F.20
Annual Report Financial Year 2015 ONE News Simon Dallow and Wendy Petrie Contents
Highlights 4 Chair’s Address 6 Chief Executive’s Overview 8 Financial Performance 12 People Capability and Capacity 16 Performance and Engagement Measures 18 Compliance with Standards and Codes 19 Financial Statements 22 Corporate Governance 62 Directors Profiles 64
The Big Bang Theory Cast
Chair’s Address TVNZ is outperforming traditional television competitors, with encouraging results posted for the FY2015 financial year – but tectonic shifts are occurring across the broader media industry. TVNZ reported a net profit after tax of $28.1 million for the financial year ending June 2015, a 55% increase on 2014. The business also outperformed Statement of Intent return on equity targets to deliver year-on-year improvement from 10.8% to 14.8%.
TVNZ completed the sale of the TVNZ Archive to the Crown in FY2015 which was part of the business’ strategy to divest itself of non-core operating functions.
After excluding gains on sale of property, plant and equipment TVNZ’s underlying earnings increased by 13% year-on-year.
TVNZ successfully strengthened its share of TV advertising revenue, however this and a 19% increase in online revenues wasn’t enough to fully offset softer overall market demand for TV advertising. Total revenue declined 2.9% year-on-year to $350 million with total advertising revenue down 1.9%.
Positive momentum in online revenue and TV advertising revenue share growth, combined with effective cost management to deliver this year’s result. Total expenditure declined 3.7% to $313.7 million with year-on-year cost savings achieved across all major cost lines including programming, labour, marketing, depreciation and transmission/technology/telecommunications.
Looking at TVNZ’s free-to-air television business, the number of people using TV is slowly declining in favour of digital options. This is something that TVNZ is embracing as opposed to resisting, hence the significant investment this financial year in rebuilding TVNZ OnDemand and One News Now online services. TVNZ has also invested with other Freeview shareholders to develop FreeviewPlus which enables free-to-air players to offer an alternative to pay TV, with a gateway to on demand content.
At the same time TVNZ’s free-to-air television business is performing strongly – as the results show. The reach and effectiveness of television remains unsurpassed and will continue to deliver for advertisers well into the future. What will change, is the mix of media TVNZ offers advertisers wanting to reach their audiences.
Looking at the broader market there will likely be tectonic changes in terms of media ownership in the future. Tactically TVNZ will need to continue competing with other local media players however the strategic reality is that we will increasingly be competing with global online players.
TVNZ has this year declared an operating dividend of $8.3 million.
In closing, on behalf of the Board I would like to thank Wayne Walden who retired as TVNZ Chairman during the financial year for his exemplary leadership and service to the organisation. I would also like to acknowledge and thank our Chief Executive and the management and staff at TVNZ who have delivered a very credible result this year in a challenging and dynamic environment. And to my fellow directors my gratitude for the manner in which they have applied themselves to the task of governing TVNZ.
Joan Withers Chief Executive’s Overview TVNZ is increasingly agnostic as to how viewers are engaging with our content, and increasingly interested in ensuring they can do so easily on a medium of their choosing. Globally audiences are fragmenting across multiple platforms and consistent with this shift in viewer behaviour, TVNZ invested in FY2015 to rejuvenate its TVNZ OnDemand and ONE News Now online services.
Online news is all about immediacy and ONE News Now is focused on meeting this viewer need by delivering short duration video news streams primarily to mobile devices. In contrast to news online, viewers of OnDemand entertainment content are demanding OnDemand availability on TV screens. TVNZ joined other Freeview shareholders to develop and launch the FreeviewPlus service in response to this viewer need. FreeviewPlus is all about bringing OnDemand and linear TV viewing together simply on the big screen.
While TVNZ is increasingly agnostic about how people view our content, we remain determined to deliver New Zealand’s most watched content. In FY2015, all 20 of the 20 most watched shows, for viewers aged 5+, were from TVNZ.
Viewing highlights in FY2015: Chief • News and Current • One News online video • TV2 continued its Affairs delivered streams increased 45%. dominance as the most TV audience share watched channel against Executive’s growth in seven out of • Seven Sharp’s audience its target audience eight programmes. share increased 19% on last of 18-49 year olds. year achieving TV One’s Overview • ONE News TV audience strongest performance in • TV ONE grew its peak share grew by 10% year- this time slot in 4 years. audience share by on-year, achieving a ten 8% year-on-year, year record lead over • TVNZ OnDemand video against its commercial its nearest competitor. streams increased by 27%. demographic, its highest share result since 2011.
Off the back of these viewing highlights, TVNZ successfully grew its share of TV advertising revenue and achieved strong double digit growth in online revenue. Unfortunately these positive revenue trends were insufficient to offset overall softer market demand for TV advertising. Costs have continued to be tightly managed and year-on-year reductions across major cost lines have contributed strongly to improved FY2015 financial performance.
During the year TVNZ took action, with a number of other industry parties, against anti-geo blocking service Global Mode. TVNZ pays a premium to secure exclusive geographic content rights and it was important to clarify the business’ ability to rely on these rights. Pleasingly a settlement in relation to Global Mode was reached in late June which has resulted in the termination of the service in New Zealand.
This year has also seen good progress made on the refurbishment of the organisation’s main Auckland based building. Stage one of the project is complete with stage two on track for completion in FY2016.
Over the last few years TVNZ has strengthened its financial performance and this has enabled the business to confidently invest in future proofing operational capabilities and has created the fiscal headroom required to manage future volatility resulting from dramatic industry changes.
TVNZ is making encouraging progress in its transformation from a being a traditional TV broadcaster to becoming a contemporary rich media content service provider. FY2015 was a big step in the right direction, with the business delivering year-on-year improvements in audience share, revenue share, online capability and cost management.
Kevin Kenrick Keeping Up With The Kaimanawas Our First Home Karen and Jono
Fair Go Gordon Harcourt Financial Performance
TVNZ reported a net profit after tax of $28.1 million, a 55% increase on the prior year result of $18.1 million.
Total revenue for the year declined by $10.6 million (2.9%) due revenue. Excluding the gains on sale of property, to a reduction in advertising revenue and Government funding. plant and equipment, underlying earnings of $30.8 million increased $3.6 million (13%) on prior year. Advertising revenue was $313.5 million, a $6.2 million (1.9%) decrease from prior year. TVNZ online advertising TVNZ reported a net profit after tax of $28.1 million, a revenue increased 19% year-on-year. The television 55% increase on the prior year result of $18.1 million, advertising market for the year ended June 2015 declined and a 14.8% return on Shareholder’s equity. 3.4%, while TVNZ’s decline was 2.0%, which reflects growth in revenue share from 60.8% to 61.7%. The prior year result included the recognition of losses and impairment of the investment of Igloo Limited, and impairment The reduction in Government funding primarily relates of existing building fit-out associated with the refurbishment of to outsourcing the production of selected Maori and the company’s premises at 100 Victoria Street West, Auckland. Pacific Island programmes from January 2015. This funding is now paid directly to the independent The company has made substantial progress on the two production companies producing these programmes. year programme of capital works associated with the refresh of technology infrastructure and the refurbishment TVNZ has reduced operating costs to $313.7 million, a reduction of 100 Victoria Street West. These projects are forecast of $11.9 million (3.7%) on the prior year. The reduction in to be complete within the coming financial year. programme amortisation expense reflects, in part, the outsourcing of production of selected Maori and Pacific Island TVNZ declared a dividend of $8.3 million to be paid programmes. Employee costs continue to decrease consistent at the end of September 2015. The dividend equates with TVNZ’s programme of work to exit non-core activities to 70% of TVNZ’s after tax profit, less the balance of and reduce non-programming operational expenditure. the contribution to the refurbishment of 100 Victoria Street West agreed with Shareholding Ministers. Underlying earnings of $36.3 million increased by 3.8% notwithstanding the 2.9% decrease in total
Page 12 TVNZ Annual Report FY2015 FINANCIAL MEASURES FY2015 FY2015 FY2014 Measurement Actual Target Actual Profitability Return on average equity 14.8% 12.4% 10.8% EBITDA/television advertsing revenue 16.1% 15.9% 16.4%
Gearing Net interest bearing debt/net interest bearing debt plus equity 0.0% Less than 40% 0.0%
Financial Stability Total equity/total assets 75.5% More than 40% 76.8%
Interest Cover EBITDA/Interest expense 548 times More than 4 times 202 times
PERFORMANCE MEASURES The following set of measures demonstrate efficiency and productivity at TVNZ.
Return on Programme Investment
FY2015 FY2015 FY2014 Measurement Actual Target Actual $000 $000 $000 Aggregate programme revenue1 324,576 341,880 337,428 Programme amortisation cost 187,059 194,136 201,947 % programme cost of revenue 57.6% 56.8% 59.8% Note 1: Aggregate programme revenue includes advertising and sponsorship revenue, programme funding and licensing revenue.
Revenue productivity - employees
FY2015 FY2015 FY2014 Measurement Actual Target Actual $000 $000 $000 Total revenue (excl gain on sale of PPE) 344,488 355,423 352,765 Employee (FTE) average 787.6 817.2 833.4 Revenue per FTE 437.4 435.0 423.3
Business efficiency - non-programme costs
FY2015 FY2015 FY2014 Measurement Actual Target Actual $000 $000 $000 Total revenue (excl gain on sale of PPE) 344,488 355,423 352,765 Total non-programme costs 126,617 132,778 123,656 % non-programme costs to revenue 36.8% 37.4% 35.1%
TVNZ Annual Report FY2015 Page 13
Shortland Street People Capability and Capacity
As TVNZ’s business continues to evolve TVNZ remains focussed on ensuring it has the talent and capability to TVNZ is educating new leaders on how to successfully deliver in an increasingly complex industry. select in a fair and unbiased way.
This year TVNZ has worked on: 3. Employee Development and Promotion
• Further developing key leadership talent Providing coaching for people leaders on key leadership capabilities • Implementing an induction programme including authentic leadership, influencing others, change for all new people leaders agility and resilience, and inspiring and motivating others. • Providing appropriate learning and development Delivering a range of technical and functional opportunities and events across the organisation training and development courses. • Encouraging and supporting employee-led initiatives to grow employee engagement 4. Flexibility and Work Design • Implementing a robust health and safety plan focussed on reviewing and managing TVNZ’s key risks and control Flexible work arrangements include part-time, job share, measures and preparing for the upcoming regulatory working from home, remote access and casual employment. changes under the Health and Safety at Work Act A more flexible and dynamic work environment has • Completing the first phase of the Auckland office been created with the completion of the first phase of refurbishment which provides a contemporary, the refurbishment of TVNZ’s Auckland office. open-plan and collaborative work environment
5. Remuneration, Recognition and Conditions TVNZ was runner up in the 2015 Randstad Awards for New Zealand’s most attractive employer, having been the winner in 2014. Remuneration is based on individual performance and is benchmarked with market rates.
