CONTENTS COMPANY OVERVIEW... 2 INTERIM FINANCIAL STATEMENTS... 4 TVNZ BOARD AND MANAGEMENT... 13
COMPANY OVERVIEW The six months to December 2011 has been somewhat of a challenge, due in the main to the disruption to programming schedules and audiences created by the Rugby World Cup and the General Election which followed. TVNZ has recorded operating earnings for the half year of $28.7 million, $2.4 million below the figures for the comparable period in the last financial year. The year to date unaudited Net Profit after Tax of $19.2 million is a $14.3 million increase on the prior year. The increase reflects in part the impact of the write down of TVNZ s Hybrid investment last financial year. We have achieved television advertising growth of $3.8 million to $168 million a rise of 2.3% which puts TVNZ ahead of total television market growth for the period of 1.6%. This revenue growth and share gain is a great achievement in a market that remains hesitant and uncertain, but continues to see television advertising as the most efficient and effective means to communicate with their customers. Ongoing increases in the cost of programming continue to hold back the benefit of revenue gains, and currently programme costs are increasing at a greater rate than revenue. In programming terms there have been some noteworthy successes this half year. For the opening ceremony of the Rugby World Cup, 1.5 million New Zealanders turned to TV ONE as their preferred broadcaster for this event, taking a massive 83% share of the total viewing audience. TV ONE was also the preferred broadcaster for the final game between New Zealand and France, with a 35% share of the available audience and a cumulative audience of nearly a million people (All people 5+). The Sunday Theatre series of four quality New Zealand dramas Tangiwai; a Love Story, Bliss (Katherine Mansfield), Billy (Billy T James), and Rage (1981 Springbok tour) were local content highlights and exceptionally well received both critically and in terms of viewership. TV2 performed extremely strongly, finishing the half year by winning its target audience of 18 to 39 year olds for the 38 th consecutive month. And in a record-breaking run, ONE News was again recognised as Best News, for the fourth year in a row, at the annual television AFTA awards. 2
TVNZ U, the innovative youth channel launched in March 2011, has built a strong audience reaching a new high of 1.57 million viewers over the age of 5 by the end of the calendar year. It has earned international interest both for its format and the use of a ground-breaking live interface with Facebook. TVNZ Ondemand viewership showed year on year growth in each of the six months, and paid video ads delivered through the service reached a record level in December. The online-only show Auckland Daze attracted a firm following and one extra episode - the Christmas special - was enabled solely through the support of keen advertisers. Strategically, TVNZ took a further step in diversification of our business with the announcement of the launch a new digital platform, branded Igloo, in a joint venture with SKY TV. The platform will bridge the gap between a full pay TV service and the Free to Air offering, and should serve as another encouragement to New Zealanders to make the change to digital television. The company continues to support Freeview and is working with government agencies to assist the successful transition to Digital Switchover starting later this calendar year. Commercially, there have been innovative products such as TVNZ s partnership with Mitre 10 and advertising agency DraftFCB. This created a new branded content series called Easy As designed to help kiwis improve their DIY skills. The on-screen and online series of demonstrations on popular DIY projects are promoted in-store so that consumers who have seen the campaign can get all the right equipment and advice when they are next at their local Mitre 10 store. While our commercial strategies are working, reflected in our increase in market share, there is no doubt that the company will also need to maintain focus on cost management, but we are confident about the outlook for the remainder of the financial year. Our strategic direction expressed as Inspiring New Zealanders on every screen - is clearly understood both within the company and externally. We intend to push ahead with the good work already done in bringing all of our various specialist roles into closer alignment in the pursuit of this common goal. Rodney Parker Acting Chief Executive 3
