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TVNZ Annual Report FY2014


Engaging the hearts and minds of New Zealanders with the most watched content


Highlights 4

Chairman's Introduction 5

Chief Executive’s Overview 6

Financial Performance 12

TVNZ in Society 16

Performance and Engagement Measures 19

Financial Statements 26

Corporate Governance 68

Directors' Profiles 70

Main Locations 71

Contents

Cover: Seven Sharp’s Toni Street and Mike Hosking

Opposite: New Zealand’s Got Talent

This page: Shortland Street

Back cover: The Big Bang Theory (top left), My Kitchen Rules (top right), Broadchurch (bottom)

INCREASE IN ONLINE ADVERTISING REVENUE

INCREASE IN TVNZ ONDEMAND STREAMS

DECREASE IN OPERATING EXPENSES

INCREASE IN ONENEWS.CO.NZ VIDEO STREAMS


Highlights

PROFIT INCREASE

25%

NEW ZEALAND NETWORK

No. 1

SHOWS AIRED ON TVNZ CHANNELS

NZ's Top 20

TOTAL REVENUE

$360.6m30%

78%

3%

63%


Chairman's Introduction

Net Profit after Tax was $18.1m, an increase of $3.7m or 25% on the previous year, representing solid growth during a period of transition.

With a Return on Equity of 10.8% – against a target of 10.1% - it is pleasing to note consistent growth over the past four years in these two elements of our financial performance.

Our balance sheet reflects a number of significant changes this year, of which the most public is the divestment of land and surplus buildings at our Auckland site. The proceeds will help finance the comprehensive refurbishment of our main building so that TVNZ has the technology and the environment required to succeed, well into the next quarter century.

I note also our decision to exit our shareholdings in both Hybrid Television and Igloo. By half year we had written down the carrying value of both, and could find no further additional benefit to the company in continuing to contribute as shareholders.

Shortly after the close of the year we completed an agreement to sell the TVNZ Archive to the Crown, which allows clearer focus on the core business for TVNZ, while ensuring the collection is available for current and future generations to use and enjoy.

During the year we made significant cost savings, largely due to reduced transmission costs as a result of the nation’s switch from analogue to digital broadcasting. We also reduced labour costs by 1.7% as part of our continuing drive to become a leaner and more efficient business.

In programming terms we finished the year on a particularly high note, with a 45.5% share of peak audiences and all 20 of the top 20 most watched shows.

While television revenue was lower than expected in the second half of the year, prioritised use of our resources and careful cost reduction and management has offset that impact.

Online video consumption experienced exponential growth and delivered strong double digit growth in revenue.

My thanks to everyone in the company who contributed to the FY2014 result.

We begin FY2015 with enthusiasm and a clear sense of direction.

Wayne Walden

This financial year TVNZ achieved the earnings result forecast in our Statement of Intent and comfortably exceeded the target for shareholders’ Return on Equity.


Chief Executive's OverviewIt has been a transformational year for TVNZ.Our TV business is in great shape thanks to the continued strong performance of TV ONE and TV2 and we live in an ‘always on’ world where more and more Kiwis are watching their favourite shows online and multi-screening is commonplace.

As much as the media world is changing, one thing that hasn’t changed is New Zealanders’ love of TV shows. Kiwis watch on average three hours of TV per day and TVNZ content is at the heart of this viewing.

As a video content business, TVNZ’s number one priority is to create and source the most compelling content for New Zealand viewers to enjoy. We’re all about delivering great shows when, where and how our viewers want it – on air, online and on the go. Quite simply, our content is the engine that drives our business, our financial results and our future growth.

The global growth in video consumption over the last few years has been phenomenal. Never before has so much television been watched – it’s just that now it’s on screens of all sorts and sizes. At TVNZ we’re focused on maximising our share of TV audiences and accelerating the online consumption of our content. You only have to look at the way viewers seized on our multi-screen coverage of the America’s Cup and FIFA World Cup to see the enormous public appetite for integrated on air and online offerings.

2014 was a positive year for TVNZ, financially and operationally – reflecting the progress we’re making as a company and our standing with Kiwi viewers and advertisers.

Our share of advertising revenue was ahead of our share of audiences and this combined with disciplined cost control in non-programming areas, saw profits rise by 25% year on year. TV revenue was slightly down year on year and was partially offset by double digit growth in digital media revenues.

TVNZ OnDemand is the catalyst for our digital growth and a step change in video streams resulted in online advertising revenue increasing 30% for the year. Digital revenue is currently a modest component of the total revenue, but it’s a major driver of future growth.

These results have fuelled our confidence to invest in the future of the business and enable TVNZ to stay at the forefront of changing consumer behaviour and trends.

It’s been a year of significant developments across the business. Here’s how we delivered on our Statement of Intent priorities.

TVNZ aired all 20 of the top 20 most watched shows in FY2014. Our slate of top quality local and international drama, comedy, news and factual programming delivered a consistently strong on screen performance with nearly one in two viewers choosing to spend primetime with TV ONE or TV2.

Overall New Zealand’s Got Talent was New Zealand’s most watched show, ONE News the most watched news, and Sunday the most watched current affairs programme. Seven Sharp has started its second year strongly and is now starting to challenge Shortland Street’s stranglehold on the 7pm timeslot. Shortland Street remained our most watched local drama, and with 8.8 million streams it was the most popular show on TVNZ OnDemand in FY2014.

TVNZ continued to secure and deliver an unrivalled depth of first run international content across our platforms. And with NZ on Air’s support, TVNZ continued to deliver more local content and launch more first run local shows than any other broadcaster – including new series like Step Dave and old faithfuls like Country Calendar. With advertisers looking for greater integration opportunities to showcase their brands, we selectively entered into commercial partnerships to support the making of popular local shows MasterChef New Zealand and Mitre 10 Dream Home.

Our content now follows viewers from location to location; from their TV screens to their desktops, their smartphones to their tablets. Our 2013 America’s Cup coverage optimised this experience for our audiences. The results were telling. At its height, TV viewing peaked at 1.2 million on TV ONE and live streaming topped a quarter of a million people on onenews.co.nz.

Create and source the most compelling content1

Expand content accessibility2


“Our slate of top quality local and international drama, comedy, news and factual programming delivered a consistently strong on screen performance.”

KEVIN KENRICK, TVNZ CHIEF EXECUTIVE


The country’s favourite video on demand service, TVNZ OnDemand clocked up a record 54 million streams in FY2014 – averaging over one million streams per week. Available on New Zealand’s widest range of screens and offering more fast-tracked programmes than ever before, TVNZ OnDemand posted an impressive 78% increase in streams.

ONE News has been building on its on air leadership and upped its game online. We delivered more news stories, faster on onenews.co.nz, which resulted in a 63% jump in video streams year on year.

We began work on a series of major investments to upgrade our technology capabilities and work is on track to launch an enhanced TVNZ OnDemand and onenews.co.nz site in FY2015.

TVNZ captures nearly two out of every three dollars spent on television in the market. Our total TV revenue was $306.8 million, slightly down on last year. Online advertising revenue, at $12.9 million, was up 30%. Our results highlight the strong appetite of advertisers to leverage video content opportunities to connect with audiences. It reinforces TVNZ’s commitment to grow our on air and online audiences and drive integrated advertising opportunities for our commercial partners.

TVNZ produces Heartland and Kidzone24 linear pay channels and we materially strengthened Kidzone’s audience performance during FY2014.

TVNZ relinquished its stake in both Hybrid Television Services and Igloo during the year and is now more focused on TVNZ OnDemand as a platform for launching new services in the future. We continue to talk to a number of external market players to explore potential future opportunities to distribute our content.

We reduced non programme costs by 12%. As part of a tighter focus on our core business, TVNZ divested surplus land and buildings during the year, closed the loss making TVNZ U channel, transferred Access Services to ABLE – a new independent captioning and audio description facility, and sold the TVNZ Archive to the Crown shortly after the financial year end.

The exit of non-core assets has freed up capital to invest in technology infrastructure to fast track online growth, and to refurbish our Auckland building to meet our future accommodation needs in one central location. We also opened a new building for our Christchurch team, who had been working from temporary accommodation since the February 2011 earthquake.

Leverage superior reach to enhance advertiser opportunities3

Partner for pay to view opportunities4

Align cost structures to market reality5


The last year has been a time of simplifying the business to more tightly focus on our core on air and online initiatives. We have delivered growth in operational earnings during this period of transformation and have generated positive momentum for the year ahead.

With the refurbishment project underway on our Auckland site and a major multimedia technology investment now moving at pace, TVNZ has a once-in-a-generation opportunity to create the workplace that will take TVNZ into the future.

These are exciting times for TVNZ. We have a team of smart capable people who are energised by the challenges and opportunities ahead. We have made significant commitments to invest in the future of the business. Most importantly we have 2.3 million New Zealanders who watch our content every day and a significant number of New Zealand’s leading businesses who advertise with TVNZ to connect with these viewers. Our success is reliant on viewers and advertisers and we’ll continue to work hard to retain and grow their support in the year ahead.

Kevin Kenrick

We selectively entered into commercial partnerships to support the making of MasterChef New Zealand


Financial PerformanceTVNZ has reported a net profit after tax of $18.1 million, a 25% increase on the prior year result of $14.4 million.

Total revenue for the year declined slightly by 0.4% to $360.6 million from the prior year result of $362.1 million. The gains on sale of property, plant and equipment offset a reduction in operating revenue.

The decline in operating revenue to $336.9 million was primarily driven by a $4.8 million (1.5%) decline in advertising revenue to $306.8 million and a $6.3 million decline in other trading revenue associated with event broadcast linking services.

The decline in television advertising and other trading revenues was partially offset by a $3.0 million (30%) growth in digital media advertising revenue. This revenue growth follows exponential growth in viewership of programmes on TVNZ OnDemand.

We have maintained the three year trend in year on year reduction of operating expenditure with a $10.2 million (3.0%) reduction for the year. Non-programming costs reduced from $140.8 million to $123.7 million, a reduction of $17.1 million (12.1%). During the year we completed the sale of surplus land and buildings, outsourced programme captioning and concluded negotiations for the sale of the TVNZ Archive to the Crown, which settled on 1 August 2014 – consistent with our programme of work to exit non-core activities and reduce non-programming operational expenditure.

Underlying earnings of $35.0 million increased by $8.7 million (33%) on the prior year. Excluding the gains on sale of property, plant and equipment, underlying earnings of $27.2 million increased $1.9 million (7.5%).

TVNZ recognised $2.1 million share (34%) of losses relating to the start-up losses of Igloo Limited and impaired the balance of the investment in Igloo of $4.3 million. At 30 June 2014, TVNZ sold its shareholding in Igloo to Sky Television Network Ltd and ceased to hold any interest in Igloo. This followed a review of the performance of the Igloo business and uncertainty when it would be a sustainable stand-alone business.

At 30 June 2014, TVNZ also sold its 33% interest in Hybrid Television Services (ANZ) Pty Limited, the Australasian distributor of TiVo, to Seven West Media (Pty) Ltd.

The net profit after tax of $18.1 million is an increase of $3.7 million (25%) on the prior year and represents a 10.8% return on Shareholders’ Equity.

