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ITV plc
200 Gray’s Inn Road
London WC1X 8HF
www.itv.com
Investors: www.itvplc.com
Driven by content
ITV plc Report and accounts 2008
ITV plc Report and accounts 2008
Contents
Executive Chairman’s statement
Business review
Our business
Update on progress
Market context
Compelling content
Operating review
Risks and uncertainties
Key Performance Indicators
Corporate responsibility
Financial review
Glossary of terms
01
04
05
06
09
17
24
26
27
31
39
Governance
Board of directors
Directors’ report
Independent auditor’s report to
the members of ITV plc
Corporate governance
Audit Committee report
Remuneration report
Shareholder information
Financial record
40
42
46
91
96
98
107
109
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
47
48
49
50
51
86
Financial summary
Group revenues of £2,029m 2007: £2,082m
Operating EBITA of £114m 2007: £276m
Adjusted operating EBITA of £211m* 2007: £311m
Cash generated from operations £150m 2007: £286m
Operating loss of £2,647m 2007: operating profit of £192m
Loss before tax of £2,732m 2007: profit before tax of £188m
Loss per share of 65.9p 2007: earnings per share of 3.5p
Adjusted earnings per share of 2.7p** 2007: 5.0p
Dividend per share for the full year 0.675p 2007: 3.15p
* Before exceptional items, amortisation and impairments of intangible assets.
** Before exceptional items, amortisation, impairments of intangible assets, and amortised cost and tax adjustments.
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 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. The Business review is intended
to 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.
ITV plc Report and accounts 2008
01
Executive Chairman’s statement
Current conditions in television advertising are
the most challenging I have experienced in over
30 years in UK broadcasting. Our priorities have
changed to reflect that.
Michael Grade Executive Chairman
Our financial results for 2008 reflect the impact
of the economic slowdown over the second half
of the year. Market conditions have deteriorated
further in 2009. Indeed, it is no exaggeration to say
that current conditions in the television advertising
market are the most challenging I have experienced
in over 30 years in UK broadcasting.
The Board remains confident in the long-term
course for the business set by our content-led
strategy. However, our immediate priorities
need to adapt to reflect the very different
economic circumstances in which we are
operating. The Board’s focus is on ensuring
the Company is adequately funded to
navigate through the downturn. The ITV senior
management team is focused on our core
business, on costs and on cash generation.
Since this downturn began, the Board and
management have sought to anticipate and
address the challenges it poses for ITV as early as
possible. Given our reliance on advertiser funding,
we cannot fully mitigate the impact of the
recession on the business. But I am confident that
the determined and concerted action we are taking
will best position the Company beyond the current
cyclical downturn, however deep and extended it
may turn out to be.
Results
Revenues in 2008 were £2.0 billion, down 3% on
the previous year, with strong growth in our Global
Content business offsetting a reduction in television
advertising revenues. Adjusted operating earnings
before interest, tax, impairments and amortisation
were down 32% to £211 million, reflecting the
gearing of our profits to the UK television
advertising market.
Earnings were impacted by an impairment charge
of £2.7 billion. As is explained in detail in the notes
to the accounts, this non-cash charge reflects
advertising market decline and the uncertain
outlook for 2009 and beyond. Operating
exceptional items were £97 million, including a
provision for onerous contracts of £50 million,
reflecting the impact of the television advertising
downturn on the value of our sports commitments.
Adjusted for exceptional items and amortisation,
earnings per share were down 46% at 2.7 pence.
Given our high operational gearing, any reduction
in revenues has a significant impact on profits and,
even in the best of times, our advertising revenue
visibility is limited.
During 2008, via additional financing and a
new bond issue, we secured over £300 million
of additional covenant-free funding. In February
2009 we secured a further £50 million of ten-year
covenant-free financing (potentially rising to
£200 million). The Company repaid a £250 million
bond on 2 March 2009 and our next scheduled
bond repayment is not until October 2011.
The Board will continue to evaluate all options
to improve the strength of the balance sheet.
Dividend
At the half year, the Board reduced the interim
dividend to 0.675 pence per share. Given the
current economic context and the deterioration
in prospects for advertising, the Board proposes
that no final dividend should be paid. This is not a
decision that has been taken lightly. As is detailed
below, we have explored all avenues for maximising
cash generation and we are taking comprehensive
action, including with respect to our staff numbers,
our cost base and our assets.
Cost review
Against this backdrop, it is imperative that every
penny of our shareholders’ investment is deployed
to deliver maximum return. To this end, during
the year, we undertook a comprehensive review of
our costs and investment right across the Company.
That review is now complete. As a result, we will
reduce costs by £155 million in 2009, rising
to £245 million in 2011, compared to 2008.
Cost savings will come from a new efficiency
programme, regional news savings and from more
efficiency in our network programme investment.
Ensuring our cost base is as efficient as possible
is essential. In 2008, we completed a three-year
programme reducing costs across the business
by £41 million per annum. In 2009, we will deliver
£40 million in savings in our regional services.
We have now identified a further £50 million in
non-programming savings that will be delivered
in 2009, rising to £70 million in 2010. ITV will
become a leaner, fitter and simpler business.
ITV plc Report and accounts 2008 Executive Chairman’s statement
02
In 2008 we invested more than 50% of our total
revenues in programming, with the majority of
this investment focused on ITV’s unique selling
point, original UK production. Calibrating our
investment in network programming at the right
level is critical to maintaining our market-leading
position. We are determined to improve the
efficiency of our programming spend to deliver
an increased return on our investment. In 2009,
our network programme investment will be reduced
by £65 million year-on-year, with a focus on existing
programming stock to limit our cash spend.
Beyond the 2010 World Cup year, with a reduced
level of committed programming, we will deliver a
further reduction in schedule costs of £70 million.
We will still be investing around £1 billion in
programming in 2009, more than our two nearest
commercial competitors combined. Our audience
share target will not change: we are seeking to
maintain a share of commercial impacts across
our channels of at least 38.5% through to 2012.
The schedule for 2009 is a strong one, including
Britain’s Got Talent, Coronation Street, I’m A
Celebrity, The X Factor, Law & Order: UK, Dancing
On Ice, Emmerdale, Wild at Heart, live Champions’
League, FA Cup and England football matches and
many more returning series and new programmes.
To date in 2009, we are delivering 5% more
commercial impacts year on year across our
channels with our share running above 40%.
Progress in 2008
In a difficult market, there were significant
developments in each of our main business
segments during the year. As well as holding their
audience once again, ITV channels held their share
of UK television advertising revenues for the first
time in over 25 years. Our Global Content business
delivered strong revenue growth outside ITV in the
UK and internationally. Online, our average unique
users were up by 30% and itv.com secured 86
million video views.
We also made significant progress on a number
of important strategic initiatives. We successfully
launched Freesat with the BBC, which included a
high definition ITV service. We have partnered with
the BBC and BT to develop a new standard for
delivering itv.com and other online video services
to the television. We secured deals to provide ITV
programmes to a number of open and closed Video
on Demand (VoD) platforms.
Regulation
We have long argued that ITV labours under an
over-burdensome regulatory regime. In essence, ITV
is paying substantially more for its licence – in cash
and programming kind – than is economically
justified. With the onset of recession, there is some
evidence that Government and regulator accept
this and there have been some significant positive
developments.
The Office of Fair Trading is expected to make
its final recommendation to the Competition
Commission on possible reform of Contract Rights
Renewal in the spring. Our expectation is that this
process should complete ahead of the next trading
round for 2010 contracts. Ofcom’s second public
service broadcasting review has confirmed approval
for modernising ITV’s regional services, with
Government considering proposals for further
reform beyond 2010.
In January 2009, the Competition Commission
blocked Project Kangaroo, the proposed online
archive service which ITV, BBC Worldwide and
Channel 4 had jointly developed. We were
disappointed that we could not launch a service
which promised considerable benefits to online
users and increased competition with the
substantial established online players in this new
market. However, we do not want there to be any
further delay in exploiting the ITV archive online via
itv.com and we will not be appealing the decision.
As UK households have migrated to digital, there
has been a massive influx into the market of digital
advertising impacts. Add to this the continuing
regulatory restrictions governing the commercial
television market and the result has been significant
deflation in airtime pricing, which the economic
downturn has exacerbated. Uncorrected, the risk is
that high levels of investment in UK originated
content may become unsustainable in the
commercial sector.
ITV plc Report and accounts 2008 Executive Chairman’s statement
03
Inevitably in a tough market, the focus is on
the road immediately ahead. However, we are
not losing sight of the prize of returning ITV to
long-term growth.
The financial disparity between the three free-to-air
commercial public service broadcasters – ITV1,
Channel 4 and five – versus the publicly-funded
BBC and the dominant subscription player, Sky, is
increasingly stark – and the political and regulatory
debate around the future provision of public service
broadcasting needs to move on urgently to
practical solutions.
Targets
The weakening of the television advertising
market makes the case for building our business
beyond Broadcasting even more compelling.
Our content-led strategy remains right for ITV.
However, we must align our objectives to the
market conditions in which we are now operating.
Across ITV we are focusing on our core assets and
capabilities, on costs and on cash. In Global Content
and Online in particular this shift in emphasis has
implications in terms of our strategic targets.
In Global Content, we entered into a number of
small-scale production acquisitions, investments
and partnerships during 2008. However, we have
not judged it prudent to pursue the further
substantial production acquisitions we envisaged
in our 2007 strategic plan. The outlook for organic
revenue and profit growth has also become more
challenging, as the commissioning budgets of
ITV and other advertising-funded broadcasting
customers worldwide come under pressure.
Online, given the rapid progress itv.com has made,
we are confident that by focusing on delivery of
ITV content online we can become a market leader
in long-form broadband video. We are therefore
targeting our online investment and resources on
delivering ITV programmes via itv.com and VoD.
Friends Reunited remains a highly profitable and
successful online business, but our new strategic
focus on streamed video does not play to its
strengths and we will look to dispose of the
business when the time and the price are right.
ITV Local will be closed as a stand-alone business
and we will seek to dispose of the associated
Scoot business.
Despite the challenging market, we will continue to
seek growth in our Global Content and core Online
revenues. However, the revenue targets previously
set for 2012, which assumed modest, but positive
growth in UK television advertising, are no longer
appropriate. We will maximise value for our
shareholders by focusing on our cost saving
programme and cash generation as we await
an economic upturn.
The Board
We have further strengthened the Board and the
management team during the year, with Andy
Haste joining as a non-executive director in August
and Ian Griffiths joining the Company as Group
Finance Director in September. Sir Brian Pitman
retired from the Board in May 2008, having served
as a director of ITV plc from its creation, including
a period as Chairman. I would like to record my
thanks to Sir Brian for his contribution to the
Company.
Summary
These are tough times for the UK economy and
for ITV. We are tackling the dual challenge of the
transition to digital and a substantial deterioration
in the economic outlook. This means reshaping
the Company, taking costs out and, in the process,
reducing staff numbers significantly. However
painful that process is, it is essential for ITV’s
long-term health. I would like to thank all those
affected for their efforts on behalf of the Company.
Inevitably in a tough market, the focus is on
the road immediately ahead and ensuring that
the Company is strong enough to endure the
short-term challenges it faces. However, we are
not losing sight of the prize of returning ITV to
long-term growth. We need to continue with the
good progress we have been making in our core
broadcasting business, delivering a high quality
schedule attractive to UK audiences and advertisers.
We need to strengthen further our position in
content and online. I am confident we will then
be well positioned to take full advantage of the
economic upturn when it comes.
Michael Grade Executive Chairman
04
ITV plc Report and accounts 2008
Our business
Our content-led strategy seeks to leverage a
uniquely powerful combination of assets: our mass
broadcast channels; the content we create and
own; and a rapidly developing online business.
Broadcasting
ITV1 is the UK’s largest commercial television channel in terms of
audience share and advertising revenues. ITV invests around £1 billion
per year in network and regional content, funded by advertising and
sponsorship revenues. ITV’s digital channels, including ITV2, ITV3 and ITV4,
are growing their audiences and revenues. SDN, ITV’s wholly owned digital
terrestrial television multiplex operator, leases out capacity to channel
operators on the UK’s largest broadcast platform, DTT.
Global Content
Global Content comprises ITV Studios, ITV’s international production
companies and ITV Global Entertainment. ITV Studios produces
programmes for ITV channels and for other UK broadcasters. ITV’s
production companies in the US, Germany, Australia and Sweden
produce original programming for major international broadcasters.
ITV Global Entertainment generates revenues by distributing ITV and
third-party programming internationally, and through the sale of
DVDs and merchandise associated with ITV and third-party programmes.
Around half of Global Content revenues in 2008 were generated by
sales to ITV.
Online
Online, ITV is focused on video services delivering ITV programming via
the personal computer and – increasingly – directly to the television set.
itv.com includes ITV Player, which allows users to access catch-up and
watch clips from the best ITV programmes, all supported by advertising.
As PC and TV-based services converge, itv.com is coming of age as a digital
channel in its own right.
R
R
R
ITV plc Report and accounts 2008
05
Update on progress
Our strategy
is driven by content
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Strong broadcast channels
In 2008, ITV’s family of channels held its audience share
once again and maintained its share of the television
advertising market for the first time in over two decades. ITV
channels accounted for over 40% of viewings of UK television
advertisements.
With the television advertising market declining by 5% in 2008
and continuing to be weak into 2009, ITV is seeking to increase
the efficiency of its programming investment. Across network
and regional programming, ITV will reduce its programming
investment by £65 million year-on-year in 2009. However ITV
is not adjusting its audience share targets. We continue to aim
for ITV channels to deliver at least 38.5% of viewing of UK
television commercials through to 2012.
R Continue to develop ITV1’s strategy for peak-time, which
attracts the majority of our viewing and advertising.
R Increase the efficiency of our network programme spend
to allow reductions in cost without impacting
on-screen performance.
R Modernise ITV’s public service remit to ensure that the costs
and benefits are aligned for the long term.
R Work to reform the Contract Rights Renewal remedy which
applies to the sale of ITV1 advertising airtime.
R Future-proof Freeview and Freesat to ensure the free-to-air
platforms on which ITV performs best are as strong as possible.
R Consider options for the successful and profitable
SDN business.
Content-led growth
External Global Content revenues grew by 25% in 2008, with
production for other UK and international broadcasters up
strongly. However, with television advertising under pressure
in the UK and internationally, the outlook for 2009 is weaker.
In such a context, ITV’s previously stated revenue growth
target for 2012 is no longer appropriate. However ITV will seek
to continue the organic revenue growth delivered in 2008. ITV
will also continue to consider targeted production acquisitions,
as recently with Silverback and Imago; investment in
independent producers, as seen with Carbon Media and
Crackit; and innovative production partnerships, as recently
agreed with Fox, Shine and 19 Entertainment.