Television New Zealand Limited Interim Financial Statements Contents Page Income Statement 5 Statement of Comprehensive Income 6 Statement of Changes in Equity 6 Statement of Financial Position 7 Statement of Cash Flows 8 Notes to the Financial Statements 9-12 4
Income Statement Consolidated Six Months Six Months Year Ended Ended Ended 31/12/11 31/12/10 30/06/11 $000 $000 $000 Income Operating revenue 185,101 185,222 340,416 Government funding 14,618 20,054 36,020 (MCH, NZ On Air, Te Mangai Paho) Interest income 13 91 106 Insurance recovery 0 0 1,354 Other income 0 34 0 199,732 205,401 377,896 Expenses Programme amortisation (97,256) (98,340) (193,440) Employee benefits (33,303) (32,148) (63,724) Depreciation and amortisation (10,812) (10,437) (21,277) Transmission (10,749) (11,163) (21,806) Marketing (4,122) (4,978) (12,229) Other (14,792) (17,215) (33,609) (171,034) (174,281) (346,085) Earnings before interest, financial instruments, associate results/impairment and tax 28,698 31,120 31,811 Interest expense (956) (1,665) (2,702) Financial instruments/foreign currency (losses)/gains (158) (978) (457) Share of results and impairment of associate 4 (600) (14,771) (17,674) Profit before income tax 26,984 13,706 10,978 Income tax expense (7,782) (8,819) (8,898) Profit for the year 19,202 4,887 2,080 The accompanying notes form part of these financial statements. 5
Statement of Comprehensive Income Consolidated Six Months Six Months Year Ended Ended Ended 31/12/11 31/12/10 30/06/11 $000 $000 $000 Profit for the year 19,202 4,887 2,080 Other comprehensive income/(loss) Net change in the fair value cash flow hedges (96) 40 25 Income tax on other comprehensive income 20 (12) (8) Other comprehensive income/(loss) for the year net of income tax (76) 28 17 Total comprehensive income for the year 19,126 4,915 2,097 Statement of Changes in Equity Consolidated Cash flow Share hedge Retained Capital reserve earnings Total $000 $000 $000 $000 At 1 July 2011 140,000 (238) 14,519 154,281 Total comprehensive income 0 (76) 19,202 19,126 Equity transactions Dividend paid in the period 0 0 (13,828) (13,828) At 31 December 2011 140,000 (314) 19,893 159,579 At 1 July 2010 140,000 (255) 17,310 157,055 Total comprehensive income 0 28 4,887 4,915 Equity transactions Dividend paid in the period 0 0 (4,871) (4,871) At 31 December 2010 140,000 (227) 17,326 157,099 At 1 July 2010 140,000 (255) 17,310 157,055 Total comprehensive income 0 17 2,080 2,097 Equity transactions Dividend paid in the period 0 0 (4,871) (4,871) At 30 June 2011 140,000 (238) 14,519 154,281 The accompanying notes form part of these financial statements. 6
Statement of Financial Position As at 31 December 2011 (Unaudited) Consolidated As at As at 31/12/11 30/06/11 Notes $000 $000 ASSETS Current Assets Cash and cash equivalents 6,705 4,341 Receivables and prepayments 58,568 55,292 Programme rights - intangible assets 44,294 44,212 Inventories 201 189 Derivative financial instruments 935 123 Total current assets 110,703 104,157 Non-current assets Property, plant and equipment 95,439 100,383 Other intangibles 21,797 24,102 Derivative financial instruments 0 6 Investment in associate 4 12,250 0 Other investments 42 42 Total non-current assets 129,528 124,533 Total assets 240,231 228,690 LIABILITIES Current Liabilities Loans and borrowings 190 0 Trade and other payables 48,093 47,945 Deferred income 9,664 9,150 Income tax payable 5,735 0 Derivative financial instruments 1,743 1,289 Provisions 1,580 2,341 Total current liabilities 67,005 60,725 Non-current liabilities Employee entitlements 1,961 1,828 Provisions 1,175 920 Deferred tax liability 511 936 Borrowings 10,000 10,000 Total non-current liabilities 13,647 13,684 Equity Contributed equity 140,000 140,000 Reserves (314) (238) Retained earnings 19,893 14,519 Total equity 159,579 154,281 Total equity and liabilities 240,231 228,690 The accompanying notes form part of these financial statements. 7
