.5) for further information. Accounting policies The Group applies the following accounting policies in relation street performances etc. These activities are highly integrated 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 and that have the same pattern of transfer to the customer. 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, 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. 64 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED Subscriptions Deferred revenue The Group enters into contracts with customers to deliver When a customer pays for goods or services in advance, the a specified publication on specified days. The performance Group recognises a deferred revenue liability which is reduced, obligation is satisfied, and revenue is recognised, when the and revenue recognised, as the Group satisfies each distinct publication is delivered. Circulation performance obligation. Government grants The Group enters into contracts with customers to deliver Cash received from Government grants is recorded as specified publications on specified days which the customer “Other income”. will on-sell to the public. The performance obligation is satisfied when the publication is delivered. Certain customers have Significant financing component a right to return any unsold publications which is treated as The Group does not expect, at contract inception, that the period variable consideration. Customers are required to report unsold between transferring the promised goods or services from publications using an online system on a weekly basis. The contracts with customers and when the customer pays for those Group therefore includes in the transaction price an estimate of goods and services to be more than one year. The Group applies the unsold publications using the most likely amount method the practical expedient in NZ IFRS 15 to not adjust the promised based on the weekly reporting from customers to the extent amount of consideration it expects to receive for those goods or that it is highly probable that a significant reversal in the services for the effects of a significant financing component. amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved. External printing and distribution 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 The Group enters into contracts with customers to print their year or less. If material, the Group will recognise an asset for publications and, in certain cases, distribute those publications any incremental cost of obtaining a contract with a customer on their behalf; including maintaining a distribution network. if the Group expects to recover those costs and the amortisation The printing, delivery and maintenance of a distribution period is expected to be more than one year. Those costs will network are distinct performance obligations. The performance be amortised on a systematic basis that is consistent with the obligation to print a publication is satisfied when those transfer of the good or service to which the asset relates. publications are printed. Similarly, the performance obligation to deliver a publication is satisfied when it is delivered. The Costs to fulfil a contract performance obligation to maintain a distribution network is If the costs incurred in fulfilling a contract with a customer a service that is largely the same on a monthly basis and is are material and not within the scope of another standard, the satisfied, and revenue recognised, in equal increments over the Group recognises an asset from the costs incurred if all of the billing period. e-Commerce (GrabOne) The Group acts as an agent for merchants selling their products following criteria are met: • • the costs relate directly to the contract; the costs generate or enhance resources that the Group or services to the public using the GrabOne platform. The Group will use to satisfy the performance obligations in that does not control the product or service before it is transferred to contract; and the purchaser. Revenue is recognised in the amount of any fees or commissions the Group expects to be entitled to in exchange • the costs are expected to be recovered. for arranging for the product or service to be promoted on the Those costs will be amortised on a systematic basis that is GrabOne platform. Shared services centre consistent with the transfer of the goods or services promised in that contract. Given the nature of the Group’s activities, this is expected to be rare. The Group provides back-office support services to customers. These services consist of a number of functions that are largely consistent on a month-to-month basis. Revenue is therefore recognised in equal increments over the billing period. 2.2 EXPENSES 2.2.1 Expenses from operations before finance costs, depreciation, amortisation Employee benefits expense B Production and distribution expense Selling and marketing expense Rental and occupancy expense Costs in relation to one-off projects Redundancies and associated costs Repairs and maintenance costs Travel and entertainment costs Other Total expenses from operations before finance costs, depreciation, amortisation A Refer to note 1.2.3 for details of the restatement. ANNUAL REPORT 2021 65 2021 $’000 2020 Restated A $’000 141,565 60,427 48,040 6,497 1,673 2,023 8,103 1,625 16,901 286,854 137,126 55,194 38,637 5,607 519 9,609 8,361 1,339 18,909 275,301 B The 2021 expense includes $1.7m of expenses relating to configuration and customisation costs of SaaS arrangements that would have been capitalised under the prior software accounting policy. The 2020 number has been restated to reflect costs incurred for the configuration and customisation of SaaS arrangements that are now classed as operating expenses as opposed to being capitalised. (see note 1.2.3 for details). 2.2.2 Depreciation and amortisation Depreciation on owned assets Depreciation on right-of-use assets Amortisation Total depreciation and amortisation 2.2.3 Finance costs Interest and finance charges on bank facilities Interest expense on interest rate swaps Interest expense on leases Fair value adjustment on interest rate swaps Borrowing cost amortisation Total finance costs 2.2.4 Impairment of assets Impairment of right-of-use assets A Impairment of property, plant and equipment B Impairment of software C Total impairment of assets 8,323 11,443 6,553 26,319 1,776 175 5,097 (15) 249 7,282 1,126 1,351 - 2,477 8,352 12,515 7,681 28,548 2,919 82 5,032 - 220 8,253 321 - 3,149 3,470 A The impairment of right-of-use assets relates to the Graham Street and Whangarei offices with adjustments resulting from the sub-lease of office space in both buildings. The 2020 cost is in relation to the Whangarei office where business changes resulted in a floor being vacated with the available space being marketed for rent. B The impairment to property, plant and equipment is for the portion of Graham Street building fitout costs that relate to the area of the head lease that has been sub-leased. C 2020 costs relate to the impairment of the WideOrbit radio scheduling system. 66 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 2.2.5 Fees paid to auditors Fees paid to the Group's auditors, PricewaterhouseCoopers, consist of: Audit or review of financial statements A 485 405 2021 $’000 2020 $’000 Other services Other assurance services B Tax services C Other services D Total other services Total fees paid to auditors 7 8 18 33 518 - - 17 17 422 A Fee for both the audit of the annual financial statements and the independent review of the interim financial statements. B Compliance engagement of NZME Publishing Limited with the Rules and Circulation Audit Guidelines established by the Audit Bureau of Circulations Incorporated for the year ended 31 March 2021. C Taxation services provided on the franked dividend declared to NZME’s shareholders. D Agreed upon procedures performed for monthly market revenue benchmarking and the 2020 Broadcasting Standards Authority return. 2.3 EARNINGS PER SHARE Reconciliation of earnings used in calculating basic / diluted earnings per share ("EPS") Profit attributable to owners of the parent entity Profit attributable to owners of the parent entity used in calculating EPS A Refer to note 1.2.3 for details of the restatement. 2021 $’000 34,645 34,645 2020 Restated A $’000 14,787 14,787 2021 Number 2020 Number Weighted average number of shares Weighted average number of shares in the denominator in calculating basic EPS 197,570,061 197,570,061 Adjusted for calculation of diluted EPS 7,126,686 5,235,314 Weighted average number of shares in the denominator in calculating diluted EPS 204,696,747 202,805,375 Basic / diluted earnings per share Basic earnings per share Diluted earnings per share 2021 Cents 17.54 16.93 2020 Cents 7.48 7.29 ANNUAL REPORT 2021 67 Accounting policies Basic earnings per share Diluted earnings per share Basic earnings per share is determined by dividing: Diluted earnings per share adjusts the figures used in the • • the profit or loss attributable to owners of the Company; by determination of basic earnings per share by taking into account: the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. • 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. 2.4 SEGMENT INFORMATION 2.4.1 Determination and description of segments Significant judgements: 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 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 principal 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. 68 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 2.4.2 Segment revenue and results The segment information provided to the Directors and Executive Team for the year ended 31 December 2021 is as follows: Revenue from external customers by channel Print Radio Digital and e-Commerce Segment revenue from integrated media and entertainment activities Revenue from shared services centre Events 2021 $’000 2020 Restated A $’000 155,656 105,372 84,474 345,502 1,156 1,901 155,783 94,910 66,647 317,340 3,409 1,390 Total revenue from external customers 348,559 322,139 Dividend income Government grants B Rental income from owned and sub-leased property C (Loss) / gain on disposal of property, plant and equipment Expenses from operations before finance costs, depreciation, amortisation and exceptional items Total segment adjusted EBITDA D Depreciation and amortisation on owned assets Depreciation on right-of-use assets Total depreciation and amortisation Interest income Finance costs Impairment of assets Share of joint ventures and associates net loss after tax Gain on sale of transmission site Gain on sale of GrabOne Limited's assets and certain liabilities Other lease adjustments E Exceptional items Compensation for franking credits F Redundancies and associated costs G Costs in relation to one-off projects H Net profit before income tax expense - 328 317 (23) 2 8,554 455 22 (283,158) (265,173) 66,023 (14,876) (11,443) (26,319) 145 (7,282) (2,477) (450) 465 15,367 476 - (2,023) (1,673) 42,252 65,999 (16,033) (12,515) (28,548) 67 (8,253) (3,470) (417) - - 1,835 780 (8,263) (519) 19,211 ANNUAL REPORT 2021 69 A Refer to note 1.2.3 for details of the restatement. B Government grants in 2021 relate to amounts received from the Ministry of Culture and New Zealand On Air for the production of content, journalism training & creating greater cultural awareness. In 2020 the Government grants relate to the wage subsidy received from the Government in response to the effect of COVID-19 on businesses. The total received was $9,899,738 which is included in finance and other income in the consolidated income statement. For segment reporting the wage subsidy is allocated to other income ($8,554,198), where it related to employees who continued to work in the business, and exceptional costs ($1,345,540), where the subsidy related to employees who were made redundant and who were given extended notice periods, and is offset against redundancies and associated costs. C Rental income of $254,952 was received from the sub-lease of right-of-use assets (2020: $310,213) D 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 Board. 