During the year the Board approved $70 million of capital expenditure investment in the refresh of technology infrastructure and the refurbishment of 100 Victoria Street West to enable TVNZ to build and maintain sustainable growth. These projects are forecast to be completed over the next two years.

No dividend was declared following the decision by Shareholding Ministers to forego future dividends equivalent to the net cost of the refurbishment of 100 Victoria Street West.

FINANCIAL MEASURES

FY2014 FY2013Measurement Actual Target ActualProfitability Return on average equity 10.8% 10.1% 9.2%

EBITDA/core television advertising revenue 16.4% 14.4% 13.9%

Gearing

Net interest bearing debt/net interest bearing debt plus equity 0.0% Less than 40% 0.0%

Financial stabilityTotal equity/total assets 76.8% More than 40% 72.7%Interest coverEBITDA/interest expense 202 times More than 4 times 39 times


PERFORMANCE MEASURES The following set of measures demonstrate efficiency and productivity at TVNZ.

Return on programme investment Programme yield is higher than budget and the prior year due to the decline in aggregate programme revenue.

FY2014 FY2014 FY2013Measurement Actual

$000Budget

$000Actual

$000

Aggregate programme revenue 1 318,303 334,304 326,303

Programme amortisation cost 201,947 201,825 195,005

% programme cost of revenue 63.4% 60.4% 59.8%

Note 1: Aggregate programme revenue includes advertising and sponsorship revenue, programme funding and licensing revenue.

Revenue productivity – employeesRevenue per employee was higher than budget and the prior year. The reduction in FTE numbers has more than offset the below budget revenue performance.

FY2014 FY2014 FY2013

Measurement Actual $000

Budget $000

Actual $000

Total revenue (excl. gain on sale PPE) 352,765 357,238 361,082

Employees (FTE) 833.4 855.3 913.0

Revenue per FTE 423.3 417.7 395.5

Business efficiency – non-programme costsNon-programme costs as a percentage of revenue are lower than budget and the prior year reflecting the ongoing focus on reducing non-core activities and costs.

FY2014 FY2014 FY2013Measurement Actual

$000Budget

$000Actual

$000Total revenue 352,765 357,238 361,082

Total non-programme costs 123,656 126,413 140,820

% non-programme costs to revenue 35.1% 35.4% 39.0%


Shortland Street remained our most watched local drama, and with 8.8 million streams it was the most popular show on TVNZ OnDemand in FY2014


ENVIRONMENTAL SUSTAINABILITY TVNZ remains committed to reducing its impact on the environment.

TVNZ in SocietyTVNZ’s unique place in the homes of the nation brings with it a special responsibility to set an example as a good corporate citizen. Special attention is given to environmental factors and high standards as an employer.

Vehicle Fleet During the year a further nine petrol driven vehicles were replaced by diesel powered alternatives as vehicle leases were renewed. This programme is reducing TVNZ’s carbon emissions as well as costs. In total 91% of TVNZ vehicles are now diesel powered.

Electricity UsageThe drive to reduce electricity costs has continued during FY2014. Savings in smart energy usage are a key factor in the design for the refurbishment of the Television Centre building in Auckland.

Total electricity consumption for FY2014 was 9,062,576 kWhrs. This represents a reduction of 1.2% compared to the previous year.

Air TravelThe total number of kilometres travelled by TVNZ staff in FY2014 was reduced by 9% over the previous year.

The increasing use of newsgathering technology has been a key factor in a reduction of domestic travel, partially offset by increases in travel on international and trans Tasman routes.

General Waste to LandfillThe amount of waste transferred to landfill increased from 84.2 tonnes to 86.1 tonnes in FY2014. This was largely the result of removing obsolete equipment as part of the refurbishment of the Auckland Television Centre building.

Our focus remains on recycling and reducing the amount of waste transferred to landfill.

COST SAVINGSTVNZ is an active participant in the All of Government (AoG) Procurement initiatives relating to:

• Vehicles• Multifunctional devices• Desktops and laptops• Mobile voice and data• External legal services• Air travel• Travel management• Office consumables• External recruitment• Electricity supply• Energy management

We will continue our participation in areas that are identified as having the potential to provide cost savings for TVNZ.


PEOPLE CAPABILITY AND CAPACITYTo successfully compete and evolve within a complex and dynamic industry, TVNZ continues to focus on attracting and developing outstanding leaders and highly engaged, capable people committed to delivering outstanding results.

This year we have worked on:

proactively identifying and developing our key leadership talent

providing appropriate learning and development

opportunities and events across the organisation

encouraging and supporting employee-led initiatives to grow engagement

refining a transparent performance review process which encourages regular two way feedback and coaching

taking an interest-based bargaining approach to successfully renegotiating the collective employment agreement

reviewing salary bands against the external market and ensuring all employees are fairly remunerated

implementing a robust health and safety plan including the ongoing training of directors and managers

designing a future-proofed, contemporary, open plan work environment

TVNZ was the winner of the 2014 Randstad Award for New Zealand’s most attractive employer.

GOOD EMPLOYERTVNZ has adopted the guidelines of the Human Rights Commission in monitoring seven aspects of our engagement with our employees.

1. Leadership, Accountability and Culture

• Provided coaching for senior people in authentic leadership and equitable and transparent management of others.

• TVNZ’s Marae, re-established in temporary accommodation, is supported and functional during building refurbishment.

• Cultural diversity is celebrated with special events like Samoan Language week.

• Multiple employee-led initiatives are implemented to enhance employee engagement.

2. Recruitment, Selection and Induction

• We introduced a new e-recruitment tool and careers website which allows us to:

profile TVNZ as an EEO employer

survey applicants on nationality, ethnicity, gender, age, accessibility.

provide an equitable process for applicants and give hiring managers a fair selection framework

• We introduced a new induction framework that gives all new employees a consistent and fair experience.

3. Employee Development and Promotion

• A new performance management tool has been implemented to manage a fair and transparent performance review framework.

• We have developed a talent management framework.

• A range of training and development courses was attended by staff.

4. Flexibility and Work Design

• Flexible work arrangements include part-time, job share, working from home, remote access and casual employment.

• A more flexible and dynamic work environment is being designed for TVNZ’s refurbished Auckland centre.

• The Christchurch office has been re-established in a new, fit-for-purpose open plan building.

5. Remuneration, Recognition and Conditions

• A review was conducted of TVNZ pay bands and some changes recommended based on the findings.

• Individual, peer and team recognition is encouraged and practised.

6. Harassment and Bullying Prevention

• Our policies and practices include:

- Equal Employment Opportunity policy

- Harassment policy

- Social Media Policy

7. Safe and Healthy Environment

We continue to invest heavily in Health and Safety.

• A TVNZ Health and Safety manager has been contracted during the re-fit of the Auckland television centre.

• Specialist Health and Safety training is provided for required roles.

• We provide an Employee Assistance Programme, discounted Southern Cross health insurance and subsidised gym memberships.


Workforce Profile

TOTAL FIXED REMUNERATION (%) SALARY RANGE BY GENDER

ETHNICITY

2820

29

21

20

<40,000

40,000 - 54,999

55,000 - 79,999

80,000 - 99,999

100,000 - 149,999

>150,000

Less than 1 year 15%

1-2 years 20%

3-4 years 15%

5-9 years 23%

10-19 years 14%

20 years and over 13%

TENURE

GENDER

56%

44%

AGE

15-24 8%

25-34 28%

35-44 30%

45-54 21%

55 and over 13%

EMPLOYEES

823

GENDER REPRESENTATION FY 2014 % Female

FY 2013 % Female

0

0.1

0.2

0.3

0.4

0.5

0.6

Board Executive Business Leaders

Other

Female Male

0

20

40

60

80

100

120

140

<40,000 40,000 - 54,999

55,000 - 79,999

80,000 to 99,999

100,000 to 149,999

>150,000

UnspecifiedNZ European / European

57%

Maori

5%

Indian

2%

Samoan

2%

Chinese

2%

Other

1% 31%


Performance and Engagement MeasuresTVNZ is the country’s most watched TV network. Every day we join Kiwis in their lunchrooms, lounge rooms, bedrooms and on whatever gadget they carry around.

ON AIR PERFORMANCEAverage monthly cumulative audience across all TVNZ channels:

3,852,533Over 3.8 million people aged 5+ watched a TVNZ channel in an average month during FY2014 – 93% of all New Zealanders.Source: Nielsen TAM, Consolidated (Monthly reach, AP5+) TV ONE, TV2, TV ONE Plus 1, TV2+1 and TVNZ Heartland

ONLINE PERFORMANCEStreams across all devices:

54,290,197TVNZ OnDemand recorded over 54 million streams in FY2014 – up 78% year on year. It averaged 4.5 million streams each month. Source: Nielsen Market Intelligence (Desktop, Samsung TV & PS3 Streams), Omniture (OnDemand mobile streams)

TVNZ ONDEMAND APPDownloads:

600,000NEWS APP FOR IPHONE AND IPADDownloads:

350,000Source: Apple iTunes, Samsung App Store, Google Play Store

TVNZ.CO.NZUnique browsers:

3,314,408Average monthly unique browser figures exceeded 3.3 million in FY2014 – up 42% on FY2013. Page impressions increased 18% with an average 21 million page impressions per month.Source: Nielson Net Ratings

TVNZ ONDEMANDAverage monthly streams:

FY2014 FY2013 FY2012 FY2011

Average monthly stream views

4,524,183 2,537,330 1,897,662 1,363,393

Year on year % increases

78% 34% 38% 5%

Source: Nielsen Market Intelligence (desktop, Samsung TV & PS3 streams), Omniture (OnDemand mobile streams)

78% 42%

TVNZ OnDemand recorded over 54 million streams in FY2014 – up 78% year on year


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 under the Broadcasting Act 1989 for administering standards in programming and presentation of programming. All formal complaints must be first made in writing to TVNZ (with the exception of allegations of privacy). Complainants may refer their complaint to the BSA if they are not satisfied with the outcome of the TVNZ process.

Unique online News and Current Affairs material is now regulated by OMSA (the Online Media Standards Authority). Complaints are made directly to OMSA; there is no referral process.

In the period under review, TVNZ answered 711 formal complaints to the BSA.

• 81 fewer than in the previous year. • Of these 711 complaints, 27 were upheld by the TVNZ Complaints Committee.

In the same period TVNZ answered 3 complaints to OMSA.

• Two complaints were found to have no ground to proceed; one was settled.

* 12 referrals yet to be determined by the BSA

2,757 complaints 1,839 upheld

(1,752 for 3 programmes)

1,155 complaints 29 upheld

792 complaints 35 upheld

711 BSA complaints 27 upheld

3 OMSA complaints 2 had no grounds to proceed;

1 settled

2011 2012 2013 2014

2011 2012 2013 2014

83 referred 12 upheld



46 referred 2 upheld*

REFERRALS

FORMAL COMPLAINTS

In FY2014 the BSA handled 46 referrals about TVNZ programming – a decrease of 11 referrals on the previous year (referrals are counted per BSA decision). Of these 2 were upheld by the BSA*.