R Focus on winning profitable ITV commissions in internationally
high value genres.
R Ensure greater secondary exploitation opportunities across
a higher proportion of ITV commissions.
R Continue to expand distribution of ITV and third-party
programming and formats across our territories and beyond.
R Focus on growing revenues organically and via targeted
acquisitions and partnerships.
R Invest in development of innovative new programmes
and formats.
R Retain and invest in great creative talent.
R Maintain cost discipline throughout the business.
Focus on online video
Online, itv.com has enjoyed very strong rates of growth in
terms of unique users and video views. itv.com advertising
revenues increased by over 60% in 2008, with video advertising
revenues in particular growing rapidly throughout 2008.
Reflecting ITV’s increased focus on delivery of ITV
programming online, our Online business was editorially
integrated with ITV’s broadcast channels in late 2008. With the
online whitespace advertising market under pressure and ITV
focusing on online video, ITV has taken the decision to close
ITV Local as a stand-alone business and to dispose of the
successful Friends Reunited business.
R Continue to invest in establishing and developing new
means of delivering ITV content to growing online audiences.
R Develop itv.com as a premium VoD entertainment site.
R Exploit our catalogue to deliver ITV programmes via open
and closed VoD services.
06
ITV plc Report and accounts 2008
Market context
With the transition to digital and the economic
downturn, the competitive pressures are intense.
However, the opportunity for content-led
growth remains.
John Cresswell Chief Operating Officer
As the UK’s leading commercial producer
broadcaster, ITV competes across a range of
markets. In a fiercely competitive commercial
broadcasting market ITV delivers around 40% of all
UK commercial impacts – individual viewings of 30
second commercials. ITV is the largest commercial
production company in the UK, producing over half
of ITV1’s original programming, but earning around
half its production revenues outside ITV. Online,
itv.com provides viewers with another channel to
view ITV content and advertisers another means
of reaching consumers.
Over the last decade, the transition to digital has
meant all established media, including television,
have been under constant pressure. In the second
half of 2008, the digital transition was eclipsed as
the dominant trend by the sharp global economic
slowdown. Investment in advertising is particularly
sensitive to declines in corporate profitability and
sentiment. No media sector – including content
production and online – is insulated from the
impact of the downturn.
Amidst these significant economic and
technological changes, there have been some
positive themes. Individual levels of television
viewing have remained robust. Indeed, a number of
“event TV” programmes have grown their audience
year-on-year. Consumers’ appetite for the shared
experience of compelling broadcast content
remains undiminished. Beyond the digital transition
and the current economic downturn, our view
remains that the path to recovery will be
content-led.
Broadcasting
Television viewing has remained relatively stable
over the past 15 years with the average adult
watching almost four hours of television a day.
In 2008, average adult viewing levels actually
increased by around 3% or seven minutes per day.
The average home now owns 2.4 television sets
and there are around 500 television channels
available to consumers in the UK. There are three
main public service broadcasters – the BBC, ITV and
Channel 4 – but the vast majority of channels are
fully commercial.
By the end of the year, around 90% of UK homes
had access to digital television on at least one set.
The remaining 10% of UK homes will switch to
digital over the next four years. The full digital
switchover process started in the ITV Border region
in November 2008 and moves on to Westcountry
and Granada in 2009.
Digital terrestrial television (DTT) continues to
be the UK’s most popular multichannel platform
with around 40% of primary television sets now DTT
enabled. 12 million Freeview DTT devices were sold
during the year. Over 70% of all UK sets now have
digital access, including the majority of all second
sets. On the back of this success, Freeview capacity
remains a sought-after commodity for
broadcasters.
Sky’s digital satellite service is the UK’s second most
popular platform with around 35% of primary sets.
Cable accounts for around 13% of primary sets and
subscription-free digital satellite (including Freesat)
for 2%. Freesat was launched in May 2008 and
taken up by 200,000 UK homes by the end of the
year. Freesat increases the availability of free-to-air
digital television, via digital satellite, with 140
television and radio channels, including high
definition (HD) services from the BBC and ITV.
ITV plc Report and accounts 2008 Market context
07
Penetration of UK television platforms
Free-to-air platforms
Freeview
(including Top-Up TV)
Freesat
Analogue Terrestrial
Pay platforms
Cable
Pay Satellite
Note: Excludes ADSL homes. Freesat includes Freesat from Sky.
Source: Ofcom, September 2008
The transition to digital has continued to erode
the audience shares of the five main terrestrial
channels – BBC1, BBC2, ITV1, Channel 4 and
five – all of which experienced audience share
reductions in 2008. However this has been
mitigated by continuing growth in audiences
on their affiliated digital channels and the main
free-to-air broadcasters maintain a significant
share of UK viewing. In 2008, the main free-to-air
broadcasters’ channel families accounted for
74.4% of total UK viewing (2007: 74.8%).
Despite overall levels of viewing remaining stable,
a rising proportion of UK viewing is of commercial
channels as the BBC loses share. Within commercial
television, more viewing is taking place on digital
channels, which are permitted to carry an average
of nine minutes of advertising per hour (compared
to seven minutes for ITV1, Channel 4 and five).
As a result, the volume of commercial impacts
continues to increase. In 2008, the total volume
of impacts rose by 6% (2007: 5%).
Overall UK advertising declined by around 2% in
2008 to £12.4 billion. However, excluding online,
where strong growth continued, advertising on
traditional media declined by 7%.
Despite a flat first half, total UK television
advertising was down 5% across the full year to
£3.3 billion. Nonetheless, television remains the
largest source of display advertising revenues,
accounting for around 40% of the total UK display
advertising market (excluding classified).
With spending on total television advertising down,
but commercial impacts up, the price of television
advertising declined significantly during the year.
As well as macro-economic weakness, this
deflationary trend has been linked to the impact of
the digital transition and Contract Rights Renewal.
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Global Content
The UK production market remains intensely
competitive with a large number of independent
producers, such as Endemol and Shine, competing
with a handful of integrated producer broadcasters,
notably ITV and the BBC, and other production
companies not classified as independents, such
as Fremantle. With consolidation in the sector
continuing, there is an increasing divide between
the larger production companies – including the
BBC, ITV, Endemol, Fremantle and All3Media – often
diversified across a number of genres, and a large
number of smaller production companies, which
may specialise in a single genre.
On the commissioning side, the BBC, ITV, Channel 4
and five between them account for around 90% of
original commissions by UK channels. The BBC and
ITV both produce a large proportion of their original
programming in-house. Channel 4 is prevented by
statute from producing programming.
2008 was a challenging year for the UK market.
The three largest commissioners of original
programming are under varying degrees of
pressure. The BBC has the very significant benefit
of a guaranteed income, albeit that the current
settlement provides for only sub-inflation licence
fee growth over the period to 2012. In response
to commercial pressures, Channel 4 cut its
programming budget by £25 million, or around
4% in 2008, and has warned over similar scale cuts
to come in 2009. Across its channels ITV increased
its programming budget in 2008, but is reducing
its spend in 2009. With films, acquired series, sport
and news committed under long-term contracts,
original programme commissions come under
particular pressure when reductions are made
to programme budgets.
ITV plc Report and accounts 2008 Market context
08
Major channels’ spend on UK commissions (£m)
800
700
600
500
400
300
200
100
0
ITV1
BBC1
BBC2
Channel 4
five
Source: Ofcom, based on 2007 spend
Notwithstanding pressures in the UK, international
demand for programming from UK and European
producers remained strong in 2008. A large number
of the best performing programmes on US network
television are produced by non-US producers, such
as ITV, Fremantle and Endemol. International
producers are increasingly seeking to roll out
successful formats across multiple territories to
maximise revenues and defray costs. However,
the economic downturn will impact demand for
original production from international broadcasters.
With their own advertising revenues falling,
commissioners can be expected to put downward
pressure on producers’ prices and margins. In some
cases, acquired programming may become a more
attractive alternative to original commissions. This
in turn may create opportunities for international
distribution companies.
Online
UK online advertising revenues increased by 18%
to £2.8 billion in 2008, according to Advertising
Association data. The majority of online revenues
come from “search” advertising (such as Google
and other search engines) where revenues increased
by 20% to a total of £1.6 billion. Online display
advertising increased by 12% to £579 million and
online classified advertising by 20% to £595 million.
Online now accounts for 23% of all advertising
spend in the UK, up from 19% in 2007.
Whilst online advertising revenues continued
to increase over 2008, supply of online display
advertising inventory – in particular “white space”
banner advertising – has grown very rapidly, putting
downward pressure on prices.
The proportion of homes accessing the internet
via a broadband connection continues to grow.
Over 90% of internet users in the UK now use
broadband and 60% of UK households now have a
broadband connection. With more homes enjoying
faster broadband connections – with 50Mb services
available in some areas – demand for online video
has grown. A year after its full launch, the BBC
was recording around 1 million video views via its
iPlayer service every day. BARB data showed a
77% year-on-year increase in the number of
people watching television content online.
There is evidence that online advertising revenues
are gravitating to such high-quality services, rather
than user-generated content. In the US, the Hulu
online video service has been forecast to be on
course to match YouTube’s advertising revenues in
2009, despite the latter’s considerably larger reach.
Virgin, BT and Sky have all now established VoD
services available to their subscribers. Such services
include content provided by established
broadcasters, such as the BBC, ITV and Channel 4.
An emerging trend is the convergence of online
video services with VoD, with the BBC iPlayer and
the ITV Player services now available to Virgin
subscribers via the television.
The social networking market continued to expand
during the year. Facebook reached over 200 million
monthly unique users and 80 billion monthly page
views globally, the majority outside the US.
Other major social networking sites include Bebo,
MySpace, LinkedIn and Friends Reunited.
compelling content
R
ITV plc Report and accounts 2008
10
x Demons
x Paris Hilton’s British Best Friend
ITV plc Report and accounts 2008
11
x Ant & Dec’s Saturday Night Takeaway
ITV plc Report and accounts 2008
12
x Harry Hill’s TV Burp
x Martin Clunes: A Man and His Dogs
ITV plc Report and accounts 2008
13
x Live Football
x The X-Factor
ITV plc Report and accounts 2008
14
x Law & Order: UK
ITV plc Report and accounts 2008
15
x The Colour of Money
x
x Billy Connolly: Journey to the Edge of the World
x
x Coronation Street
R
R
attracting audiences
attracting advertisers
ITV plc Report and accounts 2008
17
Operating review
In 2008 we made operating progress across
Broadcasting, Global Content and Online. However,
no part of our business is immune from the impact
of the economic downturn.
We made operational progress across all of
our key business segments during the year.
However no part of our business is immune from
deteriorating market conditions and we have had
to adapt our priorities accordingly. We remain
confident that ITV’s strategy as an integrated
producer-broadcaster will deliver long-term growth,
driven by our ability to build strong programme
brands. However, given the economic backdrop, our
immediate focus is on the performance of our core
business, tight control of costs and cash generation.
Across our key business segments – Broadcasting,
Global Content and Online – we made some
significant changes in structure and personnel
during the year. We are confident we have in place
the right team with the right strategy to lead
the business through the uncertain times that
we are in.
Broadcasting continues to be the primary driver of
the Company’s revenue delivering over 80% of total
external revenues in 2008. The Broadcast segment
incorporates all our advertising funded television
channels. Peter Fincham joined us during 2008
and is Director of Television, Channels and Online,
responsible for commissioning and scheduling
across all the ITV channels. Rupert Howell, Managing
Director, ITV Brand and Commercial, is responsible for
sales and marketing across all our channels.
Broadcasting also incorporates our wholly-owned
digital terrestrial multiplex SDN.
Our Global Content segment is led by Managing
Director Lee Bartlett who was appointed during
the year. Our distribution and merchandising arms
have been integrated as ITV Global Entertainment
and our production operations in the UK have been
re-branded as ITV Studios.
Online our core asset is itv.com. Towards the end of
the year we editorially integrated ITV’s online and
interactive assets with the broadcast channels that
increasingly provide them with their content and
cross-promotion.
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At the start of the year, ITV’s “other” segment
included the cinema advertising business, Carlton
Screen Advertising. The major operations of this
business were disposed of during the year, consistent
with ITV’s programme of non-core disposals.
Key operational developments in our major
segments are set out in the following sections.
Given the economic context, we have pressed for
more urgent regulatory reform to lighten further
ITV’s regulatory burden and deliver more flexibility.
Further detail of the progress we have made is also
provided below.
Running the business as efficiently as possible has
become an even greater priority and we have set
out challenging cost savings targets. Further detail
on our cost savings programmes, together with an
update on market conditions in 2009, is provided
under the Forward Look section.
Broadcast
Our Broadcast revenues were down 5%,
reflecting a 4% reduction in television advertising
revenues and a reduction in revenue from
programme-related premium rate telephony.
Operating EBITA was down 43% to £140 million,
reflecting the gearing of segmental profits to
television advertising and a small increase in
programme costs.
On screen the turnaround in performance in ITV’s
channels, which began in 2007, continued. Having
maintained audience share across the family of
ITV channels for the first time since the early 1990s
in 2007, ITV once again delivered a stable audience
share performance. ITV family audience share was
held at 23.2%.
Furthermore, although the advertising market
was weak, ITV started to translate on screen
performance improvements into revenue share
gains. Indeed, for the first time since the early
1980s, ITV held its share of the television advertising
market year on year. ITV’s share of the market
across 2008 was 43.8% (2007: 43.6%). ITV1
advertising fell by 8% to £1,127 million, but
advertising on ITV’s digital channels increased by
16% to £242 million. Sponsorship revenues were
£58 million (2007: £56 million).
ITV plc Report and accounts 2008 Operating review
18
Year-on-year change in ITV share of UK TV advertising revenues
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: ITV estimate
ITV channels delivered 4% more commercial
impacts in 2008 than the previous year. However,
with the total volume of impacts across the market
growing slightly ahead of this, ITV family share of
commercial impacts was slightly down at 41.0%
(2007: 41.7%). ITV’s long-term objective remains
to maintain a share of commercial impacts across
its channels of at least 38.5% through to 2012.
ITV1
ITV1 remains the UK’s largest commercial channel.
In 2008, ITV1 achieved an audience share of 17.2%
(2007: 17.9%), more than twice the share of ITV1’s
nearest commercial rival, Channel 4. Across peak
viewing hours, ITV1 remains the UK’s most popular
channel with a share of 23.9% (2007: 25.3%), slightly
ahead of BBC1 with 23.4%.
ITV1 delivered 1% fewer commercial impacts
in 2008 than the previous year across all adults.
