Using figures to spin a pretty picture

Please excuse the television news cliche as we cross live to Auckland’s Hobson St where “lights are burning bright” in TVNZ’s headquarters as teams from the marketing and publicity departments work feverishly on a media release announcing the state broadcaster’s annual results for the 2009-2010 financial year.

Aiming as usual to put the best possible spin on the year’s trading, they choose to lead with the financial indicator with the biggest percentage increase. This year that’s the $13 million difference between operating revenue ($355.3m) and operating expenses ($342.3m). Although barely $3m up on than the previous year when revenue ($384.7m) exceeded expenses ($374.6m) by $10.1 million, expressed as a percentage the increase is a headline-writer’s whopping 28%.

“TVNZ reports 28% increase in underlying earnings” – the new name for last year’s “operating earnings.” Media releases pre-announcing financial highlights don’t normally carry footnotes. This one has three and the first defines “underlying earnings” as “earnings before reorganisation costs, programme amortisation revision, interest, financial instruments, share of associates and tax.” But, whatever, it’s up by 28%.

The biggest percentage increase, in fact, is in the second paragraph in which chief executive, Rick Ellis, reveals the dividend to be paid to “the Shareholder” (aka the government). At $4.87 million, the dividend is up by 231% on last year’s pitiful $1.47 million. Still piddling for a company of this size in a business once described as “a licence to print money,” the dividend exactly meets its shareholder’s requirement that it be a certain percentage of net profit. Another footnote explains that the dividend is 70% of after-tax profit, excluding adjustments, of $6.96 million.

But wait, what’s this? “TVNZ is reporting an after tax loss of $26 million as a result of two non-recurring accounting adjustments.” After following the same selective technique used for reporting audience ratings, highlighting only those demographics that reflect well on their own channels, TVNZ’s media release suddenly adopts the same plot-reversal technique used in television dramas such as Lost.

The first non-recurring adjustment is described as “a change to the expensing of programme stock to accelerate the period over which the cost is recognised that has resulted in a one-off charge of $26.8 million.”  Where are the footnotes when you really need them?

As you can’t accelerate a period, it may be assumed they intend to reduce the intervals that between accounting for the cost of unscreened programmes. This would be more sensible than letting it mount up into one big hit every so often.

The second non-recurring item is a one-off charge of $14.2 million that results from “the impact of the government’s recently-announced changes to income tax legislation including tax depreciation of buildings.”  In this case, TVNZ says it’s acting on advice that any financial statements prepared for a reporting period ending after May 21 should take account of the tax changes which, although they do not come into effect until October 1, are expected to have a huge impact on owners of buildings with anticipated lives of 50 years or more that are not intended for sale. Accountants: what will they think of next?

But it should nevertheless be possible to get some idea of what’s going on at TVNZ from the overall cost and revenue figures. Total operating costs were $342.2 million, down $32.3 million (8.6%), “reflecting the company’s disciplined approach to managing costs.” Not included in the media statement is the detail, published in Monday’s Dominion Post and obtained under the Official Information Act, that nearly 200 staff have felt the sharp end of TVNZ’s disciplined approach to cost-cutting over the past two years. Restructuring of the newsroom is said to save $3 million a year.

Costs are lower but so is revenue, continuing to decline – down by $14.1 million (4.7%) after falling $17.1 million (5.4%) the previous year. TVNZ’s downhill slide is at odds with the industry’s overall experience, as reflected in quarterly reports from the Television Broadcasters’ Council (TBC). “Television advertising shows strong growth” is the headline on the TBC’s report of a $10.5 million (7.7%) increase to $149 million in the second quarter this year, following on from a $3 million (2.9%) rise to $122 million in the first quarter. Added to $312.9 million in the first half, total television advertising revenue in the 2009-10 financial year was $583.9 million, to which TVNZ contributed $284.2 million (48.7%).

But hang on a minute. TVNZ says its share of television advertising revenue held constant at 60.6%. Even on its own figures, TVNZ’s share is down slightly on the 60.9% recorded in 2008-09. 

But what the hey? Do we need to know any more about what lies behind the smoke and mirrors of what Mr Ellis calls “this great result” achieved by “the hard work of management and staff to respond rapidly to the downturn in advertising revenue, to reduce costs and maintain advertising market share  . . . ”