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. E The Group adopted the practical expedient under NZ IFRS 16 in relation to COVID-19 rent concessions. The rent concessions received by the Group reduced lease liabilities by $360,863 in 2021 (2020: $1,800,680), a corresponding amount recognised within other income in the income statement with other adjustments and changes to leases contributing $114,875 (2020: $34,103). F NZME franking credits were utilised by HT&E as part of an ATO settlement and related to the 2016 demerger agreement. G The redundancies and associated costs relate to the restructuring and integration of the New Zealand operations and in 2020 includes the wage subsidy offset for those employees who were given an extended notice period. H 2021 costs include building costs for the Graham Street sub-lease, onerous contract costs and costs incurred in relation to the acquisition of BusinessDesk (see note 9). The 2020 costs are in relation to the final costs incurred in connection with trying to acquire Stuff Limited and some additional provisions for historical pay claims. 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. 70 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 3.0 OPERATING ASSETS AND LIABILITIES 3.1 INTANGIBLE ASSETS Significant judgement: 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. The Directors have also determined that where the Group control identifiable assets in relation to the configuration and customisation costs of SaaS arrangements these costs will be capitalised and amortised over the life of the arrangement. Control exists where the Group determines that the asset could be transfered to an alternative supplier without incurring substantial additional costs. As at 1 January 2020 Cost Goodwill $’000 Software A $’000 Masthead brands $’000 Radio licences $’000 Brands $’000 Total $’000 166,397 67,762 146,976 77,547 59,079 517,761 Accumulated amortisation and impairment (166,397) (56,860) (74,336) (44,258) (29,881) (371,732) Net book value For the year ended 31 December 2020 Opening net book amount Amortisation Impairment Transfer to assets held for sale Transfers from capital work in progress Net book value As at 31 December 2020 - - - - - - - 10,902 72,640 33,289 29,198 146,029 10,902 72,640 33,289 29,198 146,029 (4,686) (3,149) (939) 7,610 - - - - (2,995) - - 932 - - (29) - (7,681) (3,149) (968) 8,542 9,738 72,640 31,226 29,169 142,773 Cost 166,397 66,437 146,976 78,479 59,019 517,308 Accumulated amortisation and impairment (166,397) (56,699) (74,336) (47,253) (29,850) (374,535) Net book value For the year ended 31 December 2021 Opening net book amount Additions Disposals Amortisation Other transfers and adjustments Transfers from capital work in progress Net book value As at 31 December 2021 - - - - - - - - 9,738 72,640 31,226 29,169 142,773 9,738 72,640 31,226 29,169 142,773 (55) (7) (3,497) (82) 1,539 - - - - - 396 - (3,056) - 184 - - - - - 341 (7) (6,553) (82) 1,723 7,636 72,640 28,750 29,169 138,195 Cost 166,397 53,909 146,976 79,059 59,019 505,360 Accumulated amortisation and impairment (166,397) (46,273) (74,336) (50,309) (29,850) (367,165) Net book value - 7,636 72,640 28,750 29,169 138,195 A The prior year numbers have been restated due to the change in accounting policy for software intangible assets (see note 1.2.3 for details). ANNUAL REPORT 2021 71 Accounting policies Goodwill Masthead brands Goodwill represents the excess of the cost of an acquisition Masthead brands, being the titles, logo’s and similar items over the fair value of the Group’s share of the net identifiable of the integrated media assets of the Group are accounted assets of the acquired business at the date of the acquisition. for as identifiable assets and are initially recognised at cost Goodwill is not amortised but rather is subject to periodic and subsequently measured at cost less any accumulated impairment testing (refer to note 3.1.1 below) with all goodwill impairment losses. The Directors believe the masthead brands now fully impaired. Software 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 Costs incurred in developing systems, acquiring software tested for impairment each year (refer to note 3.1.1 below). and licences are capitalised to software where the activities create an intangible asset that the Group controls and Radio licences the intangible asset meets the recognition criteria. Costs Commercial radio licences are accounted for as identifiable capitalised include materials, services, payroll and payroll assets and are initially recognised at cost. The current New related costs of employees involved in development. Costs Zealand radio licences expire on 31 March 2031 and are being incurred in acquiring software or licences and configuration amortised on a straight line basis to that date. and customisation of Software-as-a-Service systems that are not capitalised, are expensed as incurred unless they are paid Brands to the suppliers (or subcontractors of the supplier) of the Brands are accounted for as identifiable assets and are initially cloud-based software. In the latter case, the costs paid upfront recognised at cost and subsequently measured at cost less are recorded as prepayments for services and expensed over any accumulated impairment losses. The Directors have the expected terms of the cloud computing arrangements. considered the geographic location, legal, technical and other Amortisation of software assets is calculated on a straight-line commercial factors likely to impact the assets’ useful lives and basis over the useful life of the asset (typically 2 to 10 years). 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 judgement: 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 assets and liabilities attributable to the operations of the Group are allocated to one CGU except for financing, assets held for sale and equity accounted investments. This note also includes details of certain key estimates and assumptions made during the impairment testing process. The Directors should assess, at each reporting date, whether there is any indication that an impairment loss for an asset, other than goodwill, either no longer exists or has decreased. The Directors have determined that, while there is improvement in the headroom since the last impairment was recognised, no reversal of the previous impairment to masthead brands and brands is required. The recoverable amount of the CGU is determined based on in the income statement (2020: $nil). The impairment review used the higher of fair value less costs to sell and value-in-use (VIU) a set of assumptions which are considered the most appropriate calculations using management forecasts. The recoverable for impairment testing but are more conservative than the Group’s amount of the CGU is compared against the carrying value of medium term plans. the CGU to determine whether there has been impairment. Any impairment is recognised immediately as an expense and in relation to goodwill, is not subsequently reversed. The VIU calculations use cash flow projections which cover a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated terminal growth rate, which is A comprehensive impairment review was conducted at the weighted average growth rate used to extrapolate cash flows 31 December 2021. The recoverable amount of the CGU has been beyond the forecast period. This assessment is required to be determined based on VIU. Based on the assumptions below no made based on events and knowledge as at 31 December 2021. impairment of indefinite life intangible assets has been recognised 72 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED Key estimates and assumptions used for the value-in-use (VIU) of the cash generating unit (CGU) are as follows: Discount Rate A post tax discount rate used of 9.0% (2020: 9.0%). The discount rate represents the current market assessment of the risks specific to the CGU, taking into account the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. Terminal Value The terminal value within the VIU assessment has been calculated using a terminal growth rate assumption of -1.2% (2020: -1.5%). Forecasts prepared over the forecast period (2022-2026) The forecasts used in impairment testing have been prepared by management, and approved by the Board, for that specific purpose. Actual results may differ materially from those forecast or implied. The forecasts used in the impairment assessment were prepared to comply with the requirements of IAS 36. 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. The forecasts used in impairment testing require assumptions and judgements about the future, such as discount rates, long term growth rates, forecasted revenues, to which the model is sensitive and which are inherently uncertain. Revenue and operating cost forecasts are prepared based on management’s current expectations, with consideration given to internal information and relevant external industry data and analysis. The business performance is forecast to be impacted by the forecast continuing decline of the print advertising market as indicated by market surveys. Management’s assessment of cash flows and growth assumptions for the forecast periods take into account this uncertainty. Whilst there are further uncertainties around forecasting in a COVID-19 environment and the potential impact on revenue, it is considered that the forecast assumptions are reasonable. Future capex spend is estimated at historical replacement levels, and no incremental revenue or costs savings are assumed as a result of this expenditure. The key forecast assumptions for compound annual growth rates used were: Print revenue Radio revenue Digital advertising revenue Digital classifieds revenue Digital subscriptions revenue Operating expenses 2021 -4.92% 1.55% 4.47% 31.57% 12.28% 0.77% 2020 -6.50% 3.70% 1.30% 26.00% 28.00% 1.80% ANNUAL REPORT 2021 73 Short term volatility may be experienced due to the impact The Group compares the carrying amount of net assets with the of external environmental and economic conditions. market capitalisation value at each balance date. The share price The Directors have reviewed the potential changes to the recoverable amount that could arise from changes in key assumptions and concluded that, at this time, there are no reasonably possible adverse changes in the key assumptions that would result in material impairment. The Directors determined that the increase in the headroom, since the impairment recognised as at 31 December 2019, is not directly attributable to the brands and as a result a reversal of previously recognised impairment of indefinite life intangible assets has not been recognised. at 31 December 2021 was $1.43 equating to a market capitalisation of $282.6 million. This market value excludes any control premium and may not reflect the value of 100% of NZME’s net assets. The