For upmarket ABC1 viewers, ITV1 impacts increased
year-on-year by 1%. Whilst impacts for younger
16–34 year old viewers fell by 1% for ITV1, both
Channel 4 and five suffered greater losses.
The volume of impacts ITV1 delivers determines
the price paid by advertisers for their inventory.
However, under the Contract Rights Renewal
mechanism, ITV1’s share of commercial impact
decline is a crucial determinant of the channel’s
revenue performance the following year.
In line with this, ITV1 advertising revenues in 2008
benefited from the channel’s relatively low share
of commercial impact decline in 2007 (down 3%).
In part this reflected the exceptional impact in 2007
of a reduction in children’s programming during
weekday afternoons, the launch of Britain’s Got
Talent and the Rugby World Cup.
In 2008 ITV1’s share of commercial impacts fell to
30.0% from 32.0% in 2007. This reflects continuing
growth in impacts across the market, which were up
6% year on year. This resulted from increased digital
penetration and the shift of viewing to commercial
digital channels, including ITV’s own.
ITV1 relaunched its evening schedule in January
2008. Under the new schedule, the weekends
have been more focused on entertainment,
with drama concentrated on weekday evenings.
There has been a fresh emphasis on comedy,
with successes including Benidorm and Harry Hill’s
TV Burp. Whilst there have been some successes,
including The Fixer, Wired and Place of Execution,
midweek drama at 9.00 pm did not perform as
consistently as had been hoped during 2008. News
At 10 returned to the ITV1 schedule as part of the
new schedule changes. Whilst performing strongly
from an editorial perspective, its ratings reflect an
inconsistent viewing inheritance from the preceding
programmes and the established audience for the
BBC1 alternative.
ITV1’s main entertainment programmes delivered
very strong performances in 2008. ITV1 broadcasts
the four biggest entertainment shows on
commercial television: The X Factor, Britain’s Got
Talent, Dancing on Ice and I’m a Celebrity. The X
Factor and I’m A Celebrity both enjoyed substantial
year on year audience growth. Following its debut in
2007, Britain’s Got Talent returned as an extended
series and the 2008 final secured 13.9 million
viewers and a 56% share (2007: 48%).
ITV’s big soaps continued to attract large audiences
with Coronation Street and Emmerdale averaging
9.5 million and 6.9 million viewers respectively
(2007: 10.1 million and 7.5 million respectively).
Coronation Street ranks as the top performing soap
on any channel with its best episode of the year
pulling in 13.0 million viewers (2007: 13.1 million).
2008 was another excellent year for premium live
sport on ITV. The UEFA Champions’ League Final
between Manchester United and Chelsea attracted
an audience of 10.1 million and a share of 43%, the
best performing sports programme on any channel
in the year. Despite the lack of a home team in the
tournament, coverage of Euro 2008 attracted large
audiences. In March ITV contracted to show
Champions’ League games for four further seasons
from autumn 2009. With the start of the new FA
contract in late 2008, ITV is now the home of live
free-to-air football with Champions’ League, FA Cup
and selected England games.
ITV plc Report and accounts 2008 Operating review
19
Programmes delivering mass audiences by channel
ITV1 Channel 4 five
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
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3m+
5m+
10m+
Source: BARB/Infosys, Individuals, All time, Jan-Dec 2008, C4 Total = C4 / C4+1, programmes
over 10 minutes duration.
The long-term health of ITV1 depends on our ability
to launch successful new shows. In 2008, ITV1
introduced a number of successful and innovative
new shows, including Headcases, Martin Clunes:
One Man and His Dogs, and The Fixer. However as
audiences fragment, breaking big shows in their
first series is becoming more challenging. ITV1
launched 18 new shows in 2008 which secured
audiences in excess of five million viewers (2007: 23
new shows). Into 2009, a number of significant
commissions made during 2008 are being screened,
including Demons, Whitechapel, Unforgiven, Above
Suspicion and Law & Order: UK.
Despite increasing digital competition, we have
ensured that, across all genres, ITV1 remains the
place advertisers go to for consistent delivery of
mass audiences. ITV1 played five of the top ten
programmes on any channel in 2008 (four in 2007).
The 475 biggest audiences on commercial
television in 2008 were all delivered by ITV shows
(2007: 290). 99% of commercial programmes
attracting more than five million viewers were
shown on ITV1, rising to 100% of audiences over
ten million viewers (see graph above).
ITV digital channels
ITV’s digital channels had another strong year in
2008, with a total share of viewing across the
channels of 4.8%, up 20%. ITV2, ITV3 and ITV4
are all top ten digital channels based on adult
share of commercial impacts, with ITV2 and ITV3
occupying the top two slots. The combined share
of commercial impacts delivered by ITV’s digital
channels was 8.8% (2007: 7.3%).
ITV2 increased its impacts by 19% across the year.
As well as being the UK’s biggest digital channel in
terms of adult share of commercial impacts, ITV2 is
the second biggest for 16–34 year old viewers. With
a 16–34’s share of impacts of 5.8%, ITV2 is closing
the gap on five, which delivered a 6.6% share, in line
with our stated aim for ITV2 to overtake five in this
demographic.
Ratings successes on ITV2 included Britain’s Got
More Talent, Xtra Factor, Katie and Peter: The Next
Chapter and Ghosthunting with… The UK launch of
Bionic Woman pulled in 3.0 million viewers making
it the channel’s best performing programme ever.
In share of viewing terms, ITV3 was the UK’s third
largest digital channel in 2008 with a share of 1.6%
in multichannel homes. ITV3’s schedule is targeted
at an older audience, with a heavy focus on drama.
The channel delivered 35% more impacts across
the year. High performing programmes include
Midsomer Murders, Lewis, Agatha Christie’s Poirot
and Inspector Wexford.
Boosted by an extension in its hours of transmission,
ITV4 impacts increased by over 60% and the
channel’s share of commercial impacts increased
by over 50%. ITV4 continues to target male viewers
with a schedule featuring a wide range of sport.
Highlights included ITV4’s largest ever audience of
1.8 million viewers for the Champions’ League live
coverage of Manchester United v Aalborg.
ITV’s children’s channel, Citv, held its audience
in 2008 and grew its revenues by over 50%.
Men & Motors, the smallest ITV digital channel,
is not available in DTT homes and suffered some
audience and revenue decline during 2008.
Brand
A significant project during the year focused on
ITV’s brand architecture, establishing the new brand
values and positionings for the most important
brands in the ITV portfolio.
The purpose of any brand is to influence
consumers’ decision-making. In the case of ITV1,
a strong brand will help motivate viewers to watch
ITV1 rather than any other channel. The health
of the brand is tracked over time through regular
measurement of viewers’ association between
the channel, competitor brands and key drivers
of television viewing. This measure of brand health
has been adopted by ITV as its main marketing KPI.
ITV plc Report and accounts 2008 Operating review
20
Global Content revenues (£m)
2007 2008
350
300
250
200
150
100
50
0
ITV Studios –
ITV
ITV Studios –
Non-ITV
International
productions
Global
Entertainment
Note: Includes internal ITV revenues.
Based on the work undertaken in 2008, ITV1 runs
second to BBC1 in terms of brand health, but is
well ahead of its key commercial competitors,
Channel 4 and five. Over the last quarter, ITV1
achieved a brand health score of 34% compared
to 40% for BBC1, 24% for Channel Four and 15%
for five. As one of ITV’s key performance indicators,
this measure will be closely tracked going forward,
with our ambition being to maintain – and
strengthen – our position.
SDN and platforms
The digital terrestrial multiplex operator, SDN,
which is wholly-owned by ITV, delivered a strong
performance in 2008. SDN earns revenues by
leasing out capacity on the DTT platform to
channel providers on long-term contracts. SDN
holds that capacity under a licence from Ofcom
which runs to 2010 and can be renewed to 2022.
No licence fee is payable until the end of 2014 at
the earliest.
With no major new contracts due to come into
effect in the year, revenues were down 8% on
2007 at £33 million. However, a contract for a
new channel was agreed from early 2009 and
a tenth video stream will be available from 2009,
which should have a positive impact on future
revenues. Other channels carried on the SDN
multiplex include QVC, five and Citv. In early 2009,
ITV confirmed that it is considering future options
for SDN.
In early 2008 ITV and the BBC launched Freesat,
a service providing free-to-air access to digital
satellite, including HD services from the BBC and
ITV. ITV launched its first HD offering in June prior
to Euro 2008. ITV HD is a free red-button service
available exclusively to Freesat customers, and
offers selected sporting events, movies and dramas.
Global Content
Global Content revenues grew by 10% in 2008
to £622 million (2007: £564 million). Internal ITV
commissions were down slightly at £316 million
(2007: £320 million) and revenues from other
UK broadcasters, international production and
international distribution grew strongly to reach
£306 million (2007: £244 million).
Operating EBITA before exceptional items for the
year was flat at £90 million (2007: £90 million).
Profits remained flat, despite the revenue increase
as a number of positive one-offs from 2007
(such as The Queen) did not recur, a number of
well-established ITV-produced programmes were
not re-commissioned and a higher proportion of
revenues was accounted for by new, lower margin,
international commissions. Offsetting this, profits
benefited from a new deal for Coronation Street
and Emmerdale, more closely reflecting their
value to the ITV1 schedule. There were also a
number of provision releases which will not recur
in future years.
ITV Studios remains the largest single provider
of original ITV programming securing around 50%
of ITV1 commissions over the year. Six of the
top ten programmes shown on ITV1 in the year
were made by ITV Studios (2007: six out of ten).
These programmes included core series such as
Coronation Street, Emmerdale, Dancing on Ice,
I’m a Celebrity and Lewis. New programmes in 2008
included Headcases, Who Dares Sings and We Are
Most Amused.
Into 2009 there are a number of new shows
produced in-house in the ITV1 schedule, including
Billy Connolly: Journey to the Edge of the World
and the return of The Krypton Factor. Following
the success of One Man and His Dogs in 2008, a
new Martin Clunes fronted series, Islands of Britain,
has been commissioned for 2009. Producer 12 Yard,
acquired by ITV in December 2007, secured its
first commission for ITV with game-show The Colour
of Money.
Britannia High was an innovative first 360 degree
ITV Studios commission from ITV1, which was
broadcast in the autumn. Whilst the musical drama
did not deliver anticipated audience levels, its
development included all areas of Global Content –
including ITV Studios and ITV Global Entertainment
– together with Broadcasting and Online working
closely to seek to devise a programme with
maximum revenue potential in the UK and beyond.
Inevitably not all such ideas will work, but ITV is
confident that such continuing collaboration will
deliver more positive results over time.
ITV plc Report and accounts 2008 Operating review
21
2008 itv.com unique users and video views
16,000,000
14,000,000
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
itv.com unique users itv.com video views
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Source: Omniture, itv.com.
Beyond internal commissions for ITV, ITV Studios
continued to produce a number of successful
shows for other UK broadcasters. For the BBC,
ITV produced University Challenge and Eggheads.
Channel 4 re-commissioned Countdown for a
further two years.
2008 was a very successful year for our international
production business with revenues growing by over
50%. Granada USA productions included Hell’s
Kitchen for Fox and The Chopping Block for NBC.
In Germany, we delivered programmes to RTL,
Vox and Pro7 including local versions of I’m A
Celebrity and Come Dine With Me. International
distribution and merchandising revenues were up
8% at £123 million (2007: £114 million).
Given the economic outlook, ITV did not make
any further substantial production acquisitions
during 2008, but has made a number of smaller
“seed-corn” investments in the UK and
internationally. ITV took a 25% equity stake in a
new UK independent production company, Crackit
Productions and, in early 2009, took a 25% stake in
another UK independent producer, Carbon Media.
Internationally, ITV acquired Scandinavian
independent producer, Silverback. ITV also took
a minority stake in Electric Farm Entertainment
LLC in the US and a 51% stake in German producer
Imago TV. In line with our stated ambition to fund
new ways of working with the independent sector,
in 2009 we have announced co-production deals
with Shine and 19 Entertainment.
Via Global Content, ITV has a growing ability to roll
out successful formats across multiple international
territories. For example, Come Dine With Me was
developed by ITV Studios for Channel 4 in the UK.
The programme started as a daytime show and
became so successful that Channel 4 has moved
it to peak and ITV Studios developed a celebrity
version. Granada Germany produces the local
version – Das Perfekte Dinner– for VOX in Germany.
ITV Global Entertainment has sold the format in
France, Spain, Hungary, Croatia and the
Netherlands. Shortly after its acquisition in 2008,
Silverback was commissioned to produce a version
in Sweden.
ITV Studios received 61 awards in 2008 (2007: 117
awards), including three Golden Globe awards, a
BAFTA Television Award, an RTS Programme Award
and British Soap Awards.
Online
ITV continued to develop its online services in 2008,
attracting significantly increased traffic. However
the weakening of the advertising market over the
course of 2008 and the delay, and ultimate
blocking, of the launch of the Kangaroo joint
venture meant that revenue growth was limited
and losses increased to £20 million (2007: losses of
£12 million). However as online audiences build, it
is clear that online is becoming a vital part of ITV’s
distribution mix and an important investment for
the future.
itv.com continues to grow and attracted increasing
numbers of users following its relaunch in 2007.
Monthly unique users averaged 6.5 million, a 30%
increase from 2007. In November 2008, unique
users reached a record 9.4 million and itv.com was
ranked by Comscore as the UK’s 5th most popular
entertainment site.
Video views increased rapidly across the year with
86 million video views served in total. Towards the
end of the year, itv.com’s catch-up and archive
service was relaunched as ITV Player including
improved functionality. Online video advertising
continues to command a significantly higher cost
per thousand than other online advertising.
In November 2007 ITV announced Kangaroo, a
three-way joint venture with BBC Worldwide and
Channel 4 to launch an online video archive service.
The joint venture was referred to the Competition
Commission during 2008 which delayed, and
ultimately blocked, the launch of the proposed
service. The Competition Commission blocked the
joint venture in February 2009 which means it
cannot be launched. ITV will now focus its online
archive delivery on the successful itv.com site.
ITV plc Report and accounts 2008 Operating review
22
ITV announced agreements to allow BT Vision and
(in early 2009) Virgin Media’s combined 3.5 million
subscribers access to hundreds of hours of ITV
content via their televisions on an on-demand basis.
A partnership with iTunes saw over 260 hours of
ITV programming becoming available for paid-for
download, with more to follow.
Friends Reunited delivered around half of ITV’s
online revenues in 2008. The Friends Reunited
reunions site was relaunched on an advertising
funded model in May 2008 and unique users rose
significantly to reach a record level of 6.4 million
users in July. Genes Reunited remained the
UK’s number one family history site with over
9 million members, up 19% in the year. Friends
Reunited Dating is now a top five UK dating
site with 1 million members, up 30% in the year.
