12175 ITV R&A Cover.qxp 18/3/08 14:00 Page 1
ITV plc
200 Gray’s Inn Road
London WC1X 8HF
www.itv.com
Investors: www.itvplc.com
ITV plc Report and accounts 2007
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Financial highlights
Revenue
Profit before tax
Earnings per share
£2,082m
£188m
06 £2,181m
06 £288m
3.5p
06 5.5p
Operating Profit
Cash generated from operations
Dividend per share
£192m
£286m
06 £264m
06 £342m
3.15p
06 3.15p
Contents
Message from the Executive Chairman
Who we are
Broadcasting
Global Content
Online
01
04
06
10
14
Business review
Market context
Strategy
Operating review
Trust and PRS
Key Performance Indicators
Risks and uncertainties
Corporate responsibility
People
Financial review
Forward look
Glossary of terms
Governance
Board of directors
Directors’ report
Statement of directors’ responsibilities
Independent auditors’ report to
the members of ITV plc
Corporate governance
Remuneration report
Shareholder information
Financial Statements
Consolidated income statement
Consolidated balance sheet
Consolidated cash flow statement
Consolidated statement of recognised
income and expense
Notes to the accounts
ITV plc Company Financial Statements
Financial record
ITV’s Business review
The Business review explains in detail how we have
performed this year and sets out a fair review of the
business, balanced and comprehensive analysis of our
performance, the use of financial and non-financial
key performance indicators to explain how much
progress we have made, a description of the principal
risks and uncertainties facing the Company, and an
indication of likely future developments.
The Business review is prepared in line with the
relevant provisions of the Companies Act 1985, and
the transitional provisions of the Companies Act 2006.
In preparing the Business Review the Company has
had regard to the guidance issued by the Accounting
Standards Board in its Reporting Statement on
narrative reporting, and has met, wherever possible,
the higher levels of disclosure required by the
Companies Act 2006, to which the Company will
become subject for the purposes of the report and
accounts in 2008. It is intended that the Business
review will provide shareholders with a greater
understanding of the Company, of its position in the
markets within which it operates, and of its prospects.
In setting out the Company’s main risks and
uncertainties, an indication of likely future
developments, and in other content, this report and
accounts contains statements which, by their nature,
cannot be considered indications of likelihood or
certainty. The statements are based on the
knowledge and information available at the date of
preparation of this Business review, and what are
believed to be reasonable judgments. A wide range
of factors may cause the actual outcomes and results
to differ materially from those contained within, or
implied by, these various forward-looking statements.
Nor should any of these statements be construed as
a profit forecast.
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Message from the Executive Chairman Michael Grade
k
Report and accounts 2007 ITV plc 01
2007 was a watershed year for ITV plc.
We put in place the strategy and the team
to meet the challenges of the new digital
era. With a much improved performance
on-screen, we have countered the myth
that ITV is a business managing decline.
We have set out ambitious targets for
our Global Content and Online businesses.
Our focus now is on implementing the
Turnaround strategy and delivering
sustainable growth.
02 ITV plc Report and accounts 2007
Message from the Executive Chairman Michael Grade
The transition to digital marks
the start of a new era for ITV.
In November 2007 digital switchover in the UK started as the
town of Whitehaven turned off its analogue signal. By 2012
the whole of the UK will have switched over to digital.
The transition to digital marks the start of a new era for ITV.
For 25 years, ITV1 lost share to new services, for example
Channel 4, five and Sky. The UK’s leading commercial channel
appeared locked into an inexorable cycle of decline, exacerbated
by poor performance.
By the end of 2007, over 85% of UK homes had converted to
digital. The multichannel fragmentation effect began to ease
and ITV’s performance improved. ITV1’s audience started to
stabilise and the channel enjoyed a number of programming
successes – from enduring favourites like Coronation Street and
I’m A Celebrity…Get Me Out of Here! to new hits, like Britain’s Got
Talent, Kingdom and Primeval. A “blue chip” roster of major sports
included Champions League football, Formula 1 motor racing and
the Rugby World Cup.
Structural changes to the schedule paid off with gains in daytime
and over the summer. Over the full course of 2007, ITV1 actually
delivered to its advertisers more viewers than it had the previous
year, in terms of commercial impacts.
ITV Productions played its part, delivering half of the channel’s
original commissions – and more than half of its total impacts –
with a slate extending from Emmerdale to Mobile, from Parkinson
to Ant and Dec’s Saturday Night Takeaway, from This Morning
to Tonight with Trevor McDonald. ITV productions for both ITV1
and other broadcasters continued to win plaudits and prizes,
with successes including The Queen, See No Evil, The Street
and Longford. 75% of all programmes (excluding sport) on all
UK channels delivering audiences over 10 million in 2007 were
made by ITV Productions.
However, ITV Productions was not able to deliver revenue growth
to match such on-screen successes, with drama for ITV1 and
production for other UK channels both down compared to 2006.
The new strategy and structure, together with personnel changes
made towards the end of the year, are aimed at improving this
performance in 2008.
ITV’s digital channels came of age in 2007, generating in excess
of £200 million of advertising and sponsorship revenues.
itv.com completed its successful relaunch and now offers a state
of the art broadband experience. In November, ITV announced
a joint venture with BBC Worldwide and Channel 4 to provide
a broadband service offering access to thousands of hours of
archive programming from the UK’s top broadcasters.
We are determined that ITV’s strong on-screen performance in
2007 should mark the beginning of a revival in the Company’s
fortunes. To this end, during the year, we put in place the team
and the strategy to deliver future growth.
The ITV Senior Executive team was considerably strengthened
in 2007. In Global Content, we recruited Dawn Airey, latterly of
Sky and five. Rupert Howell, a major figure from the advertising
sector, joined us in the crucial post of Managing Director of ITV
Brand and Commercial. Carolyn Fairbairn, formerly of the BBC
and McKinsey, leads our strategy and development function.
Entering 2008, we have confirmed that Peter Fincham, the
controller of BBC1 until October 2007, will join ITV as Director
of Television. In this role, Peter will replace Simon Shaps, who
has performed a great job for ITV over many years and has been
Director of Television since 2005.
ITV’s clarity of purpose is evident in the Turnaround strategy that
we set out in September 2007. Our vision is for ITV to be the UK’s
favourite source of free entertainment. We set a revenue target
for the Company of 3-5% compound annual growth to 2010,
rising to 5% to 2012. The Global Content business aims to
double its annual revenues by 2012. Our broadcast channels
aim to deliver a share of commercial impacts at or above 38.5%
in 2012. We also plan to deliver £150 million of Online annual
revenues by 2010.
Our plan will be self-funding. We have continued with the
programme of disposing of non-core businesses, which has now
raised over £600 million since merger. During 2007, we disposed
of our stakes in Liverpool FC, Arsenal FC, MUTV and ITFC.
Such disposals will fund acquisitions which are consistent with
our content-led growth plan. During the year, we took a majority
stake in US producer Jaffe/Braunstein Entertainment, a 25%
stake in new producer Mammoth and acquired UK independent
producer 12 Yard.
Our Turnaround strategy is not founded on any assumptions
of regulatory relief. However significant regulatory relaxation is
overdue in commercial public service broadcasting (PSB). Ahead of
the launch of the Ofcom PSB review, ITV set out its detailed plans
for modernising regional news. We recognise that these will have
implications in terms of regional staffing, but we believe that it
is right to be open about our plans and their rationale. Our plans
would ensure that every home in the country retains access
to a high-quality ITV regional news service from 2009, whilst
maximising investment in original network programming,
where the core public interest lies.
It should be remembered that terrestrial television has always
faced limitations in delivering at the sub-regional and local levels
with multiple unresolved boundary issues stretching back over
decades. Broadband delivery faces no such technical limitations
and puts regional choice with the viewer, rather than the
broadcaster. itvlocal.com was rolled out across all our regions
during 2007, supplementing our on-air regional coverage and
allowing us to target local classified and display advertising, a
new market for ITV.
In other areas, regulatory reform remains imperative.
In September 2007, the OFT confirmed its intention to review
the Contract Rights Renewal (“CRR”) mechanism which
has applied to the sale of ITV1 advertising since 2003.
Report and accounts 2007 ITV plc 03
I am confident that the business
is in better shape going into 2008.
Our improved on-screen performance in 2007 has mitigated
the worst effects of CRR.
But in a rapidly changing market, ITV still remains unduly
restricted: ITV now faces competitors who didn’t even exist
in 2003. We look forward to participating in the review process
over the coming year.
2007 was also a year when trust in broadcasting came to the fore.
All the major UK broadcasters faced issues over their operation of
premium rate services (PRS) and allegations of misleading viewers.
ITV acted swiftly when problems started to emerge, suspending
all our PRS activities until systems were independently assessed
by Deloitte & Touche LLP (“Deloitte”). We commissioned Deloitte
to undertake a review going back over two years. Where problems
have been established, we have made full disclosure, offered full
recompense to viewers and improved our systems. We have
committed to donating in full to charity any viewer refunds that
are not claimed.
ITV is also co-operating fully with Ofcom’s inquiry into the PRS
incidents on ITV channels and we await the outcome of their
adjudication. GMTV, which is 75% owned by ITV, faced serious PRS
issues of its own in 2007 relating to the conduct of its on-screen
competitions and received a substantial fine from the regulator.
Such incidents for the most part appeared to stem from
misguided editorial judgments taken with a view to maximising
viewer enjoyment, not from any desire to maximise PRS
revenues. Nonetheless we let our viewers down and that is
inexcusable. We are determined to restore public trust in ITV
and UK broadcasting as a whole. The Remuneration Committee
of the Board has taken account of PRS issues in calculating
annual bonuses awarded to the executive team.
I am confident that the business is in better shape going
into 2008. The launch of the new ITV1 schedule shows our
commitment to innovation. We have launched a succession
of ambitious dramas, from Honest to the genre-busting
Moving Wallpaper/Echo Beach. We have brought News at Ten
back to ITV1. The weekend schedule is underpinned by great
entertainment, from Dancing on Ice to Harry Hill’s TV Burp.
As the year progresses, football fans will have Euro 2008
and England’s home games to enjoy on ITV, as well as the
Champions League.
Our valuable production business needs to grow and deliver
programmes for ITV, other UK broadcasters and the international
market. We have the considerable advantage of being an
integrated producer/broadcaster. Our emphasis needs to shift
from producing linear programmes for one-off transmission on a
single channel to “360 degree” exploitation of the lifetime value
of our content, across multiple platforms and territories. We will
also be investing for the future: in monetising itv.com; in building
on the success of ITV2; and in rolling out an HD service as part of
our Freesat project with the BBC.
BSkyB’s acquisition of a 17.9% stake in ITV plc was subject to
a Competition Commission review in 2007. In January 2008,
the Secretary of State confirmed that BSkyB would be required
to reduce its stake to below 7.5%, although the decision is being
appealed. The Board will continue to act in the best interest of
all shareholders.
The Board has reviewed the level of the final dividend in light
of the performance of the Company over the course of 2007,
current trading conditions and the outlook going forward. In 2007,
ITV plc NAR fell by 0.3% on the previous year with strong growth
in ITV digital channels offsetting a decline in ITV1 revenues. In the
first quarter of 2008, ITV plc NAR is expected to be up around
1.9%, growing ahead of the total market.
In the light of this trading context and the Company’s stated
policy of building back to 2 to 2.5 times dividend cover in the
medium term, the Board proposes that the final dividend for
the year should be held at 1.8 pence per share to be paid on
1 July 2008 to shareholders on the register on 18 April 2008.
In February 2007 Sir James Crosby was appointed senior
independent director and Chairman of the Nomination
Committee. Agnès Touraine and Heather Killen joined the Board in
August 2007 and John Ormerod in January 2008. Sir Robert Phillis
resigned from the Board in 2007 and John McGrath in early 2008.
The Board is grateful to Bob and John for their significant
contribution to ITV plc over the last few years.
In February 2008, Dawn Airey and Rupert Howell were appointed
directors, providing strengthened executive representation at
board level. We confirmed our intention to appoint a dedicated
Finance Director, freeing up John Cresswell to focus on his
responsibilities as Chief Operating Officer. The Board has also
extended my appointment as Executive Chairman to the end
of 2010. All of my contractual terms – including the terms and
period of the Turnaround Incentive Award – remain unchanged.
The decision provides my management team and I with the
space to focus on the job to be done over the next crucial years,
without distraction.
ITV made measurable progress over the course of 2007.
The operational performance in the year was better than
it has been for some time. We have also started to lay the
foundation for sustainable growth in the future. I would like to
thank all of my colleagues at ITV for their considerable effort,
dedication and creativity in serving the needs of our viewers,
advertisers and shareholders.
Michael Grade
Executive Chairman
04 ITV plc Report and accounts 2007
Who we are…
ITV is one of the UK’s most
long-established television companies
and best-known media brands
The Company’s roots are in the ITV regional broadcasting franchises first awarded over
50 years ago and ITV1 remains the UK’s largest commercial channel in audience share
terms by some margin. But ITV today is much more than a single channel.
ITV is the UK’s largest advertising funded broadcaster. Indeed ITV is the largest advertising
funded media owner in the UK across all media: television, radio, press, cinema, outdoor
and the internet. As a producer, ITV makes more hours of network television than any
other UK commercial producer. With the digital transformation of the media sector, ITV
is developing new businesses across different platforms and media. And ITV is one of the
largest employers in the UK media sector with over 5,000 staff.
In 2007, ITV strengthened its senior executive team (see below) and, following a
major strategic review, restructured into three business segments: Broadcasting,
Global Content and Online.
Michael Grade
Executive Chairman
Rupert Howell
Managing Director of ITV Brand
and Commercial
John Cresswell
Chief Operating Officer
and Finance Director
Dawn Airey
Managing Director of Global Content
Jeff Henry
Managing Director of ITV Consumer
Simon Shaps
Director of Television
John Whiston
Director of ITV Productions
Carolyn Fairbairn
Director of Strategy and Development
and what we are doing
Entertaining the UK through…
Report and accounts 2007 ITV plc 05
...Broadcasting
...Global Content
...Online
ITV1 is the largest commercial
television channel in the UK
in terms of audience share
and advertising revenues.
ITV’s digital channels, including
ITV2, ITV3, ITV4 and Citv,
generated over £200 million in
advertising revenues in 2007.
ITV’s broadcast channels offer
advertisers a brand-building
opportunity of unique power
and effectiveness.
Around half of ITV1 commissions
in 2007 were made by ITV
Productions. ITV also makes
programmes for the BBC,
Channel 4, five, Sky and other
UK broadcasters. ITV produces
programmes watched on screens
from San Francisco to Sydney.
And a range of products related to
ITV programmes, from DVDs to
computer games are marketed
around the world.
As consumers spend more time
– and advertisers more money –
online, ITV is taking full
commercial advantage through
its unique roster of online
properties. With itv.com,
itvlocal.com, Friends Reunited and
new broadband services, ITV is
well-positioned to leverage two
key assets – ITV programming and
channels; and its relationship with
audiences and advertisers.
Commercial target:
To ensure that 38.5% or more of
adverts watched on UK TV in 2012
are on ITV channels.
Commercial target:
To double annual Global Content
revenues by 2012, increasing ITV,
other UK and international sales.
Commercial target:
To deliver £150 million in annual
Online revenues by 2010.
Return to top-line growth:
3–5% compound annual growth in revenues to 2010
5% plus revenue growth from 2010 to 2012
06 ITV plc Report and accounts 2007
Action Plan Broadcasting
h
Moving Wallpaper
took viewers behind the
scenes with Ben Miller as
TV producer Jonathan Pope.
x
Echo Beach
was the soap he made earlier,
completing a ground-breaking
TV pairing.
Report and accounts 2007 ITV plc 07
k
Investment
and
innovation
ITV invests £1 billion a year to bring UK
viewers world-class programmes free of
charge, funding more UK production
than every other commercial channel
combined. That investment provides
advertisers with a fantastic platform to
reach consumers. More than four out of
ten television advertisements watched in
the UK are broadcast on ITV channels.
But investment is only half the story.
Audiences and advertisers expect more
from ITV. The key to delivering sustainable
growth is innovation.
08 ITV plc Report and accounts 2007
Action Plan Broadcasting
x
Formula 1
with Lewis Hamilton’s
debut season was
a highlight in an
action-packed year
of sport on ITV1.
We are making sure
that ITV offers
something for everyone
ITV1 is the UK’s leading commercial channel attracting around
18% of the total television audience. ITV1 broadcasts the most
popular programmes on commercial television, including
Coronation Street, Kingdom, Emmerdale, News at Ten,
This Morning, I’m A Celebrity, The X Factor, Champions League
football and Formula 1. ITV’s digital channels – ITV2, ITV3, ITV4,
Citv and Men & Motors – generated more than £200 million in
advertising revenue in 2007 and included two of the UK’s top
three commercial digital channels.
ITV’s £1 billion investment in programming funds original
commissions from in-house, external and independent producers,
plus programmes acquired from distributors and US studios, or
through negotiation with sporting bodies and other rights holders.
In 2007, ITV channels generated nearly £1.5 billion in advertising
revenues. As well as national advertising, ITV is uniquely able to
offer companies the opportunity to advertise on television at a
regional or local level.
ITV also offers advertisers the opportunity to sponsor or directly
fund programming consistent with regulatory rules. Programming
on ITV channels also generates revenue through viewer
competitions and voting delivered via PRS.
ITV channels are broadcast on all the major broadcast platforms,
including DTT, cable and satellite. ITV is a shareholder in Freeview
and, with the BBC, plans to launch a Freesat service including a
high definition ITV offering. Via SDN, ITV also holds a multiplex
licence, leasing out DTT spectrum to other broadcasters.
ITV holds a 75% stake in GMTV, the Channel 3 breakfast time
licensee; a 40% stake in ITN, the national news provider for ITV
and Channel 4; and a 5.6% interest in SMG plc, which holds the
two regional Channel 3 licences in Scotland.
Report and accounts 2007 ITV plc 09
x
News at Ten
returned to ITV1
featuring Mark Austin,
Julie Etchingham
and, of course
Sir Trevor McDonald.
x
Harry Hill’s TV Burp
now in its seventh
series peaked with
7 million viewers.
Objectives
– Deliver ITV family SOCI above 38.5% in 2012
– Invest in ITV2 to become No. 3 commercial
channel for 16–34s
Actions
– New ITV1 2008 peak-time strategy
– Keep programme costs in check
– Aim to secure new ITV1 PSB settlement
– Work to replace CRR
– Secure greater share of marketing budgets
– Future-proof Freeview; launch Freesat
– Launch ITV HD service in 2008
Share of commercial impacts, 2007
ITV
C4
five
Sky
Other
0%
10%
20%
30%
40%
50%
Main terrestrial channel
Digital channels
Source: BARB/Infosys, Adult SOCI
Sky includes all channels sold by Sky sales house
290ITV1 broadcast the 290 top rated
programmes on commercial TV
in 2007
10 ITV plc Report and accounts 2007
Action Plan Global Content
h
Ich Bin Ein Star
the German version of
I’m A Celebrity, ran for a
third series in early 2008
on RTL and peaked with
a 36.4% share.
Report and accounts 2007 ITV plc 11
k
in any
language
From Coronation Street to The Street,
from Countdown to Dancing on Ice, from
Tonight to This Morning, ITV Productions
set the bar for ratings and quality.
The value of that content is deepening
with opportunities for secondary
exploitation from distribution to DVD
sales and merchandising. And it is
widening as content becomes an
international business. Great formats like
I’m A Celebrity are hits across the world.
Content is global.
12 ITV plc Report and accounts 2007
Action Plan Global Content
x
Dancing On Ice
won an audience of
nearly 9 million viewers
on ITV1 and is becoming
a global hit.
We are maximising
global exploitation
of content
Global Content is ITV’s content division bringing together all of
ITV’s UK and international production and distribution businesses.
ITV Productions is one of Europe’s leading commercial production
companies producing more than 3,000 hours of original
programming each year. ITV-produced programmes include some
of the most popular shows on UK television, such as Coronation
Street, Emmerdale, I’m a Celebrity and Dancing On Ice. ITV also
produces programming for other channels such as The Street for
the BBC, Brainiac for Sky and Countdown for Channel 4.
ITV Productions is a significant producer across a wide range
of programme genres, including drama, soaps, entertainment,
factual, daytime, arts, current affairs, quiz and game shows.
ITV Worldwide consists of Granada International, Granada
Ventures and international production companies in America,
Germany and Australia. Granada International sells programming
from ITV Productions and many other independent producers
worldwide. Granada Ventures is a major distributor of DVD
entertainment in the UK and exploits merchandising and licensing
in the UK and worldwide from both ITV-produced programmes
and other rights owners. ITV has had considerable success in
producing local versions of ITV and other UK programmes,
including Hell’s Kitchen in the US, Dancing On Ice in Australia,
and local versions of I’m A Celebrity and Come Dine with
Me in Germany.
In 2007 ITV took a 25% equity holding in independent producer
Mammoth, a controlling 51% stake in US production company
Jaffe/Braunstein Entertainment and acquired entertainment quiz
format producer 12 Yard.
Report and accounts 2007 ITV plc 13
x
Headcases (working title)
cutting edge comedy
new to ITV1 in 2008.
x
The Royal Today
launched in the ITV1
daytime schedule in
early 2008.
Objectives
– Double Global Content annual revenues by 2012
– Compete for a greater share of ITV1 commissions
Actions
– New Global Content division
– Focus on high value genres
– Development spend up by 50%
– New talent strategy
– International expansion
– Targeted acquisitions
ITV1 Network programme spend vs. Commercial impact delivery
Acquired
programmes
Sport
News/
Weather
Other
commissions
ITV
Productions
0%
10%
20%
30%
40%
50%
60%
% Commercial impacts delivered
% Network budget spend
Source: BARB/ITV
75%of all programmes (excluding Sport)
on all UK channels achieving
audiences over 10 million were
made by ITV Productions
14 ITV plc Report and accounts 2007
Action Plan Online
online
Suddenly new media isn’t so new any
more. The broadband wagon is rolling.
Streaming is mainstream.
itv.com includes full streamed access to all
ITV channels, catch-up, clips and exclusive
content. Within weeks of relaunch,
it was attracting over 6 million users in
a single month. itvlocal.com now offers
information on where you live across all
our regions, whilst to find out more about
friends and family, more and more people
are using Friends Reunited.
With TV viewing rising even as viewing of
video content on the internet takes off,
ITV can start to reap the online upside.
Report and accounts 2007 ITV plc 15
k
16 ITV plc Report and accounts 2007
Action Plan Online
x
itvlocal.com
rolled out across all
ITV regions in 2007.
x
Friends Reunited
continued to grow
strongly in 2007 across
the reunions, dating and
family history sites.
As audiences
move online, we will
move with them
ITV’s online operations include itv.com, itvlocal.com, Friends
Reunited, ITV’s new broadband joint venture and mobile services.
itv.com was relaunched in 2007 and offers ITV channels
streamed online, plus access to further ITV programming, clips
and exclusive content. itvlocal.com offers local information, news
and services, mirroring the regional services offered by ITV1
onscreen. In 2007, itvlocal.com completed its roll out across all
ITV regions. Both itv.com and itvlocal.com are primarily funded
by online advertising.
Friends Reunited is a well-established and profitable group of
sites offering reunion, family history and dating services,
funded by subscription, transactional and advertising revenues.
The reunion site has plans during the course of 2008 to migrate
towards a “social networking” model with a greater emphasis
on advertiser funding.
In 2007 ITV announced a joint venture with the BBC and Channel 4,
seeking to offer online access to archive programming from the
UK’s leading broadcasters. The service is due to launch during the
course of 2008.
Mobile consists of our dedicated mobile portal with exclusive
content and news, and the team also manage agreements with 3,
Orange and Vodafone to broadcast a simulcast version of ITV1 to
the operators’ 3G subscribers.
Report and accounts 2007 ITV plc 17
x
itv.com
relaunched in 2007 and
within weeks of launch
attracted six million users
in a single month
Objectives
– Deliver £150 million in Online annual
revenues by 2010
Actions
– Increase viewing of ITV on-demand content
– Build sites around key programme brands
– Make itv.com a top-10 UK entertainment
and communities
site by 2010
– Deliver excellence in online ad sales
– Develop new online businesses
itv.com average visit duration 2007 versus 2006
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
)
s
n
m
i
(
t
n
e
p
s
e
m
T
i
Full Re-launch
10.00
08.00
06.00
04.00
02:00
00:00
2007
2006
Source: Webtrends, Omniture
19mpeople have registered with
Friends Reunited
18 ITV plc Report and accounts 2007
Business review
ITV is the UK’s leading commercial producer
broadcaster. ITV broadcasts more high
rating programmes than all its commercial
competitors put together. ITV produces
more programmes – for ITV channels and
for other UK broadcasters – than any other
commercial producer in the UK. As an
international distributor and producer, ITV
has ambitious plans for growth. And ITV is
establishing a presence of real critical mass
in new digital and online markets.
We need to continue to raise our game in
all these areas as we are operating in ever
more complex and competitive markets.
John Cresswell
Chief Operating Officer
and Finance Director
Report and accounts 2007 ITV plc 19
k
Market context
ITV is a television company,
but competes in a wider
market for content delivered
across a number of media
platforms and drawing upon
multiple sources of funding.
UK television platforms take up September 2007 (% of UK homes)
1 DTT
2 Sky
3 Analogue Terrestrial
4 Cable
5 Freesat
37%
32%
14%
13%
4%
Source: Ofcom
5
1
4
3
2
Until relatively recently, programmes could only be delivered
on a single medium – television – and, indeed, through a single
platform – analogue terrestrial. Today, over 85% of UK homes
view television programmes via digital platforms: digital terrestrial
television (“DTT”), digital satellite and digital cable. That same
content may be delivered via, or repackaged for, the internet,
for mobile phones and other handheld devices, or downloaded
to television set-top boxes or computer hard drives.
Although overall levels of viewing remain stable, commercial
viewing has increased as the BBC has lost share to commercial
channels. There were around 2.3 billion impacts – viewings of
TV advertisements – each day in 2007 in the UK, an average
of 40 adverts per day per person. The increase in the volume of
impacts means that the cost of television advertising has reduced.
In real terms, UK television advertising costs no more today than
it did in the 1980s.
Television advertising remains the UK’s major “brand building”
display advertising medium with over 40% of the total display
market. Following a decline in television advertising revenues in
2006, the market returned to growth in 2007. Total television
advertising revenues grew around 3% in 2007, with strong
growth in the second half of the year offsetting a relatively
weak first half.
With audiences fragmenting, only a small handful of broadcasters
continue to deliver significant shares. A “long-tail” of hundreds of
channels account for a large and growing share in aggregate, but
each deliver relatively small audiences. Experience in the UK and
other markets has been that advertisers will pay a premium
to advertise on those channels still delivering a critical mass
of viewers and rapid coverage of their target audience.
However over recent years a number of commentators believe
that the UK market has been distorted by the presence of the
Contract Rights Renewal mechanism (discussed on page 21).
The driver of viewing fragmentation has been the transition to a
multichannel, multiplatform digital environment. The Freeview
platform in particular has continued to grow rapidly and in 2007
overtook Sky as the largest digital platform. Over 9 million homes
now use Freeview on their main set, compared to 8 million digital
satellite homes. Digital cable remains fairly flat at around
3 million homes. Freeview is also becoming more and more
common on second and third sets. Freeview is the digital platform
on which the established free to air broadcasters – including ITV –
perform most strongly.
It is a similar picture in terms of revenues. For many years in the
UK market, the BBC provided competition for audiences, but
ITV faced no competition for commercial television revenue.
Today ITV competes with hundreds of channels, platforms and
new media companies funded by advertising, subscription,
transactional revenues or a combination of all three.
With increasing competition comes increasing opportunity
as commercial broadcasters, once solely funded by network
advertising, are able to exploit new sources of revenue and
consumer demand.
The common thread running across this market – and crucial
to any company’s ability to compete successfully – is content.
However long-established the media company and however
glittering its broadcasting heritage, sustained success will rely
upon a continuing ability to create and control high-quality
content valued by advertisers, by viewers and by consumers.
Broadcasting
There are currently over 200 channels broadcasting to UK viewers.
The main channels are funded by three major sources of revenue:
the BBC licence fee, advertising and subscription. UK subscription
revenues now exceed £4 billion per annum; total television
advertising revenues in the UK in 2007 were around £3.4 billion;
with the portion of the BBC licence fee dedicated to television
around £2.2 billion.
Free-to-air broadcasters – the BBC and advertising funded
channels – together retain a very significant share of total UK
television viewing. In 2007, the BBC, ITV, Channel 4 and five,
together with their associated digital channels, secured around
75% of total viewing.
Notwithstanding increasing competition for attention, volumes
of television viewing remain remarkably stable in the UK. In 2007,
the average UK adult watched nearly four hours of television
per day, showing very little change on the level recorded a
decade ago.
20 ITV plc Report and accounts 2007
Business review Market context
New market opportunities, 2010
(£bn)
0
2
4
6
8
10
12
UK TV advertising
UK content
AFP & PP
Online classified advertising
Online video advertising
Online display advertising
International content
Online gaming
Total potential market
3.5
3.1
0.1
1.0
0.3
0.7
2.0+
1.3
12+
Old ITV market
New ITV market
Source: ITV estimates; O&O; Jupiter; Enders; IAB/PwC; McKinsey; Datamonitor; ZenithOptimedia; GBGC; Ofcom
AFP: Advertising funded programming
PP: Product placement
The minority – around 15% – of UK homes which remain
analogue-only will convert to digital reception over the next five
years as the analogue terrestrial transmission network is fully
upgraded to DTT. In November 2007 this switchover process
reached a critical milestone with the town of Whitehaven
becoming the first place in the UK to switch fully to digital.
In 2008 the availability of free-to-air digital television will be
extended with the launch of Freesat from the BBC and ITV.
Freesat is likely to be particularly attractive to households
who cannot receive DTT pre-switchover and will incorporate a
free-to-air high definition (“HD”) offering from the BBC and ITV.
The BBC, ITV, Channel 4 and five have also announced a plan to
bring free-to-air HD channels to the Freeview platform over time.
Global Content
UK television channels invest around £4.8 billion in content.
The BBC remains the largest funder of UK television
programming, representing some 45% of total investment.
ITV’s investment in programming is around £1 billion, around
30% of the market total. There is then a significant drop to
the third largest investor, Channel 4 with a contribution of around
15%, with five coming in at under 5%.
Ofcom estimated in 2006 that over 90% of investment in
originated network production in the UK was undertaken by the
four main public service broadcasters: the BBC, ITV, Channel 4 and
five. Subscription funded platforms and channels have focused
their investment in content on sports, US movies and acquired
programming, rather than original UK production.
A large proportion of commissioned programmes at both the
BBC and ITV are made in-house. However, both are also significant
commissioners from external producers: between them the BBC
and ITV invest more in independent production than all other UK
broadcasters put together. Going forward, the BBC has pledged
to increase opportunities for external producers, reducing
guaranteed in-house production to 50% of commissions.
Channel 4 is prevented by statute from producing programmes
in-house. five relies on external production, but commissions
some programmes from the producer Fremantle which is also
part of the RTL Group.
The UK production sector has seen considerable growth and
corporate activity in recent years as regulatory changes have
enabled producers to retain control of rights which previously
rested with broadcasters. Although primary commissions still
represent the lion’s share of producers’ revenues, there has been
significant growth in secondary television and ancillary rights
revenues. Having historically been fragmented, there has been
consolidation of ownership in the production sector, with the
creation of so-called “super-indies” such as All3Media and Shine.
The production market has become increasingly global.
Producers such as Endemol and Fremantle include production
companies across multiple countries. Following the success of
programmes such as Who Wants to be a Millionaire and American
Idol, the US market has become more open to formats with a
proven track record in other territories, with major networks
commissioning programmes from international producers, rather
than simply acquiring format rights. For major UK producers,
international revenues now comprise sales of completed
programmes, DVD and video sales, plus overseas licensing of
programme formats and production fees. The most recent
Government survey of UK television exports indicated a growth
of around 20% in 2006 alone.
Online
Beyond television, over half of all UK households now have
broadband internet access. Broadband speeds have also
continued to rise. By June 2007, Ofcom reported average
broadband connection speeds across the UK of around 4.6Mbits
per second, with headline speeds expected to rise further over
coming years.
Increased broadband penetration and speeds are changing the
nature of online content. Alongside text-based content, online
users are increasingly seeking out more sophisticated video
content, from clips to full-length programming and movies.
Piracy and distribution of unlicensed content remain significant
issues. However, with digital rights management solutions
emerging, established media rights holders are seeking ways of
making their content available for legal access online. A mixed
ecology of online platforms carrying content syndicated from a
variety of sources (such as iTunes, YouTube and Joost) and rights
holders’ own sites offering exclusive content (such as itv.com or
the BBC iplayer) has started to emerge.
The key to success in the
digital environment will be the
ability to create and control
high quality content.
Parallel changes are evident in internet funding. Internet
advertising continued to grow strongly in 2007. Much of that
growth remains in “search” advertising, which is akin to classified
advertising off-line. However, internet display advertising also
grew rapidly in 2007, increasing by an estimated 30% and taking
its share of the display advertising market to 6.2% (2006: 4.9%).
Video advertising remains a small fraction of online display
advertising, but is expected to grow rapidly as the volume of
high quality video material online rises.
As revenues grow and online advertising sales techniques improve,
established media companies are shifting to online advertising
as a primary means of funding online content distribution.
For example, US broadcasters originally launching paid-for
download sites have now started to make available broadcast
content online on an advertising-funded basis.
Mobile phone penetration has continued to rise. There are now
more UK households with mobiles than fixed lines. A number of
mobile phone operators are making broadcast and video content
available, via full broadcast simulcast for mobile phones, clip and
exclusive content services. Auction of spectrum in the UK over the
next two years may allow the development of mobile television
broadcasting for the first time.
For viewers and for advertisers, it is increasingly evident
that such new platforms and new media will be complements
for commercial television, rather than full substitutes.
Rapid penetration of such new platforms provides opportunities
for established media companies to develop new revenue
streams, building off the strength of their core broadcast content.
Again, the key to success in the digital environment will be the
ability to create and control high quality content.
Regulation
Audio-visual media – and in particular television – remain tightly
regulated in the UK. All UK television channels must be licensed
by the regulator, Ofcom, and abide by its Broadcasting Code.
This code applies also to the conduct of premium rate services
and competitions, which were subject to a high level of regulatory
and public scrutiny over the course of 2007, as set out elsewhere
in this report.
Report and accounts 2007 ITV plc 21
k
PSBs, including ITV1, are subject to additional tiers of content
regulation, including production quotas for independent, regional
and original production. The PSBs are also subject to additional
quotas for particular genres of programming, such as news,
current affairs, and – in the case of ITV1 – regional programming.
Finally, the PSBs are required to take into account the opinion of
the regulator in the preparation of a statement of programme
policy each year.
Ofcom is currently undertaking its second review of public service
broadcasting. Following its first review, there were significant
changes to ITV1’s programme requirements, including a reduction
in regional non-news programming.
The volume and nature of television advertising are also regulated,
with the commercial public service broadcasters again subject to
tighter restrictions than other channels. In December 2007, the
Audio Visual Media Services Directive was confirmed by the
European Commission and is likely to lead to changes in UK
rules for the placement and duration of advertising breaks.
The directive also permits product placement in certain
programme categories at the discretion of member states.
Ofcom has set out a timetable for consideration of these
matters over 2008/9.
Media ownership restrictions continue to apply to the UK
television sector over and above the standard competition
regime. Following the acquisition in November 2006 of 17.9%
of the shares in ITV plc by British Sky Broadcasting plc (“BSkyB”),
the Secretary of State for Business Enterprise and Regulatory
Reform referred the acquisition to the Competition Commission
on competition and public interest grounds. The Secretary of
State confirmed in January 2008 that BSkyB would be required to
reduce its holding to no more than 7.5%. However, this decision is
currently being appealed.
As a condition of the approval of the merger between Carlton
and Granada to form ITV plc in 2003, undertakings were given
including the Contract Rights Renewal (CRR) regime applying
to the sale of advertising on ITV1. CRR provides ITV1 customers
with the option of renewing the previous year’s contract on the
same terms (including discounts), but with their commitment
to ITV1 (in terms of a share of their total spend on UK television
advertising) reduced in line with any reduction in ITV1’s share of
commercial impacts (SOCI) in the previous year.
The OFT opened a review of CRR in January 2008 following an
application from ITV. The review is being conducted in partnership
with Ofcom and is expected to conclude in 2009. Any change to
CRR is unlikely to come into effect until contracts for 2010 are
negotiated (in late 2009).
22 ITV plc Report and accounts 2007
Business review
Strategy
In 2007 we announced our five year strategy to take us to full
digital switchover in 2012. It is a strategy which will position
ITV to take full advantage of the developments shaping our
industry, across Broadcasting, Global Content and Online.
Our vision is for ITV to be the UK’s favourite source
of free entertainment, building on our heritage of
providing high-quality, ad-funded UK programming.
ITV will return to growth, with an over-arching target
for the business as a whole to deliver compound
annual revenue growth of 3%–5% to 2010 rising to
5% to 2012. With increased revenues feeding through
to our earnings, we will aim to return dividend cover to
2 times to 2.5 times in the medium term and to retain
our investment grade rating.
The strategy is based on self-help, not regulatory
assistance. It is self funding, with any new investment
paid for out of efficiency gains, regional savings and
the proceeds of continuing disposals. Following
investment for growth in 2008, the benefits of which
should start to be reaped in 2009 earnings, the full
growth plan will be in action in 2010.
Each of our major business segments has clear targets
and an action plan for growth.
Strong broadcast channels
For Broadcasting, our key objective is to remain
the country’s leading commercial channel provider
so that, in 2012, we plan to be delivering at least
a 38.5% share of commercial impacts across our
channels. We will stabilise ITV1’s performance
and build on the success of ITV2, seeking to turn
it into the UK’s third largest commercial channel
for 16–34 year olds.
The following initiatives will assist us in delivering these targets:
– The launch of a new ITV1 peak time schedule. In early 2008,
ITV1 underwent its most significant transformation in a decade,
in terms of schedule structure and new programming across the
full range of genres;
– Keep programme costs in check. ITV has relaunched its schedule
whilst working within an ongoing commitment to ensure the
programme budget does not increase in real terms;
– Invest in ITV2 to become the third largest commercial channel
for 16–34s. ITV2 is already the UK’s number one digital channel.
– Win a greater share of marketing budgets. We will be a market
leader in offering advertisers more opportunities to fund
content, via ad-funded programming and product placement;
– Future-proof Freeview and launch Freesat. We will build on the
success of Freeview with our partners and launch Freesat,
working with the BBC to strengthen free-to-air digital television;
– Launch an ITV HD service in 2008. We are seeking to bring HD to
Freeview over time and will launch an ITV HD service on Freesat;
– Secure a new ITV1 PSB remit for the digital age. ITV’s PSB
obligations cost over £200 million in 2007. In the short term, we
aim to save £40 million through a reorganisation of regional news;
– Work to replace CRR. We will work closely with advertisers and
the wider industry as the regulatory review process unfolds.
Report and accounts 2007 ITV plc 23
k
Content-led growth
Online business of scale
The key objective within our Global Content division
is to create and own the UK’s most popular and
valuable content, doubling our annual revenues in
the UK and internationally by 2012 to £1.2 billion.
This target includes ITV commissions – where we
aim to increase ITV Productions’ share – but also
commissions from other UK and international
broadcasters, which we intend to expand
significantly.
In Online our primary target is to deliver £150 million
in annual revenues by 2010. This will come from a
combination of advertising subscription and
transactional revenues across a number of
properties, including itv.com, relaunched in 2007,
and our proposed broadband archive service
working with BBC Worldwide and Channel 4.
By 2010, we aim to grow itv.com into a top 10
UK commercial entertainment site.
Key actions to help us meet these challenging targets are:
Our key actions to achieve these targets are:
– The creation of an integrated Global Content division, bringing
– Grow viewing of ITV on-demand content. The new itv.com
together our international production, sales and licensing
businesses with our UK production business;
– An increased focus on high-value genres with 360 degree
potential. We will accelerate development and production of
long running drama series, factual and entertainment formats
and comedy;
– Development spend increased by 50%, targeting the high value
areas of drama, formats, quiz shows and features;
– Launch a new talent strategy to make ITV a magnet for creative
talent. We are offering people a wide range of new and exciting
ways to work with ITV;
– Continued expansion of global sales and production by better
exploiting programming from our UK and international
production arms, and via targeted international acquisitions;
– Targeted acquisition of complementary UK and international
producers. We have allocated up to £200 million for UK and
international acquisitions. For example, game show producer
12 Yard was acquired in December 2007.
site was relaunched in 2007 and traffic is up significantly since
relaunch. We will also selectively syndicate our content to
generate ad revenues, earn licence fees and drive awareness
of ITV programming and of itv.com in particular;
– Develop specialist sites around key programme brands and
communities, using these brands to open up a range of online
and interactive revenue opportunities;
– Build our local community site, itvlocal.com and grow Friends
Reunited as part of our portfolio, with a greater emphasis on
advertising;
– Build excellence in online ad sales. With itv.com offering
streamed channels, 30 day catch up and exclusive content,
we are well placed to secure a substantial share of this fast
growing market;
– Develop adjacent online businesses attractive to our audience
and advertisers.
24 ITV plc Report and accounts 2007
Business review
Operating review
The Company made significant progress over the course of
2007, with a new structure, strategy and senior management
team all put in place by the end of the year.
It was a tough year for ITV and all UK broadcasters, with the issues
of trust coming to the fore, in particular in the context of
premium rate services. Those issues and the steps that we took to
address them are detailed in a separate section on Trust and PRS.
