Ten has revealed its financial results for the financial year ending August 2011, with earnings before tax down more than 17%.
Ten Holdings’ interim Chief Executive Officer, Lachlan Murdoch, said: “EBITDA before non-recurring items is slightly ahead of the guidance provided to the market in August. We remain on track with the Operational and Strategic Review and have continued to focus on actions that will create a platform for the business to outperform.”
Television revenue grew by 2.2 per cent on the previous year reflecting the successful alteration of the Network’s multi-channel strategy which has seen Network Ten’s total year-on-year audience grow by 4.9 per cent.
Television cost growth was 9.0 per cent. The substantial cost reduction opportunities identified in the Operational and Strategic Review were implemented in the final months of the year. While the benefits are not reflected in this year’s results, they will flow through to FY12 where we expect costs (ex-selling costs) will be flat. Revenues for the continuing operations of the Company’s out-of-home division, Eye Corp (EYE), grew 10.0 per cent and the operating costs relating to continuing operations were flat.
Impact of the operational and strategic review
Restructuring Charges – $85.4m
In February 2011, the Company announced it was conducting a comprehensive Operational and Strategic Review. As a result, a number of unprofitable sports contracts were identified, many of which relate to channel ONE. These contracts have been the subject of a significant Independent Sport Contract Assessment that commenced in May 2011 and was finalised in August 2011. The Independent Sport Contract Assessment sought to reduce costs and negotiate the best possible commercial outcome for the Network over the remaining period of the various contracts. As a result of the Independent Sport Contract Assessment, dialogue has commenced with various parties and is ongoing.
On 15 August 2011, the Company reported one-off restructuring charges of $46.1m substantially arising from the Operational and Strategic Review. These charges related to staff redundancy costs, restructuring charges as part of the review, and program write-offs under the Company’s existing accounting policy. In late October 2011, the Company reassessed the appropriateness of its accounting policy relating to program rights and changed it in order to be consistent with industry practice and to provide reliable and more relevant financial information. It also changed the level at which it assesses its program inventory as part of an increased focus on contract and channel profitability. Under the Company’s previous accounting policy, unprofitable sports contracts could only be considered onerous in certain restricted circumstances. The additional $39.3m restructuring charge, above that previously reported, is the result of the accounting policy change with the Company now fully providing for all sports contracts considered to be onerous. The change in accounting policy has only impacted the provision for onerous contracts with no impact on program inventory and rights recorded as assets in the financial statements this year or in previous years.
Action on Costs has Allowed Redeployment of Resources to Programming
The cost base of the Company has increased 16 per cent between FY09 and FY11 and was on track to increase an additional 9 per cent in FY12 due to the full year impact of ELEVEN, the News strategy and other contractual commitments.
The Operational and Strategic Review identified opportunities to reduce staff numbers by 12 per cent and to reduce other costs by 10 per cent through improved operational efficiencies, establishing ongoing processes to improve the profitability of programs – including News and sport programs – and introducing a commercial contract review process. The cost reduction opportunities have been implemented. Group Chief Financial Officer, Paul Anderson said: “In line with earlier guidance, television costs (ex-selling) for FY2012 will be no higher than those in FY2011, while out-of-home operating costs will remain flat year-on-year.”
“As foreshadowed in our August update, we have re-deployed more than $50 million of savings achieved through the Operational and Strategic Review into new programming content for 2012 to further strengthen our multichannel offering for viewers and clients. We are pleased to have funded this investment through cost reductions,” Mr Anderson said.
In respect of the Network’s domestic content, Mr Murdoch said: “With more than 50 per cent of the 2012 programming budget invested in Australian content, including in-house programming, Network Ten will deliver shows which resonate with viewers and deliver the kind of integration opportunities we know our advertisers demand.”
Successful Relaunch of ONE to better serve client needs
The Operational and Strategic Review identified an opportunity for ONE to increase its contribution to the Group. ONE was relaunched in May as a general entertainment channel targeting men 25-54. This has doubled the channel’s ratings in its target demographics and has driven incremental revenue growth over the last five months.
Revised News and Current Affairs Strategy Better Serves TEN’s Demographic
In FY11, TEN considerably increased its investment in News, however the additional News programming was inconsistent with TEN’s brand and was not appealing to viewers.
The Operational and Strategic Review identified opportunities for TEN to:
Increase the number of hours of News and Current Affairs broadcast each week, cease a number of underperforming News programs produce News and Current Affairs in a manner consistent with TEN’s brand, for example the extension of The Project to one hour; and schedule News and Current Affairs programs to capture incremental viewers and revenues, for example the three hour Breakfast show which will be launched in 2012.
This revised News and Current Affairs strategy will be led by Anthony Flannery from January 2012. ‘Ten Connect’ Sales Approach Ten Holdings has traditionally had siloed sales teams. The Operational and Strategic Review identified an opportunity to better serve clients by integrating these teams.
As a result, the combined television sales team now has accountability for selling: TEN, ONE, ELEVEN and online. As a result, the combined EYE sale team now has accountability for selling: Fly, Drive, Shop and Study.
In addition, ‘Ten Connect’ has been established to create cross-platform opportunities across Television and Outof-home and, on occasion, to include radio and print partners to better serve client needs. “Ten Connect has been well received by clients and already it is providing access to a larger pool of advertising revenue not previously available to the Company,” Mr Murdoch said. Out-of-Home Focusing on Improving Its Contribution 2011 has been a pleasing year for the Company’s continuing out-of-home advertising assets, with revenue growth largely driven by the improved performance of the Australian business.
The decision to exit a number of non-core and under-performing businesses including the print production business, ADVAL, and the Singapore Airport contract, has allowed management to focus on delivering profit increases in the core business. New business is focused on adding high quality, well positioned assets.
Ten Well Positioned for 2012
“Our 2011 fiscal year results reflect an unsuccessful strategy that we have spent the better part of the year rectifying by taking the tough decisions around costs and programming.”
“The Company is now well positioned for 2012 with the imminent commencement of its new CEO and a revitalised management team, with a more efficient overhead, better content, and more opportunities for our clients to reach our in-demand younger audience,” Mr Murdoch said.
The Company today announced shareholders will receive a fully franked ordinary dividend payment for 2011 of 5.25 cents per share, payable in November.