The Dating and Genes Reunited sister sites both
remain subscription funded.
As anticipated, Friends Reunited revenues were
impacted by the loss of subscription revenues
from the reunions site. In addition, growth in
online advertising – in particular for “white-space”
inventory – started to ease in the second half
of 2008.
With the Company’s focus on delivering ITV
programming online, ITV has confirmed that
Friends Reunited will be sold when the time is
right. ITV has also confirmed that the ITV Local
broadband service, which provides local news
content, will close as a standalone business.
We remain confident in the prospects for
long-term online revenue growth, in particular
with respect to online video advertising, where we
are continuing to improve our offer to advertisers.
As with ITV’s existing digital channels, there is an
opportunity to leverage ITV’s investment in content
and cross-promotional power to drive traffic and
revenues to online and on demand services.
Regulation
As the economic outlook has weakened, ITV has
successfully made the case for accelerated action
across a number of areas where ITV remains subject
to a degree of regulation disproportionate in the
digital age.
Ofcom brought forward its second review of
public service broadcasting, which ran throughout
2008 and concluded in early 2009. The review
confirmed Ofcom approval of ITV’s proposals
for modernising its regional services in 2009.
The review further concluded that ITV’s regional
services are unsustainable without a new funding
solution beyond 2010 and proposes means of
supporting regional services, including via
partnerships with and potential licence fee funding
from the BBC. The Digital Britain inquiry led by
the Communications Minister, Lord Carter, is
considering those elements of reform of public
service broadcasting which require decisions by
the Government.
The OFT started a review of the CRR remedy
applying to ITV1 in 2008. In early 2009, the OFT
consulted on possible relaxation of CRR and has
said that any recommendations to the Competition
Commission would be made in the spring. This
timetable should allow for any changes to CRR
to come into effect in time for the deal round in
autumn 2009 and contracts for 2010.
The Government has consulted on the introduction
of product placement, following relaxation of the
European rules under the new Audio Visual Media
Services Directive. ITV has continued to work closely
with advertisers on innovative means of supporting
programmes whilst marketing their products to ITV
viewers. Dog Rescue, supported by Pedigree, was
the first fully advertiser-funded programme to be
developed and produced by ITV. The potential
introduction of product placement on UK television
for the first time offers further opportunities.
ITV plc Report and accounts 2008 Operating review
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Forward look
ITV’s focus in 2009 will be on our core business as
an integrated producer-broadcaster, on reducing
our costs, and on managing and generating cash.
In particular, we will deliver a year on year reduction
in costs of £155 million. Those savings will come
from a new efficiency initiative and across regional
and network programmes.
Prior to the current economic downturn, ITV
was already focused on delivering significant cost
savings. With the advertising market weakening,
in August 2008, ITV set out details of further cost
savings of £35 million over 2009/10. During the
second half of 2008, as the economic outlook
deteriorated further, ITV embarked on a further
detailed review of its structure, activities, assets
and staffing levels, which has identified scope
for further significant savings over 2009-10.
As a result of this process, ITV now intends to
deliver annual savings of £50 million over 2009,
rising to £70 million in 2010 from right across the
business (including the previous £35 million target).
The cost of change associated with these savings
is estimated to be £40 million.
This cost reduction programme will involve
a significant number of job losses and a
rationalisation of non-core activities, either by
closure or additional disposals. These savings are
in addition to the £40 million reduction in regional
costs which ITV is separately on track to achieve in
2009. Including the regional changes, ITV expects
its headcount to reduce by over 1,000 positions
compared to the level at the start of 2008.
Broadcasting
In Broadcasting, ITV will reduce its investment in
network programming by £65 million in 2009, with
a focus on existing programme stock to limit cash
spend. With ITV’s commercial competitors also
under pressure, ITV is confident that there should
be no negative impact on its channels’ competitive
performance. Indeed, over the first seven weeks of
2009, the ITV family has delivered 5% more impacts
year on year with a share of commercial impacts of
40.6% (2008: 41.4%). This reflects the performance
of ITV1 in particular, with a strong schedule
including Dancing On Ice, Harry Hill’s TV Burp,
Whitechapel and Above Suspicion. Over the same
period, ITV1’s volume of commercial impacts
is up by 1% and its share of commercial impacts
stands at 29.3%, down from 31.2% in the same
period in 2008.
Significant savings are necessary in our
Broadcasting business because advertising market
conditions remain highly uncertain. For the first
quarter of 2009, ITV’s total television advertising
revenues are expected to be around 17% down,
with ITV1 down 20% and the total market down
17%. There are some significant seasonal factors,
but nonetheless this represents a further
deterioration compared to the second half of 2008.
Whilst forward visibility remains limited, across its
channels, ITV expects to perform in line with the
total market over the full year.
Global Content
Our Global Content business faces a tough market
in 2009. Reductions in ITV’s network programme
spend will significantly impact ITV Studios, which
depends on ITV commissions for half its total
revenues. ITV Studios’ main external customers
in the UK are facing similar pressures to ITV. In
Global Entertainment, depressed consumer
spending could also be expected to weigh on
consumer-facing revenues (for example, from DVDs
and merchandising). Whilst the outlook in 2009
is also tough for international production, the US
and German production businesses enjoy positive
momentum from their strong performance in 2008.
Online
Online, ITV will focus on delivering video content
via itv.com and VoD, with the ITV Local service to
be scaled back and Friends Reunited to be sold
when the time is right. With Kangaroo also not
going ahead, ITV’s online segment will become
more tightly focused around itv.com and there is
the opportunity to simplify structure and reduce
costs. itv.com’s performance in early 2009 justifies
our confidence in the service as the heart of ITV’s
online offering, with unique users and video views
both growing strongly year-on-year.
In summary, 2009 will be a challenging year, but
we have a clear action plan to see us through
the downturn.
John Cresswell Chief Operating Officer
ITV plc Report and accounts 2008
24
Risks and uncertainties
The combination of harsh economic conditions
and our determination to identify new market
opportunities and revenue streams makes our work
on risk a major priority for ITV.
General
Risk description
Impact
Mitigation
Failure to implement the
strategic plan including
efficiency saving initiatives
– Loss of market share
– Operating EBITA
– Cash flow
– Regular review of progress against plans
– Revise plans to take account of changing circumstances
Treasury risks:
– Maturing debt facilities are
difficult to refinance
– Volatility and value of issued
debt and financial instruments
– Availability of finance
– Increased cost and more
restrictive covenants
– Loss on instruments
– Maintain adequate liquidity in cash and undrawn facilities
– Review all funding options in light of current sub-
investment grade credit rating
– Monitor the financial markets and counterparty risk
– Monitor instruments and review hedging efficiency
Pension scheme
funding gap
– Additional funding
requirement
– Established working protocol with trustees
– Working with trustees to reduce risk
– Regularly review funding policy and legislative changes
– Investment Committee review investment policy and set
asset allocation, investment benchmarks and hedging
positions
– Formal valuations for funding purposes, and regular
accounting valuations and updates
Failure to adapt strategy to
shifts in market competitive
dynamic or technological
developments
Failure of key suppliers
or customers to meet
contractual commitments
or for ITV to achieve
procurement efficiencies
– Loss of market share
– Regular review of the market, competitors and technology
– Monitoring of KPI performance
– Loss of services
– Operating EBITA
– Cash flow
– Monitoring key suppliers and contractual step-in rights
– Monitoring credit exposure and customer credit rating
– Credit insurance arrangements, subject to availability
and pricing at renewal
– Promote internal procurement efficiencies
Failure to attract and retain
key people
– Business performance
affected
– Staff engagement
– Appropriate terms for key employees
– Staff surveys and communication programmes
Global Content
Risk description
Failure to deliver or acquire
creative and commercial
successes resulting in reduced
360° exploitation and lower
primary and secondary sales
Impact
Mitigation
– Loss of Global Content
revenue
– Strengthen programme development process
– Continue to refresh ITV talent pool
– Establish international format group
– Develop incentives rewarding 360° exploitation
– Continue to build new relationships with independent
and overseas producers
– Programme pilot development for ITV1 and ITV2
– Ringfenced development fund
ITV plc Report and accounts 2008 Risks and uncertainties
25
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.
Risks are identified, considered and monitored through an Enterprise-wide Risk Management (“ERM”)
programme and these risk factors were identified as most significant from the 2008 ERM programme.
Details on governance arrangements by which risks and uncertainties are monitored and managed are
set out in the Corporate Governance and Audit Committee report sections.
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Broadcasting
Risk description
Impact
Mitigation
Reduced television advertising
demand/ pricing due to market
forces, economic conditions or
continued regulatory restrictions
– Loss of ITV plc NAR
– Operating EBITA
– Cash flow
– Maintain quality of content to attract advertisers
– Development of digital channels and online distribution
offering alternative advertising opportunities
– Dialogue with regulators and government over policy
and regulation
Poor content performance
or programme perception
leading to reduction in audience
and brand damage
– Lower audience
commitment to ITV
– Loss of volume and
share of impacts
– Brand health
– Focus on commissioning team talent
– Targeted investment in programme schedule
– Research on-screen performance and brand perception
– Development of digital channels and online distribution
– Increased research to match programming to audience
aspiration
Inflexibility of airtime sales
due to continuing CRR remedy or
other regulatory restriction
– Loss of ITV1 NAR
– Regulatory review of CRR
– Growth of non-ITV1 revenue streams
Failure to deliver value
for money and effective spend
from Network Programme
Budget
– Operating EBITA
– Loss of volume and
share of impacts
– Annual budget approval
– Return on investment analysis applied to all programming
– 360° commissioning
– Review terms of trade to cover all distribution channels
and maximise acquired rights
Failure to meet compliance
requirements for programming
or airtime trading
– Lower audience
commitment to ITV
– Brand health
– Dedicated and separate compliance teams in both
Commercial and Channels areas
– Legal input on all contract drafting
– Reporting to Ofcom on airtime sales
Digital switchover results in
increased satellite and cable
penetration at expense of
digital terrestrial distribution
with consequent lower viewing
share for ITV channels
Online
Risk description
Failure to deliver profitable
online propositions
– Loss of volume and
share of impacts
– Loss of ITV plc NAR
– Promote DTT through Freeview and other marketing
initiatives
– Promote Freesat where DTT cover is inadequate
– Develop appropriate ITV HD offering
Impact
Mitigation
– Loss of Online revenue
– Online content distribution managed alongside
broadcast channels
– Focus on providing online element for all new
programme production
– Development of online advertising sales function
– Technology action plan to provide clear strategic
framework for internet-based initiatives
– Consideration of competition issues involved in
content distribution
ITV plc Report and accounts 2008
26
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 judge how the business is doing.
Financial KPIs
Non-financial KPIs
ITV’s financial KPIs provide details of the financial
performance of the Company across its major areas
of activity. Further detail on our performance is set
out in the Operating and Financial reviews.
ITV seeks to be recognised as the UK’s favourite
source of free entertainment and a company where
the best people want to work. These objectives are
reflected in ITV’s non-financial KPIs.
Revenues
Total ITV revenues declined by 3%, as strong growth
in Global Content revenues offset a decline in ITV’s
television net advertising revenues (NAR). ITV plc
NAR declined by 4%, outperforming the market as
a whole, which declined by 5%. Growth in Global
Content was driven by strong growth in
international production in particular. Online,
growth in itv.com revenues was offset by revenue
decline at Friends Reunited, where the core site
moved to an advertising funded model.
Total ITV revenues
ITV plc NAR
Global Content revenue
(including internal revenue)
Online revenue
2008
£m
2,029
1,425
622
36
2007
£m
2,082
1,489
564
33
Profits
Operating EBITA remains ITV’s key profit indicator,
reflecting operating profit before amortisation and
operating exceptional items.
Adjusted earnings per share relates the profit for
the year attributable to equity shareholders, before
exceptional items, amortisation and impairment
of intangible assets, interest and prior period tax
adjustments, to the Company’s share capital and
thereby demonstrates underlying value creation
per share.
The decline in operating EBITA and adjusted EPS
reflect the gearing of ITV’s profits to television
advertising, which fell significantly in 2008.
Audiences
ITV is aiming to secure a share of commercial
impacts across its channels of at least 38.5% to
2012. The performance in 2008 leaves ITV on course
to meet this target. The ITV1 adult impact volume
KPI reflects the imperative of ITV1 retaining scale
as the UK’s largest commercial channel. In 2008,
despite increased competition, ITV1 held its impacts
broadly flat.
ITV has replaced its previous “commitment”
indicator with a more meaningful measure of brand
health, based on regular measurement of viewers’
association between ITV1 and drivers of television
viewing. Data for the final quarter has been used for
2008. For future years, full year figures will be used,
allowing a comparison over time.
The online traffic KPI is based on itv.com unique
users (UUs). In 2008, itv.com increased its average
monthly unique users substantially.
ITV family SOCI (%)
2008
41.0
2007
41.7
ITV1 adult impact volume (billion)
235.9
237.2
ITV1 brand health
itv.com monthly average UUs (million)
34%
6.5
n/a
5.0
Staff engagement
A staff engagement indicator is based on the
proportion of respondents to the annual survey of
all ITV staff agreeing that they have pride in their
work, are proud to work for ITV and speak highly
about ITV’s services. The 2008 survey showed an
increase in staff engagement year on year.
Operating EBITA before
exceptional items
Adjusted basic EPS
2008
£m
2007
£m
Staff engagement (%)
2008
68
2007
63
211
311
2008
pence
2.7
2007
pence
5.0
ITV is reviewing whether the current KPIs remain
appropriate given the greater emphasis on its core
business, on costs and on cash set out elsewhere in
this report. An update will be provided in the next
Annual Report.
ITV plc Report and accounts 2008
27
Corporate responsibility
Every evening our programmes are watched in
millions of UK homes and we recognise the
important and privileged position we are in as a
result. Managing corporate responsibility is critical
in helping ITV maximise the trust of all
our stakeholders.
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ITV recognises in particular the damage to viewer
trust suffered as a result of failings with respect
to PRS services connected with ITV programming
which came to light in 2007. ITV has overhauled
its compliance procedures for PRS and associated
risk management processes to seek to ensure
that there is no recurrence of such problems in
the future.
Stakeholders
We continue to be involved in a wide range of
important corporate and social issues, from news
standards to the future of PSB and even health
policy, working with a wide range of stakeholders,
including investors, employees, viewers,
government and regulators. Internal dialogue on
CR issues is conducted via an annual staff survey,
as well as by posting regular stories on our staff
intranet. Our main external dialogue on CR issues
is with our viewers, who, through our Vision Panel,
share their thoughts about a variety of relevant
issues. Increasingly we are using the panel to help
steer us and our priorities for ongoing CR
management.