ITV’s strategy, summarised on pages 22 and 23, was set out
publicly in September 2007, following an in-depth analysis of the
market, competitive trends and the opportunities and challenges
facing ITV. The strategy is reflected in a new segmental structure
for the Company, incorporating Broadcasting, Global Content and
Online.
Broadcasting remains the primary revenue driver of the Company
with ITV1 in particular still delivering over 50% of the Company’s
total revenues in 2007. Broadcast incorporates all our advertising
funded television channels. Simon Shaps is Director of Television,
responsible for commissioning and scheduling across all ITV
channels. In February 2008 we announced that Peter Fincham,
former controller of BBC1, would be taking over from Simon later
this year. In November, Rupert Howell took up a new position
as Managing Director of Brand and Commercial, responsible for
sales and marketing across all our channels. Together with our
advertising-funded channels, for reporting purposes, Broadcasting
incorporates the wholly owned SDN which is a platform business
operating a digital terrestrial multiplex.
Our strategy is driven by our content. Global Content was created
during 2007 to pull together all production for ITV and other
UK broadcasters; international production and distribution;
merchandising and other commercial ventures. Dawn Airey took
up a new position as Managing Director of Global Content in
October 2007, working closely with John Whiston as Director of
ITV Productions.
Finally Online incorporates our consumer-facing online activities,
notably itv.com, itvlocal.com, Friends Reunited and the new
broadband joint venture with BBC Worldwide and Channel 4.
Our Online division is headed by Jeff Henry as Managing Director,
of ITV Consumer.
Over the course of 2007, we have also significantly strengthened
core central functions. Carolyn Fairbairn joined the Company
from McKinsey as Director of Strategy and Development and
is responsible for strategy, development and regulation across
the Company. Mark Gallagher joined the Company from
Camelot as Director of Group Corporate Affairs and has
established an integrated communications and public affairs
function. Andrew Garard also joined as Group Legal Director.
Outside the core divisions, ITV retains a number of businesses
identified as non-core and candidates for sale or exit.
These include Carlton Screen Advertising, Screenvision
and broadband ventures related to football clubs in which ITV
no longer retains a stake.
Key operational developments in the major business areas and
with respect to these non-core activities in 2007 are described in
the following sections.
Broadcasting
2007 saw improvement in ITV1’s schedule and performance,
with ITV’s digital family of channels continuing to grow.
Following steep declines in 2006, the performance of the ITV1
schedule was more stable in 2007. In absolute terms, ITV1 actually
delivered a higher level of commercial impacts – individual
viewings of 30 second commercials – in 2007 compared to 2006.
Key long-running programmes – in particular Coronation Street
and Emmerdale in peak and This Morning and The Jeremy Kyle
Show in daytime – continued to perform well, underpinning the
schedule as a whole. Performance in the afternoons improved
with the introduction of a new schedule architecture which saw
ITV’s children’s programming focused on the Citv channel and on
weekends on ITV1. The channel’s sporting output was boosted by
the explosive debut season of Lewis Hamilton in Formula 1,
England defying the odds in the Rugby World Cup, and the
enduring excitement of Champions League football.
The ITV1 schedule was refreshed with a number of successful
new shows, including Britain’s Got Talent, Primeval and Kingdom,
all of which return in 2008. In total ITV1 launched 23 new shows
in 2007 which secured audiences in excess of 5 million viewers.
(2006: 32 new shows).
Report and accounts 2007 ITV plc 25
k
ITV awards
ITV’s creativity has again been rewarded with its programmes
winning major awards both in the UK and internationally.
ITV programmes as diverse as See No Evil, Housewife 49,
Coronation Street and Dancing On Ice secured a record number
of major UK awards, including television and craft BAFTAs, Royal
Television Society, National Television and British Soap Awards.
Internationally ITV Productions secured a number of major
honours, including International and Primetime Emmy Awards,
the Prix Europa and a Banff World Television Award, with the ITV
produced film The Queen winning two Golden Globes and a 2007
Academy Award.
The quality of ITV productions for other UK broadcasters
was demonstrated by several major awards for Longford (for
Channel 4) and The Street and The Royle Family (for the BBC).
ITV News won a host of awards including RTS Journalism Awards
programme of the year for the Early Evening News.
ITV’s regional programme teams secured a number of regional
awards and an unprecedented national BAFTA for Granada
Reports coverage of the Morecambe Bay cockle-picking tragedy.
ITV Sport won seven RTS Sports awards, including for coverage
of boxing and the Boat Race, and a BAFTA for ITV’s Formula 1
coverage produced by North One Television.
ITV also won a number of awards for programmes commissioned
or acquired from external producers, including BAFTAs for
The X Factor and Entourage.
Change in share of viewing in 2007
% change vs 2006
BBC1
BBC2
-3.2
-2.9
ITV1
-2.1
C4 Total
five
-10.3
-10.1
0
–2
–4
–6
–8
–10
–12
Source: BARB Infosys
C4 Total includes Channel 4 and C4+1
ITV News continued to set the agenda with award winning
programmes, reporting and special broadcasts. The year began
successfully with ITV News picking up four prestigious Royal
Television Society Journalism awards, including the Programme
of the Year award for the ITV Evening News. Following January’s
“Big Melt” climate change report from Antarctica, ITV News
continued its on location reports with a week long “Iraq Week”
special in March and “Zimbabwe Week” in September – the latter
including interviews with Prime Minister Gordon Brown and
Archbishop Desmond Tutu.
ITV1 remained the leading free-to-air commercial channel in the
UK, with a lead over all channels (including BBC1) in peak time
between 7.00 pm and 10.30 pm in the evening. Across all time,
ITV1 recorded its best year-on-year performance in share of
viewing terms since 2001, with a fall of just 2.1% year-on-year.
This compared to losses of 3.2% at BBC1, 2.9% at BBC2, 10.3%
at Channel 4 and 10.1% at five.
ITV1’s volume of commercial impacts was up 1.1% year-on-year
across all adults and was up 1.3% in terms of the ABC1 adults
prized by advertisers. However ITV1’s share of commercial
impacts (SOCI) – the core currency for advertisers under the
CRR mechanism – fell to 32.0% compared to 33.1%in 2006.
This is because the total universe of commercial impacts
continues to grow rapidly as the UK transitions to digital and
the BBC loses viewing in the process. However this SOCI loss of
3.3% represents a significant improvement over 2006, when
ITV1 registered a decline of 10.5%.
As important as on-screen progress during the year, ITV1 also laid
the foundation in 2007 for the new schedule launch in January
2008. In March 2007 ITV secured the terrestrial rights to FA Cup
football and England home internationals from the 2008/09
season. In Autumn 2007, ITV confirmed that News at Ten would
return in 2008 with Trevor McDonald joined by Julie Etchingham
and Mark Austin. A raft of new programmes and returning
favourites were commissioned during the year to hit ITV1 screens
in early 2008. These included exciting new dramas Honest, The
Fixer and Rock Rivals, returning hits including Kingdom, Harry Hill’s
TV Burp, Primeval and Dancing On Ice.
26 ITV plc Report and accounts 2007
Business review Operating review
ITV2 moved into the next
phase of its development
with increased commissioning
of exclusive content.
ITV2 vs five
Viewing share for 16–34 year olds in multichannel homes
2001
2002
2003
2004
2005
2006
2007
)
%
i
(
g
n
w
e
i
v
f
o
e
r
a
h
S
7
6
5
4
3
2
1
0
ITV2 total
five
Beyond ITV1, ITV’s digital channels also had a successful year in
2007. ITV2 moved into the next phase of its development with
increased commissioning of exclusive content. Secret Diary of a
Call Girl starring Billie Piper peaked with an audience of 2.2 million
in September, an exceptional audience for a digital-only channel.
Investment in such channel-defining, original content has further
cemented ITV2’s proposition as a bespoke channel for younger
audiences, distinct from and complementary to ITV1. ITV2’s share
of viewing across 2007 in multichannel homes was 2.2%, up
11.9% on 2006. ITV2 was named non-terrestrial channel of the
year at Broadcast magazine’s awards and at the 2007 Edinburgh
International Television Festival.
ITV3 was the UK’s ninth most popular channel for 2007 with a
share of viewing of 1.4% in multichannel homes. ITV4 grew its
audience share in multichannel homes by almost 25% over the
year as high quality sporting events in particular attracted large
audiences to the channel. In its first full year of broadcasting the
Citv channel played an important role in reaching children in
digital homes and in particular on the DTT platform, where it is
the only free-to-air commercial children’s channel. Citv represents
a far more effective means of reaching children than children’s
programming on ITV1, which reduced in volume in 2007. However
the Citv channel was impacted by regulatory restrictions on food
advertising to children, which came into force in 2007 and apply in
full to children’s channels from 2008. The ITV Play digital channel
was closed in March 2007. Revenues had been impacted by the
PRS issues described elsewhere in this report. Closure of the
channel freed up DTT spectrum which ITV has redeployed to
launch the time-shifted ITV2+1 service on the platform.
Between them, ITV’s digital channels were responsible for 37.5%
of the growth in multichannel viewing in the UK during the year
and overall advertising revenue from our digital channels grew by
33% to £209 million. The contribution from ITV’s digital channels
meant that ITV overall increased its volume of commercial
impacts year-on-year by 3.2%. In SOCI terms, ITV plc channels
accounted for 41.7% of all UK commercial impacts (2006: 42.2%),
a 1.2% decline (2006: 5%).
ITV’s strong on-screen performance in 2007 was all the more
impressive as it was delivered on approximately the same level of
investment in programming as 2006. ITV has sought to improve
schedule efficiency further by developing more long-running,
returnable series, rather than one-offs or short-run series.
ITV maintains tight control on costs and is one of the most
efficient broadcasters in the UK as measured by the relationship
between programme spend and audience share.
Source: BARB/Infosys, All time, Multichannel Homes, Jan 2001 – Dec 2007,
ITV2 Total = ITV2 / ITV2+1
ITV’s performance on-screen also allowed the Company to
optimise its advertising revenues across the year. ITV1 advertisers
could reduce their share commitment to ITV1 in 2007 by over
10% on average under the CRR ratchet because of ITV1
performance in 2006. However the channel was well-placed to
attract short-term advertising revenues as ITV1 fared better than
its core competitors Channel 4 and five across the year. In 2007
ITV1 accounted for 498 out of the top 500 shows on UK
commercial television (2006: 499 out of 500), making it the UK’s
most effective brand-building channel for advertisers by some
margin. ITV television advertising revenues fell by 0.3% in 2007
compared to an 8.4% drop in 2006 and against total growth in
the market in 2007 of 3.1%.
A strong on-screen performance in 2007 means that ITV1 enters
2008 with the lowest CRR ratchet since merger. Rather than
reducing their share commitment to ITV1 by over 10% as applied
going into 2007, advertisers and agencies are entitled only to
reduce their commitment by around 4% in 2008. With ITV1
schedule changes seeking to maximise audience levels in crucial
peak viewing hours and ITV’s commercial competitors continuing
to lose audience share, ITV will compete fiercely for revenues
from advertisers and agencies over and above their contractual
minimum. The continuing growth, in audience share and SOCI
terms, of ITV’s digital channels also positions them well to
continue strong growth in revenue terms over the course of
2008, depending on conditions in the wider market.
The wholly-owned DTT multiplex operator, SDN, enjoyed a
successful year in 2007. Early renewal of a significant contract
with QVC underlined the ongoing strength of the Freeview
capacity market, and provided for improved terms for SDN.
During the course of 2007, ITV also confirmed that it had
contracted with the transmission operator Arqiva to deliver the
DTT transmission infrastructure that will take the channels
occupying the capacity licensed to ITV and to SDN through the
switchover process. Post-switchover ITV’s core capacity will reach
around 98.5% of the UK with SDN channels available to over 90%
of the UK. The switchover process begins in earnest in 2008 and
confirmation of the post-switchover multiplex configuration
(in particular for HD and PSB channels) is also expected in 2008,
which should be a further positive for the platform and for SDN.
In 2007 ITV also confirmed a joint venture with the BBC to launch
a “Freesat” subscription-free digital satellite service in 2008.
The new service will include free-to-air HD services from ITV
and the BBC.
Report and accounts 2007 ITV plc 27
k
96% of ITV1 programmes
delivering audiences above
10 million were made by
ITV Productions.
The Turnaround strategy also requires significant growth in
commissions for UK broadcasters other than ITV. 2007 again saw
a significant volume of ITV production for other UK broadcasters,
including The Street, University Challenge, Come Dine With Me
and Countdown. However UK production beyond ITV was down
34% year-on-year, with external drama falling short of target.
However ITV can face the challenges of delivering growth in
Global Content with some confidence, as 2007 once again
provided ample evidence of the quality of the Company’s
output and the creativity of its staff (see ITV awards).
ITV’s Turnaround strategy targets a rate of expansion in Global
Content that will not be delivered solely by organic growth.
ITV has earmarked up to £200 million of proceeds from disposals
for content-related acquisitions and has also committed to
supplementing existing in-house operations with a variety of
innovative partnerships and flexible structures to ensure that ITV
continues to tap the widest range of UK production talent. In July
2007, ITV announced that it would be taking a 25% stake in
Mammoth, a new drama producer set up by a team with an
established track record in the genre.
In December 2007 ITV confirmed the acquisition of 12 Yard, an
independent producer specialising in gameshow and quiz show
formats and production. Gameshows and quiz shows represent
perhaps the most internationally saleable genre of programming,
but have not been an area of strength for ITV historically.
The majority of ITV1 gameshows and quiz shows, from Who
Wants to Be a Millionaire to Goldenballs, are not in-house
productions. Even where ITV has produced or co-produced such
shows itself – for example, with Countdown and Gameshow
Marathon – it has tended to rely on formats from third party
producers. It is hoped that the acquisition of 12 Yard will help
reverse this trend, with a number of possible new commissions
for ITV1 under discussion.
Global Content
Global Content registered a number of significant achievements
in 2007 and profits increased 2% to £90 million. But while profits
were maintained, revenues were down in particular because
sufficient and consistent commissions were not secured from
ITV and other UK channels.
The second series of Dancing on Ice proved a huge success for
ITV1, attracting consistently high audiences across its nine week
run. Overall, Dancing on Ice secured an average audience of
8.5 million with a 37.4% share in its Saturday night slot (2006:
9.5 million, 41% share). Other entertainment successes included
the 7th series of I’m A Celebrity…Get Me Out of Here and the 7th
series of Ant and Dec’s Saturday Night Takeaway.
Lewis returned to ITV1 on Sunday nights as a series. With an
average audience of 8.3 million and a 34% share, the series was
one of ITV1’s top performing dramas across the year. The ITV
premiere of the Oscar-winning movie The Queen delivered an
average audience of 8.7 million and a 38% share. However drama
production for ITV overall fell short of target. Personnel changes
and a restructuring during the course of 2007 aim to return the
business to growth going forward.
ITV-produced soaps continued to draw impressive audiences in
2007: Coronation Street was the top-performing show in the UK in
2007, excluding sport, with the highest rating episode attracting
an audience of 13.1 million, and a 49.5% share (2006: 12.6 million
viewers, 52.6% share). Throughout the year it was the UK’s top
performing soap, averaging an audience of 10.1 million and a
44.6% share (2006: 10.1 million viewers, 46% share).
Emmerdale attracted an average audience of 7.5 million and
a 37.2% share (2006: 7.6 million, 38.4% share), and was scheduled
against the BBC’s biggest show, Eastenders, on 15 occasions in
2007. In 2008, that head-to-head battle becomes a fixture, with
the new ITV1 schedule pitting Emmerdale against Eastenders
every Tuesday evening.
Across the year, ITV Productions secured around 50% of ITV1
commissions, but was slightly down on the previous year, as the
network decided not to recommission a number of established
programmes – in particular dramas – as part of its schedule
changes. The success of ITV’s content-led strategy relies in part
on ITV Productions growing its share of ITV1 commissions, with a
target for the Global Content division of 75%.
28 ITV plc Report and accounts 2007
Business review Operating review
itvlocal.com unique users per month, 2007
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
800
) 700
s
’
0
0
600
0
(
s
r
o
t
i
s
i
v
e
u
q
n
u
500
400
300
200
i
l
a
t
o
T
100
0
International
2007 was a strong year for returning formats such as First 48,
Celebrity Fit Club and Hell’s Kitchen with Gordon Ramsay in the
US, Das Perfekte Dinner (Come Dine With Me) in Germany, and
Dancing with the Stars in Australia. Distribution revenues at ITV
Worldwide were impacted by the reduction in UK commissions
and the exchange rate. Nonetheless sales were registered with
TV broadcasters, home entertainment partners and new media
platforms in more than 250 countries worldwide. Top sellers in
2007 included Hell’s Kitchen USA, Agatha Christie’s Marple and
Northanger Abbey and Mansfield Park from ITV’s Jane Austen
season. Format sales included Saturday Night Takeaway, sold to
Hunan TV in China (pictured) which debuted in early 2008 with an
audience of 55 million viewers.
Trading for Granada Ventures was challenging with price
competition in areas such as DVDs eroding margins and turnover,
even where volumes were maintained. There were strong
campaigns around classic ITV brands like Sharpe and Inspector
Morse, and strategic acquisitions in the children’s and comedy
market. Mobile and online gaming products were released
for Catchphrase, Bullseye and Countdown, with ITV Classic
Gameshows released for Xbox, Nintendo, Sony Playstation and
PSP. A number of digital “download to own” deals were agreed
in 2007 and this will be a major initiative in 2008 exploiting our
available catalogue.
Source: comScore
Online
2007 was a crucial year for Online with the relaunch of a
video-enabled itv.com, full national roll out of itvlocal.com,
continuing growth at Friends Reunited, and the agreement
of joint venture terms for a broadband archive service with
the BBC and Channel 4.
In 2007, itv.com received a complete functional and visual
overhaul, enabling it to compete with other major entertainment
sites. Now equipped with a broadband video player and a
much-expanded operations and editorial team, the site offers
channel simulcasts for ITV1, ITV2, ITV3 and ITV4 as well as a
30-day catch-up service and access to archive material. As a
result of this new look and feel, the site has achieved substantial
growth, with unique users per calendar month breaking through
the 6 million barrier for November.
Moving forward, itv.com is developing key partnerships with
other online players and the first exclusive made-for-broadband
commissions. A partnership with MSN for the duration of I’m a
Celebrity…Get Me Out Of Here! in November saw exclusive clips
on the MSN portal in exchange for cross-promotion of itv.com.
itv.com launched with Web Lives, an innovative series of short,
documentary-style programmes made by Roger Graeff. In 2008
there will be further commissions, including a 12-part series of
drama shorts linked to new ITV1 dramas Moving Wallpaper and
Echo Beach, called The Mole.
2007 saw the completion of the full roll-out for our regional
broadband service itvlocal.com. From October, the service has
been available in all ITV regions, and in December, it attracted
over 750,000 unique users. itvlocal.com is modernising ITV’s
delivery of regional news, expanding the viewing and reach of
our regional programming online. Almost 70% of visitors are
coming to itvlocal.com for local news before the main regional
news programme airs on ITV1 at 6pm.
itvlocal.com has over 1,000 hours of news, weather, short films,
documentaries, viewer videos, and other material available to be
viewed on demand by broadband viewers.
Continuing efficiency gains
and disposal of non-core
businesses remain a priority
for the business.
The Friends Reunited group of sites continued to grow during
2007 with revenues increasing by 36% on the previous year.
Worldwide, Friends Reunited currently has 19 million registered
members (2006: 17 million), whilst Genes Reunited has
7.9 million (2006: 5.8 million). One new name is added to Genes
Reunited every second and a new member joins the Friends
Reunited Dating site every two minutes.
Following our recent strategy review, there are plans in
development for much greater integration with each Friends
Reunited business and itv.com, including a reduced emphasis
on subscription fees for some parts of the sites.
In November 2007, ITV announced the creation of a commercial
three-way joint venture with BBC Worldwide and Channel 4 to
launch an on-demand content service in 2008. The service will
bring together over ten thousand hours of the UK broadcasters’
current and archive programming from the UK’s three leading
broadcasters. Content will be available to be both streamed and
downloaded with viewers able to watch for free, rent or buy.
Going forward, itv.com will provide access to catch-up
programming and clips, and will carry exclusive simulcasts of
ITV channels, whilst the joint venture broadband service will
be the home of the ITV archive.
Report and accounts 2007 ITV plc 29
k
Efficiency savings 2007-08
Back Office
Property
Systems and Technology
Transmission
Staff related
Procurement
Cumulative total
Cumulative cost of change
2007
£m
2008F
£m
11
1
4
6
4
3
29
15
15
1
7
7
6
5
41
26
Note: Efficiency gain run-rate to end of 2007 and company forecasts to 2008.
Non-core businesses and efficiency savings
ITV continued its programme of non-core disposals in 2007, selling
stakes in Arsenal and Liverpool football clubs, MUTV and the ITFC
sub-titling business. ITV retains stakes in broadband services
associated with Arsenal and Liverpool, but is seeking to dispose
of these businesses during the course of 2008.
Carlton Screen Advertising had a challenging year in 2007.
Notwithstanding healthy cinema attendances, CSA was adversely
affected by falling revenues and onerous contractual
commitments, which led to a continuing trading loss. ITV took
an exceptional operating charge of £9 million and has entered
into a dialogue with cinema operators and other parties regarding
the future of the business.
Our US screen advertising joint venture with Thomson enjoyed
another year of impressive double-digit revenue and profit
growth. The installed installation pipeline of digital screens is
currently over 7,000 out of a total screen count of just under
15,000. Our European cinema advertising business, also a 50/50
joint venture with Thomson, experienced a year of consolidation.
Total revenues were constant year on year, with strong revenue
growth in France offset by a disappointing performance by the
Belgian business.
In 2006 we announced a programme of efficiency savings across
the Company aimed at achieving a cost reduction run rate of
£41 million a year by 2008. This programme is on track
with an annualised £29 million of savings delivered in 2007.
Continuing efficiency gains and disposal of non-core businesses
remain a priority for the business in the context of our turnaround
strategy. Savings and disposals will fund the investment and
acquisitions that are necessary to deliver sustainable growth.
30 ITV plc Report and accounts 2007
Business review
Trust and PRS
In 2007, serious issues arose relating to PRS on ITV channels
and GMTV. ITV fell short of the standards that viewers have
come to expect and we are determined that the trust of
viewers should be fully restored.
This section summarises the issues that arose, the associated
regulatory processes, and the steps taken by ITV to ensure that
such problems do not recur.
Viewer votes and competitions have been a feature of television
programming for decades, but the advent of mobile phones and
premium rate telephony enabled broadcasters to build on such
interaction and to generate revenues in the process. Over recent
years, use of PRS in ITV and GMTV programming – and the
associated revenues – grew rapidly. Such revenues were generated
by PRS elements in mainstream programming, as well as from
dedicated participation channels and services, such as ITV Play.
ITV
In March 2007, following press reports alleging irregularities in ITV
programming, ITV announced the immediate suspension of all
PRS activity and appointed Deloitte to carry out a review of PRS in
ITV programming. Deloitte reviewed PRS procedures in all current
programming; identified means of reducing the risk of failures
arising in the future; and investigated PRS-related incidents in ITV
programmes broadcast from April 2005 to March 2007.
In October we published the findings of the Deloitte review and
ITV investigation into PRS within our programmes. Out of more
than 100 ITV programmes and series, serious editorial issues were
identified in three entertainment programmes. The Deloitte
review also highlighted serious technical issues on five occasions
affecting two further ITV shows; on none of these occasions
did the problems alter the outcome of viewer votes. In addition,
The British Comedy Awards 2005 is the subject of a separate
and ongoing investigation by media law firm Olswang.
The review identified failings in the way ITV integrated PRS into its
programming: appropriate account was not always taken of the
impact of editorial actions on the integrity of interactive elements
in programmes. Agreed and consistently applied procedures,
controls and ways of working between the parties involved in the
process were lacking. In addition, supporting technology, in the
most part supplied by third-party suppliers, did not deliver the
required level of service consistently.
In response to the review, ITV announced a comprehensive
reimbursement scheme and committed that any unclaimed
element of the potential total to be reimbursed – around
£7.8 million – would be donated to charity in 2008.
ITV also announced changes to the operation of PRS, including
the following:
– Suspension of all SMS and Red Button voting in live
programmes, until systems are in place to ensure timely
delivery of votes;
– Reducing ITV’s dependency on third party providers, by
bringing telephony service provision in-house on programmes
wherever possible;
– Introduction of training across ITV to ensure that employees are
aware of their responsibilities in respect of the operation of PRS;
– Strengthening ITV’s compliance resources with the addition of
a dedicated Interactive Governance team.
The problems identified in relation to ITV’s PRS are being
considered by Ofcom which could result in fines or other
sanctions. ITV expects to learn the outcome of the regulatory
process in 2008.
The issues identified by Deloitte relate largely to PRS elements
in mainstream ITV1 programming, rather than participation
television programming broadcast under the ITV Play brand.
However, in March 2007, ITV closed its digital participation
channel ITV Play. From the end of 2007, ITV ceased broadcasting
ITV Play participation television programming on all ITV channels.
Trust – it’s a must
Following publication of the findings of the Deloitte review and
issues involving trust in television across all UK broadcasters in
2007, ITV committed to improving training and awareness for
all employees involved in programming and interactive services.
Two compulsory online compliance modules were launched,
supported by an internal campaign seeking to raise awareness
of the importance of compliance and trust in ITV. The campaign
included a booklet – Trust: it’s a must – for all new joiners and
production staff.
Report and accounts 2007 ITV plc 31
k
ITV committed to improving
training and awareness
for all employees involved in
programming and interactive
services.
GMTV
In April 2007, serious shortcomings emerged relating to
competitions on GMTV and in particular selection of winners
before phone lines had been closed in competitions run between
August 2003 and February 2007.
In response, GMTV suspended all competition activity and
contracted Deloitte to undertake a review and to seek to identify
affected viewers. In July 2007 GMTV confirmed a package of
measures aimed at restoring the trust of viewers. These included
offering full refunds to all entrants who were wrongly excluded;
holding 250 free prize draws, each with a £10,000 prize for
affected entrants; and making a £250,000 donation to the
children’s charity ChildLine. The Managing Director and Head
of Competitions both resigned from the station.
GMTV also introduced new measures for the management of PRS
going forward (although PRS competitions have not yet returned
to GMTV programming). These included:
– Development of independently audited compliance checks
and procedures;
– Regular inspection of future service providers; and
– Ensuring that future competitions allow for orderly winner
selection in a timely and compliant manner.
Following an investigation completed in September 2007, Ofcom
imposed a fine of £2 million on GMTV and required GMTV to
broadcast a statement of the regulator’s findings.
In addition to reimbursement costs and donations, ITV has
incurred costs in the process of reviewing its PRS operations of
approximately £2 million. Based on current estimates and before
any potential Ofcom fine on ITV, an exceptional operating charge
of £18 million associated with PRS activity has been taken by ITV
in the full year 2007, including the £5 million pre-exceptional
operating charge taken at the half year.
32 ITV plc Report and accounts 2007
Business review
Key Performance Indicators
ITV’s Key Performance Indicators (KPIs) are the core measures
used by the Company to assess its own performance and allow
shareholders and other ITV stakeholders to see how the
business is doing.
ITV has revised its KPI framework to reflect the Turnaround strategy, allowing stakeholders to assess ITV’s
progress towards the targets it has set itself. The new framework provides more granularity in terms of financial
KPIs, together with a more comprehensive set of non-financial indicators.
Financial KPIs
The financial performance of the Company depends on our ability to sustain growth in the revenues we can
attract and the profits we are able to earn on those revenues. This dual focus is reflected in ITV’s financial
KPIs, which provide more detail of the performance of the Company across its major areas of activity and are
consistent with the long-term targets set out in the Turnaround strategy. Further detail on our performance
in these areas is set out in the Operating and Financial Reviews.
Revenues
The Turnaround strategy sets out the Company’s target of growing revenues (adjusted for disposals)
by 3–5% to 2010 and 5% in 2011–2012. Achieving this target will depend on ITV’s ability to maximise its
television advertising revenues across all its channels. In addition, ITV has adopted strategic targets for total
Global Content annual revenue (including internal revenues) of £1.2 billion by 2012 and for Online annual
revenue of £150 million by 2010.
Total ITV revenues
ITV plc NAR
Global Content revenue (including internal revenue)
Online revenue
2007
£m
2,082
1,489
564
33
2006
£m
2,181
1,494
632
23
Profits
Operating EBITA remains ITV’s key profit indicator, reflecting operating profit before amortisation and operating
exceptional items. Adjusted earnings per share relates those earnings and tax adjustments to the Company’s
share capital and thereby demonstrates underlying value creation per share.
Operating EBITA
Adjusted basic EPS
2007
£m
311
2007
pence
5.0
2006
£m
375
2006
pence
6.3
Report and accounts 2007 ITV plc 33
k
Non-financial KPIs
ITV has set out an ambition to be recognised as the UK’s favourite source of free entertainment and seeks to be
a company where the best people want to work. These are reflected in non-financial KPIs applying to audiences
and to ITV staff.
Audiences
A new ITV commitment indicator sets out the proportion of people agreeing that an ITV channel or service is
one of their favourites. A new KPI for total ITV family SOCI reflects ITV’s turnaround target that its channels will
secure a share of commercial impacts of at least 38.5% to 2012. ITV1 adult impact volume is retained as a KPI,
reflecting the imperative of ITV1 retaining scale in the market.
ITV is seeking to develop a robust methodology for reporting online traffic for the next annual report, together
with revised data for the commitment indicator based on an online survey.
Commitment (%)
ITV family SOCI (%)
ITV1 adult impact volume (billion)
2007
38
41.7
237.2
2006
40
42.2
234.7
Staff engagement
ITV operates in a market where it is the quality of people working in a company that is a key differentiator.
A new staff engagement indicator drawn from the annual survey of all ITV staff is based on the average
proportion of respondents agreeing they have pride in their work, are proud to work for ITV or speak highly
about ITV’s services.
Staff engagement (%)
2007
63
2006
n/a
34 ITV plc Report and accounts 2007
Business review
Risks and uncertainties
Our work on risk is more important than ever as the
Company seeks to identify new market opportunities
and potential revenue streams.
Broadcasting
Risk description
Reduction in television
advertising, as share of
display advertising or due to
regulatory intervention
Impact on KPIs
Mitigation
– Loss of ITV plc NAR
– Development of new revenue streams and opportunities for
advertisers outside television spot advertising
– Dialogue with regulator and government over alternative
policy responses and need for continuing deregulation
Continued decline in audience
on ITV1 versus other
commercial channels
– Decline in ITV1 adult
– Development of predictive tools and commissioning process
impact volume
improvements
– Loss of ITV plc NAR
– Growth of the ITV family of channels (ITV2, ITV3, ITV4, Citv)
The CRR remedy remains
in place resulting in pricing
constraints on delivery of
volume audiences
Delivery of value from
Network Programme Budget,
including cost of sports rights
and acquisitions
– Investment in the ITV1 schedule
– Loss of ITV plc NAR
– Application to OFT to review remedy
– Design packages for advertisers that drive enhanced value
– Growth of non-ITV1 revenue streams
– Operating EBITA
– Annual budget approval
– Adjusted EPS
– Segregation of commissioning and price negotiation
– Formal approval process (including financial limits) for individual
commissions/acquisitions
– ROI analysis performed on all sports rights and acquisition deals
(e.g. films) as well as for key programme commissions
– Performance ratchets in key talent deals and for key shows
– High proportion of schedule produced in-house
Loss of transmission
– Loss of ITV plc NAR
– Dual transmission centres act as back-up facilities
– Brand commitment
– Business continuity testing programme
– Emergency procedures in place
– Constant monitoring of systems by service providers
– Regular service and project review meetings with key suppliers
Compliance risk in relation
to participation TV revenues
– Brand commitment
– Dedicated compliance team for shows involving
– Loss of total ITV
revenue
viewer interaction
– Training programme
– Taking PRS in-house where possible
Report and accounts 2007 ITV plc 35
k
We consider the following to be the most significant risk factors, relating to the Company’s operations.
The risks listed do not necessarily comprise all those associated with ITV, and are not set out in any order
of priority. Additional risks and uncertainties not presently known to ITV, or that ITV currently deem
immaterial, may also have an adverse effect on its business.
Detail on the governance arrangements by which risks and uncertainties are monitored and managed is
set out in the Corporate Governance and Audit Committee report section of the report at pages 99 to 105.
Global Content
Risk description
Volume and international
appeal of UK programme
supply for sales exploitation
Online
Risk description
Failure to deliver new online
propositions based on a
business to consumer model
Impact on KPIs
Mitigation
– Loss of Global Content
– Continually building new relationships with independent and
revenue
overseas producers
– Increased development spend to maximise UK commissions
– Increased development of programme ideas in owned overseas
production centres (USA, Australia, Germany)
– Increased focus on exploiting the existing catalogue in new and
traditional media
Impact on KPI’s
Mitigation
– Loss of Online revenue
– Appointment of management with proven track record of
– Brand commitment
success in these new areas
– Technology action plan to provide clear strategic framework for
internet-based initiatives.
General
Risk description
Impact
Mitigation
Pension scheme funding gap
– Additional funding
– Appointment of Investment Fund Managers and Custodians
requirement
– Trustees meet regularly to consider matters such as investment
criteria, funding policy and legislative changes
– An Investment Committee of Trustees which reviews investment
policies
– Formal actuarial valuations performed at least every three years
to identify the solvency position
Retention of key people
– Business performance
– Incentive schemes for key talent
Refinancing of maturing debt
and bank facilities
– Staff surveys
– Availability of finance
– Higher cost and more
restrictive covenants
– Maintain adequate liquidity in the form of cash and undrawn
bank facilities (the latter subject to compliance with financial
covenants)
– Fund long term from the bond markets without financial
covenants
– Constant monitoring of the financial markets and available
funding options
36 ITV plc Report and accounts 2007
Business review
Corporate responsibility
We recognise our impact on society and the environment
and are committed to acting responsibly throughout
our operations. Our objective is to earn and retain the trust
of all our stakeholders for the long term.
Business impact
Managing corporate responsibility (“CR”), helps identify business
risks and opportunities.
Public awareness of ITV is high and the Company has a high
media profile. A reputation for high CR standards can help
maintain the trust of viewers and other stakeholders, which
can have a very direct impact on our business. It is also critical
to attracting and retaining high quality staff.
Material issues
ITV manages a diverse range of CR issues which are fully explored
in the Company’s separate CR report. This section summarises
the CR issues that ITV’s management judge to be material to our
business, in terms of their potential to either impede or accelerate
delivery of our five year strategy.
Reflecting the development of the business beyond television, we
divide CR issues into three main categories – On air, Online and
Behind the scenes.
On air
Responsible programming – a breach of regulation (e.g. the Ofcom
Broadcasting Code) could harm our reputation and alienate
viewers, advertisers and regulators.
Reflecting society – the more relevant the programmes to our
audience, the more popular they will be and the more attractive
to our advertisers.
Interactivity – we need to manage interactivity in our
programmes and services responsibly to build consumer trust
and continued participation.
Online
Internet and mobile content – although outside the scope of
broadcast regulation, we need to establish and apply appropriate
standards for online content.
Social networking – it is critical that there are safeguards
employed to ensure full protection of children and privacy.
Online gaming – safeguards against the risks of gambling
addiction and misuse are essential to maintaining
ITV’s reputation.
Behind the scenes
Creative economy – investment in the creative and technical skills
needed for a thriving UK television production industry is key to
our long term success.
Our people – employee morale and loyalty are prerequisites for
achieving our strategy, and robust health and safety procedures
are essential across the business.
Our supply chain – our CR performance relies on the behaviour of
our suppliers, as well as our own staff, in areas such as production
and interactive services.
Our CR report covers issues including independent reporting,
responsible advertising, supporting communities and protecting
the environment in greater depth. Materiality in relation to CR
issues is kept under continual review as the Company develops.
Stakeholder engagement
The following formal processes help us understand the opinions of
our three key stakeholder groups:
Viewers: We survey our viewers on an ongoing basis via our Vision
Panel to provide input into our programming and CR performance.
We also engage with viewers through our Duty Office which
handles queries and feedback.
Employees: We conduct regular employee surveys which cover a
range of issues relating to working at ITV and include specific
questions on CR. In addition we have an award-winning internal
communications programme for CR, including a dedicated section
on the staff intranet and regular updates on CR issues.
Investors: Investors regularly request information from us and
we provide as much information as possible via our CR report
and corporate website. We are included in the Dow Jones
Sustainability Index, FTSE4Good and BITC CR Index.
CR Governance
CR is currently managed by a CR Operational Group which reports
to a CR and Operational Risk Steering Group. This management
process is currently under review. The terms of reference
for the CR Operational Group are on our website at
www.itvplc.com/itv/responsibility/repdownloads. The Board
receives quarterly updates on CR issues and have discussions
around CR issues at Board meetings. John Cresswell is the ITV
Board director responsible for CR.
Report and accounts 2007 ITV plc 37
k
Events in 2007
Protecting the consumer
When itv.com was relaunched with video-on-demand in 2007,
there needed to be a system to identify any adult content
(normally shown post-watershed on air) and allow parents to
restrict access if necessary. Programmes available online with
adult content now display “video guidance” boxes. The system is
designed to obtain confirmation from the user that they are aged
18 or over, or allow parents to restrict access for children using the
site by introducing a PIN verification process.
On air
The programmes broadcast on ITV channels continue to be
scrutinised by our Compliance Unit prior to broadcast. The vast
majority of programmes were broadcast without problems. In the
minority of cases that cause complaint, Ofcom considers if the
Broadcasting Code has been infringed and publishes its rulings.
In 2007, Ofcom upheld complaints about 15 ITV programmes
(2006: 10 programmes). For discussion about the PRS issues in
2007 please see page 30.
Many programmes informed viewers about social or
environmental issues. ITV News programmes and Tonight with
Trevor McDonald regularly covered these issues. ITV dramas and
soaps also raise serious issues in their storylines and can raise
awareness in an audience that may not watch news programmes.
ITV News continued its commitment to investigating climate
change (for example, with a series of reports from Antarctica).
We also covered a wide range of domestic news stories through
our regional news teams, including the floods that hit the north
and west of England in the summer.
ITV met all its access service requirements in 2007 for deaf
and hard of hearing, and blind and visually impaired viewers.
We provide subtitling, audio description and signing, to ensure
that programmes were as accessible as possible to all viewers.
Almost all the ITV1 schedule is subtitled, including all programmes
in peak time. Audio description was provided for many of ITV’s
dramas, where there is greatest value to viewers.
Online
We understand that our diversification from television
broadcasting brings us into new and different regulatory
environments with specific risks in each business. During 2007
we assessed the CR issues relevant to our online businesses and
will begin reporting on them in our CR report.
Our overall approach is to apply the same standards to our
non-television businesses that we have for television even
where the regulatory regime is less stringent.
38 ITV plc Report and accounts 2007
Business review Corporate responsibility
Behind the scenes
We continued initiatives to manage human resources (“HR”) and
our environmental impact. Our HR programme focused on training
and development, diversity, and health and safety. We also
strengthened our environmental programme with a focus on
waste management and energy efficiency.
We strive to improve the management of CR issues at ITV and
recognise there are areas where we need to focus our attention.
Our supply chain, environmental performance and community
strategy are all currently under review and will be further
developed throughout 2008.
CR performance indicators
2007
On air
Responsible programming
Programmes/Episodes
complained about*
Upheld complaints
Resolved complaints
Not upheld/out of remit
Access services (ITV1)
Subtitling (% of programmes)
91.4
Audio description (% of programmes) 10.5
Signing (% of programmes)
4.5
On-screen diversity
Total black and minority ethnic (%)
773
15
4
754
13.6
*Complaints data is compiled from Ofcom Broadcast Bulletins.
2006
2005
843
10
19
814
87.0
9.0
4.0
799
8
19
772
89.0
8.0
3.5
Behind the scenes
Protecting the environment(1)
CO2 emissions from
business travel(2)
Total CO2 emissions(2)
Total waste (tonnes)
Total waste recycled
Total water use (m3)
Workplace profile(1)
Women employees (%)
Ethnic minority employees(3)
Employees with a disability (%)(4)
Employees aged over 50 (%)
Health and safety
Accidents requiring more than
three days off work
Major accidents
Fatal accidents
(1)UK only, excluding GMTV.
2007
2006
2005
6,580
47,991
2,210
36%
n/a
39,665
1,743
53%
129,899 133,485 104,473
n/a
37,330
1,776
29%
49.0
8.4
2.0
14.0
9
2
–
47.6
9.9
2.0
15.1
7
1
–
47.6
6.4
2.0
17.0
23
1
–
(2) Improved data collection systems in 2007 allowed us to collect full business travel data,
hence the increase over 2005 and 2006 which included partial data.
(3)% of those that disclosed their ethnicity.
(4)% of those that disclosed their disability.
11.5
13.6
Performance indicators for Online are in development.
ITV’s CR Report for 2007 is available in the Responsibility section
of our website at www.itvplc.com, in hard copy from the Company
Secretary, or by email from responsibility@itv.com.
Report and accounts 2007 ITV plc 39
k
We are seeking to develop a
culture that enables the best
people to do their best work.
Our values
Brand
We are seeking to develop a culture that enables the best people
to do their best work. During 2007 we modified two of the ITV
values in order to give greater emphasis to Collaboration across ITV
and to highlight the importance of Integrity in everything that we
do. The ITV values are:
– Customer focus – understanding our customers and exceeding
their expectations;
– Collaboration – working together across the organisation acting
as one ITV;
– Commitment – committed to our business, our programmes
and to each other, proud to be part of ITV;
– Boldness – encouraging improvement through creativity
and innovation;
– Excellence – aiming for the highest standards and
demonstrating that we are the best in everything we do;
– Integrity – demonstrating integrity in everything we do:
when working with colleagues; making programmes; and
understanding the diversity of opinion and talent we have
across the organisation.