New Zealand’s most attractive employer

TVNZ was named New Zealand’s Most Attractive Employer at the 2014 Randstad Awards. The supreme winner is chosen based on feedback from 7000 job-seekers. Both young and mature workers rated the organisation as a highly attractive place to work because of its pleasant working atmosphere, flexible working opportunities and interesting job content.

Best on the Box

In the annual TV Guide Best on the Box Awards, TVNZ programmes and personalities scooped an impressive 12 awards. The awards are determined by public vote. Perennial favourite Shortland Street won best drama, while ONE News secured the Best News category and TVNZ’s America’s Cup coverage won for Favourite Special Event Television of 2014.

Best entertainment site

TVNZ OnDemand won Best Entertainment Site at the 2014 NetGuide Awards, as voted by members of the public.

Emmy nomination

The Golden Hour, a Kiwi documentary commissioned by TVNZ about New Zealand Olympians Peter Snell and Murray Halberg and their coach Arthur Lydiard, was nominated for Best Documentary at the International Emmy Awards.

Promax golds

The PromaxBDA Global Excellence Awards recognise the best television marketing campaigns from around the world. TVNZ’s in house creative team Blacksand won gold this year in the Best Promotional Interactive Applications category for a Shortland Street campaign and bronze in the Best News/Information Programme category for the Seven Sharp launch. In the New Zealand Promax competition, TVNZ collected a total of seven gold awards across a range of categories; three for Shortland Street campaign work.

AWARDS AND RECOGNITION


All 20 of New Zealand’s 20 most watched shows for the year aired on TVNZ channels.

Rank Programme Channel Rating % Average Audience

1 My Kitchen Rules TV2* 16.1 309,200

2 The Big Bang Theory TV2* 14.9 285,100

3 Shortland Street TV2* 14.8 283,500

4 The Block NZ TV3* 13.4 255,800

5 2 Broke Girls TV2* 12.7 242,600

6 Motorway Patrol TV2* 12.6 240,300

7 Nabbed TV2* 12.5 239,000

8 Highway Patrol TV2* 12.0 231,100

9 Police Ten 7 TV2* 11.7 224,100

10 Dynamo Magician Impossible TV ONE* 11.7 222,900

11 The X Factor (NZ) TV3* 11.4 217,000

12 Mom TV2* 11.0 209,800

13 Mitre 10 Dream Home TV2* 10.7 204,800

14 Code 1 TV2* 10.7 203,600

15 7 Days TV3* 10.6 203,200

16 The Smurfs TV2* 10.6 202,300

17 New Zealand's Got Talent TV ONE* 10.5 201,000

18 Trophy Wife TV2* 10.4 199,900

19 The Middle TV2* 10.3 197,600

20 Two and a Half Men TV2* 10.1 192,500



2 ONE News TV ONE* 15.5 644,100


4 Highway Cops TV ONE* 15.1 630,200

5 Sunday TV ONE* 15.0 623,200

6 Fair Go TV ONE* 14.1 582,200

7 Dog Squad TV ONE* 13.9 573,900

8 Hyundai Country Calendar TV ONE* 13.9 577,100

9 The World's Oddest Animal Couples TV ONE* 13.8 576,300

10 Border Security TV ONE* 13.4 555,800

11 Life Flight TV ONE* 13.3 549,700

12 Women In Blue TV ONE* 13.3 553,800

13 Broadchurch TV ONE* 13.3 553,600


15 The Force TV ONE* 12.7 530,100

16 Rapid Response TV ONE* 12.5 522,500

17 Water Patrol TV ONE* 12.5 520,800


19 MasterChef New Zealand TV ONE* 12.4 516,500

20 Topp Country TV ONE* 12.3 513,000

TOP 20 PROGRAMMES WATCHED BY ALL PEOPLE 5+

TOP 20 PROGRAMMES IN TV2’S COMMERCIAL DEMOGRAPHIC, ALL PEOPLE 18-49



1 My Kitchen Rules TV2* 16.9 313,300

2 The Big Bang Theory TV2* 15.6 288,900


4 The Block NZ TV3* 14.7 269,200

5 2 Broke Girls TV2* 13.0 240,200



8 Motorway Patrol TV2* 12.4 229,800

9 Nabbed TV2* 12.3 229,200


11 Police Ten 7 TV2* 11.9 218,500

12 The X Factor (NZ) TV3* 11.7 214,200

13 Mom TV2* 11.6 214,300

14 Code 1 TV2* 11.0 202,900

15 7 Days TV3* 10.9 200,800

16 Broadchurch TV ONE* 10.8 199,800

17 MasterChef New Zealand TV ONE* 10.6 195,800

18 Mitre 10 Dream Home TV2* 10.6 193,800

19 The Blacklist TV3* 10.3 191,100

20 Trophy Wife TV2* 10.2 189,800

TV ONE* = TV ONE and TV ONE Plus 1 combined. TV2* = TV2 and TV2+1 combined. TV3* = TV3 and TV3+1 combined. Excludes movies and one off special telecasts Source: Nielsen TAM, Consolidated 1/7/2013 - 30/6/2014

Source: Omniture (Brightcove Analytics used for desktop streams in Apr-May 2014)

TOP 20 PROGRAMMES IN TV ONE’S COMMERCIAL DEMOGRAPHIC, ALL PEOPLE 25-54

TOP 20 MOST WATCHED PROGRAMMES ON TVNZ ONDEMAND

We’re seeing more Kiwis than ever before watching their favourite programmes online. The country’s market leading video on demand service, TVNZ OnDemand recorded 54 million streams in the last financial year.

Rank Programme Streams

1 Shortland Street 8,814,445

2 Home and Away 4,336,689

3 Coronation Street 2,089,736

4 Peppa Pig 1,597,273

5 The Vampire Diaries 1,096,656

6 The Mentalist 1,056,221

7 The Originals 943,407

8 The Big Bang Theory 915,838

9 Grey’s Anatomy 845,865

10 Arrow 827,129

Rank Programme Streams

11 Neighbours 785,927

12 Scandal 723,267

13 The 100 709,894

14 ONE News 671,880

15 The Carrie Diaries 649,693

16 The Middle 644,984

17 Devious Maids 637,233

18 Revenge 630,152

19 Person of Interest 590,613

20 My Kitchen Rules 552,724


FINANCIAL STATEMENTS

27 Statement of Responsibility 33 Notes to the Financial Statements

28 Income Statement 60 Statement of Service Performance

29 Statement of Comprehensive Income 62 Report of the Auditor-General

30 Statement of Changes in Equity 64 Five Year Trend Statement

31

32

65Statement of Financial Position

Statement of Cash Flows

Additional Information


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 2014 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 2014.

For and on behalf of the Board of Directors,

30 September 2014

STATEMENT OF RESPONSIBILITYFor the year ended 30 June 2014

Wayne Walden Chairman

Alison Gerry Chair, Audit and Risk Committee


INCOME STATEMENTFor the year ended 30 June 2014

Group Company

2014 2013 2014 2013

Notes $000 $000 $000 $000

Revenue and income

Operating revenue 4 336,887 344,964 336,887 344,964

Government funding 18a 15,020 16,060 15,020 16,060

Interest income 858 58 858 58

Gain on sale of property, plant and equipment 7,820 1,028 7,820 1,028

360,585 362,110 360,585 362,110

Expenses

Programme amortisation 12 (201,947) (195,005) (201,947) (195,005)

Employee benefits 5 (57,916) (60,821) (57,916) (60,821)

Depreciation and amortisation 5 (15,409) (16,991) (15,409) (16,991)

Transmission (10,535) (19,798) (10,535) (19,798)

Marketing (8,580) (9,841) (8,580) (9,841)

Other (31,216) (33,369) (31,216) (33,369)

(325,603) (335,825) (325,603) (335,825)

Earnings before interest expense, impairments, remediation expenses, financial instruments, associates and tax

34,982 26,285 34,982 26,285

Interest expense (249) (1,118) (249) (1,118)

Asset impairment and remediation expense reversal 6 (3,188) 1,074 (3,188) 1,074

Financial instruments/foreign currency (losses)/gains 7 (167) 394 (167) 394

Share of results of associates 14c (2,055) (4,969) 0 0

Impairment of associate 14c (4,287) 0 (6,685) (5,876)

Profit before income tax 25,036 21,666 24,693 20,759

Income tax expense 8 (6,925) (7,226) (6,925) (7,226)

Profit for the year 18,111 14,440 17,768 13,533

The accompanying notes form part of these financial statements.


STATEMENT OF COMPREHENSIVE INCOMEFor the year ended 30 June 2014

Group Company

2014 2013 2014 2013

$000 $000 $000 $000

Profit for the year 18,111 14,440 17,768 13,533

Other comprehensive income/(loss) reclassifiable to profit or loss in subsequent periods

Net changes in the fair value of cash flow hedges 0 365 0 365

Income tax on other comprehensive income 0 (102) 0 (102)

Share of results of associate cash flow hedge (29) 29 0 0

Other comprehensive income/(loss) for the year net of income tax (29) 292 0 263

Total comprehensive income for the year 18,082 14,732 17,768 13,796



STATEMENT OF CHANGES IN EQUITYFor the year ended 30 June 2014

Share capital

Cash flow hedge reserve

Retained earnings Total

$000 $000 $000 $000

Group

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

At 1 July 2012 140,000 (263) 14,898 154,635


Other comprehensive income net of income tax 0 292 0 292

Total comprehensive income/(loss) for the year 0 292 14,440 14,732

Equity transactions

Dividend paid in the year 0 0 (11,287) (11,287)

At 30 June 2013 140,000 29 18,051 158,080

Company

At 1 July 2013 140,000 0 18,394 158,394




Equity transactions

Dividend paid in the year 0 0 0 0

At 30 June 2014 140,000 0 36,162 176,162

At 1 July 2012 140,000 (263) 16,148 155,885




Equity transactions

Dividend paid in the year 0 0 (11,287) (11,287)

At 30 June 2013 140,000 0 18,394 158,394



STATEMENT OF FINANCIAL POSITIONAs at 30 June 2014

Group Company

2014 2013 2014 2013

Notes $000 $000 $000 $000

ASSETS

Current assets

Cash and cash equivalents 9 48,715 6,385 48,715 6,385

Trade and other receivables 10 53,986 68,206 53,986 68,206

Programme rights - intangible assets 12 44,612 44,439 44,612 44,439

Inventories 95 102 95 102

Derivative financial instruments 20 1,453 978 1,453 978

Total current assets 148,861 120,110 148,861 120,110

Property, plant and equipment held for sale 11 3,931 0 3,931 0

Non-current assets

Property, plant and equipment 11 57,949 74,615 57,949 74,615

Other intangible assets 12 17,723 15,113 17,723 15,113

Deferred tax asset 8 730 1,261 730 1,261

Derivative financial instruments 20 237 197 237 197

Investment in associate 14 0 6,060 0 6,374

Other investments 0 42 0 42

Total non-current assets 76,639 97,288 76,639 97,602

Total assets 229,431 217,398 229,431 217,712

LIABILITIES

Current liabilities

Trade and other payables 17 47,659 48,082 47,659 48,082

Deferred income 18 3,272 6,367 3,272 6,367


Provisions 19 1,039 1,915 1,039 1,915

Total current liabilities 51,980 57,274 51,980 57,274

Non-current liabilities

Employee entitlements 17 1,283 1,541 1,283 1,541


Provisions 19 0 503 0 503

Total non-current liabilities 1,289 2,044 1,289 2,044

Equity

Share capital 22 140,000 140,000 140,000 140,000

Cash flow hedge reserves 22 0 29 0 0

Retained earnings 36,162 18,051 36,162 18,394

Total equity 176,162 158,080 176,162 158,394

Total equity and liabilities 229,431 217,398 229,431 217,712


For and on behalf of the Board, who authorised the issue of these financial statements on 30 September 2014,