Good Employer Individual, peer and team recognition is encouraged and practised. TVNZ has adopted the guidelines of the Human Rights Commission in monitoring seven aspects of our engagement with our employees. 6. Harassment and Bullying Prevention
1. Leadership, Accountability and Culture Policies and practices include: • Equal Employment Opportunity policy Implementing a leadership coaching programme for • Harassment policy business leaders following a 360 leadership review. • Social Media Policy Evolving and sharing vision and values. 7. Safe and Healthy Environment Implementing multiple employee-led initiatives to enhance employee engagement. TVNZ continues to invest heavily in Health and Safety.
2. Recruitment, Selection and Induction Implementing new risk assessment and management processes for Content and Blacksand teams and external TVNZ continues to behave as an Equal Employment audits of all of TVNZ’s key operational risks. Opportunities employer across multiple career platforms including its careers site, social platforms and job boards. Training for key business areas in bowtie risk analysis.
TVNZ surveys job applicants on nationality, ethnicity, TVNZ provides an Employee Assistance Programme, discounted gender, age and accessibility to help understand Southern Cross health insurance and subsidised gym memberships. candidate profile and hiring behaviours.
Page 16 TVNZ Annual Report FY2015 Workforce Profile
Employees Gender Age
15 - 24 Years 6%
43% 25 - 34 Years 30%
35 - 44 Years 30% 760 45 - 54 Years 20% 57% 55 and over 14%
Female Gender FY FY FY Tenure 2015 % 2014 % 2013 % Representation Female Female Female
70% Less than 1 year 13% 60% 1 - 2 years 22% 50% 3 - 4 years 15% 40% 5 - 9 years 22% 30% 10 - 19 years 16% 20% 20 years and over 12% 10%
0% Board Executive Business Other Leaders
Total Fixed Remuneration (%) Ethnicity
20.5 57% 5% 4% 2% 21
9 NZ European Maori Other Chinese / European 1.5
17 2% 1% 29% 31 Indian Samoan Unspecified
< 40,000 80,000 - 99,999 40,000 - 54,999 100,000 - 149,999 55,000 - 79,999 > 150,000
TVNZ Annual Report FY2015 Page 17 Performance and Engagement Measures
ON AIR ENGAGEMENT
Average monthly cumulative audience across all TVNZ channels: 3,794,941 Over 3.7 million people aged 5+ watched a TVNZ channel in an average month during FY2015 – 91% of all New Zealanders 5+. Source: Nielsen TAM, Consolidated (Monthly reach, AP5+) TV ONE, TV2, TV ONE Plus 1, TV2+1 and TVNZ Heartland
ONLINE PERFORMANCE 27% Streams across all devices: 68,949,153 27% increase
TVNZ OnDemand recorded over 68 million streams in FY2015 – up 27% year on year. It averaged 5.7 million streams each month. Source: Adobe Omniture
TVNZ ONDEMAND REGISTRATIONS: 651,000 Over 650,000 verified OnDemand registrations since re-launch in March 2015.
ONE NEWS NOW VIDEO STREAMS: 45% 27,673,212 TVNZ’s online news platform streamed over 27 million videos in FY2015 – up 45% year-on-year. Source: Brightcove Analytics
Page 18 TVNZ Annual Report FY2015 Compliance with Standards and Codes Through the process of Formal Complaints, our viewers play an influential part in the maintenance of broadcasting standards.
The Broadcasting Standards Authority (BSA) is responsible In FY2015, TVNZ answered 1073 formal complaints to the BSA under the Broadcasting Act 1989 for administering standards in programming and presentation of programming. All • 362 more than in the previous year. formal complaints must be first made in writing to the • Of these 1073 complaints, 82 complaints were Broadcaster (with the exception of allegations of privacy). upheld by the TVNZ Complaints Committee. Complainants may refer their complaint to the BSA if they are not satisfied with the outcome of the TVNZ process. In the same period OMSA considered 4 complaints about TVNZ material. Unique online News and Current Affairs material is now regulated by OMSA (the Online Media Standards Authority). Complaints • 1 complaint was found to have no grounds to proceed; 2 are made directly to OMSA; there is no referral process. were settled and 1 OMSA complaint had no jurisdiction.
2012 2013 2014 2015
1155 complaints 792 complaints 711 BSA complaints 1073 BSA complaints 29 upheld 35 upheld 27 upheld 82 upheld 3 OMSA complaints 4 OMSA complaints 2 no grounds to proceed 1 no grounds to proceed 1 settled 1 no jurisdiction 2 settled
In FY2015 the BSA handled 40 referrals about TVNZ programming – a decrease of 6 referrals on the previous year (referrals are counted per BSA decision). Of these 1 was upheld by the BSA*.
2012 2013 2014 2015
59 referred 57 referred 46 referred 39 referred* 7 upheld 5 upheld 3 upheld 1 upheld
* 6 referrals yet to be determined by the BSA
TVNZ Annual Report FY2015 Page 19 Liv (Rose McIver), iZombie ONE News Now Consolidated Financial Statements For the year ended 30 June 2015
Statement of Responsibility 23 Consolidated Financial Statements 24 Statement of Performance 55 Report of the Auditor-General 56 Five Year Trend Statement 58 Additional Information 59 Statement of Responsibility For the year ended 30 June 2015
The Board and management of Television New Zealand Limited are responsible for:
• The preparation of these financial statements and the judgements used in them.
• Establishing and maintaining a system of internal control designed to provide reasonable assurance as to the integrity and reliability of financial reporting.
In the opinion of the Board and management these financial statements fairly reflect the financial position of Television New Zealand Limited as at 30 June 2015 and its financial performance and cash flows for the year ended on that date.
The Directors have pleasure in presenting the following financial statements for the year ended 30 June 2015.
For and on behalf of the Board of Directors,
Joan Withers Alison Gerry Chair Chair, Audit and Risk Committee
30 September 2015
TVNZ Annual Report FY2015 Page 23 Consolidated Income Statement For the year ended 30 June 2015
2015 2014 Notes $000 $000
Revenue Operating revenue 4 333,931 336,887 Government funding 18a 8,547 15,020 Interest income 2,010 858 Gain on sale of property, plant and equipment 5,504 7,820 349,992 360,585
Expenses Programme amortisation 12 (187,059) (201,204) Employee benefits 5 (49,205) (50,336) Depreciation and amortisation 5 (14,055) (15,409) Transmission, technology and telecommunications (19,822) (21,788) Premises and occupancy (7,862) (6,209) Marketing (8,725) (8,811) Other (26,948) (21,846) (313,676) (325,603)
Earnings before interest expense, impairments, financial 36,316 34,982 instruments, associates and tax
Interest expense (92) (249) Asset impairment 6 (486) (3,188) Financial instruments/foreign currency (losses)/gains 7 912 (167) Share of results of associates 14 0 (2,055) Impairment of associate 14 0 (4,287)
Profit before income tax 36,650 25,036
Income tax expense 8 (8,535) (6,925)
Profit for the year 28,115 18,111
The accompanying notes form part of these financial statements.
Page 24 TVNZ Annual Report FY2015 Consolidated Statement of Comprehensive Income For the year ended 30 June 2015
2015 2014 $000 $000
Profit for the year 28,115 18,111
Other comprehensive income/(loss) reclassifiable to profit or loss in subsequent periods Share of results of associate cash flow hedge 0 (29) Other comprehensive income/(loss) for the year net of income tax 0 (29)
Total comprehensive income for the year 28,115 18,082
The accompanying notes form part of these financial statements.
TVNZ Annual Report FY2015 Page 25 Consolidated Statement of Changes in Equity For the year ended 30 June 2015
Cash flow hedge Retained Share capital reserve earnings Total $000 $000 $000 $000
Group At 1 July 2014 140,000 0 36,162 176,162 Profit/(loss) for the year 0 0 28,115 28,115 Other comprehensive income net of income tax 0 0 0 0 Total comprehensive income/(loss) for the year 0 0 28,115 28,115
Equity transactions Dividend paid in the year 0 0 0 0 At 30 June 2015 140,000 0 64,277 204,277
At 1 July 2013 140,000 29 18,051 158,080 Profit/(loss) for the year 0 0 18,111 18,111 Other comprehensive income net of income tax 0 (29) 0 (29) Total comprehensive income/(loss) for the year 0 (29) 18,111 18,082
Equity transactions Dividend paid in the year 0 0 0 0 At 30 June 2014 140,000 0 36,162 176,162
The accompanying notes form part of these financial statements.
Page 26 TVNZ Annual Report FY2015 Consolidated Statement of Financial Position As at 30 June 2015
2015 2014 Notes $000 $000
ASSETS Current assets Cash and cash equivalents 9 51,669 48,715 Trade and other receivables 10 52,150 53,986 Programme rights - intangible assets 12 43,306 44,612 Inventories 43 95 Derivative financial instruments 20 1,727 1,453 Total current assets 148,895 148,861
Property, plant and equipment held for sale 11 0 3,931
Non-current assets Property, plant and equipment 11 91,037 57,949 Other intangible assets 12 27,345 17,723 Deferred tax asset 8 1,948 730 Derivative financial instruments 20 1,433 237 Total non-current assets 121,763 76,639
Total assets 270,658 229,431
LIABILITIES Current liabilities Bank overdraft 16 1,407 0 Trade and other payables 17 58,458 47,659 Deferred income 18 3,266 3,272 Derivative financial instruments 20 355 10 Provisions 19 1,658 1,039 Total current liabilities 65,144 51,980
Non-current liabilities Employee entitlements 17 1,230 1,283 Derivative financial instruments 20 7 6 Total non-current liabilities 1,237 1,289
Equity Share capital 22 140,000 140,000 Retained earnings 64,277 36,162 Total equity 204,277 176,162 Total equity and liabilities 270,658 229,431
The accompanying notes form part of these financial statements. For and on behalf of the Board, who authorised the issue of these financial statements on 30 September 2015,
Joan Withers Alison Gerry Chair Chair, Audit and Risk Committee
TVNZ Annual Report FY2015 Page 27 Consolidated Statement of Cash Flows For the year ended 30 June 2015
2015 2014 Notes $000 $000
Cash flows from/(used in) operating activities Receipts from customers 339,317 338,109 Receipt of government grants 7,674 16,673 Interest received 1,993 753
Payments to suppliers and employees (290,884) (304,620) Interest paid (92) (249) Income tax paid (8,799) (6,348) Net cash flows from/(used in) operating activities 23 49,209 44,318
Cash flows from/(used in) investing activities Proceeds from sale of property, plant and equipment 9,925 16,170 Purchase of property, plant and equipment (40,869) (8,482) Purchase of intangibles (16,872) (8,340) Advances to associates 0 (1,317) Net cash flows from/(used in) investing activities (47,816) (1,969)
Net cash flows from/(used in) financing activities 0 0
Net increase/(decrease) in cash and cash equivalents 1,393 42,349 Net foreign exchange differences 154 (19)
Cash and cash equivalents at the beginning of the year 48,715 6,385 Cash and cash equivalents at the end of the year 9 50,262 48,715
The accompanying notes form part of these financial statements.
Page 28 TVNZ Annual Report FY2015 Notes to the Consolidated Financial Statements For the year ended 30 June 2015
1. Corporate information Television New Zealand Limited and its subsidiaries (the Group) operate as a multi channel television and digital media broadcasting and production company in New Zealand.
