Official Treasury documents obtained under the Official Information Act reveal just how close to collapse news outlet Stuff was three years ago.

It's then-owner Nine Entertainment advised Treasury in May 2020 that its worst-case scenario modelling forecast that the news outlet required a cash injection of $7m by the end of June 2020 and around a further $7m over the remainder of the calendar year to maintain Stuff as a going concern.

Nine concluded that its scenario modelling indicated that there was no reasonable prospect of Stuff becoming self-funding through till December 2020, or even remaining solvent without a material near-term cash injection.

Nine's view was that even looking through the current Covid-19 disruption, it could not justify further investment to support Stuff.  Whilst Treasury did not undertake detailed analysis of Stuff’s financial position, they concluded that Nine’s proposal to allow Stuff to shut down, in the absence of an acquisition, was credible.

Treasury’s papers show officials contemplated that media sector support packages could provide some support to Stuff’s cash flow in the short term.

“Of the initiatives in the first package, Stuff would be most likely to seek support in the form of advance payments for government advertising.”

Officials believed NZX-listed rival NZME – publisher of New Zealand Herald, Newstalk ZB and BusinessDesk – would be a logical owner of its assets, but ultimately recommended ministers let the commercial process play out.

A Treasury paper concludes, “Stuff plays a very important role in the media sector.  The financial information, however, indicates that something needs to change and sector consolidation is inevitable.  NZME would be a logical owner of these assets as it is a capable and experienced manager of these types of assets.  There appears to be a reasonable chance that the merger would not substantially lessen competition based on the “failing business” legal argument but this would require a more detailed assessment either by the Commission or merger parties.  The media support measures the Government is considering next week could provide some short-term relief as the Commission completes its process.”

In the end, Chief Executive Sinead Boucher acquired the business from Nine Entertainment for $1.

But documents obtained by ZB Plus under the Official Information Act reveal just how close it was to failing and the steps that were been taken to alleviate the “financial distress” of Stuff.

According to a Treasury memo, over the three years to June 2019, Stuff’s annual publishing revenue had fallen by $95m to $255m, representing a 10% compound annual rate of decline.  Earnings before interest, tax, depreciation and amortisation (EBITDA) fell from $62m to $34 over that period.

Treasury papers noted that Stuff’s revenue was focused on digital and print advertising (55% of revenues) and print subscription and retail sales (37% of revenue).  These revenue streams had come under significant pressure in recent years, falling by approximately 8% to 20% and 4% to 6% respectively per annum over the financial years 2016 to 2019 due to structural changes in the advertising market and secular declines in the publishing industry.

Treasury noted that in addition to those long-term trends revenues had been materially impacted by the Covid-19 pandemic.  Preliminary April 2020 results indicated that advertising revenue was down by approximately 60% compared to the previous corresponding period.

Sinead Boucher, the owner of Stuff, declined to answer specific questions that related to commercially sensitive information that could not be shared with competitors, but told ZB Plus yesterday, “The business may have cost $1 but it was worth far in excess of that, and I continue to be enormously grateful for the turn of events that gave me the chance to own it.”

“The opportunity to acquire and run New Zealand's greatest media business was born out of a unique combination of circumstances – the arrival of the pandemic, New Zealand's hard lockdown and the desire of our new Australian owners to divest themselves of many of Fairfax Media’s satellite/regional businesses.”

“It gave me an unbelievable opportunity to acquire a profitable, debt-free, culturally important NZ business”.

“We did not seek any kind of government assurance or support ahead of this.  We have no plans to seek any special government support specific to our company, only the support of the government to create the right regulatory and legislative frameworks for our industry to operate in.”

“We have no external backers or funders.  I am the sole shareholder, apart from the gift of 10% of the business’ value to staff.  We were then and we are now self-funding, executing significant transformation, new products and platforms through the funds the business earns.”

Michael Boggs, CEO of New Zealand Media and Entertainment told ZB Plus yesterday:

“As we said at the time, we were disappointed in the decision as we believed it was in the best interests of New Zealand’s media sector. A number of players in the sector remain challenged.”