And, in addition, for all ITV managers:
– Commercial – doing everything possible to make ITV
a commercial success;
– Leading – providing clarity and direction to create results,
leading by example to motivate others.
Workshops which explore the importance and application of the
ITV values were delivered to over 1,000 staff in 2007 and will
continue in 2008. In addition, all members of the management
incentive scheme have been assessed against the ITV values
and the outcome of the assessments will directly influence a
proportion of their bonus payment.
350 members of staff have participated in the Company’s
“Colleagues United” scheme. The scheme gives staff the
opportunity to shadow a colleague in a different part of the ITV
business and has an instrumental role in fostering understanding
and collaboration across the organisation. The scheme will run
again in 2008.
During 2007, we continued to measure the perception of the ITV
brand across the family of channels using a continuous brand
tracking study which has been managed by Hall & Partners
Europe. We have also introduced an additional tracker to measure
the brand performance of itv.com. Gaining insight into our
strengths and weaknesses over time, this study allows us to track
our performance on a like-for-like basis against previous periods
and to measure our position compared to our key competitors.
For the broadcasting business, all of the following metrics were
measured for the fourth quarter of 2007 with comparatives for
the fourth quarter of 2006. For itv.com we have data for April –
December 2007.
Over the course of the study we have identified two key drivers of
viewer behaviour: Spontaneous Commitment and Consideration.
These are measures of people’s loyalty and propensity to
view/consume respectively.
In the context of an increasingly competitive marketplace, the ITV
family of channels has retained a strong and stable Spontaneous
Consideration at 63% (2006: 64%), compared with the BBC at 69%
(2006: 70%) and Channel 4 at 41% (2006: 36%). For individual
channels, the Spontaneous Consideration picture has increased for
ITV1 at 60% (2006: 57%), BBC1 at 67% (2006: 64%) and Channel 4
at 35% (2006: 28%). Meanwhile, ITV2 has experienced a slight
decline in Spontaneous Consideration to 13% (2006: 15%), ahead
of its nearest digital free-to-air channel competitor E4 at 10%
(2006: 8%).
A harder measure to improve is Commitment. Being a “favourite”
channel is more difficult as viewers are being delivered an
increasing number of television entertainment choices. Against
this backdrop, ITV1 Commitment has declined slightly to 38%
(2006: 40%). In the same period BBC1 Commitment has increased
to 51% (2006: 48%) and Channel 4 decreased to 28% (2006: 35%).
Over the last year our marketing efforts have been focused on
addressing both Consideration and Commitment and we continue
to see evidence of its success through the brand tracking study
which shows that viewers who had been exposed to and
recognised our promotional activity have a Consideration
level approximately eleven percentage points higher than
non-recognisers.
40 ITV plc Report and accounts 2007
Business review Corporate responsibility
Our two key external
stakeholders are our viewers
and advertisers.
Customers
Suppliers
We have a wide range of customers with relationships overseen
by a range of commercial and managerial processes. Our two key
stakeholders are our viewers (and consumers) and advertisers.
Serving our viewers and consumers lies at the heart of everything
we do, and our business is based on the ability to deliver quality
content firmly targeted at our viewers and consumers.
To understand this demand better we commission an
independent research company to recruit and survey a panel of
10,000 adults in the UK (vision panel). The Panel, selected to be
representative of the UK population in its demographic
constituency, is regularly asked about programmes that maximise
ITV’s audience share. The information gathered represents an
important input into the decision-making process of our
Broadcasting business. We believe it is important that our
viewers can be confident that they know in advance whether
programmes will be suitable for them or their family. To minimise
the risk of offence, we give pre-transmission on-air
announcements where appropriate. We have a duty office
which deals with any issues that our viewers may have.
In addition viewers may raise concerns directly with Ofcom
and the Advertising Standards Authority. As we develop new
media and interactive services, particularly online, we conduct
rigorous market testing with consumers and other key
stakeholders to ensure our products serve consumers well.
By delivering the kind of quality service our viewers and
consumers demand, we ensure that we are creating a product our
advertisers want to advertise around. Our relationship with our
advertising community represents one of the most important
aspects of our ability to drive value in the Company’s operations.
We have a large team which manages the relationships with
advertisers through our partnership programme by identifying
where longer term relationships are possible and by developing a
closer understanding of our customers’ needs.
ITV conducts business with a range of suppliers. As a broadcaster,
ITV commissions programmes from a number of external
production companies. ITV continues to commission from
producers in line with a Code of Practice which is subject to
regulation by Ofcom and is the result of discussions with the
independent producers’ body PACT. ITV believes that its terms
are considered fair and reasonable by market participants.
Directly and via such producers, ITV contracts with suppliers of
premium rate services. Following issues relating to PRS described
elsewhere in this report, ITV has taken steps to ensure that
services offered by such suppliers are of appropriate quality and
reliability going forward. In some instances ITV and related
companies have ceased to work with individual suppliers because
of issues relating to the level of service provided.
A number of suppliers provide ITV with services relating to the
broadcasting of ITV channels on multiple platforms, including
transmission operator Arqiva, satellite operator SES Astra and
satellite platform operator Sky. During the year ITV confirmed
a long term contract with Arqiva to provide for digital switchover
between 2008 and 2012. This contract will involve ITV working
very closely with the company for the duration of the switchover
process and well beyond.
ITV has a procurement department to deal with many of our
major suppliers and to ensure that we do business with them in a
consistent and appropriate manner.
Report and accounts 2007 ITV plc 41
k
People
The recruitment, retention and development of ITV’s
employees continues to be one of the highest priorities for
the organisation. We are building the capability within our
workforce to deliver our corporate strategy through clear
personal objectives, alignment to the ITV values, well
structured development opportunities, clear succession
planning and aligned incentives.
ITV is represented at Board level on Skillset, the industry sector
skills council and contributes to both its core funding and the
freelance training fund. ITV’s representation in Skillset ensures
that we have influence on the training strategy for the wider
broadcasting industry including higher and further education.
Incentives
At the heart of delivering our business strategy is the ability to
attract, retain and motivate the best talent to work at ITV. To do
this ITV aims to offer all employees a competitive and attractive
package of pay, benefits and incentives. In 2007, to improve
employees’ understanding of the full range of rewards (financial
and non-financial) they can enjoy as an ITV employee, we issued
all employees with a total reward statement.
Attracting the best talent, from diverse backgrounds, is an
essential part of our strategy. The itvjobs.com website provides
clear and simple access to ITV vacancies together with rich and
engaging information about our values, culture and working in the
television industry together with career advice and case studies.
The site has attracted over 16,000 applications in 2007. All new
starters have immediate access to induction programmes and an
online employee toolkit that helps to ensure their contribution to
the organisation starts as quickly as possible.
Development
The ITV management community has, on average, ten years
service with the Company and our aim is that 75% of
management posts are filled through internal promotions.
We remain committed to developing the capability of ITV
staff and in 2007 we completed formal succession planning
for all senior management roles as the basis for an annual
succession planning and performance management timetable
reviewed regularly by the ITV Board.
Our portfolio of training programmes continues to focus on the
core skills of Production, Journalism, Leadership and Personal
Development. In 2007 over 5,800 training sessions were provided
to our staff. As part of the operational changes arising from PRS
issues, our portfolio of Compliance and Trust training has been
reviewed and modified. The revised portfolio is now being rolled
out across ITV and has mandatory elements for all new starters
and all production and editorial staff.
We have increased our investment in new entrant trainee
schemes which continue to deliver fresh and capable talent
into our Production and News groups. A new, 12 month
Fast Track Scheme for people at the start of their careers has
been launched to enable successful applicants to work across
all aspects of the Company as a springboard for their future.
This high profile scheme demonstrates ITV’s commitment
to developing junior staff with potential and emphasises the
importance of company- wide collaboration.
42 ITV plc Report and accounts 2007
Business review People
Aligning all ITV employees with the Turnaround strategy through
incentives, and giving them a chance to share in the success
of ITV, is critical and is being achieved in a number of ways.
We operate an annual bonus scheme for all ITV employees,
which is dependent on ITV’s performance against key financial
targets. In addition, and specifically to support the Turnaround
strategy, the following incentive schemes have been introduced:
– A long term incentive plan which could deliver value to all our
employees, if ITV achieves its key long term strategic targets
in the run-up to digital switchover.
– ITV’s Prime Mover scheme has been relaunched as Create.
This scheme now rewards any employee for new ideas that
generate profit or improves the way ITV does business.
This scheme now encourages employees to develop ideas,
not just programme ideas, which have the potential to be
exploited in a variety of ways.
– To reinforce the need for the right culture and behaviours across
ITV to deliver the Turnaround strategy, the 2008 bonus targets
for all of our senior managers include a significant element
covering cultural impact and ITV values.
In addition, ITV continues to operate a Sharesave scheme which
gives all employees the chance to save to own a stake in the
Company.
In light of ITV’s strategy for the next few years, annual pay
reviews are being managed to strike a balance between cost-
management and giving employees a sense of security through
challenging commercial times. In this context, we have agreed a
two year pay deal with our recognised unions for 2008 and 2009.
Diversity
ITV’s Diversity Policy aims to ensure equality of opportunity in
both recruitment and retention to support the best content
creation and the most innovative approach to business
development. ITV consistently reports on-screen portrayal
performance for both news and network productions. The
Company is an active participant in the major diversity forums
whose focus is the employment and development of minority
groups – Opportunity Now, the Employers’ Forum on Disability
and the Broadcasters’ Disability Network.
Communication
ITV believes we are more likely to attract and keep talented
employees if our own communication reflects a collaborative
and open corporate culture. In 2007, we introduced blogs,
podcasting and regional online pages to complement existing
social networking opportunities. We also increased the amount
of face-to-face contact between new executive team members
and employees in local “Town Hall” events. The results of a
culture survey carried out in October 2007 showed a marked
improvement in awareness of the Company’s strategy and
direction. We were also delighted to be awarded the
Communicators in Business 2007 Award for Corporate
Responsibility and Award of Excellence for the ITV intranet
and to be highly commended in PR Week’s 2007 awards.
Financial review
Statutory results for the year ended
31 December 2007
Total revenue for the year ended 31 December 2007 was 5%
lower at £2,082 million (2006: £2,181 million). Operating profit
decreased to £192 million (2006: £264 million) with operating
profit before amortisation and exceptional items down 17% at
£311 million (2006: £375 million).
Our reportable segments have been redefined in 2007 following
the adoption of IFRS 8, with 2006 numbers restated as
appropriate.
Broadcasting revenue
Broadcasting EBITA
Global content revenue
Global content EBITA
Online revenue
Online EBITA
Other revenue
Other EBITA
Total revenue
Total EBITA
2007
£m
1,738
244
244
90
33
(12)
67
(11)
2,082
311
2006
£m
1,797
296
281
88
23
1
80
(10)
2,181
375
Change
£m
(59)
(52)
(37)
2
10
(13)
(13)
(1)
(99)
(64)
Note: EBITA is stated before operating exceptional items.
The table above includes the revenue of disposed businesses
(021 and Granada Learning) of £8 million in 2006 within the
“Other” Segment. These businesses were sold in 2006.
Broadcasting
Broadcasting revenues
Broadcasting revenues comprise NAR, sponsorship income,
interactive revenues (PRS and Red Button), ITV Play, SDN and
other revenues.
Total ITV plc NAR decreased by 0.3% during the year to
£1,489 million (2006: £1,494 million).
ITV1
Multichannel NAR
GMTV
ITV plc NAR
2007
£m
1,224
209
56
1,489
2006
£m
1,281
157
56
1,494
Change
£m
(57)
52
–
(5)
ITV1’s NAR in the year was £1,224 million (2006: £1,281 million),
£57 million lower than 2006. This reduction was almost offset by
the strong performance of ITV2, ITV3 and ITV4 which, together
with Men and Motors and Citv, contributed 33% year-on-year
growth of £52 million, resulting in total NAR of £209 million
(2006: £157 million) across these channels.
ITV’s NAR is a function of audience share which is measured in
terms of commercial impacts, prevailing advertising market
conditions and television’s share of that market.
Report and accounts 2007 ITV plc 43
Report and accounts 2007 ITV plc 43
k
2007 was a good year for the television advertising market,
with growth of 3.1% compared to a decline of 4.9% in 2006.
The decrease of 4.4% in ITV1’s NAR was a significantly better
performance than in the prior year and was achieved despite the
considerable effect of CRR following the 10.5% decline in ITV1
SOCI in 2006. ITV1 adult SOCI declined just 3.3% to 32.0% in 2007.
In 2007, ITV family’s adult SOCI on UK television was 41.7%
(2006: 42.2%).
Sponsorship income increased by 6% in 2007 to £56 million
(2006: £53 million) due to price increases as the cost of
sponsorship moves closer to airtime value and also the successful
sponsorship of new programmes and events, such as the 2007
Rugby World Cup.
SDN revenues grew strongly in the year, increasing by 44% in
2007 to £36 million (2006: £25 million).
Other broadcasting revenues of £157 million (2006: £225 million)
include airtime sales on behalf of third-parties, sales of ITV
programming by the ITV Network Centre to Channel 3 licences
not owned by ITV and ITV Play and interactive transactions
including those from GMTV. Revenues were lower than in the prior
year largely because of the significant reduction in PRS revenues.
Broadcasting schedule costs
Total ITV schedule costs increased by £17 million in 2007 to
£1,087 million (2006: £1,070 million). This breaks down as follows:
ITV1
Regional news and non-news
Total ITV1 costs
ITV2, ITV3, ITV4, Citv, M&M
GMTV
Total schedule costs
2007
£m
837
114
951
101
35
1,087
2006
£m
840
119
959
75
36
1,070
Change
£m
(3)
(5)
(8)
26
(1)
17
Licence fees
Licence fees comprise both a fixed annual sum (the cash bid) and
a variable element representing a percentage of the Group’s ITV1
and GMTV NAR and sponsorship income (PQR Levy). The PQR
Levy is reduced by the percentage of homes which receive ITV1
in digital format. The digital licence rebate for 2007 is calculated
on a weighted average digital penetration of 78% (2006: 70%).
Cash bid payment
PQR Levy
Digital rebate
Total
2007
£m
4
180
(140)
44
2006
£m
4
187
(140)
51
Change
£m
–
(7)
–
(7)
The payment will continue to fall as digital penetration increases.
In 2006 the digital rebate includes £6 million relating to the
agreement of prior year returns with Ofcom.
Broadcasting EBITA
The Broadcasting segment EBITA before exceptional items for
2007 fell by £52 million to £244 million (2006: £296 million).
This was primarily due to a decline in ITV1 NAR reflecting 2006
on-screen performance, PRS issues and increased investment in
digital channels.
44 ITV plc Report and accounts 2007
Business review Financial review
Global Content
Global Content revenues
Production for other broadcasters
Distribution and exploitation
Resources
External revenues
Internal revenues
Total Global Content revenues
2007
£m
111
114
19
244
320
564
2006
£m
138
123
20
281
351
632
Change
£m
(27)
(9)
(1)
(37)
(31)
(68)
The table above includes revenues from 12 Yard, acquired in
December 2007 and Jaffe/Braunstein Entertainment, acquired
in May 2007. These totalled £7 million.
Global content revenue includes original productions for the UK
and international markets, the distribution and exploitation
of internally generated and acquired rights, and studios and
facilities revenue.
Programming made by ITV Productions for ITV channels is not
included in the reported total revenue as it represents an internal
programming cost of sale and in 2007 this internal programming
amounted to £320 million of ITV network programme spend
(2006: £351 million).
In 2007, total external sales of £244 million (2006: £281 million)
included original productions for other broadcasters of £111
million (2006: £138 million), distribution and exploitation sales of
£114 million (2006: £123 million) and revenue from the hire of
studio and technical facilities of £19 million (2006: £20 million).
The fall in revenues was partly due to the refreshment of the ITV1
schedule which led to the ceasing of production of eight ITV
Productions shows and the termination of children’s production.
Personnel issues also temporarily affected drama commissions.
Global Content profits were maintained in 2007 at £90 million
(2006: £88 million).
Online
Online revenues continued to grow in 2007 and totalled
£33 million for the year (2006: £23 million). This is made up
of the following revenue streams:
itv.com and other*
Friends Reunited
Total Online revenues
2007
£m
11
22
33
2006
£m
7
16
23
Change
£m
4
6
10
* includes itvlocal.com, ITV Mobile and other revenues.
Revenues increased by 44% in the year, with major contributions
from Friends Reunited and itvlocal.com. Online 2007 EBITA before
exceptional items fell to a £12 million loss (2006: £1 million profit)
due to the set up costs of relaunching itv.com and the full roll out
of itvlocal.com nationally.
Other
Revenues from outside of the main segments for 2007 were
revenues from Carlton Screen Advertising (CSA) of £67 million
(2006: £72 million). In 2006, £8 million of revenue was earned
from Granada Learning and 021. In 2007 CSA EBITA contribution
was a loss of £11 million due to a decline in cinema advertising
revenues and high minimum guarantee payments (2006: loss
of £10 million, including a £3 million loss from Granada Learning).
Exceptional items
The operating exceptional items in the year total £35 million
and include £18 million relating to PRS fines and reimbursements
costs, £9 million CSA onerous contract provision as a result of
falling revenues and minimum guarantee commitments and
£8 million reorganisation and integration costs relating to the
efficiency programme referred to on page 29.
Net financing costs
Financing income
Interest income on bank deposits
Expected return on defined benefit
pension plan scheme assets
Change in fair value of financial liabilities
designated at fair value through profit or loss
Foreign exchange gain
Other interest receivable
Financing costs
Interest expense on financial liabilities
measured at amortised cost
Change in fair value of financial liabilities
designated at fair value through profit or loss
Foreign exchange loss
Interest on defined benefit pension
plan obligations
Other interest expense
Net financing costs
2007
£m
30
152
14
–
4
200
2007
£m
(54)
–
(42)
(134)
(3)
(233)
(33)
2006
£m
20
144
–
4
2
170
2006
£m
(35)
(31)
–
(126)
(4)
(196)
(26)
The increase in net financing costs is primarily due to the full year
impact of the £250 million and €500 million bonds issued in
October 2006, partially offset by fair value gains on interest rate
swaps. These gains include £42 million of cross-currency swap
movements which offset the foreign exchange loss on the €356
million and €500 million bonds.
Report and accounts 2007 ITV plc 45
k
Investment income
Earnings per share
Investment income of £1 million comprises dividend income
from our holding in SMG plc. The 2006 £3 million of income also
included dividends from our former holding in Seven Network in
Australia.
Gain on sale of properties
The £9 million gain on sale of properties in the year principally
arose from the sale of properties in Southampton, Birmingham
and Newbury.
Gain on sales of non-current assets and investments
During the year the disposal of non-core businesses and
investments resulted in a gain of £43 million. The sale of the
investment in Liverpool Football Club and Athletic Grounds plc
resulted in a gain of £7 million. The sale of the Group’s
investment in Arsenal Holdings plc, along with an option over
the Group’s 50% interest in Arsenal Broadband Ltd, resulted in
a gain of £28 million. Negotiations for the sale of Arsenal
Broadband Ltd are continuing. A profit on sale of £5 million
was obtained from the sale of ITFC and £3 million from the
disposal of our investment in MUTV. In addition to the above, the
Group also disposed of certain assets connected to a transmission
outsourcing arrangement for £4 million resulting in a nil gain or
loss being booked.
Offsetting these disposal profits is a £26 million impairment
relating to our holding in SMG plc which has experienced a
significant decline in its share price since October 2007.
Tax
The effective rate of tax on profit before tax is 27%.
The underlying rate of tax on operating profits is 31% as
shown below.
Underlying rate of tax
Operating profit before exceptional items,
amortisation and share of profits of
joint ventures and associates
– Profit before tax as reported
– Exceptional items (net)
– Amortisation
– Share of profits of joint ventures and associates
Underlying tax charge
– Tax charge as reported
– Net credit for exceptional items
– Credit in respect of amortisation
– Credit in respect of prior period items
Underlying rate of tax
£m
188
9
84
(2)
279
50
6
19
11
86
31%
Basic earnings per share are 3.5 pence (2006: 5.5 pence). Adjusted
basic earnings per share before exceptional items, amortisation
and tax adjustments are 5.0 pence (2006: 6.3 pence).
Dividend
The Board is proposing a final dividend of 1.8 pence per share
which is unchanged on the 2006 dividend. The total dividend
proposed for the period is therefore 3.15 pence which is flat
year-on-year and is covered 1.6 times by the adjusted basic
earnings per share (before exceptional items, amortisation
and tax adjustments) of 5.0 pence.
Intangible assets
Total intangible assets at 31 December 2007 are £3,873 million
(2006: £3,895 million) being principally goodwill and acquired
intangible assets. Goodwill balances are not amortised but are
instead subject to annual impairment testing. Other intangible
assets are amortised over their useful lives. An impairment charge
of £28 million has been recognised in 2007 relating to CSA as a
result of falling revenues and minimum guarantee commitments.
£20 million of the impairment relates to goodwill and the
remaining £8 million to other intangible assets. The total
amortisation charge for the year including the CSA impairment
is £84 million (2006: £76 million). The goodwill and intangible
asset additions in the year principally relate to the acquisitions
of 12 Yard and Jaffe/Braunstein Entertainment and capitalised
software development costs.
Cash flow and net debt
The cash generated from operations was £286 million
(2006: £342 million) and was down on the prior period due to
a £64 million decrease in operating profit before exceptional
items and amortisation and a working capital outflow of
£29 million versus an outflow of £36 million in 2006.
The 2007 working capital outflow was primarily due to
payments for acquired US films and series.
Net cash interest paid on the Group’s net debt position was
£62 million. Net tax receipts of £18 million reflect taxation
repayments from prior periods more than offsetting payments
made relating to the current period. The equity dividends
paid comprise the 2006 interim and final dividends of
£52 million and £70 million respectively. Expenditure on plant,
property, equipment and intangible assets totalled £59 million.
This included the investment in our new itv.com site. During the
year the Group acquired 12 Yard for an initial net cash
consideration of £26 million and a 51% share in Jaffe/Braunstein
Entertainment for £3 million. Loans granted to associates
and joint ventures include loans to Freesat, ITN and Mammoth.
46 ITV plc Report and accounts 2007
Business review Financial review
Proceeds from the sale of assets held for sale of £94 million, sale
of subsidiaries (net of cash disposed) of £5 million and sale of
property, plant and equipment of £4 million are from the disposal
of the following assets:
Liverpool Football Club and Athletic Grounds plc
Arsenal Holdings plc and an option over the Group’s
investment in Arsenal Broadband Limited
MUTV Limited
Properties
Transmission assets
Assets held for sale
Independent Television Facilities Centre Limited
Sale of subsidiaries (net of cash disposed)
Properties
Sale of property, plant and equipment
Total proceeds
£m
17
50
3
20
4
94
5
5
4
4
103
The principal movements in net debt in the year are shown in the
table below:
Net debt at 31 December 2006
Cash generated from operations
Net interest paid
Taxation net receipts
Equity dividends paid
Expenditure on property, plant,
equipment and intangible assets
Acquisitions of subsidiaries (net of cash)
Loans granted to associates and joint ventures
Proceeds from assets held for sale, property,
plant and equipment and sale of subsidiaries
Other movements
Defined benefit pension deficit funding
Net debt at 31 December 2007
£m
286
(62)
18
(122)
(59)
(29)
(10)
103
(26)
£m
(734)
99
(33)
(668)
During the year, a €356 million exchangeable bond and a
£200 million Eurobond matured resulting in a combined cash
outflow of £441 million.
Treasury operations and policies
A central department in London manages the Group’s treasury
operations, following policies and procedures laid down by the
Board. The most significant treasury exposures faced by ITV are
raising finance, managing interest rate and currency positions
and investing surplus cash in high quality assets. Treasury policies
have been approved by the Board for managing each of these
exposures including levels of authority on the type and use of
financial instruments. Transactions are only undertaken if they
relate to underlying exposures. The treasury department reports
regularly to the Audit Committee and treasury operations are
subject to periodic independent reviews and internal audit.
ITV has established and retains strong relationships with a
number of banks to ensure a balanced spread of risk and to
facilitate future funding requirements.
Set out below are ITV’s principal treasury policies:
– Financing: ITV’s financing policy is to fund itself long term using
debt instruments with a range of maturities. It is substantially
funded from the UK and European capital markets and has bank
facilities from the UK syndicated debt market;
– Interest rate management: the Group’s interest rate policy is
to have fixed interest rate debt of between 50% and 70% of
its total net indebtedness at fixed rates over the medium term
in order to provide a balance between certainty of cost and
benefit from low floating rates. ITV uses interest rate swaps
and options in order to achieve the desired mix between fixed
and floating;
– Currency management: the Group’s foreign exchange policy
is to hedge foreign currency-denominated costs at the time
of commitment and to hedge a proportion of foreign
currency denominated revenues on a rolling twelve month
basis. The policies significantly reduce the Group’s earnings
and balance sheet exposures to changes in exchange rates;
– Investment in cash: ITV operates strict investment guidelines
with respect to surplus cash and the emphasis is on preservation
of capital. Counterparty limits for cash deposits are largely based
upon long term ratings published by the major credit rating
agencies. Deposits longer than three months require the
approval of the Management Committee of the Board.
Report and accounts 2007 ITV plc 47
k
Pensions
The Group’s pension schemes are run independently by the
schemes’ trustees. All pension scheme assets are administered
separately by the trustees using a number of external fund
managers and custodians.
Defined contribution scheme arrangements are offered to all new
joiners and a choice of investment styles is available to them.
Defined benefit schemes are funded on a long term basis with
advice from the scheme actuaries. Actuarial valuations of the
assets and liabilities of the defined benefit schemes (upon which
funding is based) are carried out by the trustees at least every
three years. The main defined benefit scheme is divided into
three segregated sections: A, B and C.
1. Actuarial valuations
Actuarial valuations of sections B and C of the main defined
benefit scheme were carried out as at 1 January 2007 and, on
the bases adopted by the trustees, both were in surplus with a
combined surplus of £23 million or 5% of the liabilities in those
sections. An actuarial valuation of section A of the main defined
benefit scheme is due as at 1 January 2008 and the trustees and
actuary are currently working on that.
2. Deficit funding
The Group is currently making deficit funding payments
into section A of the main defined benefit scheme. In 2007 an
amount of £33 million was paid by group companies as such
deficit funding. No deficit funding payments are currently being
paid into either section B or C of the main defined benefit
scheme. When the actuarial valuation of section A of the main
defined benefit scheme has been completed, the Company and
trustees will discuss the terms of any recovery plan that may be
appropriate, including the amount and timing of any future
deficit funding.
3. IAS 19
The Group’s defined contribution schemes gave rise to an
operating charge in 2007 of £3 million (2006: £2 million).
IAS 19 accounting for the Group’s defined benefit schemes values
the annual cost and the assets and liabilities of the schemes on
disclosed bases, and includes these values in the Consolidated
income statement and Consolidated balance sheet. In 2007 the
IAS 19 operating charge for defined benefit schemes was £15
million (2006: £25 million). The excess of the expected return on
scheme assets, less the interest cost on liabilities, gave rise to a
net financing credit of £18 million (2006: £18 million). The
aggregate IAS 19 deficit on defined benefit schemes at
31 December 2007 was £112 million (2006: £285 million).
The reduction in the IAS 19 deficit during the year was the result
principally of an increase in the discount rate applied upon valuing
scheme liabilities. An actuarial gain of £111 million has been
recognised as a credit to reserves in the consolidated statement
of recognised income and expense.
4. Defined benefit accruals
The Group’s defined benefit schemes are closed to new members.
There have been historically a variety of accrual rates and normal
pensionable ages for various groups of defined benefit scheme
members, depending upon the separate schemes that they
were originally members of and which are now merged into the
Group’s main defined benefit scheme. During 2007, and following
a major staff consultation process, the principal accrual factors
were standardised and this was the principal reason behind the
reduced IAS 19 operating charge referred to above. The changed
factors are:
• Accrual rate 1⁄60 pa (previously mainly 1⁄50);
• Normal pensionable age 63 (previously mainly 60);
• Employee contribution rate to rise to 8% (previously mainly 5%).
5. Mortality assumptions
A topical issue for defined benefit pension schemes is mortality
risk. In 2004 the Trustees of the ITV Pension Scheme conducted
an in-depth analysis of the actual mortality experience of the
Scheme. That analysis was updated in 2007 with similar results.
The mortality factors that the Group has used for its IAS 19
valuation are similar to those used by the Trustees for their
valuation work and reflect that analysis of the actual mortality
experience. Continued longevity improvement is assumed up to
2020 for current pensioners and up to 2035 for other members.
The forecast for life expectancy for a 65 year-old member based
upon these factors is:
Current pensioners
Other members
Men
84.8
85.8
Women
87.8
88.7
The Group and Trustees will continue to review the mortality
assumptions based upon both actual experience in the scheme
and the guidance of the actuarial profession including the
consultation launched by the Pensions Regulator in February 2008.
6. Trustees’ investment strategy
The Trustees have been and are continuing to review the
investment strategy for the main defined benefit scheme.
This has involved the use of derivative instruments to hedge
partial exposures to movements in interest rates, inflation and
foreign exchange rates and may involve further changes to
the asset allocations.
International Financial Reporting Standards
The Group has adopted International Financial Reporting
Standards as adopted by the EU. The parent Company financial
statements continue to be presented under UK GAAP. They have
been included in this report after the results of the consolidated
group.
In Broadcasting, we estimate that for the first quarter of 2008
ITV plc’s total television advertising revenue will be up 1.9% at
£357 million, with ITV1 advertising down 0.5% at £290 million.
The total television market we estimate will be down around
0.7% over the same period. For the first time in several years ITV
is outperforming the total television market, reflecting our strong
performance on-screen last year and into 2008, together with the
increasing confidence of advertisers in ITV.
Having been created in late 2007, ITV’s new Global Content
segment has made promising early progress, both in the UK
market and internationally, with a high volume of exciting
productions on-screen, in production or being developed. 2008
will also see significant developments in terms of Online, notably
the launch of the broadband archive service with BBC Worldwide
and Channel 4 and the development of Friends Reunited, building
on its success to date. During the year, we also expect to take an
active role in the launch of a Freesat service with the BBC and the
development of free-to-air high definition television services.
In a rapidly changing market of tremendous challenge and
opportunity, control and exploitation of content – across UK
television, in other territories and via other media – represents
the key to the Company’s turnaround.
48 ITV plc Report and accounts 2007
Business review
Forward look
This Business review has detailed how ITV is implementing its
Turnaround strategy with the aim of delivering sustainable
growth in terms of revenues and earnings. Over the next five
years, we aim to achieve stretching targets for each of our core
business segments. In Broadcasting, we are targeting a share of
commercial impacts across the ITV family of channels in excess
of 38.5% in 2012. Over the same period, we are targeting Global
Content annual revenues growing to £1.2 billion. We aim to
generate £150 million in annual revenues in Online by 2010.
Across the Company as a whole, we are seeking to deliver annual
compound annual revenue growth of between 3–5% to 2010,
then rising to 5% to 2012.
The strategy is ambitious, but we believe achievable in a
rapidly changing market context. 2008 will see some critical
developments for the UK media sector in general and for
ITV in particular.
The process of digital switchover will get fully underway later
this year, following last year’s first pilot. The ITV Border region
will start the switch, completing the process in 2009. Although
digital switchover is upon us, the pace of digital take up is actually
slowing, with over 85% of UK homes already having made the
transition. To this extent the digital fragmentation effect on ITV1
viewing in particular should continue to ease.
The Ofcom second review of public service broadcasting will run
throughout 2008. ITV has set out its plans for modernising its
regional news services in 2009, which Ofcom will consider.
But there are also much wider questions about sustaining
commercial public service broadcasting – across ITV and
Channel 4 – in the digital age. The Government has confirmed
its own intention to review public service broadcasting, building
on Ofcom’s work, and it is possible that this could lead to further
broadcasting legislation around the end of this decade.
A separate regulatory review of the CRR mechanism is being
undertaken by the OFT, working with Ofcom. The review process
is expected to run into 2009, allowing any recommendations
to take effect for the trading round for 2010. The market has
changed markedly since CRR was introduced in 2003. There is
more competition between TV and different media, but the
value of the mass audience delivered by ITV1 is perhaps greater
than ever. ITV will participate actively in the review and looks
forward to an outcome which maximises its ability to invest in
programming to deliver UK advertisers the mass audiences that
they demand.
Glossary of terms
3G – third generation mobile phone network capable of transmitting high
data levels including video
Analogue television – UK terrestrial television broadcasting format supporting
five channels (BBC1, BBC2, ITV1, Channel 4 and five)
BARB – Broadcasters’ Audience Research Board – owned by broadcasters and
advertisers and providing data on viewing statistics in UK households
Cable – cable television – often also providing telephony and broadband
internet services
Catch-up channel – a channel transmitted usually with a one hour delay, and
showing identical programmes to a main channel eg ITV2+1
Channel 3 (licences) – the 15 regional licences and one national licence awarded
to transmit Channel 3 across the UK. Eleven of the regional licences are held by the
ITV Group. ITV also owns 75% of the national licence GMTV
Combined Code – the Combined Code on corporate governance published by
the Financial Reporting Council
Commitment – proportion of people who said that any of the ITV channels were
either their favourite channel or one of their favourite channels
Communications Act 2003 – the Act of Parliament under which the majority of
UK television broadcasting is governed
Contract Rights Renewal (CRR) – the remedy agreed by Carlton, Granada and ITV
in 2003 as a precondition of the merger of Carlton and Granada and which governs
the way in which ITV1 airtime is sold by ITV to its advertising customers
Corporate Responsibility (CR) – term used to cover all areas of responsible
behaviour by companies including ethical behaviour, corporate governance
and environmental impact
Cross Promotion – information given about programming on a channel by
other channels in the same family, either by on air announcement or specific
programme trailers
Defined benefit pension scheme – a pension scheme for employees under which
the ultimate pension benefit is usually related to salary, either at date of
retirement/leaving or at date of accrual
Defined contribution pension scheme – a pension scheme for employees under
which the ultimate pension is usually related to the contributions paid into the
scheme by employee and employer and to the investment returns earned on
such contributions up to retirement
Dow Jones Sustainability Index – an index compiled by Dow Jones based upon
CR measures assessed by them
Digital Switch Over (DSO) – the point at which the UK terrestrial analogue
transmissions will cease and DTT will take over – planned to be a rolling
programme by region across the UK finishing in 2012
Digital Terrestrial Television (DTT) – the digital transmission system (currently
comprising six multiplexes each capable of transmitting between six and ten
television channels), that is often referred to as Freeview, will fully replace analogue
transmissions at DSO
Freesat – a platform broadcasting digital channels by satellite accessible to
viewers without paying a subscription.
Freeview – the name by which UK digital terrestrial television is often known
High Definition/HD Services – channels or services broadcast in substantially
higher resolution than standard, providing improved picture quality
Report and accounts 2007 ITV plc 49
k
Impact or commercial impact – one advertising impact is one viewer watching
one 30 second commercial (usually referred to as rate card weighted and relating
to a specific demographic group). Unless otherwise stated, commercial impact
figures cited throughout this report refer to adult commercial impacts based on
BARB data.
ITFC – Independent Television Facilities Centre Limited
ITV1 adult SOCI – SOCI for the adult demographic delivered on ITV1
Net Advertising Revenue (NAR) – the amount of money received by the
broadcaster as payment for spot advertising net of any commission paid
Ofcom – the regulator established to govern UK broadcasting as well as other
areas of the media and telephony industry
OFT – the Office of Fair Trading is the UK’s principal competition regulator
Peak-time – the evening period of heaviest television viewing activity normally
between 7.00 pm and 10.30 pm
PVRs – personal video recorders are machines able to record broadcast television
programmes to a storage medium (usually a hard disk) from which it can be
played back to a television, rewound/fast forwarded or paused and then continued
Product placement – product placement is the inclusion of, or reference to, a
product or service within a programme in return for payment or other valuable
consideration to the programme maker or broadcaster
PRS – premium rate services – usally a telephone number charging a higher rate
than normal local calls and often used by television channels for participation
TV and quizzes. PRS may be accessed via the red button on a TV remote control
Public Service Broadcasting (PSB) – the considerable requirements
placed on certain broadcasters including obligations to transmit particular
material which may not be wholly commercial (eg religion and current affairs)
within their schedules
Rate-card – in relation to ITV1, the comparative pricing for advertisements of
different time duration (where the comparative price may not be directly
proportionate to duration)
Share of Broadcast (SOB) – the term used to define the share of total
UK television advertising revenue which is taken by one channel or group
of channels
Share Of Commercial Impacts (SOCI) – the term used to define the share of
total UK television commercial impacts which is delivered by one channel or
group of channels. Unless otherwise stated, SOCI figures cited throughout this
report refer to share of adult commercial impacts based on BARB data.
Share of viewing / audience share – the share of the total viewing audience
during a defined period (for example, for a slot, hour, peak-time or full calendar
year) gained by a programme or channel. Unless otherwise stated, audience share
figures cited throughout this report refer to share of viewing for all individuals
based on BARB data
Spontaneous Consideration – proportion of people who said that ITV1 was
a channel they would consider watching when they sat down to watch TV
Weighted Impacts/Messages – impacts can be weighted to take account
of differing commercial durations. Weighted impacts are usually reported as
“30 second equivalents”, where each commercial length is given a weighting
value relative to a 30 second commercial
50 ITV plc Report and accounts 2007
Governance
Board of Directors
Sir James Crosby
Position: Senior independent director
Appointment to the Board: 3 December 2003,
appointed to the board of Granada in 2002
Age: 51 (14 March 1956)
Committee membership: Remuneration, Nomination
(Chairman)
External appointments: Senior independent director
of Compass Group PLC (2007). Deputy chairman of the
Financial Services Authority (2007)
Previous experience: Chief executive of HBOS plc
(1999–2006)
Qualifications: FFA, BA
Dawn Airey
Position: Managing Director of Global Content
Appointment to the Board: 28 February 2008, joined
the Group in 2007
Age: 47 (15 November 1960)
Committee Membership: Management
External Appointments: Non executive director
of Easyjet plc (2004). Director of the Community Channel
(2004), the Media Trust (2004) and the British Library
(2007)
Previous Experience: Managing director, Channels and
Services, Sky (2006–2007). Managing director, Sky
Networks (2003–2006). Joined Central TV in 1985 as a
management trainee then director of Programme
Planning (1989–1993). Controller of Children’s and
Daytime Programmes, ITV Network Centre (1993–1994)
and Controller of Arts and Entertainment, Channel 4
(1994 – 1996). Director of Programmes, Channel 5 (1996
– 2000) and chief executive (2000 – 2003)
Qualifications: MA
Mike Clasper CBE
Position: Non-executive director
Appointment to the Board: 3 January 2006
Age: 54 (21 April 1953)
Committee membership: Audit (Chairman), Nomination
External appointments: Member of the Investor Board
of EMI Group (2007). Operational managing director of
Terra Firma (2008). Chairman of the West London
Consortium and of the Marketplace Impact Taskforce
of Business in the Community. Founder member of the
Corporate Leaders Group on Climate Change. Member
of the National Employment Panel
Previous experience: Chief executive of BAA plc
(2003–2006), deputy chief executive BAA plc
(2001–2003). President of Global Home Care,
Procter & Gamble (1999–2001)
Qualifications: MA
John Cresswell
Position: Chief Operating Officer and Finance Director
Appointment to the Board: 16 January 2006, joined
the Group in 2000
Age: 46 (2 May 1961)
Committee membership: Management
Previous experience: Non-executive director of
The Liverpool Football Club and Athletic Grounds plc
(2003–2007). Finance director Meridian Broadcasting
Limited (1993–1995), finance director United
Broadcasting and Entertainment Limited (1996–1998)
and chief operating officer (1998–2000). Director of
operations Granada Content (2000–2001), chief
operating officer and finance director Granada Content
(2001–2004) and chief operating officer, Granada and
ITV plc (2004–2006)
Qualifications: BSc, ACA
Michael Grade CBE
Position: Executive Chairman
Appointment to the Board: 8 January 2007
Age: 64 (8 March 1943)
Committee membership: Management
External appointments: Non-executive chairman of
Pinewood Shepperton plc (2000) and Ocado Limited
(2006). Non-executive director of Charlton Athletic plc
(1997). Trustee of the David Lean BAFTA Foundation
(2005). Director of The International Academy of
Television Arts and Sciences (2007)
Previous experience: Chairman of the BBC (2004–2006).
Non-executive chairman of Hemscott plc (2000–2006).
Non-executive director of SMG plc (2003–2004), Camelot
Group plc (2000–2004) and Leisure & Media VCT plc
(2001–2004). Chairman and Chief Executive of First
Leisure plc (1997–1999). Chief executive of Channel 4
(1988–1997). Director of programmes then managing
director, Television (Designate) BBC (1986–1988),
Controller of BBC1 (1984–1986). President of Embassy
Television, USA (1981–1984). Director of programming,
London Weekend Television (1973–1981). Fellow of the
Royal Television Society and vice-president of BAFTA
Sir George Russell CBE
Position: Deputy Chairman
Appointment to the Board: 2 December 2003,
appointed to the board of Granada in 2002
Age: 72 (25 October 1935)
Committee membership: Audit, Nomination
External appointments: Director of The Wildfowl
and Wetlands Trust (2002) and chairman of the
Commission on Public Service Reform, North East (2007)
Previous experience: Chairman of 3i Group plc
(1992–2001), Northern Development Company
(1994–2002), Camelot Group plc (1995–2002),
Independent Broadcasting Authority and its successor,
the Independent Television Commission (1989–1996)
and Independent Television News Limited (1988–1989).
Deputy chairman of Channel 4 (1987–1989).
Non-executive director of Northern Rock plc (1996–2006).
Non-executive director of Taylor Woodrow (1992–2004).