carrying amount of NZME’s net assets at 31 December 2021 was $157.1 million ($0.80 per share). Accounting policy Goodwill and intangible assets that have an indefinite the lowest levels for which there are separately identifiable useful life are not subject to amortisation and are tested cash inflows which are largely independent of the cash annually for impairment and at the end of each reporting inflows from other assets or groups of assets (cash- period if there is an indication that they may be impaired. generating units). Currently, the Group has only one CGU, An impairment charge is recognised for the amount by being Integrated Media and Entertainment. Intangible which the asset’s carrying amount exceeds its recoverable assets, other than goodwill, that suffer impairment are amount. The recoverable amount is the higher of an reviewed for possible reversal of the impairment at each asset’s fair value less costs to sell and value-in-use. For the reporting date. purposes of assessing impairment, assets are grouped at 74 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 3.2 PROPERTY, PLANT AND EQUIPMENT Freehold land A $’000 Buildings A $’000 Leasehold improvements $’000 Plant and equipment $’000 Total $’000 As at 1 January 2020 Cost or fair value Accumulated depreciation and impairment Net book amount Year ended 31 December 2020 Opening net book amount Additions Disposals Depreciation Transfer to assets held for sale Transfers from capital work in progress Net book amount As at 31 December 2020 Cost or fair value Accumulated depreciation and impairment Net book amount Year ended 31 December 2021 Opening net book amount Additions Disposals Depreciation Impairment Other adjustments Transfers from capital work in progress Net book amount As at 31 December 2021 Cost or fair value Accumulated depreciation and impairment Net book amount 1,165 - 1,165 1,165 - - - (900) - 265 265 - 265 265 - - - - - - 157 (42) 115 115 - - (4) (39) (12) 60 67 (7) 60 60 - - (7) - - - 14,540 337,165 353,027 (7,436) (305,647) (313,125) 7,104 31,518 39,902 7,104 31,518 39,902 - - 111 (8) 111 (8) (1,209) (7,139) (8,352) - 187 - 4,089 (939) 4,264 6,082 28,571 34,978 14,727 339,327 354,386 (8,645) (310,756) (319,408) 6,082 28,571 34,978 6,082 28,571 34,978 - (8) (1,005) (1,076) (1) 140 25 (309) (7,311) (275) 61 1,764 25 (317) (8,323) (1,351) 60 1,904 265 53 4,132 22,526 26,976 265 - 265 67 (14) 53 14,854 264,070 279,256 (10,722) (241,544) (252,280) 4,132 22,526 26,976 A 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 $214,000 (2020: $214,000) and the net book value of buildings would have been $23,286 (2020: $24,989). The last revaluation was performed for the year ended 31 December 2015. ANNUAL REPORT 2021 75 Accounting policies Land is not depreciated. Depreciation on other assets is revaluation reserves in equity. To the extent that the increase calculated using the straight line method to allocate their cost reverses a decrease previously recognised in the income or revalued amounts, net of their residual values, over their statement, the increase is first recognised in the income estimated useful lives, as follows: • Furniture and fittings • 3 to 25 years • Buildings • Leasehold improvements • Motor vehicles • Plant & equipment • • • • 10 to 50 years 2.5 to 50 years 5 to 10 years 1.5 to 29 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 amounts and are included in the income statement. Land and buildings (excluding leasehold improvements) are recorded at fair value, based on valuations by external independent valuers, less subsequent depreciation for buildings. Independent valuations are performed on a periodic basis, as the Directors deem necessary, to ensure that the carrying value of assets is materially consistent 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. 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 with their fair value. At the end of each reporting period, the greater than its estimated recoverable amount. Assets that are Directors update their assessment of the fair value of each property, taking into account the most recent independent valuations. 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 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 RIGHT-OF-USE ASSETS Significant judgments: Where a discount rate is not explicit in a lease the Group determines an applicable discount rate to use based on publicly available rates for Government Bonds, Bloomberg corporate bond spreads and yields and New Zealand swap rates and then applies an adjustment to these rates to apply a company specific credit risk. In determining the lease term the Group includes any periods covered by options to extend where the Group is reasonably certain to exercise that option. 76 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED As at 31 December 2020 Net book amount 58,399 25,985 994 4 85,382 Buildings $’000 Transmission $’000 Vehicles $’000 Other $’000 Total $’000 Year ended 31 December 2021 Additions Depreciation Impairment of right-of-use assets Transfer to lease receivables 175 638 (7,411) (3,359) (1,126) (5,898) - - Changes in scope or lease terms (653) (224) Net book amount 43,486 23,040 730 (667) - - (70) 987 - (6) - - 2 - 1,543 (11,443) (1,126) (5,898) (945) 67,513 Accounting policies The Group leases various offices, transmission towers, vehicles Assets and liabilities arising from a lease are initially measured and other equipment which are all classified as operating on a present value basis. Lease liabilities include the net leases. present value of the following lease payments: Leases are recognised as a right-of-use asset and a corresponding lease liability. Each lease payment is allocated between the lease principal and finance costs. Finance costs are charged to profit or loss over the lease period and the right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. • • • • • fixed payments (including in-substance fixed payments), less any lease incentives receivable: variable lease payments that are based on an index or a rate; amounts expected to be payable by the lessee under residual value guarantees; the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option. 3.4 CAPITAL WORK IN PROGRESS As at 1 January Additions Disposals Transfers to intangible assets Transfers to property, plant and equipment As at 31 December A Refer to note 1.2.3 for details of the restatement. 2021 $’000 2,220 5,482 (69) (1,723) (1,904) 4,006 2020 Restated A $’000 9,774 5,252 - (8,542) (4,264) 2,220 Capital work in progress is transferred to the relevant asset category once the project is completed. Capital work in progress is not depreciated or amortised prior to being transferred to the relevant asset category. Intangible assets not yet available for use, that are included in capital work in progress, are subject to annual impairment tests. ANNUAL REPORT 2021 77 Note 7.2 3.5.4 3.5.4 2021 $’000 38,813 (634) 38,179 9 356 6,632 45,176 717 51 (134) 634 1,101 5,778 6,879 2020 $’000 38,241 (717) 37,524 37 - 6,321 43,882 632 721 (636) 717 1,079 - 1,079 3.5 TRADE AND OTHER RECEIVABLES Trade receivables Provision for impairment Amounts due from related companies Finance lease receivables Other receivables and prepayments Total current trade and other receivables Movements in the provision for impairment are as follows: Balance at beginning of the year Provision for impairment expense Receivables written off Provision for impairment Other receivables and prepayments Finance lease receivables Total non-current trade and other receivables 3.5.1 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 and 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. If collection is expected to be in greater than one year they are classified as non-current. 3.5.2 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. 3.5.3 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 4.7.3 for credit risk and note 4.8 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 to the income statement against the impairment losses on receivables. 78 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 3.5.4 Finance lease receivables Finance lease receivables relate to the sub-leases of parts of the Auckland and Whangarei right-of-use assets sub-let during the year. As at 1 January Transfer from right-of-use assets Other direct costs Total additions for the year Interest on lease receivables Total lease receivables before cash payments Interest received Principal received Net investment in lease receivables at 31 December A Current assets Non-current assets Net investment in lease receivables at 31 December A Make good provisions are included in material sub-leases to ensure the Group’s exposure to risk is minimised. The table below details the Group’s contractual undiscounted cash flows for the finance lease receivable assets to maturity. Less than 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Greater than 5 years Total lease payments receivable Unearned finance income Net investment in lease receivables at 31 December 2021 $’000 - 5,898 338 6,236 102 6,338 (102) (102) 6,134 356 5,778 6,134 2021 $’000 655 684 682 771 1,000 3,980 7,772 (1,638) 6,134 ANNUAL REPORT 2021 79 Accounting policies When the Group acts as a lessor in sub-leasing its right-of-use assets, it determines, at lease commencement date, whether each lease is a finance lease or an operating lease by assessing whether the lease transfers to the lessee substantially all the risks and rewards of ownership incidental to ownership of the underlying asset. If this is the case then the lease is a finance lease; if not then it is an operating lease. As part of this assessment the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset. For the purposes of classifying the sub-lease, reference is to the right-of-use asset arising from the head lease, not with reference to the underlying asset. • • • • • • initial direct costs incurred in acquiring the sub-lease; fixed payments (including in-substance fixed payments), less any lease incentives payable: variable lease payments that are based on an index or a rate; amounts expected to be receivable under residual value guarantees; the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option. The discount rate applied to calculate the present value of the lease receivable asset is the rate that was applied in calculating Assets arising from a sub-lease are initially measured the right-of-use asset for the head lease to which the sub-lease on a present value basis and include the following: relates. 3.6 INVENTORIES Inventories is predominantly the stock of newsprint held at the Ellerslie print plant and is valued at cost. The stock of newsprint held is, on average, six to eight weeks supply. The longevity of the commodity, and the short period of time that stock is on hand, reduces the Group’s risk of holding obsolete stock. During the year ended 31 December 2021 inventories totalling $9,934,471 were expensed (2020: $10,002,578). Accounting policy Inventories are measured at cost and are expensed as used. All paper stock is inspected on delivery and, if damaged returned to the supplier, with undamaged stock recorded in the stock system. Weekly stock takes are performed to ensure stock on hand agrees to the inventory system. 