CR performance indicators
The programmes broadcast on ITV channels
continue to be scrutinised by our in house
compliance team prior to broadcast. We recognise
that our diversification from television broadcasting
brings us into different regulatory environments
where different standards and expectations can
apply. These are documented more fully in our CR
report. Our overall approach is to seek to apply the
same standards to our non-television services that
we have for television, even where the regulatory
regime is less stringent.
The table overleaf provides a summary of our key
priorities and CR performance indicators. For a
fuller explanation of our CR objectives and activities
please see ITV’s CR report for 2008 available
in the Responsibility section of our website
at www.itvplc.com or in hard copy from Corporate
Affairs.
ITV generates the majority of its revenues from
advertising. Advertisers rely on ITV for access to
mass audiences on television and, increasingly,
online. However audiences will only return to ITV if
we can consistently deliver high-quality and trusted
content and interactive services. Our approach to
corporate responsibility (CR) is very closely aligned
to our core business strategy and we are mindful of
the importance of managing all the related risks
and opportunities.
Governance
In 2008 ITV reviewed its strategy and established
a new CR Committee with members from key
business segments and central services. The CR
Committee is chaired by the Director of Group
Corporate Affairs, Mark Gallagher and reports to
the senior management team. The CR Committee
is responsible for reviewing ITV’s material CR issues,
formulating strategies for improved CR
management and communicating them internally.
The CR Committee has determined that ITV should
focus on the following areas:
Raising awareness of issues and causes
Our story driven, factual and entertainment
content can help mass audiences understand
more about sensitive subject matter.
Improving viewer trust
Our relationship with viewers is integral to
maintaining trust. Ensuring this trust is not
jeopardised is fundamental to our success.
Delivering high quality, entertainment driven,
compliant content
Our viewers want quality programming, which is
not offensive or shocking and adheres to the Ofcom
Broadcasting Code.
Presence in our communities
We are at the heart of the communities we serve,
bringing quality news and content to people’s
homes. This should continue despite the changing
media landscape.
Other material issues that we continue to work on
include: compliance with PSB quotas; charitable and
community investment; people management and
supporting the creative economy; environmental
impact; health and safety; and sustainable supply
chain management.
ITV plc Report and accounts 2008 Corporate responsibility
28
The ITV values are:
k
Customer focus
understanding our
customers and exceeding
their expectations
k
Collaboration
working together across
the organisation acting as
one ITV
k
Commitment
committed to our business,
our programmes and to
each other, proud to be
part of ITV
k
Boldness
encouraging improvement
through creativity and
innovation
Protecting the
environment1
CO2 emissions from
business travel2
(tonnes)
Total CO2 emissions2
(tonnes)
2008
2007
2006
2005
5,867
6,580
n/a
n/a
50,471
47,991
37,330
39,665
Total waste (tonnes) 1,900
2,210
1,776
1,743
Total waste recycled
36%
36%
29%
53%
Total water use (m3) 93,175 129,899 133,485 104,473
Workplace profile (%)
Women employees
49.0
49.0
47.6
47.6
Ethnic minorities
employees3
Employees with
a disability4
Employees aged
over 50
Health and safety
Accidents requiring
more than three days
off work
Major accidents
Fatal accidents
Responsible
programming
9.0
2.0
8.4
2.0
9.9
2.0
6.4
2.0
15.0
14.0
15.1
17.0
5
2
0
9
2
0
7
1
0
Programme/episodes
complained about5
1,026
Upheld complaints
Resolved complaints
16
7
773
15
4
843
10
19
Not upheld/out
of remit
1,003
754
814
772
Access services (ITV1)
(% of programmes)
Subtitling
Audio description
Signing
95.5
13.2
5.3
91.4
10.5
4.5
87.0
89.0
9.0
4.0
8.0
3.5
(1) UK only, excluding GMTV and landlord managed sites where data
is unavailable. Assurance by Enviros Consulting.
(2) Calculated in accordance with the WRI/WBCSD Greenhouse Gas
Protocol methodolgy.
(3) Percentage of those that disclosed their ethnicity.
(4) Percentage of those that disclosed their disability.
(5) Complaints data is compiled from Ofcom Broadcast Bulletins.
23
1
0
799
8
19
Our values
We want to develop a culture at ITV where the
best quality staff are able to deliver to their best
ability. Our values – summarised in the table above
– are firmly embedded in all core management
practices and are intrinsic to everything we do.
People
In the challenging year ahead engaging our
employees and nurturing talent remain high
priorities for ITV. We continue to build capability
within our workforce to deliver our corporate
strategy through clear personal objectives, well
communicated ITV values, structured development
opportunities, clear succession planning and
aligned incentives.
Unfortunately, given the uncertain economic
outlook we are facing, we have had to make tough
decisions. ITV was unable to find a way to deliver in
full the two-year pay deal intended to apply over
2008/09. However, a new agreement ensures that
everyone earning under £60,000 – nearly 90% of
the workforce – will receive a pay rise for 2009.
In 2008, we tracked and monitored employee
opinion through staff surveys and saw a significant
improvement in our staff’s pride and overall
commitment to ITV (see page 26).
Development
Talent management remains a core part of our
strategy and we are committed to developing the
capability of ITV staff. In 2008 we completed formal
succession planning for our entire management
population. This forms the basis for our annual
performance management process for 2009,
which in turn ensures that all ITV staff have clear
and aligned objectives for the coming year. In 2008
we continued to develop our core training portfolio,
focusing on core skills that meet the priorities
of the business. This will continue for 2009 to
ensure we have fully trained staff to deliver our
strategic priorities.
ITV plc Report and accounts 2008 Corporate responsibility
29
k
Excellence
aiming for the highest
standards and
demonstrating that we
are the best in everything
we do
And, in addition, for all ITV managers:
k
Integrity
demonstrating integrity in
all we do and understanding
the diversity we have across
the organisation
k
Commercial
doing everything possible
to make ITV a commercial
success
Leading
providing clarity and
direction to create results,
leading by example to
motivate others
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We have a number of other initiatives of which we
are particularly proud, including the 12 month Fast
Track for people at the start of their careers and the
annual Colleagues United programme. Both have
given employees the opportunity to gain
experience in different parts of the organisation,
demonstrating ITV’s commitment to developing
staff and the importance of company-wide
collaboration.
Incentives
If ITV is to deliver its business strategy we need 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. ITV issued all employees with a total
reward statement in 2008 following its successful
introduction in 2007. This helps to improve
employees’ understanding of the full range of
rewards (financial and non-financial) they can enjoy
as an ITV employee.
The current economic climate is difficult but
we continue to aim to incentivise all employees
through a number of initiatives:
– An annual bonus scheme for all ITV employees,
which is dependent on ITV’s performance against
key financial and non-financial targets;
– Our all-employee reward scheme “Create”.
This scheme rewards any employee for new
ideas that generate profit or improve the
way ITV does business;
– Our Save As You Earn scheme which gives all
employees the chance to save to own a stake
in the Company.
Diversity
ITV’s talent strategy 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.
Diversity data gathering continues to improve
and further details can be found in ITV’s CR report.
The Company is an active participant in the major
diversity forums whose focus is the employment
and development of minority groups – including
Opportunity Now, the Employers’ Forum on
Disability and the Broadcasters’ Disability Network.
Through these forums and direct activities
undertaken by ITV, the Company is committed to
working towards our programmes and workforce
fully reflecting the audiences it serves.
Communication
Information is essential to drive a collaborative and
creative culture. In 2008 we sought to increase the
amount of face-to-face time between staff and
executives by introducing regular lunches with the
Executive Chairman and open forums with the
Executive Board. Monthly leadership breakfasts
were launched for senior managers and we also
introduced regular posters at all ITV buildings, giving
updates on our performance and highlighting our
top programmes. The impact of this work was
reflected in an Ipsos-MORI survey conducted in July.
Engagement among staff was up from 63% to 68%,
while 72% of respondents said they know who the
leadership team are, an increase of 21%.
Over 60% of staff said they felt better informed
than a year before, which is significantly above
the average MORI-reviewed company. We were a
finalist in the Internal Communications category
in the Chartered Institute of Public Relations
Excellence Awards 2008.
ITV plc Report and accounts 2008 Corporate responsibility
30
The heart of our business is delivering first-rate
content that appeals to our viewers and, in turn,
attracts advertisers.
Customers
Suppliers
ITV conducts business with a wide range of
suppliers. The procurement department deals
with all our suppliers and ensures we do business
with them in a consistent and appropriate manner.
Given the current economic environment,
leveraging our scale and competitive advantage
and managing the ITV cost base is more important
than ever and this will be a key focus for the
procurement department in 2009 and beyond.
As a broadcaster, ITV commissions programmes
from a number of external production companies.
ITV is required to publish terms of trade for
independent commissioning consistent with
guidelines laid out by the industry regulator, Ofcom.
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. ITV procurement
ensure that services offered by such suppliers are
of appropriate quality and reliability.
Our two key customers are our viewers (or
consumers) and our advertisers. The heart of our
business lies in serving our viewers by delivering
first-rate content that appeals to them. This in
turn attracts the mass audiences to which our
advertisers will want to market their products.
To understand our viewers and their expectations
of us more fully, throughout 2008 we
commissioned an independent research company
to recruit and survey our “Vision Panel” – a fully
representative panel of 10,000 adult UK television
viewers – and a smaller independent panel (“My
Digital Life”) to obtain feedback from the online
market.
We believe that it is very important that our
viewers can be confident that they know in
advance whether programmes will be suitable for
them and their family. Observing the 9.00 pm
“watershed” is a key protection for children. For all
relevant programmes, ITV’s policy is to alert viewers
to possible risk of offence via announcements
immediately before the programme. Viewers may
complain to ITV’s duty office if any issue arises and
any viewer not satisfied with ITV’s response can
refer their complaint to Ofcom. ITV has an in-house
compliance team which provides support and
advice for programme makers and commissioners
before and during production.
Our relationship with the advertising and agency
community is critical to our ability to drive
advertising revenue. The commercial success of
ITV is predicated on having a clear understanding
of the needs and objectives of our customers.
We have recently restructured the account
management and sales team to enable us to
build closer relationships with advertisers and
to offer a better service to them.
31
ITV plc Report and accounts 2008
ITV plc Report and accounts 2008
Financial review
Statutory results for the year ended
31 December 2008
Ian Griffiths Group Finance Director
Total revenue for the year ended 31 December
2008 was 3% lower at £2,029 million (2007: £2,082
million). There was an operating loss for the year
of £2,647 million (2007: profit of £192 million) as
a result of the impairment of goodwill, with EBITA
before amortisation and exceptional items down
32% at £211 million (2007: £311 million).
Revenue and profit by reportable segment are
as follows:
2008
£m
2007
£m
Change
£m
Broadcasting revenue
1,647
1,738
140
306
90
36
(20)
40
1
244
244
90
33
(12)
67
(11)
2,029
2,082
(91)
(104)
62
-
3
(8)
(27)
12
(53)
211
311
(100)
Broadcasting EBITA*
Global Content revenue
Global Content EBITA*
Online revenue
Online EBITA*
Other revenue
Other EBITA*
Total revenue
Total EBITA*
*Before exceptional items
Broadcasting
Broadcasting revenues
Broadcasting revenues comprise NAR, sponsorship
income, interactive revenues (PRS and Red Button),
SDN and other revenues.
ITV1
Multichannel NAR
GMTV
ITV plc NAR
2008
£m
2007
£m
Change
£m
1,127
1,224
242
56
209
56
1,425
1,489
(97)
33
–
(64)
Total ITV plc NAR decreased by 4.3% during the year
to £1,425 million (2007: £1,489 million). ITV1’s NAR
in the year was £1,127 million (2007: £1,224
million), £97 million lower than 2007.
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ITV1 advertising is largely contracted via calendar
year deals, under which an agency or advertiser
commits a share of their total television advertising
expenditure for the year ahead. Under the Contract
Rights Renewal remedy, the agency or advertiser
can reduce their share commitment to ITV1 in
proportion to the reduction in ITV1’s share of
commercial impacts (“SOCI”) over the previous year.
ITV1’s SOCI has declined consistently over recent
years, as rising digital penetration has led to
increased volumes of commercial impacts across
the market. ITV1’s adult SOCI decline in 2007
of 3.3% represented a significant improvement
on recent years and, as a result, ITV1’s NAR
performance in 2008 ran closer to the overall
market than the recent average.
However the television advertising market overall
was down 4.8% in 2008, compared to an increase of
3.1% in 2007. Following a fairly stable first half with
the market declining by 0.6%, over the second half
of the year, market revenues declined by 8.8%.
Despite this weak market context, ITV’s digital
channels – ITV2, ITV3, ITV4, Citv and Men & Motors
increased their advertising revenues by £33 million
to £242 million (2007: £209 million). This strong
revenue performance reflects continued growth in
the SOCI delivered by these channels, which across
2008 stood at 8.8% (2007: 7.3%).
Whilst the increase in digital channel NAR was
not sufficient to offset the decline in ITV1 NAR,
overall ITV outperformed the total market. ITV
NAR was down 4.3%, ahead of the total market
decline of 4.8%. As a result, ITV held its share of
the television advertising market for the first time
since the early 1980s.
Sponsorship income was £58 million (2007:
£56 million). Whilst closely related to advertising,
sponsorship revenue tends to be committed under
longer term contracts which can mitigate the
impact of advertising market movements in the
short-term.
ITV plc Report and accounts 2008 Financial review
32
SDN revenues were £33 million (2007: £36 million).
Whilst no significant new contracts came into
effect during 2008, a contract was agreed for a
new channel from early 2009 and there are plans
to accommodate a tenth video stream during 2009.
Broadcasting EBITA
The Broadcasting segment EBITA before exceptional
items for 2008 fell by £104 million to £140 million
(2007: £244 million). This was primarily due to the
decline in ITV NAR and the increase in schedule costs.
Other broadcasting revenues of £131 million
(2007: £157 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 revenues from premium
rate telephony services (“PRS”) and interactive
transactions associated with ITV and GMTV
programming. Revenues were lower than in
the prior year largely because of a reduction
of PRS revenues.
Broadcasting schedule costs
Total ITV schedule costs increased by £38 million
in 2008 to £1,125 million (2007: £1,087 million).
This breaks down as follows:
ITV1
Regional news and non-news
Total ITV1 costs
ITV2, ITV3, ITV4, Citv, M&M
GMTV
2008
£m
867
112
979
112
34
2007
£m
837
114
951
101
35
Total schedule costs
1,125
1,087
Change
£m
30
(2)
28
11
(1)
38
ITV1 schedule costs increased because of an
increase in stock writedowns and a new contract
for Coronation Street and Emmerdale more closely
reflecting their value to the channel. The planned
increase in investment in the digital channels
returned significant audience share gains.