Non-executive director of British Alcan Aluminium plc
(1997–2001) and chief executive (1982–1985). Chief
executive and then chairman of Marley plc (1986–1997)
Qualifications: BA
Report and accounts 2007 ITV plc 51
k
Rupert Howell
Position: Managing Director of ITV Brand and Commercial
Appointment to the Board: 28 February 2008, joined
the Group in 2007
Age: 51 (6 February 1957)
Committee Membership: Management
External Appointments: Director of the Advertising
Association (2007)
Previous Experience: Founded advertising agency Howell
Henry Chaldecott Lury (1987) which was sold to Chime
Communications plc where he became chief executive
(1997–2002). President, EMEA and chairman, UK and
Ireland Group of McCann Erickson UK Group Limited
(2003–2007), regional director, EMEA (2006–2007).
Director of the Institute of Practitioners in Advertising
(1992–2000), president (2000–2001). President of the
European Association of Communications Agencies
(2006–2007)
Qualifications: BSc Management Sciences, FIPA
Heather Killen
Position: Non-executive director
Appointment to the Board: 8 August 2007
Age: 49 (30 October 1958)
Committee membership: Remuneration, Nomination
External appointments: Partner of Hemisphere Capital
LLP and a director of Hemisphere Cap (UK) Limited (2002)
Previous experience: Non-executive director of
Tersus Energy plc (2006–2007). Senior vice president,
International Operations, (1999–2001), vice president
International (1998–1999), managing director, European
Operations (1996–1997) Yahoo! Inc. Director, European
Online Services, Ziff Davis Publishing Company
(1992–1996). Associate, Media and Telecommunications
Corporate Finance Group, Salomon Brothers, Inc
(1989–1992)
Qualifications: BA, MBA
John Ormerod
Position: Non-executive director
Appointment to the Board: 18 January 2008
Age: 59 (9 February 1949)
Committee membership: Audit, Nomination
External appointments: Non-executive director and
chairman of audit committee Computacenter plc (2007).
Senior independent director and chairman of audit
committee Misys plc (2005). Non-executive director and
chairman of audit committee Gemalto NV (2006).
Member of audit and retail risk control committees HBOS
plc (2004). Non-executive director of BMS Associates
Limited (2004); AMG (Holdco) Limited (2007); and Millen
Group Limited (2007). Trustee of The Roundhouse Trust
(2003) and The Design Museum (2006)
Previous experience: Chairman of Walbrook Group
(2004–2007). Chairman of audit committee Transport
for London (2004–2006). Practice senior partner, London,
Deloitte & Touche (2002–2004). Regional managing
partner, UK and Ireland and senior partner, UK, Arthur
Andersen (2001–2002). Held various positions within
Arthur Andersen from 1970
Qualifications: MA, FCA
Sir Brian Pitman
Position: Non-executive director
Appointment to the Board: 2 December 2003,
appointed to the board of Carlton in 1998
Age: 76 (13 December 1931)
Committee membership: Remuneration, Nomination
External appointments: Non-executive director of
The Carphone Warehouse Group PLC (2001), Singapore
Airlines Limited (2003), Virgin Atlantic Airways Limited
(2004), Virgin Atlantic Limited (2004) and Virgin Travel
Group Limited (2004). Director of Acturis Limited (2000)
and The White Ensign Association Limited (1999).
Senior adviser to Morgan Stanley (2001)
Previous experience: Chief executive of Lloyds TSB
Group plc (1983–1997) and chairman (1997–2000).
Non-executive chairman of Next Plc (1998–2002).
Non-executive director of UbiNetics Holdings Limited
(2002–2005) and Tomkins plc (2000–2007).
Qualifications: FCIB
Baroness Usha Prashar CBE
Position: Non-executive director
Appointment to the Board: 7 February 2005
Age: 59 (29 June 1948)
Committee membership: Remuneration (Chairman),
Nomination
External appointments: Chairman of the Judicial
Appointments commission (2005) and the Royal
Commonwealth Society (2002)
Previous experience: Chancellor of De Montfort
University (1996–2006). First Civil Service Commissioner
(2000–2005). Non-executive director of Unite Group plc
(2001–2004), Channel Four Television Corporation
(1992–1999). Chairman of the National Literacy
Trust (2000–2005). Member of the BBC Educational
Broadcasting Council (1987–1988), the Arts Council
of Great Britain (1994–1997) and the Council Royal
Holloway College London (1992–1997). Trustee of
BBC World Service Trust (2002–2005)
Qualifications: BA, Diploma in Social Administration
Agnès Touraine
Position: Non-executive director
Appointment to the Board: 8 August 2007
Age: 53 (18 February 1955)
Committee membership: Audit, Nomination
External appointments: Non-executive director of Cable
& Wireless plc (2005). President of Act III Consultants
Previous experience: Non-executive director of
Lastminute.com plc (2003–2005). Chairman and
chief executive of Vivendi Universal Publishing
(2001–2003). Chairman and chief executive of Havas
(2000–2001), and chief executive of Havas/Liris
Interactive (1998–2000), and chairman and chief
executive of Liris Interactive (1995–1998). Head
of Strategy and divisional CEO Lagardère Group
(1985–1995). Engagement manager and consultant
at McKinsey (1981–1985)
Qualifications: BA, MBA
52 ITV plc Report and accounts 2007
Directors’ report
The directors present their report together with the audited consolidated and parent company financial statements for the year ended 31 December
2007. The comparative period is for the year ended 31 December 2006.
Business review and results for the year
Under section 234 ZZB of the Companies Act 1985, the Company is required to produce a fair review of the business, including a description of the
principal risks and uncertainties facing the Company. This is set out in the Business Review on pages 18 to 49. The Business Review is incorporated
in this report by reference.
The results for the year are set out on page 57. Profit for the year after tax was £138 million (2006: £222 million).
Principal transactions and post balance sheet events
On 6 February 2007 the Company announced that it had given an irrevocable undertaking to sell its 9.99% holding in Liverpool Football Club
and Athletic Grounds plc. The offer for the shares went unconditional in May 2007 when the Company received a payment of £17 million.
On 5 April 2007 the Company announced that it had sold its 9.99% holding in Arsenal Holdings plc along with an option over its 50% interest
in Arsenal Broadband Limited for a total cash consideration of £50 million.
All disposals carried out in the year are part of the Group’s disposal programme of non-core assets that has been ongoing since the merger in 2004.
On 4 December 2007 the Company acquired independent production company 12 Yard for which it paid an initial cash consideration of £27 million
with a further consideration of up to £9 million payable contingent on future performance and the retention of key employees.
On 4 January 2007 the Company repaid an unsecured €356 million Exchangeable Bond and on 6 June 2007 repaid an unsecured £200 million
Eurobond at par.
Post balance sheet events are described in note 34 of these financial statements.
Dividends
A final dividend on the ordinary shares is proposed for the year ended 31 December 2007 of 1.8 pence per share payable on Tuesday 1 July 2008
to shareholders on the register at the close of business on Friday 18 April 2008. The shares will be quoted ex dividend from Wednesday 16 April 2008.
The total dividends paid and proposed for the year ended 31 December 2007 are therefore as follows:
Interim dividend
Final dividend
Total
2007
1.35p
1.80p
3.15p
2006
1.35p
1.80p
3.15p
The Dividend Reinvestment Plan is being offered to the holders of ordinary shares in respect of the final dividend and further information about the
Plan is given on page 114.
Substantial shareholdings
As at 5 March 2008 the Company had received notifications from the following companies and institutions of the voting interests of themselves and
their clients in 3% or more of the issued ordinary share capital (carrying rights to vote in all circumstances) of the Company (numbers of shares and
percentage interests are as at the notification dates).
Sky Holdings Ltd (a subsidiary of British Sky Broadcasting Group plc)
Brandes Investment Partners, L.P.
AXA S.A
Legal and General Investment Management Ltd
Aviva plc
A profile of shareholdings is set out on page 114.
Shares
696,046,825
321,967,023
201,017,634
159,792,689
117,224,424
%
17.90
8.24
5.17
4.10
3.01
Share capital
Full details of the movements in the authorised and issued share capital of the Company during the year are set out in note v. on page 96.
The Company has the authority to purchase up to 388.9 million of its ordinary shares. The authority remains valid until the 2008 Annual General
Meeting, or 16 August 2008 if earlier. A resolution will be put to shareholders to renew the authority at the 2008 Annual General Meeting. The
Company has a discretionary trust funded by loans to acquire shares for the potential benefit of employees of the Group. Details of shares held by the
trust at 31 December 2007 are set out in note 29 to the accounts. During the year shares have been released from the trust in respect of share award
schemes for employees.
Directors
The following were directors of the Company during the year:
Michael Grade
Sir George Russell
Sir Peter Burt
Mike Clasper
John Cresswell
Sir James Crosby
John McGrath
Heather Killen
Sir Robert Phillis
Sir Brian Pitman
Baroness Usha Prashar
Agnès Touraine
Report and accounts 2007 ITV plc 53
Appointed
8 January 2007
Resigned
8 January 2007
8 August 2007
17 January 2008
2 October 2007
8 August 2007
Heather Killen and Agnès Touraine were appointed as directors on 8 August 2007. John Ormerod was appointed as a director on 18 January 2008.
Dawn Airey and Rupert Howell were appointed as directors on 28 February 2008. They will retire from the Board at the Annual General Meeting on
15 May 2008 and being eligible will offer themselves for election. Sir James Crosby and Baroness Usha Prashar will retire from the Board, and being
eligible, offer themselves for re-election. Heather Killen, Agnès Touraine, John Ormerod, Sir James Crosby and Baroness Usha Prashar do not have
service contracts with the Company. Information about service contracts for executive directors is set out in the Remuneration report on page 109.
Sir Brian Pitman has indicated that he will retire from the Board following the Annual General Meeting.
No director had any interest in any contract with the Company or its subsidiary undertakings except as disclosed in these financial statements.
Directors’ interests
Shareholdings in the ordinary share capital of ITV plc beneficially owned by directors and their family interests at 31 December 2007 are set out below.
Details of directors’ interests over ordinary shares under company share schemes are set out in the Remuneration report on pages 110 to 112.
Michael Grade
Sir George Russell
Mike Clasper
John Cresswell
Sir James Crosby
John McGrath
Heather Killen
Sir Brian Pitman
Baroness Usha Prashar
Agnès Touraine
31 December 2007
193
4,332
18,000
536,066
98,058
10,524
–
2,097
3,000
–
31 December 2006
or appointment date if later
193
4,214
18,000
409,083
23,058
10,236
–
2,097
3,000
–
Between the end of the financial year and 5 March 2008 there were no changes in directors’ interests except for the beneficial acquisition by
Sir George Russell of 76 ordinary shares under the Dividend Reinvestment Plan.
Employees
The Company had 5,634 (2006: 5,788) employees as at 31 December 2007, of which 2% were employed outside of the UK. Ensuring that employees
are actively engaged with the Company is an important part of our strategy and our communications strategy underpins this engagement.
Employees are informed about significant business issues and the Group’s performance using email, podcasts, the Company’s intranet and briefing
meetings at each main location. In addition the Company has a framework for consultation and information under which Communication Groups
on each site have joint responsibility for maintaining a regular dialogue on all issues concerning employees.
Our highly talented employees are key to the Company’s success. The Company’s diversity policy which aims to ensure equality of opportunity
irrespective of gender, marital status, race, origin, nationality, religious belief, disability, age, sexual orientation, or gender reassignment in recruitment,
learning and development and promotion, also covers arrangements for the continued employment of and appropriate training for employees
who become disabled whilst working for the Company. The policy includes a range of measures such as training in recruitment, practical support by
offering 15 bursaries and over 60 traineeship opportunities across the Company and extensive diversity monitoring. The diversity strategy is cascaded
from the Board through to each business area, delivering action plans addressing both “On” and “Off” screen representation of diversity and the
commercial impact diversity has. The Company is a leading and active participant in the major bodies whose focus is the employment and
development and on-screen representation of minority groups – the Cultural Diversity Network and Network North, Opportunity Now, the Employers’
Forum on Disability of which Michael Grade is a member of the President’s Group, the Broadcasters’ and Creative Industry Disability Network,
Stonewall and The Employers’ Forum on Age.
The Company has a strong commitment to training which includes both off-the-job courses, such as technical and programme courses in camera
operations, presentation skills for journalists, script writing and copyright law; in total 69,350 hours of classroom training was delivered in 2007. The
Company’s management development programme, “Creating Strong Leaders” was further developed in 2007. Since its launch in 2005, 796 managers
have now attended a programme.
54 ITV plc Report and accounts 2007
Directors’ report
Employees continued
It is vital for the Company to offer a comprehensive remuneration, benefits and incentive package to help recruit and retain the best talent in
the market. The range of benefits the Company offers includes a contributory pension scheme, childcare support, life assurance and an extensive
employee discount scheme called ITV Deals. Details of the Company benefits are made available to all employees via the Company intranet. In 2007
the Company issued reward statements to all employees for the first time, to communicate the total reward package to ensure each employee
makes the most of the range of benefits available to them. The Company incentive programmes are structured to give employees a stake in the
future success of the Company. As well as a SAYE scheme open to all staff that enables them to save for shares in ITV plc, the Company operates an
annual all-employee bonus linked to company performance. In 2008 a one-off all-employee long term incentive scheme is being introduced, aligned
with the achievement of our Turnaround strategy objectives. The Company also operates an innovative bonus scheme that encourages employees to
be creative and develop great programmes, content and new business ideas. Senior management incentives are based on achieving corporate financial
targets, improvements in culture and 360 degree assessments of behaviour in keeping with our values. Further details of senior management
incentives are set out in the Remuneration report on page 106.
The health and safety of employees, contractors and visitors is considered as a priority. There are well established health and safety policies
and procedures in place throughout the business and these are supported by an effective training programme. Further information is given in our
Corporate Responsibility report 2007.
Donations
The Company made contributions to charities and equivalent organisations amounting to £1 million in cash and £6 million in kind (£7 million)
(2006: £2 million in cash and £8 million in kind (£10 million)). This does not include the donation announced in respect of PRS issues.
It is the Company’s policy not to make cash contributions to any political party. However, within the normal activities of the Group’s national
and regional news gathering operations there are occasions when the Group may provide some hospitality at functions where politicians are present.
The Group, as part of its normal industry activities, is also keen to maintain contact with all political parties to ensure that they are aware of the key
issues affecting its business. The Companies Act 2006 definition of political expenditure and donations to political organisations is extremely wide
and may be construed as covering such areas of the Group’s normal activities. Shareholder authority for such expenditure was given at the Annual
General Meeting in 2007 and a similar resolution will be proposed at the 2008 Annual General Meeting. During the year the Group made the
following payments totalling £9,110 (2006: £40,787): Labour Party £4,019; Conservative Party £1,580; Liberal Democrat Party £2,869 and Plaid
Cymru Party £642.
Treasury operations and financial instruments
Note 23 to the accounts gives details of the Group’s financial risk management policies and related exposures.
Creditor payment policy
The Company’s policy, in relation to all its suppliers, is to settle the terms of payment when agreeing the terms of the transaction, ensure awareness
of the terms and to abide by those terms provided that it is satisfied that the supplier has provided the goods or services in accordance with the agreed
terms and conditions. The Company does not follow any code or standard on payment practice. The number of days’ purchases outstanding for
payment by the Company as at 31 December 2007 was nil days (2006: nil days).
Going concern
The directors are satisfied that the Company has sufficient resources to continue in operation for the foreseeable future. Accordingly, they continue
to adopt the going concern basis in preparing the consolidated and parent company financial statements.
Properties
Notes 12 and 27 to the accounts gives details of the valuations of the Group’s operational properties as at the balance sheet date.
Audit
The directors who held office at the date of approval of this report confirm that, so far as they are each aware, there is no relevant audit information
of which the Company’s auditors are unaware: and each director has taken all steps that he/she ought to have taken as a director in order to make
himself/herself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.
A resolution for the re-appointment of KPMG Audit Plc as auditor to the Company will be proposed at the forthcoming Annual General Meeting.
Annual General Meeting
The Annual General Meeting will be held on Thursday 15 May 2008 at 11.00 am in the Whittle Room at the Queen Elizabeth II Conference Centre,
Broad Sanctuary, Westminster, London SW1P 3EE. The Notice of the Annual General Meeting contains an explanation of special business to be
considered at the meeting.
By order of the Board
James Tibbitts
Company Secretary
200 Gray’s Inn Road
London
WC1X 8HF
5 March 2008
Report and accounts 2007 ITV plc 55
Statement of directors’ responsibilities
in respect of the Annual Report and the financial statements
The directors are responsible for preparing the Annual Report and the consolidated and parent company financial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare consolidated and parent company financial statements for each financial year. Under that law
they are required to prepare the consolidated financial statements in accordance with IFRSs as adopted by the EU and applicable law and have
elected to prepare the parent company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally
Accepted Accounting Practice).
The consolidated financial statements are required by law and IFRSs as adopted by the EU to present fairly the financial position and the
performance of the Group; the Companies Act 1985 provides in relation to such financial statements that references in the relevant part of that
Act to financial statements giving a true and fair view are references to their achieving a fair presentation.
The parent company financial statements are required by law to give a true and fair view of the state of affairs of the parent company.
In preparing each of the consolidated and parent company financial statements, the directors are required:
– to select suitable accounting policies and then apply them consistently;
– to make judgments and estimates that are reasonable and prudent;
– for the consolidated financial statements, to state whether they have been prepared in accordance with IFRSs as adopted by the EU;
– for the parent company financial statements, to state whether applicable UK Accounting Standards have been followed, subject to any material
departures disclosed and explained in the parent company financial statements; and
– to prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent company
will continue in business.
The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the
parent company and enable them to ensure that its financial statements comply with the Companies Act 1985. They have general responsibility
for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations the directors are also responsible for preparing a Directors’ report, Remuneration report and Corporate
Governance statement that comply with that law and those regulations.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website.
Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
56 ITV plc Report and accounts 2007
Governance
Independent auditors’ report to the members of ITV plc
We have audited the consolidated and parent company financial statements (the “financial statements’’) of ITV plc for the year ended
31 December 2007 which comprise the consolidated income statement, the consolidated and parent company balance sheets, the consolidated
cash flow statement, the consolidated statement of recognised income and expense and the related notes. These financial statements have
been prepared under the accounting policies set out therein. We have also audited the information in the Remuneration report that is described
as having been audited.
This report is made solely to the Company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work
has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and
for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the
Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the Annual Report and the consolidated and parent company financial statements in accordance
with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU, and for preparing the parent company financial
statements and the Remuneration report in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting
Practice) are set out in the Statement of Directors’ Responsibilities on page 55.
Our responsibility is to audit the financial statements and the part of the Remuneration report to be audited in accordance with relevant legal
and regulatory requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part
of the Remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985 and, as regards the consolidated
financial statements, Article 4 of the IAS Regulation. We also report to you whether in our opinion the information given in the Directors’ report is
consistent with the financial statements. The information given in the Directors’ report includes that specific information presented in the Business
review on pages 18 to 49.
In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information
and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed.
We review whether the Corporate Governance statement reflects the Company’s compliance with the nine provisions of the 2006 Combined Code
specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether
the Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s corporate governance
procedures or its risk and control procedures.
We read the other information contained in the Annual Report and consider whether it is consistent with the audited financial statements.
We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial
statements. Our responsibilities do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board.
An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of
the Remuneration report to be audited. It also includes an assessment of the significant estimates and judgements made by the directors in the
preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s and Company’s circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us
with sufficient evidence to give reasonable assurance that the financial statements and the part of the Remuneration report to be audited are free
from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy
of the presentation of information in the financial statements and the part of the Remuneration report to be audited.
Opinion
In our opinion:
– the consolidated financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU, of the state of the Group’s affairs
as at 31 December 2007 and of its profit for the year then ended;
– the consolidated financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation;
– the parent company financial statements give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of
the parent company’s affairs as at 31 December 2007;
– the parent company financial statements and the part of the Remuneration report to be audited have been properly prepared in accordance with
the Companies Act 1985; and
– the information given in the Directors’ report is consistent with the financial statements.
KPMG Audit Plc
Chartered Accountants
Registered Auditor
London
5 March 2008
Consolidated income statement
For the year ended 31 December:
Revenue
Operating costs before amortisation of intangible assets and exceptional items
Operating costs – exceptional items
Earnings before interest, tax and amortisation (EBITA)
Amortisation and impairment of intangible assets
Total operating costs
Operating profit
Financing income
Financing costs
Net financing costs
Share of profits of joint ventures and associated undertakings
Investment income
Gain on sale of properties (exceptional items)
Gain on sale and impairment of subsidiaries and investments (exceptional items)
Profit before tax
Taxation
Profit for the year
Attributable to:
Equity shareholders of the parent company
Minority interests
Profit for the year
Basic earnings per share
Diluted earnings per share
Report and accounts 2007 ITV plc 57
Note
2
5
13
4
8
8
8
14
5
5
9
30
11
11
2007
£m
2,082
(1,771)
(35)
276
(84)
(1,890)
192
200
(233)
(33)
2
1
9
17
188
(50)
138
137
1
138
3.5p
3.5p
2006
Restated
£m
2,181
(1,806)
(35)
340
(76)
(1,917)
264
170
(196)
(26)
8
3
4
35
288
(66)
222
219
3
222
5.5p
5.4p
Operating exceptional items during the year mainly comprise reimbursements, fines and other costs associated with premium rate services and an
onerous contract provision associated with Carlton Screen Advertising (see note 5 for details).
58 ITV plc Report and accounts 2007
Consolidated balance sheet
At 31 December:
Non-current assets
Property, plant and equipment
Intangible assets
Investments in joint ventures and associated undertakings
Available for sale financial assets
Held to maturity investments
Derivative financial instruments
Distribution rights
Current assets
Assets held for sale
Programme rights and other inventory
Trade and other receivables due within one year
Trade and other receivables due after more than one year
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Current liabilities
Borrowings
Derivative financial instruments
Trade and other payables due within one year
Trade and other payables due after more than one year
Trade and other payables
Current tax liabilities
Provisions
Net current assets
Non-current liabilities
Borrowings
Derivative financial instruments
Defined benefit pension deficit
Net deferred tax liability
Other payables
Provisions
Net assets
Attributable to equity shareholders of the parent company
Share capital
Share premium
Merger and other reserves
Translation reserve
Available for sale reserve
Retained earnings
Total attributable to equity shareholders of the parent company
Minority interest
Total equity
2007
£m
211
3,873
79
10
100
32
7
4,312
59
440
399
8
407
4
498
1,408
(33)
(1)
(677)
(9)
(686)
(206)
(27)
(953)
2006
Restated
£m
193
3,895
66
37
–
3
11
4,205
132
400
405
7
412
1
961
1,906
(471)
(16)
(679)
(9)
(688)
(159)
(9)
(1,343)
455
563
(1,263)
(9)
(112)
(75)
(65)
(4)
(1,528)
(1,224)
(15)
(285)
(7)
(56)
(18)
(1,605)
3,239
3,163
389
120
2,702
4
4
14
3,233
6
3,239
401
120
2,690
(3)
17
(69)
3,156
7
3,163
Note
12
13
14
15
22
25
16
27
17
18
18
25
22
24
25
19
20
26
24
25
6
9
21
26
29
30
30
30
30
30
30
30
30
The accounts were approved and authorised for issue by the Board of Directors on 5 March 2008 and were signed on its behalf by:
Michael Grade
John Cresswell
Consolidated cash flow statement
For the year ended 31 December:
Cash flows from operating activities
Operating profit before exceptional items
Depreciation of property, plant and equipment
Amortisation and impairment of intangible assets
Increase in programme rights and other inventory, and distribution rights
Decrease/(increase) in receivables
Increase in payables
Movement in working capital
Cash generated from operations before exceptional items
Cash flow relating to operating exceptional items:
Operating loss
Increase in payables and provisions*
Cash outflow from exceptional items
Cash generated from operations
Defined benefit pension deficit funding
Interest received
Interest paid on bank and other loans
Interest paid on finance leases
Investment income received
Net taxation received/(paid)
Net cash flow from operating activities
Cash flows from investing activities
Acquisition of subsidiary undertakings, net of cash and cash equivalents acquired and debt
repaid on acquisition
Proceeds from sale of assets held for sale
Proceeds from sale of property, plant and equipment
Acquisition of property, plant and equipment
Acquisition of intangible assets
Acquisition of associates and investments
Loans granted to associates and joint ventures
Loans repaid by joint ventures
Proceeds from sale of subsidiaries
Proceeds from sale of investments and associates
Net cash flow from investing activities
Cash flows from financing activities
Bank and other loans – amounts repaid
Bank and other loans – amounts raised
Capital element of finance lease payments
Dividends paid to minority interest
Share buy-backs
Purchase of own shares via employee benefit trust
Purchase of held to maturity investments
Equity dividends paid
Net cash (outflow)/inflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Effects of exchange rate changes and fair value movements on cash and cash equivalents
Cash and cash equivalents at 31 December
Report and accounts 2007 ITV plc 59
£m
227
35
84
(36)
2
5
(29)
(35)
4
(33)
44
(103)
(3)
1
18
(29)
94
4
(37)
(22)
(2)
(10)
2
5
–
(441)
–
(3)
(2)
–
(11)
(100)
(122)
2007
£m
317
(31)
286
(76)
210
2006
£m
371
(29)
342
(301)
41
£m
299
32
76
(10)
(33)
7
(36)
(35)
6
(207)
22
(66)
(3)
3
(50)
(3)
40
–
(79)
(4)
(1)
–
2
–
157
5
112
(13)
581
(3)
(8)
(251)
(31)
–
(128)
(679)
(464)
961
1
498
147
300
663
(2)
961
* Includes £2 million (2006: £6 million) relating to expenditure against provisions held in respect of activities which have been previously discontinued.
60 ITV plc Report and accounts 2007
Consolidated statement of recognised income and expense
For the year ended 31 December:
Exchange differences on translation of foreign operations
Revaluation of available for sale investments
Disposal and impairment transferred from available for sale reserve to income statement
Movements in respect of cash flow hedges
Actuarial gains and losses on defined benefit pension schemes
Taxation on items taken directly to equity
Net income recognised directly in equity
Profit for the year
Total recognised income and expense for the year
Attributable to:
Equity shareholders of the parent company
Minority interests
Total recognised income and expense for the year
Note
30
30
30
30
6
9
30
30
2007
£m
2
3
(16)
5
111
(47)
58
138
196
195
1
196
2006
£m
(2)
4
(20)
–
29
(4)
7
222
229
226
3
229
Report and accounts 2007 ITV plc 61
Notes to the accounts
1 Accounting policies
1.1) Basis of preparation
The Group accounts consolidate those of ITV plc, (“the Company”), a company domiciled in the United Kingdom and its subsidiaries (together referred
to as “the Group”) and the Group’s interests in associates and jointly controlled entities.
As required by EU law (IAS Regulation EC 1606/2002) the Group’s accounts have been prepared and approved by the directors in accordance with
International Financial Reporting Standards as adopted by the EU (“IFRS”).
The accounts are principally prepared on the historical cost basis. Areas where other bases are applied are identified in the accounting policies below.
The Company has elected to prepare its parent company financial statements in accordance with UK GAAP.
The Group has adopted IFRS 7 “Financial instruments: Disclosures”, and the complementary amendment to IAS 1 “Presentation of financial
statements – Capital disclosures” which introduces new disclosures relating to financial instruments. The impact on the 2006 comparatives has been
to reclassify interest rate swaps and forward foreign exchange contracts from accruals and deferred income to derivative financial instruments (see
note 25 for further details) and to reclassify amounts between financing income and financing costs.
IFRS 8 “Operating segments” has been adopted by the Group in 2007. IFRS 8 replaces IAS 14 “Segment reporting”. The new standard requires a
“management approach”, under which the segment information is presented on the same basis as that used for internal reporting purposes. This has
resulted in an increase in the number of reportable segments presented. In addition, the segments are reported in a manner that is consistent with
information provided to the chief operating decision maker. Comparatives for 2006 have been restated.
The accounting policies set out below, except as noted above, have been applied consistently in presenting the consolidated financial information.
1.2) Revenue recognition
Revenue is stated exclusive of VAT and consists of sales of goods and services to third parties. Revenue from the sale of goods is recognised when
the Group has transferred the significant risks and rewards of ownership and control of the goods sold and the amount of revenue can be measured
reliably. Key classes of revenue are recognised on the following bases:
Advertising and sponsorship
Programme production
Programme rights
Participation revenues
on transmission
on delivery
when contracted and available for exploitation
as the service is provided
Revenue on barter transactions is recognised only when the goods or services being exchanged are of a dissimilar nature.
1.3) Segmental analysis
Operating segments are reported in a manner that is consistent with the internal reporting provided to the chief operating decision maker. The chief
operating decision maker has been identified as the Management Committee. The Management Committee comprises the executive directors.
1.4) Subsidiaries, associates and joint ventures
Subsidiaries are entities that are directly or indirectly controlled by the Group. Control exists where the Group has the power to govern the financial
and operating policies of the entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable
or convertible are taken into account.
A joint venture is an entity in which the Group holds an interest under a contractual arrangement where the Group and one or more other
parties undertake an economic activity that is subject to joint control. The Group accounts for its interests in joint ventures using the equity method.
An associate is an entity, other than a subsidiary or joint venture, over which the Group has significant influence. Significant influence is the power
to participate in the financial and operating decisions of an entity but is not control or joint control over those policies. These investments are
accounted for using the equity method.
1.5) Current/non-current distinction
Current assets include assets held primarily for trading purposes, cash and cash equivalents, and assets expected to be realised in, or intended for sale
or consumption in, the course of the Group’s operating cycle. All other assets are classified as non-current assets.
Current liabilities include liabilities held primarily for trading purposes, liabilities expected to be settled in the course of the Group’s operating cycle
and those liabilities due within one year from the reporting date. All other liabilities are classified as non-current liabilities.
1.6) Property, plant and equipment
Owned assets Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Certain items of property, plant
and equipment that had been revalued to fair value prior to 1 January 2004, the date of transition to IFRS, are measured on the basis of deemed cost,
being the revalued amount less depreciation up to the date of transition.
Leases Finance leases are those which transfer substantially all the risks and rewards of ownership to the lessee. Assets held under such leases are
capitalised within property, plant and equipment and depreciation is provided as appropriate. Outstanding finance lease obligations, which comprise
the principal plus accrued interest, are included within borrowings. The finance element of the agreements is charged to the income statement over
the term of the lease on a systematic basis.
All other leases are operating leases, the rentals on which are charged to the income statement on a straight line basis over the lease term.
Depreciation Depreciation is provided to write off the cost of property, plant and equipment less estimated residual value on a straight line basis
over their estimated useful lives. The major categories of property, plant and equipment are depreciated as follows:
Freehold land
Freehold buildings
Leasehold properties/improvements
Vehicles, equipment and fittings
not depreciated
up to 60 years
shorter of residual lease term or 60 years
3 to 20 years
62 ITV plc Report and accounts 2007
Notes to the accounts
1 Accounting policies (continued)
Intangible assets
1.7)
Business combinations and goodwill All business combinations that have occurred since 1 January 2004 are accounted for by applying the purchase
method. Goodwill represents the difference between the cost of the acquisition and the fair value of the identifiable net assets acquired. Subsequent
adjustments to the fair values of net assets acquired are made within 12 months of the acquisition date where original fair values were determined
provisionally. These adjustments are accounted for from the date of acquisition.
For business combinations prior to this date, but after 30 September 1998, goodwill is included at its deemed cost, which represents the amount
recorded under UK GAAP at that time less amortisation up to 31 December 2003. The classification and accounting treatment of business
combinations occurring prior to 1 January 2004, the date of transition to IFRS, has not been reconsidered as permitted under IFRS 1. Goodwill is
stated at cost less any accumulated impairment losses and is allocated to cash-generating units.
Goodwill arising on acquisitions prior to 30 September 1998 was recognised as a deduction from equity.
Other intangible assets Other intangible assets acquired by the Group are stated at cost less accumulated amortisation except those identifiable
intangible assets acquired as part of a business combination which are shown at fair value at the date of acquisition (in accordance with IFRS 3
(Business Combinations)) less accumulated amortisation. Identifiable intangible assets are those which can be sold separately or which arise from
legal rights.
Amortisation Amortisation is charged to the income statement over the estimated useful lives of intangible assets unless such lives are indefinite.
Goodwill is not amortised but is tested for impairment at each balance sheet date. The useful lives and amortisation methods for each major class
of intangible asset are as follows:
Film libraries
Licences
Brands
Customer contracts
Customer relationships
Software development costs
Sum of digits
Straight line
Straight line
Straight line
Straight line
Straight line
20 years
11 to 17 years
up to 11 years
up to 6 years
5 to 10 years
3 to 5 years
Distribution rights
1.8)
Programme rights acquired primarily for the purposes of distribution are classified within the balance sheet as non-current assets. They are recognised
initially at cost and charged through the income statement over either a three or five year period depending on genre.
1.9) Available for sale financial assets
Available for sale financial assets comprise gilts and equity securities which do not meet the definition of subsidiaries, joint ventures or associates.
They are stated at fair value, with any resultant gain or loss recognised directly in the available for sale reserve in equity, unless the loss is a permanent
impairment when it is recorded in the income statement.
1.10) Impairment of assets
Non financial assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Non financial assets
that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised in the income statement for the amount by which the asset’s carrying amount
exceeds its recoverable amount. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows (cash-generating units). Where an asset such as goodwill relates to more than one cash-generating unit, impairment is tested
against the cash flows of the group of cash-generating units related to that asset.
The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset.
In respect of assets other than goodwill, an impairment loss is reversed if there has been a change in the estimates used to determine the
recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Impairment losses in respect of goodwill
are not reversed.
1.11) Foreign currencies
Functional and presentational currency Items included in the financial statements in each of the Group’s entities are measured using the currency
of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented
in pounds sterling (“£”), which is the Company’s functional and presentational currency.
Foreign currency transactions Transactions in foreign currencies are translated into the functional currency of the respective Group entity at the rate
of exchange ruling at the date of the transaction. Foreign currency monetary assets and liabilities at the balance sheet date are translated into the
functional currency of the respective Group entity at the rate of exchange ruling at that date. Foreign exchange differences arising on translation are
recognised in the income statement. Non-monetary assets and liabilities measured at historical cost are translated into sterling at the rate of exchange
on the date of the transaction.
Financial statements of foreign operations The assets and liabilities of foreign operations are translated into the functional currency of the respective
group entity at the rate of exchange ruling at the balance sheet date. The revenues and expenses of foreign operations are translated into the
functional currency of the respective group entity at the average rate of exchange ruling during the financial period. Exchange differences arising on
translation are recognised directly in the translation reserve in equity.
Net investment in foreign operations Exchange differences arising on the translation of the net investment in foreign operations are taken directly
to the translation reserve within equity.
In respect of all foreign operations only those translation differences arising since 1 January 2004, the date of transition to IFRS, are presented
as a separate component of equity as permitted under IFRS 1. On disposal of an investment in a foreign operation the associated translation reserve
balance is released to the income statement.
Report and accounts 2007 ITV plc 63
1 Accounting policies (continued)
1.12) Exceptional items
Exceptional items, as disclosed on the face of the income statement, are items which due to their material and non-recurring nature have been
classified separately in order to draw them to the attention of the reader of the accounts and to show more accurately the underlying profits of
the Group.
1.13) Programme rights
Where programming, sports rights and film rights are acquired for the primary purpose of broadcasting, these are recognised within current assets.
Assets are recognised when the Group controls, in substance, the respective assets and the risks and rewards associated with them. For acquired
programme rights assets are recognised as payments are made and are recognised in full when the acquired programming is available for
transmission. Programming produced internally, either for the purpose of broadcasting or to be sold in the normal course of the Group’s operating
cycle, is recognised within current assets at production cost.
Programme costs and rights, including those acquired under sale and leaseback arrangements, are written off to operating costs in full on first
transmission except certain film rights which are written off over a number of transmissions. Programme costs and rights not yet written off at the
balance sheet date are included on the balance sheet at the lower of cost and net realisable value.
Outstanding sale and leaseback obligations, which comprise the principal and accrued interest are included within borrowings. The finance element
of the agreement is charged to the income statement over the term of the lease on a systematic basis. Sale and leaseback obligations are secured
against an equivalent cash balance held within cash and cash equivalents.
1.14) Trade receivables
Trade receivables are recognised initially and subsequently at fair value. A provision for impairment of trade receivables is established when there
is objective evidence that the Group will not be able to collect all amounts due according to their original terms.
1.15) Cash and cash equivalents
Cash and cash equivalents comprises cash balances, call deposits with maturity of less than or equal to three months from the date of acquisition
and cash held to meet certain finance lease commitments.
1.16) Trade payables
Trade payables are recognised initially and subsequently at fair value.
1.17) Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation arising from past events, it is probable that
an outflow of economic benefits will be required to settle the obligation and that the amount can be measured reliably. Provisions are determined by
discounting the expected future cash flows by a rate which reflects current market assessments of the time value of money and the risks specific to
the liability based on an appropriate gilt rate.
1.18) Borrowings
Borrowings are recognised initially at fair value, and in subsequent periods at amortised cost. The difference between cost and redemption value
is recorded in the income statement over the period of the liability on an effective interest basis.
Where the Group has identified that any such liabilities result in a mismatch between the accounting liability and the related derivative, the
Group has adopted the fair value option provision of IAS 39 (revised) to eliminate this accounting mismatch. Management consider that this fair value
treatment is more appropriate than amortised cost as the movements in these financial instruments largely offset each other and, as a result, they
are managed on an aggregated basis. The effect of this is that the Group recognises any such financial liabilities at fair value in all periods subsequent
to initial recognition, with resultant gains or losses recorded in the income statement.
1.19) Non-current assets held for sale and discontinued operations
Non-current assets or disposal groups are classified as held for sale if their carrying amount will be recovered principally through sale rather than
continuing use, they are available for immediate sale and sale is highly probable.
On initial classification as held for sale, non-current assets or disposal groups are measured at the lower of their previous carrying amount and fair
value less costs to sell.
No amortisation or depreciation is charged on non-current assets (including those in disposal groups) classified as held for sale. Assets classified as
held for sale are disclosed separately on the face of the balance sheet and classified as current assets or liabilities with disposal groups being separated
between assets held for sale and liabilities held for sale.
1.20) Taxation
The tax charge for the period comprises both current and deferred tax and is based on tax rates that are enacted or substantively enacted at the
balance sheet date. Taxation 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.
Current tax is the expected tax payable on the taxable income for the year and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method on any temporary differences between the carrying amounts for financial
reporting purposes and those for taxation purposes. The following temporary differences are not provided for:
– the initial recognition of goodwill;
– the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and
– differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities.
A deferred tax asset is recognised only to the extent that it is probable that sufficient taxable profit will be available to utilise the temporary
difference. Deferred tax assets and liabilities are disclosed net to the extent that they relate to taxes levied by the same authority and the Group
has the right of set off.
64 ITV plc Report and accounts 2007
Notes to the accounts
1 Accounting policies (continued)
1.21) Employee benefits
Defined contribution schemes Obligations under the Group’s defined contribution schemes are recognised as an expense in the income statement
as incurred.
Defined benefit schemes The Group’s obligation in respect of defined benefit pension schemes is calculated separately for each scheme by
estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is
discounted to determine its present value and the fair value of scheme assets is deducted. The discount rate used is the yield at the valuation date
on high quality corporate bonds. The calculation is performed by a qualified actuary using the projected unit credit method. Actuarial gains and losses
are recognised in full in the period in which they arise through the statement of recognised income and expense.
Share-based compensation The Group operates a number of share-based compensation schemes. The fair value of the equity instrument is measured
at grant date and spread over the vesting period through the income statement with a corresponding increase in equity. The fair value of the share
options and awards is measured using either a Monte Carlo or Black-Scholes model as appropriate taking into account the terms and conditions of the
individual scheme. Non market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance
sheet date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original
estimates, if any, in the income statement, with a corresponding adjustment to equity.
1.22) ITV shares held by Employee Benefit Trusts (EBTs)
Transactions of the Group-sponsored EBTs are included in the Group’s accounts. In particular, the EBTs’ purchases of shares in ITV plc are debited
directly to equity.
1.23) Derivative financial instruments and hedging activities
The Group uses a limited number of derivative financial instruments to hedge its exposure to fluctuations in interest and other foreign exchange rates.
The Group does not hold or issue derivative instruments for speculative purposes.
Derivative financial instruments are initially recognised at fair value and are subsequently remeasured at fair value with the movement recorded
in the income statement.
The fair value of foreign currency forward contracts is determined by using forward exchange market rates at the balance sheet date. The fair value
of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into
account current interest rates and the current creditworthiness of swap counterparties.
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly probable
forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in reserves. Any ineffective
portion of the hedge is recognised immediately in the income statement.
For financial assets and liabilities designated at fair value through profit and loss the fair value change and interest income/expense are not
separated.
1.24) Dividends
Dividends are recognised through equity in the period in which they are declared and approved by the Company’s shareholders.
1.25) Investment income
Investment income comprises dividends received from the Group’s investments. Dividend income is recognised in the income statement on the
date the Group’s right to receive payments is established.
1.26) Net financing costs
Net financing costs principally comprise interest payable, finance charges on finance leases, interest receivable on funds invested, gains and losses
on hedging instruments that are recognised in the income statement and the expected return on pension scheme assets net of the interest cost
on liabilities.
1.27) Accounting estimates and judgements
The preparation of financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect
the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these
estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period
in which the estimates are revised and in any future periods affected.
Details of accounting estimates and judgments that have the most significant effect on the amounts recognised in the financial statements have
been disclosed under the relevant note or accounting policy for each area where disclosure is required. Principally these are measurements of defined
benefit obligations, valuation of acquired intangible assets, measurement of the recoverable amounts of cash-generating units containing goodwill,
fair value of derivatives, utilisation of tax losses and provisions.