Wayne Walden Alison Gerry Chairman Chair, Audit and Risk Committee


STATEMENT OF CASH FLOWSFor the year ended 30 June 2014

Group Company

2014 2013 2014 2013

Notes $000 $000 $000 $000

Cash flows from/(used in) operating activities

Receipts from customers 338,109 337,774 338,109 337,774

Receipt of government grants 16,673 14,560 16,673 14,560

Interest received 753 58 753 58

Payments to suppliers and employees (304,621) (325,046) (304,621) (325,046)

Interest paid (249) (1,121) (249) (1,121)

Income tax paid (6,348) (8,743) (6,348) (8,743)

Net cash flows from/(used in) operating activities 23 44,317 17,482 44,317 17,482

Cash flows from/(used in) investing activities

Proceeds from sale of property, plant and equipment 16,171 7,321 16,171 7,321

Proceeds from insurance claim 0 4,200 0 4,200

Purchase of property, plant and equipment (8,482) (4,037) (8,482) (4,037)

Purchase of intangibles (8,340) (1,955) (8,340) (1,955)

Advances to associates (1,317) (714) (1,317) (714)

Net cash flows from/(used in) investing activities (1,968) 4,815 (1,968) 4,815

Cash flows from/(used in) financing activities

Repayment of borrowings 0 (10,000) 0 (10,000)

Dividends paid 0 (11,287) 0 (11,287)

Net cash flows from/(used in) financing activities 0 (21,287) 0 (21,287)

Net increase/(decrease) in cash and cash equivalents 42,349 1,010 42,349 1,010

Net foreign exchange differences (19) (1 ) (19) (1 )

Cash and cash equivalents at the beginning of the year 6,385 5,376 6,385 5,376

Cash and cash equivalents at the end of the year 9 48,715 6,385 48,715 6,385



NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2014

1. Corporate information Television New Zealand Limited (the “Company”) and its subsidiaries (the “Group’) operate as a multi channel television and digital media broadcasting and production company in New Zealand.

The Company is a limited liability company incorporated in New Zealand under the Companies Act 1993 and is wholly owned by the Crown. The Company is bound by the requirements of the Television New Zealand Act 2003. The Crown does not guarantee the liabilities of Television New Zealand Limited in any way.

These consolidated financial statements were approved for issue by the Board of Directors on 30 September 2014.

2. Summary of significant accounting policiesThe principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated.

a) Basis of preparationThe 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 1993 and the Companies Act 1993. For the purposes of complying with NZ GAAP the entity is a for-profit entity. The 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 financial statements are presented in New Zealand dollars ($), which is the Company’s functional currency. All financial information presented in New Zealand dollars has been rounded to the nearest thousand unless otherwise stated.

b) Statement of complianceThe financial statements 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 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) New and amended standards adopted by the GroupThe following new accounting standards that became effective for accounting periods beginning on or after 1 January 2013 have been adopted by the Group in the financial statements; NZ IFRS 10 Consolidated Financial Statements, NZ IFRS 11 Joint Arrangements, NZ IFRS 12 Disclosure of Interest in Other Entities and NZ IFRS 13 Fair Value Measurement. The adoption of these standards has had no material impact on the Group.

ii) Accounting standards and interpretations issued but not yet effectiveStandards 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 2014. These are noted below.

NZ IFRS 9 – Financial InstrumentsNZ 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 CustomersNZ 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. An entity recognises revenue in accordance with that core principle.


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 30 June 2014

ii) Accounting standards and interpretations issued but not yet effective (continued) NZ IFRS 15 – Revenue from Contracts with Customers (continued) 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 consolidationThe 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.

Investments in subsidiaries are accounted for at cost, less allowance for impairment, in the separate financial statements of the Company.

e) Foreign currencyThe 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 recognitionRevenue 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 servicesRevenue from advertising and sponsorship is recognised as income at the time of transmission.

ii) Government grantsGovernment 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 revenueOther 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.



g) TaxationIncome 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) LeasesOperating 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) DividendsProvision is made for the amount of dividend declared on or before balance date but not distributed at balance date.

j) Property, plant and equipmentItems 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 saleProperty, 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.

ImpairmentThe 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.



k) Intangible assets Programme rightsTelevision 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 licencesFrequency 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 assetsAcquired 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 costsDevelopment costs on internal projects 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 or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its 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 equivalentsCash 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 receivablesTrade receivables are recognised and carried at original invoice amount and subsequently measured at amortised cost, less an allowance for impairment.

Collectability of trade receivables is reviewed on an ongoing 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) InventoriesInventories comprise technical stores and videotape. All inventories are recorded at the lower of cost or net realisable value.

o) Derivative financial instrumentsThe 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.



o) Derivative financial instruments (continued)Each derivative that is designated as a hedge is classified as either: i) a fair value hedge when they hedge 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 they hedge 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 hedgeChanges 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 hedgeThe 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 costsBorrowings 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 payablesTrade 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 associateThe Group’s investment in its associates is 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 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 ventureThe 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 benefitsProvision 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) ProvisionsProvisions 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 assumptionsThe 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 ongoing 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 taxThe 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 costsDevelopment 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.


Group Company

2014 2013 2014 2013

$000 $000 $000 $000

4) Operating revenue

Television revenue 306,842 311,607 306,842 311,607

Digital media revenue 12,890 9,925 12,890 9,925

Other trading revenue 17,155 23,432 17,155 23,432

336,887 344,964 336,887 344,964

Television revenue includes advertising, sponsorship and programme production funding on TV ONE, TV2, TVNZ Heartland, and TVNZ U (to 31 August 2013). 5) ExpensesExpenses include: Employee benefits expense

Wages and salaries and other short term benefits 87,774 89,354 87,774 89,354

Defined contribution superannuation expense 2,684 2,649 2,684 2,649

Less employee benefits charged to programmes/capitalised (32,542) (31,182) (32,542) (31,182)

57,916 60,821 57,916 60,821

Depreciation and amortisation

Depreciation 9,872 11,580 9,872 11,580

Amortisation - software 5,376 5,008 5,376 5,008

Amortisation - licences 161 403 161 403

15,409 16,991 15,409 16,991

Auditor’s remuneration

Audit of financial statements 277 276 277 276

Regulatory audits 11 12 11 12

288 288 288 288

Reorganisation costs

Reorganisation costs 2,558 2,489 2,558 2,489

Costs associated with the reorganisation of parts of the Company 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 Company strategy and technology changes.

Rental and operating lease costs

Rental and operating lease costs 4,398 3,021 4,398 3,021

6) Remediation expense and asset impairment

Television Centre asset impairment 3,188 0 3,188 0

Remediation expense reversal 0 (1,074) 0 (1,074)

3,188 (1,074) 3,188 (1,074)

In July and September 2013 the Company 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 Company will need to undertake an extensive refurbishment of its building at 100 Victoria Street West, Auckland. Plant and equipment associated with this building that no longer has income generating capacity have been impaired to nil value.

The analogue transmission of television ceased on 30 November 2013. The Group had an obligation to decommission its analogue transmitters which were located on Kordia Limited transmission sites. In FY2012 an assessment of the estimated costs of decommissioning the analogue transmitters and remediating the sites was $3,000,000. The actual decommissioning and remediation costs were $1,074,000 below the original estimate and the surplus provision was reduced accordingly and recognised in the income statement in FY2013.



Group Company

2014 2013 2014 2013

$000 $000 $000 $000

7) Financial instruments and foreign currency gains / (losses)

Fair value changes of derivative financial instruments 1,410 380 1,410 380

Foreign currency realised gains/(losses) (1,217) (74) (1,217) (74)

Foreign currency unrealised gains/(losses) (360) 205 (360) 205

Interest rate swaps realised losses 0 (117) 0 (117)

(167) 394 (167) 394

8) Income taxa) Income tax

The major components of income tax expense are:

Income statement

Current income tax

Current period 6,501 5,747 6,501 5,747

Adjustments for prior year (107) 46 (107) 46

6,394 5,793 6,394 5,793

Deferred income tax

Origination and reversal of temporary differences 531 1,433 531 1,433

Total income tax expense 6,925 7,226 6,925 7,226

b) Income tax recognised in other comprehensive income

Net movement on revaluation of cash flow hedges 0 (102) 0 (102)

Total income tax recognised directly in equity 0 (102) 0 (102)

c) Reconciliation of income tax expense

Profit/(loss) before income tax for the year 25,036 21,666 24,693 20,759

Taxation at 28% 7,010 6,066 6,914 5,812

Adjusted for the tax effect of:

Non deductible expenditure 239 85 239 85

Non assessable income (1,905) (362) (1,905) (362)

Share of results and impairment of associate 1,688 1,391 1,784 1,645

Income tax (over)/under provided in prior years (107) 46 (107) 46

Total tax expense 6,925 7,226 6,925 7,226




8) Income tax (continued)d) Recognised deferred tax assets/(liabilities)

Group 2014

Company 2014

Current income tax

Deferred income tax

Current income tax

Deferred income tax

$000 $000 $000 $000

Opening balance (1,364) 1,261 (1,364) 1,261

Charged to income statement - tax expense (6,394) (531) (6,394) (531)

Charged to equity 0 0 0 0

Other payments/(receipts) 6,348 0 6,348 0

Closing balance (1,410) 730 (1,410) 730

Tax expense in income statement (6,925) (6,925)

Amounts recognised in the balance sheet:

Deferred tax asset 730 730

Group 2013

Company 2013

Current income tax

Deferred income tax

Current income tax

Deferred income tax

$000 $000 $000 $000

Opening balance (4,314) 2,796 (4,314) 2,796

Charged to income statement - tax expense (5,793) (1,433) (5,793) (1,433)

Charged to equity 0 (102) 0 (102)

Other payments 8,743 0 8,743 0

Closing balance (1,364) 1,261 (1,364) 1,261

Tax expense in income statement (7,226) (7,226)

Amounts recognised in the balance sheet:

Deferred tax asset 1,261 1,261

Group Balance sheet

Company Balance sheet

2014 2013 2014 2013

$000 $000 $000 $000

Deferred income tax at 30 June relates to the following:

Deferred tax assets/(liabilities)

Programme rights 7,426 8,313 7,426 8,313

Employee entitlements 2,552 2,304 2,552 2,304

Property, plant and equipment and software (9,471) (10,341) (9,471) (10,341)

Provisions 291 583 291 583

Frequency licences 0 485 0 485

Doubtful debts 12 14 12 14

Other 201 237 201 237

Derivative financial instruments (281) (334) (281) (334)

730 1,261 730 1,261


Group and Company

2014 2013

$000 $000

e) Imputation credit account

The amount of imputation credits available for use in subsequent reporting periods 22,241 15,946

The Company and subsidiaries are part of the same consolidated tax group, therefore the imputation credits available to the Group and the Company are the same.