3.7 TRADE AND OTHER PAYABLES Current payables Amounts due to related companies Employee entitlements Deferred revenue Trade payables and accruals Total current trade and other payables Note 7.2 2021 $’000 24 5,664 16,882 31,210 53,780 2020 $’000 64 4,605 13,400 25,769 43,838 80 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED Accounting policies Trade and other payables Short-term incentive plans 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 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: are carried at amortised cost which is the fair value of the • there are contracted terms in the plan for determining consideration to be paid in the future for goods and services the amount of the benefit; received. Trade payables are unsecured and are generally settled within 30 to 45 days. Employee entitlements Wages and salaries and annual leave • 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 wages and salaries, including non-monetary Liabilities for short-term incentives are expected to be settled benefits and annual leave expected to be wholly settled within within 12 months and are recognised at the amounts expected 12 months from the reporting date are recognised in payables to be paid when they are settled. and accruals in respect of employees’ services up to the reporting date and are measured at the amounts expected to Refer to note 4.3 for disclosures relating to share based be paid when the liabilities are settled. Amounts to be settled payments and note 7.1 for key management compensation. 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 Deferred revenue The accounting policy for deferred revenue is disclosed in the rates paid or payable. note 2.1. 3.8 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: As at 31 December Total assets Deferred tax asset Intangible assets Total liabilities Net tangible assets Number of shares issued (in thousands) Net tangible assets per share (in $) A Refer to note 1.2.3 for details of the restatement. 2021 $’000 2020 Restated A $’000 312,368 332,409 (3,485) (1,913) (138,195) (142,773) (155,254) (205,908) 15,434 197,570 0.08 (18,185) 197,570 (0.09) ANNUAL REPORT 2021 81 3.9 DERIVATIVE FINANCIAL INSTRUMENTS Accounting policies For each cash flow hedge relationship, the effective part of any gain or loss on the derivative financial instrument is recognised directly in other comprehensive income. Gains or losses that are recognised in other comprehensive income are transferred to the income statement in the same period in which the hedged exposure affects the income statement. The ineffective part of any gain or loss is recognised immediately in the income statement at the time hedge effectiveness is tested. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in other comprehensive income is kept in other comprehensive income until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in other comprehensive income is immediately transferred to the income statement. The Group has invested $25 million (2020: $30 million) in four (2020: five) different interest rate swaps with maturity dates from February 2022 to August 2023 (2020: August 2021 to August 2023) to minimise the Group’s interest rate risk. As at 31 December 2021 the Group had a current asset of $25,054 (2020: $16,400 current liability) and a non-current asset of $228,242 (2020: $309,692 non- current liability) and has recycled interest expense of $168,113 (2020: $82,121) through other comprehensive income. The hedges became ineffective in November 2021 resulting in $15,789 of fair value adjustment being recognised directly in finance costs on the income statement. 4.0 CAPITAL MANAGEMENT 4.1 SHARE CAPITAL 2021 ’000 2020 ’000 2021 $’000 2020 $’000 Authorised, issued and paid up share capital Balance at the beginning of the year 197,570 196,556 361,758 360,768 Shares issued during the year - 1,014 - 990 Balance at the end of the year 197,570 197,570 361,758 361,758 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. On 17 December 2021 the Group announced that a share buyback programme is to commence in February 2022. The buyback programme will be for up to 21,428,571 shares, approximately 11% of NZME’s issued share capital on 17 December 2021 for an aggregate purchase price of $30.0 million. A further announcement will be made ahead of the on-market share buyback to confirm the commencement. 82 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 4.2 RESERVES Share based payments reserve Balance at the beginning of the year Share based payment expense 2017 TIP settlement Balance at end of the year Cash flow hedge reserve Balance at the beginning of the year Effective gain / (loss) on hedging instruments Reclassification to profit or loss Tax impact of hedging transactions Balance at end of the year Asset revaluation reserve Balance at beginning of the year Transfer to retained earnings Balance at end of the year Equity investments revaluation reserve Balance at beginning of the year Share of revaluation of joint ventures' and associates' assets Balance at end of the year Foreign currency translation reserve Balance at beginning of the year Net exchange difference on translation of foreign operations Balance at end of the year Total reserves Note 7.1 2021 $’000 1,501 1,559 - 3,060 (326) 396 168 - 238 722 (671) 51 1,271 - 1,271 317 (17) 300 2020 $’000 1,746 1,095 (1,340) 1,501 178 (656) 82 70 (326) 722 - 722 - 1,271 1,271 338 (21) 317 4,920 3,485 ANNUAL REPORT 2021 83 4.2.1 Nature and purpose of reserves Share based payments reserve in note 3.2. In the event of the sale of an asset, the revaluation The share based payments reserve is used to recognise the fair value of the performance rights issued but not yet vested as surplus is transferred to retained earnings. Equity investments revaluation reserve described in note 4.3. Cash flow hedge reserve The cash flow reserve is used to record unrealised gains or losses on hedging instruments that are recognised directly in equity. The modified fair value method has now been applied to the interest rate swaps and therefore no tax adjustments are required. The equity investments revaluation reserve is used to record the Group’s share of increments and decrements on the revaluation of assets owned by its joint ventures and associates. In the event of the sale of an asset, the revaluation surplus is transferred to retained earnings. Foreign currency translation reserve Asset revaluation reserve The asset revaluation reserve is used to record increments and Exchange differences arising on translation of any foreign controlled entities are taken to the foreign currency translation decrements on the revaluation of non-current assets as described reserve, as described in the basis of preparation. 4.3 SHARE BASED PAYMENTS As at 1 January Granted (2019 TIP) A Granted (2020 TIP) B Granted (2021 TIP) c Surrendered D Issued E As at 31 December Average price per right ($) 0.41 0.95 0.95 0.72 - - 2021 Number of rights 5,235,314 89,916 36,173 1,765,283 - - 0.52 7,126,686 Average price per right ($) 0.72 - 0.36 - 0.89 0.89 0.41 2020 Number of rights 3,024,181 - 3,724,664 - (499,468) (1,014,063) 5,235,314 A In 2021 the Board approved that under the 2019 TIP, participants will be entitled compared to the estimated number reported at 31 December 2020. to additional shares when the rights are exercised (on 31 December 2022) for any dividends foregone during the period 1 January 2020 to 31 December 2021. For dividends declared during the period 1 January 2021 to 31 December 2021, this resulted in an additional 89,916 shares being issued to participants. B The number of performance rights granted in 2021 in respect of the 2020 TIP. The total of 36,173 comprises 263,537 rights issued in relation to dividends foregone in 2021 less an adjustment of 227,363 for rights actually awarded in 2021 for the 2020 TIP C The number of performance rights expected to be granted in 2022 in respect of the 2021 TIP. D The 2020 surrendered shares relate to the 2017 TIP with participants surrendering shares in lieu of PAYE owing on the issue of shares. E The rights granted under the 2017 TIP were exercised on 31 December 2020 with 1,014,063 shares being issued. The share price at the date of issue was $0.70. Share rights outstanding at the end of the year have the following exercise date and grant date price per right: Grant price per right ($) 2021 Number of rights 2020 Number of rights Grant date 29 March 2019 5 March 2020 4 December 2020 10 December 2020 5 November 2021 As at 31 December Vesting date Exercise date 31 Dec 2020 31 Dec 2022 31 Dec 2021 31 Dec 2023 31 Dec 2022 31 Dec 2024 31 Dec 2022 31 Dec 2024 31 Dec 2022 31 Dec 2024 0.55 0.36 0.71 0.66 1.25 Weighted average remaining time until rights outstanding at the end of the period automatically convert to ordinary shares 1,600,566 1,510,650 3,760,837 3,724,664 1,131,675 553,845 79,763 - - - 7,126,686 5,235,314 2021 2020 24 months 33 months 84 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 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 • 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: on performance over a one year period (“performance period”) • 50% of awards are made in cash; and 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 2021, 2020 and 2019 TIP Schemes Performance measures • Financial performance conditions (50% to 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: • 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 awards is a twelve month period commencing on 1 January of the relevant year. 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 % of EBITDA % of target opportunity awarded shares. Participants are not entitled to receive any dividends for < 95% 0% > 95% to 100% Pro-rata vesting between 25% and 100% > 100% to 110% Pro-rata vesting between 100% and 150% • Business Unit Goals (0% to 25%): This portion is determined based on actual achievement against Business Unit (“BU”) Goals on the following scale: 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 % of target opportunity awarded leaves during the service period, the rights that will vest will be % of BU Goal achieved < 95% 25% > 95% to 100% Pro-rata vesting between 25% and 100% > 100% to 110% Pro-rata vesting between 100% and 150% 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 at that date, 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 each Performance Period. ANNUAL REPORT 2021 85 Model inputs The following is a summary of the key inputs in calculating the share-based payment expense under the 2021 TIP: • Performance period • Service period 1 January 2021 to 31 December 2021 1 January 2022 to 31 December 2022 • Vesting period (being the performance period and the service period) 1 January 2021 to 31 December 2022 • Deferral period 1 January 2023 to 31 December 2024 • Share price at grant date 4 December 2020 • Share price at grant date 10 December 2020 • Share price at grant date 5 November 2021 • VWAP 71 cents 66 cents $1.25 73.7 cents The following is a summary of the key inputs in calculating the share-based payment expense under the 2020 TIP: • Performance period • Service period 1 January 2020 to 31 December 2020 1 January 2021 to 31 December 2021 • Vesting period (being the performance period and the service period) 1 January 2020 to 31 December 2021 • Deferral period • Share price at grant date • VWAP 1 January 2022 to 31 December 2023 36 cents 39.8 cents The following is a summary of the key inputs in calculating the share-based payment expense under the 2019 TIP: • Performance period • Service period 1 January 2019 to 31 December 2019 1 January 2020 to 31 December 2020 • Vesting period (being the performance period and the service period) 1 January 2019 to 31 December 2020 • Deferral period • Share price at grant date • VWAP 1 January 2021 to 31 December 2022 55 cents 50.4 cents It is assumed that all participating employees will remain employed with the Company until the end of the vesting period. 