Licence fees
Licence fees comprise 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 and will continue to
fall as digital penetration increases. The digital
licence rebate for 2008 is calculated on a weighted
average digital penetration of 85% (2007: 78%).
Cash bid payment
PQR Levy
Digital rebate
Total
2008
£m
4
169
2007
£m
4
180
(143)
(140)
30
44
Change
£m
–
(11)
(3)
(14)
Global Content
Global Content revenues
Global Content revenues
UK production
Resources
International production
Distribution and exploitation
Total external revenue
Original supply to ITV
Total revenue
(including ITV supply)
2007
£m
Change
£m
2008
£m
68
17
98
123
306
316
48
19
63
114
244
320
622
564
20
(2)
35
9
62
(4)
58
Included in international production are revenues
from Silverback, acquired in May 2008 and Imago
acquired in September 2008. These revenues total
£4 million. Included in UK production are
incremental revenues of £13 million representing
the full year impact of 12 Yard Productions.
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 Studios for ITV
channels is not included in reported ITV plc
consolidated revenue as it represents an internal
programming cost of sale. In 2008 this internal
programming amounted to £316 million of ITV
network programme spend (2007: £320 million).
The reduction was caused by the loss of a
number of established ITV commissions, including
Parkinson and Soapstar Superstar, as the ITV1
schedule was relaunched.
In 2008, total external sales were £306 million
(2007: £244 million). International production
delivered the majority of revenue growth with
sales reaching £98 million (2007: £63 million), with
particularly strong growth in the USA and Germany.
Original production for other UK broadcasters
increased to £68 million (2007: £48 million)
and distribution and exploitation sales reached
£123 million (2007: £114 million).
ITV plc Report and accounts 2008 Financial review
33
Global Content EBITA
Global Content EBITA was unchanged in 2008
at £90 million (2007: £90 million). The increased
proportion of revenues accounted for by new
international production has the effect of diluting
overall segment margins. In addition, across internal
and external production and distribution, margins
are coming under increasing pressure as Global
Content’s broadcaster customers seek to manage
the impact of the advertising downturn. Profits for
2008 include £13 million EBITA increase arising from
the new Coronation Street and Emmerdale
contract, together with some non-recurring
provision releases.
Online
Online revenues continued to grow in 2008 and
totalled £36 million for the year (2007: £33 million).
This is made up of the following revenue streams:
Online revenues
itv.com and other*
Friends Reunited
Total Online revenues
2008
£m
18
18
36
2007
£m
Change
£m
11
22
33
7
(4)
3
* Includes itvlocal.com, ITV Mobile and other revenues.
Revenues from itv.com and other increased by
64% in the year, largely as a result of increased
itv.com advertising revenues. itv.com video
advertising grew very rapidly to reach nearly 50%
of total revenue. Sponsorship also grew strongly,
offsetting a year-on-year decline in display
advertising revenues. The fall of 18% in revenues
from Friends Reunited was due to the reunions
site moving from a subscription-based model
to full advertiser funding.
Online EBITA decreased to a loss of £20 million
(2007: loss of £12 million), due to Friends Reunited
profits reducing, additional itv.com investment and
costs associated with Kangaroo, the planned online
archive service with BBC Worldwide and Channel 4,
which did not obtain regulatory approval.
Other
Outside the main segments, other revenues for
2008 comprised Carlton Screen Advertising (CSA)
revenues of £40 million (2007: £67 million). During
the year, ITV disposed of the majority of the CSA
business and assets. Other EBITA for 2008 was £1
million (2007: loss of £11 million).
Operating exceptional items
Reorganisation and integration costs
PRS
Onerous contract provision
Kangaroo
Total operating exceptional items
2008
£m
(40)
(6)
(50)
(1)
(97)
2007
£m
(8)
(18)
(9)
–
(35)
Operating exceptional costs in the year total
£97 million. These include £40 million of
reorganisation and restructuring costs, of which
£22 million is associated with previously announced
efficiency savings programmes and £18 million
relates to the restructuring of regional news
(including associated write-off of fixed assets).
Ofcom fines in relation to PRS confirmed in early
2008 were £6 million.
A charge of £50 million is included in respect of
onerous contracts for sports rights. Since the
relevant deals for FA Cup, England and UEFA
Champions League games were agreed, there
has been a significant deterioration in the outlook
for UK television advertising.
Amortisation and impairment
of intangible assets
Total intangible assets at 31 December 2008
are £1,140 million (2007: £3,873 million), being
principally goodwill and acquired and internally
developed intangible assets. Goodwill balances are
not amortised but are instead subject to annual
impairment testing. Other intangible assets are
amortised over their useful lives.
A total impairment charge has been recognised
in 2008 of £2,638 million and relates to the
Broadcasting, GMTV and Online businesses.
An impairment charge of £2,309 million and
£21 million arose in the Broadcasting and GMTV
businesses respectively as a result of the downturn
in the short-term outlook for the growth in the total
TV advertising market. An impairment charge of
£308 million arose in the Online business as a result
of the downturn in the short-term outlook for the
advertising market and the reduction in demand
for white-space advertising online.
A further reduction in goodwill of £57 million
has been made as required by IAS12 following
the recognition of a deferred tax asset not
recognised at the time of the Carlton/Granada
merger. An impairment charge of £28 million
arose in 2007 in relation to CSA.
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ITV plc Report and accounts 2008 Financial review
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The total amortisation charge for the year on
acquired and internally developed intangible assets
is £66 million (2007: £56 million).
The assumptions used for impairment testing are
set out in greater detail in note 13 of the Notes to
the Accounts. These assumptions are consistent
with those applied in the going concern analysis
detailed on page 36.
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
Other interest receivable
Financing costs
Interest expense on financial liabilities
measured at amortised cost
Foreign exchange loss
Interest on defined benefit pension
plan obligations
Other interest payable
Net financing costs
2008
£m
23
2007
£m
30
162
152
123
8
316
14
4
200
2008
£m
2007
£m
(110)
(116)
(54)
(42)
(146)
(134)
(4)
(376)
(60)
(3)
(233)
(33)
Net financing costs have increased on the previous
year. The foreign exchange loss principally relates
to the €500 million bond, which is economically
hedged by cross currency interest rate swaps.
The gain on these and other swaps is included in
the change in fair value of financial liabilities within
financing income and which, as the table shows,
offsets the loss on the bond.
As set out below, ITV uses interest rate swaps and
options to achieve its desired mix between fixed
and floating rate debt and, during 2008, moved
closer to having 50% of its debt on floating rates.
ITV therefore benefited significantly from
reductions in interest rates towards the end of
2008 and this effect was reflected in the change
in fair value of swaps.
Interest expense on financial liabilities has increased
as a result of the £110 million bond issued in July
2008 and includes £16 million of closure costs on
a financial instrument integral to a £125 million
finance facility contracted during 2008.
As a result of ITV’s credit rating with Standard &
Poor’s being lowered to BB+ in August 2008 the
€500 million bond and the 2017 £250 million
bond were subject to coupon step-ups. This has
resulted in the recalculation of the amortised cost
carrying value of the bonds as required by IAS39.
The carrying value of the €500 million bond has
increased by £12 million, and the 2017 £250 million
bond, by £18 million. This has resulted in an
increase in the amortised costs of the bonds and an
interest expense of £30 million (2007: £nil) during
the current year. The increase in the amortised cost
of the bonds will unwind in future years resulting
in a credit to interest expense.
In 2008 imputed interest on the pension deficit –
the expected return on defined benefit scheme
assets less the interest on defined benefit pension
plan obligations – resulted in a net interest credit
of £16 million. Based on the level of the deficit
at the end of 2008 and prevailing market rates,
a net charge of around £15 million is expected
to arise in 2009.
Results of joint ventures and associates
The total value of joint ventures and associates at
31 December 2008 are £66 million. Losses of joint
ventures recognised in the income statement in the
year are £15 million, after the benefit of £3 million
in respect of a loan previously written off and
now repaid (2007: profit of £2 million, which was
allocated to assets held for sale). The losses in 2008
largely related to Kangaroo, Screenvision US,
Screenvision Europe and Freesat.
Impairment of properties
An impairment of £17 million has been recognised
in relation to the Group’s Manchester and Bedford
properties in the light of the downturn in the
UK property market. Although still intended for
sale, the Manchester properties have been
transferred from assets held for sale to fixed
assets. This is in view of the fact that disposal
may not be possible in the next 12 months,
given current market conditions.
Impairment and gain on sale of
subsidiaries and investments (net)
There is a £6 million net gain on sale and
impairment of subsidiaries and investments for
the year (2007: gain of £17 million). During the
year the Group sold its remaining interest in the
non-core businesses of Arsenal Broadband Limited
and Liverpool FC.tv Limited, resulting in gains of
£12 million and £13 million respectively. These and
other smaller gains were offset by £9 million of
closure costs relating to CSA, £3 million impairment
in Screenvision Europe prior to reclassification of this
joint venture to assets held for sale, £4 million for
Kangaroo following the decision by the Competition
Commission to block the venture and a £7 million
impairment of financial assets available for sale in
the year in relation to the Group’s shareholding
in stv group plc.
ITV plc Report and accounts 2008 Financial review
35
Tax
The total tax credit of £178 million arises as a result
of the resolution of prior periods’ tax liabilities,
including the recognition through goodwill of
deferred tax assets on losses which previously the
Company was not able to recognise. The underlying
rate of tax on underlying profits is 32% as shown
below:
Underlying profit
– Loss before tax as reported
– Exceptional items (net)
– Amortisation and impairment
of goodwill and intangible assets
– IAS 39 amortised cost adjustment
– Share of losses of joint ventures
and associates
Underlying tax charge
– Tax credit as reported
– Net credit for exceptional
and other items
– Credit in respect of amortisation
– Credit in respect of IAS 39 amortised
cost adjustment
– Credit in respect of prior period items
Underlying rate of tax
2008
£m
(2,732)
108
2,761
30
15
182
(178)
23
19
9
186
59
32%
No net cash tax is expected to be payable in 2009.
Earnings per share
Basic loss per share is 65.9 pence (2007: earnings
of 3.5 pence). Adjusted earnings per share
before exceptional items, amortisation and tax
adjustments are 2.7 pence (2007: 5.0 pence).
Dividend
The Board is not proposing the payment of
a final dividend. The total dividend for the year
is therefore 0.675 pence per share.
The Board’s decision with respect to the final
dividend has not been taken lightly. The Board’s
judgement is that it represents the prudent course
in the present conditions.
Cash flow and net debt
The principal movements in net debt in the year are
shown in the table below:
Net debt at 31 December 2007
Cash generated from operations
Net interest paid
Taxation net receipts
Equity dividends paid
Expenditure on property plant
and equipment and intangible assets
Acquisition of subsidiaries (net of cash)
Loans to and from associates
and joint ventures
Proceeds from assets held for sale
Defined benefit pension deficit funding
Net debt at 31 December 2008
£m
£m
(668)
150
(63)
43
(123)
(53)
(6)
(6)
35
(23)
(39)
(730)
Cash generated from operations was £150 million
(2007: £286 million), reflecting a £100 million
decrease in operating profit before exceptional
items and amortisation, and a working capital
outflow of £67 million (2007: £44 million), due to
increased payments for sports rights, commissions
and acquired film stock.
Net cash interest paid on the Group’s net debt
position was £63 million. Net tax receipts of
£43 million reflect taxation repayments for prior
periods more than offsetting payments made for
the current period. Equity dividends of £123 million
comprise the 2007 interim and final dividends
of £52 million and £70 million respectively,
and £1 million of the DRIP element of the 2008
interim dividend. Expenditure on plant, property,
equipment and intangible assets totalled
£53 million. During the year the Group acquired
100% of Silverback AB for £5 million and 51% of
Imago for £2 million (with net cash acquired of
£1 million). Loans granted to joint ventures and
associates were £26 million. Loans were repaid
from joint ventures and associates of £20 million.
During the year the Group disposed of its interests
in Arsenal Broadband Limited and Liverpool FC.tv
Limited and sold its Ashby property for a total cash
consideration of £35 million.
In July 2008, ITV strengthened its liquidity
position with the issue of a £110 million bond
repayable in March 2013. During the year ITV
redeemed loan notes totalling £25 million and in
November 2008 sold a held to maturity investment
of £100 million.
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ITV plc Report and accounts 2008 Financial review
36
Liquidity risk and going concern
The Group’s financial risk factors are set out in
note 23 to the financial statements.
During the year the Group lost its investment
grade rating and as at 2 March 2009 is rated Ba1
(negative outlook) by Moody’s investors Services
and BB+ (negative outlook) by Standard & Poor’s.
The loss of investment grade triggered coupon step
ups in ITV’s €500 million 2011 and £250 million
2017 bonds. The cash cost of the step ups is
£8 million in a full year and will continue unless
and until ITV returns to investment grade with
both rating agencies. The accounting implications
of the coupon step ups under IAS 39 are set out in
note 8 of the financial statements.
ITV is financed using debt instruments with a range
of maturities. ITV’s borrowings (net of currency
hedges) are repayable as follows:
Amount repayable
£250 million Eurobond
€500 million Eurobond
(net of cross currency swaps)
£110 million Eurobond
£325 million Eurobond
£250 million Eurobond
Finance leases
Other loans and loan notes
£m
250
335
110
325
250
79
2
Total repayable
1,351
Maturity
March 2009
October 2011
March 2013
October 2015
January 2017
Various
Various
At the balance sheet date ITV had £516 million of
cash and cash equivalents (net of £100 million of
cash equivalents whose use is restricted to funding
finance lease commitments and unfunded pension
promises). Cash and cash equivalents include
around £70 million held principally in overseas and
part owned subsidiaries, which is therefore not
readily accessible.
At the balance sheet date ITV had £200 million
of undrawn, covenant free, bilateral bank facilities
negotiated in 2008 which mature in May 2013 and
an undrawn £450 million syndicated bank facility,
which is subject to financial covenants. These are
defined in the facility agreement (Net Debt: EBITDA
< 3.75 times and EBITDA: Net Interest > 3.0 times)
and tested on a 12 month basis at the end of June
and December each year.
In February 2009 ITV increased its liquidity by
£50 million under a new 10 year loan which is
not subject to financial covenants. The lender has
the right to loan ITV up to a further £150 million
at any time in the 10 year period. The interest cost
under the loan is fixed at 8.85% for the first 3 years
and thereafter is at a variable rate with the cost of
funds being a function of the size of further
drawing and the cumulative performance of an
interest rate algorithm. The cost of financing is
capped with a worst case IRR of 18% at £50 million
falling to 12% at £200 million.