Group Company

2014 2013 2014 2013

$000 $000 $000 $000

9) Cash and cash equivalents

Cash at bank and in hand 15,715 6,070 15,715 6,070

Short term deposits 33,000 315 33,000 315

Cash and cash equivalents in the statement of cash flows 48,715 6,385 48,715 6,385

10) Trade and other receivables

Trade receivables 40,468 46,349 40,468 46,349

Less provision for receivables impairment (42) (49) (42) (49)

Prepaid programme rights 10,332 15,719 10,332 15,719

Prepayments - other 3,228 6,187 3,228 6,187

53,986 68,206 53,986 68,206

a) Provision for receivables impairmentTrade 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 49 20 49 20

Charge/(reversal) for the year (1 ) 59 (1 ) 59

Amounts written off (6 ) (30) (6 ) (30)

At 30 June 42 49 42 49

Trade receivables that are less than 90 days overdue are not considered impaired. As at 30 June 2014 trade receivables of $1,185,000 (2013: $1,150,000) were past due but not considered impaired. Direct contact has been made with these debtors and the Company 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 39,241 45,150 39,241 45,150

Up to 30 days overdue 648 1,031 648 1,031

Between 30 and 90 days overdue 537 119 537 119

Over 90 days overdue - past due considered impaired 42 49 42 49

40,468 46,349 40,468 46,349

b) Fair value and credit riskDue 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).




11) Property, plant and equipment

Group and Company

Land & buildings

Plant & equipment

Motor vehicles

Work in progress Total

$000 $000 $000 $000 $000

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 work in progress 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 and impairment (40,010) (132,132) (2,386) (200) (174,728)

36,748 15,925 517 4,759 57,949


At 1 July 2012 net of accumulated depreciation and impairment 56,253 25,750 881 600 83,484

Additions 165 3,326 57 478 4,026

Transfers from work in progress 0 543 10 (553) 0

Transfer open work in progress to intangibles 0 0 0 (34) (34)

Disposals (1,250) (31) 0 0 (1,281)

Depreciation charge (2,626) (8,709) (245) 0 (11,580)

Impairment 0 0 0 0 0

Closing net book amount 52,542 20,879 703 491 74,615

At 30 June 2013

Cost 99,312 179,464 2,974 491 282,241

Accumulated depreciation (46,770) (158,585) (2,271) 0 (207,626)

52,542 20,879 703 491 74,615

Transfers to assets held for saleAt 30 June 2014 the Company 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.



12) Intangible assets

Group and Company

Programme rights Software Licences Total

$000 $000 $000 $000


At 1 July 2013 net of accumulated amortisation and impairment 44,439 15,001 112 59,552

Additions (internally generated) 58,620 0 0 58,620

Additions (externally purchased) 143,500 6,670 1,670 151,840

Disposals 0 (193) 0 (193)

Amortisation charge (201,947) (5,376) (161) (207,484)

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


At 1 July 2012 net of accumulated amortisation and impairment 56,051 18,021 515 74,587

Additions (internally generated) 61,639 0 0 61,639

Additions (externally purchased) 121,754 1,954 0 123,708

Reclassification from PPE work in progress 0 34 0 34

Amortisation charge (195,005) (5,008) (403) (200,416)

Closing net book amount 44,439 15,001 112 59,552

At 30 June 2013

Cost 228,993 58,396 16,341 303,730

Accumulated amortisation (184,554) (43,395) (16,229) (244,178)

44,439 15,001 112 59,552

Current asset 44,439 0 0 44,439

Non-current asset 0 15,001 112 15,113

44,439 15,001 112 59,552

Included in software are assets under development of $6,289,000 (2013: $157,000).



13) Investments in subsidiariesThe Company’s investment in its subsidiaries comprises shares at cost less impairment and advances to subsidiaries less any provision for impairment. The shares in subsidiaries have been written down to nil value and all outstanding loans have been fully provided for (total impairment of $8,490,000). Intercompany loans to the value of $18,491,000 were forgiven during the year. Advances to subsidiaries are interest free, unsecured and repayable on demand.

Subsidiaries of Television New Zealand Limited comprise:

% holding

Name Principal activity 2014 2013

TVNZ Satellite Services 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%

Horizon Pacific Television Limited and subsidiaries Non trading 100% 100%

All companies are incorporated in New Zealand. All have balance dates of 30 June.

14) Interest in associateIgloo Ltd was incorporated in July 2011. The Group’s initial investment was $12,250,000 for a 49% interest with Sky Network Television Ltd (Sky) owning the other 51%. On 30 June 2013 Igloo issued additional shares to Sky and Sky’s shareholding increased to 66% and the Group’s shareholding reduced to 34%. At this time an impairment on the initial investment of $5,875,590 was recognised by the Company. The Company also had an option to purchase an additional 216 shares that were exercisable between 1 July and 30 September 2015 at an agreed price. On 30 June 2014 the Company 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.

The Group acquired a 33.33% interest in Hybrid Television Services (ANZ) Pty Ltd in 2009. Due to the uncertainty of Hybrid generating future surpluses an impairment charge equal to the value of the outstanding loans to Hybrid was recognised in prior periods and the Group also provided for costs associated with the future financial support of Hybrid (refer note 19). 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.

Group Company

2014 2013 2014 2013

$000 $000 $000 $000

a) Movement in carrying amount of the Group’s investment in associate Igloo Limited

At 1 July 6,060 11,000 6,374 12,250

Share of losses after income tax (2,055) (5,108) 0 0

Gain on deemed disposal 0 139 0 0

Share of comprehensive income after income tax (29) 29 0 0

Impairment (3,976) 0 (6,374) (5,876)

At 30 June 0 6,060 0 6,374



Group Company

2014 2013 2014 2013

$000 $000 $000 $000

14) Interest in associate (continued)b) Share of results and impairment of associates

Share of results in associate (2,055) (5,108) 0 0

Gain on deemed disposal 0 139 0 0

Impairment of associate (4,287) 0 (6,685) (5,876)

(6,342) (4,969) (6,685) (5,876)

At 30 June 2014 the Group had no shareholding in Igloo and Hybrid and no contingent liabilities relating to these companies. To the knowledge of the Directors, there were no contingent liabilities relating to the Group’s interest in the associate companies and there were no contingent liabilities of the associates themselves at 30 June 2013. Igloo Limited had capital commitments of $1.27 million at 30 June 2013 and Hybrid had no capital commitments at 30 June 2013.

15) Interest in joint ventureThe Company 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 Company’s investment in Freeview Limited is $nil (2013: $nil).

The following table provides summarised financial information relating to the Company’s joint venture:

Extract from the joint venture balance sheet:

2014 2013

$000 $000

Current assets 866 889

Non-current assets 31 77

897 966

Current liabilities 897 966

Non-current liabilities 0 0

897 966

Net assets 0 0

Share of joint ventures net assets 0 0

Extract from joint venture income statement:

Revenue 4,181 6,940

Net profit 0 0

To the knowledge of the Directors, there are no contingent liabilities relating to the Company’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 Company is required to fund its agreed share of net costs for the services provided by the joint venture.



16) Loans and borrowingsThe Group has a revolving cash advance facility committed to a maximum amount of $20 million (June 2013: $50 million); these facilities expire in December 2016. Any borrowings during the year were drawn down from these facilities. Refer Note 21 for details on management of interest rate risk related to these borrowings. The financing cash flow has been presented as a net movement.

a) Fair valuesAs at 30 June the carrying amount of the Group’s current and non-current borrowings is nil.

b) Defaults and breachesDuring the current and prior years, there were no defaults or breaches of any loan covenants.

Group Company

2014 2013 2014 2013

$000 $000 $000 $000

17) Trade and other payables Current

Trade payables and accruals 39,723 39,632 39,723 39,632


Tax payable 1,410 1,364 1,410 1,364

47,659 48,082 47,659 48,082

Non-current


18) Deferred income

Government funding 1,676 4,159 1,676 4,159

Other 1,596 2,208 1,596 2,208

3,272 6,367 3,272 6,367

a) Government funding

Group and Company

MCH NZOA TMP Total

$000 $000 $000 $000


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


At 1 July 2013 2,308 1,237 220 3,765

Received/invoiced during the year 1,757 9,555 5,361 16,673

Released to the income statement (2,222) (8,415) (5,423) (16,060)

Digital channels funding repaid (219) 0 0 (219)

Closing net book amount 1,624 2,377 158 4,159

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 and maintain non-commercial transmission sites. The funding for the non-commercial transmission sites ended on 1 December 2013 when the nationwide switch over to digital transmission was completed. New Zealand On Air (NZOA) funds TVNZ for specific programmes and programme captioning and audio description. The funding for captioning and audio description ceased when these services were transitioned to ABLE, an independent trust, on 10 November 2013. Te Mangai Paho (TMP) provides 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.



Group Company

2014 2013 2014 2013

$000 $000 $000 $000

19) Provisions

Reorganisation 1,039 1,412 1,039 1,412

Hybrid 0 1,006 0 1,006

1,039 2,418 1,039 2,418

a) Movement in provisions

Group and Company

Reorganization Hybrid Total

$000 $000 $000

At 1 July 2013 1,412 1,006 2,418

Raised during the year 1,039 311 1,350

Utilised during the year (1,412) (1,317) (2,729)

At 30 June 2014 1,039 0 1,039

Current 1,039 0 1,039

Non-current 0 0 0

At 30 June 2014 1,039 0 1,039

Current 2013 1,412 503 1,915

Non-current 2013 0 503 503

At 30 June 2013 1,412 1,006 2,418

b) Nature and timing of provisionsi) Reorganisation provisionThe 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 Company strategy and technology changes.

ii) Hybrid provisionThe Group held a 33.33% ownership share of Hybrid Television Services (Pty) Ltd, the Group was committed to financially support Hybrid and in prior years provided for expected future costs based on Hybrid forecasts and contractual commitments. At 30 June 2014 the Group sold its shares in Hybrid back to Hybrid and has no commitment to provide any further financial support to Hybrid.



Group Company

2014 2013 2014 2013

$000 $000 $000 $000

20) Derivative financial instruments

Current assets

Forward currency contracts - held for trading 442 0 442 0

Forward currency contracts - fair value hedge 10 3 10 3

Foreign currency embedded derivative contracts 1,001 975 1,001 975

1,453 978 1,453 978

Non-current assets



Foreign currency embedded derivative contracts 1 31 1 31

Interest rate swap contracts 0 21 0 21

Share option 0 145 0 145

237 197 237 197

Current liabilities



10 910 10 910

Non-current liabilities


6 0 6 0

a) Instruments used by the GroupDerivative 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 tradingThe 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.