Statement of Cash Flows Consolidated Six Months Six Months Year Ended Ended Ended 31/12/11 31/12/10 30/06/11 Notes $000 $000 $000 Cash flows from/(used in) operating activities Receipts from customers 191,605 186,278 337,131 Government grants 13,957 11,041 28,124 Interest received 13 91 106 Payments to suppliers and employees (169,215) (161,568) (313,456) Interest paid (961) (1,697) (2,747) Income tax received/(paid) (3,587) (1,823) (4,476) Net cash flows from/(used in) operating activities 5 31,812 32,322 44,682 Cash flows from/(used in) investing activities Proceeds from sale of property, plant and equipment 0 34 42 Proceeds from insurance claim 0 0 1,190 Purchase of property, plant and equipment (2,364) (3,820) (6,657) Purchase of intangibles (1,199) (774) (2,114) Investment in and advances to associates (12,250) (1,287) (2,290) Net cash flows from/(used in) investing activities (15,813) (5,847) (9,829) Cash flows from/(used in) financing activities Drawdown of borrowings 0 0 0 Repayment of borrowings 0 (21,350) (26,600) Dividends paid (13,828) (4,871) (4,871) Net cash flows from/(used in) financing activities (13,828) (26,221) (31,471) Net increase/(decrease) in cash and cash equivalents 2,171 254 3,382 Net foreign exchange differences 3 (35) (36) Cash and cash equivalents at the beginning of the period 4,341 995 995 Cash and cash equivalents at the end of the period 6,515 1,214 4,341 Cash and cash equivalents comprise: Cash at bank and in hand 6,090 513 3,712 Short term deposits 615 794 629 Cash and cash equivalents 6,705 1,307 4,341 Bank overdrafts used for cash management purposes (190) (93) 0 Cash and cash equivalents in the statement of cash flows 6,515 1,214 4,341 The accompanying notes form part of these financial statements. 8
Notes to the Financial Statements 1. Corporate information Television New Zealand Limited (the Company ) and its subsidiaries (the Group ) operate in the broadcasting and production of television programmes and channels within New Zealand. The Company is a limited liability company incorporated in New Zealand under the Companies Act 1993 and is wholly owned by the Crown. The Company is bound by the requirements of the Television New Zealand Act 2003. The Crown does not guarantee the liabilities of Television New Zealand Limited in any way. These consolidated financial statements were approved for issue by the Board of Directors on 23 February 2012. 2. Basis of preparation and significant accounting policies a) Basis of preparation The unaudited interim financial statements for the six months ended 31 December 2011 have been prepared in accordance with NZ IAS 34 Interim Financial Reporting and the requirements of the Television New Zealand Act 2003. The unaudited interim financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group s annual financial statements as at 30 June 2011. The financial statements are presented in New Zealand dollars ($), which is the Company s functional currency. All financial information presented in New Zealand dollars has been rounded to the nearest thousand. b) Changes in accounting policies The accounting policies used in the preparation of the unaudited interim financial statements are consistent with those used in the preparation of the Group s annual financial statements for the year ended 30 June 2011. c) Comparatives The classification of certain balances have been revised and the comparatives have been restated accordingly. 3. Cyclicality of operations Due to the cyclical nature of the Group s operations, higher advertising revenues and operating profits are usually expected in the first half of the financial year. 9
Notes to the Financial Statements 4. Interest in associates a) Igloo Limited Six Months Six Months Year Ended Ended Ended 31/12/11 31/12/10 30/06/11 $000 $000 $000 In November 2011 the Group acquired a 49% interest in Igloo Limited, $12,250,000. Movement in carrying amount of the Group's investments in associate At 1 July 0 0 0 Investment 12,250 0 0 Share of gains/(losses) after income tax 0 0 0 Closing balance 12,250 0 0 b) Hybrid Television Services (ANZ) Pty Ltd The Group has a 33.33% interest in Hybrid Television Services (ANZ) Pty Ltd (Hybrid). Hybrid incurred trading losses in the prior period. As a result of Hybrid s trading losses, TVNZ Group s investment in Hybrid at 31 December 2011 is nil (30 June 2011 nil). Due to the uncertainty of Hybrid generating future surpluses an impairment charge equal to the value of the outstanding loans to Hybrid was also recognised in the prior period. In addition, the Group has also provided for costs associated with the future financial support of Hybrid. Share of results and impairment of associate Share of profits/(losses) in associate 0 (9,417) (9,417) Impairment of loan to associate 0 (5,354) (6,357) Provision for future costs (600) 0 (1,900) (600) (14,771) (17,674) Movement in carrying amount of the Group's investments in associate At 1 July 0 9,417 9,417 Share of gains/(losses) after income tax 0 (9,417) (9,417) Closing balance 0 0 0 10