Television New Zealand Limited (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 30 September 2015.
2. Summary of significant accounting policies The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated. a) Basis of preparation The financial statements have been prepared in accordance with generally accepted accounting practice in New Zealand (NZ GAAP) and the requirements of the Television New Zealand Act 2003, Financial Reporting Act 2013 and the Companies Act 1993. For the purposes of complying with NZ GAAP the entity is a for-profit entity. The consolidated financial statements have been prepared on a historical cost basis except for derivative financial instruments that have been measured at fair value, and assets and liabilities that are designated in a fair value hedge relationship.
The consolidated financial statements are presented in New Zealand dollars ($), which is the Group’s functional currency. All financial information presented in New Zealand dollars has been rounded to the nearest thousand unless otherwise stated.
The consolidated financial statements provide comparative information in respect of the previous period. The classifications of certain balances have been revised to better reflect the Group’s revenue and expenditure and the comparatives have been restated accordingly. These reclassifications have no impact on the overall financial performance or financial position of the comparative year. b) Statement of compliance The consolidated financial statements of the Group comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS), and other applicable Financial Reporting Standards, as appropriate for profit orientated entities. The consolidated financial statements comply with International Financial Reporting Standards (IFRS).
The accounting policies set out below have been applied consistently to all periods presented in these financial statements, unless otherwise stated. c) Changes in accounting policies and disclosures i) Accounting standards and interpretations issued but not yet effective Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ending 30 June 2015. These are noted below.
NZ IFRS 9 – Financial Instruments NZ IFRS 9 Financial Instruments, bringing together the classification and measurement, impairment and hedge accounting phases of the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The group has not yet assessed the impact of this standard. The application date for this standard is for accounting periods beginning on or after 1 January 2018, the application date for the Group is 1 July 2018.
NZ IFRS 15 – Revenue from contracts with customers NZ IFRS 15 Revenue from Contracts with customers establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The core principle of NZ IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The accompanying notes form part of these financial statements.
TVNZ Annual Report FY2015 Page 29 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
An entity recognises revenue in accordance with that core principle by applying the following steps: Step 1: Identify the contract(s) with a customer Step 2: Identify the performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
The Group has not yet assessed the impact of this standard. The application date for this standard is for accounting periods beginning on or after 1 January 2017, the application date for the Group is 1 July 2017. d) Basis of consolidation The consolidated financial statements comprise the financial statements of Television New Zealand Limited and its subsidiaries at 30 June.
Subsidiaries are those entities controlled, directly or indirectly, by the Group. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intercompany transactions, balances and unrealised surpluses and deficits on transactions between Group companies are eliminated on consolidation.
Subsidiaries are fully consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date on which control is transferred out of the Group.
The acquisition of subsidiaries is accounted for using the acquisition method of accounting. e) Foreign currency The functional and presentational currency of Television New Zealand Limited and its subsidiaries is the New Zealand dollar ($).
Transactions in foreign currencies are translated to the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rates ruling at balance date.
Differences arising on the translation of monetary assets and liabilities in foreign currencies are recognised in the income statement.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. f) Revenue recognition Revenue is stated exclusive of goods and services tax (GST) and consists of sales of goods and services to third parties. Revenue from the sale of goods and services is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Key classes of revenue are recognised on the following basis: i) Rendering of services Revenue from advertising and sponsorship is recognised as income at the time of transmission. ii) Government grants Government grants are recognised initially as deferred income when there is reasonable assurance that they will be received and that the Group will comply with the conditions associated with the grant. Grants that compensate the Group for expenses incurred are recognised as income on a systematic basis in the same periods in which the expenses are recognised. Grants that compensate the Group for the cost of an asset are recognised as income in the income statement on a systematic basis over the useful life of the asset. iii) Other revenue Other revenue is recognised when the product has been delivered or in the accounting period in which the actual service has been provided. iv) Interest Revenue is recognised as interest accrues using the effective interest method.
Page 30 TVNZ Annual Report FY2015 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
g) Taxation Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes, and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets and liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit and differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future.
Deferred tax assets are recognised where realisation of the asset is probable.
Deferred tax is measured at the tax rates that are expected to apply when the temporary differences reverse, based on tax rates (and tax law) that have been enacted or substantively enacted at the balance sheet date.
Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. h) Leases Operating lease payments, where the lessors substantially retain all the risks and benefits of ownership of the leased items, are recognised as an expense in the income statement on a straight-line basis over the lease term. i) Dividends Provision is made for the amount of dividend declared on or before balance date but not distributed at balance date. j) Property, plant and equipment Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes the cost to acquire the asset and other directly attributable costs incurred to bring the asset to the location and condition for its intended use. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Items of work in progress are transferred to the appropriate class of property, plant and equipment on completion. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.
Depreciation is calculated on a straight-line basis to allocate the cost of assets over their estimated useful lives. Land and work in progress is not depreciated.
The estimated useful lives for the current and comparable period are: Buildings 40 years Plant and equipment 3 to 10 years Motor vehicles 5 to 10 years
Property, plant and equipment held for sale Property, plant and equipment held for sale is stated at the lower of its carrying value and fair value less costs to sell. Property, plant and equipment held for sale is not depreciated while they are classified as held for sale.
Impairment The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash-generating unit the asset belongs to. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash generating units are written down to their recoverable amount.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.
Where an item of property, plant and equipment is derecognised, the gain or loss (calculated as the difference between the net proceeds and the carrying value of the item) is included in the income statement in the period the item is derecognised.
TVNZ Annual Report FY2015 Page 31 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
k) Intangible assets Programme rights Television programmes which are available for use, including those acquired overseas, are recorded at cost less amounts charged to the income statement based on management’s assessment of the useful life, which is regularly reviewed and additional write downs are made as considered necessary. Programmes produced internally for the purpose of broadcast are initially recognised as intangible assets at production cost. Production costs only include direct costs associated with the programme.
Programme rights are amortised on the following basis: (i) Certain programme rights including news and current affairs, sports and locally commissioned programmes are amortised on transmission.
(ii) All other programme rights (movie and non movie programme rights) are amortised on a straight line basis such that all rights are amortised within a period not exceeding one year from the broadcast licence period start date.
Frequency licences Frequency licences are recorded at cost less amortisation and impairment losses. Amortisation is calculated on a straight line basis over the period of the licence, 20 years.
Other intangible assets Acquired software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific asset. These costs are amortised on a straight line basis over their estimated useful economic lives of two to ten years.
Development costs Development costs on internal projects are only capitalised by the Group when the following can be demonstrated: • the technical feasibility of completing the intangible asset so that the asset will be available for use or sale • its intention to complete and use or sell the asset • how the asset will generate future economic benefits • the availability of resources to complete the asset • the ability to measure reliably the expenditure during development.
Any development costs capitalised are amortised over the period of the estimated economic life of the asset to which they relate.
Where an intangible asset is derecognised, the gain or loss (calculated as the difference between the net proceeds and the carrying value of the item) is included in the income statement in the period the item is derecognised. l) Cash and cash equivalents Cash and short term deposits in the statement of financial position comprise cash at the bank and in hand and short term deposits with an original maturity of three months or less.
For the purposes of the cash flow statement, cash and cash equivalents comprise cash and cash equivalents as defined above, net of outstanding overdrafts. m) Trade and other receivables Trade receivables are recognised and carried at original invoice amount (including GST) and subsequently measured at amortised cost, less an allowance for impairment.
Collectability of trade receivables is reviewed on an on going basis and debts that are known to be uncollectible are written off immediately. An allowance for impairment is recognised when there is objective evidence that the Group will not be able to collect the receivable. Financial difficulties of the debtor, default payments or debts more than 90 days overdue are considered objective evidence of impairment. n) Inventories Inventories comprise technical stores and videotape. All inventories are recorded at the lower of cost or net realisable value.
Page 32 TVNZ Annual Report FY2015 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
o) Derivative financial instruments The Group uses derivative financial instruments, within predetermined policies and limits, to manage its exposure to foreign currency exchange rate risk and interest rate risk. The Group also enters into programme supply contracts that contain a foreign currency embedded derivative.
Such derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative contract is designed to hedge a specific risk and qualifies for hedge accounting.
Each derivative that is designated as a hedge is classified as either: i) a fair value hedge when it hedges the exposure to changes in the fair value of a recognised asset or liability or a firm commitment; or ii) a cash flow hedge where it hedges the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a forecasted transaction. i) Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. ii) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised in the income statement. Amounts accumulated are recycled in the income statement in the period when the hedged item affects profit or loss. When the hedged firm commitment results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses that had previously been recognised in equity are included in the initial measurement of the acquisition cost or other carrying amount of the asset or liability.
Hedge accounting is discontinued when the hedging instrument expires or is sold, or when the hedge no longer meets the criteria for hedge accounting. At that point any cumulative gain or loss existing in equity remains in equity until the forecast transaction occurs. When a forecasted transaction is no longer expected to occur, the cumulative gain or loss is immediately transferred to the income statement.
For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are recognised immediately in the income statement. The fair value of forward exchange contracts and embedded derivatives are calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by reference to the current market values of similar instruments.
In accordance with its treasury policy, the Group does not engage in speculative transactions or hold derivative financial instruments for trading purposes. p) Borrowings and borrowing costs Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost using the effective interest method. Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset. All other borrowing costs are expensed in the period they occur. q) Trade and other payables Trade and other payables are carried at amortised cost and due to their short term nature they are not discounted. Trade and other payables are recognised when the Group becomes obliged to make future payments resulting from the purchases of goods and services. r) Investment in associate The Group’s investments in its associates are accounted for using the equity method of accounting in the consolidated financial statements. Associates are entities over which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group’s share of the income and expenses of the associate from the date that significant influence commenced until the date that significant influence ceases. The Group’s share of its associate post acquisition profits or losses is recognised in the income statement and its share of post acquisition movements in other comprehensive income is recognised in the statement of other comprehensive income. The cumulative post acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate exceeds its interest in
TVNZ Annual Report FY2015 Page 33 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
r) Investment in associate (continued) the associate, including any unsecured long-term receivables and loans, the Group does not recognise any further losses, unless it has incurred obligations or made payments on behalf of the associate. s) Interest in a joint venture The interest in a joint venture is accounted for in the consolidated financial statements using the equity method of accounting and is carried at cost by the parent entity. Under the equity method, the Group’s share of the profits or losses of the joint venture is recognised in the income statement and the share of movements in other comprehensive income is recognised in the statement of other comprehensive income. The cumulative movements are adjusted against the carrying amount of the investment. t) Employee benefits Provision is made for employee benefits accumulated as a result of employees rendering services up to balance date. The benefits include wages and salaries, incentives, compensated absences and retirement leave which are expensed in the income statement when services are provided or benefits vest with the employee. The provision for employee benefits is stated at the present value of the estimated future cash outflows to be incurred resulting from employees’ services provided up to balance date. u) Provisions Provisions are recognised when the Group has present legal or constructive obligations as a result of a past event that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
If the effect of time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
3. Significant accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Estimates and assumptions are reviewed by management on an on going basis. Actual results may differ from these estimates.