Group and Company

2014 2013

NZD NZD

$000 $000

Buy AUD/Sell NZD - Maturity 0-12 months 54,763 26,327

Buy AUD/Sell NZD - Maturity 13 - 24 months 54,154 0

ii) Forward currency contracts – fair value hedgeThe 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 hedgeBuy AUD/Sell NZD - Maturity 0 - 12 months 1,147 0

Buy AUD/Sell NZD - Maturity 13 - 24 months 772 0

Buy USD/Sell NZD - Maturity 0-12 months 0 82



20) Derivative financial instruments (continued)

Group and Company

2014 2013

$000 $000

iii) Foreign currency embedded derivative contractsThe 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 21,591 21,955

Sell AUD/Buy NZD - Maturity 13-24 months 132 505

iv) Interest rate swaps – cash flow hedgeTo 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. The interest swaps require settlement of net interest receivable or payable each 91 days. The settlement dates coincide with dates on which the interest is payable on the underlying debt. Swaps that are matched directly against the appropriate loans and interest expense are considered highly effective. They are settled on a net basis. The swaps are measured at fair value and all gains and losses attributable to the hedged risk are recognised in other comprehensive income and reclassified into profit or loss when the interest expense is recognised. As at 30 June 2013 there were interest rate swaps with a notional value of $10,000,000 that were not designated as cash flow hedges, the fair value gains and losses are recognised in profit or loss. No interest rate swaps are held at 30 June 2014.

At 30 June the notional principal amounts and period of expiry of the interest rate swap contracts are as follows:

Maturity 0-12 months 0 0

Maturity 13-24 months 0 0

Maturity 25-36 months 0 10,000

0 10,000

v) Share optionAt 30 June 2013 the Company had an option to purchase additional shares in Igloo Limited which were exercisable between 1 July 2015 and 30 September 2015. The fair value gain of this option was recognised in the income statement in FY2013. At 30 June 2014 the Company no longer has any ownership of Igloo and does not hold an option to purchase shares in Igloo, the fair value gain recognised in prior years has been derecognised in the income statement.

21) Financial risk factorsThe 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 riskThe 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.



21) Financial risk factors (continued)

At 30 June the Group had the following foreign currency exposures.

Group Company

2014 2013 2014 2013

$000 $000 $000 $000

Financial assets

Cash and cash equivalents 627 169 627 169

Trade and other receivables 589 93 589 93

1,216 262 1,216 262

Financial liabilities

Trade and other payables (11,935) (12,347) (11,935) (12,347)

(11,935) (12,347) (11,935) (12,347)

Foreign currency derivatives

Forward contracts 108,917 26,409 108,917 26,409

Embedded derivatives (21,723) (22,460) (21,723) (22,460)

87,194 3,949 87,194 3,949

Total net exposure 76,475 (8,136) 76,475 (8,136)

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:

Group and Company

Post tax profit Equity

+10% (10%) +10% (10%)

2014 (5,524) 5,524 0 0

2013 584 (584) 0 0

Interest rate riskThe Group’s exposure to interest rate risk relates primarily to long term borrowings.

At 30 June, the Group had the following mix of financial assets and liabilities exposed to variable interest rate risk.

Group Company

2014 2013 2014 2013

$000 $000 $000 $000

Financial assets

Cash and cash equivalents 48,715 6,385 48,715 6,385


Bank overdrafts 0 0 0 0

Bank loans 0 0 0 0

Net exposure 48,715 6,385 48,715 6,385



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.

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:

Group and Company

Post tax profit Equity

+1% (1%) +1% (1%)

2014 0 0 0 0

2013 41 (41) 0 0

Credit riskCredit 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 riskLiquidity risk is the risk that the Group and Company 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 2014 the Group has available $20,000,000 (2013: $50,000,000) of undrawn committed facilities. These bank facilities expire in December 2016.



21) Financial risk factors (continued)

The table below analyses the contractual cash flows for all financial liabilities and derivatives

2014

Within one year

One to two years

Two to five years

Total

Group $000 $000 $000 $000

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

Within one year

One to two years

Two to five years

Total

Company $000 $000 $000 $000


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

2013

Within one year

One to two years

Two to five years

Total

Group $000 $000 $000 $000


Forward exchange contracts - outflow 26,409 0 0 26,409

Forward exchange contracts - inflow (25,502) 0 0 (25,502)

40,539 0 0 40,539

Within one year

One to two years

Two to five years

Total

Company $000 $000 $000 $000


Forward exchange contracts - outflow 26,409 0 0 26,409

Forward exchange contracts - inflow (25,502) 0 0 (25,502)

40,539 0 0 40,539



21) Financial risk factors (continued)Fair valueThe 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.

Group and Company

2014 2013

$000 $000

Financial assets

Derivative instruments

Foreign currency contracts 688 3

Foreign currency embedded derivative contracts 1,002 1,006

Interest rate swaps 0 21

Share option 0 145

1,690 1,175


Derivative instruments 16 910

Foreign currency contracts 16 910

Capital managementThe 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 capitalAs at 30 June 2014 there were 140,000,000 shares ($1 each) issued and fully paid (2013: 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 Company’s residual assets.

b) Nature and purpose of the cash flow hedge reserveThis 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.

Group Company

2014 2013 2014 2013

$000 $000 $000 $000

Movement in cash flow hedge reserve:

Opening balance 29 (263) 0 (263)

Transferred to income statement 0 263 0 263

Charged to other comprehensive income (29) 29 0 0

Closing balance at 30 June 0 29 0 0

23) Cash flow statement reconciliation

Reconciliation of net profit after tax to net cash flows from operations

Net profit 18,111 14,440 17,768 13,533

Adjustments for:

Depreciation and impairment 13,059 11,580 13,059 11,580

Amortisation 5,537 5,411 5,537 5,411

Gain on disposal of property, plant and equipment (7,820) (1,028) (7,820) (1,028)

Unrealised foreign currency losses/(gains) 360 (205) 360 (205)

Share of associate net results and provisions 6,342 4,969 6,685 5,876

Proceeds from insurance claim classified as investing 0 (4,200) 0 (4,200)

Other 42 0 42 0

Changes in assets and liabilities

(Increase)/decrease in trade and other receivables 14,210 (7,436) 14,210 (7,436)

(Increase)/decrease derivative financial instruments (1,409) (382) (1,409) (382)

(Increase)/decrease deferred tax asset 531 1,433 531 1,433

(Increase)/decrease inventories 7 48 7 48

(Increase)/decrease programme rights (173) 11,612 (173) 11,612

Increase/(decrease) trade and other payables (1,058) (10,942) (1,058) (10,942)

Increase/(decrease) deferred income (3,095) 183 (3,095) 183

Increase/(decrease) income tax payable 46 (2,950) 46 (2,950)

Increase/(decrease) provisions (373) (5,051) (373) (5,051)

Net cash from operating activities 44,317 17,482 44,317 17,482



24) Related party disclosuresa) SubsidiariesThe consolidated financial statements include the financial statements of Television New Zealand Limited and its subsidiaries, listed in note 13. The Company did not purchase or supply goods and services from or to any of its subsidiaries during the year (2013: $nil).

b) Joint ventureThe following table provides the total amount of transactions that were entered into with Freeview Limited.

Company

2014 2013

$000 $000

Joint venture

Revenue from Freeview Limited 1,622 2,625

Purchases from Freeview Limited 257 485

Amounts owed by Freeview Limited 255 196

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 1,317 714

All funding to the associate has been written off.

d) Government entities

Funding from government entities 15,020 16,060

Revenue from government entities 1,256 1,588

Purchases from government entities 11,461 22,229

Amounts owed by government entities 358 3,298

Amounts owed to government entities 210 281

Revenue in advance from government entities 1,676 4,159

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 personnelKey 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 4,311 4,100

Defined contribution superannuation expense 205 199

Termination benefits 0 270

4,516 4,569

f) Directors

Directors’ fees 337 315

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.



Group and Company

2014 2013

$000 $000

25) Commitments

a) Programme rights

Within one year 126,436 114,370

One to two years 84,488 87,058

Two to five years 101,292 139,901

Later than five years 0 16,696

312,216 358,025

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 6,270 3,283

One to two years 3,231 1,887

Two to five years 2,565 1,682

Later than five years 0 765

12,066 7,617

c) Finance leasesNeither the Company nor the Group had any finance lease commitments at balance date (2013: nil).

d) Property, plant and equipment and software

Within one year 21,102 258

One to two years 10,209 0

31,311 258

26) Contingent liabilitiesIn 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 dateOn 14 July 2014 the Company had an unconditional agreement to sell its New Zealand Television Archive properties and certain equipment to Her Majesty the Queen acting by and through the Minister for Land Information for $9,320,000. This sale was formally settled on 1 August 2014.

There have been no other significant events occurring since balance date requiring disclosure.



28) Comparison of forecast to actual results

Group

Actual Forecast

$000 $000

a) Financial performance

Revenue 360,585 357,273

Operating expenses (325,603) (328,238)

Earnings before asset impairment and remediation expense, interest, tax, financial instruments and associates 34,982 29,035

Interest expense (249) (701)

Asset impairment and remediation expenses (3,188) 0

Financial instruments/foreign currency gains/(losses) (167) 0

Share of results of associated company (2,055) (3,629)

Impairment and provision of associate (4,287) 0

Income tax expense (6,925) (7,934)

Net profit/(loss) for the year 18,111 16,771

b) Movements in equity

Net profit/(loss) for the year 18,111 16,771

Distributions to the shareholder 0 (9,811)

Other comprehensive income (29) 0

Movements in equity for the year 18,082 6,960

Equity at start of the year 158,080 157,465

Equity at end of the year 176,162 164,425

The gain on sale of property, plant and equipment offset the below forecast growth in advertising. Operating expenses are below forecast levels as a result of cost savings initiatives implemented during the year. Interest expense is below forecast due to low levels of borrowings. The share of associate company results (Igloo) are below forecast. The impairment and provision of associate relates to the write down and sale of shares in Igloo and Hybrid. Fair value changes in financial instruments are not forecasted due to the inherent volatility in exchange rates; there was a loss for the year. The income tax variance is primarily due to non-assessable gains on the sale of land.

No dividend was paid in FY2014 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 148,861 130,501

Property, plant and equipment held for sale 3,931 0

Non-current assets 76,639 97,583

Total assets employed 229,431 228,084

Current liabilities 51,980 55,798

Non-current liabilities 1,289 7,861

Total liabilities 53,269 63,659

Share capital 140,000 140,000

Retained earnings 36,162 24,425

Total equity 176,162 164,425

Total equity and liabilities 229,431 228,084

Certain balance sheet forecasted amounts have been reclassified to give a direct comparison to actual results.

Current assets are greater than forecast due to higher levels of funds on deposit. Non-current assets are below forecast due to the sale of land and buildings that had not been forecasted. Current liabilities are below forecast due to lower levels of payables and provision than forecasted. The lower levels of term liabilities than forecast are a result of the sale of assets and the Shareholding Ministers agreeing to forgo dividends.