Report and accounts 2007 ITV plc 65
1 Accounting policies (continued)
1.28) Application of new EU endorsed accounting standards, amendments to existing EU endorsed standards and interpretations
New standards, amendments and interpretations effective in 2007
Relevant to the Group’s results
IFRS 7
Financial instruments: Disclosures and
the Amendment to IAS 1 Presentation of
Financial Statements: Capital Disclosures
IFRS 8 (adopted
early by the Group)
Operating segments
Requires extensive disclosures about the significance of financial instruments
for an entity’s financial position and performance, and qualitative and quantitative
disclosures on the nature and the extent of risks. IFRS 7 and amended IAS 1 requires
additional disclosures with respect to financial instruments and share capital. It does
not have any impact on the valuation of the Group or Company’s financial
instruments. The 2006 comparative information has been restated as a result of
the introduction of IFRS 7
Replaces IAS 14, “Segment reporting”. The new standard requires a “management
approach”, under which segment information is presented on the same basis as that
used for internal reporting purposes. This has resulted in an increase in the number
of reportable segments presented
Neither of these new interpretations has had a material effect on the Group’s results in 2007
Not relevant to the Group’s results
IFRIC 8
Scope of IFRS 2 Share-based payment
Requires consideration of transactions involving the issuance of equity instruments,
where the identifiable consideration received is less than the fair value of the equity
instruments issued in order to establish whether they fall within the scope of IFRS 2.
The Group already applies an accounting policy which complies with the
requirements of IFRIC 8
IFRIC 10
IFRIC 7
IFRIC 9
Interim financial reporting and impairment Prohibits the impairment loss recognised in an interim period on goodwill and
investments in equity instruments and in financial assets carried at cost to be
reversed at a subsequent balance sheet date
Addresses the application of IAS 29 when an economy first becomes
hyperinflationary and in particular the accounting for deferred tax
Applying the restatement approach
under IAS 29, Financial reporting in
hyperinflationary economies
Reassessment of embedded derivatives
Requires that a reassessment of whether embedded derivatives should be separated
from the underlying host contract should be made only when there are changes to
the contract
New standards, amendments and interpretations not yet effective
Not relevant to the Group’s results
IFRIC 11
IFRS 2 – Group and treasury share
transactions
Required to be implemented in the Group’s financial year commencing 1 January
2008. This interpretation provides guidance on whether share-based transactions
involving group entities should be accounted for as equity settled or cash settled
transactions. This IFRIC was endorsed by the EU in June 2007
66 ITV plc Report and accounts 2007
Notes to the accounts
Operating segmental information
2
Management has determined the reportable segments based on the reports reviewed by the Management Committee. The Management Committee
comprises the executive directors.
The Management Committee considers the business primarily from a product perspective. The reportable segments are therefore Broadcasting,
Global Content, Online and Other. All of the segments reported meet the quantitative thresholds required by IFRS 8.
Broadcasting is responsible for commissioning and scheduling programmes on the ITV channels, marketing and programme publicity. It derives
its revenue primarily from the sale of advertising airtime and sponsorship. Other sources of revenue are from premium rate services and the digital
terrestrial multiplex SDN. The Broadcasting segment also includes the investments in SMG plc.
Global Content derives its revenue primarily from ITV Productions in the UK (a commercial production company) and the businesses in ITV
Worldwide. A proportion of revenue is generated internally via programme sales to the Broadcasting segment. ITV Worldwide is made up of Granada
International, Granada Ventures and international production centres in America, Germany and Australia. Granada International sells programming
worldwide. Granada Ventures is a distributor of DVD entertainment in the UK and exploits merchandising and licensing worldwide.
Online derives its revenue from two main areas: broadband and mobile. Broadband includes itvlocal.com, itv.com and Friends Reunited. Mobile
manages ITV’s mobile portal and arranges distribution of ITV’s channels and content on mobile networks.
Other comprises the Group’s 100% interest in Carlton Screen Advertising, which sells cinema screen advertising in the UK, and its 50% interest
in Screenvision, which operates cinema screen advertising businesses in continental Europe and the United States.
The segment information provided to the Management Committee for the reportable segments for the years ended 31 December 2007 and
31 December 2006 is as follows:
Total segment
revenue
Intersegment
revenue
Revenue from
external customers
EBITA before
exceptional items
Share of profit/(loss)
from joint ventures
and associated
undertakings
Total segment
assets
Total assets includes:
Investments in
associates and joint
ventures
Additions to non-
current assets
(other than financial
instruments)
Total segment
liabilities
Broadcasting
Global Content
2007
£m
2006
£m
1,750
1,801
2007
£m
564
2006
£m
632
(12)
(4)
(320)
(351)
1,738
1,797
244
296
244
90
281
2007
£m
33
–
33
Online
2006
£m
23
–
23
2007
£m
67
–
67
Other
2006
£m
Consolidated
2006
£m
2007
£m
80
2,414
2,536
–
(332)
(355)
80
2,082
2,181
88
(12)
1
(11)
(10)
311
375
(2)
3
–
–
2
2
3,934
3,948
590
528
419
418
2
84
3
2
8
120
5,027
5,014
12
7
4
–
46
33
68
24
2
8
–
61
59
79
66
21
1
1
123
79
(389)
(381)
(226)
(242)
(74)
(64)
(18)
(11)
(707)
(698)
Sales between segments are carried out at arm’s length. The revenue from external parties reported to the Management Committee is measured in
a manner consistent with the income statement. Income statement and balance sheet allocations between reportable segments are performed on
a consistent basis with the exception of pension costs, which are allocated, and pension assets and liabilities, which are not. This reflects the basis of
reporting to the Management Committee.
The Management Committee assesses the performance of the reportable segments based on a measure of EBITA before exceptional items.
This measurement basis excludes the effect of non-recurring income and expenditure. Amortisation, investment income and share of profits of joint
ventures and associates are also excluded as they are not reflective of the underlying business. Net financing costs are not allocated to segments
as this type of activity is driven by the central treasury and taxation functions, which manage the cash and taxation position of the Group.
A reconciliation of EBITA before exceptional items to profit before tax is provided as follows:
EBITA before exceptional items
Exceptional items
Amortisation and impairment of intangible assets
Net financing costs
Share of profits of joint ventures and associated undertakings
Investment income
Gain on sale of properties (exceptional items)
Gain on sale and impairment of subsidiaries and investments (exceptional items)
Profit before tax
2007
£m
311
(35)
(84)
(33)
2
1
9
17
188
2006
£m
375
(35)
(76)
(26)
8
3
4
35
288
Report and accounts 2007 ITV plc 67
2 Operating segmental information (continued)
The amounts provided to the Management Committee with respect to total assets are measured in a manner consistent with that of the financial
statements. These assets are allocated based on the operations of the segment .
Reportable segments’ assets are reconciled to total assets as follows:
Segment assets
Unallocated:
Held to maturity investments
Assets held for sale
Derivative financial instruments
Cash and cash equivalents
Total assets per the balance sheet
2007
£m
5,027
100
59
36
498
5,720
2006
£m
5,014
–
132
4
961
6,111
The amounts provided to the Management Committee with respect to total liabilities are measured in a manner consistent with that of the financial
statements. These liabilities are allocated based on the operations of the segment.
Reportable segments’ liabilities are reconciled to total liabilities as follows:
Segment liabilities
Unallocated:
Interest accruals
Derivative financial instruments
Borrowings
Current tax liabilities
Net deferred tax liability
Dividends
Defined pension deficit
Total liabilities per the balance sheet
2007
£m
707
23
10
1,296
206
75
52
112
2,481
2006
£m
698
20
31
1,695
159
7
53
285
2,948
The Group’s principal operations are in the United Kingdom. Its revenue from external customers in the United Kingdom is £1,929 million (2006: £2,012
million), and the total revenue from external customers in other countries is £153 million (2006: £169 million).
The total of non-current assets other than financial instruments, deferred tax assets, and employment benefit assets (there are no rights arising
under insurance contracts) located in the UK is £4,279 million (2006: £4,204 million), and the total of these non-current assets located in other
countries is £1 million (2006: £1 million).
Revenues of approximately £382 million (2006: £365 million), £258 million (2006: £270 million) and £250 million (2006: £234 million) are derived
from three external customers. The Group’s major customers are all media buying agencies. These revenues are attributable to the Broadcasting,
Online and Other segments and are from the only customers which individually represent over 10% of the Group’s revenues.
3 Staff costs
Wages and salaries
Social security and other costs
Share-based payment (see note 7)
Pension costs (see note 6)
Total
2007
£m
260
31
15
18
324
2006
Restated
£m
250
25
15
27
317
In addition, staff costs within exceptional items were £4 million (2006: £17 million) principally relating to redundancy payments and reorganisation
costs. Total staff costs including exceptional items for the year ended 31 December 2007 are £328 million (2006: £334 million). In addition to the
pension operating cost shown above is a net credit to net financing income of £18 million (2006: credit of £18 million) and a net credit to retained
earnings in respect of actuarial gains and losses of £111 million (2006: credit of £29 million).
2006 comparatives have been restated to reflect a change in the allocation of certain Global Content staff costs which were previously charged
directly to programmes.
The average number of employees employed by the Group during the year was:
Broadcasting
Global Content
Online
Other
Total
2007
2,785
2,444
286
185
5,700
2006
3,042
2,594
135
186
5,957
Details of the directors’ emoluments, share options, pension entitlements and long term incentive scheme interests are set out in the Remuneration
report on pages 106 to 113.
68 ITV plc Report and accounts 2007
Notes to the accounts
4 Total operating costs
Staff costs
Before exceptional items
Exceptional items
Depreciation, amortisation and impairment
Amortisation and impairment
Depreciation
Impairment of assets held for sale
Other operating costs
Broadcasting schedule costs
Broadcasting transmission costs
Broadcasting industry costs
Licence fees
CSA direct costs
Global Content non-staff costs
Online non-staff costs
Operating lease costs
Other operating exceptional items
Audit and non-audit fees paid to KPMG Audit Plc (see below)
Other
Less: Staff costs and other costs charged to broadcasting schedule costs
Total
2007
£m
324
4
328
84
35
5
124
1,087
85
37
44
63
159
35
19
31
2
106
1,668
(230)
1,890
2006
Restated
£m
317
17
334
76
32
–
108
1,070
81
33
51
64
197
15
19
18
2
181
1,731
(256)
1,917
Global Content non-staff costs are net of the recharge for programmes supplied to ITV Broadcasting channels (which is eliminated on consolidation
as internal turnover).
The Group engages KPMG Audit Plc (“KPMG”) on assignments additional to their statutory audit duties where their expertise and experience with
the Group are important. The Group’s policy on such assignments is set out in the Audit Committee report on page 104.
Fees paid to KPMG during the year are set out below:
Fees payable to KPMG for the audit of the Group’s annual accounts
Fees payable to KPMG and its associates for other services:
The audit of the Group’s subsidiaries pursuant to legislation
Other services supplied pursuant to legislation
Other services relating to taxation
Services relating to corporate finance transactions entered into or proposed to be
entered into by or on behalf of the Group or any of its associates
All other services
Total
2007
£m
0.8
0.2
0.1
0.4
0.3
0.1
1.9
2006
£m
0.7
0.3
0.1
0.4
0.5
0.1
2.1
KPMG received £9,500 in respect of their audit of two of the Group’s associated pension funds in 2007 (2006: £12,000). Fees paid to KPMG for audit
and other services to the Company are not disclosed in its individual accounts as the Group accounts are required to disclose such fees on a
consolidated basis.
5 Exceptional items
Operating exceptional items:
Reorganisation and integration costs
PRS reimbursements and GMTV fines
Onerous contract provision
Fees in relation to takeover approaches
Receipt from liquidators
Non-operating exceptional items:
Gain on sale of properties
Gain on sale of subsidiaries and investments
Impairment of available for sale financial assets
Total exceptional items before tax
Report and accounts 2007 ITV plc 69
2007
£m
(8)
(18)
(9)
–
–
(35)
9
43
(26)
26
(9)
2006
Restated
£m
(23)
–
–
(14)
2
(35)
4
57
(22)
39
4
In 2007 a charge of £8 million was incurred in respect of reorganisation and restructuring costs including £4 million in respect of costs associated with
the operating review savings which form part of a larger project.
Provisions in respect of onerous contracts associated with Carlton Screen Advertising (£9 million) were put in place in 2007.
A net gain of £9 million has been recognised from the sale of properties. A gain of £17 million has been recognised from the sale of subsidiaries
and investments net of impairment of investments. This includes the profits on disposal of the stakes in Arsenal Holdings plc and the option over the
investment in Arsenal Broadband Limited (£28 million), the investment in Liverpool Football Club and Athletic Grounds plc (£7 million),the stake in
Independent Television Facilities Centre Limited (£5 million) and the stake in MUTV Limited (£3 million) and an impairment of the holding in SMG Plc,
which is held in the Broadcasting segment, (£26 million) following a significant and sustained decline in its share price.
Operating exceptional items include £18 million in respect of reimbursements, fines and other costs associated with issues arising on the use of
premium rate interactive services in programming on ITV and GMTV as follows:
Reimbursements and associated costs:
ITV
GMTV
Fines:
GMTV
2007
£m
(10)
(6)
(2)
(18)
Reimbursements and associated costs include the amounts that GMTV has donated and ITV plans to donate to charities.
The terms of ITV plc's broadcasting licences require compliance with the Ofcom Broadcasting Code, which requires that competitions are to be
run fairly, and that viewers must not be misled. If the Code is breached, it is open to the regulator in serious cases to impose sanctions, including a
fine of up to 5% of the licensee's qualifying revenue. For free to air commercial broadcasters, such as ITV and GMTV (its 75% subsidiary undertaking),
qualifying revenue in this context effectively equates to total advertising and sponsorship revenues. In setting the level of fine in the past, the regulator
has taken into account whether or not problems were systemic or one-off; the period over which problems persisted; action taken by the broadcaster
once problems came to light; and the amount of revenues generated by the affected services. The regulator has also levied multiple fines on
broadcasters where more than one programme was affected.
Ofcom has been provided with details of all the instances in ITV’s programmes which have given rise to reimbursement. However at the date of
approval of these accounts, the regulator has not yet confirmed the level of any fine that may be imposed and it is not possible to reliably estimate
the level of fine that might be imposed by Ofcom in this context. Therefore no provision for a fine on ITV is included in these accounts. The regulatory
process is expected to be completed in the first half of 2008 and any subsequent fine will be included in the 2008 results as an operating
exceptional item.
2006 exceptional items have been restated to include the gain on sale of properties of £4 million.
2006 exceptional items included a charge of £23 million, including £17 million staff costs, in respect of reorganisation and restructuring costs
including the closure of the Bristol and children’s programme production centres, the continuation of the regional news consolidation programme
and redundancy and share costs arising from the restructuring of the senior management team. A liquidation settlement of £2 million was received
from the liquidators of the Shop! Channel. Fees of £14 million were incurred in respect of the two unsolicited takeover approaches received in 2006.
2006 exceptional items also included a £35 million net gain from the sale of subsidiaries and the sale and impairment of investments. This included
the profit on disposal of the stakes in Seven Network (£29 million) and TV3 (£40 million), the loss on sale of the education business (£12 million) and
an impairment of the holding in SMG Plc, which is held within the Broadcasting segment (£22 million) following a significant decline in its share price.
70 ITV plc Report and accounts 2007
Notes to the accounts
6 Pension schemes
The Group operates both defined benefit and defined contribution pension schemes.
The pension scheme assets are held in a separate trustee-administered fund to meet long-term pension liabilities to past and present employees.
The trustees of the fund are required to act in the best interest of the fund’s beneficiaries. The appointment of trustees to the fund is determined
by the scheme’s trust documentation.
Defined contribution schemes
Total contributions recognised as an expense in relation to defined contribution schemes during 2007 were £3 million (2006: £2 million).
Defined benefit schemes
The Group provides retirement benefits to some of its former and approximately 30% of current monthly paid employees through defined benefit
schemes. The Group’s main scheme was formed from a merger of a number of schemes on 31 January 2006. The level of retirement benefit is
principally based on basic salary at retirement.
During 2007, the Group made significant changes to the scheme benefit structure in respect of future service benefits. These changes involved a
combination of an increase in normal retirement age, a reduction in the rate of benefit accrual and increased member contributions. Members were
given the option to elect for alternative benefits with an equivalent adjustment to member contributions. Benefits accrued up to the date of the
change were unaffected.
The liabilities of the defined benefit scheme are measured by discounting the best estimate of future cash flows to be paid out by the scheme
using the projected unit method. This amount is reflected in the deficit in the balance sheet. The projected unit method is an accrued benefits
valuation method in which the scheme liabilities make allowance for projected earnings. The accumulated benefit obligation is an actuarial measure
of the present value of benefits for service already rendered but differs from the projected unit method in that it includes an allowance for early
leaver statutory revaluations rather than projected earning increases. At the balance sheet date the accumulated benefit obligation was £2,550 million
(2006: £2,580 million).
The assets and liabilities of all the Group’s defined benefit pension schemes recognised in the balance sheet at 31 December 2007 under IAS 19
(as explained in detail in this note) were £2,491 million and £2,603 million respectively, resulting in a net deficit in the defined benefit schemes of
£112 million.
An alternative method of valuation to the projected unit method is a solvency basis, often estimated using the cost of buying out benefits at the
balance sheet date with a suitable insurer. This amount represents the amount that would be required to settle the scheme liabilities at the balance
sheet date rather than the Group continuing to fund the ongoing liabilities of the scheme. The Group estimates the shortfall in the amount required
to settle the scheme’s liabilities at the balance sheet date is £1,100 million (2006: £1,500 million).
The statutory funding objective is that the scheme has sufficient and appropriate assets to pay its benefits as they fall due. This is a long term
target. Future contributions will always be set at least at the level required to satisfy the statutory funding objective. The general principles adopted
by the trustees are that the assumptions used, taken as a whole, will be sufficiently prudent for pensions and benefits already in payment to continue
to be paid, and to reflect the commitments which will arise from members’ accrued pension rights.
The most recently completed triennial actuarial valuations in respect of the Group’s retirement benefits funds was performed by an independent
actuary for the Trustees of the ITV Pension Scheme and was carried out as at 1 January 2005. The Group’s main scheme, formed by merger on
31 January 2006, consists of three sections, A, B and C. The first triennial valuation of section A is due at 1 January 2008. The first triennial valuation
of the other sections was completed as at 1 January 2007. The Group will monitor funding levels annually.
The levels of ongoing contributions are based on the current service costs and the expected future cash flows of the defined benefit scheme.
The Group estimates the present value of the duration of UK scheme liabilities will on average fall due over 16 years.
6 Pension schemes (continued)
The movement in the present value of the defined benefit obligation for these schemes is analysed below:
Defined benefit obligation at 1 January
Current service cost
Curtailment loss
Interest cost
Net actuarial (gain)/loss
Contributions by scheme participants
Benefits paid
Defined benefit obligation at 31 December
Report and accounts 2007 ITV plc 71
2007
£m
2,657
15
–
134
(96)
5
(112)
2,603
2006
£m
2,604
23
2
126
3
4
(105)
2,657
The present value of the defined benefit obligation is analysed between wholly unfunded and funded defined benefit schemes in the table below:
Defined benefit obligation in respect of funded schemes
Defined benefit obligation in respect of wholly unfunded schemes
Total defined benefit obligation
The movement in the fair value of the defined benefit scheme assets is analysed below:
Fair value of assets at 1 January
Expected return on assets
Net actuarial gain
Employer contributions
Contributions by scheme participants
Benefits paid
Fair value of assets at 31 December
2007
£m
2,567
36
2,603
2007
£m
2,372
152
15
59
5
(112)
2,491
2006
£m
2,619
38
2,657
2006
£m
2,072
144
32
225
4
(105)
2,372
The assets and liabilities of the scheme are recognised in the balance sheet and shown within non-current liabilities. The total recognised is:
Total defined benefit scheme assets
Total defined benefit scheme obligations
Net amount recognised within the balance sheet
Amounts recognised through the income statement are as follows:
Amount charged to operating costs:
Current service cost
Curtailment loss
Amount credited/(charged) to net financing costs:
Expected return on pension scheme assets
Interest cost
Total credited/(charged) in the income statement
2007
£m
2,491
(2,603)
(112)
2006
£m
2,372
(2,657)
(285)
2005
£m
2,072
(2,604)
(532)
2004
£m
1,685
(2,357)
(672)
2007
£m
(15)
–
(15)
152
(134)
18
3
2006
£m
(23)
(2)
(25)
144
(126)
18
(7)
72 ITV plc Report and accounts 2007
Notes to the accounts
6 Pension schemes (continued)
The amounts recognised through the statement of recognised income and expense are:
Actuarial gains and (losses):
Arising on scheme assets
Arising on scheme liabilities
2007
£m
15
96
111
2006
£m
32
(3)
29
The cumulative amount of actuarial gains and losses recognised through the statement of recognised income and expense since 1 January 2004 is an
actuarial gain of £52 million (2006: £59 million loss).
Included within actuarial gains and losses are experience adjustments as follows:
Experience adjustments on scheme assets
Experience adjustments on scheme liabilities
2007
£m
15
(18)
2006
£m
32
(12)
2005
£m
219
9
2004
£m
56
(70)
At 31 December 2007 the scheme assets were invested in a diversified portfolio that consisted primarily of equity and debt securities.
The scheme assets are shown below by major category along with the associated expected rates of return.
Market value of assets – equities and property
Market value of assets – bonds
Market value of assets – other
Total scheme assets
Expected long
term rate
of return
2007
%
7.7
4.4 – 5.9
5.0
Expected long
term rate
of return
2006
%
7.6
4.5 – 5.2
5.0
Market
value
2007
£m
1,284
1,087
120
2,491
Market
value
2006
£m
1,436
898
38
2,372
The expected return on plan assets is based on market expectations at the beginning of the financial period for returns over the life of the related
obligation. Exposure through the different asset classes is obtained through a combination of executing swaps and investing in physical assets.
The expected yield on bond investments with fixed interest rates can be derived exactly from their market value. Some of these bond investments
are issued by the UK Government. The risk of default on these is very small. The trustees also hold corporate bonds and other fixed interest securities.
There is a more significant risk of default on these which is assessed by various rating agencies.
The trustees also have a substantial holding of equity investments. The investment return related to these is variable and they are generally
considered much “riskier” investments. It is generally accepted that the yield on equity investments will contain a premium (“the equity risk
premium”) to compensate investors for the additional risk of holding this type of investment. There is significant uncertainty about the likely size
of the risk premium.
The expected return for each asset class is weighted based on the target asset allocation for 2008 to develop the expected long term rate of return
on assets assumption for the portfolio.
The fair value of the scheme assets as a percentage of total scheme assets as at 31 December 2006 and 31 December 2007 and target allocations
for 2008 are set out below.
The benchmark for 2008 is to hold broadly 55% equities and 45% bonds. The majority of the equities held by the scheme are in international blue
chip entities. The aim is to hold a globally diversified portfolio of equities, with a target of broadly one-third of equities being held in the UK and two-
thirds of equities held overseas. Within the bond portfolio the aim is to hold 50% of the portfolio in government bonds (gilts) and 50% of the portfolio
in corporate bonds and other fixed interest securities. Asset allocation is currently being reviewed by the Trustees.
The actual return on plan assets in the year ended 31 December 2007 was £167 million (2006: £176 million).
(as a percentage of total scheme assets)
Equities and property
Bonds
Other
The principal assumptions used in the scheme valuations at the balance sheet date were:
Rate of general increase in salaries
Rate of increase in pension payment (LPI 5% pension increases)
Rate of increase to deferred pensions
Discount rate for scheme liabilities
Inflation
Planned
2008
55%
45%
0%
2007
2006
52%
44%
4%
2007
4.65%
3.30%
3.40%
5.70%
3.40%
61%
38%
1%
2006
4.25%
2.90%
3.00%
5.12%
3.00%
Report and accounts 2007 ITV plc 73
6 Pension schemes (continued)
IAS 19 requires that the discount rate used be determined by reference to market yields at the balance sheet date on high quality fixed income
investments. The currency and term of these should be consistent with the currency and estimated term of the post-employment obligations.
The discount rate has been based on the yield available on AA rated corporate bonds of a term similar to the liabilities.
The expected rate of inflation is an important building block for salary growth and pension increase assumption. A rate of inflation is “implied”
by the difference between the yields on fixed and index-linked Government bonds. However, differences in demand for these can distort this implied
figure. The Bank of England target inflation rate has also been considered in setting this assumption.
The Group has used PA92 tables with mortality projected to 2020 for pensioner members and to 2035 for non-pensioner members. Using these
tables, the assumed life expectations on retirement are:
Retiring today at age
Males
Females
Retiring in 20 years
Males
Females
2007
60
24.4
27.4
25.5
28.4
2007
65
19.8
22.8
20.8
23.7
2006
60
24.4
27.4
25.5
28.4
2006
65
19.8
22.8
20.8
23.7
The tables above reflect published mortality investigation data in conjunction with the results of investigations into the mortality experience of
scheme members.
The sensitivities regarding the principal assumptions used to measure the schemes liabilities are set out below. The illustrations consider the single
change shown with the other assumptions assumed to be unchanged. In practice, changes in one assumption may be accompanied by offsetting
changes in another assumption (although this is not always the case). The Company liability is the difference between the scheme liabilities and the
scheme assets. Changes in the assumptions may occur at the same time as changes in the market value of scheme assets. These may or may not
offset the change in assumptions. For example, a fall in interest rates will increase the scheme liability, but may also trigger an offsetting increase in
the market value so there is no net effect on the company liability.
Assumption
Discount rate
Rate of inflation
Rate of salary growth
Rate of mortality
Change in assumption
Increase/decrease by 0.5%
Increase/decrease by 0.5%
Increase/decrease by 0.5%
Increase by 1 year
Impact on scheme liabilities
Decrease/increase by 8%
Increase/decrease by 7%
Increase/decrease by 1%
Increase by 3%
Normal contributions into the schemes in 2008 are expected to be in the region of £12 million assuming current contribution rates continue as agreed
with the scheme trustees.
74 ITV plc Report and accounts 2007
Notes to the accounts
7 Share-based payment
Outstanding at 1 January
Granted during the year – nil priced
Granted during the year – other
Forfeited during the year
Exercised during the year
Expired during the year
Outstanding at 31 December
Exercisable at 31 December
The average share price during 2007 was 105.73 pence (2006: 108.09 pence).
Range of exercise prices (pence)
Nil
50.00–69.99
70.00–99.99
100.00–109.99
110.00–119.99
120.00–149.99
150.00–199.99
200.00–249.99
250.00–299.99
300.00–385.99
Weighted
average exercise
price
(pence)
–
63.37
54.59
101.94
114.62
132.37
–
217.78
269.13
385.31
Number of
options
(’000)
59,206
5,784
8,434
13,808
16,218
10,713
–
1,357
16,192
91
2007
Number of
options
(’000)
165,185
34,758
3,479
(8,087)
(28,469)
(35,063)
131,803
51,818
Weighted
average exercise
price
(pence)
86.67
–
86.72
67.13
34.50
74.73
79.46
147.88
2006
Weighted
average exercise
price
(pence)
90.07
–
107.92
89.10
53.63
118.24
86.67
169.13
Number of
options
(’000)
195,704
19,195
16,059
(19,580)
(33,497)
(12,696)
165,185
52,350
2007
Weighted
average
remaining
contractual
life
(years)
2.69
1.82
3.79
2.90
6.69
5.31
–
2.98
2.36
2.40
Weighted
average exercise
price
(pence)
–
66.45
86.21
101.69
114.44
132.14
160.26
218.32
268.91
385.31
2006
Weighted
average
remaining
contractual
life
(years)
5.54
4.46
4.31
3.59
7.20
6.36
–
3.78
3.31
3.40
Number of
options
(’000)
60,524
12,844
8,276
20,456
27,744
14,033
3
1,965
19,249
91
Share schemes
Full details of the ITV Turnaround Plan, Commitment Scheme, Performance Share Plan and Deferred Share Award Plan can be found in the
Remuneration report on pages 107 and 108.
The Granada Media and Granada Commitment schemes mirror the ITV scheme summarised in the Remuneration report on page 108. The main
differences are as follows:
Twenty-five per cent of the Matching Awards will vest for median ranking, and maximum vesting will occur only for first or second position out
of a comparator group of 16 international media companies. The performance condition is tested in respect of 50% of the Matching Award on the
second anniversary of the date of grant. Any portion of the Matching Award which does not vest at that time may vest when the condition is again
tested on the fourth anniversary of the date of grant. Performance conditions were adjusted to take account of the merger.
The Granada, Carlton and ITV Sharesave schemes are Inland Revenue Approved SAYE schemes.
The Granada Media, Granada and Carlton Executive Share Option schemes are Inland Revenue Approved and Unapproved schemes with three year
performance periods. For all options granted before December 2002 the performance conditions were deemed to be satisfied on the merger of Carlton
and Granada. The performance conditions for options granted from December 2002 measure TSR against a comparator group of 16 international
media companies permitting exercise only if ITV is ranked above the median of this group. The comparator group for Carlton is the FTSE 100 at date
of grant. Performance conditions were adjusted to take account of the merger.
The Carlton Equity Participation Plan operated under similar terms to the ITV Commitment Scheme summarised in the Remuneration report on
page 108. For all awards made before December 2002 the performance conditions were deemed to be satisfied on the merger of Carlton and Granada.
For awards made from December 2002, 33% of the Matching Award vests at median with maximum vesting occurring when ITV ranks in the upper
quartile against a comparator group of UK media companies. The performance condition is tested on 1 April following the third anniversary of the date
of grant. Any proportion that does not vest at this time may vest when the condition is tested on 1 April following the fourth anniversary of the date
of grant. Performance conditions were adjusted to take account of the merger.
The Carlton Deferred Annual Bonus Plan operated as a share award scheme. Shares were purchased from bonus entitlements and held in trust for
a three year period. Matching shares were awarded and vest after four years.
Exercises can be satisfied by market purchase or by new issue shares. However it is company practice to satisfy all option exercises where possible
by using shares purchased in the market and held in the ITV Employees’ Benefit Trust rather than by issuing new shares.
Report and accounts 2007 ITV plc 75
Exercise
price
(pence)
Expected
volatility
%
Expected life
(years)
Gross dividend
yield
%
Risk free
rate
%
Fair value
(pence)
7 Share-based payment (continued)
Assumptions relating to grants of share options during 2007 and 2006:
Schedule name
Commitment Schemes
ITV – shares
ITV – shares
ITV – options
ITV – options
Performance Share Plan
ITV
ITV
Sharesave
ITV – three year
ITV – five year
ITV – three year
ITV – five year
Turnaround Plan
ITV – three year
ITV – three year with retesting after 5 years
ITV – five year
ITV – three year
ITV – five year
ITV – three year
ITV – five year
Date of
grant
20-Mar-06
20-Mar-06
20-Mar-06
20-Mar-06
Share price
at grant
(pence)
115.55
115.55
115.55
115.55
–
–
115.75
115.75
30.00%
30.00%
30.00%
30.00%
18-Apr-06
13-Sept-06
114.50
99.00
–
–
32.00%
32.00%
06-Apr-06
06-Apr-06
05-Apr-07
05-Apr-07
13-Sept-07
13-Sept-07
13-Sept-07
03-Oct-07
03-Oct-07
02-Nov-07
02-Nov-07
117.75
117.75
111.10
111.10
106.40
106.40
106.40
104.00
104.00
96.20
96.20
92.00
92.00
86.60
86.60
–
–
–
–
–
–
–
32.00%
32.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
3.00
4.00
6.00
7.00
3.00
3.00
3.25
5.25
3.25
5.25
2.25
2.25
4.25
2.25
4.25
2.25
4.25
2.70%
2.70%
2.70%
2.70%
2.72%
3.18%
2.65%
2.65%
2.84%
2.84%
2.96%
2.96%
2.96%
2.96%
2.96%
2.96%
2.96%
4.34%
4.34%
4.33%
4.32%
4.48%
4.78%
4.39%
4.40%
5.25%
5.12%
5.04%
5.04%
4.98%
5.04%
4.98%
5.04%
4.98%
60.00
61.00
24.00
27.00
61.00
46.00
38.00
42.00
33.00
36.00
44.00
59.00
48.00
41.00
45.00
28.00
36.00
The expected volatility is based on the historic volatility of ITV plc. ITV plc was formed on the merger of Granada plc and Carlton Communications Plc
on 2 February 2004.
The awards made under the Commitment Scheme, Performance Share Plan and Turnaround Plan all have market based performance conditions
which are taken into account in the fair value calculation using a Monte Carlo pricing model. The Black-Scholes model is used to value the Sharesave
Schemes as these do not have any market performance conditions.
Share-based payment charges totalled £15 million in 2007 (2006: £22 million). Of these £nil has been shown within exceptional items (2006:
£7 million).
8 Net financing costs
Financing income:
Interest income on bank deposits
Expected return on defined benefit pension scheme assets
Change in fair value of financial liabilities designated at fair value through profit or loss
Foreign exchange gain
Other interest receivable
Financing costs:
Interest expense on financial liabilities measured at amortised cost
Change in fair value of financial liabilities designated at fair value through profit or loss
Foreign exchange loss
Interest on defined benefit pension plan obligations
Other interest expense
Net financing costs
2007
£m
30
152
14
–
4
200
(54)
–
(42)
(134)
(3)
(233)
(33)
2006
Restated
£m
20
144
–
4
2
170
(35)
(31)
–
(126)
(4)
(196)
(26)
The foreign exchange loss is economically hedged by cross currency interest rate swaps. The gain on these swaps is included in the change in fair value
of financial liabilities within financing income. See note 25 for further details.
76 ITV plc Report and accounts 2007
Notes to the accounts
9 Taxation
Recognised in the income statement:
Current tax expense:
Current tax before exceptional items
Current tax credit/(expense) on exceptional items
Adjustment for prior periods
Deferred tax:
Origination and reversal of temporary differences
Deferred tax credit on exceptional items
Adjustment for prior periods
Total taxation expense in the income statement
Reconciliation of taxation expense:
Profit before tax
Taxation expense at UK corporation tax rate of 30% (2006: 30%)
Non-taxable/non-deductible exceptional items
Non-taxable income/non-deductible expenses
Effect of tax losses utilised
Over provision in prior periods
Impact of tax rate change
Other
2007
£m
(58)
3
(55)
25
(30)
(9)
3
(14)
(20)
(50)
2007
£m
188
(56)
3
(7)
4
11
4
(9)
(50)
2006
£m
(37)
(2)
(39)
48
9
(63)
–
(12)
(75)
(66)
2006
£m
288
(86)
(2)
(7)
4
36
–
(11)
(66)
In the year ended 31 December 2007 the effective tax rate on profits is lower (2006: lower) than the standard rate of UK corporation tax primarily
as a result of adjustments in respect of prior periods due to progress in the agreement with revenue authorities of prior periods’ tax liabilities
(2006: adjustments in respect of prior periods due to progress in the agreement with revenue authorities of prior periods’ tax liabilities). The underlying
tax rate on profits, after adjusting for the irregular tax effects caused by issues such as exceptional items, impairments, joint ventures and associates
and adjustments in respect of prior periods, is 31% (2006: 30%).
The current tax expense for the prior year is reduced primarily as a consequence of the reversal of temporary differences on which deferred tax
assets previously were recognised relating to pension scheme deficits and funding payments.
A tax expense totalling £47 million (2006: expense of £4 million) has been recognised directly in equity representing a current tax credit of £nil
(2006: credit of £2 million) and a deferred tax expense of £47 million (2006: expense of £6 million).
Report and accounts 2007 ITV plc 77
9 Taxation (continued)
Deferred tax assets and liabilities recognised and their movements are:
Property, plant and equipment
Intangible assets
Programme rights
Pension scheme deficits
Pensions funding payments
Interest-bearing loans and borrowings, and derivatives
Share-based payments
Unremitted earnings of subsidiaries, associates and joint ventures
Other
Property, plant and equipment
Intangible assets
Programme rights
Pension scheme deficits
Pensions funding payments
Interest-bearing loans and borrowings, and derivatives
Share-based payments
Unremitted earnings of subsidiaries, associates and joint ventures
Other
At
1 January
2007
£m
(4)
(139)
7
86
21
(4)
26
(3)
3
(7)
At
1 January
2006
£m
(3)
(155)
5
160
29
3
32
–
3
74
Business
combinations
£m
–
(1)
–
–
–
–
–
–
–
(1)
Business
combinations
£m
–
(1)
–
–
–
–
–
–
–
(1)
Recognised
in the income
statement
£m
(9)
24
(4)
(21)
(10)
2
(6)
1
3
(20)
Recognised
in the income
statement
£m
(2)
17
2
(65)
(8)
(7)
(9)
(3)
–
(75)
Recognised
in equity
£m
–
3
–
(34)
–
–
(16)
–
–
(47)
Recognised
in equity
£m
–
–
–
(9)
–
–
3
–
–
(6)
Transfer to
assets held
for sale
£m
–
–
–
–
–
–
–
–
–
–
Business
sale
£m
1
–
–
–
–
–
–
–
–
1
At
31 December
2007
£m
(13)
(113)
3
31
11
(2)
4
(2)
6
(75)
At
31 December
2006
£m
(4)
(139)
7
86
21
(4)
26
(3)
3
(7)
The amount of the deferred tax liability at 31 December 2007 has been reduced by £6 million as a consequence of the re-statement of the liability
to the reduced, broadly 28%, rate at which the liability is expected to reverse as a consequence of changes in the UK Finance Act 2007. Of this benefit
£4 million has been taken through the income statement and net £2 million through equity in accordance with IAS 12.
At 31 December 2007 total deferred tax assets are £55 million (2006: £143 million) and total deferred tax liabilities are £130 million (2006:
£150 million).
Deferred tax assets estimated at £0.6 billion and £0.1 billion (2006: £0.6 billion and £0.1 billion) in respect of capital losses and loan relationship
deficits respectively, have not been recognised due to uncertainties as to amount and whether gain or income will arise in the appropriate form and
relevant territory against which such losses could be utilised. For the same reasons, deferred tax assets in respect of overseas losses of £10 million
(2006: £10 million) which time expire between 2017 and 2026 have not been recognised.
10 Dividends
Dividends declared and recognised through equity in the year were:
Equity shares:
Final 2005 dividend of 1.8 pence per share
Interim 2006 dividend of 1.35 pence per share
Final 2006 dividend of 1.8 pence per share
Interim 2007 dividend of 1.35 pence per share
2007
£m
–
–
70
52
122
2006
£m
74
53
–
–
127
A final dividend of 1.8 pence per share, totalling £70 million, has been proposed after the balance sheet date in respect of the year ended
31 December 2007 (2006: 1.8 pence per share, totalling £70 million). As is required by IAS 10 (Events after the balance sheet date) this amount
has not been provided for at the balance sheet date.
78 ITV plc Report and accounts 2007
Notes to the accounts
11 Earnings per share
Profit for the year attributable to equity shareholders of the parent company
Exceptional items (including related tax effect of a credit of £6 million, 2006:
expense of £2 million)
Profit for the year before exceptional items
Amortisation and impairment of intangible assets (including related tax credit of £19 million,
2006: £17 million)
Prior period tax adjustments
Other tax adjustments
Profit for the year before exceptional items, amortisation and impairment of intangible assets
and prior period tax adjustments
Weighted average number of ordinary shares in issue – million
Dilution impact of share options – million
Earnings per ordinary share
Adjusted earnings per ordinary share
Basic earnings per ordinary share
Add: Loss/(profit) per ordinary share on exceptional items
Earnings per ordinary share before exceptional items
Add: Loss per ordinary share on amortisation and impairment of intangible assets
Subtract: Profit per ordinary share on prior period tax adjustments
Add: Loss per ordinary share on other tax adjustments
Earnings per ordinary share for the year before exceptional items, amortisation and impairment
of intangible assets and prior period tax adjustments
Basic
£m
137
3
140
65
(11)
–
2007
Diluted
£m
137
3
140
65
(11)
–
2006
Restated
Diluted
£m
219
(2)
217
59
(36)
12
Basic
£m
219
(2)
217
59
(36)
12
194
194
252
252
3,874
–
3,874
3,874
23
3,897
4,017
–
4,017
4,017
34
4,051
3.5p
3.5p
5.5p
5.4p
3.5p
0.1p
3.6p
1.7p
(0.3)p
–
3.5p
0.1p
3.6p
1.7p
(0.3)p
–
5.5p
(0.1)p
5.4p
1.5p
(0.9)p
0.3p
5.4p
(0.1)p
5.3p
1.5p
(0.9)p
0.3p
5.0p
5.0p
6.3p
6.2p
An adjusted earnings per share figure has been disclosed because in the view of the directors this gives a fairer reflection of the results of the
underlying business.
The 2006 adjusted earnings per share figures have been restated to exclude the gain on sale of properties of £4 million to reflect more fairly the
underlying business performance.
Report and accounts 2007 ITV plc 79
Freehold land
and buildings
Improvements to leasehold
land and buildings
Vehicles, equipment and fittings
£m
55
23
(55)
–
23
–
–
–
23
1
1
(2)
–
–
–
–
–
–
23
23
Long
£m
67
4
(13)
–
58
–
8
–
66
9
2
(4)
–
7
2
3
–
12
54
51
Short
£m
14
3
–
(2)
15
6
–
–
21
7
1
–
(2)
6
2
–
–
8
13
9
Owned
£m
404
24
(11)
(167)
250
31
–
(30)
251
291
28
(10)
(167)
142
31
–
(29)
144
107
108
Leased
£m
41
–
–
(37)
4
12
–
–
16
38
–
–
(36)
2
–
–
–
2
14
2
Total
£m
581
54
(79)
(206)
350
49
8
(30)
377
346
32
(16)
(205)
157
35
3
(29)
166
211
193
12 Property, plant and equipment
Cost
At 1 January 2006
Additions
Reclassification as assets held for sale
Disposals and retirements
At 31 December 2006
Additions
Reclassification from assets held for sale
Disposals and retirements
At 31 December 2007
Depreciation
At 1 January 2006
Charge for the year
Reclassification as assets held for sale
Disposals and retirements
At 31 December 2006
Charge for the year
Reclassification from assets held for sale
Disposals and retirements
At 31 December 2007
Net book value
At 31 December 2007
At 31 December 2006
Included within the book values above is expenditure of £11 million (2006: £23 million) on property, plant and equipment which are in the course of
construction. Also included within the book values above is £14 million relating to assets held under finance leases (2006: £2 million). The amount of
contractual commitments for the acquisition of property, plant and equipment is disclosed in note 33.