Management has identified the following accounting policies for which significant judgements, estimates and assumptions are made:
Estimation of useful lives of property, plant and equipment and finite-lived intangible assets The estimated useful life of a particular asset is based on historical experience, the expected service potential of the asset and technological advances. Adjustments to useful lives are made when considered necessary.
Income taxes and deferred tax The Group’s accounting policy for taxation requires management to make estimates as to, amongst other things, the amount of tax that will be payable, the availability of losses to be carried forward and the recovery of deferred tax assets.
Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable that future taxable profits will be available to utilise those temporary differences.
Capitalised development costs Development costs are only capitalised by the Group when it can be demonstrated that the technical feasibility of completing the intangible asset is valid so that the asset will be available for use. Actual results may differ from these estimates as a result of reassessment by management or taxation authorities.
Page 34 TVNZ Annual Report FY2015 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
2015 2014 $000 $000
4) Operating revenue Advertising revenue 313,523 319,732 Other trading revenue 20,408 17,155 333,931 336,887
Advertising revenue includes revenue from advertising, sponsorship and programme production funding on TVONE, TV2, TVNZ OnDemand, tvnz.co.nz, TVNZ Heartland (to 31 May 2015) and TVNZ U (to 31 August 2013).
5) Expenses Expenses include: Employee benefits expense Wages and salaries and other short term benefits 78,039 79,816 Defined contribution superannuation expense 2,726 2,684 Less employee benefits charged to programmes/capitalised (31,560) (32,164) 49,205 50,336
Depreciation and amortisation Depreciation 9,107 9,872 Amortisation - software 4,865 5,376 Amortisation - licences 83 161 14,055 15,409
Auditor's remuneration Audit of financial statements 278 277 Other assurance engagements 39 11 Other non audit services 11 0 328 288 Other non audit services consist of remuneration benchmarking services Reorganisation costs Reorganisation costs 3,684 2,558
Costs associated with the reorganisation of parts of the Group have been fully recognised in the current financial year. These costs include redundancy, outplacement and other costs associated with changes in operational areas of the business to align with the Group strategy and technology changes.
Rental and operating lease costs Rental and operating lease costs 5,621 4,398
6) Remediation expense and asset impairment Television Centre asset impairment 486 3,188
In July and September 2013 the Group agreed to sell its properties at 85-93 Hobson Street, Auckland to Sky City Auckland Ltd. As a result of the sale of these properties the Group is undertaking an extensive refurbishment of its building at 100 Victoria Street West, Auckland. Plant and equipment associated with Phase 1 of the refurbishment that no longer had income generating capacity was impaired to nil value in FY2014. An additional impairment of plant and equipment associated with Phase 2 of the refurbishment was made in the current year and these assets were impaired to nil value.
TVNZ Annual Report FY2015 Page 35 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
2015 2014 $000 $000
7) Financial instruments and foreign currency gains / (losses) Fair value changes of derivative financial instruments 1,124 1,410 Foreign currency realised gains/(losses) 437 (1,217) Foreign currency unrealised gains/(losses) (649) (360) 912 (167)
8) Income tax a) Income tax The major components of income tax expense are: Income statement Current income tax Current period 10,042 6,501 Adjustments for prior year (289) (107) 9,753 6,394 Deferred income tax Origination and reversal of temporary differences (602) 531 Change in asset use intention (616) 0 (1,218) 531
Total income tax expense 8,535 6,925
b) Reconciliation of income tax expense Profit/(loss) before income tax for the year 36,650 25,036 Taxation at 28% 10,262 7,010
Adjusted for the tax effect of: Non deductible expenditure 124 239 Non assessable income (946) (1,905) Share of results and impairment of associate 0 1,688 Income tax (over)/under provided in prior years (289) (107) Change in asset use intention (616) 0 Total tax expense 8,535 6,925
Page 36 TVNZ Annual Report FY2015 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
8) Income tax (continued) c) Recognised deferred tax assets/(liabilities)
2015 Current Deferred income tax income tax $000 $000 Opening balance (1,410) 730 Charged to income statement - tax expense (9,753) 602 Charged to income statement - change in asset use intention 0 616 Other payments/(receipts) 8,799 0 Closing balance (2,364) 1,948
Tax expense in income statement (8,535)
Amounts recognised in the balance sheet: Deferred tax asset 1,948
2014 Current Deferred income tax income tax $000 $000 Opening balance (1,364) 1,261 Charged to income statement - tax expense (6,394) (531) Other payments 6,348 0 Closing balance (1,410) 730
Tax expense in income statement (6,925)
Amounts recognised in the balance sheet: Deferred tax asset 730
Balance sheet 2015 2014 $000 $000 Deferred income tax at 30 June relates to the following: Deferred tax assets/(liabilities) Programme rights 5,787 7,426 Employee entitlements 2,639 2,552 Property, plant and equipment and software (7,022) (9,471) Provisions 436 291 Doubtful debts 9 12 Other 99 201 Derivative financial instruments 0 (281) 1,948 730
TVNZ Annual Report FY2015 Page 37 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
2015 2014 $000 $000
8) Income tax (continued) d) Imputation credit account The amount of imputation credits available for use in subsequent reporting periods 31,985 22,241
The subsidiaries of Television New Zealand Limited form part of the same consolidated tax group.
9) Cash and cash equivalents Cash at bank and in hand 26,669 15,715 Short term deposits 25,000 33,000 Cash and cash equivalents in the statement of cash flows 51,669 48,715 Bank overdrafts used for cash management purposes (1,407) 0 Cash and cash equivalents in the statement of cash flows 50,262 48,715
10) Trade and other receivables Trade receivables 35,982 40,468 Less provision for receivables impairment (33) (42) Prepaid programme rights 12,199 10,332 Prepayments - other 4,002 3,228 52,150 53,986
a) Provision for receivables impairment Trade receivables are non interest bearing and are generally on 30-60 day terms. A provision for receivables impairment is recognised when there is objective evidence that the receivable is impaired.
Movements in the provision for receivables impairment
At 1 July 42 49 Charge/(reversal) for the year (5) (1) Amounts written off (4) (6) At 30 June 33 42
Trade receivables that are less than 90 days overdue are not considered impaired. As at 30 June 2015 trade receivables of $1,798,000 (2014: $1,185,000) were past due but not considered impaired. Direct contact has been made with these debtors and the Group believes that payment will be made in full. Payment terms on these amounts have not been renegotiated however in most cases credit has been stopped until full payment is made. At 30 June, the ageing analysis of trade receivables is as follows:
Current 34,151 39,241 Up to 30 days overdue 1,683 648 Between 30 and 90 days overdue 105 537 Over 90 days overdue - past due not impaired 10 0 Over 90 days overdue - past due considered impaired 33 42 35,982 40,468
b) Fair value and credit risk Due to the short term nature of these receivables, their carrying value is assumed to approximate their fair value (refer note 21 for details of credit risk).
Page 38 TVNZ Annual Report FY2015 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
11) Property, plant and equipment
Land & Plant & Motor Work in buildings equipment vehicles progress Total $000 $000 $000 $000 $000
Year ended 30 June 2015 At 1 July 2014 net of accumulated depreciation and impairment 36,748 15,925 517 4,759 57,949 Additions 83 5,263 36 35,487 40,869 Transfers from WIP 364 2,313 0 (2,677) 0 Reclassification from Software WIP 0 0 0 2,302 2,302 Disposals (94) (92) (304) 0 (490) Depreciation charge (2,348) (6,671) (88) 0 (9,107) Impairment (486) 0 0 0 (486) Closing net book amount 34,267 16,738 161 39,871 91,037
At 30 June 2015 Cost 77,072 127,456 415 39,871 244,814 Accumulated depreciation and impairment (42,805) (110,718) (254) 0 (153,777) 34,267 16,738 161 39,871 91,037
Year ended 30 June 2014 At 1 July 2013 net of accumulated depreciation and impairment 52,542 20,879 703 491 74,615 Additions 1,193 2,452 2 4,835 8,482 Transfers from WIP 169 198 0 (367) 0 Disposals (7,740) (418) 0 0 (8,158) Transfer to assets held for sale (3,929) (2) 0 0 (3,931) Depreciation charge (2,500) (7,184) (188) 0 (9,872) Impairment (2,987) 0 0 (200) (3,187) Closing net book amount 36,748 15,925 517 4,759 57,949
At 30 June 2014 Cost 76,758 148,057 2,903 4,959 232,677 Accumulated depreciation (40,010) (132,132) (2,386) (200) (174,728) 36,748 15,925 517 4,759 57,949
Market value of land and buildings The Group is undertaking an extensive refurbishment of its building at 100 Victoria Street West, Auckland. The Group has received an “As if Complete” market valuation of land and buildings of $111,100,000, prepared by CBRE.
Transfers to assets held for sale At 30 June 2014 the Group had an agreement for the sale of land, buildings and equipment for the TVNZ Archive (book value of the assets: $3,931,000). The sale was settled on 1 August 2014.
TVNZ Annual Report FY2015 Page 39 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
12) Intangible assets
Programme rights Software Licences Total $000 $000 $000 $000
Year ended 30 June 2015 At 1 July 2014 net of accumulated amortisation and impairment 44,612 16,102 1,621 62,335 Additions (internally generated) 49,487 0 0 49,487 Additions (externally purchased) 136,266 16,872 0 153,138 Reclassification to PPE WIP 0 (2,302) 0 (2,302) Amortisation charge (187,059) (4,865) (83) (192,007) Closing net book amount 43,306 25,807 1,538 70,651
At 30 June 2015 Cost 223,862 76,146* 1,670 301,678 Accumulated amortisation (180,556) (50,339) (132) (231,027) 43,306 25,807 1,538 70,651
Current asset 43,306 0 0 43,306 Non-current asset 0 25,807 1,538 27,345 43,306 25,807 1,538 70,651
Year ended 30 June 2014 At 1 July 2013 net of accumulated amortisation and impairment 44,439 15,001 112 59,552 Additions (internally generated) 54,866 0 0 54,866 Additions (externally purchased) 146,511 6,670 1,670 154,851 Disposals 0 (193) 0 (193) Amortisation charge (201,204) (5,376) (161) (206,741) Closing net book amount 44,612 16,102 1,621 62,335
At 30 June 2014 Cost 223,636 61,780* 1,670 287,086 Accumulated amortisation (179,024) (45,678) (49) (224,751) 44,612 16,102 1,621 62,335
Current asset 44,612 0 0 44,612 Non-current asset 0 16,102 1,621 17,723 44,612 16,102 1,621 62,335
*Included in software are assets under development of $15,539,000 (2014: $6,289,000).
Page 40 TVNZ Annual Report FY2015 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
13) Group companies The Group consists of Television New Zealand Limited and its subsidiaries.
Subsidiaries of Television New Zealand Limited comprise:
% holding Name Principal activity 2015 2014 Freeview Television Limited Non trading 100% 100% nzoom Limited Non trading 100% 100% TVNZ International Limited Non trading 100% 100% TVNZ Investments Limited Non trading 100% 100% TVNZ Satellite Services Limited* Non trading 100% 100% Horizon Pacific Television Limited* Non trading 100% 100% Auckland Regional Television Limited* Non trading 100% 100% Freesat Limited* Non trading 100% 100% Freesat Television Limited* Non trading 100% 100%
All companies are incorporated in New Zealand. All have balance dates of 30 June.