On 2 March 2009 the Group fully drew down
on a £125 million facility, which forms part of
the total £200 million undrawn bilateral bank
facilities, and expects to draw down the balance
of £75 million during the course of 2009.
The £450 million bank facility is currently
available as ITV remained inside the financial
covenants at the year end. However ITV recognises
that if earnings continue to decline across 2009
and 2010, the facility may no longer remain
available. The going concern analysis has been
conducted on the prudent basis that currently
undrawn facilities and loans are not available to
be drawn down.
On 2 March 2009 the Group repaid the maturing
£250 million Eurobond from its cash resources.
The current economic environment is very
uncertain. Credit markets are anticipated to
remain tight, particularly for sub-investment
grade borrowers. The Group will continue to take
action to improve liquidity and extend maturities.
It is exploring a range of options aimed at
strengthening its balance sheet.
The Group currently generates in the region of
80% of its revenue from advertising markets
which tend to track the economic cycle. The TV
advertising market has been very volatile in recent
months and expectations in the short term have
deteriorated. In forming its assumptions about
the TV advertising market, the Group has used a
combination of long term trends, industry forecasts
and in-house estimates which place greater
emphasis on recent experience. These are broadly
in the range of -10% to -16% for 2009 and +2% to -
4% for 2010, with the most recent being towards
the bottom end of these ranges.
Advertising is a discretionary spend and the
economic environment remains challenging.
If the actual outturn is significantly adverse
to these assumptions, then the Group’s short
term liquidity will come under some pressure.
However, the going concern analysis demonstrates
that the Group should be able to weather
reasonably possible further deterioration in the
advertising market, and has identified a number
of mitigating actions it could take if required.
After making enquiries the directors have a
reasonable expectation that the Company and
the Group have adequate resources to continue
in operational existence for the foreseeable future.
Accordingly they continue to adopt the going
concern basis in preparing the consolidated and
parent Company financial statements.
The section on this page forms part of the audited
accounts. See section 1.1 – Basis of preparation in
Accounting policies.
ITV plc Report and accounts 2008 Financial review
37
Improving working capital management is a key
priority for 2009. This will include managing cash
commitments more tightly, reducing overdue
receivables, reviewing capital expenditure policies
and establishing a more effective procurement
process.
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
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 was carried out as at
1 January 2008 and, on the bases adopted by the
trustees, that section was in deficit in an amount of
£190 million or 9% of the liabilities in that section.
2. Deficit funding
A deficit reduction payment of £30 million was
paid into section A of the main defined benefit
scheme shortly after 1 January 2008, reducing
that deficit to £160 million.
No deficit funding payments are currently being
paid into either section B or C of the main defined
benefit pension scheme and, as the actuarial
valuation referred to above resulted in surpluses,
there are no recovery plans in place for those
sections. The deficit identified in the actuarial
valuation as at 1 January 2008 of section A of the
main defined benefit pension scheme, as referred
to above, is being addressed by a recovery plan
agreed with the trustees, under which the
Company will pay £30 million in each of the
five calendar years beginning with 2009.
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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 both
bank facilities from the UK syndicated debt
market and bilateral arrangements;
– Interest rate management: 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 low
floating rates. As interest rates have fallen, ITV
has moved closer to having 50% of total net debt
at fixed rates and the appropriate ratio is regularly
reviewed. ITV uses interest rate swaps and options
in order to achieve the desired mix between fixed
and floating rates;
– 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 12-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 and perceived state
support. In view of developments in the financial
sector, ITV has reviewed all counterparties and
revised limits accordingly. However the banking
environment remains uncertain. Consequently,
deposits longer than one month require the
approval of the Management Committee of the
Board.
ITV plc Report and accounts 2008 Financial review
38
5. Trustees’ investment strategy
The trustees continue to review the investment
strategy for the main defined benefit pension
scheme. The asset allocation has changed during
2008 and holdings of equities have been reduced
and holdings of interest-bearing investments have
been increased. At 31 December 2008, the assets of
the defined benefit pension schemes were invested
broadly as to 35% in equities and 65% in bonds and
other interest-bearing investments. The trustees
also use derivative instruments to hedge partial
exposures to movements in interest rates, inflation
and foreign exchange rates.
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 reported under UK GAAP. They have
been included in this report after the results of the
consolidated group.
Ian Griffiths
Ian Griffiths Group Finance Director
3. IAS 19
The Group’s defined contribution schemes
gave rise to an operating charge in 2008 of
£4 million (2007: £3 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 2008 the IAS 19 operating charge for defined
benefit schemes was £10 million (2007: £15
million). As indicated above, the excess of the
expected return on scheme assets, less the interest
cost on liabilities, gave rise to a net financing
credit in 2008 of £16 million (2007: £18 million).
The aggregate IAS 19 deficit on defined benefit
schemes at 31 December 2008 was £178 million
(2007: £112 million). The increase in the deficit
resulted from a series of factors, including a decision
to strengthen the mortality assumptions as
described below, and lower values for equity and
interest-bearing investments, partly offset by an
increase in the discount rate applied to liabilities
and a reduction in the expected rate of inflation.
An actuarial loss of £124 million has been
recognised directly to reserves in the consolidated
statement of recognised income and expense
(2007: gain of £111 million).
4. Mortality assumptions
During 2008 the scheme actuary updated an
analysis of the mortality experience of the main
defined benefit pension scheme. Reflecting that
analysis the Group has strengthened its mortality
assumption for the 31 December 2008 IAS 19
valuation and restated it by reference to PA92 year
of birth tables with medium cohort improvements
with a 1% per annum underpin and a one year age
rating (i.e. tables are adjusted so that a member is
assumed to be one year older than actual age).
The actuary has confirmed that the effect of this
change in mortality assumption has been to add
£88 million to the defined benefit scheme liabilities.
Using the IAS 19 valuation factors, the forecast life
expectancy for a 65 year-old member is:
31 December
2008 valuation
31 December
2007 valuation
Men Women
Men Women
Retiring today
Retiring in 20 years
86.6
88.4
89.8
91.7
84.8
85.8
87.8
88.7
ITV plc Report and accounts 2008
39
Glossary of terms
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
Cash Bid – the fixed element of ITV and GMTV’s licence fees
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 ITV plc. ITV also owns 75%
of the national licence GMTV
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
Cost Per Thousand (CPT) – the price paid by an advertiser for
1,000 commercial impacts
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
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
DRIP – Dividend reinvestment plan
Freesat – a platform broadcasting digital channels by satellite
accessible to viewers without paying a subscription
Freeview – the name by which UK free to air digital terrestrial
television is often known
High Definition/HD Services – channels or services broadcast in
substantially higher resolution than standard, providing improved
picture quality
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
Internal Rate of Return (IRR) – discount rate at which the net
present value of the worst case future cash flows associated with
the financing is zero
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
Non-consolidated licensees – those Channel 3 licences not
owned by ITV, consisting of Channel, Grampian, STV and Ulster
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
PQR Levy – the variable element of ITV’s licence fees representing
a percentage of NAR and sponsorship income
Product placement – 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 – usually 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 (e.g. religion and current affairs) within their schedules
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
Unique Users (UUs) – a measure of the number of individual
users visiting a website over a defined period
Video on Demand (VoD) – the ability to deliver video content
to a customer’s television set or computer when the customer
requests it
Video Views – a measure of viewing of online video. A video
view is generated when a piece of video content is delivered
to a user’s screen
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ITV plc Report and accounts 2008
40
Board of Directors
From left:
Michael Grade
Sir George Russell
Sir James Crosby
Mike Clasper
John Cresswell
Ian Griffiths
Mike Clasper CBE
Position: Non-executive director
Appointment to the Board: 3 January 2006
Age: 55 (21 April 1953)
Committee membership: Audit (Chairman), Nomination
External appointments: Chairman of HM Revenue & Customs (2008),
Which? Ltd (2008), and the West London Consortium (2006)
Previous experience: Member of the Investor Board of EMI Group
(2007–2008). Operational managing director of Terra Firma (2008).
Chairman 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
(2006–2008). 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
Appointment to the Board: 16 January 2006, joined the Group
in 2000
Age: 47 (2 May 1961)
Committee membership: Management
Previous experience: Finance director ITV plc (2006–2008), interim
chief executive (2006–2007) and chief operating officer (2005–2006).
Chief operating officer Granada (2004–2005). Non-executive director of
The Liverpool Football Club and Athletic Grounds plc (2003–2007).
Chief operating officer and finance director Granada Content (2001–
2004), director of operations (2000–2001). Chief operating officer
United Broadcasting and Entertainment Limited (1998–2000) and
finance director (1996–1998). Finance director Meridian Broadcasting
Limited (1993–1995)
Qualifications: BSc, ACA
Ian Griffiths
Position: Group Finance Director
Appointment to the Board: 9 September 2008
Age: 42 (26 September 1966)
Committee membership: Management
Previous experience: Group finance director of Emap plc (2005–2008).
Senior finance roles within Emap including director of financial control
(2000–2005) and head of finance at Emap Business Communications,
the B2B exhibition organiser (1995–2000). Manager in audit and
corporate finance with Ernst & Young (1988–1994).
Qualifications: MA, ACA
Michael Grade CBE
Position: Executive Chairman
Appointment to the Board: 8 January 2007
Age: 65 (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). Fellow of the Royal Television
Society and vice-president of BAFTA
Previous experience: Chairman of the BBC (2004–2006). Non-executive
chairman of Hemscott plc (2000–2006). Non-executive chairman of
Camelot Group plc (2002–2004, director from 2000). Non-executive
director of SMG plc (2003–2004) 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
(1982–1984). Director of programming, London Weekend Television
(1976–1981)
Sir George Russell CBE
Position: Deputy Chairman
Appointment to the Board: 2 December 2003, appointed to the board
of Granada in 2002
Age: 73 (25 October 1935)
Committee membership: Audit, Nomination
External appointments: Chairman of the Commission on Public
Service Reform, North East (2007)
Previous experience: Director of The Wildfowl and Wetlands Trust
(2002–2008). Non-executive director of Northern Rock plc (1996–2006)
and Taylor Woodrow (1992–2004). Chairman of 3i Group plc (1993–
2001, director from 1992), 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
British Alcan Aluminium plc (1997–2001) and chief executive (1982–
1985). Chief executive and then chairman of Marley plc (1986–1997)
Qualifications: BA
Sir James Crosby
Position: Senior independent director
Appointment to the Board: 3 December 2003, appointed to the board
of Granada in 2002
Age: 52 (14 March 1956)
Committee membership: Remuneration, Nomination (Chairman)
External appointments: Non-executive director and Chairman
designate of Misys plc (2009). Senior independent director of Compass
Group PLC (2007). Trustee of Cancer Research (UK) (2008).
Previous experience: Deputy chairman of the Financial Services
Authority (2007–2009). Chief executive of HBOS plc (1999–2006)
Qualifications: FFA, BA
ITV plc Report and accounts 2008 Board of directors
41
From left:
Andy Haste
Rupert Howell
Heather Killen
John Ormerod
Baroness Usha Prashar
Agnès Touraine
Andy Haste
Position: Non-executive director
Appointment to the Board: 11 August 2008
Age: 47 (1 January 1962)
Committee membership: Nomination, Remuneration
External Appointments: Group chief executive of RSA Insurance Group
plc (2003)
Previous experience: Chief executive of AXA Sun Life plc (1999–2003).
Director of AXA UK plc (life and pensions) (1999–2003). President
and CEO, GE Capital Global Consumer Finance UK, Western Europe and
Eastern Europe (1998–1999). CEO, GE Capital Global Consumer Finance
UK (1996–1998). President of National Westminster Bank US Consumer
Credit Business (1995–1996), senior vice president and head of US
Consumer Loan Products Division (1992–1995)
Rupert Howell
Position: Managing Director, ITV Brand and Commercial
Appointment to the Board: 28 February 2008, joined the Group
in 2007
Age: 52 (6 February 1957)
Committee Membership: Management
External Appointments: Director of the Advertising Association (2007)
Previous Experience: President, EMEA and chairman, UK and Ireland
Group of McCann Erickson UK Group Limited (2003–2007), regional
director, EMEA (2006–2007). President of the European Association of
Communications Agencies (2006–2007). Chief executive Chime
Communications plc (1997–2002). Founder, Howell Henry Chaldecott
Lury (1987–1997). Director of the Institute of Practitioners in
Advertising (1992–2000), president (2000–2001)
Qualifications: BSc Management Sciences, FIPA
Heather Killen
Position: Non-executive director
Appointment to the Board: 8 August 2007
Age: 50 (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
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John Ormerod
Position: Non-executive director
Appointment to the Board: 18 January 2008
Age: 60 (9 February 1949)
Committee membership: Audit, Nomination
External appointments: Non-executive director and chairman of
audit committee Computacenter plc (2007) and Gemalto NV (2006).
Non-executive director of Merlin Claims Services Holdings Limited
(2007), Negative Equity Protection Holdings Limited (2007) and Millen
Group Limited (2007). Trustee of The Design Museum (2006). Senior
independent director and chairman of audit committee Misys plc
(2005)
Previous experience: Non-executive director of BMS Associates Limited
(2004–2008). Member of audit and retail risk control committees HBOS
plc (2004–2008). Trustee of The Roundhouse Trust (2003–2008).
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
Baroness Usha Prashar CBE
Position: Non-executive director
Appointment to the Board: 7 February 2005
Age: 60 (29 June 1948)
Committee membership: Remuneration (Chairman), Nomination
External appointments: Non-executive director of the Cabinet Office
(2006). Chairman of the Judicial Appointments Commission (2005)
Previous experience: Chairman of the Royal Commonwealth Society
(2002–2008). Chancellor of De Montfort University (1996–2006). First
Civil Service Commissioner (2000–2005). Non-executive director of
Unite Group plc (2001–2004) and 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: 54 (18 February 1955)
Committee membership: Audit, Nomination
External appointments: Non-executive director of Neopost SA (2007)
and Cable & Wireless plc (2005). President of Act III Consultants. Board
Member of Fondation de France and Chairman of the Supervisory
Board of SAIP/Libération
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
ITV plc Report and accounts 2008
42
Directors’ report
The directors present their report together with the audited consolidated and parent company financial statements for the year ended
31 December 2008. The comparative period is for the year ended 31 December 2007.
Business review and results for the year
Under section 417(1) of the Companies Act 2006, 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 4 to 39 together with a description of
the principal activities. The Business review is incorporated in this report by reference.
The results for the year are set out on page 47. Loss for the year after tax was £2,554 million (2007: £138 million profit).