13 Intangible assets
Cost
At 1 January 2006
Acquisition of subsidiaries
Internal development
At 31 December 2006
Acquisition of subsidiaries
Internal development
At 31 December 2007
Amortisation and impairment
At 1 January 2006
Charge for the year
Impairment charge
At 31 December 2006
Charge for the year
Impairment charge
At 31 December 2007
Net book value
At 31 December 2007
At 31 December 2006
Goodwill
£m
Brands
£m
Customer
contracts and
relationships
£m
Licences
£m
Software
development
£m
Film
libraries and
other
£m
3,425
18
–
3,443
35
–
3,478
–
–
20
20
–
20
40
199
–
–
199
–
–
199
32
18
–
50
18
–
68
3,438
3,423
131
149
336
2
–
338
–
–
338
158
24
–
182
22
8
212
126
156
121
–
–
121
–
–
121
11
9
–
20
9
–
29
92
101
–
–
4
4
–
22
26
–
–
–
–
1
–
1
25
4
78
–
–
78
5
–
83
11
5
–
16
6
–
22
61
62
Total
£m
4,159
20
4
4,183
40
22
4,245
212
56
20
288
56
28
372
3,873
3,895
In the 2006 annual report software development was included in the film libraries and other category. It has been shown separately above as a result
of its increasing significance.
80 ITV plc Report and accounts 2007
Notes to the accounts
13 Intangible assets (continued)
Amortisation of intangible assets is shown within operating costs in the income statement. The £28 million impairment charge in 2007 related to the
Carlton Screen Advertising cash-generating unit and was a result of structural changes in the cinema advertising market. Of the £28 million, £20 million
of the impairment relates to goodwill and £8 million to other intangible assets. In calculating this impairment, growth rates and discount rates
consistent with those noted below have been used, and calculations have been made on a value in use basis, using cash flow projections over the next
seven years. Carlton Screen Advertising is part of the Other operations segment.
Impairment tests for cash-generating units containing goodwill
The following units have significant carrying amounts of goodwill:
Broadcasting
Global Content
Online
GMTV
CSA
2007
£m
2,707
301
376
54
–
3,438
2006
£m
2,707
267
375
54
20
3,423
The recoverable amount of the cash-generating units is based on value in use calculations. Those calculations use cash flow projections based on
estimated operating results for the next seven years. Cash flows in perpetuity are extrapolated using a 2.5% growth rate and are appropriate because
these are long-term businesses. The growth rate used is consistent with the long-term average growth rate for the industry. A pre-tax discount rate
of 11.9% has been used in discounting the projected cash flows. The key assumptions and the approach to determining the cash flows of the cash-
generating units are:
Broadcasting
The main assumptions on which the forecast cash flows were based include the television share of advertising market, share of commercial impacts,
programme costs and the level of PSB savings. The key assumptions in assessing the recoverable amount of this goodwill are the growth in the total
television market and ITV’s share within that market. These assumptions have been determined by using a combination of long term trends, industry
forecasts and in-house estimates. It is also assumed that ITV is able to renew its broadcasting licences in 2014. Broadcasting goodwill exceeds its
carrying amount by approximately £200 million. In assessing the recoverable amount, ITV’s TV advertising revenues are assumed to have a net
present value of £14.8 billion. Goodwill would be equal to its carrying amount if there were a 12% fall in the growth rate assumed in assessing
ITV’s TV advertising revenues.
Global Content
The main assumptions on which the forecast cash flows were based include turnover growth, share of total network programme budget obtained,
and margin growth. These assumptions have been determined by using a combination of extrapolation of historical trends within the business,
industry forecasts and in-house estimates of growth rates.
Online
The main assumptions on which the forecast cash flows were based include page impressions, unique users, average dwell time for unique users,
number of videos streamed and advertising rates. These assumptions have been determined by using a combination of industry forecasts and
in-house estimates of growth rates.
GMTV
The main assumptions on which the forecast cash flows were based include the television share of advertising market, share of commercial
impacts, and programme costs. These assumptions have been determined by using a combination of long term trends, industry forecasts and
in-house estimates.
14 Investments in joint ventures and associated undertakings
At 1 January 2006
Additions
Share of attributable profits
Disposals
Repayment of loans
Reclassification as assets held for sale
Exchange movement and other
At 31 December 2006
Additions
Share of attributable profits
Repayment of loans
Exchange movement and other
At 31 December 2007
Report and accounts 2007 ITV plc 81
Joint
ventures
£m
60
–
5
–
(1)
(3)
(2)
59
4
–
(1)
1
63
Associated
undertakings
£m
33
1
3
(29)
–
–
(1)
7
9
–
–
–
16
Total
£m
93
1
8
(29)
(1)
(3)
(3)
66
13
–
(1)
1
79
Of the share of attributable profits of joint ventures £2 million (2006: £nil) was allocated to assets held for sale (see note 27) in line with their balance
sheet classification. The £4 million of additions in 2007 includes an investment in Kangaroo, a joint venture with BBC Worldwide and Channel 4 seeking
to offer online access to archive programming from the UK’s leading broadcasters.
The aggregated summary financial information in respect of associates in which the Group has an interest is as follows:
Assets
Liabilities
Revenue
Profit
The aggregated summary financial information in respect of the Group’s share of interests in joint ventures is as follows:
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Revenue
Expense
2007
£m
69
(68)
117
2
2007
£m
54
45
(24)
(28)
68
(68)
2006
£m
54
(56)
118
4
2006
£m
54
43
(26)
(25)
62
(59)
The Group’s interests in significant joint ventures and associated undertakings are listed in note ix in the ITV plc company financial statements section
of this report.
82 ITV plc Report and accounts 2007
Notes to the accounts
15 Available for sale financial assets
At 1 January 2006
Disposals
Revaluation to fair value
Reclassification as assets held for sale
At 31 December 2006
Revaluation to fair value
Impairment (see note 5)
At 31 December 2007
The Group’s interests in significant trade investments are listed in note ix in the ITV plc company financial statements section of this report.
16 Distribution rights
Cost
At 1 January 2006
Additions
At 31 December 2006
Additions
At 31 December 2007
Charged to income statement
At 1 January 2006
Expense for the year
At 31 December 2006
Expense for the year
At 31 December 2007
Net book value
At 31 December 2007
At 31 December 2006
The expense for the year is accounted for within operating costs in the income statement.
17 Programme rights and other inventory
Commissions
Sports rights
Acquired films
Production
Prepayments
Other
2007
£m
116
23
222
55
22
2
440
Net programme rights and other inventory written off in the year, included within operating costs analysed in note 4, was £28 million (2006:
£12 million).
18 Trade and other receivables
Due within one year:
Trade receivables
Other receivables
Prepayments and accrued income
Due after more than one year:
Trade receivables
Prepayments and accrued income
Total trade and other receivables
2007
£m
317
14
68
399
7
1
8
407
£m
181
(90)
(6)
(48)
37
(1)
(26)
10
£m
46
11
57
11
68
33
13
46
15
61
7
11
2006
£m
106
20
184
48
41
1
400
2006
£m
302
26
77
405
5
2
7
412
Report and accounts 2007 ITV plc 83
18 Trade and other receivables (continued)
As at 31 December 2007, trade receivables of £9 million (2006: £16 million) were impaired and provided for. The individually impaired receivables relate
mainly to the Broadcasting and Global Content segments due to concerns over their recoverability. Movements on the Group provision for impairment
of trade receivables are as follows:
At 1 January
Provision for receivables impairment
Receivables written off during the year as uncollectible
Unused amounts reversed
At 31 December
2007
£m
16
3
(3)
(7)
9
2006
£m
14
7
(3)
(2)
16
Trade receivables that are less than three months past due are not considered impaired. As at 31 December 2007, trade receivables of £86 million
(2006: £87 million) were past due but not impaired. Of this £46 million (2006: £31 million) relates to customers in the Broadcasting segment where the
Group has supplier and customer relationships. An amount of £40 million (2006: £39 million) is included in trade payables relating to these customers.
The remainder relates to a number of customers for whom there is no recent history of default. The ageing analysis of trade receivables is as follows:
Current
Up to 30 days overdue
Between 30 and 90 days overdue
Over 90 days overdue
19 Current liabilities – trade and other payables due within one year
Trade payables
Social security
Other payables
Accruals and deferred income
Dividends
20 Current liabilities – trade and other payables due after more than one year
Trade payables
21 Non-current liabilities – other payables
Other payables
2007
£m
238
32
8
46
324
2007
£m
183
9
102
331
52
677
2007
£m
9
2007
£m
65
2006
£m
220
38
7
42
307
2006
Restated
£m
184
10
137
295
53
679
2006
£m
9
2006
£m
56
84 ITV plc Report and accounts 2007
Notes to the accounts
22 Analysis of net debt
Cash
Cash equivalents
Cash and cash equivalents
Held to maturity investments
Loans and loan notes due within one year
Finance leases due within one year
Loans and loan notes due after one year
Finance leases due after one year
Swap held against €500m bond
Net debt
Cash
Cash equivalents
Cash and cash equivalents
Loans and loan notes due within one year
Finance leases due within one year
Loans and loan notes due after one year
Finance leases due after one year
Net debt
1 January
2007
£m
824
137
961
–
(468)
(3)
(1,152)
(72)
(1,695)
–
(734)
1 January
2006
£m
522
141
663
(285)
(3)
(781)
(75)
(1,144)
(481)
Net
cash flow and
acquisitions
£m
(444)
(20)
(464)
100
441
3
–
–
444
–
80
Net
cash flow and
acquisitions
£m
303
(3)
300
13
3
(581)
–
(565)
(265)
Currency and
non-cash
movements
£m
1
–
1
–
–
(6)
(32)
(7)
(45)
30
(14)
Currency and
non-cash
movements
£m
(1)
(1)
(2)
(196)
(3)
210
3
14
12
31 December
2007
£m
381
117
498
100
(27)
(6)
(1,184)
(79)
(1,296)
30
(668)
31 December
2006
£m
824
137
961
(468)
(3)
(1,152)
(72)
(1,695)
(734)
Included within cash equivalents is £71 million (2006: £75 million) the use of which is restricted to meeting finance lease commitments under
programme sale and leaseback commitments and gilts of £32 million (2006: £31 million) over which the unfunded pension promises have a charge.
In August 2007 ITV purchased a £100 million senior note issued by UBS AG (‘UBS’) under UBS’ Euro Note Programme. The note matures in March
2009 and the investment return is a function of short term interest rates across six major currencies. For the period to 31 December 2007 the return
earned was 8.6% on a per annum basis. The note is designated as a held to maturity investment and, although it is the Group’s intention to hold this
note to maturity, it can be redeemed for cash before the maturity date, subject to agreement by UBS.
At the time of issue of the €500 million bond the Group took out a cross-currency interest rate swap to economically hedge Euro interest rate
and foreign exchange exposure. As at 31 December 2007 the currency element of the swap is a £30 million asset (2006: £1 million asset) and this
offsets the exchange rate movement of the bond. The interest element of the swap is a £7 million liability (2006: £4 million liability) resulting in an
overall net asset total at 31 December 2007 of £23 million (2006: £3 million net liability total).
The €356 million exchangeable bond and £200 million Eurobond matured in 2007.
Included within non-cash movements in 2006 is the movement of the £200 million Eurobond into amounts payable in less than one year based
on its payment due date.
Report and accounts 2007 ITV plc 85
23 Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest risk, and price risk), credit risk and
liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential
adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.
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. Transactions are only undertaken if they relate to underlying exposures. The treasury department reports regularly to the Audit
Committee and treasury operations are subject to periodic independent reviews and internal audit.
Market risk
a) Currency risk
The Group operates internationally and is therefore exposed to currency risk arising from various currency exposures, primarily with respect to
the US dollar and the Euro. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments
in foreign operations.
The Group’s foreign exchange policy is to hedge material foreign currency denominated costs at the time of commitment and to hedge a
proportion of foreign currency denominated revenues on a rolling 12-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.
The Euro denominated interest and principal payments under the €500 million bond have been fully hedged by a cross-currency interest rate swap.
The Group’s investments in subsidiaries are not hedged as those currency positions are considered to be long term in nature.
At 31 December 2007, if sterling had weakened/strengthened by 10% against the US dollar with all other variables held constant, post-tax
profit for the year would have been £2 million (2006: £2 million) higher/lower. Equity would have been £7 million (2006: £6 million) higher/lower.
At 31 December 2007, if sterling had weakened/strengthened by 10% against the Euro with all other variables held constant, post-tax profit
for the year would have been £1 million (2006: £1 million) higher/lower. Equity would have been £5 million (2006: £1 million) higher/lower.
b) Price risk
The Group is exposed to equity securities price risk due to its investment in SMG plc. During 2007 SMG’s share price fell 75% to 16 pence (2006: 38%)
versus the 3% (2006: 9%) increase in the FTSE 100. The investment in SMG Plc is classified as an available for sale financial asset and so any fair value
movement initially goes through equity. However as the share price experienced a significant decline since October 2007 an impairment charge was
recognised in the income statement. This £26 million charge reflected the decline in the share price in the year as an impairment was also recognised
in 2006 based on the sustained decrease in share price. If the share price increased/decreased by another 10% in 2007 the impairment charge in
2007 would have been £3 million lower/higher.
c) Fair value interest risk
The Group’s principal interest rate risk arises from long-term borrowings. Borrowings issued at floating rates expose the Group to interest rate risk.
The Group’s interest rate policy is to have between 50% and 70% of its total net indebtedness at fixed rates over the medium term in order to
provide a balance between certainty of cost and benefit from lower floating rates. The Group uses interest rate swaps and options in order to achieve
the desired mix between fixed and floating rates.
All of the Group’s interest rate swaps are designated as fair value through the profit and loss so any movement in the fair value goes through the
income statement rather than equity.
At 31 December 2007, if interest rates had increased/decreased by 0.1%, post-tax profit for the year would have been £1 million (2006: £1 million)
lower/higher.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations.
It arises principally from the Group’s receivables from customers, cash and held to maturity investments. There is also credit risk relating to the
Group’s own credit rating as it could impact the coupon payable on certain borrowings.
a) Trade and other receivables
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The majority of trade receivables relate
to airtime sales contracts with advertising agencies and advertisers. Credit insurance has been taken out against these companies to minimise the
impact on the Group in the event of a possible default.
b) Cash and held to maturity investments
The Group operates strict investment guidelines with respect to surplus cash and the emphasis is on preservation of capital. Counterparty limits
for cash deposits are largely based upon long term ratings published by the major credit rating agencies. Deposits longer than three months require
the approval of the Management Committee of the Board.
The £100 million UBS note which matures in March 2009 had an Aaa rating from Moody’s Investors Service at 31 December 2007. This is
designated as a held to maturity investment in the balance sheet.
c) Borrowings
The €500 million 2011 and £250 million 2017 bonds issued in October 2006 have coupon step-ups if ITV’s credit rating with either Standard & Poor’s or
Moody’s Investors Service falls below BBB- or Baa3 respectively (also known as “investment grade”). See note 24 for further details of the coupon rates.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s financing policy is to fund itself
for the long term by using debt instruments with a range of maturities. It is substantially funded from the UK and European capital markets and
has bank facilities from the UK syndicated debt market.
Management monitors rolling forecasts of the Group’s liquidity reserve (comprising undrawn bank facilities and cash and cash equivalents)
on the basis of expected cash flows. This monitoring includes financial ratios to assess headroom under financial covenants on bank facilities.
At 31 December 2007 the Group has available £530 million (2006: £450 million) of undrawn committed facilities. Of these £450 million are bank
facilities which expire in June 2011. The remaining £80 million relates to a revolving credit facility provided by UBS secured against the £100 million
note. Both the UBS facility and note mature in March 2009.
86 ITV plc Report and accounts 2007
Notes to the accounts
23 Financial risk factors (continued)
The table below analyses the Group’s financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings based on the
period remaining until the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cashflows so will not always
reconcile with the amounts disclosed on the balance sheet.
At 31 December 2007
Non-derivative financial liabilities
Borrowings
Trade and other payables
Other non-current payables
Derivative financial liabilities
Interest rate swaps
Forward foreign exchange contracts – cashflow hedges
Outflows
Inflows
Forward foreign exchange contracts – fair value through profit and loss
Outflows
Inflows
At 31 December 2006
Non-derivative financial liabilities
Borrowings
Trade and other payables
Other non-current payables
Derivative financial liabilities
Interest rate swaps
Forward foreign exchange contracts – cashflow hedges
Outflows
Inflows
Forward foreign exchange contracts – fair value through profit and loss
Outflows
Inflows
Total
contractual
cash flows
£m
(1,294)
(686)
(68)
47
(63)
68
(54)
54
(1,996)
Less than
1 year
£m
Between
1 and 2 years
£m
Between
2 and 5 years
£m
(37)
(677)
–
(9)
(33)
36
(35)
35
(720)
(261)
(5)
(56)
3
(30)
32
(12)
12
(317)
(371)
(4)
(12)
41
–
–
(7)
7
(346)
Total contractual
cash flows
£m
Less than
1 year
£m
Between
1 and 2 years
£m
Between
2 and 5 years
£m
(1,976)
(688)
(60)
5
–
–
(474)
(679)
–
(24)
–
–
(78)
76
(2,721)
(64)
62
(1,179)
(8)
(8)
(1)
(7)
–
–
(12)
12
(24)
(610)
(1)
(59)
21
–
–
(2)
2
(649)
Over
5 years
£m
(625)
–
–
12
–
–
–
–
(613)
Over
5 years
£m
(884)
–
–
15
–
–
–
–
(869)
Capital management
The Group’s objective when managing capital (equity and borrowings) is to safeguard the Group’s ability to continue as a going concern in order
to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to
shareholders, issue new shares or sell assets to reduce debt.
Report and accounts 2007 ITV plc 87
24 Analysis of borrowings
a) Ageing
Current
In one year or less, or on demand
Non-current
In more than one year but not more than two years
In more than two years but not more than five years
In more than five years
Total
Loans and
loan notes
£m
Finance
leases
£m
2007
Total
£m
Loans and
loan notes
£m
Finance
leases
£m
27
249
365
570
1,184
1,211
6
8
26
45
79
85
33
468
257
391
615
1,263
1,296
–
582
570
1,152
1,620
3
4
16
52
72
75
2006
Total
£m
471
4
598
622
1,224
1,695
Loans repayable within one year
Loans repayable within one year as at 31 December 2007 include £21 million of loan notes issued in connection with the purchase of Friends Reunited
with a coupon of LIBOR minus 0.525% and £4 million of loan notes issued in connection with the purchase of Carlton Communications Limited
Preference Shares with a coupon of LIBOR minus 0.5%. Loans repayable within one year as at 31 December 2006 also included an unsecured €356
million exchangeable bond and an unsecured £200 million Eurobond which both matured during 2007. These bonds had coupon rates of 2.25%
and 7.625% respectively.
Loans repayable between one and two years
Loans repayable between one and two years as at 31 December 2007 include an unsecured £250 million Eurobond which has a coupon of 5.625%
and matures in March 2009.
Loans repayable between two and five years
Loans repayable between two and five years as at 31 December 2007 include an unsecured €500 million Eurobond which has a coupon of 4.75%
and matures in October 2011. The coupon on this bond steps up to 6.0% under certain conditions if ITV’s credit rating with either Standard & Poor’s
or Moody’s Investors Service falls below BBB- or Baa3 respectively.
Loan repayable after five years
Loans repayable after five years include an unsecured £325 million Eurobond which has a coupon of 5.375% and matures in October 2015 and an
unsecured £250 million Eurobond which has a coupon of 6.125% and matures in January 2017. The coupon on this bond steps up to 7.375% under
certain conditions if ITV’s credit rating with either Standard & Poor’s or Moody’s Investors Service falls below BBB- or Baa3 respectively.
Finance leases
Finance lease liabilities are payable as follows:
In one year or less
In more than one year but not more than five years
In more than five years
Minimum lease
payments
£m
10
47
50
107
Interest
£m
4
13
5
22
2007
Principal
£m
6
34
45
85
Minimum
lease payments
£m
7
33
59
99
2006
Principal
£m
3
20
52
75
Interest
£m
4
13
7
24
Finance leases principally comprise the lease of programme titles under sale and leaseback arrangements and an embedded lease relating to the
provision of news.
The net book value of assets held under finance leases at 31 December 2007 was £14 million (2006: £2 million).
b) Fair values
Available for sale investments
The fair value of available for sale investments traded in active markets is based on quoted market bid prices at the balance sheet date.
Held to maturity investments
Held to maturity investments include the £100 million UBS note which was issued in 2007 and is held at amortised cost. The fair value at
31 December 2007 was £100 million based on quoted market bid prices at the balance sheet date.
Cash and cash equivalents
The carrying value approximates to fair value because of the short maturity of the instruments.
Derivative financial instruments
Interest rate swaps and options are accounted for at their fair value based upon termination prices.
Forward foreign exchange contracts are accounted for at their fair value using quoted forward exchange rates at the balance sheet date.
Other assets and liabilities
No disclosure of fair value has been made as the carrying value is a reasonable approximation of the fair value.
88 ITV plc Report and accounts 2007
Notes to the accounts
24 Analysis of borrowings (continued)
Loans and loan notes
€356 million Exchangeable Bond
£200 million Eurobond
£250 million Eurobond
€500 million Eurobond
£325 million Eurobond
£250 million Eurobond
Other loans
Maturity
Jan 07
Jun 07
Mar 09
Oct 11
Oct 15
Jan 17
Basis of measurement
Amortised cost
Fair value
Fair value
Amortised cost
Amortised cost
Amortised cost
Amortised cost
2007
£m
–
–
249
365
322
248
27
1,211
Book value
2006
£m
240
201
248
334
322
248
27
1,620
2007
£m
–
–
249
358
300
241
27
1,175
Fair value
2006
£m
240
201
248
338
308
248
27
1,610
Bonds accounted for on an amortised cost basis use the effective interest method.
Bonds accounted for using the fair value approach are valued at fair value based on ask price with the resultant gains or losses recorded in the
income statement in accordance with our accounting policy which prevents an accounting mismatch.
c) Financial instruments application
The accounting policies for financial instruments have been applied to the line items with the carrying values below:
At 31 December 2007
Balance sheet assets
Available for sale financial assets
Held to maturity investments
Derivative financial instruments
Trade and other receivables
Cash and cash equivalents
At 31 December 2007
Balance sheet liabilities
Borrowings
Derivative financial instruments
At 31 December 2006
Balance sheet assets
Available for sale financial assets
Derivative financial instruments
Trade and other receivables
Cash and cash equivalents
At 31 December 2006
Balance sheet liabilities
Borrowings
Derivative financial instruments
Assets at
fair value
through the
profit and loss
£m
Loan and
receivables
£m
Derivatives used
for hedging
£m
Available
for sale
£m
–
100
–
407
466
973
–
–
31
–
–
31
–
–
5
–
–
5
Liabilities at
fair value
through the
profit and loss
£m
Derivatives
used for
hedging
£m
10
–
–
–
32
42
Other
financial
liabilities
£m
1,047
–
1,047
–
–
–
Loan and
receivables
£m
–
–
412
930
1,342
249
10
259
Assets at
fair value
through the
profit and loss
£m
–
4
–
–
4
Liabilities at
fair value
through the
profit and loss
£m
449
31
480
Derivatives used
for hedging
£m
Available
for sale
£m
–
–
–
–
–
37
–
–
31
68
Derivatives used
for hedging
£m
Other financial
liabilities
£m
–
–
–
1,246
–
1,246
Total
£m
10
100
36
407
498
1,051
Total
£m
1,296
10
1,306
Total
£m
37
4
412
961
1,414
Total
£m
1,695
31
1,726
25 Financial instruments
The following table shows the fair value of derivative financial instruments analysed by type of contract.
Current portion:
Interest rate swaps – fair value through the profit and loss
Forward foreign exchange contracts – cash flow hedges
Forward foreign exchange contracts – fair value through the profit and loss
Non-current portion:
Interest rate swaps – fair value through the profit and loss
Forward foreign exchange contracts – cash flow hedges
Forward foreign exchange contracts – fair value through the profit and loss
Report and accounts 2007 ITV plc 89
Assets
£m
2007
Liabilities
£m
Assets
£m
2006
Liabilities
£m
–
3
1
4
30
2
–
32
36
–
–
1
1
9
–
–
9
10
1
–
–
1
3
–
–
3
4
14
–
2
16
15
–
–
15
31
Interest rate swap asset valuations as at 31 December 2007 include £23 million in respect of cross currency interest rate swap hedges against the
€500 million October 2011 Euro bond. Under these swaps ITV receives cash flows in Euros which match both coupon and redemption payments
under the bonds and pays in Sterling 6.22% semi-annually on a notional of £167.3 million and 3 month libor plus 1.14% on a notional of £167.3 million
and at maturity of the bonds it pays £334.6 million. The remaining £7 million asset valuation relates to a £125 million swap matched against half
of the £250 million January 2017 bond. Under this swap ITV receives 6.125% (to match the bond coupon) and pays 3 month libor plus 0.51% with
3 month libor capped at 5.25% for rates between 5.25% and 8.0%.
Interest rate swap liability valuations as at 31 December 2007 include £6 million in respect of a £250 million swap matched against the
£250 million March 2009 bond. Under this swap ITV receives 5.625% (to match the bond coupon) and pays 6 month libor plus 1.045%. Libor
cannot be lower than the previous rate setting. The remaining £3 million liability relates to a number of other fixed and floating rate swaps.
All forward foreign exchange contracts hedge underlying currency exposures. The forward foreign exchange contracts which are designated
as cash flow hedges relate to contractual payments for rights and transponder costs.
Interest rate swap liability valuations as at 31 December 2006 include £13million in respect of a cross-currency interest rate swap matched
against the €356 million exchangeable bond which matured in January 2007. There was also a £3 million valuation in respect of the €500 million cross-
currency interest rate swaps described above and a £7 million valuation in respect of the £250 million swap matched against the March 2009 bond.
The remaining £6 million liability and the £4 million interest rate swap asset valuations relate to a number of other fixed and floating rate swaps.
26 Provisions
At 1 January 2007
Utilised in the year
Additions in the year
At 31 December 2007
Boxclever
£m
16
(1)
–
15
Property
£m
6
(5)
–
1
Contract
provisions
£m
–
–
11
11
Other
provisions
£m
5
(1)
–
4
Total
£m
27
(7)
11
31
Of the provisions £27 million (2006: £9 million) are shown within current liabilities.
Property provisions are in place in respect of various vacant properties. Utilisation will be over the life of these leases. The Boxclever provision relates
to potential liabilities that may arise as a result of Boxclever having been placed into administration, most of which relates to pension arrangements.
Contract provisions of £11 million relate to onerous contracts associated with Carlton Screen Advertising of which £2 million has been reclassified from
accruals in 2007. Other provisions include provisions for warranties given at the time of corporate disposals.
90 ITV plc Report and accounts 2007
Notes to the accounts
27 Assets held for sale
The Group is in the process of selling its interest in certain joint ventures and as such has classified these as assets held for sale. The investments
are being sold as they are not core to the Group’s main activities. Three freehold properties are also classified as held for sale. An impairment charge of
£5 million has been recognised on properties during the year of which £3 million related to a property reclassified into property, plant and equipment
at a net book value of £5 million at the year end. This impairment followed consultation with an independent valuer due to a fall in market rental
yields. The properties are being sold as they are deemed to be surplus to future operating requirements and disposal is anticipated to be completed
within one year.
Property, plant and equipment
Investment in joint ventures
Net assets held for sale
28 Acquisitions and disposals of businesses
2007
£m
55
4
59
Acquisitions and disposals in 2007
12 Yard
On 4 December 2007, the Group acquired 100% of the shares in David Young 12 Yard Productions Limited and Hat Trick 12 Yard Productions Limited
for a total initial consideration of £27 million and deferred consideration of up to £9 million contingent on the retention of key employees and the
future performance of the acquired business.
The fair value of the consideration was £35 million. This has taken into account the initial consideration, the present value of the expected
contingent consideration and other costs associated with the acquisition.
Had the acquisition occurred on 1 January 2007, the estimated revenue for the Group would have been £9 million higher at £2,091 million and
operating profit before amortisation and exceptional items £2 million higher at £313 million for the year ended 31 December 2007. The acquired net
assets of 12 Yard are set out in the table below:
Intangible assets
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Current tax liabilities
Net deferred tax liability
Net assets
Goodwill on acquisition
Fair value of consideration
Book value
before acquisition
£m
–
1
2
(1)
–
–
2
Fair value
adjustments
£m
4
–
–
–
(1)
(1)
2
Fair value
to ITV plc
£m
4
1
2
(1)
(1)
(1)
4
31
35
The intangible assets recognised at fair value included the order backlog. A deferred tax liability of £1 million was recognised in respect of these
intangible assets. A £1 million corporation tax liability was also recognised reflecting amounts owing at the date of acquisition. The goodwill represents
the benefit of the acquisition across the Group when combined with existing Group assets and businesses and the value of those assets not requiring
valuation under IFRS 3 (Business Combinations).
Jaffe Braunstein Entertainment
On 4 May 2007, the Group acquired 51% of the shares in Jaffe/Braunstein Entertainment LLC (‘JBE’), a US company, for a total consideration of
£3 million taking into account the initial consideration plus other costs associated with the acquisition. JBE is a film production company in the scripted
genre. The intangible assets recognised at fair value of £1 million included the film library and order backlogs. A deferred tax liability of less than
£1 million was recognised in respect of these intangible assets. Goodwill of £3 million was also recognised representing the benefits of this acquisition
to the Global Content segment , and of those intangible assets not requiring valuation under IFRS 3 (Business Combinations). The amounts recognised
at the acquisition date for each class of JBE’s assets and liabilities and the amount of profit since the acquisition date have not been separately
disclosed as all figures are less than £1 million.
Enable Media
Following the acquisition of Enable Media in November 2006, provisional fair values have been adjusted and an additional £1 million of goodwill
has been recognised in 2007.
Valuation of acquired intangible assets methodology
Valuation of acquired intangible assets has been performed in accordance with industry standard practice. Methods applied are designed to isolate
the value of each intangible asset separately from the other assets of the business. The value of brands are assessed by applying a royalty rate to
the expected future revenues over the life of the brand. Licences are valued on a start-up basis. Customer relationships and controls are valued based
on expected future cash flows from those existing at the date of acquisition. Contributory charges from other assets are taken as appropriate with
post tax cash flows then being discounted back to their present value. Typical discount rates applied in the valuation of intangible assets acquired in
the period are 8% – 13%.
Report and accounts 2007 ITV plc 91
28 Acquisitions and disposals of businesses (continued)
Disposals
During the year, as part of the ongoing process to dispose of non-core businesses and investments, the Group sold its 91.5% holding of Independent
Television Facilities Centre Limited (ITFC) and disposed of its interests in Arsenal Holdings plc and Liverpool Football Club and Athletic Grounds plc.
The interest in ITFC was sold for total consideration of £7 million (£5 million net of cash disposed of £2 million) resulting in a gain of £5 million on
disposal. The Group’s 9.99% interest in Arsenal Holdings plc, along with an option over the Group’s 50% interest in Arsenal Broadband Limited, was sold
for a total cash consideration of £50 million and resulted in a gain of £28 million on disposal. The Group’s 9.99% interest in Liverpool Football Club and
Athletic Grounds plc was sold for a cash consideration of £17 million and resulted in a gain of £7 million on disposal. The Group’s 33% share in MUTV
Limited was sold for a cash consideration of £3 million and resulted in a gain of £3 million on disposal.
Acquisitions and disposals in 2006
Enable Media
On 23 November 2006, the Group acquired the entire share capital of Enable Media Ltd, for a total consideration of £2 million. Enable Media operates
online business directories trading under the name Scoot. As part of the acquisition, loan amounts due by Enable Media totalling £1 million were
repaid, bringing the total cash outflow of the Group to £3 million.
Had the acquisition occurred on 1 January 2006, the estimated revenue for the Group would have been £2 million higher at £2,183 million and
operating profit before amortisation and exceptional items would have been £1 million higher at £376 million for the year ended 31 December 2006.
The acquired net assets of Enable Media are set out in the table below:
Intangible assets
Trade and other payables
Borrowings
Deferred tax liability
Net assets and liabilities
Goodwill on acquisition
Consideration paid
Borrowings settled at date of acquisition
Total cash outflow
Book value
before acquisition
£m
11
(11)
(1)
–
(1)
Fair value
adjustments
£m
(9)
10
–
(1)
–
Fair value
to ITV plc
£m
2
(1)
(1)
(1)
(1)
3
2
1
3
The intangible assets recognised at fair value represent customer relationships in respect of which a deferred tax liability of £1 million has been
recognised.
The goodwill recognised represents the wider benefits of this acquisition to the Online segment, and of those intangible assets not requiring
valuation under IFRS 3 (Business Combinations).
An additional £1 million of goodwill associated with the Enable Media acquisition was recognised in 2007 when provisional fair values were finalised.
Friends Reunited contingent consideration
During 2006, the Group re-estimated the amount of contingent consideration payable following the acquisition of Friends Reunited in 2005. Due to
the strong performance of the business, the Group expected to pay the full £55 million of deferred consideration which resulted in an increase in the
goodwill associated with the acquisition of £15 million (less related deferred tax of £5 million recognised through equity) and a £10 million increase
in operating costs to be spread over the three-year performance period which commenced in 2006.
During 2007, the Group re-estimated the anticipated deferred tax benefit that would arise from the contingent consideration and has reduced
the anticipated benefit by £14 million through equity.
Disposals
During 2006, as part of the ongoing process to dispose of non-core businesses and investments, the Group sold 021 and Granada Learning and its
investments in Seven Network and TV3. The disposal of the 021 business for £4 million resulted in a nil gain or loss being booked. The sale of Granada
Learning took place for a potential maximum consideration of £53 million. This comprises £17.5 million in cash, £17.5 million in loan notes and a
further £18 million which is contingent on the future performance of the business. The fair value of expected proceeds has been taken as £31 million
for accounting purposes resulting in a £12 million loss on disposal.
The interest in Seven Network was sold for total consideration of £87 million resulting in a profit of £29 million booked through the
income statement. The interest in TV3 was sold for a total consideration of £70 million resulting in a profit of £40 million booked through
the income statement.
92 ITV plc Report and accounts 2007
Notes to the accounts
29 Called up share capital
The Group’s share capital is the same as that of ITV plc. Details of this are given in note vi in the ITV plc company financial statements section of
this annual report.
Employee benefit trusts
The Group has investments in its own shares as a result of shares purchased by certain employee benefit trusts. As at 31 December 2007 the holdings
were as follows:
ITV Employees’ Benefit Trust
Carlton Communications Employee Share Ownership Plan
2007
Number
of shares
15,647,090
–
Market value
Number
£m
of shares
13 15,662,147
6,276,984
–
2006
Market value
£m
17
7
The nominal value of own shares held is £1.6 million (2006: £2.2 million). The shares will be held in trust until such time as they may be transferred
to participants of the various Group share schemes. Rights to dividends have been waived by the ITV Employees’ Benefit Trust in respect of shares
held which do not relate to the Deferred Share Award Plan.
The total number of shares held by the trusts at 31 December 2007 is 15,647,090 (2006: 21,939,131) ordinary shares representing 0.40%
(2006: 0.56%) of ITV’s issued share capital.
On 25 July 2007, the Trustees of the Carlton Communications Employee Share Ownership Plan sold 91,878 ordinary shares to the ITV Employees’
Benefit Trust at a market value of £97,483. The Carlton Communications Employee Ownership Plan is now being wound up.
During 2007 the ITV Employees’ Benefit Trust purchased ITV plc shares in the open market. In accordance with the Trust Deed, the Trustees of
the ITV Employees’ Benefit Trust have the power to exercise all voting rights in relation to any investment (including shares) held within that trust.
During the year the following ordinary shares were released from the above trusts to satisfy awards vesting under the Group’s share schemes
as follows:
Shares released from:
ITV Employees’ Benefit Trust
Carlton Communications Employee Share Ownership Plan
30 Capital and reserves
Number of shares released
6,859,977
1,622,532
116,280
259,289
594,222
1,735,459
7,549,876
188,646
3,362,170
211,002
6,185,106
Nominal value
£
685,998
162,253
11,628
25,929
59,422
173,546
754,988
18,865
336,217
21,100
61,851
Scheme
Deferred Share Award Plan
ITV Sharesave Plan
Carlton Sharesave Plan
Granada Sharesave Plan
Carlton Executive Share Option Scheme
Granada Executive Share Option Scheme
Carlton Equity Participation Plan
Carlton Deferred Annual Bonus Plan
Granada Commitment Plan
ITV Employee Bonus Plan
Carlton Equity Participation Plan
At 1 January 2006
Share buy-backs
Shares issued in the year
Cancellation of convertible shares
Issue of deferred shares
Total recognised income and expense
Movements due to share-
based compensation
Dividends paid to minority interests
Equity dividends
At 31 December 2006
Cancellation of deferred shares
Total recognised income and expense
Movements due to share-
based compensation
Dividends paid to minority interests
Equity dividends
At 31 December 2007
Attributable to equity shareholders of the parent company
Share
capital
£m
423
(24)
2
(12)
12
–
–
–
–
401
(12)
–
–
–
–
389
Share
premium
£m
98
–
22
–
–
–
Merger and
other reserves
£m
2,666
24
–
–
–
–
Translation
reserve
£m
(1)
–
–
–
–
(2)
Available for sale
reserve
£m
33
–
–
–
–
(16)
–
–
–
120
–
–
–
–
–
120
–
–
–
2,690
12
–
–
–
–
2,702
–
–
–
(3)
–
7
–
–
–
4
–
–
–
17
–
(13)
–
–
–
4
Retained
earnings
£m
74
(251)
–
–
–
244
(9)
–
(127)
(69)
–
201
4
–
(122)
14
Total
£m
3,293
(251)
24
(12)
12
226
(9)
–
(127)
3,156
–
195
4
–
(122)
3,233
Minority
interest
£m
12
–
–
–
–
3
–
(8)
–
7
–
1
–
(2)
–
6
Total
equity
£m
3,305
(251)
24
(12)
12
229
(9)
(8)
(127)
3,163
–
196
4
(2)
(122)
3,239
Included within retained earnings is a £18 million (2006: £25 million) deduction for investments held in ITV plc shares by the Group-sponsored
employee benefit trusts.
Report and accounts 2007 ITV plc 93
30 Capital and reserves (continued)
Merger and other reserves
Merger and other reserves at 31 December 2007 include merger reserves arising on the Granada/Carlton merger of £2,548 million (2006: £2,548
million), capital reserves of £112 million (2006: £112 million), capital redemption reserves of £36 million (2006: £24 million), revaluation reserves
of £6 million (2006: £6 million).
Translation reserve
The translation reserve comprises all foreign exchange differences arising on the translation of the accounts of, and investments in, foreign operations.
Included within the movement in the year is £5 million related to cash flow hedges (2006: £nil).
Available for sale reserve
The available for sale reserve comprises all movements arising on the revaluation and disposal of assets accounted for as available for sale.
31 Contingent liabilities
The potential for fines associated with issues arising on the use of premium rate services in programming on ITV is described in note 5. There are also
contingent liabilities in respect of certain litigation and guarantees and in respect of warranties given in connection with certain disposals of businesses.
32 Operating leases
The total future minimum lease payments under non-cancellable operating leases are payable as follows:
Not later than one year
Later than one year and not later than five years
Later than five years
2007
£m
17
53
153
223
2006
£m
13
52
163
228
The Group leases a number of properties principally comprising offices and studios under operating leases. Leases typically run for a period of 15 years
with an option to renew the lease after that date. Lease payments are typically increased every five years to reflect market rentals. None of the leases
include contingent rentals.
The total future minimum sublease payments expected to be received under non-cancellable subleases at the balance sheet date is £8 million
(2006: £20 million).
The total operating lease expenditure recognised during the year was £19 million (2006: £19 million) and total sublease payments received totalled
£3 million (2006: £4 million).
33 Capital and other commitments
There are £1 million of capital commitments at 31 December 2007 (31 December 2006: £7 million). There are also a number of operating
commitments in respect of programming entered into in the ordinary course of business.
34 Post balance sheet events
In January 2008 the Group repaid £21 million of loan notes relating to the Friends Reunited acquisition in 2005. On 5 March 2008 the Group sold its
50% interest in Liverpool FC.tv Limited for £15.75 million, plus repayment of £3.2 million of debt.
35 Related party transactions
Transactions with associated undertakings and joint ventures:
Sales to joint ventures
Sales to associated undertakings
Purchases from associated undertakings
Amounts owed by joint ventures
Amounts owed by associated undertakings
Amounts owed to associated undertakings
Amounts owed by pension scheme
2007
£m
2
1
42
2007
£m
33
–
1
3
2006
£m
2
2
51
2006
£m
30
8
2
–
All transactions with associated undertakings and joint ventures arise in the normal course of business on an arm’s-length basis. None of the balances
are secured.
Transactions with key management personnel
Key management consists of ITV’s senior executive team. Key management personnel compensation is as follows:
Short term employee benefits
Post-employment benefits
Termination benefits
Share-based payments
Amounts paid to the Group’s retirement benefit plans are set out in note 6.
