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Evan Lucas, Research Analyst, IG

TEN CEO Hamish McLennan has left no-one in any doubt as to what the key takeout from today’s first half earnings was, and that is ‘clearing the desks’.

On first blush headline figures are nothing short of awful, but this does not tell the full story. The expected net profit of $5.9 to $6.2 million turned into a $243 million net loss, with sales also weaker than expected at $301.7 million; as advertising dollars continue to be strained. The only headline figure to make the grade was EBITDA at $34.9 million, up from $31.4 million (Goldman Sachs estimates).

The headline figures however, does not illustrate the fact that the net loss includes several one-off payments valued at $292 million and restructures of $11 million. The sale of Eye back in November for $230 million that was expected to help the NPAT line, was instead redirected to write-down debt as cost control became the theme of the new CEP.

The real headline out of this result is debt is now near 0. TEN has managed to write-down $262 million worth of debt at the start of the half, to $1.3 million as of February 2013 (this is expected to grow however, to $57 million by year end), as the stock clears the air and removes the leveraged millstone from around its neck. Costs are also lower over the corresponding period, down 10.3% with net interest payments also down (-40.5%) on pcp.

There is a real sense now that the balance sheet is now ‘clean’, a place where Mr Hamish McLennan wants it to be. This clean out could spark more rumours about a News Limited offer, as there is no real overhang here anymore with these write-downs.

What is also abundantly clear from the results is TEN still believes that adverting dollars are going to be weak on the ground. TEN is relying heavily on three leading mast heads in Offspring, MasterChef and the major one- the British and Irish Lions tour versus the Wallabies. These three programs were the only programme guidance given, and are expected to take on Seven and Nine in the battle for free-to-air content. If TEN is to increase sales revenue, strategic programming looks like being the main point Mr McLennan is looking at, TEN’s eye-on-screens will be a delicate and strategic process.

The short answer to this release is: Headline figures were poor, underlining positioning looks to be on a firmer footing. Cost and casting are now the order of the day.