*These companies were deregistered in July 2015.
14) Interest in associate On 30 June 2014 the Group sold its shares in Igloo Ltd to Sky for $1.00 and the option to purchase further shares was cancelled. The Group has no outstanding or further obligations to Igloo. On 30 June 2014 the Group sold its shares in Hybrid back to Hybrid for $1.00 and has no future obligations to provide financial support to Hybrid.
2015 2014 $000 $000
a) Movement in carrying amount of the Group's investment in associate Igloo Limited At 1 July 0 6,060 Share of losses after income tax 0 (2,055) Share of comprehensive income after income tax 0 (29) Impairment 0 (3,976) At 30 June 0 0
b) Share of results and impairment of associates Share of results in associate 0 (2,055) Impairment of associate 0 (4,287) 0 (6,342)
TVNZ Annual Report FY2015 Page 41 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
15) Interest in joint venture The Group has a 44.9% interest in Freeview Limited, an incorporated joint venture with Mediaworks TV Limited, Maori Television Service and Radio New Zealand Limited. Freeview Limited is audited by Ernst & Young and has a balance date of 30 June.
The carrying amount of the Group’s investment in Freeview Limited is $nil (2014: $nil).
The following table provides summarised financial information relating to the Group’s joint venture:
Extract from the joint venture balance sheet: 2015 2014 $000 $000
Current assets 933 866 Non-current assets 744 31 1,677 897
Current liabilities 1,677 897 Non-current liabilities 0 0 1,677 897 Net assets 0 0
Share of joint ventures net assets 0 0
Extract from joint venture income statement: Revenue 2,302 4,181 Net Profit 0 0
To the knowledge of the Directors, there are no contingent liabilities relating to the Group’s interest in the joint venture and no contingent liabilities or capital commitments of the venture itself. Under the terms of the joint venture shareholder agreement the Group is required to fund its agreed share of net costs for the services provided by the joint venture.
2015 2014 $000 $000
16) Loans and borrowings Current Bank overdraft (unsecured) 1,407 0
The Group has a revolving cash advance facility committed to a maximum amount of $20 million (June 2014: $20 million); these facilities expire in December 2016. There were no borrowings on this facility during the year. Refer Note 21 for details on management of interest rate risk related to borrowings.
a) Fair values As at 30 June the carrying amount of the Group’s current and non-current borrowings approximate their fair value.
b) Defaults and breaches During the current and prior years, there were no defaults or breaches of any loan covenants.
Page 42 TVNZ Annual Report FY2015 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
2015 2014 $000 $000
17) Trade and other payables Current Trade payables and accruals 49,324 39,723 Employee entitlements 6,770 6,526 Tax payable 2,364 1,410 58,458 47,659
Non-current Employee entitlements 1,230 1,283
The carrying value of trade and other payables is assumed to approximate their fair value.
18) Deferred income Government funding 940 1,676 Other 2,326 1,596 3,266 3,272
Government funding MCH NZOA TMP Total $000 $000 $000 $000 Year ended 30 June 2015 At 1 July 2014 890 494 292 1,676 Received/invoiced during the year 607 3,373 3,831 7,811 Released to the income statement (1,071) (3,353) (4,123) (8,547) Closing net book amount 426 514 0 940
Year ended 30 June 2014 At 1 July 2013 1,624 2,377 158 4,159 Received/invoiced during the year 1,182 6,105 5,250 12,537 Released to the income statement (1,916) (7,988) (5,116) (15,020) Closing net book amount 890 494 292 1,676
Government funding received during the year was in the form of cash, and has been recorded at fair value. The Ministry for Culture and Heritage (MCH) provides funding to TVNZ to provide transmission of TVNZ programmes to Pacific nations. New Zealand On Air (NZOA) and Te Mangai Paho (TMP) provide funding for the production and broadcast of specific programmes.
The funding will be recognised in the income statement to match the expenditure associated with this funding.
TVNZ Annual Report FY2015 Page 43 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
2015 2014 $000 $000 19) Provisions Reorganisation 1,658 1,039
Movement in provision Reorganisation $000 At 1 July 2014 1,039 Raised during the year 1,658 Utilised during the year (1,039) At 30 June 2015 1,658
Current 1,658 Non-current 0 At 30 June 2015 1,658
Current 2014 1,039 Non-current 2014 0 At 30 June 2014 1,039
Nature and timing of provisions Reorganisation provision The reorganisation provision balance relates to the costs of redundancy, outplacement and other costs associated with changes in operational areas of the business to align with the Group strategy and technology changes.
Page 44 TVNZ Annual Report FY2015 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
2015 2014 $000 $000 20) Derivative financial instruments Current assets Forward currency contracts - held for trading 1,696 442 Forward currency contracts - fair value hedge 31 10 Foreign currency embedded derivative contracts 0 1,001 1,727 1,453
Non-current assets Forward currency contracts - held for trading 1,433 230 Forward currency contracts - fair value hedge 0 6 Foreign currency embedded derivative contracts 0 1 1,433 237
Current liabilities Forward currency contracts - fair value hedge 31 10 Foreign currency embedded derivative contracts 324 0 355 10 Non-current liabilities Forward currency contracts - fair value hedge 0 6 Foreign currency embedded derivative contracts 7 0 7 6
a) Instruments used by the Group Derivative financial instruments are used by the Group in the normal course of business in order to hedge exposures to fluctuations in foreign exchange and interest risk.
i) Forward currency contracts – held for trading The Group has entered into forward exchange rate contracts which are economic hedges but do not satisfy the requirements for hedge accounting. The following table details the notional amounts of these derivative financial instruments at balance date.
2015 2014 NZD NZD $000 $000
Buy AUD/Sell NZD - Maturity 0-12 months 56,333 54,763 Buy AUD/Sell NZD - Maturity 13 - 24 months 40,626 54,154
ii) Forward currency contracts – fair value hedge The Group has entered into forward exchange rate contracts which are economic hedges against the purchase of certain capital, programme rights and production expenditure. The fair value gains/(losses) on the hedged item are equal to the fair value gains/(losses) of the hedging instrument. The following table details the notional amounts of these derivative financial instruments at balance date.
Forward currency contracts – fair value hedge Buy AUD/Sell NZD - Maturity 0 - 12 months 1,158 1,147 Buy AUD/Sell NZD - Maturity 13 - 24 months 0 772 Buy USD/Sell NZD - Maturity 0-12 months 48 0
TVNZ Annual Report FY2015 Page 45 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
20) Derivative financial instruments (continued) 2015 2014 NZD NZD $000 $000
iii) Foreign currency embedded derivative contracts The Group has entered into programme supply contracts that contain a foreign currency embedded derivative. The following table details the notional amounts of these embedded derivatives at balance date.
Embedded derivatives Sell AUD/Buy NZD - Maturity 0-12 months 4,414 21,591 Sell AUD/Buy NZD - Maturity 13-24 months 271 132
iv) Interest rate swaps – cash flow hedge To protect against rising interest rates the Group hedges its borrowings by entering into interest rate swaps contracts under which it has the right to receive interest at variable rates and pay interest at fixed rates. No interest rate swaps are held at 30 June 2015 (30 June 2014: nil).
21) Financial risk factors The Group’s activities expose it to a variety of financial risks including currency risk, interest rate risk, credit risk and liquidity risk. The Group’s overall risk management policy seeks to minimise potential adverse effects on the Group’s financial performance.
Treasury policies have been approved by the Board for managing each of these risks including levels of authority on the type and use of financial instruments. The Group enters into derivative transactions, principally forward currency contracts and interest rate swaps, only if they relate to underlying exposures.
The Group has the following categories of financial instruments: Held for trading financial assets (including derivative financial instruments); loans and receivables (including cash and cash equivalents and trade receivables); held for trading financial liabilities (including derivative financial instruments); and financial liabilities measured at amortised cost (including trade and other payables and loans and borrowings).
The carrying amounts of these financial instruments are disclosed on the face of the statement of financial position or in each of the applicable notes.
Currency risk The Group undertakes transactions denominated in foreign currencies, predominately Australian dollars, for programme rights’ purchases. As a result of these transactions the Group has exposure to foreign exchange risk. The Group’s foreign exchange policy is to hedge a portion of material foreign currency denominated costs at the time of the commitment on a rolling 24 month basis. The Group ensures that its net exposure to foreign denominated cash balances is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short term imbalances.
Page 46 TVNZ Annual Report FY2015 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
21) Financial risk factors (continued)
At 30 June the Group had the following foreign currency exposures. 2015 2014 $000 $000 Financial assets Cash and cash equivalents 633 627 Trade and other receivables 274 589 907 1,216
Financial liabilities Trade and other payables (14,557) (11,935) (14,557) (11,935)
Foreign currency derivatives Forward contracts 97,007 108,917 Embedded derivatives (4,685) (21,723) 92,322 87,194
Total net exposure 78,672 76,475
At 30 June, had the New Zealand dollar strengthened/(weakened) by 10% against foreign currencies with all other variables held constant, post tax profit and equity would have been (lower)/higher as follows:
Post tax profit Equity +10% (10%) +10% (10%) 2015 (5,801) 5,801 0 0 2014 (5,524) 5,524 0 0
Interest rate risk The Group’s exposure to interest rate risk relates primarily to cash equivalents and borrowings.
At 30 June, the Group had the following mix of financial assets and liabilities exposed to variable interest rate risk.
2015 2014 $000 $000 Financial assets Cash and cash equivalents 51,669 48,715
Financial liabilities Bank overdrafts (1,407) 0
Net exposure 50,262 48,715
TVNZ Annual Report FY2015 Page 47 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
21) Financial risk factors (continued) The Group’s interest rate policy is to have between 0% and 100% of its borrowings at fixed rates over the medium term. The Group uses interest rate swaps in order to achieve the desired mix between fixed and floating rates. These swaps are designated to hedge underlying debt obligations. No interest rate swaps are held at 30 June 2015 (30 June 2014: nil).
At 30 June, if interest rates had increased/(decreased) by 1% with all other variables held constant, post tax profit and equity would have been (lower)/higher as follows:
Post tax profit Equity +1% (1%) +1% (1%) 2015 367 (367) 0 0 2014 337 (337) 0 0
Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its obligations. In the normal course of business the Group incurs credit risk with financial institutions and trade receivables. The Group has a credit policy which is used to limit counterparty risk through restrictions on the amount of short-term investments that may be placed with any one approved financial institution.
The maximum exposure at balance date equals the carrying value of cash, derivative financial instruments (assets) and trade receivables as shown in the statement of financial position and specified in applicable notes.
The major concentration of credit risk within trade receivables is the extension of credit to advertisers through accredited advertising agencies. These agencies are required to comply with a formal accreditation process, which includes the regular review of their financial position. Each accredited agency is required to meet a certain financial ratio or alternatively provide other forms of financial reassurance to the Group. The Group has a credit insurance policy for a selected range of agencies, to protect against loss through default. The Group does not have any other significant concentrations of credit risk.