2007
£m
5
1
2
6
14
2006
£m
6
1
3
6
16
94 ITV plc Report and accounts 2007
ITV plc Company Financial Statements
Company balance sheet
At 31 December:
Fixed assets:
Investments in subsidiary undertakings
Held to maturity investments
Derivative financial instruments
Current assets:
Amounts owed by subsidiary undertakings
Prepayments and accrued income
Cash at bank and in hand and short term deposits
Creditors – amounts falling due within one year:
Borrowings
Derivative financial instruments
Amounts owed to subsidiary undertakings
Accruals and deferred income
Other creditors
Dividends
Net current assets
Total assets less current liabilities
Creditors – amounts falling due after more than one year:
Borrowings
Derivative financial instruments
Net assets
Capital and reserves:
Called up share capital
Share premium
Other reserves
Profit and loss account
Shareholders’ funds – equity
Note
iii
iv
iv
v
vi
vi
vi
2007
£m
2007
£m
2006
Restated
£m
11
3
764
778
(466)
(13)
(12)
(35)
(52)
(53)
(631)
74
1
244
319
(25)
–
(28)
(28)
(53)
(52)
(186)
1,816
100
30
1,946
133
2,079
(1,186)
(2)
(1,188)
891
389
120
36
346
891
2006
Restated
£m
1,875
–
5
1,880
147
2,027
(1,154)
(6)
(1,160)
867
401
120
24
322
867
The accounts were approved by the Board of Directors on 5 March 2008 and were signed on its behalf by:
Michael Grade
John Cresswell
Report and accounts 2007 ITV plc 95
Notes to the ITV plc Company Financial Statements
i Accounting policies
Basis of preparation
As permitted by section 230(4) of the Companies Act 1985, a separate profit and loss account, dealing with the results of the parent company,
has not been presented.
The Company is exempt from adopting FRS 29, “Financial Instruments: Disclosures”. Under FRS 29 the Company is exempt from the requirement
to provide its own financial instruments disclosures, on the grounds that it is included in publicly available consolidated financial statements which
include disclosures that comply with that standard. However, to be consistent the Company has adopted the same balance sheet captions as the
Group in classifying its financial instruments and has restated the 2006 balance sheet accordingly.
The Company has adopted UITF 41 ‘Scope of FRS 20 – Share Based Payments’ for the first time in these accounts. The adoption of this
interpretation represents a change in accounting policy and the 2006 comparative figures have been restated to reflect this.
Prior year adjustment
During the year the Company adopted UITF 41 ‘Scope of FRS 20 – Share Based Payments’. This interpretation provides guidance on the application
of FRS 20 which has resulted in the Company recognising a share based payment in these accounts. In accordance with UITF 41 this is reflected in the
cost of investment in subsidiary undertakings, with a corresponding increase in equity. The FRS 20 charge, including the amount relating to prior years,
was recharged to subsidiary undertakings in the year and reflected as an amount owed by subsidiary undertakings at 31 December 2007. There is no
impact on the profit of the Company in 2007 or 2006.
Year ended 31 December 2006
Investments in subsidiary undertakings
Profit and loss reserve
As previously
reported
£m
1,816
263
Impact of prior
year adjustment
£m
59
59
As restated
£m
1,875
322
Subsidiaries
Subsidiaries are entities that are directly or indirectly controlled by the Company. Control exists where the Company has the power to govern the
financial and operating policies of the entity so as to obtain benefits from its activities. The investment in the Company’s subsidiaries is recorded
at cost, adjusted for the effect of UITF 41 and recharged share scheme costs.
Foreign currency transactions
Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Foreign currency monetary
assets and liabilities at the balance sheet date are translated into sterling at the rate of exchange ruling at that date. Foreign exchange differences
arising on translation are recognised in the profit and loss account. Non-monetary assets and liabilities measured at historical cost are translated into
sterling at the rate of exchange on the date of the transaction.
Borrowings
Borrowings are recognised initially at fair value, and in subsequent periods at amortised cost. The difference between cost and redemption value
is recorded in the profit and loss account over the period of the liability on an effective interest basis.
Derivatives and other financial instruments
The Company uses a limited number of derivative financial instruments to hedge its exposure to fluctuations in interest rates and exchange rates.
The Company does not hold or issue derivative instruments for speculative purposes.
Derivative financial instruments are initially recognised at fair value and are subsequently remeasured at fair value with movement recorded in the
profit and loss account.
The fair value of interest rate swaps is the estimated amount that the Company would receive or pay to terminate the swap at the balance sheet
date, taking into account current interest rates and the current creditworthiness of swap counterparties.
Dividends
Dividends are recognised in the period in which they are declared and approved by the Company’s shareholders.
ii Employees
Two (2006: two) directors of ITV plc were the only employees of the Company during the year. The costs relating to these directors are disclosed in the
Remuneration report on pages 106 to 113.
iii Investments in subsidiary undertakings
The principal subsidiary undertakings are listed in note ix. The movements were as follows:
At 1 January 2007 as previously stated
Prior year adjustment
At 1 January 2007 as restated
FRS 20 recharge
At 31 December 2007
£m
1,816
59
1,875
(59)
1,816
96 ITV plc Report and accounts 2007
Notes to the ITV plc Company Financial Statements
iv Borrowings
Loans repayable within one year
Loans repayable within one year as at 31 December 2007 include £21 million of loan notes issued in connection with the purchase of Friends Reunited
with a coupon of LIBOR minus 0.525%, and £4 million of loan notes issued in connection with the purchase of Carlton Communications Limited
Preference Shares with a coupon of LIBOR minus 0.5%. Loans repayable within one year as at 31 December 2006 also included an unsecured
€356 million exchangeable bond and an unsecured £200 million Eurobond which both matured during 2007. These bonds had coupon rates of 2.25%
and 7.625% respectively.
Loan repayable after more than one year
Loans repayable after more than one year include an unsecured £250 million Eurobond which has a coupon of 5.625% and matures in March 2009,
an unsecured €500 million Eurobond which has a coupon of 4.75% and matures in October 2011, an unsecured £325 million Eurobond which has a
coupon of 5.375% and matures in October 2015 and an unsecured £250 million Eurobond which has a coupon of 6.125% and matures in January
2017. The coupon on the €500 million Eurobond and £250 million October 2015 Eurobond steps up to 6% and 7.375% respectively under certain
conditions if ITV’s credit rating with either Standard & Poor’s or Moody’s Investors Service falls below BBB- or Baa3 respectively.
v Called up share capital
Ordinary shares of 10 pence each
Authorised:
5,826,377,627 (2006: 5,826,377,627)
Allotted, issued and fully paid:
3,889,129,751 (2006: 3,889,129,751)
Deferred shares of 10 pence each
Authorised:
Nil (2006: 144,516,388)
Allotted, issued and fully paid
Nil (2006: 123,772,488)
Total
2007
£m
Authorised
2006
£m
Allotted, issued
and fully paid
2007
£m
2006
£m
583
583
389
389
–
14
583
597
–
389
12
401
On 1 January 2006 convertible shares were, pursuant to Article 4.A.4(F) of the Company’s Articles of Association, automatically converted into non-
voting deferred shares. Pursuant to this Article, the Company used its right to execute a transfer on behalf of each holder of deferred shares of such
holder’s entire holding of deferred shares to a custodian without obtaining the sanction of any such holder and for no consideration. The UK Listing
Authority and the London Stock Exchange have confirmed cancellation of the listing from the Official List of the deferred shares and the cancellation
of trading of the deferred shares on the London Stock Exchange. The issued deferred shares were cancelled on 15 January 2007 and a resolution to
cancel the authorised deferred share capital was passed at the Annual General Meeting held on 17 May 2007. Accordingly the deferred shares have
now been cancelled.
The Company’s ordinary shares give the shareholder equal rights to vote, receive dividends and to the repayment of capital.
The deferred shares were non-voting and had no rights to receipt of a dividend or to any repayment of capital.
There have been no issued ordinary share capital movements during the period.
vi Reconciliation of movements in shareholders’ funds
At 1 January 2007 – as previously stated
Prior year adjustment – see note (i)
At 1 January 2007 – as restated
Cancellation of deferred shares
Retained profit for year for equity shareholders
Share-based payments
At 31 December 2007
Share
capital
£m
401
–
401
(12)
–
–
389
Share
premium
£m
120
–
120
–
–
–
120
Other
reserves
£m
24
–
24
12
–
–
36
Profit and
loss account
£m
263
59
322
–
9
15
346
Total
£m
808
59
867
–
9
15
891
The profit after tax for the year dealt with in the accounts of ITV plc is £131 million (year ended 31 December 2006: loss of £53 million) before
dividends of £122 million (2006: £127 million).
vii Contingent liabilities
Under a group registration, the Company is jointly and severally liable for VAT at 31 December 2007 of £28 million (31 December 2006: £29 million).
The Company has guaranteed certain finance and operating lease obligations of subsidiary undertakings.
There are contingent liabilities in respect of certain litigation and guarantees and in respect of warranties given in connection with certain disposals
of businesses and in respect of certain trading and other obligations of certain subsidiaries. In the opinion of the directors, adequate allowance has
been made in respect of these matters.
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its Group, the Company
considers these to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee contract as a
contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee.
Report and accounts 2007 ITV plc 97
viii Capital and other commitments
There are no capital commitments at 31 December 2007 (31 December 2006: none).
ix Principal subsidiary undertakings and investments
Principal subsidiary undertakings
The principal subsidiary undertakings of the Company at 31 December 2007, all of which are wholly owned (directly or indirectly) and incorporated
and registered in England and Wales except where stated, are:
Name
ITV Broadcasting Limited
ITV Consumer Limited
ITV Productions Limited
ITV Network Limited (1)
ITV Services Limited
ITV2 Limited
ITV Digital Channels Limited
12 Yard Productions (6)
3sixtymedia Limited (80% owned)
Carlton Communications Limited
Carlton Screen Advertising Limited
Friends Reunited Limited
GMTV Limited (75% owned)
Granada Limited
Granada International Media Limited
Granada International Media, Inc (4)
Granada Productions Pty Limited (3)
Granada Entertainment USA (2)
Granada Produktion für Film und Fersehen GmbH (5)
Granada Ventures Limited
Jaffe/Braunstein Entertainment LLC (51% owned) (4)
SDN Limited
(1) Interest in company limited by guarantee
(2) Registered in the USA
(3) Incorporated and registered in Australia
(4) Incorporated and registered in the USA
(5) Incorporated and registered in Germany
(6) A partnership
Principal activity
Broadcast of television programmes
Development of platforms, broadband, transactional and mobile services
Production of television programmes
Scheduling and commissioning television programmes
Provision of services for other companies within the Group
Operation of digital TV channels
Operation of digital TV channels
Production of television programmes
Supplier of facilities for television productions
Holding company
Sale of advertising space in cinemas
Operation of community based websites
Production and broadcast of breakfast time television under national Channel 3 licence
Holding company
Rights ownership and distribution of television programmes and films
Distribution of television programmes
Production of television programmes
Production of television programmes
Production of television programmes
Production and distribution of video and DVD products
Production of television programmes
Operation of Freeview Multiplex A
A list of all subsidiary undertakings will be included in the Company’s annual return to Companies House.
98 ITV plc Report and accounts 2007
Notes to the ITV plc Company Financial Statements
ix Principal subsidiary undertakings and investments (continued)
Principal joint ventures, associated undertakings and investments
The Company indirectly held at 31 December 2007 the following holdings in significant joint ventures, associated undertakings and investments:
Name
The Ambassador Theatre Group Limited
Arsenal Broadband Limited
Freesat (UK) Limited
Independent Television News Limited
Liverpool FC.tv Limited
Mammoth Screen Limited
Screenvision Holdings (Europe) Limited
SMG plc *
Technicolor Cinema Advertising LLC**
* Incorporated and registered in Scotland
** Incorporated and registered in USA
Interest in
ordinary
share capital
2007
%
7.34
Interest in
ordinary
share capital
2006
%
7.34
Note
c
b
b
a
b
a
b
c
b
50.00
50.00
50.00
–
40.00
40.00
50.00
50.00
25.00
50.00
5.60
–
50.00
16.78
50.00
50.00
a Associated undertaking
b Joint venture
c Trade investment
Principal activity
Operation of theatres and production of theatrical
productions
Exploitation of new media and other
commercial opportunities
Provision of a standard and high definition enabled
digital satellite proposition
Supply of news services to broadcasters in the UK
and elsewhere
Exploitation of new media and other
commercial opportunities
Production of television programmes
European cinema advertising
Management activities for holding companies and
television broadcasting in central and north Scotland
US cinema advertising
x Post balance sheet events
In January 2008 the Company repaid £21 million of loan notes relating to the Friends Reunited acquisition in 2005.
Corporate governance
The Board of ITV plc is committed to business integrity and high
ethical values across the Group’s operations. As an essential part
of this commitment, the Board supports high standards of
corporate governance and has a policy of seeking to comply with
the recommendations of the Combined Code and voting guidelines
of our major institutional investors where appropriate.
Compliance
As required by the Listing Rules issued by the Financial Services
Authority, this report describes how the Company has applied the
principles set out in Section 1 of the Combined Code on Corporate
Governance. It also discloses the extent to which the Company has
complied with the Code’s provisions.
The Board considers that, throughout the year, the Company
complied with the provisions of the Combined Code with the exception
of code provision A.2.1. The Board remains of the view that the
appointment of Michael Grade as Executive Chairman provides the
Company with a strong and creative leadership which is important
at this time of rapid change in the media industry.
John Cresswell is Chief Operating Officer and Finance Director, and
the executive team report directly to him as shown below. The balance
of creative leadership and media management skills promotes an
acceleration in the improvement of the Company’s business. Sir James
Crosby is the senior independent director and Chairman of the
Nomination Committee and helps to provide an appropriate level of
governance control. It is planned that Michael Grade will step down from
his executive role in 2010 and remain as non-executive Chairman and
a Chief Executive will be appointed at that time.
The Board
Composition: The Board currently comprises 12 members, the Executive
Chairman, the Chief Operating Officer and Finance Director, two other
executive directors and eight non-executive directors. Biographical details
for each of the directors are set out on pages 50 and 51.
The composition of the Board during 2007 is set out in the Directors’
report on page 53.
Executive Chairman: Michael Grade is Executive Chairman and is
responsible for leadership of the Board, ensuring its effectiveness and
setting its agenda.
Deputy Chairman: Sir George Russell is Deputy Chairman.
Chief Operating Officer and Finance Director: John Cresswell is Chief
Operating Officer and Finance Director and has responsibility to the
Board for leadership and management of the day-to-day operations
of the Group.
Senior independent director: Sir James Crosby was appointed as senior
independent director on 19 February 2007. His role is designed to provide
an effective level of governance control and to ensure there is an
Report and accounts 2007 ITV plc 99
appropriate division of responsibilities to avoid excessive concentration
of power while Michael Grade is Executive Chairman. His responsibilities
include the following, amongst others:
– to act as a conduit to the Board for communication of shareholder
concerns when other channels of communication are inappropriate;
– to ensure the performance evaluation of the Executive Chairman is
conducted effectively;
– to ensure the outcomes of performance evaluations of the Executive
Chairman and other non-executive directors are acted upon; and
– to convene and chair meetings of the non-executive directors.
Details of his professional commitments are included in his biography
on page 50. The Board is satisfied that these do not interfere with the
performance of his duties for the Company.
The job descriptions of the Executive Chairman, the Chief Operating
Officer and the senior independent director are set out in writing and
have been agreed by the Board.
Election and re-election: All directors are required by the Company’s
Articles of Association to be elected by shareholders at the first Annual
General Meeting following their appointment by the Board.
Subsequently, all directors are subject to re-election by shareholders at
least every three years. The directors who will be seeking election and
re-election at the Annual General Meeting on 15 May 2008 are set out
in the Directors’ report on page 53. The reasons why the Board believes
they should be re-elected are set out in the explanatory notes to the
notice of the Annual General Meeting.
External directorships: With the specific approval of the Board in
each case, executive directors may accept external appointments
as non-executive directors of other companies (but only one FTSE 100
company) and retain any related fees paid to them. Details of fees
received during 2007 can be found in the Remuneration report
on page 109.
Non-executive directors
The non-executive directors constructively challenge and help develop
proposals on strategy. They bring strong, independent judgment,
knowledge and experience to the Board’s deliberations. The non-
executive directors are of sufficient calibre and number that their
views carry significant weight in the Board’s decision making.
Independence: The Combined Code recommends that at least half
of the Board, excluding the Chairman, should comprise “independent”
non-executive directors. The Board considers each of its current
non-executive directors to be independent.
Meetings: The non-executive directors meet regularly as a group.
They met without the executive directors present on one occasion
in 2007 and have done so again in 2008.
Terms of engagement: Subject to the Company’s Articles of
Association, the Companies Act and satisfactory performance
evaluation, non-executive directors are appointed for an initial period
of three years from commencement of appointment. At the third
anniversary of appointment the director will discuss with the Board
whether it is appropriate for a further term to be served, subject to the
Board succession planning framework (explained in the Nomination
Committee section on page 102) which provides that any further term
may be adjusted in length should that be in the interests of an orderly
succession of non-executive directors to the Board. The re-appointment
of directors who have served for more than nine years will be subject
to annual review.
Baroness Usha Prashar completed three years as a non-executive
director in February 2008. It was agreed that she should serve a further
term subject to the Board succession planning framework.
Time commitment: The time commitment expected of the
non-executive directors as set out in their standard terms of
engagement is 12 to 18 days per annum, including attendance at
Board meetings, Board committee meetings, the Annual General
Meeting, an annual strategy away day and an annual strategy dinner.
The Board is satisfied that each of the non-executive directors commits
sufficient time to the business of the Company.
100 ITV plc Report and accounts 2007
Corporate governance
Company Secretary
The Company Secretary, James Tibbitts, is responsible for advising
the Board on all governance matters. The directors have access to the
advice and services of the Company Secretary. The Company’s Articles
of Association and the schedule of matters reserved to the Board for
decision provide that the appointment and removal of the Company
Secretary is a matter for the Board. The Company Secretary acts as
secretary of the Board and all its Committees and in addition is
responsible for a number of the head office central services functions.
How the Board operates
Board meetings: The Board is scheduled to meet ten times in 2008
(including two meetings devoted to discussion of strategic matters) and
may meet at other times as and when required. The Board approves
annually a schedule of matters to be considered at each meeting and at
each meeting of the Audit, Nomination and Remuneration Committees.
In 2007, the Board focused on the following areas of strategic
importance to the Company, amongst others:
– the development and implementation of the Turnaround strategy,
providing the Company with a clear strategic focus up to 2012;
– the Company’s preparations for digital switchover and the
development of a new free-to-view satellite proposition, Freesat,
a joint venture with the BBC;
– the circumstances surrounding the premium rate services issues,
including the Deloitte report into failings, and the actions the
Company was taking to restore trust and improve enterprise risk
management;
– the launch of the extensively redeveloped itv.com complete with
video-on-demand (“VOD”) services, and the development of further
VOD services with the BBC and Channel 4;
– the Company’s submission to the Competition Commission following
the acquisition by BSkyB of an 17.9% stake in the Company; and
The Board has delegated certain responsibilities to board committees,
the key committees being the Audit Committee, Nomination
Committee, Remuneration Committee and the Management
Committee. Further information is provided below.
Information flow: Regular reports and papers are circulated to the
directors in a timely manner in preparation for board and committee
meetings. These papers are supplemented by other relevant information
when applicable or if requested.
The non-executive directors receive monthly management accounts
and regular management reports including financial and non-financial
KPIs which enable them to scrutinise the Group’s and management’s
performance against agreed objectives. They also receive a weekly
information pack which includes key performance data, information
about the Company and other corporate governance matters. This
information is also made available on a secure website which can be
accessed by all directors at any time.
Independent professional advice: Directors are given access to
independent professional advice at the Company’s expense when
the directors deem it necessary in order for them to carry out
their responsibilities.
Insurance: The Company maintains liability insurance for its directors
and officers with a cover limit of £75 million.
Indemnities: The Company has entered into deeds of indemnity with
its directors.
Board effectiveness
Performance evaluation: The Board has established a formal process for
the annual evaluation of the performance of the Board, its committees,
and individual directors with particular attention given to those who are
due for re-election, in accordance with the requirements of the
Combined Code. The directors are made aware, on appointment, that
their performance will be subject to an annual evaluation.
Some of the actions taken during the year resulting from the 2006
– refining and implementing a succession planning framework for the
evaluation included:
Board and senior executives.
Attendance: Attendance of directors at board and strategy meetings
and the Annual General Meeting during 2007 is set out below. Board
members receive all papers tabled at meetings even if they are unable
to attend.
Responsibility and delegation: The specific responsibilities are set out
in a schedule of matters reserved to the Board. These include:
– setting long-term objectives and corporate strategy and approving
an annual budget;
– approving major acquisitions;
– approving major divestments and capital expenditure;
– approving appointments to the Board;
– reviewing systems of internal control and risk management; and
– approving policies relating to directors’ remuneration.
– ensuring appropriate mix of experience and expertise; and
– more detailed reviews on board and management succession
planning.
In November 2007 independent consultants, Boardroom Review, carried
out an evaluation of the effectiveness of the Board and its committees,
individual directors and the Executive Chairman.
The evaluation process included a written questionnaire and an
interview with each director and the Company Secretary. The questions
covered a range of issues such as board processes, board roles and
responsibilities, board agendas, committee processes, individual
effectiveness, training and continuing professional development.
The independent consultant also attended the November board
and committee meetings, and reviewed associated papers.
Feedback from the evaluation process was provided to the Board
in the form of a presentation at a board meeting and a written report.
The review made the following suggestions, amongst others, for
enhanced effectiveness:
– Nomination Committee membership could be expanded to include
all non-executive directors to improve co-ordination of information;
– the Board should consider stakeholder mapping to analyse and review
stakeholder priorities on a regular basis; and
– the programme of board meetings scheduled for the year and
meetings of non-executive directors without the executives should
be kept under review.
The Board and its committees were found to be operating effectively
and the Board has accepted the recommendations made as a result
of the review process and will make changes to reflect them.
Report and accounts 2007 ITV plc 101
largest institutional shareholders. In addition, the Company responds to
individual ad hoc requests for discussions from institutional shareholders.
Save in exceptional circumstances, all members of the Board will
attend the Annual General Meeting and shareholders are invited to ask
questions during the meeting and to meet with directors prior to and
after the formal proceedings. At the meeting the Executive Chairman
reviews the Group’s current trading. Notice of the Annual General
Meeting, together with any related documents, is made available to
shareholders on our website or mailed to them if they have elected to
receive hard copies about seven weeks before the meeting and separate
resolutions are proposed on each substantially separate issue. At the
meeting all resolutions are taken on a poll. The level of votes lodged on
a resolution is announced to the meeting following voting and is made
available on a regulatory news service and on the Company website at
www.itvplc.com the following day.
Board committees
The Company Secretary acts as secretary to all of the Board committees
and minutes of meetings are circulated to all Board members. The terms
of reference for each committee are reviewed annually.
Current committee membership:
Audit Committee
Composition and attendance: During 2007 the Audit Committee
comprised:
John McGrath (Chairman)
Mike Clasper
Sir James Crosby
Baroness Usha Prashar
Sir George Russell
Agnès Touraine
Appointed
Resigned
17 January 2008
19 February 2007
1 September 2007
1 September 2007
8 August 2007
John McGrath resigned from the Board on 17 January 2008 and Mike
Clasper became Chairman of the Committee. John Ormerod became
a member of the Committee on 18 January 2008.
Attendance during 2007:
The Combined Code requires the Board to be satisfied that at least
one member of the Audit Committee has recent and relevant financial
experience. The Board considered this requirement during 2007, and
concluded that the wide range of business and financial experience of
the Committee members as a whole, gained at the highest level of UK
FTSE 100 companies and other blue-chip organisations, was sufficient
to enable the Committee to fulfil its terms of reference in a robust and
independent manner. The appointment of John Ormerod in January
2008 will strengthen the position further. Biographical details of the
members of the Committee are set out on pages 50 and 51.
Induction and continuing professional development: The Company
has a policy and programme for induction and continuing professional
development, which is reviewed annually.
On appointment, each director takes part in a comprehensive
induction programme where they:
– receive information about the Group in the form of presentations
by executives from all parts of the business and on the regulatory
environment;
– meet representatives of the Company's key advisers, such as the
Company's auditors and solicitors;
– receive information about the role of the Board and the matters
reserved for its decision, the terms of reference and membership of
board committees and the powers delegated to those committees;
– receive information about the Company's corporate governance
practices and procedures and the latest financial information about
the Group; and
– are advised of their legal and other duties and obligations as a director
of a listed company.
The above is supplemented by visits to key locations, including studios
and regional sites, and meetings with key senior executives and with
major shareholders where appropriate.
During their period in office, the directors are continually updated
on the Group's businesses and the competitive and regulatory
environments in which they operate. They receive regular updates on:
– corporate responsibility matters;
– changes affecting the Group and the markets in which it operates
through written briefings and meetings with senior executives across
the Group and from meetings with key advisers; and
– changes to the legal and governance requirements of the Group
and in relation to their own position as directors.
During 2007 the directors were fully briefed by independent advisers
on certain of the provisions of the Companies Act 2006 with particular
emphasis on directors' duties.
Internal control
The Combined Code requires the Board to review, at least annually, all
material internal controls including financial, operational, compliance
controls and risk management systems. In October 2005 the Financial
Reporting Council issued revised guidance to directors in respect of
compliance with the internal control requirements of the Combined
Code. In the opinion of the Board the Company has complied with this
guidance throughout the year, maintaining an ongoing process for
identifying, evaluating and minimising risk.
A section on the Company’s approach to internal control is included
in the Audit Committee report on page 105. The Board has conducted
a review of the effectiveness of the Group’s systems of internal controls
for the year ended 31 December 2007.
Relations with shareholders
The Board attaches a high priority to communications with shareholders.
In addition to the preliminary and interim results presentations and
the Annual General Meeting, a series of meetings between institutional
shareholders, the Executive Chairman, the senior independent director
and the Chief Operating Officer and Finance Director are held throughout
the year. In fulfilment of the obligations under the Combined Code, the
Executive Chairman gives feedback to the Board on issues raised with
him by major shareholders.
In line with best practice the Board commissioned an Investor
Audit during 2007 to assess investor and wider market perceptions
of the Company over time and, in particular, following the
announcement of the new strategy in September 2007. The audit
included both quantitative analysis and a qualitative assessment
based on interviews with a number of leading shareholders.
The Company maintains a corporate website containing a wide
range of information of interest to institutional and private investors.
The Company has frequent discussions with institutional shareholders
on a range of issues affecting its performance. These include meetings
following the announcement of the annual results with the Company’s
102 ITV plc Report and accounts 2007
Corporate governance
Terms of reference: The Committee’s main role and responsibilities
include to:
– monitor the integrity of the consolidated and parent company
financial statements;
– review the effectiveness of the Group’s internal control and
risk management systems;
– review the Group’s arrangements for its employees to raise concerns,
in confidence, about possible wrongdoing in financial reporting or
other matters;
– monitor and review the effectiveness of the Group’s internal audit
function; and
– consider and make recommendations to the Board in relation to
the appointment, re-appointment, replacement and remuneration
of the Company’s external auditor.
Nomination Committee
Composition and attendance: During 2007 the Nomination Committee
comprised:
Appointed
Resigned
Sir James Crosby (Chairman)
Mike Clasper
John McGrath
Sir Robert Phillis
Sir Brian Pitman
Baroness Usha Prashar
Sir George Russell
5 March 2007
2 October 2007
5 March 2007
29 November 2007
Heather Killen, John Ormerod and Agnès Touraine were appointed to
the Committee on 4 February 2008. Sir Brian Pitman was reappointed
on 5 February 2008.
The full terms of reference for the Committee are available at
www.itvplc.com
Attendance during 2007:
Activities in 2007: Please see the Audit Committee report on page 104.
Remuneration Committee
Composition and attendance: During 2007 the Remuneration
Committee comprised:
Appointed
Resigned
Baroness Usha Prashar
(Chairman)
Sir James Crosby
Heather Killen
Sir Robert Phillis
Sir Brian Pitman
Sir George Russell
Attendance during 2007:
1 September 2007
19 February 2007
29 November 2007
2 October 2007
1 September 2007
Terms of reference: The Committee’s main role and responsibilities
include to:
– determine and agree with the Board the framework or broad policy
for the remuneration of the Company’s executive directors, the
Company Secretary and other senior executives;
– review the ongoing appropriateness and relevance of the
remuneration policy;
– approve the design of, and determine targets for, any performance
related pay schemes operated by the Company and approve the
total annual payments made under such schemes;
– review the design of all share incentive plans for approval by the
Board and shareholders;
– ensure that contractual terms on termination recognise that failure
is not rewarded; and
– oversee any major changes in employee benefits structures
throughout the Company and Group.
The full terms of reference for the Committee are available at
www.itvplc.com
Activities in 2007: Please see the Remuneration report on page 106.
Terms of reference: The Committee’s main role and responsibilities
include to:
– review the structure, size and composition of the Board;
– identify and nominate for board approval, candidates to fill
board vacancies;
– evaluate the balance of skills, knowledge and experience on the
Board; and
– consider succession planning for directors and other senior executives.
The full terms of reference for the Committee are available at
www.itvplc.com
Activities in 2007: The Committee led the search for the three new
non-executive directors who were appointed to the Board during the
year or shortly thereafter: Heather Killen, Agnès Touraine and John
Ormerod. The search was conducted with the help of a professional
search firm. The Committee considers the composition of the Board
on an annual basis to ensure that it comprises the appropriate balance
of skills and experience.
During the year the Committee formalised a succession planning
framework for the Board. The objectives of the framework are to ensure:
– board tenure is appropriate and encourages fresh thinking and
new ideas;
– the Board has the appropriate mix of generalist and specialist skills
for the Company’s changing requirements; and
– non-executive directors have the appropriate level of independence,
from the executive and from each other.
Implementing these objectives will involve a continuous process of
refreshment of the Board with new appointments and with rotation
of membership of board committees. Directors may normally expect
to serve for approximately six years, though a longer term may be
appropriate in some instances.
The Committee also reviewed succession planning for key executives
throughout the Group. This has involved both internal promotion and
external recruitment. In 2007, five members of the senior team (with
a range of skills and experience) joined the Executive Board from
other organisations.
Report and accounts 2007 ITV plc 103
Management Committee
The Management Committee comprises the executive directors.
The Committee meets as required to conduct the Company’s business
within the clearly defined limits delegated by the Board and subject
to those matters reserved to the Board. The terms of reference for the
Committee are available on the Company’s website at www.itvplc.com.
Contacts for corporate governance
Executive Chairman
Senior independent director
Chief Operating Officer and Finance Director
Company Secretary
Telephone: 020 7156 6000
Michael Grade
Sir James Crosby
John Cresswell
James Tibbitts
Governance documents
The following documents are available on the Company’s website at
www.itvplc.com:
– Job descriptions for the Executive Chairman, Chief Operating Officer
and senior independent director;
– Terms of engagement for non-executive directors;
– Schedule of matters reserved for the Board;
– Terms of reference for Audit, Remuneration, Nomination and
Management Committees;
– Guidelines for seeking independent advice;
– Board performance programme;
– Directors’ indemnity; and
– Terms of reference for remuneration consultants.
104 ITV plc Report and accounts 2007
Audit Committee report
Role of the Audit Committee
The role of the Audit Committee (the “Committee”) is to monitor the
integrity of the financial statements of the Company, assist the Board
in reviewing the effectiveness of the Company’s internal control and
risk management systems, and review arrangements for its employees
to raise concerns, in confidence, about possible wrongdoing in financial
reporting or other matters. The Committee is also responsible for
reviewing the effectiveness of the Company’s internal audit function and
making recommendations to the Board in relation to the appointment,
re-appointment, replacement and remuneration of the Company’s
external auditor.
The Committee works to a structured programme of activities with
agenda items focused to coincide with key events of the annual financial
reporting cycle, together with standing items that the Committee is
required to consider regularly.
Further details regarding the Committee can be found in the
Corporate Governance section on page 101.
Composition of the Committee
The Committee is comprised entirely of independent non-executive
directors. The current members are:
– Mike Clasper (Chairman)
– John Ormerod
– Sir George Russell
– Agnès Touraine
Full details on membership of the Committee throughout 2007,
and details of attendance at Committee meetings, can be found
in the Corporate Governance section on page 101.
At the invitation of the Chairman of the Committee, the Chief
Operating Officer and Finance Director, the Deputy Group Finance
Director, the Director of Internal Audit and representatives of senior
management and the external auditors regularly attend Audit
Committee meetings. The Committee as a whole has the opportunity
to meet privately with the internal and external auditors at any time
they consider appropriate. In 2007 one private meeting was held with
the external auditors.
Activities in 2007
The Committee met four times in 2007 and discharged its
responsibilities by:
– reviewing the Group’s draft financial statements (including detailed
disclosures) prior to board approval;
– reviewing the appropriateness of the Group’s accounting policies and
considering related accounting treatments in specific areas such as
revenue recognition;
– performing a specific review of the Group’s goodwill accounting,
including the methodology and assumptions made in relation to
goodwill impairment testing;
– reviewing and approving the annual external audit plan;
– reviewing the external auditors’ reports on their work, considering
the findings of that work and confirming that all significant matters
had been satisfactorily resolved;
– reviewing the management letter arising from the 2006 year-end
external audit;
– considering a review of the effectiveness of the external auditors;
– monitoring regularly the non-audit services being provided to the
Group by its external auditors. The Committee has approved a formal
policy governing the independence of the Company’s external
auditors and defining those non-audit services that may be provided
to the Group, including those which require the prior approval of the
Committee. Details of the related audit and other services are set out
in note 4 of the consolidated financial statements on page 68:
– reviewing and approving the internal audit plan and resources for
the internal audit function. The internal audit plan is constructed by
taking a risk based approach with the review cycle designed such that
financially material operations and areas of significant change are
reviewed in a given year with all activities reviewed at least once every
three years;
– considering internal audit reports, the actions taken to implement the
recommendations made in those reports and the status of progress
against previously agreed actions;
– reviewing the results of the annual Group risk assessment process,
including consideration of a rolling programme of risk and internal
control presentations made by each operating team and central
service functions;
– reviewing an annual report on the effectiveness of the Group’s
systems of internal control and reporting to the Board on the results
of that review;
– reviewing the procedural changes to be implemented as part of the
review into premium rate services, as highlighted in the Business
review section on page 30;
– meeting privately with both the external and internal auditors,
without management being present, to discuss the remit of
management’s work and any issues arising from their performance;
– considering proposed policies in respect of interest rate management
and tax risk management prior to presentation to the Board
for approval;
– considering the Group’s expenditure approval framework prior to
board review and approval;
– considering regulatory and professional developments in respect
of financial accounting and reporting; and
– receiving reports from the Treasury department on their activities.
Auditor’s independence and objectivity
The Committee regularly monitors the other services being provided to
the Group by its external auditors, and has developed a formal policy to
ensure this does not impair their independence or objectivity, and that
the Group maintains a sufficient choice of appropriately qualified audit
firms. The policy sets out four key principles which underpin the provision
of other services by the external auditors: the auditor should not audit its
own firm’s work, make management decisions for the Group, have a
mutuality of financial interest with the Group, or be put in the role of
advocate for the Group. The policy sets a maximum 1:1 ratio for the
annual split between audit and other fees charged by the external
auditor. The Committee has pre-approved the categories of other
services that may be performed by the external auditors and explicitly
set out the categories of work that they may not perform. For this
purpose auditing the accounts of subsidiaries and associates pursuant
to legislation and other services provided pursuant to legislation are
regarded as audit services. The Committee believes that these policies
accord with governance best practice. Committee approval is required
for any engagement of the external auditors where the fee is likely to
be in excess of £0.1 million.
The Committee reviews all services being provided by the external
auditors to review the independence and objectivity of the external
auditors, taking into consideration relevant professional and regulatory
requirements, so that these are not impaired by the provision of other
permissible services. The Committee also performs a specific evaluation
of the performance of the external auditors annually, through
assessment of the results of questionnaires completed by relevant
executive management in addition to Committee members’ own views
of auditor performance. The Company will carry out market testing
or a form of audit tender every five years from appointment of
external auditors.
Report and accounts 2007 ITV plc 105
The Committee is authorised by the Board to seek any information that
it requires from any employee and to obtain, at the Company’s expense,
independent legal or professional advice on any matter within its terms
of reference and to call any employee to be questioned at a meeting of
the Committee as and when required.
Approval
This report was approved by the Board of Directors on 5 March 2008 and
signed on its behalf by:
Mike Clasper
Chairman, Audit Committee
Internal control
The Board has overall responsibility for the Group’s systems of internal
control and for regularly reviewing the effectiveness of those systems.
The Committee assists the Board in reviewing the Group’s systems of
internal control. The primary responsibility for the operation of these
systems is delegated to line management. Such systems can only
provide reasonable and not absolute assurance against material
misstatement or loss. Key control procedures are designed to manage
rather than eliminate risk and can be summarised as follows:
– Strategy and financial reporting: The Group performs a
comprehensive annual strategy review and budgeting process.
The executive directors review budgets and strategies and the
Board approves the overall Group budget as part of its normal
responsibilities. The results of operating units are reported monthly,
compared with their individual budgets and forecast figures and are
reviewed on a month-by-month basis.
– Organisational structure and authorisation procedures: The Group
has an established organisational structure with clearly stated lines
of responsibility and reporting. Authorisation procedures in respect
of matters such as purchase commitments, capital expenditure,
investment limits and treasury transactions are clearly defined.
– Control environment: Financial controls and procedures are
considered as part of the Group’s ongoing risk assessment
process and are reviewed as part of the Group’s internal audit
work programme.
– Risk assessment: Management has responsibility for the
identification of risks facing each of the Group’s businesses and for
putting in place controls and procedures to mitigate and monitor
those risks. A formal annual risk assessment process has been
established, the results of which are reported to the executive
directors and the Board. Key risks, mitigating controls and required
actions are identified and monitored by the executive directors and
the Committee. In addition, a rolling programme of risk assessment
presentations is made to the Committee to enable it to review the
risks in these areas at least once a year. The Chief Operating Officer,
Deputy Group Finance Director and Company Secretary attend these
presentations. From 2008, risk management will be strengthened
through the establishment of an Enterprise Risk Management
process. This builds upon the existing processes to formalise executive
management input, increases the amount of senior management
validation review and improves the cross-business focus on ITV’s
key risks.
– Reviewing and monitoring the effectiveness of internal controls:
Controls are monitored by management review, Internal Audit, the
executive directors and the Committee. Directors of each business
team are required annually to confirm compliance with internal
control in their area. Serious control weaknesses (if any) are reported
to the Board and actions taken as appropriate.
106 ITV plc Report and accounts 2007
Remuneration report
Role of the Remuneration Committee
The role of the Remuneration Committee (the “Committee”) is to review
and approve the remuneration strategy and policy for the Executive
Chairman, executive directors and senior executives of the Company.
The Committee also has responsibility for the Company’s
performance related pay schemes and share incentive plans, and the
levels of awards made under them as they apply to the senior executives.
Further details regarding the Committee can be found in the
Corporate Governance section on page 102.
Composition of the Committee
The Committee is comprised entirely of independent non-executive
directors. The current members are:
– Baroness Usha Prashar (Chairman)
– Sir James Crosby
– Heather Killen
– Sir Brian Pitman
Full details on membership of the Committee throughout 2007,
and details of attendance at Committee meetings, can be found
on page 102.
During 2007, the Committee met seven times. Certain executives
were invited to attend meetings in order to provide support or to advise
on policy for executive remuneration. The Executive Chairman and Chief
Operating Officer and Finance Director may attend by invitation, and
external advisers may be invited to attend where appropriate. No
individual is involved in decisions relating to their own remuneration.
The Committee has appointed Deloitte and Touche LLP (“Deloitte”)
as external independent advisers. In addition, Deloitte provided the Group
with tax and corporate finance advice under separate engagement
terms. Advice on legal matters is provided by Lovells. The Committee’s
internal advisers are the Group Human Resources Director and the
Company Secretary.
Remuneration policy
The Board is committed to building the most appropriate remuneration
policy for the Company. In doing this the Committee has designed a
remuneration policy which is intended to address the Company’s
operational requirements while taking into account prevailing
best practice.
The remuneration policy is based on the following key principles:
– total remuneration opportunities should be competitive and
sufficient to attract, retain and reward the high quality executive
talent necessary to drive the Company’s future in the particularly
competitive media market;
– long term remuneration should be tied to the achievement of
specific stretching performance conditions which align executive
remuneration with shareholders’ interests. The share incentive
schemes encourage senior executives to adopt the attitude of
owners and build significant shareholdings in the Company;
– performance is measured over clearly specified time horizons
over the short, medium and long term;
– all employees have an important role to play in the success of
the Company, and as such have the opportunity to be rewarded
through an annual bonus and a new long-term incentive linked
to the Turnaround strategy; and
– individuals should be rewarded for success and steps should be
taken, within contractual obligations, to minimise rewards for
failure. Payments to directors on termination will only reflect
contractual obligations.
The Committee considers the wider context of the Group when taking
decisions. The Group Human Resources Director, as the Committee’s
main internal adviser, provides updates on wider remuneration,
employee relations and human resource issues. Updates on the external
executive remuneration environment are provided by Deloitte.
The Company’s remuneration policy has evolved over time to respond
to commercial pressures, evolving market practice and shareholder
expectations. Investors are consulted about any key issues that arise
and are provided with the opportunity to endorse the Company’s
remuneration policies on a regular basis through the vote on the
Remuneration report.