4.3.3 2018 TIP No TIP was offered for the 2018 Financial Year. 86 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 4.3.4 Total Incentive Plan (TIP) for 2022 In February 2022 the Board approved an updated framework for the the same time and deferred for an additional year before they vest, Company’s Total Incentive Plan (TIP). The TIP is designed to align subject to continued employment over that extended period. reward outcomes with individual performance and the performance of the Company and value creation for shareholders over both the short and long term. In addition, a new long-term incentive component has been added in the TIP framework, which is based on a three-year performance period commencing that would commence on 1 January 2022 The updated TIP framework includes a short-term component that with awards subject to both earnings per share (EPS) and total will be based on the performance of the Company for the financial shareholder return (TSR) performance hurdles. The long-term year ending 31 December 2022 measured in terms of earnings and component comprises an issue of share rights that may vest at the achievement of various specific targets set for each individual the end of three years, subject to achievement of the EPS and TSR participant that align with the Company’s strategic goals. The short- performance hurdles and continued employment by the Company. term component includes both a cash bonus element and a share rights element. The cash payment would be payable following the end of the 2022 financial year period, with share rights issued at Offers will be made to eligible executives in due course with further details provided in the 2022 financial statements. Accounting policies Total incentive plan (TIP) The fair value of rights granted under the TIP plan is recognised Non-market vesting conditions are included in assumptions as an employee benefits expense with a corresponding increase about the number of rights that are expected to vest. At each in equity over the vesting period, being the performance period reporting date, the Group revises its estimate of the number of and the service period. The fair value is measured at grant date rights that are expected to become exercisable. 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 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 The fair value at grant date is determined taking into account the corresponding adjustment to equity. share price, any market performance conditions and any non- vesting conditions, but excluding the impact of any service and non-market performance vesting conditions. 4.4 DIVIDENDS 4.4.1 Dividend policy The Group’s dividend policy is to pay dividends of between 30-50% of free cash flow while having regard to the Company’s capital requirements, operating performance and financial of 0.00529412 cents per share to those shareholders who are not tax residents and who hold less than 10% of the shares in the Company. The total of the supplementary dividend paid, on 22 September 2021, was $677,911. position. The payment of dividends is also subject to the Company On 21 February 2022, the Board of Directors declared a fully being within the leverage ratio range of 0.5 to 1 times the rolling imputed and franked final dividend of 5.0 cents per share for the 12 month trading EBITDA. 4.4.2 Dividends paid and declared On 23 June 2021 an inter-company dividend was paid by NZME Investments Limited, with A$9,163,691 of franking credits attached, to NZME Limited. 2021 financial year. The dividend is to be paid on 23 March 2022 to registered shareholders as at 11 March 2022. The dividends declared on 23 August 2021 and 21 February 2022 were approved by the Board to be paid out of profits from NZME Limited, as a standalone legal entity, which had been specifically earmarked as being available for the declaration of the dividends On 22 September 2021 a fully imputed and franked dividend of and had not been appropriated or earmarked for other purposes. 3.0 cents per share was paid to registered shareholders as at 10 September 2021, the total amount paid was $5,927,102. The Board also approved the payment of a supplementary dividend ANNUAL REPORT 2021 87 4.4.3 Franking and imputation credits Imputation credits available for subsequent reporting periods based on the New Zealand 28% tax rate for the Group Franking credits available to the Company for subsequent reporting periods based on the Australian 30% tax rate for the Group 2021 $’000 2020 $’000 NZ$ 25,047 NZ$ 18,061 A$ 6,700 A A$ 0 A A Franking credits of A$6,699,711 are available for use by the Company following the payment of the inter-company dividend in June 2021 (see note 4.4.2). At 31 December 2020 the Company did not have any franking credits available for use although other entities within the Group had A$9,163,691 available that Directors expected to be available to the Company in future periods. . 4.5 INTEREST BEARING LIABILITIES The following table details the Group’s combined net debt at 31 December 2021. The movements in these balances during the year are provided in notes 4.5.1 Secured bank loans and note 4.5.2 Lease liabilities. Bank loans Cash and cash equivalents Net (cash) / bank debt Lease liabilities Net debt at 31 December 4.5.1 Secured bank loans Bank loans As at 1 January Net cash flows Capitalised borrowing costs Amortisation of borrowing costs Reclassification of unamortised borrowing costs to prepayments As at 31 December Cash and cash equivalents As at 1 January Cash flows As at 31 December Net (cash) / bank debt 2021 $’000 - (13,538) (13,538) 96,785 83,247 2020 $’000 45,379 (11,560) 33,819 107,452 141,271 2021 $’000 2020 $’000 45,379 89,149 (46,000) (43,500) - 249 372 - (490) 220 - 45,379 (11,560) (14,416) (1,978) 2,856 (13,538) (11,560) (13,538) 33,819 88 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED Capitalised borrowing costs of $372,671 at 31 December 2021 and by a further $5.0 million from 1 January 2023. This facility expires on have been reclassified as current prepayments ($248,507) and 1 July 2023. non-current prepayments ($124,254) as there were nil drawings on the loan facilities at this date. No change has been made to the The interest rate for the drawn facility is the BKBM plus credit margin. comparative amounts with $621,268 of borrowing costs included in The NZME bilateral facilities contain undertakings which are the secured bank loans balance at 31 December 2020. Capitalised customary for facilities of this nature including, but not limited borrowing costs are the costs incurred on acquiring the loan less to, provision of information, negative pledge and restrictions on accumulated amortisation to 31 December 2021 with the costs priority indebtedness and disposals of assets. The assets of the being amortised over the period of the loan facility. Group are collateral for the interest bearing liability. The Group is funded from a combination of its own cash reserves In addition, the Group must comply with financial covenants (a net and NZ$50.0 million bilateral bank loan facilities, which NZME refinanced on 21 November 2018 and 22 July 2020, of which $nil million (2020: $46.0 million) is drawn and $50.0 million debt to EBITDA ratio and an EBITDA to net interest expense ratio) for each 12 month period ending on 31 March, 30 June, 30 September and 31 December. The Group has complied with these covenants (2020: $74.0 million) is undrawn as at 31 December 2021. The throughout the reporting period. facility limit will step down by a further $10.0 million from 1 July 2022 Accounting policy Borrowings are initially recognised at fair value less attributable Costs incurred in connection with the arrangement of transaction costs and subsequently measured at amortised cost. borrowings are deferred and amortised over the period of the Any difference between cost and redemption value is recognised borrowing. These costs are netted off against the carrying value in the income statement over the period of the borrowing on an of borrowings in the balance sheet. effective interest basis. 4.5.2 Lease liabilities As at 1 January Current lease liabilities Non-current lease liabilities Total lease liabilities Interest on lease liabilities New leases Rent concessions Changes in scope, lease terms and other adjustments Total lease liabilities before cash payments Interest paid on leases Principal payments Total cash payments Total lease liabilities at 31 December Current lease liabilities Non-current lease liabilities Total lease liabilities at 31 December 2021 $’000 10,931 96,521 107,452 5,097 1,538 (361) (1,059) 112,667 (5,097) (10,785) (15,882) 96,785 11,340 85,445 96,785 2020 $’000 11,076 84,807 95,883 5,032 157 (1,801) 22,489 121,760 (4,833) (9,475) (14,308) 107,452 10,931 96,521 107,452 ANNUAL REPORT 2021 89 4.6 CASH FLOW INFORMATION Reconciliation of cash Cash at end of the year, as shown in the statement of cash flows, comprises: Cash and cash equivalents 13,538 11,560 Reconciliation of net cash inflows from operating activities to profit for the year: 2021 $’000 2020 Restated A $’000 Profit for the year Depreciation and amortisation expense Borrowing cost amortisation Fair value movement on over hedged swaps Change in current / deferred tax payable Gain on sale of non-current assets Group's share of retained losses in joint ventures and associates Lease rent concessions and other lease adjustments Interest accrual on leases Impairment of property, plant and equipment Impairment of software Impairment of right-of-use assets Share based payment expense Changes in assets and liabilities net of effect of acquisitions: Trade and other receivables Inventories Prepayments Trade and other payables and employee entitlements Net cash inflows from operating activities A Refer to note 1.2.3 for details of the restatement. 34,434 26,319 249 (15) 510 (15,809) 539 (476) - 1,351 - 1,126 1,559 (503) (429) 182 2,805 51,842 14,482 28,548 220 - 2,056 (22) 417 (1,835) 199 - 3,149 321 1,095 7,718 464 503 (1,739) 55,576 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. 90 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 4.7 FINANCIAL RISK MANAGEMENT 4.7.1 Capital and risk management 4.7.2 Market risk The Group’s objectives when managing capital are to: Cash flow and fair value interest rate risk • 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. 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 has undertaken hedging transactions to mitigate this risk (note 3.9). Current interest bearing debt is fixed for 30 days on a rolling basis. 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 NZME’s interest rate risk is managed with interest rate derivatives. Hedge accounting is applied to derivatives that are effective in offsetting the changes in fair value or cash flows of the hedged items. The hedge relationship is documented and the effectiveness of such hedges is tested at regular intervals, at least group to manage capital requirements. on a semi-annual basis. The Group’s activities expose it to a variety of financial risks: The Company had no debt at 31 December 2021 and therefore • market risk, including interest rate risk and price risk; • • credit risk; and liquidity risk. no sensitivity analysis on changes in interest rates has been performed. Based on the outstanding net floating debt at 31 December 2020 a change in interest rates of +/-1% per annum with all other variables being constant would have impacted post-tax profit and equity by $0.2 million lower / higher. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise Price risk potential adverse effects on the financial performance of the The Group is not exposed to significant price risk. Group. The Group uses different methods to measure different There is some risk associated with other financial assets types of risk to which it is exposed. These methods include however this is not deemed to be significant. sensitivity analysis in the case of interest rate and ageing analysis for credit risk. 4.7.3 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. 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. ANNUAL REPORT 2021 91 The table below sets out additional information about the credit quality of trade receivables net of the provision for impairment. 2021 Expected loss rate Trade receivables Impaired receivables 2020 Expected loss rate Trade receivables A Impaired receivables Current $’000 Less than one month $’000 One to three months $’000 Three to six months $’000 Over six months $’000 Total $’000 Past due 0.3% 29,464 (103) 29,361 1.4% 5,828 (81) 5,747 7.2% 1,516 (109) 1,407 25.9% 13.4% 580 (150) 430 1,425 (191) 1,234 38,813 (634) 38,179 Current $’000 Less than one month $’000 One to three months $’000 Three to six months $’000 Over six months $’000 Total $’000 Past due 0.7% 28,699 (205) 2.9% 7,085 (203) 28,494 6,882 7.7% -145.2% 1,529 (117) 1,412 (32) (46) (78) 14.0% 1,042 (146) 896 38,323 (717) 37,606 A Trade receivables includes $82,326 of receivables in relation to GrabOne Limited that are classified as assets held for sale. Trade receivables are generally settled within 30 to 45 days. The maximum exposure to credit risk at 31 December 2021 is equal The Directors consider the carrying amount of trade receivables to the carrying amount of cash and cash equivalents and trade and approximates to their net fair value. Trade receivables are other receivables. The Group is not exposed to any concentrations monitored on an individual basis and the company considers the of credit risk within cash and cash equivalents or trade and other probability of default upon initial recognition of the trade receivable receivables. and throughout the period and provides for trade receivables considered to be impaired. As of 31 December 2021, trade receivables of $3,071,000 (2020: $2,230,000) were past due but not impaired. Credit risk further arises in relation to financial guarantees given to certain parties from time to time. 92 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 4.7.4 Liquidity risk Prudent liquidity risk management implies maintaining sufficient The tables below analyse the Group’s financial liabilities including cash and marketable securities, the availability of funding through interest to maturity into relevant maturity groupings based on the an adequate amount of committed credit facilities and the remaining period at the reporting date to the contractual maturity ability to close out market positions. Due to the dynamic nature date. The amounts disclosed in the tables are the contractual of the underlying business, Group Treasury aims at maintaining undiscounted cash flows. 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. 31 December 2021 Trade payables and accruals Lease liabilities Bank loans Gross liability (Less): interest Less than one year $’000 Between one and two years $’000 Between two and five years $’000 Over five years $’000 Total cash flows $’000 31,210 15,954 - - - - 31,210 15,006 40,845 46,733 118,538 - - - - 47,164 15,006 40,845 46,733 149,748 - - - - - Total financial liabilities 47,164 15,006 40,845 46,733 149,748 31 December 2020 Trade payables and accruals A Lease liabilities Bank loans Gross liability (Less): interest 31,688 16,241 3,001 50,930 (3,001) - 15,829 3,001 18,830 (3,001) Total financial liabilities 47,929 15,829 - 42,411 49,001 91,412 (3,001) 88,411 - 31,688 59,511 133,992 - 55,003 59,511 220,683 - (9,003) 59,511 211,680 A Total includes $5,918,262 of GrabOne Limited trade payables and accruals which are included in liabilities directly associated with assets classified as held for sale. 4.8 FAIR VALUE MEASUREMENT 4.8.1 Fair value hierarchy The Group measures and recognises the following assets and NZ IFRS 13 requires disclosure of fair value measurements by level liabilities at fair value on a recurring basis: of the following fair value measurement hierarchy: • Financial assets at fair value through profit or loss (FVTPL); • Level 1: quoted prices (unadjusted) in active markets for • Land and buildings (excluding leasehold improvements). 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). ANNUAL REPORT 2021 93 4.8.2 Recognised fair value measurements Recurring fair value measurements Financial assets (Level 2) Derivative financial instruments: current assets / (current liabilities) Derivative financial instruments: non-current assets / (non-current liabilities) Financial assets (Level 3) There are no financial assets carried at fair value. Other financial assets of $815,000 (2020: $815,000) are measured at amortised cost and therefore have been excluded from this table. Total financial assets Non-financial assets (Level 3) Freehold land Buildings (excluding leasehold improvements) Total non-financial assets Note 2021 $’000 2020 $’000 3.9 3.9 3.2 3.2 25 228 (16) (310) 253 (326) 265 53 318 265 60 325 All fair value measurements referred to above are in either level 2 4.8.4 Valuation techniques used to derive or level 3 of the fair value hierarchy and there were no transfers at level 2 and 3 fair values between levels. The Group’s policy is to recognise transfers between fair value hierarchy levels as at the end of the reporting period. Recurring fair value measurements 4.8.3 Disclosed fair values The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. These The Group also has a number of assets and liabilities which are not valuation techniques maximise the use of observable market measured at fair value but for which fair values are disclosed in data where it is available and rely as little as possible on entity these notes. specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. The carrying amounts of current trade receivables and payables are assumed to approximate their fair values due to their If one or more of the significant inputs is not based on observable short-term nature. market data, the instrument is included in level 3. The fair value of the non-current trade receivables are assumed The Group obtains independent valuations for its freehold land and to approximate their carrying values as the balances comprise buildings less subsequent depreciation for buildings, to ensure that of prepayments, in relation to cash already received by the the carrying value of the assets is materially consistent with their fair Group, and lease receivables where the carrying value has been value. The land and buildings owned by the Group are transmission calculated based on net present values of future cash inflows. sites and associated buildings, and as such are specialised and have 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 year ended 31 December 2021, the borrowing rates were determined to be between 3.0% and 3.6% (2020: between 2.5% and 4.0%), 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). limited saleability. The best evidence of fair value is current prices in an active market for similar properties; however, these are not readily available for such specialised sites in such locations. The Directors believe that the current carrying value of the assets equates to their fair value given the nature and location of the assets. All resulting fair value estimates for properties are included as level 3. 94 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 5.0 TAXATION 5.1 INCOME TAX EXPENSE Reported income tax expense comprises: Current tax expense Deferred tax benefit Over provision in prior years Income tax expense Income tax is attributable to: Taxable profit from continuing operations Total income tax expense Income tax expense differs from the amount prima facie payable as follows: Profit before income tax expense Prima facie income tax at 28% Non-assessable asset sales and exempt distribution receipts Non-assessable receipt Non-assessable loss from equity accounting of investments in joint ventures and associates Non-deductible expenses Differences in international tax rates Re-instatement of tax depreciation on buildings Over provision in prior years Income tax expense A Refer to note 1.2.3 for details of the restatement. 2021 $’000 9,416 (1,573) (25) 7,818 7,818 7,818 42,252 11,831 (4,446) - 126 332 - - (25) 7,818 2020 Restated A $’000 5,789 (326) (734) 4,729 4,729 4,729 19,211 5,379 (2) (218) 117 220 (15) (18) (734) 4,729 ANNUAL REPORT 2021 95 5.2 DEFERRED TAX Deferred tax assets and liabilities are attributable to: Opening Balance $’000 Recognised in income $’000 Recognised in equity $’000 Other movements $’000 Closing Balance $’000 2020 Employee entitlements 1,485 (742) Provision for impairment Accruals / restructuring Intangible assets Property, plant and equipment A Leases Share schemes Other 2021 Employee entitlements Provision for impairment Accruals / restructuring Intangible assets Property, plant and equipment Leases Share schemes 177 119 (418) 173 (331) 526 (70) 1,661 729 201 168 (381) 348 427 421 24 49 37 190 758 10 - 326 293 (23) 184 37 156 490 436 1,913 1,573 - - - - - - (115) - (115) - - - - - - - - (14) - - - (15) - - 70 41 (2) - 1 - - - - 729 201 168 (381) 348 427 421 - 1,913 1,020 178 353 (344) 504 917 857 (1) 3,485 A The opening deferred tax balance and the movement during the year have been restated. Refer to note 1.2.3 for details. There are unrecognised tax losses of $1,852,045 (A$1,744,812) (2020: $1,859,348 (A$1,744,812)) 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. The 2020 other movements in employee entitlements and property, plant and equipment are the transfer of the deferred tax assets of GrabOne Limited to assets held for sale (see note 6.3.1). 96 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED Accounting policies The tax expense for the period comprises current and neither accounting nor taxable profit or loss. Deferred income deferred tax. Tax is recognised in the income statement, tax is determined using tax rates (and laws) that have been except to the extent that it relates to items recognised in other enacted or substantially enacted by the balance sheet date and comprehensive income or directly in equity. In this case the tax are expected to apply when the related deferred income tax is also recognised in other comprehensive income or directly in asset is realised or the deferred income tax liability is settled. equity, respectively. The current income tax charge is calculated on the basis of the that it is probable that future taxable profit will be available tax laws enacted or substantively enacted at the balance sheet against which the temporary differences can be utilised. Deferred income tax assets are recognised only to the extent 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 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 tax 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 business combination that at the time of the transaction affects net basis. ANNUAL REPORT 2021 97 6.0 GROUP STRUCTURE AND INVESTMENTS IN OTHER ENTITIES 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 years ended 31 December 2020 and 2021. Name of entity NZME Advisory Limited (previously GrabOne Limited) A NZME Australia Pty Limited B NZME Educational Media Limited NZME Holdings Limited NZME Investments Limited NZME Print Limited NZME Publishing Limited NZME Radio Investments Limited NZME Radio Limited C NZME Specialist Limited The Hive Online Limited New Zealand Radio Network Limited The Radio Bureau Limited OneRoof Limited 2021 Ownership interest 2020 Ownership interest 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 80% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 80% A GrabOne Limited’s name was changed to NZME Advisory Limited on 29 October 2021 following the sale of GrabOne Limited’s assets and certain liabilities (see note 6.3.1). B Incorporated in, and operates in, Australia. C One “Kiwi Share” held by the Minister of Finance. The rights and obligations are set out in the NZME Radio constitution. 