TVNZ Supports Record Investment In Kiwi Programmes

16 November 2005

TVNZ Supports Record Investment In Kiwi Programmes

TVNZ's strong financial performance in the last financial year (FY2005) has underpinned record levels of investment in New Zealand-made programming.

TVNZ today reported an annual operating surplus before non-recurring items, interest and tax, of $57.3 million – up $4 million on the previous year.

Costs were held to the previous year's level while advertising revenue rose to a record high of $344.1 million – an increase of $9.1 million.

The strong trading result provided the ability to absorb a one-off non-recurring charge relating to programming stock. This accounting adjustment brought the net operating surplus to $6.2 million. (See note below).

Chairman of the Board, Craig Boyce, says the results show TVNZ has been performing well in a challenging environment.

"I'd invite our critics to make sure they read the Report and arm themselves with all the facts before jumping to hasty conclusions about our performance. These results clearly demonstrate that TVNZ has delivered financially and in terms of its Charter commitments."

"TVNZ this year put considerable effort into commissioning and screening New Zealand-made programmes that reflect New Zealand life and culture."

"Over the year, 208 New Zealand programmes were commissioned from 86 separate production companies, leading some sections of the industry to voice concerns about their ability to cope with the increase in workload."

Mr Boyce says this emphasis was reflected on-screen - with local content reaching a peak of 70 % in May this year. Out of the year's Top 10 programmes, seven were New Zealand programmes screening on TVNZ, with the hit programme Dancing with the Stars attracting around 1 million viewers across all age groups.

"TVNZ has achieved a significant lift in the number of Charter programmes that have been screened. We know New Zealanders want to see themselves on air, but it needs to be made absolutely clear that this comes at a cost."

"New Zealand programmes are considerably more expensive than programmes bought overseas. We've invested a lot of money to get New Zealand on screen and we're proud of the progress we've made in presenting home-grown talent."

Mr Boyce said TVNZ had offered opportunities to new on-screen and off-screen talent that were not available anywhere else.

"This year, we gave a 'leg up' to new producers, new actors, new comedians, new documentary makers, new Maori programme makers; the people who are the future of the television industry in New Zealand. As New Zealand's television public broadcaster, only TVNZ makes this kind of substantial investment in the industry."

TVNZ declared a final dividend this year of $10.5 million

Accounting Adjustment

TVNZ has made a one-off accounting adjustment that changes the way programme costs are recognised.

Television programmes depreciate much faster than they used to.

TVNZ can't play them as often in prime time, and expect to attract good audiences and strong revenue.

This adjustment reflects more accurately the value of our programmes over time.

A useful analogy is to consider what happens when someone buys a DVD. The first time it is played is when a person gets the most value. The more it is played, the less value the DVD has.

The adjustment means that as of 1 July 2004, the timeframe over which some programme costs are recognised was reduced – in general, from two years to one year.

This has resulted in a one-off non-recurring charge of $50.7 million relating to programme stocks in FY2005 and brings the reported net operating surplus to $6.2 million.

This adjustment has no impact on the dividend payable to the Government, which is calculated on cash flow, not profitability.

Frequently Asked Questions: TVNZ Annual Result

1. How well did TVNZ perform financially in the last financial year?

TVNZ delivered a strong financial performance. The company had an annual operating surplus before non-recurring items, interest and tax, of $57.3 million – up $4 million on the previous year.

Costs were held to the previous year's level while advertising revenue rose to a record high of $3441.1 million – an increase of $9.1 million.

2. If operating surplus before non-recurring items, interest and tax only increased by $4 million on the previous year, how can it be called a strong performance?

In the previous year (FY 2004) our operating revenue included the revenue from our television business AND Transmission Holdings Limited (THL). THL contributed six months of revenue to our FY2004 result, before it was transferred to the Crown. It is no longer part of TVNZ.

That means that in FY2005, THL did not contribute to our operating revenue. In other words, revenue has only come from our television business.