Components of reward
The reward package for senior executives consists of a combination
of incentive schemes intended to provide motivation and reward for
short, medium and long term performance and to retain key senior
management over the longer term. Each component is intended to
fulfil a different function within the remuneration framework.
Salary and approach to competitive positioning
Market positioning of salary and other elements of reward is approached
on an individual basis. The aim is for base salary to be set around market
median, whilst recognising the need on occasion for an appropriate
premium to recognise superior talent. The Board is of the view that
a senior executive team of high calibre is critical to developing and
delivering the Turnaround strategy and to delivering long term value.
Therefore, in a number of instances this year, senior individuals with
exceptional industry knowledge and commercial skills have been
recruited to the Senior Executive team, and the Committee has judged
it appropriate to pay a talent premium.
In line with the majority of employees and senior executives,
executive directors’ base salaries are reviewed on an annual basis,
effective from 1 January. The salaries of Michael Grade, John Cresswell,
Dawn Airey and Rupert Howell remain at market competitive levels and
therefore the Committee determined that they would not receive any
increase at 1 January 2008 over their 2007 salaries. The salaries of Dawn
Airey and Rupert Howell (basic salary of £450,000 per annum in each
case) were market competitive at the time of their appointments in
October 2007, and have not been subject to increase since then.
Short term and deferral incentives
Annual incentives are provided for most senior executives and other key
management talent through an annual bonus opportunity (“bonus”).
The total opportunity for executive directors will not normally exceed
150% of a participant’s annual salary.
Half of any pre-tax bonus entitlement will automatically be deferred
into shares under the Deferred Share Award Plan (“DSA”) which for
executive directors will vest 12 and 24 months after the end of the
financial year to which the bonus relates. Participants may elect to
take the balance of the bonus in cash or as further share awards under
the DSA.
The level of bonus is based on the achievement of a combination
of corporate financial, specific business and individual targets, which
are all closely related to shareholder value creation.
For awards made in respect of 2008 performance, the corporate
financial and strategic element will require the achievement of
demanding targets based on profit, revenues and share of commercial
impacts as well as the use of online platforms. These targets are fully
integrated with the strategic value drivers in the business and are aligned
with the Turnaround strategy.
For the senior executives, the targets are predominately weighted
towards corporate financial performance. Given the importance of
improving performance through cultural change, an element of the
bonus will depend on an improvement in culture (as measured through
the 2008 Denison survey of all employees), and part of the award will
depend on individual behaviour against our values (evaluated through
360 degree assessment).
The bonus principles extend to a management population of
around 150 individuals. The performance measures that apply across
this group are considered on an individual and team basis and are fully
integrated with the strategic measures that apply at executive level.
Broad participation in the bonus (and therefore the DSA) provides a
comprehensive and fully integrated remuneration framework, which
encourages appropriate business decisions in the near-term and supports
the creation of long term shareholder value.
The Company also operates an all-employee bonus scheme linked to
the same corporate financial targets that apply to the senior executive
team’s bonus opportunities.
The Committee has taken account of PRS issues in calculating annual
bonuses awarded to the senior executives for 2007.
Report and accounts 2007 ITV plc 107
Long term incentive plans
The Committee keeps the Company’s long term incentive plans under
regular review to ensure they remain appropriate in fulfilling their
objectives and that the performance conditions continue to represent
the best way to drive the creation of value in alignment with
shareholders’ interests.
Turnaround Incentive Award for the Executive Chairman
In accordance with his terms of appointment, a one-off award was
granted to the Executive Chairman during the year. This award operates
over a five-year time horizon, and is aligned with the key indicators of
shareholder value creation over the period to 2012 (being the completion
of the digital switchover process).
The award was formally granted on 13 September 2007 in the form
of a nil-cost option over shares with a face value of £6 million based on
the average share price from 2 to 5 January 2007 (which was £1.06).
This is equivalent to an award of 150% of initial salary per annum over
the five-year performance period. As a condition of the award he has
until 30 June 2008 to acquire and then hold shares with a value of 100%
of his salary (which can include any shares awarded under the DSA in
2008 for performance in 2007) until the relevant vesting dates.
The award will vest dependent on performance measures described
below. Up to 50% of the portion of the award subject to Total
Shareholder Return (“TSR”) (i.e. 25% of the total award) may vest at
31 December 2009 if the TSR condition is satisfied at this time. Any
portion of this award that does not vest at this point will remain in effect
and be tested with the balance of the award at 31 December 2011.
The Executive Chairman is not eligible to receive any award under
the Company’s other long term incentive plans within two years.
Turnaround Plan (the “Plan”)
The Committee considered it appropriate that key senior executives
should be incentivised on a basis consistent with the Executive Chairman.
The Plan was approved by shareholders at the Annual General
Meeting on 17 May 2007, and is being used as the primary long term
incentive plan.
Awards over nil-cost options were made to a number of key senior
executives during 2007 with a maximum value of up to 550% of the
individual’s salary. Awards are subject to performance over a five year
period, and so will not fully vest until financial results are published in
2012 for the year ending 31 December 2011.
Participants will be required, within a specified period following grant,
to acquire and retain a number of shares with a value of up to 100% of
annual base salary for the duration of the relevant performance period.
Compliance will be monitored by the Committee, and participants may
forfeit an award if they do not satisfy this requirement.
The award will vest dependent on the performance conditions
described below. Up to 50% of the portion of the award subject to TSR
(i.e. 25% of the total award) may vest at 31 December 2009 if the TSR
condition is satisfied at this time. Any portion of the award that does
not vest at this point will lapse. The balance of the award will be tested
at 31 December 2011.
If an individual receives an award under the Plan, that individual
is not able to receive any award under the Company’s other long term
incentive share plans within two years of the adoption of the Plan.
Performance conditions for the Turnaround Incentive Award and
Turnaround Plan
The performance conditions were devised in consultation with the top
institutional shareholders. 50% of the awards are subject to relative TSR
performance, with the balance of the awards subject to selected strategic
performance measures, directly linked to the achievement of the
Turnaround strategy.
TSR
50% of an award will be subject to TSR performance measured against
a broad comparator group selected from the FTSE 100 (excluding certain
industry sectors that are less relevant as a benchmark of performance).
25% of this portion of the award will vest for median performance and
straight line vesting will occur up to full vesting for upper quartile
performance. Details of the comparator companies can be found
on page 110.
Strategic Performance Targets
There are four strategic targets as outlined in the table below, each
having an equal weighting. For achieving threshold performance, 25% of
the award relating to each target will vest, with full vesting for achieving
the maximum target. Between these points awards will vest on a straight
line basis:
Strategic target
Share of commercial impacts (ITV Family)
Revenue growth
Adjusted EPS (in line with that reported in the
Group’s financial statements)
Share price
Threshold
36.6%
2% p.a.
Maximum
38.5%
5% p.a.
8p
£1.35
12p
£2.25
Share price will be measured as an average over any 28 day period within
the final three years of the plan.
Vesting
Once vested, awards will remain exercisable until 31 December 2012.
Any portion of the award that does not vest following the publication of
the financial results for the year ended 31 December 2011, or that is not
exercised by 31 December 2012, will lapse and the Plan will terminate.
Committee discretion
The Committee is mindful that strategic performance measures must
demand real stretch in performance to ensure optimum value creation
for shareholders. Equally, individual targets must remain realistic against
budget expectations and the economic outlook as this evolves over the
five year period. In particular the Committee will retain some discretion
to amend the targets if appropriate in order to take account of changed
circumstances, in particular any material corporate activity (which may
include acquisitions and disposals). If the Committee exercises its
judgment on these matters and makes an adjustment to the targets or
the vesting outcome which is considered material, then the Committee
will inform shareholders of the factors they considered in subsequent
Remuneration reports. The Trustee of the ITV Employees’ Benefit Trust
(the “Trustee”) may, having consulted the Committee, amend the
performance conditions that apply to an award if, in the opinion of
the Trustee and the Committee, the condition would be a fairer measure
of performance.
Leaver provisions
Standard good leaver provisions apply (broadly relating to
compassionate circumstances). In these circumstances, awards will be
pro-rated for service, but continue in effect until the normal vesting date,
and vesting will remain subject to performance assessed at the end of
the performance period. If the participant dies, the award will become
exercisable immediately and will be pro-rated for time and performance
as determined by the Committee. If a participant ceases to be employed
for any other reason, the award will lapse unless the Trustee in
consultation with the Committee determines otherwise.
Change of control
In the event of a change in control, awards will be pro-rated for time
as follows:
– 60% if the event occurs between 1 January 2008 and
31 December 2008;
– 80% if the event occurs between 1 January 2009 and
31 December 2009; and
– 100% thereafter.
If a change of control occurs within the first three financial years, the
pro-rated award will become exercisable based upon the Company’s
relative TSR performance to the relevant date, as if this condition applied
to the whole award. After this point performance will be measured
according to the TSR condition and progress towards achievement
of strategic targets will be considered.
Turnaround Incentive Opportunity
In recognition of the contribution all employees will make to the future
success of the Company, and following the introduction of the
Turnaround Plan, a corresponding long-term, cash-based incentive for the
wider management and employee population, known as the Turnaround
Incentive Opportunity, has been introduced from 1 January 2008.
108 ITV plc Report and accounts 2007
Remuneration report
In order to align the interests of participants and provide all employees
with a clear focus on the Turnaround strategy, awards made under the
Turnaround Incentive Opportunity are subject to the same performance
conditions as those outlined above for the Turnaround Plan with
the exception that relative TSR performance will be measured from
January 2008.
Performance Share Plan (“PSP”)
The PSP has been used in previous years to provide a long term incentive
for the management population.
No PSP awards will be made to any Turnaround Plan participants
for two years following the adoption of the Plan. As a result no awards
were made under the PSP during 2007.
In previous years, the maximum award made under the PSP has
been 150% of salary in respect of any financial year.
Vesting of awards is dependent on the TSR performance of the
Company, against the customised FTSE 100 comparator group, excluding
those sectors which do not provide a benchmark of performance that
would be relevant to the Company (detailed on page 111), over a three-
year period. There is no vesting for performance below median. 35% of
the award vests at median and 100% at upper quartile. Vesting will occur
on a straight line basis between these points.
The 2004 PSP award reached the end of its performance period in
2007 and lapsed as it did not satisfy the TSR performance condition.
Commitment Scheme (the “Scheme”)
The Scheme has been used in previous years to encourage the alignment
of participants’ interests with shareholders’ through the commitment of
a significant amount of their own investment capital in shares until the
vesting date.
No awards under the Scheme will be made to any Turnaround
Plan participants for two years following the adoption of the Plan.
As a result no awards were made under the Scheme during 2007.
Under the Scheme, participants can commit and retain shares of
up to 100% of salary at the date of commitment. A matching award is
granted, composed of an award of a nil cost option and a market value
option to acquire an equal number of shares. The maximum matching
award can be no more than three times the number of committed
shares for each component part of the matching award.
Vesting of the matching award is dependent on TSR performance
of the Company, against the customised FTSE 100 comparator group,
excluding those sectors which do not provide a benchmark of
performance that would be relevant to the Company (detailed on page
112). There is no vesting for performance below median. 25% of the
award vests at median and 100% at upper quartile. Awards will vest on
a sliding scale between these points. Up to 50% of the matching awards
will vest at the third anniversary of the date of grant (subject to
performance) and the remainder at the fourth anniversary. Any portion
of the award that has not vested at the end of the relevant three or four
year performance period will lapse.
In the event of a change of control, awards may vest based on the
extent to which the performance condition has been met in the period
since the awards were made, unless it is determined that exceptional
financial circumstances have occurred. The level of payout in the event
of a change of control is capped at a multiple of the original financial
amount a participant invests (twice the investment if a change of control
occurs in the first year, three times if it occurs during the second year
and four times if change of control occurs in the third or fourth year).
Senior Executives – total compensation
The balance between the fixed and variable elements of the total
remuneration package for senior executives as a whole is illustrated in
the chart below.
The chart illustrates the mix between fixed and variable elements of
the package (excluding pension) and the mix between delivery through
cash and shares over the short and longer term.
The illustration is based on the assumption that performance targets
are satisfied at maximum levels. Broadly there is a 20:80 split between
fixed and variable pay at this level, showing the high proportion of
performance related pay in the total package.
Performance graph
The graphs below show the TSR performance of the Company against
the FTSE 100 index. The FTSE 100 has been selected for comparison as
it represents a broad equity market index of which the Company was
a member during the full financial year.
This graph shows TSR performance from 16 October 2002 (the date
of the announcement of the merger of Granada and Carlton) as this
is considered to be the most appropriate basis on which to assess the
Company’s performance. Prior to the listing of ITV plc the graph tracks
the performance of a synthetic stock which shows the combined TSR
performance of Granada and Carlton, weighted on the basis of their
respective market capitalisation at 16 October 2002.
The Company’s TSR performance over the financial year 2007 ranked
the Company 29th against the 35 companies in the comparator group.
This is significantly below the median position required for any vesting
under the long term incentive plans.
The graph below is provided to mirror as closely as possible the normal
basis for TSR performance graphs. The graph therefore shows TSR
performance over a five-year period to the present, with the performance
of Granada and Carlton shown separately prior to the listing of ITV plc.
The TSR holdings have been rebased to 100 at the date of listing to reflect
the requirement to show performance from this date onwards.
In both graphs one month averaging has been applied throughout,
with the exception of the month following the merger. To ensure that
the portion of the graph from the date of listing reflects solely the
performance of the Company, the data for the Company in this period
has been averaged from 2 February 2004 to each date, with the effect
that the averaging period lengthens until it reaches one month.
Report and accounts 2007 ITV plc 109
The fees were reviewed during 2007. It was considered that the position
of the Company within the media sector, the level of media interest, and
the regulatory complexity associated with ITV’s business increased the
burden on the Company’s non-executives. It was agreed that the fees
should be increased in line with market growth.
The annual fees payable are as follows at the dates shown:
Non-executive directors’ fees
Non-executive Chairman (1)
Deputy Chairman (2)
Senior independent director (3)
Board member
Audit Committee member
Audit Committee Chairman
Nomination Committee member
Nomination Committee Chairman
Remuneration Committee member
Remuneration Committee Chairman
31 December
2007
£
–
165,000
25,000
55,000
5,000
20,000
5,000
15,000
5,000
15,000
31 December
2006
£
200,000
115,000
–
50,000
5,000
15,000
–
–
5,000
15,000
Notes
(1) Sir Peter Burt stepped down from the Board on 8 January 2007.
(2) Sir George Russell receives no further payment in relation to committee responsibilities
other than the annual fee for Deputy Chairman.
(3) Sir James Crosby was appointed senior independent director on 19 February 2007.
Audited information
The following tables on pages 109 to 113 provide details of each of
the directors’ and former directors’ emoluments, pension entitlements,
rights to share options and awards. All of these tables have been audited
by our external auditors.
Aggregate directors’ remuneration
The total amounts of directors’ remuneration for the period from
1 January 2007 to 31 December 2007 were as follows:
Emoluments
Gains on exercise of share options
2007
£000
3,784
168
3,952
2006
£000
3,854
256
4,110
Service contracts
Executive directors have service contracts which provide for 12 months’
notice on either side. Following the appointment of Michael Grade as
Executive Chairman on 8 January 2007, John Cresswell has held the role
of Chief Operating Officer and Finance Director.
Executive Directors
Michael
Grade
John
Cresswell
Dawn
Airey
Rupert
Howell
Nature of
contract
Notice period
from Company
Notice period
from director
Compensation
provisions for
early termination
Date of
appointment
8 January
2007 Rolling 12 months 12 months
(2)
16 January
2006 Rolling 12 months 12 months
None
28 February
2008 Rolling 12 months 12 months
None
28 February
2008 Rolling 12 months 12 months
None
Notes
(1) The Company retains the right to terminate employment by making payment in lieu of
notice, in which case the executive would be entitled to receive 12 months salary, and benefits
(including pension contributions).
(2) As a condition agreed with Michael Grade on appointment, notice could not be served during
the first 12 months of employment. In the event that his employment is terminated during the
first 24 months of employment, he will be entitled to receive payment in lieu of notice (basic
salary and pension) and a guaranteed annual bonus of 75% of salary in respect of the balance of
the period. Unless the Committee decides otherwise, any payment made in lieu of notice (other
than on a change of control) will be phased over the balance of the applicable notice period that
would otherwise have applied. After the initial 24 month period, the termination provisions for
Michael Grade revert to 12 months basic salary and pension entitlement.
Executive directors’ non-executive directorships
During the year Michael Grade retained fees for external non-executive
directorships for the period he was a director as set out below:
Company
Pinewood Shepperton Plc
Ocado Limited
2007
£000
98
98
The Board is satisfied that these external appointments do not interfere
with the performance of Michael Grade’s duties for the Company.
Payments to outgoing executives
Charles Allen stepped down from the Board on 1 October 2006. It was
reported in the 2006 Remuneration report that the Company had made
a contractual provision, following his cessation of employment, towards
his pension arrangements for the period from January 2007 to January
2009 in an aggregate amount of £1,500,000. This sum has been provided
for by the Company.
Non-executive directors
Each non-executive director has a contract of service with the Company,
further details of which can be found in the Corporate Governance
section on page 99.
Fees for the non-executive directors are determined by the Board
based on market information supplied by Deloitte as external
independent advisers, and in accordance with the restrictions contained
within the Company’s Articles of Association. Non-executive directors do
not participate in decisions concerning their own fees.
110 ITV plc Report and accounts 2007
Remuneration report
Directors’ emoluments
The directors’ remuneration for the year ended 31 December 2007 was as follows:
Name of director
Executive
Michael Grade (1)
John Cresswell
Non-executive
Sir Peter Burt (2)
Mike Clasper
Sir James Crosby
Heather Killen (3)
John McGrath
Sir Robert Phillis (4)
Sir Brian Pitman
Baroness Usha Prashar
Sir George Russell
Agnès Touraine (3)
Past directors’ remuneration (for comparative purposes)
Aggregate emoluments
Fees/Basic
Salary
£000
Benefits in
kind
£000
Cash in lieu of
pension
contributions
£000
Short term
incentives
£000
Total for the
year ended
31 December
2007
£000
Total for the
year ended
31 December
2006
£000
813
575
5
63
92
23
73
54
58
61
165
25
–
2,007
81
25
73(6)
–
967(5)
631(5)
–
–
–
–
–
–
–
–
–
–
–
106
–
–
–
–
–
–
–
–
–
–
–
73
–
–
–
–
–
–
–
–
–
–
–
1,598
1,934
1,231
5
63
92
23
73
54
58
61
165
25
–
3,784
–
706
200
50
50
–
60
50
50
50
115
–
2,523
3,854
Notes:
(1) From his appointment on 8 January 2007.
(2) Up to his resignation on 8 January 2007.
(3) From her appointment on 8 August 2007.
(4) Up to his resignation on 2 October 2007.
(5) The figures shown are the value of short term incentives earned in respect of performance over the year to 31 December 2007 as detailed in the note on the DSA below.
(6) This figure is described further on page 113.
Incentive and performance related awards
Information given in the tables below is for the period from 1 January 2007 to 31 December 2007. The performance conditions applicable to the
awards shown are set out in the remuneration policy above.
Turnaround Incentive Award
Outstanding options over ordinary shares in ITV plc awarded to Michael Grade as a Turnaround Incentive Award are as follows:
Award date
13 September 2007
1 January
2007
Awarded in
year
– 5,657,042
Exercised in
year
At
31 December
2007
Share price
used for award
(pence)
Performance testing dates
– 5,657,042 106.0625 25% December 2009 (1)
75% December 2011
Notes:
(1) 25% of the one-off award will be tested at 31 December 2009. Any portion of the award that does not vest at this point will be rolled over and tested with the remaining 75% of the award at
31 December 2011.
(2) The comparator group consists of the following companies: British Airways, British Sky Broadcasting Group, BT Group, Capita Group, Carnival, Compass Group, Diageo, DSG International, Enterprise
Inns, GUS, Intercontinental Hotels Group, Kingfisher, Marks & Spencer Group, Next, Pearson, Reed Elsevier, Reuters Group, SABMiller, Scottish & Newcastle, Vodafone Group, WPP and Yell Group.
Turnaround Plan
Outstanding options over ordinary shares in ITV plc awarded to John Cresswell under the terms of the Turnaround Plan are as follows:
Award date
13 September 2007
1 January
2007
Awarded in
year
– 2,849,100
Exercised in
year
At
31 December
2007
– 2,849,100
Share price
used for award
(pence)
Performance testing dates
111.00 25% December 2009 (1)
75% December 2011
Notes:
(1) 25% of the award will be tested at 31 December 2009. To the extent that the performance condition is not met, that portion of the award will lapse.
(2) The comparator group is as listed in Note (2) above for the Turnaround Incentive Award.
Report and accounts 2007 ITV plc 111
Deferred Share Award Plan (“DSA”)
Outstanding options over ordinary shares in ITV plc awarded to John Cresswell under the terms of the DSA are as follows:
Award date
17 March 2005 (1)
17 March 2006 (2)
15 March 2007 (2)
1 January
2007
34,940
134,595
–
169,535
Awarded
in year
–
–
226,301
226,301
Exercised/released
in year
34,940
67,297
113,150
215,387
At
31 December
2007
–
67,298
113,151
180,449
Share price
at date of
award
(pence)
Date of exercise
16 March 2007
127.50
16 March 2007(3)
116.75
105.25 31 December 2007(3)
Market price
at date of
exercise/release
(pence)
Vesting date
–
105.75
105.75
March 2008
85.77 December 2008
Notes:
(1) Awarded in the form of restricted shares.
(2) Awarded in the form of nil cost options.
(3) The combined market value of the options on the dates of exercise was £0.168 million. This is disclosed in the aggregate directors’ remuneration table on page 109.
(4) At least 50% of bonuses must be taken in the form of ITV plc ordinary restricted shares or nil cost options awarded under the DSA and subject to its vesting rules. Participants can choose to take
the balance either in cash or as further shares or nil cost options awarded under the DSA.
Michael Grade was awarded 117.2% of salary in March 2008, to be awarded 100% shares under the DSA. The total value is shown in the emoluments table above.
John Cresswell was awarded 109.7% of salary in March 2008, to be awarded (i) 50% in shares under the DSA; and (ii) the balance in cash. The total value is shown in the emoluments table above.
(5) In the event of a change of control restricted shares will vest and nil cost options become exercisable in full.
The Committee has taken account of PRS issues in calculating annual bonuses awarded to the executive directors for 2007.
Performance Share Plan (“PSP”)
Outstanding options over ordinary shares in ITV plc awarded to John Cresswell under the terms of the PSP are as follows:
Award date
16 September 2004(1)(4)
27 September 2005(2)
13 September 2006(3)
1 January
2007
126,027
158,393
607,595
892,015
Awarded in
year
–
–
–
–
Exercised in
year
Lapsed in
year
– 126,027
–
At
31 December
2007
–
– 158,393
Share price
at date of
award
(pence)
109.50
112.50
–
– 607,595
98.75
– 126,027 765,988
Exercise period
–
September 2008 –
September 2009
September 2009 –
September 2010
Notes:
(1) The comparator group consists of the following companies: Allied Domecq, BAA, Alliance Boots, British Airways, British Sky Broadcasting Group, BT Group, Bunzl, Cable & Wireless, Capita Group,
Carnival, Compass Group, Daily Mail and General Trust, Diageo, DSG International, EMAP, Enterprise Inns, Exel, GUS, Hays, InterContinental Hotels Group, Kingfisher, Ladbrokes, Marks & Spencer Group,
Next, O2, Pearson, Reed Elsevier, Rentokil Initial, Reuters Group, Rexam, SABMiller, Scottish & Newcastle, Vodafone Group, Whitbread, William Hill, WPP and Yell Group.
(2) The comparator group consists of the following companies: BAA, Alliance Boots, British Airways, British Sky Broadcasting Group, BT Group, Cable & Wireless, Capita Group, Carnival, Compass Group,
Daily Mail and General Trust, Diageo, DSG International, Enterprise Inns, Exel, GUS, InterContinental Hotels Group, Kingfisher, Ladbrokes, Marks & Spencer Group, Next, O2, PartyGaming, Pearson, Reed
Elsevier, Rentokil Initial, Reuters Group, Rexam, SABMiller, Scottish & Newcastle, Vodafone Group, Whitbread, William Hill, WPP and Yell Group.
(3) The comparator group consists of the following companies: British Airways, British Sky Broadcasting Group, BT Group, Capita Group, Carnival, Compass Group, Diageo, DSG International, Enterprise
Inns, GUS, InterContinental Hotels Group, Kingfisher, Marks & Spencer Group, Next, Pearson, Reed Elsevier, Reuters Group, SABMiller, Scottish & Newcastle, Vodafone Group, WPP and Yell Group.
(4) Lapsed on 16 September 2007, as performance conditions were not met.
Granada Share Option Schemes
Outstanding options over ordinary shares in ITV plc awarded to John Cresswell under the terms of the Granada Media and Granada Executive Share
Option Schemes (ESOS) and Savings-Related Share Option Schemes (SAYE) are as follows:
Scheme
Granada Media ESOS
Date of grant
22 December 2000
1 January
2007
959
Awarded in
year
–
Exercised in
year
–
Granada ESOS
Granada ESOS
Granada ESOS
Granada ESOS
Granada ESOS
Granada SAYE
6 July 2001
36,399
28 September 2001
113,851
9 January 2002
1,040
10 July 2002
19,240
7 January 2003
18,200
9 January 2003
25,120
214,809
–
–
–
–
–
–
–
–
–
–
–
–
–
–
At
31 December
2007
959
Exercise price
(pence)
217.78
36,399
137.02
113,851
91.35
1,040
143.27
19,240
106.25
18,200
76.92
25,120
65.38
214,809
Exercise period
December 2003 –
December 2010
July 2004 –
July 2011
September 2004 –
September 2011
January 2005 –
January 2012
July 2005 –
July 2012
January 2006 –
January 2013
March 2008 –
September 2008
112 ITV plc Report and accounts 2007
Remuneration report
Commitment Schemes
Outstanding awards and options over ordinary shares in ITV plc made to John Cresswell under the terms of the Granada and ITV Commitment
Schemes are as follows:
Date
of Grant
Granada
22 Aug 2003(1)(2)
1 January
2007
vested
1 January
2007
unvested
Vested
during the
year
– 459,828 301,785
Exercised
during the
year
Lapsed
31 December
during the
2007
year
vested
– 158,043 301,785
31 December
2007
unvested
–
Exercise
price
(pence)
Vesting
date
Nil 22 August 2007
Granada
22 Aug 2003(1)(2) 170,159 459,828 301,785
– 158,043 471,944
–
100.72 22 August 2007
ITV
ITV
ITV
ITV
19 April 2005(3)
– 566,814
19 April 2005(3)
– 566,814
20 March 2006(4)
– 518,358
20 March 2006(4)
– 518,358
–
–
–
–
–
–
–
–
–
–
–
–
– 566,814
– 566,814
– 518,358
– 518,358
Nil
125.75
50% April 2008
50% April 2009
50% April 2008
50% April 2009
Nil 50% March 2009
50% March 2010
115.75 50% March 2009
50% March 2010
Exercise
period
August 2005 –
August 2010
August 2005 –
August 2010
April 2008 –
April 2015
April 2008 –
April 2015
March 2009 –
March 2016
March 2009 –
March 2016
170,159 3,090,000 603,570
– 316,086 773,729 2,170,344
Notes:
(1) The performance condition applicable to awards made under the Granada Commitment Scheme is TSR relative to Granada’s international media comparator group companies as set out in
note (2) below. 25% of awards vest at median; full vesting occurs at upper decile. Up to 50% of these awards were capable of vesting after two years, with the remainder subject to performance over
a four-year period.
(2) The comparator group consists of the following companies: British Sky Broadcasting Group, Canwest Global Communications, Capital Radio, Carlton, EMAP, Fox Entertainment, GWR Group,
M6 – Metropole TV, Mediaset, Modern Times Group, RTL Group, SBS Broadcasting, SMG, Telewest Communications, TF1.
(3) The comparator group consists of the following companies: Allied Domecq, BAA, Alliance Boots, British Airways, British Sky Broadcasting Group, BT Group, Bunzl, Cable & Wireless, Capita Group,
Carnival, Compass Group, Daily Mail and General Trust, Diageo, DSG International, EMAP, Enterprise Inns, Exel, GUS, Hays, InterContinental Hotels Group, Kingfisher, Ladbrokes, Marks & Spencer Group,
Next, O2, Pearson, Reed Elsevier, Rentokil Initial, Reuters Group, Rexam, SABMiller, Scottish & Newcastle, Vodafone Group, Whitbread, William Hill, WPP and Yell Group.
(4) The comparator group consists of the following companies: BAA, Alliance Boots, Brambles, British Airways, British Sky Broadcasting Group, BT Group, Cable & Wireless, Capita Group, Carnival,
Compass Group, Daily Mail and General Trust, Diageo, DSG International, Enterprise Inns, GUS, InterContinental Hotels Group, Kingfisher, Ladbrokes, Marks & Spencer Group, Next, PartyGaming,
Pearson, Reed Elsevier, Rentokil Initial, Reuters Group, Rexam, SABMiller, Scottish & Newcastle, Vodafone Group, Wolseley, WPP and Yell Group.
The numbers in the tables above are in ITV plc shares and have been adjusted following the merger of Granada with Carlton.
Report and accounts 2007 ITV plc 113
Share price information
The market price of the ITV plc ordinary shares at 31 December 2007 was
85.4 pence and the range during the year was 82.3 pence to 121.5 pence.
Director’s pension entitlements
During the year John Cresswell was a member of the Company’s defined
benefit pension scheme and had accrued entitlements under the
scheme as follows:
No directors were members of money purchase schemes operated
by the Group.
Approval
This report was approved by the Board of Directors on 5 March 2008
and signed on its behalf by:
Name of director
John Cresswell
Accrued
pension
1 January
2007
£000
58
Increase in
accrued
pension in
the year
£000
38
Accrued
pension
31 December
2007
£000
96
Baroness Usha Prashar
Chairman, Remuneration Committee
The following table sets out the transfer value of his accrued benefits
under the scheme calculated in a manner consistent with “Retirement
Benefit Schemes – Transfer Values (GN 11)” published by the Institute
of Actuaries and the Faculty of Actuaries.
The pension benefits of John Cresswell are provided on a defined
benefit basis. The accrued pension shown is that which would be paid
annually based on service to the end of that year. The increase in accrued
pension during the year reflects an increase in the pension entitlement
as a result of an accrual for an additional year of service and increases in
pensionable earnings.
Transfer
value
1 January
2007
£000
593
Contributions
made by
the director
£000
32
Increase
in transfer
value in
the year
net of
contributions (1)
£000
439
Transfer
value
31 December
2007
£000
1,064
Name of director
John Cresswell
Notes
(1) Transfer values at 31 December 2007 have been calculated in accordance with version 9.2 of
the actuarial guidance note GN11 based upon pension in payment at this date. The increase in
transfer value includes the effect of fluctuations in the transfer value due to factors beyond the
control of the Company and directors, such as stock market movements.
(2) John Cresswell has a normal retirement age of 63.
(3) In the event of the death of an executive director, a pension equal to one half of the director’s
pension will become payable to a surviving spouse. A pension may become payable to any
surviving dependent children.
(4) In common with other members of the defined benefit pension scheme, the director may,
with the consent of the Company, receive and draw a pension at any time after reaching the
age of 50.
The following additional information is given to comply with the
requirements of the Listing Rules which differ in some respects from
the equivalent statutory requirements.
Name of director
John Cresswell
Increase
in accrued
pension in
the year
in excess
of inflation
£000
36
Transfer
value of
increase in
the year
less director’s
contributions
£000
342
The transfer values disclosed above do not represent a sum paid or
payable to John Cresswell. Instead they represent a potential liability
of the pension scheme.
Michael Grade was not a member of any Company pension scheme
during the year. Mr Grade receives a cash payment in lieu of pension
contribution of 9% of his basic salary. This payment is included in the
emoluments table on page 110.
114 ITV plc Report and accounts 2007
Shareholder information
Type of holder:
Banks and nominee companies
Individuals
Others
Totals
Size of holding:
1 – 100
101 – 200
201 – 500
501 – 1,000
1,001 – 2,000
2,001 – 5,000
5,001 – 10,000
10,001 – 50,000
50,001 – 100,000
100,001 – 500,000
500,001 – 1,000,000
1,000,001 – 5,000,000
5,000,001 – 10,000,000
10,000,001 – 50,000,000
50,000,001 and above
Totals
Information as at 31 December 2007
Registrars and transfer office
All administrative enquiries relating to shareholdings and requests to
receive corporate documents should, in the first instance, be directed
to Capita Registrars, Northern House, Woodsome Park, Fenay Bridge,
Huddersfield, West Yorkshire HD8 0LA.
0871 664 0300 (calls cost 10 pence per minute plus network
extras) from the UK and +44 20 8639 3399 from outside the UK.
Alternatively you could email them at: ssd@capitaregistrars.com
Shareholders who receive duplicate sets of company mailings because
they have multiple accounts should write to the registrar to have the
accounts amalgamated.
By logging on to www.capitaregistrars.com and selecting Shareholder
Portal you can benefit from a number of online services as follows:
– View share price and current value of shareholding;
– View shareholding details;
– View share transaction history;
– View details of dividends paid;
– Apply/change dividend mandate instruction;
– Apply/change dividend reinvestment plan mandate;
– Change registered postal address;
– Proxy voting;
– Register an email address to receive future shareholder
communications and reports via the internet rather than by post.
www.capitaregistrars.com
You will need your investor code (IVC) which can be found on your
share certificate(s) to register to use the Shareholder Portal.
Holders
Number
3,786
67,669
573
72,028
9,919
9,990
18,144
12,556
9,689
7,082
2,391
1,381
193
303
124
154
46
39
17
72,028
%
Shares held
Millions
5.26
93.95
0.79
100.00
13.77
13.87
25.19
17.43
13.45
9.83
3.32
1.92
0.27
0.42
0.17
0.22
0.07
0.05
0.02
100.00
3,629
156
104
3,889
365
1,489
6,052
9,220
13,957
22,240
17,034
26,699
14,285
75,118
90,126
361,631
316,571
803,705
2,130,637
3,889,129
%
93.32
4.01
2.67
100.00
0.0094
0.0383
0.1556
0.2371
0.3589
0.5719
0.4380
0.6865
0.3673
1.9315
2.3174
9.2985
8.1399
20.6654
54.7844
100.00
Share dealing services
Capita Registrars offer a telephone and online share dealing service
for UK resident shareholders. To use this service shareholders should
contact Capita Registrars:
0871 664 0454 from the UK (calls cost 10 pence per minute plus
network charges) or 1 890 946 375 from Ireland
visit www.capitadeal.com
ShareGift
ShareGift is a charity share donation scheme for shareholders who
may wish to dispose of a small quantity of shares where the market
value makes it uneconomic to sell on a commission basis. The scheme
is administered by the Orr Mackintosh Foundation and further
information can be obtained by contacting them:
020 7930 3737
www.sharegift.org
Share price information
The current price of ITV plc ordinary shares is available on Ceefax,
Teletext and on the Company website.
Dividend Reinvestment Plan
The Company operates a Dividend Reinvestment Plan to provide UK
shareholders with a facility to invest cash dividends by purchasing
further ITV plc shares. Further details are available from the registrar.
Individual Savings Accounts (ISAs)
The Company has corporate sponsored Maxi and Mini ISAs. The ISAs
offer UK resident shareholders a simple low-cost and tax efficient way
to invest in ITV plc ordinary shares. Full details together with a form of
application are available from:
Halifax Share Dealing
Trinity Road
Halifax HX1 2RG
0870 600 99 66
Report and accounts 2007 ITV plc 115
Unauthorised brokers (Boiler Room Scams)
Shareholders are advised to be very wary of any unsolicited advice,
offers to buy shares at a discount or offers of free company reports.
These are typically from overseas based “brokers” who target UK
shareholders offering to sell them what often turn out to be
worthless or high risk shares in US or UK investments.
More detailed information can be found on the FSA website:
www.moneymadeclear.fsa.gov.uk
If you receive any unsolicited investment advice:
– Make sure you get the correct name of the person and
organisation.
– Check that they are properly authorised by the FSA before getting
involved. You can check at:
www.fsa.gov.uk/register
– The FSA also maintains a list of unauthorised overseas firms
who are targeting, or have targeted, UK investors. The list can be
found at:
www.fsa.gov.uk/pages/doing/regulated/law/alerts/overseas.shtml
– Any approach from such organisations should be reported to the
FSA using the online form so that this list can be kept up to date
and any other appropriate action can be considered.
– Inform Capita Registrars (contact details given above).
If you deal with an unauthorised firm, you would not be eligible to
receive payment under the Financial Services Compensation Scheme.
Details of any sharedealing facilities that the Company endorses will
only be included in company mailings.
Identity theft
Tips for protecting your ITV plc shares:
– Ensure all your certificates are kept in a safe place or hold your
shares electronically in CREST via a nominee.
– Keep all correspondence from the registrar in a safe place, or
destroy correspondence by shredding.
– If you change address inform the registrar in writing or via the
Shareholder Portal. If you receive a letter from the registrar
regarding a change of address but have not recently moved please
contact them immediately.
– Consider having your dividend paid directly into your bank. This will
reduce the risk of the cheque being intercepted or lost in the post.
– If you change your bank account, inform the registrar of the
details of your new account. You can do this via post or online
using the Shareholder Portal. Respond to any letters the registrar
sends you about this.
– If you are buying or selling shares only deal with brokers registered
in your country of residence or the UK.
The Unclaimed Assets Register
The Company participates in The Unclaimed Assets Register, which
provides a search facility for financial assets, which may have been
lost or forgotten and which donates 10% of its public search fees to
a wide range of UK charities. For further information and to obtain
a search request form contact:
The Unclaimed Assets Register
Cardinal Place
80 Victoria Street
London SW1E 5JL
0870 241 1713
search@uar.co.uk
www.uar.co.uk
Unsolicited mail
The Company is legally obliged to make its register of members
available to the public. As a consequence of this some shareholders
might receive unsolicited mail. Shareholders wishing to limit the
amount of such mail should write to the Mailing Preference Service
(“MPS”):
Freepost 29 LON20771
London W1E 0ZT
Alternatively you can register online or request an application form by
telephone or by email. MPS will then notify the bodies that support its
service that you do not wish to receive unsolicited mail.
www.mpsonline.org.uk
0845 703 4599
mps@dma.org.uk
Registered office
ITV plc
200 Gray’s Inn Road
London WC1X 8HF
(cid:31) 020 7156 6000
Company registration number 4967001
Company website
Investor and shareholder related information can be found on the
Company website at:
www.itvplc.com
Financial calendar
Annual General Meeting
Interim Management Statement
Half year results announcement
Thursday 15 May 2008
May 2008
August 2008
Dividends
Final Dividend 2007
Ex dividend date
Record date
Final date for return of DRIP
mandate forms
Payment date and DRIP purchase
Share certificates posted and Crest
accounts credited
Wednesday 16 April 2008
Friday 18 April 2008
Wednesday 4 June 2008
Tuesday 1 July 2008
Friday 11 July 2008
The Company has introduced consolidated tax vouchers. Shareholders
will receive a single tax voucher each year, in time for the tax year end,
containing details of dividends paid in that tax year. If you would
prefer to receive a tax voucher for each dividend payment please
contact the registrar.
116 ITV plc Report and accounts 2007
Financial record
Balance sheet
Share capital
Reserves
Shareholders’ funds
Minority interests
Net assets
Represented by:
Property, plant and equipment and intangible assets
Investments
Held to maturity investments
Distribution rights
Inventory
Trade and other receivables (including assets held for sale and derivative financial instruments)
Deferred tax asset
Total assets
Net debt
Deferred tax liability
Other liabilities
Provisions
Results
Turnover
Operating profit before exceptional items
Share of profits of joint ventures and associated undertakings
Investment income
Exceptional items
Profit before interest and tax
Net financing costs
Profit before tax
Taxation
Profit after tax
Minority interests
Profit for the financial year
Basic earnings per share
Dividend per share
2007
£m
2006
£m
2005
£m
389
2,844
3,233
6
3,239
4,084
89
100
7
440
502
–
5,222
(668)
(75)
(1,209)
(31)
3,239
2,082
227
2
1
(9)
221
(33)
188
(50)
138
(1)
137
3.5p
3.15p
401
2,755
3,156
7
3,163
4,088
103
–
11
400
548
–
5,150
(734)
(7)
(1,219)
(27)
3,163
2,181
299
8
3
4
314
(26)
288
(66)
222
(3)
219
5.5p
3.15p
423
2,870
3,293
12
3,305
4,182
274
–
13
388
432
74
5,363
(481)
–
(1,525)
(52)
3,305
2,196
358
11
16
(39)
346
(35)
311
(85)
226
(4)
222
5.4p
3.12p
2004
£m
422
2,671
3.093
16
3,109
4,055
233
–
12
368
357
66
5,081
(280)
–
(1,617)
(75)
3,109
2,053
213
13
14
(53)
187
(19)
168
(25)
143
(6)
137
3.5p
2.4p
This financial record sets out the balance sheet and results of the Group since its formation following the merger of Granada plc and Carlton
Communications Plc.
Cash and cash equivalents are included within net debt.
12175 ITV R&A Cover.qxp 18/3/08 14:00 Page 2
Design and production Radley Yeldar
Print CTD Printers are ISO 14001 and FSC accredited.
Paper Sovereign Silk, made from virgin wood fibre from sawmill
residue, is FSC certified from well-managed forests and other
controlled sources. It is fully bio-degradable and recyclable and
produced in Mills that hold ISO 9002 and ISO 14001.
12175 ITV R&A Cover.qxp 18/3/08 14:00 Page 1
ITV plc
200 Gray’s Inn Road
London WC1X 8HF
www.itv.com
Investors: www.itvplc.com
ITV plc Report and accounts 2007
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