98 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED Accounting policies The Group controls an entity when the Group is exposed to, Intercompany transactions, balances and unrealised gains or has rights to, variable returns from its involvement with the on transactions between Group companies are eliminated. entity and has the ability to affect those returns through its Accounting policies of subsidiaries have been changed where power to direct the activities of the entity. Subsidiaries are fully necessary to ensure consistency with the policies adopted by consolidated from the date on which control is transferred to the Group. Non-controlling interests in the results and equity of the Group. They are de-consolidated from the date that control subsidiaries are shown separately in the consolidated income ceases. The acquisition method of accounting is used to account for business combinations by the Group. statement, statement of comprehensives income, statement of changes in equity and balance sheet respectively. 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: 2021 Ownership Interest 2020 Ownership Interest 40% 40% 38.82% 38.82% 38% 21% 49% 38% 21% 49% 40.41% 40.41% 50% 50% Name of entity Eveve New Zealand Limited A New Zealand Press Association Limited A Restaurant Hub Limited A The Beacon Printing & Publishing Company Limited A The Gisborne Herald Company Limited (held through Essex Castle Limited as a trust company for NZME Publishing Limited) A The Wairoa Star Limited A The Radio Bureau B The Newspaper Publishers Association of New Zealand Incorporated C Online Media Association C New Zealand Media Council C Radio Broadcasters Association Incorporated C A These entities are classified as joint ventures or associates and are accounted for using the equity method in the consolidated financial statements. 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. ANNUAL REPORT 2021 99 Accounting policies Associates Equity method of accounting Associates are all entities over which the Group has significant Under the equity method of accounting, the investments influence but not control or joint control. Interests in are initially recognised at cost and adjusted thereafter to associates are accounted for in the consolidated financial recognise the Group’s share of the post-acquisition profits or statements using the equity method (see below), after initially losses of the investee in profit or loss, and the Group’s share being recognised at cost. The Group’s investment in associates of movements in other comprehensive income of the investee includes goodwill (net of any accumulated impairment loss) in other comprehensive income. Dividends received or identified on acquisition. Joint arrangements receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment. 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. 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. 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. 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 The Group’s interests in joint ventures are accounted for using necessary to ensure consistency with the policies adopted the equity method (see below) after initially being recognised by the Group. at cost in the consolidated balance sheet. 6.2.2 Equity accounted investments Opening balance 1 January Share of operating losses Dividends received Asset revaluation (Gisborne Herald) Total equity accounted investments 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. 2021 $’000 4,162 (450) (89) - 3,623 2020 $’000 3,308 (417) - 1,271 4,162 The equity accounted investments are not considered to be material to the Group’s operations or results and therefore no disclosures of the summarised financial information for these investments have been made. The 2020 revaluation of land owned by the Gisborne Herald was processed through the equity investments revaluation reserve (see note 4.2). 100 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 6.3 ASSETS HELD FOR SALE On 29 October 2021 the Group sold the assets and certain liabilities of GrabOne Limited and renamed the company as NZME Advisory Limited, (see note 6.3.1 for further details), and the Mt Victoria transmission site was sold on 30 April 2021. At 31 December 2020 the Group had net liabilities held for sale of $5.2 million in respect of these assets. Accounting policies Non-current assets (or disposal groups) are classified as held A discontinued operation is a component of the entity that for sale if their carrying amount will be recovered principally has been disposed of or is classified as held for sale and that through a sale transaction rather than through continuing represents a separate major line of business or geographical use. They are measured at the lower of their carrying amount, area of operations, is part of a single coordinated plan to and their fair value less costs to sell, except for assets such dispose of such a line of business or area of operations, or is as deferred tax assets, assets arising from employee benefits, a subsidiary acquired exclusively with a view to resale. The financial assets and investment property that are carried at fair results of discontinued operations are presented separately on value and contractual rights under insurance contracts, which the face of the income statement. are specifically exempt from this requirement. 6.3.1 Sale of assets previously classed as held for sale The sale of assets and certain liabilities by GrabOne Limited to Global Market Place was for $17.5 million resulting in a gain on sale of $15.4 million. GrabOne Limited was not considered to be a significant component of the Group, or separate major line of business, and is therefore not a discontinued operation. The Group is responsible for settling the outstanding merchant liabilities as at 29 October 2021 which were $3.9 million and at balance date these outstanding merchant liabilities were $1.1 million and are included in trade and other payables on the balance sheet. For information purposes additional disclosures in respect of GrabOne Limited’s performance are shown in note 6.3.2 and 6.3.3. The Mt Victoria transmission site was sold on 30 April 2021 with a gain on sale of $0.5 million. 6.3.2 Income statement for GrabOne Limited Revenue Other incomeB 2021A $’000 2020 $’000 7,030 8,952 15,367 - Expenses from operations before finance costs, depreciation and amortisation (3,396) (4,574) Depreciation and amortisation Profit before income tax expense Income tax expense Profit after tax A For the period ended 29 October 2021. B Gain on sale of GrabOne Limited's assets and certain liabilities (see note 6.3.1) - 19,001 (682) 3,696 (1,173) (1,039) 17,828 2,657 ANNUAL REPORT 2021 101 2021A $’000 2020 $’000 (15) 4,187 17,828 - 1,173 (15,367) 42 147 (3,838) (15) 2,657 682 (140) - 75 (112) 1,025 4,187 6.3.3 Cash flows from GrabOne Limited Net cash (outflows) / inflows from operating activities Reconciliation of net cash inflows / (outflows) from operating activities to profit for the year: Profit for the year Depreciation and amortisation expense Change in current / deferred tax payable Gain on sale of GrabOne Limited's assets and certain liabilities Changes in assets and liabilities net of effect of acquisitions: Trade and other receivables Prepayments Trade and other payables and employee entitlements Net cash (outflows) / inflows from operating activities A For the period ended 29 October 2021. 102 NEW ZEALAND MEDIA AND ENTERTAINMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 7.0 RELATED PARTIES 7.1 KEY MANAGEMENT COMPENSATION Note 2021 $’000 2020 $’000 Total remuneration for Directors and other key management personnel: Short term benefits Termination benefits Dividends (relating to shares held in the Company during the year) Share-based payments 4.2 6,598 5,583 306 56 1,559 8,519 - - 1,095 6,678 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. 7.2 OTHER TRANSACTIONS WITH RELATED PARTIES The Beacon Printing & Publishing Company Limited purchased advertising from the Group during the year ended 31 December 2021 totalling $666 (2020: $559) and reimbursed $1,493 for paper used in 2021 (2020: $62,077). 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 New Zealand Limited, valued at $27,992 (2020: $27,992) and Restaurant Hub Limited, valued at $12,008 (2020: $12,008). The outstanding balances for future services are included in the table below, along with other receivables and payables. During the year the Group received advertising revenue from The Wairoa Star Limited totalling $9,322 (2020: $8,288). The Wairoa Star Limited also purchased other services totalling $1,176 (2020: $1,177) from the Group. The Group purchased services from The Wairoa Star Limited totalling $1,386 (2020: $1,583) during the year. The Group’s transactions with the New Zealand Press Association Limited during the year were $nil (2020: $nil). Balances with related party Restaurant Hub Limited Total related party receivables and payables 2021 Receivables $’000 2020 Receivables $’000 2021 Payables $’000 2020 Payables $’000 9 9 37 37 24 24 64 64 ANNUAL REPORT 2021 103 8.0 COMMITMENTS AND CONTINGENT LIABILITIES In 2021 the Group entered into an agreement to lease office space in Christchurch. The agreement is for an initial period of 10 years with two 5 year renewal periods. The lease commences in September 2022 and includes fixed rent increases of 1.5% on the 9.0 SUBSEQUENT EVENTS On 17 January 2022 the Group acquired BusinessDesk from Content Limited for the price of $3.4 million. In addition to the purchase price a maximum earn-out of $1.5 million is payable on 31 December 2023 with the exact amount payable on that date to be determined in accordance with the terms of the sale and anniversary of the commencement date. A market rent review will purchase agreement. take place at each renewal date. The total amount payable over the initial 10 years is $3.5 million. In relation to net assets of the Group at 31 December 2021 the acquisition of BusinessDesk is not considered to be a material The Group is subject to litigation incidental to the business, none purchase for the Group. of which is expected to be material. No provision has been made in the consolidated financial statements in relation to its current litigation and the directors believe that such litigation will not have a significant effect on the Group's financial position, results of operations or cash flows. The Group also acquired Radio Wanaka on 1 February 2022 and the financial impact from acquiring this radio station is not considered material to the Group. The Directors are not aware of any other material events subsequent to the balance sheet date. 104 NEW ZEALAND MEDIA AND ENTERTAINMENT Independent auditor’s report To the shareholders of NZME Limited 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 2021, 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). What we have audited The Group's consolidated financial statements comprise: ● the consolidated balance sheet as at 31 December 2021; ● 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 significant accounting policies and other explanatory information. 