The Group does not require collateral or security to support financial instruments due to the quality of the counterparties with which it deals.
Liquidity risk Liquidity risk is the risk that the Group may be unable to meet its financial obligations as they fall due. It is the Group’s policy to ensure that adequate funding is available at all times to meet future commitments as they arise. Management monitors rolling forecasts of the Group’s liquidity reserve on the basis of expected cash flows.
At 30 June 2015 the Group has available $20,000,000 (2014: $20,000,000) of undrawn committed facilities. These bank facilities expire in December 2016.
Page 48 TVNZ Annual Report FY2015 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
21) Financial risk factors (continued) The table below analyses the contractual cash flows for all financial liabilities and derivatives. The forward exchange contract inflow and outflow are notional values.
2015 Within one One to two Two to five year years years Total Group $000 $000 $000 $000 Bank overdraft 1,407 0 0 1,407 Trade and other payables 49,324 0 0 49,324 Forward exchange contracts - outflow 57,539 40,626 0 98,165 Forward exchange contracts - inflow (59,235) (42,059) 0 (101,294) 49,035 (1,433) 0 47,602
2014 Within one One to two Two to five year years years Total Group $000 $000 $000 $000 Bank overdraft 0 0 0 0 Trade and other payables 39,723 0 0 39,723 Forward exchange contracts - outflow 55,910 54,926 0 110,836 Forward exchange contracts - inflow (56,352) (55,156) 0 (111,508) 39,281 (230) 0 39,051
Fair value The Group uses various methods in estimating the fair value of a financial instrument. The methods comprise:
Level 1 – the fair value is calculated using quoted prices in active markets. Level 2 – the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). Level 3 – the fair value is estimated using inputs for the asset or liability that are not based on observable market data.
The fair value of the financial instruments is estimated using Level 2 criteria such as present value techniques, comparison to similar instruments for which market observable prices exist and other relevant models used by market participants. The fair values of these level 2 financial instruments are presented in the following table.
2015 2014 $000 $000 Financial assets Derivative instruments Foreign currency contracts 3,160 688 Foreign currency embedded derivative contracts 0 1,002 3,160 1,690
Financial liabilities Derivative instruments Foreign currency contracts 31 16 Foreign currency embedded derivative contracts 331 0 362 16
TVNZ Annual Report FY2015 Page 49 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
21) Financial risk factors (continued) Capital management The Group’s capital includes share capital, reserves and retained earnings.
The Crown has a general preference for state-owned enterprises and Crown-entity companies (including TVNZ) to manage their balance sheets to a BBB credit rating. The Group’s capital structure is broadly in line with the Crown’s expectations. The Group targets a gearing ratio of less than 40% (refer note 28e).
There have been no material changes to the Group’s management of capital during the year.
22) Share capital and reserves For movements in share capital and reserves refer to the Statement of Changes in Equity.
a) Share capital As at 30 June 2015 there were 140,000,000 shares ($1 each) issued and fully paid (2014: 140,000,000). All ordinary shares rank equally with one vote per share and carry rights to dividends.
Upon winding up, shareholders rank equally with regard to the Group’s residual assets.
b) Nature and purpose of the cash flow hedge reserve This reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge.
2015 2014 $000 $000 Movement in cash flow hedge reserve: Opening balance 0 29 Charged to other comprehensive income 0 (29) Closing balance at 30 June 0 0
23) Cash flow statement reconciliation Reconciliation of net profit after tax to net cash flows from operations Net profit 28,115 18,111 Adjustments for: Depreciation and impairment 9,593 13,060 Amortisation 4,948 5,537 Gain on disposal of property, plant and equipment (5,504) (7,820) Unrealised foreign currency losses/(gains) 649 360 Share of associate net results and provisions 0 6,342 Other 0 42
Changes in assets and liabilities (Increase)/decrease in trade and other receivables 1,857 14,210 (Increase)/decrease derivative financial instruments (1,124) (1,409) (Increase)/decrease deferred tax asset (1,218) 531 (Increase)/decrease inventories 52 7 (Increase)/decrease programme rights 1,306 (173) Increase/(decrease) trade and other payables 8,968 (1,058) Increase/(decrease) deferred income (6) (3,095) Increase/(decrease) income tax payable 954 46 Increase/(decrease) provisions 619 (373) Net cash from operating activities 49,209 44,318
Page 50 TVNZ Annual Report FY2015 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
24) Related party disclosures a) Subsidiaries The consolidated financial statements include the financial statements of Television New Zealand Limited and its subsidiaries, listed in note 13. There were no related party transactions between entities within the Group during the year (2014: $nil).
b) Joint venture The following table provides the total amount of transactions that were entered into with Freeview Limited.
2015 2014 $000 $000 Joint venture Revenue from Freeview Limited 777 1,622 Purchases from Freeview Limited 503 257
Amounts owed by Freeview Limited 364 255 Amounts owed to Freeview Limited 0 0
All transactions with the joint venture arise in the normal course of business on an arm’s length basis.None of the balances are secured.
c) Associate Funding to Hybrid Television Services (ANZ) Pty Ltd 0 1,317 All funding to the associate has been written off.
d) Government entities Funding from government entities 8,547 15,020 Revenue from government entities 1,371 1,256 Purchases from government entities 8,624 11,461
Amounts owed by government entities 595 358 Amounts owed to government entities 248 210
Revenue in advance from government entities 940 1,676
All sales and purchases with government owned entities arise in the normal course of business on an arm’s length basis. None of the balances are secured.
e) Key management personnel Key management consists of TVNZ’s Chief Executive Officer and the members of the executive team (current and former during the year). Key management personnel compensation is as follows:
Salary and other short term benefits 4,654 4,311 Defined contribution superannuation expense 227 205 4,881 4,516
f) Directors Directors’ fees 370 337
Certain Directors are also non-executive directors of companies with which TVNZ has transactions in the normal course of business. Any transactions undertaken with these entities have been entered into on an arm’s length commercial basis.
TVNZ Annual Report FY2015 Page 51 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
2015 2014 $000 $000 25) Commitments a) Programme rights Within one year 111,622 126,436 One to two years 68,650 84,488 Two to five years 53,634 101,292 Later than five years 0 0 233,906 312,216
Commitments for programme rights are primarily denominated in Australian dollars and are converted at the exchange rate ruling at the date of transaction and revalued at year end. The commitments are determined with reference to the licence period start dates.
b) Operating leases Within one year 5,020 6,270 One to two years 1,441 3,231 Two to five years 1,033 2,565 Later than five years 274 0 7,768 12,066
c) Finance leases The Group did not have any finance lease commitments at balance date (2014: nil).
d) Property, plant and equipment and software Within one year 15,081 21,102 One to two years 0 10,209 15,081 31,311
26) 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 claims, no estimate of the financial effect can be made and no provision for any potential liability has been made in the financial statements.
27) Events after the balance sheet date On 26 August 2015 the Board of Directors declared a final dividend of $8,272,000, 5.91 cents per share, (2014 – $nil) to be paid in September 2015.
There have been no other significant events occurring since balance date requiring disclosure.
Page 52 TVNZ Annual Report FY2015 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
28) Comparison of forecast to actual results Actual Forecast $000 $000 a) Financial performance Revenue 349,992 359,423 Operating expenses (313,676) (326,914) Earnings before asset impairment, interest, tax, financial instruments and associates 36,316 32,509
Interest expense (92) (70) Asset impairment (486) (0) Financial instruments/foreign currency gains/(losses) 912 0 Income tax expense (8,535) (9,083) Net profit for the year 28,115 23,356
b) Movements in equity Net profit for the year 28,115 23,356
Distributions to the shareholder 0 0 Other comprehensive income 0 0 Movements in equity for the year 28,115 23,356 Equity at start of the year 176,162 175,977 Equity at end of the year 204,277 199,333
The forecasted growth in the advertising market did not occur, however this was partly offset by the Group increasing its market share of the television advertising market. Operating expenses are below forecast levels as the Group continues to implement cost savings initiatives. Fair value changes in financial instruments are not forecasted due to the inherent volatility in exchange rates; there was a gain for the year. The income tax variance is primarily due to increased profits.
No dividend was paid in FY2015 as the Shareholding Ministers agreed to forgo dividends to assist in the funding of the refurbishment of the Auckland Television Centre.
c) Financial position Current assets 148,895 149,813 Non-current assets 121,763 99,524 Total assets employed 270,658 249,337
Current liabilities 65,144 50,004 Non-current liabilities 1,237 0 Total liabilities 66,381 50,004
Share capital 140,000 140,000 Retained earnings 64,277 59,333 Total equity 204,277 199,333 Total equity and liabilities 270,658 249,337
Certain balance sheet forecasted amounts have been reclassified to give a direct comparison to actual results.
Current assets are marginally below forecast. Non-current assets are above forecast and reflect the timing of expenditure on the refurbishment of the Auckland Television Centre. Current liabilities are above forecast due to higher levels of payables and provision than forecasted.
TVNZ Annual Report FY2015 Page 53 Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2015
28) Comparison of forecast to actual results (continued) Actual Forecast $000 $000 d) Cash flows Net cash flows from/(to): Operating activities 49,209 26,482 Investing activities (47,816) (27,677) Financing activities 0 0 Net (decrease)/increase in cash held 1,393 (1,195)
Add opening cash brought forward 48,715 23,969 Net foreign exchange differences 154 0 Ending cash carried forward 50,262 22,774
Lower levels of expenditure and improved cash collections have resulted in above forecast cash flows from operating activities. Cash flows to investing activities are higher than forecast and reflect the timing of capital expenditure for the year. These variances have resulted in higher cash holdings at year end.
e) Performance targets Profitability Return on average equity 14.8% 12.4% EBITDA/advertising revenue 16.1% 15.9% Gearing Net interest bearing debt/net interest bearing debt plus equity 0.0% < 40% Financial stability Total equity/total assets 75.5% > 40% Interest cover EBITDA/interest expense 548 times > 4 times
EBITDA – earnings before interest, tax, depreciation, amortisation and financial instruments.
Forecast Amounts The forecast amounts are those approved by the Board before the beginning of the 2015 financial year. They have been prepared using the same accounting policies as those used in the preparation of these financial statements. The forecast amounts have not been audited.
Page 54 TVNZ Annual Report FY2015 Statement of Performance For the year ended 30 June 2015
This statement reports on the performance of Television New Zealand Limited (TVNZ) in relation to the output targets set in the Statement of Performance for the year ended 30 June 2015.
TVNZ reports under the Crown Entities Act 2004. Under this Act, TVNZ’s expectations of revenue and related outputs were stated in the Statement of Performance for the year ended 30 June 2015 for all categories of funding received directly from the Crown.
TVNZ has been granted an exemption under section 143 of the Crown Entities Act from including in its Statement of Performance outputs which are not directly funded (in whole or in part) by the Crown.
Transmitting TVNZ programmes to Pacific nations with funding from the Ministry for Culture and Heritage
The transmission funding received by TVNZ is to enable it to transmit programming by satellite to Pacific nations.