Notes to the Financial Statements 5). Reconciliation of profit after tax to net cash flow from operating activities Reconciliation of net profit after tax to net cash flows from operations Six Months Six Months Year Ended Ended Ended 31/12/11 31/12/10 30/06/11 $000 $000 $000 Net profit 19,202 4,887 2,080 Adjustments for: Depreciation 7,571 7,606 15,113 Amortisation 3,241 2,831 6,164 Gain on disposal of property, plant and equipment 0 (34) 570 Unrealised foreign currency (gains)/losses 406 570 196 Share of associate net losses & impairment 600 14,771 17,674 Proceeds from insurance claims classified as investing 0 0 (1,190) Changes in assets and liabilities (Increase)/decrease in receivables and prepayments (3,262) (6,191) 144 (Increase)/decrease derivative financial instruments (448) 1,918 1,969 (Increase)/decrease deferred tax asset (405) 628 2,985 (Increase)/decrease inventories (12) 11 34 (Increase)/decrease programme rights (82) 12,903 2,864 Increase/(decrease) trade and other payables 993 (3,928) 2,856 Increase/(decrease) deferred income 514 (9,124) (8,682) Increase/(decrease) income tax payable 4,600 6,367 1,437 Increase/(decrease) provisions (1,106) (893) 468 Net cash from operating activities 31,812 32,322 44,682 6). Commitments Programme rights 291,999 335,031 341,541 Operating leases 5,773 7,838 6,922 Property, plant and equipment and intangible assets 1,411 684 1,042 299,183 343,553 349,505 7). Contingent asset The Christchurch earthquakes of 4 September 2010 and 22 February 2011 resulted in the loss of assets and interrupted normal business operations of the Company. Television New Zealand Limited is fully insured against such events and will lodge claims for the loss of assets and business interruption costs. To date claims for the loss of buildings have been made and settled with the Company s insurers. Claims for the loss of other plant and equipment and business interruption costs are currently being prepared. At this stage the amounts to be claimed and the timing of any settlement with our insurers for claims currently being prepared is uncertain and no income has been recognised in the financial statements. 11
Notes to the Financial Statements 8). Contingent liabilities In the normal course of business various legal claims have been made against Television New Zealand Limited. Given the stage of proceedings and uncertainty as to the outcomes of the cases, no estimate of the financial effect can be made and no provision for any potential liability has been made in the financial statements. The Government has announced that analogue television transmission will cease by November 2013. The Group has an obligation to decommission its analogue transmitters which are located on Kordia Limited transmission sites. The decommissioning of analogue transmitters will be undertaken as a broadcasting industry initiative and the Group s share of the cost of decommissioning, net of any amounts recovered from disposal, cannot be reliably estimated. 9). Events after the balance sheet date There have been no significant events occurring since balance date requiring disclosure. 12
TVNZ BOARD AND MANAG EMENT DIRECTORY TVNZ BOARD Chairman Deputy Chairman Board members Sir John Anderson, KBE Joan Withers Anne Blackburn Roger MacDonnell Alison Gerry Barrie Saunders Wayne Waldon TVNZ MANAGEMENT Acting Chief Executive Officer Chief Financial Officer Head of Production Services and Technology Head of Sales and Marketing Head of Human Resources Head of Corporate Affairs Head of Television Head of Digital Media and Digital Channels Rodney Parker Rodney Parker Helen Clifton Paul Maher Diane O Brien Dean Schmidt Jeff Latch Eric Kearley Head of News & Current Affairs, Maori programming Ross Dagan and Sport (starts 16 th April 2012) 13