28) Comparison of forecast to actual results (continued)

Group

Actual Forecast

$000 $000

d) Cash flows

Net cash flows from/(to):

Operating activities 44,317 26,587

Investing activities (1,968) (15,000)

Financing activities 0 (9,811)

Net (decrease)/increase in cash held 42,349 1,776

Add opening cash brought forward 6,385 5,363

Net foreign exchange differences (19) 0

Ending cash carried forward 48,715 7,139

Lower levels of expenditure and improved cash collections have resulted in above forecast cash flows from operating activities. Cash flows to investing activities are lower than forecast due to the sale of 85-93 Hobson Street partly offsetting capital expenditure for the year. Financing activities are below budget as the forecasted dividend was not paid due to the Shareholding Ministers forgoing dividend to assist in the cost of refurbishment of the Auckland Television Centre. These variances have resulted in higher cash holdings at year end.

e) Performance targets

Profitability

Return on average equity 10.8% 10.1%

EBITDA/television advertising revenue 16.4% 14.4%

Gearing

Net interest bearing debt/net interest bearing debt plus equity 0.0% < 40%

Financial stability

Total equity/total assets 76.8% > 40%

Interest cover

EBITDA/interest expense 202 times > 4 times

EBITDA – earnings before interest, tax, depreciation, amortisation, impairments, financial instruments and associate earnings.


STATEMENT OF SERVICE PERFORMANCEFor the year ended 30 June 2014

This statement reports on the performance of Television New Zealand Limited (TVNZ) in relation to the output targets set in the Statement of Intent for the year ended 30 June 2014.

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 Intent for the year ended 30 June 2014 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 Service Performance outputs which are not directly funded (in whole or in part) by the Crown.

a) Transmitting TVNZ programmes to Pacific nations with funding from the Ministry for Culture and HeritageThe 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 weekly transmission of Tagata Pasifika and the transmission of other programmes relevant to the Pacific nations within available funding.

The following Pacific nations received programming:

• Cook Islands • Niue

• Fiji • Samoa

• Nauru • Tonga

Total funding received from the Ministry for Culture and Heritage: $607,000 (2013: $607,000).

Total costs of transmission: $500,194. The unspent funding will be carried forward to FY2015 and will be used on repairs and maintenance and training.

Programmes transmittedFY2014

HoursFY2013

Hours

ONE News 365.5 365.0

Te Karere 127.5 127.0

Seven Sharp 118.0 107.0

Midday News 119.0 8.0

What Now 80.0 84.0

Q + A 39.0 27.0

Marae 29.0 27.0

Tagata Pasifika 27.0 26.0

Waka Huia 26.5 31.5

Praise Be 26.5 26.5

Te Kaea 26.0 9.0

Fresh 13.0 19.0

TOTES Maori / I Am TV 12.5 24.0

4:30 News 0.0 60.5

Breakfast Weekend 0.0 48.0

Festival of Pacific Arts 0.0 39.0

Polyfest 0.0 9.0

Other 38.0 17.0

Total Hours 1047.5 1055.0

Average hours per week 20.1 20.3


STATEMENT OF SERVICE PERFORMANCE (CONTINUED)For the year ended 30 June 2014

b) Maintaining non-commercial transmission sites with funding from the Ministry for Culture and HeritageThis funding is to assist the transmission coverage of the TV ONE and TV2 signals to those New Zealand communities that would not otherwise receive a commercially viable terrestrial signal. Funding for the delivery of non-commercial transmission ceased at the completion of the digital switch over in late 2013.

The Company operated and maintained 108 non-commercial transmission sites in accordance with the Memorandum of Understanding with the Ministry for Culture and Heritage.

TVNZ undertook to meet performance standards including the quality of the signal, maintenance and responses to faults, and to provide performance reports at six-monthly intervals. It contracted transmission company Kordia to provide services to discharge these obligations.

The required performance standard was achieved through compliance with covenants contained in the Memorandum of Understanding.

Total funding received from the Ministry for Culture and Heritage to subsidise the cost of maintaining transmission from the non-commercial transmission sites, was $575,000 (2013: $1,150,000).


REPORT OF THE AUDITOR-GENERAL

INDEPENDENT AUDITOR’S REPORT

TO THE READERS OF TELEVISION NEW ZEALAND LIMITED AND GROUP’S FINANCIAL STATEMENTS AND NON-FINANCIAL PERFORMANCE INFORMATION FOR THE YEAR ENDED 30 JUNE 2014

The Auditor-General is the auditor of Television New Zealand Limited (the company) and group. 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 non-financial performance information of the company and group on her behalf.

We have audited:

- the financial statements of the company and group on pages 28 to 59, that comprise the statement of financial position as at 30 June 2014, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date and notes to the financial statements that include accounting policies and other explanatory information; and

- the non-financial performance information of the company and group that comprises the statement of service performance on pages 60 to 61 and which includes outcomes.

Opinion

Financial statements and non-financial performance information

In our opinion:

- the financial statements of the company and group on pages 28 to 59:

- comply with generally accepted accounting practice in New Zealand;

- comply with International Financial Reporting Standards; and

- give a true and fair view of the company and group’s:

- financial position as at 30 June 2014; and

- financial performance and cash flows for the year ended on that date.

- the non-financial performance information of the company and group on pages 60 to 61:

- complies with generally accepted accounting practice in New Zealand; and

- gives a true and fair view of the company and group’s service performance and outcomes for the year ended 30 June 2014, including for each class of outputs:

- the service performance compared with forecasts in the statement of forecast service performance at the start of the financial year; and

- the actual revenue and output expenses compared with the forecasts in the statement of forecast service performance at the start of the financial year.

Other legal requirements

In accordance with the Financial Reporting Act 1993 we report that, in our opinion, proper accounting records have been kept by the company and group as far as appears from an examination of those records.

Our audit was completed on 30 September 2014. 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 of Directors and our responsibilities, and we explain our independence.

Chartered Accountants


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 non-financial 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 non-financial 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 non-financial performance information. The procedures selected depend on our judgement, including our assessment of risks of material misstatement of the financial statements and non-financial performance information, whether due to fraud or error. In making those risk assessments; we consider internal control relevant to the preparation of the company and group’s financial statements and non-financial performance information that give a true and fair view of the matters to which they relate. We consider internal control 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 company’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 of Directors;

- the appropriateness of the reported service performance within the company and group’s framework for reporting performance;

- the adequacy of all disclosures in the financial statements and non-financial performance information; and

- the overall presentation of the financial statements and non-financial performance information.

We did not examine every transaction, nor do we guarantee complete accuracy of the financial statements and non-financial performance information. Also we did not evaluate the security and controls over the electronic publication of the financial statements and non-financial performance information.

In accordance with the Financial Reporting Act 1993 we report that we have obtained all the information and explanations we have required. We believe we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion.

Responsibilities of the Board of Directors

The Board of Directors is responsible for preparing financial statements and non-financial performance information that:

- comply with generally accepted accounting practice in New Zealand;

- give a true and fair view of the company and group’s financial position, financial performance and cash flows; and

- give a true and fair view of the company and group’s service performance and outcomes.

The Board of Directors is also responsible for such internal control as is determined necessary to enable the preparation of financial statements and non-financial performance information that are free from material misstatement, whether due to fraud or error. The Board of Directors is also responsible for the publication of the financial statements and non-financial performance information, whether in printed or electronic form.

The Board of Directors’ responsibilities arise from the Crown Entities Act 2004, the Financial Reporting Act 1993 the Television New Zealand Act 2003.

Responsibilities of the Auditor

We are responsible for expressing an independent opinion on the financial statements and non-financial performance information and reporting that opinion to you based on our audit. Our responsibility arises from section 15 of the Public Audit Act 2001 and the Crown Entities Act 2004.

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 for the company and group which are compatible with those independence requirements.

Other than the audit and the other assurance assignments, we have no relationship with or interests in the company or any of its subsidiaries.

Brent Penrose Ernst & Young On behalf of the Auditor-General Auckland, New Zealand


FIVE YEAR TREND STATEMENTFor the year ended 30 June 2014

2014 $000

2013 $000

2012 $000

2011 $000

2010 $000

Group financial performance

Television revenue 306,842 311,607 318,259 309,414 290,364

Other revenue 53,743 50,503 63,578 68,482 64,973

Total revenue 360,585 362,110 381,837 377,896 355,337

EBITDA 50,391 43,276 50,888 53,088 30,610

Profit/(deficit) for the year 18,111 14,440 14,207 2,080 (26,026)

Dividends 0 11,287 13,828 4,871 1,472

Group financial position

Assets employed:

Current assets 104,249 75,671 71,470 59,945 58,419

Programme rights 44,612 44,439 56,051 44,212 47,076

Property, plant and equipment (incl. held for sale) 61,880 74,615 83,484 100,383 114,324

Other non-current assets 18,690 22,673 32,376 24,150 38,870

Total assets employed 229,431 217,398 243,381 228,690 258,689

Funds employed:

Share capital 140,000 140,000 140,000 140,000 140,000

Reserves 0 29 (263) (238) (255)

Retained earnings 36,162 18,051 14,898 14,519 17,310

Total equity 176,162 158,080 154,635 154,281 157,055

Current liabilities 51,980 57,274 73,440 60,725 63,243

Non-current loan and borrowings 0 0 10,000 10,000 36,600

Other non-current liabilities 1,289 2,044 5,306 3,684 1,791

Total funds employed 229,431 217,398 243,381 228,690 258,689

Financial ratios

EBITDA*/total revenue 14.0% 12.0% 13.3% 14.0% 8.6%

Net surplus after taxation**/equity (average) 10.8% 9.2% 9.2% 1.3% -16.6%

Equity/total assets employed 76.8% 72.7% 63.5% 67.5% 60.7%

Debt/ debt plus equity 0.0% 0.0% 6.1% 6.1% 18.9%

Interest cover (times) *** 202.4 38.7 31.5 19.6 10.4

* 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.


ADDITIONAL INFORMATIONFor the year ended 30 June 2014

Principal activityThe Group’s principal activity during the year was television (programme content supply and delivery, production, acquisition of television programmes, and online services).

ShareholdingThe Group is wholly owned by the Crown.

The Shareholding Ministers at balance date were: Hon Bill English Minister of Finance Hon Craig Foss Minister of Broadcasting

DirectorsMs Julia Raue was appointed to the Board on 1 May 2014.

AuditorThe 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 2014.

General disclosuresThe following disclosure of interests were made to the Board:

Directors’ disclosuresGeneral disclosures of interest given by the Company pursuant to Section 211 of the Companies Act 1993 as at 30 June 2014:

Alison Gerry Kiwibank Limited Director Michael Hill International Violin Competition Trustee NZX Limited Director Pioneer Generation Limited Director Queenstown Airport Corporation Limited Director

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 MacDonnell & Associates Limited Director Image Centre Holdings Limited Director

Julia Raue Air New Zealand Limited Chief Information Officer

Barrie Saunders Port CEO Group Chairman Saunders Unsworth Limited Director Taiwan New Zealand Trade Development Limited Director

Wayne Walden Arcos Investments Limited Director Ports of Auckland Limited Director

Therese Walsh ICC Cricket World Cup Head of New Zealand International Development Advisory & Selection Panel, Ministry of Foreign Affairs and Trade Chair NZ Major Events Investment Panel, MBIE Member NZX Limited Director (from 1 October 2014) Strategic Risk and Resilience Panel, DPMC Member Wellington Regional Stadium Trust Trustee (from 1 April 2015)


ADDITIONAL INFORMATION (CONTINUED)For the year ended 30 June 2014

Directors’ disclosures (continued)

Joan Withers 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 disclosuresNo specific disclosures were given pursuant to Section 211 of the Companies Act 1993.