TVNZ undertakes to provide a minimum 11 hours transmission of TVNZ programming to Pacific nations weekly, such programming to include the daily transmission of ONE News at 6pm, the weekday transmission of Te Karere, the weekly transmission of Tagata Pasifika and the transmission of other programmes relevant to the Pacific nations within available funding.
The following Pacific nations receiving programming:
• American Samoa • Niue • Tonga • Cook Islands • Papua New Guinea • Vanuatu • Fiji • Samoa • Nauru • Solomons
Total funding received from the Ministry for Culture and Heritage: $607,000 (2014: $607,000). Total costs of transmission: $551,782. The unspent funding will be carried forward to FY2016 and will be used on repairs and maintenance and training.
FY2015 FY2014 Programmes transmitted Hours Hours ONE News 364.5 365.5 Te Karere 130.0 127.5 Seven Sharp 112.5 118.0 Midday News 119.0 119.0 What Now 78.0 80.0 Q & A 43.0 39.0 Marae 26.5 29.0 Tagata Pasifika 27.0 27.0 Waka Huia 25.5 26.5 Praise Be 26.0 26.5 Te Kaea 25.5 26.0 Fresh 12.0 13.0 The 4.30 Show 15.0 0.0 Oceania Softball Qualifiers 15.0 0.0 2Kaha 12.5 0.0 Country Calendar 12.0 0.0 Whanau Living 10.0 0.0 Rapid Response 9.0 0.0 Pacific Viewpoint 8.5 0.0 Code 8.0 0.0 Other 55.5 50.5 Total Hours 1135.0 1047.5 Average hours per week 21.8 20.1
TVNZ Annual Report FY2015 Page 55 Report of the Auditor-General
INDEPENDENT AUDITOR’S REPORT TO THE READERS OF TELEVISION NEW ZEALAND LIMITED GROUP’S FINANCIAL STATEMENTS AND PERFORMANCE INFORMATION FOR THE YEAR ENDED 30 JUNE 2015
The Auditor-General is the auditor of Television New Zealand Limited and its subsidiaries. The Auditor-General has appointed me, Brent Penrose, using the staff and resources of Ernst & Young, to carry out the audit of the financial statements and the performance information, of the group consisting of Television New Zealand Limited and its subsidiaries (collectively referred to as ‘the Group’), on her behalf.
Opinion on the financial statements and the performance information
We have audited:
• the financial statements of the Group on pages 24 to 54, that comprise the statement of financial position as at 30 June 2015, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date and the notes to the financial statements that include accounting policies and other explanatory information; and • the performance information of the Group on page 55. In our opinion:
• the financial statements of the Group:- • present fairly, in all material respects: - its financial position as at 30 June 2015; and - its financial performance and cash flows for the year then ended; and • comply with generally accepted accounting practice in New Zealand and have been prepared in accordance with New Zealand Equivalents to International Financial Reporting Standards and International Financial Reporting Standards. • the performance information: • presents fairly, in all material respects, the Group’s performance for the year ended 30 June 2015, for each class of reportable outputs: - its standards of performance achieved as compared with forecasts included in the statement of performance expectations for the financial year; and - its actual revenue and output expenses as compared with the forecasts included in the statement of performance expectations for the financial year. • complies with generally accepted accounting practice in New Zealand.
Our audit was completed on 30 September. This is the date at which our opinion is expressed.
The basis of our opinion is explained below. In addition, we outline the responsibilities of the Board and our responsibilities, and explain our independence.
Page 56 TVNZ Annual Report FY2015 Report of the Auditor-General (continued)
Basis of opinion
We carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the International Standards on Auditing (New Zealand). Those standards require that we comply with ethical requirements and plan and carry out our audit to obtain reasonable assurance about whether the financial statements and the performance information are free from material misstatement.
Material misstatements are differences or omissions of amounts and disclosures that, in our judgement, are likely to influence readers’ overall understanding of the financial statements and the performance information. If we had found material misstatements that were not corrected, we would have referred to them in our opinion.
An audit involves carrying out procedures to obtain audit evidence about the amounts and disclosures in the financial statements and the performance information. The procedures selected depend on our judgement, including our assessment of risks of material misstatement of the financial statements and the performance information, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the preparation of the Group’s financial statements and performance information in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
An audit also involves evaluating:
• the appropriateness of accounting policies used and whether they have been consistently applied; • the reasonableness of the significant accounting estimates and judgements made by the Board; • the appropriateness of the reported performance information within the company’s framework for reporting performance; • the adequacy of the disclosures in the financial statements and the performance information; and • the overall presentation of the financial statements and the performance information. We did not examine every transaction, nor do we guarantee complete accuracy of the financial statements and the performance information. Also, we did not evaluate the security and controls over the electronic publication of the financial statements and the performance information.
We believe we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion.
Responsibilities of the Board
The Board are responsible for preparing financial statements and performance information that:
• comply with generally accepted accounting practice in New Zealand, New Zealand equivalents to International Financial Reporting Standards and International Financial Reporting Standards; • present fairly the Group’s financial position, financial performance and cash flows; and • present fairly the Group’s performance.
The Board’s responsibilities arise from the Crown Entities Act 2004 and the Television New Zealand Act 2003.
The Board are responsible for such internal control as it determines is necessary to enable the preparation of financial statements and performance information that are free from material misstatement, whether due to fraud or error. The Board are also responsible for the publication of the financial statements and the performance information, whether in printed or electronic form.
Responsibilities of the Auditor
We are responsible for expressing an independent opinion on the financial statements and the performance information and reporting that opinion to you based on our audit. Our responsibility arises from the Public Audit Act 2001.
Independence
When carrying out the audit, we followed the independence requirements of the Auditor-General, which incorporate the independence requirements of the External Reporting Board.
In addition to the audit we have carried out other assurance assignments and remuneration benchmarking for the Group which are compatible with those independence requirements.
Other than the audit, other assurance assignments and remuneration benchmarking, we have no relationship with or interests in the Group.
Brent Penrose Ernst & Young On behalf of the Auditor-General Auckland, New Zealand
TVNZ Annual Report FY2015 Page 57 Five Year Trend Statement For the year ended 30 June 2015
2015 2014 2013 2012 2011 $000 $000 $000 $000 $000 Group financial performance Advertising revenue 313,523 319,732 321,532 326,496 316,668 Other revenue 36,469 40,853 40,578 55,341 61,228 Total revenue 349,992 360,585 362,110 381,837 377,896 EBITDA 50,371 50,391 43,276 50,888 53,088 Profit for the year 28,115 18,111 14,440 14,207 2,080 Dividends 0 0 11,287 13,828 4,871
Group financial position Assets employed: Current assets 105,589 104,249 75,671 71,470 59,945 Programme rights 43,306 44,612 44,439 56,051 44,212 Property, plant and equipment (incl held for sale) 91,037 61,880 74,615 83,484 100,383 Other non-current assets 30,726 18,690 22,673 32,376 24,150 Total assets employed 270,658 229,431 217,398 243,381 228,690
Funds employed: Share capital 140,000 140,000 140,000 140,000 140,000 Reserves 0 0 29 (263) (238) Retained earnings 64,277 36,162 18,051 14,898 14,519 Total equity 204,277 176,162 158,080 154,635 154,281 Current liabilities 65,144 51,980 57,274 73,440 60,725 Non-current loan and borrowings 0 0 0 10,000 10,000 Other non-current liabilities 1,237 1,289 2,044 5,306 3,684 Total funds employed 270,658 229,431 217,398 243,381 228,690
Financial ratios EBITDA*/Total revenue 14.4% 14.0% 12.0% 13.3% 14.0% Net surplus after taxation**/equity (average) 14.8% 10.8% 9.2% 9.2% 1.3% Equity/total assets employed 75.5% 76.8% 72.7% 63.5% 67.5% Debt/ Debt plus Equity 0.0% 0.0% 0.0% 6.1% 6.1% Interest cover (times) *** 548 202 39 32 20
* EBITDA: earnings before interest, tax, depreciation, amortisation, programme amortisation revision, impairments, remediation expenses, associate earnings and financial instruments. ** As per reported earnings. *** EBITDA/Interest expense.
Page 58 TVNZ Annual Report FY2015 Additional Information
Principal activity The Group’s principal activity during the year was television (programme content supply and delivery, production, acquisition of television programmes, and online services).
Shareholding The Group is wholly owned by the Crown.
The Shareholding Ministers at balance date were: Hon Bill English Minister of Finance Hon Amy Adams Minister of Broadcasting
Directors Mr Wayne Walden’s term ended on 30 April 2015. Ms Sussan Turner was appointed to the Board on 1 May 2015.
Auditor The Auditor-General is the auditor of the Group in accordance with Section 14 (1) of the Public Audit Act 2001 and has appointed Brent Penrose of Ernst & Young to act for and on her behalf as auditor in 2015.
General disclosures The following disclosure of interests were made to the Board:
Directors’ disclosures General disclosures of interest given by Television New Zealand Limited pursuant to Section 211 of the Companies Act 1993 as at 30 June 2015:
Alison Gerry Infratil Limited Director Kiwibank Limited Director New Zealand Clearing and Depository Corporation Limited Director NZX Limited Director Pioneer Generation Limited Director (ceased 27 July 2015)
Richard Long Asia NZ Foundation Trustee New Zealand France Friendship Fund Chairman
Roger MacDonnell Auckland Arts Festival Trustee Hourigan International (New Zealand) Chairman Hourigan International (Sydney) Director Ice Capital Investments Limited Director Image Centre Holdings Limited Director MacDonnell & Associates Limited Director
Julia Raue Air New Zealand Limited Chief Information Officer
Barrie Saunders Taiwan New Zealand Trade Development Limited Director
Sussan Turner AUT University Director OI (Organic Initiatives) Investor and Director Well Foundation Director
TVNZ Annual Report FY2015 Page 59 Additional Information (continued)
Directors’ disclosures (continued)
Dame Therese Walsh ICC Cricket World Cup 2015 Head of New Zealand MFAT Chair NZ Major Events Investment Panel, MBIE Member NZX Limited Director Strategic Risk and Resilience Panel, DPMC Member Wellington Regional Stadium Trust Trustee
Joan Withers – Chair from 1 May 2015 ANZ Bank New Zealand Limited Director Louise Perkins Foundation Trustee Mighty River Power Limited Chair Pure Advantage Trustee The Tindall Foundation Trustee The Treasury Member
Specific disclosures No specific disclosures were given pursuant to Section 211 of the Companies Act 1993.
Use of Company information No notices have been given to the Board under Section 145 of the Companies Act 1993 with regard to the use of Company information received by Directors in their capacity as a Director.
Directors’ remuneration and benefits The following persons held the office of Director of the Company during the year and received the total amount of remuneration and other benefits shown.
Director $ Joan Withers (Chair from 1 May 2015) 55,000 Alison Gerry 40,000 Richard Long 40,000 Roger MacDonnell 40,000 Julia Raue 40,000 Barrie Saunders 40,000 Sussan Turner (appointed 1 May 2015) 6,667 Dame Therese Walsh (Deputy Chair from 1 May 2015) 41,666 Wayne Walden (term ended 30 April 2015) 66,667 370,000
Directors’ indemnity insurance The Group has arranged Directors’ and Officers’ liability insurance cover with QBE Insurance (International) Limited for $30 million. This cover is effected for all Directors and Officers of the Group. In addition the Group holds Statutory Liability cover with QBE for the benefit of directors and officers which provides $6 million total cover.