If you want to compare apples with apples, you need to compare the figures for our television business in FY2004, with those in FY2005.

In FY2004, the operating surplus before non-recurring items, interest and tax for the television business was $40.9 million. In FY2005, the figure was $57.3 million – that's an increase of $16.4 million.

3. Why did you introduce the new accounting process that writes down programming costs?

The commercial life and therefore value of programmes has reduced – so we now have to depreciate them more quickly.

4. Why does the value of programmes diminish?

We can't play them as often in prime time, and expect to attract good audiences and strong revenue.

It's a bit like when you buy a DVD. The first time you play it is when you get the maximum value. The more you play it, the less value you get.

It's the same with our programmes. That is why this one-off accounting adjustment means that as of 1 July 2004, the timeframe over which some programme costs are recognised reduces – in general, from two years to one year.

5. Has this accounting move had an impact on the dividend?

No. The dividend is calculated on cash flow, not profitability.

6. Last year's dividend was $37.6 million. Why is the dividend for FY2005 $10.5 million?

TVNZ's dividend is based on cash flow – not profitability. This is because TVNZ has no debt. Any surplus cash TVNZ generates each year is paid to the Government as the annual dividend.

Surplus cash is defined as the cash generated from the operation of the television business, minus cash required for investment purposes AND minus Charter specific funding.

This table shows how the dividend was calculated:

Cash generated from operations
$m 37.3

Cash required for investment purposes
$m (10.4)

$m 26.9

Charter Specific Government Funding on hand
30 June 2005
$m (16.4)

Net Cash for FY2005 Dividend
$m 10.5

6. What's happened to advertising revenue – and why?

Advertising revenue rose to a record high of $344.1 million – an increase of $9.1 million on the previous year.

This reflects strong market demand in a buoyant economy, and a strong performance across our channels.

7. Has TVNZ delivered on the Charter?

Yes – we have spent record levels on New Zealand made programming. Over the year, 208 New Zealand programmes were commissioned from 86 separate production companies. Local content reached a peak of 70% in May this year. And out of the year's top 10 programmes, seven were New Zealand programmes screening on TVNZ.

We ran more than 150 hours of first-run New Zealand drama in FY2005. No other channel comes close. Shortland Street alone represents a massive commitment to local drama and the television industry, and it's fully funded by TVNZ. It has also had an exceptionally fine year in the ratings.

8. Has TVNZ spent all its Charter funding for the year?

The long lead-in times between commissioning, producing and broadcasting means that $23.7 million of Charter funding remained as at 30 June 2005.

It is important to understand that all of this $23.7 million has been allocated to commissioned programmes, as follows:

• $2.2 million is allocated to programmes which are currently screening including Frontier of Dreams, Wicked Weather, Son for the Return, Home & Comedy Innovation.
• $3.8 million is allocated to programmes which are scheduled to screen in FY2006 including Our Lost War, Holly's Heroes, Puzzle Inc, Hidden NZ, Artsville and Lexus Song Quest.
• $9.5 million is allocated to programmes which have been commissioned and announced (but not as yet scheduled) including Lost Children, Rude Awakenings and No. 2.
• $8.2 million is allocated to programmes which have been commissioned and are in production but have not been scheduled or announced.

9. How many staff are paid more than $100K – and has this number increased?

The number of current employees paid over $100K in FY2005 was 132. For the previous year, there were 124, an increase of eight.

The increase in number of current employees is primarily in the lower 5 bands, $100-$150K.

In FY2004, there were 82 current employees in bands $100-$150K. In FY2005, there were 89 current employees in bands $100-$150K, an increase of seven.

General wage increases and inflation means accounts for the increase in numbers of employees paid over $100K. The banding has stayed constant since introduction in 1993 but wages and salaries generally increase each year.

10. Who is paid more than $300K?

TNVZ does not disclose information about individual employees. The Companies Act 1993 requires disclosure of employee numbers within the respective salary bands. There is no statutory requirement to disclose remuneration details by employee.

ENDS

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