Use of Company informationNo 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 benefitsThe 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 $

Wayne Walden - Chairman 80,000

Alison Gerry 40,000

Richard Long 40,000

Roger MacDonnell 40,000

Julia Raue - appointed 1 May 2014 6,667

Barrie Saunders 40,000

Therese Walsh 40,000

Joan Withers - Deputy Chair 50,000

336,667

Directors’ indemnity insuranceThe Company has arranged Directors’ and officers’ liability insurance cover with QBE Insurance (International) Limited for $25 million. This cover is effected for all Directors and Officers of the Group.


ADDITIONAL INFORMATION (CONTINUED)For the year ended 30 June 2014

Employee remunerationEmployee 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 employees

Former employees

$100,000 to $110,000 46 2

$110,001 to $120,000 40 1

$120,001 to $130,000 29 3

$130,001 to $140,000 17 2

$140,001 to $150,000 14 2

$150,001 to $160,000 11 4

$160,001 to $170,000 5 2

$170,001 to $180,000 5 1

$180,001 to $190,000 9 1

$190,001 to $200,000 6 2

$200,001 to $210,000 2 2

$210,001 to $220,000 5 0

$220,001 to $230,000 3 0

$230,001 to $240,000 5 0

$240,001 to $250,000 0 1

$250,001 to $260,000 0 1

$260,001 to $270,000 3 0

$270,001 to $280,000 0 1

$280,001 to $290,000 0 1

$290,001 to $300,000 1 1

$300,001 to $310,000 1 1

$310,001 to $320,000 2 0

$330,001 to $340,000 1 0

$340,001 to $350,000 1 0

$370,001 to $380,000 2 0

$460,001 to $470,000 1 0

$540,001 to $550,000 1 0

$570,001 to $580,000 1 0

$680,001 to $690,000 1 0

$1,020,001 to $1,030,000 1 0

213 28

Employee compensation on termination of employmentDuring the year $2,402,079 compensation was paid in total to 56 employees whose employment was terminated. Compensation includes redundancy entitlements, payment in lieu of notice and any payments in settlement of disputes.


Corporate Governance

THE BOARD Role of the Board In addition to its duties under the Companies Act 1993, the Board, under Section 92 of the Crown Entities Act 2004, must ensure that the Company acts in a manner consistent with its objectives, functions, Statement of Intent and Statement of Performance Expectations.

The Board negotiates the Statement of Intent and Statement of Performance Expectations with its shareholding Ministers. It includes the Company’s objectives, nature and scope of the activities to be undertaken and the performance targets and other measures by which its performance may be judged for the current year and following two years. The Board monitors management’s performance relative to these objectives and targets.

The full Board met formally 10 times during the financial year. The Board has delegated day-to-day management to the Chief Executive Officer. Policies are in place which define the individual and collective responsibilities of the Board and management. In particular, the Board has approved specific delegated authorities to enable management to incur expenditure and create binding obligations.

Appointment of DirectorsShareholding Ministers make all appointments to the Board, including that of the Chairman. Appointments are for fixed terms not exceeding three years, which may be renewed.

The Board comprises individuals with a wide range of experiences and skills to ensure that all governance responsibilities are completed in a manner consistent with best possible management practice. Profiles of each of the Directors who were serving at year end are set out on page 70 of this report.

Board Committees The Board has two standing committees:

Audit and Risk Committee The Audit and Risk Committee met four times during the year.

The Committee assists the Board in fulfilling its responsibilities by providing recommendations, counsel and information concerning its accounting and reporting responsibilities under the Companies Act 1993 and related legislation, and evaluating risk management practices.

At year end, membership of the Committee was comprised of Alison Gerry (Chair), Barry Saunders, Therese Walsh and Wayne Walden.

Remuneration and HR CommitteeThe Remuneration and HR Committee met four times during the year.

Its work is consistent with TVNZ’s obligations to be a good employer under the Crown Entities Act 2004. In addition to its role of adding value to TVNZ Human Resources plans and practices at a strategic level, the Committee approves any movement to the remuneration of the Company’s senior executives and presenters. The Committee also approves the level of any ‘at risk’ payments to be awarded to executives, based on the Company’s business performance.

TVNZ operates a remuneration system designed to ensure that employees are rewarded for individual performance, for the responsibilities and skills required in their jobs, benchmarked against both external and internal relativities.

At year end, membership of the Committee was comprised of Joan Withers (Chair), Roger MacDonnell and Wayne Walden.

KEY GOVERNANCE STATEMENTS Occupational health and safetyTVNZ’s health and safety policy is to promote excellence in health, safety and wellness by implementing best practice health and safety systems while seeking continuous improvement.

Business continuity, insurance and risk management TVNZ has developed business continuity plans for use in any emergency situation facing the Company. A comprehensive crisis simulation exercise was held during the year.

TVNZ maintains a number of insurance policies designed to support the philosophy that, in the event of a disaster, the Company would not be materially affected.

The Company has in place policies and procedures to identify and manage risks. Exposure to foreign exchange and interest rate risk is managed in accordance with a comprehensive Board-approved Treasury policy, which sets limits of management authority. 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. As a broadcaster TVNZ 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.


Directors' Prof iles

WAYNE WALDEN, CHAIRMAN (AUCKLAND)Wayne Walden is a successful businessman with an active interest in youth development and environmental issues. Wayne is affiliated to Ngati Kahu of Tai Tokerau. Wayne is an experienced company director, and was previously Managing Director and Shareholder of Farmers/Deka Ltd. He has had more than 30 years senior management experience in the liquor, wholesale and retail trades in New Zealand. His past directorships include director of Farmlands Co-Operative Society, director of the Westpac Bank NZ Advisory Board, Deputy Chairman of Meat New Zealand, director of Mighty River Power Limited, Chairman of Transrail and Chair of Maori Television. Wayne was the Founding Chairman of the Project K Youth Development Programme and Founder of the Guardians of The Kaipara, an organisation that is concerned with preserving and creating awareness of the unique natural marine and landscape values of the Kaipara Harbour and its environs. Wayne received an Officer of the New Zealand Order of Merit (ONZM) Honour for Services to Business and the Community in the 2007 Queen’s Birthday Honours List.

JOAN WITHERS, DEPUTY CHAIRPERSON (AUCKLAND) Joan Withers has a career in media spanning 30 years which includes holding the Chief Executive roles at both The Radio Network and Fairfax Media. 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 the Advisory Board of The Treasury and is a trustee of The Tindall Foundation, the Louise Perkins Foundation (Sweet Louise) and chairs a steering group in South Auckland which is focused on helping Maori and Pacific Island students attain careers in the health sector. Joan has an MBA from Auckland University, was the author of "A Girl's Guide to Business" and was the 2009 recipient of the CAANZ Media Excellence Award.

ALISON GERRY (QUEENSTOWN)Alison Gerry has over 20 years’ experience working for both corporates and for financial institutions in trading, finance and risk roles in Sydney, Hong Kong, Tokyo and London. Alison was a Visiting Fellow at Macquarie University in Sydney for 12 years until 2012. From 2007 Alison has been a professional company director and is currently Deputy Chair of Kiwibank and holds various governance positions in the infrastructure sector. Alison has a Masters of Applied Finance from Macquarie University.

RICHARD LONG (WELLINGTON)Richard Long is a former long-time Political Editor and then Editor of The Dominion newspaper. He was formerly the editors’ representative on the board of the Newspaper Publishers Association, the inaugural Chairman of the Editors’ Press Freedom Committee and a former Chairman of the New Zealand section of the Commonwealth Press Union, which campaigns for press freedom. He is presently Chairman of Trustees of the NZ France Friendship

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.

ROGER MACDONNELL (AUCKLAND)Roger MacDonnell was a founding partner of Colenso BBDO and retired at the end of 2009 as Chairman and CEO and as a Director of the Clemenger group in Australia. He is currently a Director of the Image Centre (printing and publishing), a Director of Hourigan International, Sydney, (marketing/comms recruitment), a Trustee of the Auckland Arts Festival and consults on branding and marketing. He is a member of the CLIO Copywriters Hall of Fame in New York.

JULIA RAUE (AUCKLAND)Julia Raue is the Chief Information Officer at Air New Zealand and has been with the airline for 15 years, holding a number of different IT roles. Julia has over 25 years of experience in the IT industry, involving positions in local government and telecommunications, as well as charitable organisations. Julia has overseen a number of world firsts in innovation within the industry, winning a number of awards including the NZ CIO of the Year Award in 2009. Julia was also a category finalist in the Women of Influence Awards in 2013.

BARRIE SAUNDERS (WELLINGTON)Barrie Saunders is the co-founder of Saunders Unsworth Limited, a company specialising in the management of public policy issues. He is Chair of the Port CEO Group. He has been President of the Wellington Regional Chamber of Commerce, a Wellington City Mission Trustee, a member of the Housing New Zealand Board and North American Director of the New Zealand Meat Board. Prior to establishing his business in 1990, Barrie was a radio and television journalist in New Zealand, Australia and the United Kingdom, and he edited the National Business Review.

THERESE WALSH (WELLINGTON)Therese Walsh is the Head of New Zealand, ICC Cricket World Cup 2015 and also serves on the Board of New Zealand Cricket and NZX Limited. She chairs the International Development Advisory and Selection Panel for the Ministry of Foreign Affairs and Trade and is a member of the Major Events Investment Panel. Previously she was the Chief Operating Officer for Rugby New Zealand 2011 Limited, the company established by the NZRU and the New Zealand Government to deliver the Rugby World Cup Tournament in 2011. She has also been a member of the executive team at the New Zealand Rugby Union, and held a senior role with KPMG.


LONDON Europe Bureau4 Millbank, Westminster, London, SW1P 3JAUnited Kingdom Tel: 44 20 7233 2020Fax: 44 20 7233 3158

SYDNEY News C/- ABC News Level 4, 700 Harris Street Ultimo, NSW 2007AustraliaTel: 61 2 8333 4856 Fax: 61 2 8333 4188

Main Locations

AUCKLAND Registered office Television Centre 100 Victoria Street West Auckland 1010 PO Box 3819 Auckland 1140 Tel: 64 9 916 7000 Fax: 64 9 916 7934 tvnz.co.nz

ROTORUA News 5th Floor, Hinemoa Tower 1154 Hinemoa Street Rotorua 3010 PO Box 944 Rotorua 3040 Tel: 64 7 350 2540 Fax: 64 7 350 2543

WELLINGTON Sales Level 6 Prime Property Tower 86-90 Lambton Quay Wellington 6011 PO Box 1752 Wellington 6140 Tel: 64 4 914 5198 Fax: 64 4 914 5140

News & Current Affairs Level 5 Prime Property Tower 86-90 Lambton Quay Wellington 6011 PO Box 1910 Wellington 6140 Tel: 64 4 914 5000 Fax: 64 4 914 5043

CHRISTCHURCH News & Sales31 Dundas Street Christchurch 8011 P O Box 1945 Christchurch 8140Tel: 64 3 961 8500Fax: 64 3 961 8555

DUNEDIN News 11 Dowling Street Dunedin 9016 PO Box 1070 Dunedin 9054 Tel: 64 3 474 2880 Fax: 64 3 474 2885


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