Page 60 TVNZ Annual Report FY2015 Additional Information (continued)
Employee remuneration Employee remuneration includes salary, at risk remuneration, payments for projects, programme production, presentation, motor vehicles, employer’s contributions to superannuation and health schemes, redundancy, other compensation on termination of employment and other sundry benefits received in their capacity as employees.
Employees include executives and staff involved in programme production and presentation where applicable.
Employee remuneration in overseas locations has been converted to New Zealand dollars at current exchange rates.
Current Former employees employees $100,000 to $110,000 48 7 $110,001 to $120,000 27 5 $120,001 to $130,000 30 3 $130,001 to $140,000 24 3 $140,001 to $150,000 12 0 $150,001 to $160,000 16 2 $160,001 to $170,000 9 3 $170,001 to $180,000 4 2 $180,001 to $190,000 6 3 $190,001 to $200,000 4 0 $200,001 to $210,000 4 2 $210,001 to $220,000 4 0 $220,001 to $230,000 2 2 $230,001 to $240,000 6 1 $240,001 to $250,000 2 0 $250,001 to $260,000 2 0 $260,001 to $270,000 1 0 $280,001 to $290,000 1 0 $300,001 to $310,000 1 0 $310,001 to $320,000 1 0 $340,001 to $350,000 2 0 $350,001 to $360,000 1 0 $360,001 to $370,000 3 0 $390,001 to $400,000 1 0 $410,001 to $420,000 2 0 $500,001 to $510,000 1 0 $560,001 to $570,000 2 0 $640,001 to $650,000 1 0 $1,100,001 to $1,110,000 1 0 218 33
Employee compensation on termination of employment During the year $2,821,751 compensation was paid in total to 84 employees whose employment was terminated. Compensation includes redundancy entitlements, payment in lieu of notice and any payments in settlement of disputes.
TVNZ Annual Report FY2015 Page 61 Corporate Governance
THE BOARD Remuneration and HR Committee Role of the Board The Remuneration and HR Committee is responsible for reviewing and making recommendations to the Board on TVNZ’s people and In addition to its duties under the Companies Act 1993, the Board, talent strategy - specifically; under Section 92 of the Crown Entities Act 2004, must ensure that the Company acts in a manner consistent with its objectives, • Performance objectives of the Chief Executive Officer and direct functions, Statement of Intent and Statement of Performance reports to the Chief Executive Officer; Expectations. • Remuneration policies including annual reviews and short The Board negotiates the Statement of Intent and Statement term incentive arrangements for the Chief Executive Officer, of Performance Expectations with its shareholding Ministers. It direct reports to the Chief Executive Officer and other specific includes the Company’s objectives, nature and scope of the activities categories of highly paid employees; to be undertaken and the performance targets and other measures • TVNZ’s succession planning and development plans for the by which its performance may be judged for the current year and Chief Executive Officer and other senior executives; following two years. The Board monitors management’s performance relative to these objectives and targets. • Compliance with TVNZ’s obligations to be a good employer under Section 118 of the Crown Entities Act 2004; and The full Board met formally ten times during the financial year. The Board has delegated day-to-day management to the Chief Executive • The Committee also takes a proactive interest in monitoring Officer. Policies are in place which define the individual and collective planning and performance with respect to employment responsibilities of the Board and management. In particular, arrangements, total labour costs, employee engagement and the Board has approved specific delegated authorities to enable best practice principles relating to inclusion and diversity. management to incur expenditure and create binding obligations. The Remuneration and HR Committee met four times during the Appointment of Directors year. At year end, membership of the Committee was comprised of Joan Withers (Chair), Roger MacDonnell, Julia Raue and Dame Therese Shareholding Ministers make all appointments to the Board, including Walsh. In FY2016 the Committee is comprised of Dame Therese that of the Chair. Appointments are for fixed terms not exceeding Walsh (Chair), Joan Withers, Julia Raue, Roger MacDonnell and Sussan three years, which may be renewed. Turner. The Board comprises individuals with a wide range of experiences and skills to ensure that all governance responsibilities are completed in a KEY GOVERNANCE STATEMENTS manner consistent with best possible management practice. Profiles of each of the Directors who were serving at year end are set out on Occupational health and safety page 64 of this report. TVNZ’s health and safety policy is to promote excellence in health, safety and wellness by implementing best practice health and safety Board Committees systems while seeking continuous improvement. The Board has two standing committees: Business continuity, insurance and risk management Audit and Risk Committee TVNZ has developed business continuity plans for use in any The Audit and Risk Committee met four times during the year. emergency situation facing the Company. A comprehensive crisis simulation exercise was held during the year. The Committee assists the Board in fulfilling its responsibilities by providing recommendations, counsel and information concerning TVNZ maintains a number of insurance policies designed to support its accounting and reporting responsibilities under the Companies the philosophy that, in the event of a disaster, the Company would Act 1993 and related legislation, and evaluating risk management not be materially affected. practices. The Company has in place policies and procedures to identify and At year end, membership of the Committee was comprised of Alison manage risks. Exposure to foreign exchange and interest rate risk Gerry (Chair), Barrie Saunders, Dame Therese Walsh and Joan is managed in accordance with a comprehensive Board-approved Withers. Treasury policy, which sets limits of management authority.
Page 62 TVNZ Annual Report FY2015 Derivative instruments are used by the Company to manage specific business risk; they are not used for speculative purposes.
Editorial independence TVNZ has in place an editorial protocol that details the duties and responsibilities of TVNZ, its Board and its executives on editorial matters. The principle of editorial independence recognises the importance of isolating control of editorial content from commercial or political influence. This principle is reflected in the Television New Zealand Act 2003.
External auditor The Auditor-General is the Company’s auditor pursuant to Section 14 of the Public Audit Act 2001. The Auditor-General has appointed Brent Penrose of Ernst & Young to act as external auditor on her behalf in the current financial year.
Legislative compliance The Company has in place a legislative compliance programme to ensure the Company’s compliance with its various statutory obligations. A bi-annual review is undertaken, the results of which are reported to the Audit and Risk Committee.
MEDIA STANDARDS The Broadcasting Act 1989 places an obligation on the Company for the broadcasting of programmes to comply with the requirements of that Act and with codes of practice approved by the Broadcasting Standards Authority. TVNZ as a broadcaster is required to receive and consider formal complaints and to have procedures for investigating them. In addition, the news and current affairs output of the Company’s websites is subject to the jurisdiction of the Online Media Standards Authority.
TVNZ Annual Report FY2015 Page 63 Director’s Profiles
JOAN WITHERS, CHAIR (AUCKLAND) JULIA RAUE (AUCKLAND) Joan Withers has a career in media spanning 30 years which includes Julia is the Chief Information Officer at Air New Zealand. She holding the Chief Executive roles at both The Radio Network and has extensive experience in information technology, business Fairfax Media. transformation and strategic planning across the airline, telecommunications, local government and not-for-profit sectors. She is a professional director and is currently Chair at Mighty River Power and is a director of the ANZ New Zealand bank. She sits on Julia has overseen a number of world firsts in innovation within the Advisory Board of The Treasury and is a trustee of The Tindall the airline industry, winning a number of awards including the New Foundation, the Louise Perkins Foundation (Sweet Louise) and chairs Zealand CIO of the Year award 2009. Julia was also a category finalist a steering group in South Auckland which is focused on helping Maori in the Westpac Women of Influence Awards 2013 and 2014. and Pacific Island students attain careers in the health sector. She is a member of the NZ Institute of Directors, a member and Joan has an MBA from Auckland University, and is the author of graduate of the Australian Institute of Company Directors, and a “A Girl’s Guide to Business” published in 1998. She was the 2009 member of Global Women New Zealand. recipient of the CAANZ Media Excellence Award, the winner of the New Zealand Shareholders’ Association 2014 Beacon Award and an Julia is passionate about women in technology and is actively involved Auckland University Distinguished Alumni in 2015. with a number of groups and educators to encourage young New Zealand women to consider technology as a career path.
ALISON GERRY (QUEENSTOWN) BARRIE SAUNDERS (WELLINGTON) Alison Gerry has over 20 years’ experience working for both corporates and for financial institutions in trading, finance and risk Barrie retired from government relations consulting in March 2015 roles in Sydney, Hong Kong, Tokyo and London. Alison was also and as a director of Saunders Unsworth, the firm he co-founded in a Visiting Fellow at Macquarie University in Sydney for 12 years 1994. His earlier career included seven years as a journalist, some until 2012. From 2007, Alison has been a professional company of it overseas in public radio and television. He was the NZ Meat director and is currently Deputy Chair of Kiwibank and holds various Producers Board’s North American Director based in New York and governance positions in the infrastructure sector. Alison has a in the mid 1990’s served on the board of Housing New Zealand. He Masters of Applied Finance from Macquarie University. was also a trustee of the Wellington City Mission and President of the Wellington Regional Chamber of Commerce.
RICHARD LONG (WELLINGTON) SUSSAN TURNER (AUCKLAND) Richard Long is a former long-time political editor and then editor of Sussan has been in senior leadership roles for the past 25 years, The Dominion newspaper. including Managing Director Radio Otago - a publicly listed company; CEO Radioworks and Group CEO MediaWorks NZ Ltd. He was formerly the editors’ representative on the board of the Newspaper Publishers Association, the inaugural chairman of the Experienced in both business acquisitions and amalgamations, she is editors’ press freedom committee and a former chairman of the currently acting in advisory roles for various companies within New New Zealand section of the Commonwealth Press Union, which Zealand. campaigns for press freedom. Sussan has recently been appointed to the board of AUT and is also He is presently chairman of trustees of the NZ France Friendship director of the Well Foundation and Organic Initiatives. Fund and a member of the board of trustees of the Asia New Zealand Foundation. He is a former member of the Fulbright New Zealand board and a life member of the Parliamentary Press Gallery. DAME THERESE WALSH (WELLINGTON) Dame Therese is a Director of NZX Limited and a Trustee of Wellington Regional Stadium Trust. She also chairs MFAT’s ROGER MACDONNELL (AUCKLAND) International Development Advisory and Selection Panel and is a Roger was a founding partner of Colenso BBDO and retired at the member of the Major Events Investment Panel. Previously she was end of 2009 as Chairman and CEO and as a Director of the Clemenger the Chief Operating Officer for Rugby New Zealand 2011 Limited, the group in Australia. He is currently a Director of the Image Centre company established by the NZRU and the New Zealand Government (printing and publishing), a Director of Hourigan International, to deliver the Rugby World Cup Tournament in 2011. She has also been Sydney, (marketing/comms recruitment) and consults on branding a member of the Executive Team at the New Zealand Rugby Union, and marketing. He is a member of the Cleo Copywriters Hall of Fame and held a senior role with KPMG. Most recently she held the role of in New York. Head of NZ for the ICC Cricket World Cup 2015 Limited.
Page 64 TVNZ Annual Report FY2015 TVNZ Locations
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