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 the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with Professional and Ethical Standard 1 International Code of Ethics for Assurance Practitioners (including International Independence Standards) (New Zealand) (PES 1) issued by the New Zealand Auditing and Assurance Standards Board and the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for 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 services, non-audit assurance in respect of the compliance with the Rules and Circulation Audit Guidelines established by the Audit Bureau of Circulations Incorporated, agreed upon procedures relating to the benchmarking of market revenue data, and agreed upon procedures relating to the Group’s return to the Broadcasting Standards Authority. In addition, certain partners and employees of our firm may subscribe to NZME services on normal terms within the ordinary course of the trading activities of the Group. These relationships and provision of other services have not impaired our independence as auditor of the Group. PricewaterhouseCoopers, PwC Tower, 15 Customs Street West, Private Bag 92162, Auckland 1142 New Zealand T: +64 9 355 8000, www.pwc.co.nz ANNUAL REPORT 2021 105 Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current year. These matters were 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 these matters. Description of the key audit matter How our audit addressed the key audit matter Intangible assets impairment assessment As at 31 December 2021 the total carrying amount of the Group’s indefinite life intangible assets, comprising masthead brands and other brands (the brands), amounts to $101.8 million. Annual impairment testing is required under NZ IFRS. The NZME business has been identified as a single cash generating unit (CGU) and the brands have therefore been tested for impairment at this level. The Group prepared a discounted cash flow model to assess the recoverable amount of the CGU on a Value-In- Use (VIU) basis. Impairment testing of the CGU is considered a key audit matter due to the significance of the carrying value of the brands, the inherent judgement involved in performing an impairment assessment and the inherent uncertainty in relation to the continuing impact of the forecast print industry decline. The recoverable amount of the CGU was determined to be greater than the carrying value of the CGU and that no reasonable adverse change in key assumptions will lead to further impairment. It was determined that the increase in the recoverable amount (and therefore headroom over carrying value) since the previous impairment assessment is not as a result of a change in the estimates used to calculate the recoverable amount at that time. As a result an impairment reversal has not been recognised. Key judgements and estimates included in the impairment assessment are: ● the assessment that the NZME business continues to constitute one CGU; ● expected future trading results and cash flows of the CGU which include estimates We performed the following audit procedures in relation to the impairment assessment and key management judgements: ● considered the appropriateness of the one CGU assessment; ● gained an understanding of the forecast outlook for the industry and the strategic direction of the business; ● held discussions with management and understood the processes undertaken and basis for determining the key assumptions in preparing the impairment assessment; ● considered whether the methodologies applied were appropriate; ● compared the forecast cash flows used for 2022 to the Board approved budget; and ● performed lookback procedures, comparing actual results achieved against forecasts and industry performance and considered the impact on our assessment of forecast cash flows. In relation to the recoverable amount determined, we: ● tested the mathematical accuracy of the VIU model; ● assessed and challenged the reasonableness of key assumptions, including revenue and operating costs growth rates, with reference to historical performance and external market evidence; ● reperformed management’s sensitivity assessment; ● engaged our auditor’s valuation expert to assist us to assess and challenge the reasonableness of the discount rate and terminal growth rate; and PwC 2 106 NEW ZEALAND MEDIA AND ENTERTAINMENT Description of the key audit matter and assumptions around print, radio and digital revenue forecasts, the continued sustainability of operating expense restructuring measures undertaken in the prior year and the reasonableness of a maintainable gross margin; ● the discount rate of 9%; and ● the application of a negative long-term growth rate of 1.2%. Refer to note 3.1.1 of the consolidated financial statements for further information. Recognition of revenue The recognition of revenue is a key area of focus for our audit. As set out in notes 2.1 and 2.4.2 to the consolidated financial statements, the Group has significant revenue from advertising, circulation and subscriptions. Other revenue earned consists of external printing, digital classifieds, shared service centre functions and events. Together, these form revenue from integrated media and entertainment activities totalling $348.6 million for the year. Advertising arrangements are often customised and consist of multiple performance obligations and a series of distinct goods and services. It meets the definition for revenue recognition over time in accordance with IFRS 15. Circulation and subscription revenue is recognised at a point in time as single performance obligations. Other revenue is recognised over time in accordance with IFRS 15. Management judgment in the form of estimates are applied in the following areas: ● measuring progress towards complete satisfaction of a performance obligation; ● allocating the transaction price to performance obligations; and ● determining the transaction price in respect of contracts with non-standard consideration. How our audit addressed the key audit matter ● assessed and challenged the reasonableness of not recognising an impairment reversal. We also considered the appropriateness of disclosures made. As a result of our procedures, we have no matters to report. Our audit approach for revenue is largely substantive. We performed the following procedures in responding to the management judgments involved in determining whether the revenue has been recognised in accordance with the relevant accounting standards: ● updated our understanding of the systems, processes and controls in place over the recognition of revenue; ● performed disaggregated risk assessment analytics over all revenue streams; ● examined invoices and contracts with customers and ensured revenue recognition was appropriate based on the terms of the arrangements; ● validated that the payment and pricing arrangements supporting the recognition of revenue; ● tested the cut-off around the year end to check if revenue was recognised in the correct accounting period; ● tested the completeness of revenue by agreeing cash receipts to invoices raised. Additionally, we tested the completeness of advertising revenue by agreeing published and broadcasted advertisements to booking schedules and invoices; ● tested the classification of revenue into the disaggregation analysis presented in notes 2.1 and 2.4.2; PwC 3 ANNUAL REPORT 2021 107 Description of the key audit matter How our audit addressed the key audit matter The recognition of revenue is a judgemental area requiring significant audit focus and attention. As a result, we consider it a key audit matter. ● performed analytical procedures over revenue recognised through the Group’s joint operation; ● recalculated commission earned from merchant advertising; and ● tested accounts receivables by reconciling cash payments received after year end against these receivables. As a result of our procedures, we have no matters to report. Our audit approach Overview Overall Group materiality: $1,742,500, which represents approximately 0.5% of total revenues. We chose total revenues as the benchmark because, in our view, it is a key metric used in assessing the performance of the Group and is a generally accepted benchmark. In our judgement, revenue provides a more stable measure for establishing our materiality benchmark and best reflects performance of the Group. We chose 0.5% based on our professional judgement, noting that it is also within the range of commonly accepted thresholds for entities where revenue is considered the appropriate benchmark. We performed a full scope audit over the consolidated information of the Group. As reported above, we have two key audit matters, being: ● Intangible assets impairment assessment ● Recognition of revenue As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. 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. Materiality The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. PwC 4 108 NEW ZEALAND MEDIA AND ENTERTAINMENT 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. How we tailored our Group audit scope 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. Other information The Directors are responsible for the other information. The other information comprises the information included in the Annual report, but does not include the consolidated financial statements and our auditor's report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of audit opinion or assurance conclusion thereon. In connection with our audit of the consolidated financial statements, 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 this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 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/assurance-standards/auditors-responsibilities/audit-report-1/ This description forms part of our auditor’s report. PwC 5 ANNUAL REPORT 2021 109 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 Lisa Crooke. For and on behalf of: Chartered Accountants 22 February 2022 Auckland PwC 6 110 NEW ZEALAND MEDIA AND ENTERTAINMENT Registred Office Contact Details Postal Address: Private Bag 92198 Victoria St West Auckland 1142 New Zealand +64 9 379 5050 www.nzme.co.nz Investor_Relations@nzme.co.nz Auditors PricewaterhouseCoopers Email: Phone: Website: NZME Limited 2 Graham St Auckland 1010 New Zealand Y Registered Address R O T C E R I D Principal Solicitors Bell Gully Principal Bankers Westpac Share Registry Link Market Services Website: Phone: Email: Share Registry Contact Details Postal Address: PO Box 91976 Auckland 1142 Street Address: Level 30 PwC Tower 15 Customs Street West Auckland +64 9 375 5998 www.linkmarketservices.co.nz enquiries@linkmarketservices.co.nz ANNUAL REPORT 2021 111 TUKUTUKU KŌREROEducation Gazette NEW ZEALAND 

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