Corporate Governance
Under Disclosure and Transparency Rule 7.2, the Company is required to include a Corporate Governance statement in its Directors’ report.
All relevant information on the corporate governance practices of the Company are set out in the Corporate Governance section. The Corporate
Governance statement is incorporated in this report by reference.
Principal transactions and post balance sheet events
Disposals
On 5 March 2008 the Company announced that it had completed the sale of its 50% share in Liverpool FC.tv Limited to The Liverpool Football and
Athletic Grounds Limited for a consideration of £16 million, plus repayment of approximately £3 million of debt previously written off.
On 7 April 2008 the Company announced that it had completed the sale of its 50% share in Arsenal Broadband Limited to KSE UK, Inc. for a total
net cash consideration of £22 million of which £8 million was received in 2007.
On 10 July 2008 the Company announced that it had completed the sale of certain assets of Carlton Screen Advertising Limited to Digital
Cinema Media Limited for a total cash consideration of £0.5 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.
Acquisitions
On 13 May 2008 the Company acquired the Swedish-based independent production company and programme formats business, Silverback AB,
for a cash consideration of £5 million, and further consideration of up to £9 million payable based on profit performance and retention of key
employees over the three year period to 2011.
On 1 August 2008 the Company acquired a 10% equity stake in Electric Farm Entertainment LLC, a leading US digital studio company, for an
initial payment of $2 million, with an option to acquire a controlling shareholding at the end of 2008. The option period has been extended to 15
March 2009.
On 29 September 2008 the Company acquired a 51% stake in Imago TV Film und Fernsehproduktion GmbH, a Berlin based television production
business, for an upfront payment of €2 million, and a further cash payment of €4 million payable based on profit performance and retention of key
employees up to 2010. The Company retains an option to acquire the remaining 49% of the share capital dependent on profit performance up to
2011.
In addition to the above the Company acquired 25% of the equity in independent production company Crackit Productions Limited on 15 May
2008.
Other
On 2 July 2008 the Company announced the issue of a £110 million bond with a maturity date of 20 March 2013, pursuant to its £1.5 billion Euro
Medium Term Note Programme.
Post balance sheet events are described in note 34 of the financial statements.
Dividends
The Board has proposed that no final dividend should be paid for the year ended 31 December 2008. Further information can be found in the
Executive Chairman’s statement on page 1.
The total dividends paid and proposed for the year ended 31 December 2008 are therefore as follows:
Interim dividend
Final dividend
Total
2008
0.675p
–
0.675p
2007
1.35p
1.80p
3.15p
Substantial shareholdings
As at 4 March 2009 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
Governance for Owners LLP
Silchester International Investments Limited
A profile of shareholdings is set out on page 107.
Shares
696,046,825
321,967,023
170,580,317
155,146,097
116,767,766
116,683,131
%
17.90
8.24
4.39
3.98
3.00
3.00
Share capital
At the date of this report there were 3,889,129,751 ordinary shares of 10 pence each in issue, all of which are fully paid up and quoted on the
London Stock Exchange.
ITV plc Report and accounts 2008 Directors’ report
43
Further details of the movements in the authorised and issued share capital of the Company during the year are set out in note 29.
The rights attaching to the Company’s ordinary shares, as well as the powers of the Company’s directors, are set out in the Company’s Articles
of Association, copies of which can be obtained from the Company’s website www.itvplc.com or by writing to the Company Secretary.
There are no restrictions on the transfer of ordinary shares in the capital of the Company other than those which may be imposed by law
from time to time. In accordance with the Listing Rules of the Financial Services Authority, certain employees are required to seek approval of the
Company to deal in its shares. The Company is not aware of any agreements between shareholders that may result in restrictions on the transfers
of securities and/or voting rights. No person holds securities in the Company carrying special rights with regard to control of the Company. Unless
expressly specified to the contrary in the Articles of Association of the Company, the Company’s Articles of Association may be amended by special
resolution of the Company’s shareholders. All of the Company’s share plans contain provisions relating to a change of control. Outstanding awards
and options would normally vest and become exercisable on a change of control, subject to the satisfaction of any performance conditions. Certain
of the Group’s bonds/borrowing facilities have change of control clauses whereby the issuer can require ITV to repay/redeem bonds in the event of a
change of control. The Company is not aware of any other significant agreements to which it is party that take effect, alter or terminate upon a
change of control of the Company.
The directors have the authority to purchase up to 388.9 million of its ordinary shares. The authority remains valid until the 2009 Annual General
Meeting, or 14 August 2009 if earlier. A resolution will be put to shareholders to renew the authority at the 2009 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 2008 are set out in note 29. During the year shares have been released from the trust in respect of share award
schemes for employees. The trust waives the right to dividends payable on those shares held by the trust that are not subject to any share plan
operated by the Company where participants are the beneficial but not registered owners of shares.
Directors
The following were directors of the Company during the year:
Michael Grade
Sir George Russell
Dawn Airey
Mike Clasper
John Cresswell
Sir James Crosby
Ian Griffiths
Andy Haste
Rupert Howell
John McGrath
Heather Killen
John Ormerod
Sir Brian Pitman
Baroness Usha Prashar
Agnès Touraine
Appointed
Resigned
28 February 2008
29 April 2008
9 September 2008
11 August 2008
28 February 2008
18 January 2008
17 January 2008
15 May 2008
Brief particulars of the directors in office at the date of this report are listed on page 40 and further details of the composition of the Board are
disclosed in the Corporate Governance section.
Andy Haste was appointed to the Board on 11 August 2008, and Ian Griffiths was appointed to the Board on 9 September 2008. They will
retire from the Board at the Annual General Meeting on 14 May 2009 and, being eligible, will offer themselves for election. Mike Clasper and John
Cresswell will retire from the Board and, being eligible, offer themselves for re-election. Andy Haste and Mike Clasper do not have service contracts
with the Company.
Information about service contracts for executive directors is set out in the Remuneration report, along with details relating to remuneration
and fees.
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 2008 are set out
below. Details of directors’ interests over ordinary shares under the Company share schemes are set out in the Remuneration report.
Michael Grade
Sir George Russell
Mike Clasper
John Cresswell
Ian Griffiths
Andy Haste
Rupert Howell
Sir James Crosby
Heather Killen
John Ormerod
Baroness Usha Prashar
Agnès Touraine
31 December 2008
436,407
62,090
18,000
784,660
100,000
10,000
48,755
98,058
22,000
50,000
3,000
100,000
31 December 2007
or appointment date if later
193
4,332
18,000
536,066
n/a
n/a
n/a
98,058
–
n/a
3,000
–
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ITV plc Report and accounts 2008 Directors’ report
44
Between the end of the financial year and 4 March 2009 there were no changes in directors’ interests except for the beneficial acquisition by
Sir George Russell of 64 ordinary shares under the Dividend Reinvestment Plan.
Pension Scheme Indemnities
Qualifying pension scheme indemnity provisions, as defined in section 235 of the Companies Act 2006, were in force for the financial year ended
31 December 2008 and remain in force for the benefit of each of the directors of ITV Pension Scheme Limited, an associate company of ITV plc.
These indemnity provisions cover, to the extent permitted by law, certain losses or liabilities incurred as a director or officer of ITV Pension Scheme
Limited.
Employees
The Group’s statement on its employees is set out in the Business review on pages 4 to 39.
The Company had 5,232 (2007: 5,634) employees as at 31 December 2008. Ensuring that employees are actively engaged with the Company
continues to be an important part of our strategy and our communications process underpins this. 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.
The Company has a 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, development and promotion. This also covers
arrangements for the continued employment of and appropriate training for employees who become disabled whilst working for the Company.
The diversity policy includes a range of measures such as training where appropriate, extensive diversity monitoring and the provision of practical
support in the form of 78 traineeship opportunities across the Company.
The health and safety of employees, contractors and visitors is considered 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 2008.
Donations
The Company made contributions to charities and equivalent organisations amounting to £2 million in cash and £5 million in kind (£7 million) (2007:
£1 million in cash and £6 million in kind (£7 million)). As a result of the PRS issues encountered in 2007, charitable donations totalling a further £8
million were made in 2008.
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 2008 and a similar resolution will be proposed at the 2009 Annual General Meeting. During the year the Group made the
following payments totalling £7,968 (2007: £9,110): Labour Party £3,920; Conservative Party £685; Liberal Democrat Party £2,086 and Plaid Cymru
Party £1,277.
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 2008 was nil days (2007: nil days).
Going concern
Details of the Group’s liquidity risk and going concern position are set out on page 36 of the Financial Review.
After making enquiries the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in
operational existence 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 give details of the Group’s 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.
As recommended by the Audit Committee, 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 14 May 2009 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. A copy of the Notice is available on the Company’s website at www.itvplc.com.
ITV plc Report and accounts 2008 Directors’ report
45
Responsibility statement
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 judgements 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 a 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.
The directors confirm that to the best of their knowledge:
– the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
– the directors' report includes a fair review of the development and performance of the business and the position of the Company and the Group,
together with a description of the principal risks and uncertainties that they face.
By order of the Board
James Tibbitts
Company Secretary
200 Gray’s Inn Road
London
WC1X 8HF
4 March 2009
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ITV plc Report and accounts 2008
Independent auditor’s 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 2008 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 on page 36 of the Financial review that is
described as audited and the information in the Remuneration report that is described as 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 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 45.
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 4 to 39.
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 2008 and of its loss 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 2008;
– 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
4 March 2009
47
ITV plc Report and accounts 2008
Consolidated income statement
For the year ended 31 December:
Revenue
Operating costs before amortisation and impairment of intangible assets and exceptional items
Operating costs – exceptional items
Earnings before interest, tax and amortisation (EBITA)
Amortisation of intangible assets
Impairment of intangible assets
Total operating costs
Operating (loss)/profit
Financing income
Financing costs
Net financing costs
Share of (losses)/profits of joint ventures and associated undertakings
Investment income
Gain on sale, net of impairment, of properties (exceptional items)
Gain on sale, net of impairment, of subsidiaries and investments (exceptional items)
(Loss)/profit before tax
Taxation
(Loss)/profit for the year
Attributable to:
Equity shareholders of the parent company
Minority interests
(Loss)/profit for the year
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
Note
2
5
13
13
4
8
8
8
14
5
5
9
30
11
11
2008
£m
2,029
(1,818)
(97)
114
(66)
(2,695)
(4,676)
(2,647)
316
(376)
(60)
(15)
1
(17)
6
(2,732)
178
(2,554)
(2,556)
2
(2,554)
(65.9)p
(65.8)p
2007
£m
2,082
(1,771)
(35)
276
(56)
(28)
(1,890)
192
200
(233)
(33)
2
1
9
17
188
(50)
138
137
1
138
3.5p
3.5p
Operating exceptional items during the year mainly comprise reorganisation and restructuring costs, fines associated with premium rate services
and provisions in respect of onerous contracts for certain programme rights (see note 5 for details).
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ITV plc Report and accounts 2008
48
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
Note
2008
£m
2007
£m
12
13
14
15
22
25
16
27
17
18
18
18
25
22
24
25
19
20
26
24
25
6
9
21
26
220
1,140
66
5
–
199
13
1,643
3
516
444
10
454
19
616
1,608
(259)
(7)
(748)
(26)
(774)
(56)
(43)
(1,139)
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)
469
455
(1,264)
(25)
(178)
(55)
(15)
(41)
(1,578)
(1,263)
(9)
(112)
(75)
(65)
(4)
(1,528)
534
3,239
29,30
30
30
30
30
30
30
30
30
389
120
273
24
6
(286)
526
8
534
389
120
2,702
4
4
14
3,233
6
3,239
The accounts were approved and authorised for issue by the Board of Directors on 4 March 2009 and were signed on its behalf by:
John Cresswell
Ian Griffiths
49
ITV plc Report and accounts 2008
Consolidated cash flow statement
For the year ended 31 December:
Cash flows from operating activities
Operating (loss)/profit before exceptional items
Depreciation of property, plant and equipment
Amortisation and impairment of intangible assets
Share based compensation
Increase in programme rights and other inventory, and distribution rights
(Increase)/decrease in receivables
Increase/(decrease) 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
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 associates and joint ventures
Proceeds from sale of subsidiaries
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
Repayment of loan by employee benefit trust
Purchase of own shares via employee benefit trust
Sale/(purchase) of held to maturity investments
Equity dividends paid
Net cash inflow/(outflow) from financing activities
Net increase/(decrease) 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
Note
£m
2008
£m
12
13
7
16,17
(2,550)
36
2,761
10
(82)
(34)
49
(67)
5
24
28
13
14, 15
14
14
22
22
22
22
10
(97)
57
(39)
40
(99)
(4)
–
43
(6)
35
1
(32)
(21)
(3)
(26)
20
–
(25)
110
(6)
–
2
–
100
(123)
190
(40)
150
(59)
91
2007
£m
317
(31)
286
(76)
210
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35
84
15
(36)
2
(10)
(44)
(35)
4
(33)
44
(103)
(3)
1
18
(29)
94
4
(37)
(22)
(2)
(10)
2
5
(32)
5
(441)
–
(3)
(2)
–
(11)
(100)
(122)
58
117
498
1
616
(679)
(464)
961
1
498
* Includes £nil (2007: £2 million) relating to expenditure against provisions held in respect of activities which have been previously discontinued.
ITV plc Report and accounts 2008
50
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 (losses)/gains on defined benefit pension schemes
Taxation on items taken directly to equity
Net (expense)/income recognised directly in equity
(Loss)/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
6
9
30
30
30
30
2008
£m
16
2
–
4
(124)
35
(67)
(2,554)
(2,621)
(2,623)
2
(2,621)
2007
£m
2
3
(16)
5
111
(47)
58
138
196
195
1
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ITV plc Report and accounts 2008
Notes to the accounts
51
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 disclosures on page 36 in respect of going concern form part of the audited accounts.
The Group early adopted IFRS 8 “Operating segments” in 2007, the effect of which was disclosed in the prior year.
The Group has adopted IFRIC 11 “IFRS 2 –Group and treasury share transactions” at 1 January 2008. IFRIC 11 provides guidance on whether
share-based transactions involving group entities should be accounted for as equity settled or cash settled transactions, and addresses issues
concerning share-based payment arrangements that involve two or more entities within the same group. The Group has also adopted IFRIC 14
“IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction” at 1 January 2008. IFRIC 14 provides additional
guidance on assessing the amount that can be recognised as an asset of a defined benefit pension surplus and as a consequence the amount of
deferred tax on that surplus. Neither of these interpretations have had a material impact on Group’s results at 31 December 2008 or in previous
years.
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
In accordance with IFRS 8, 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) Accounting estimates and judgements
The preparation of financial statements in conformity with IFRSs requires management to exercise judgement in the process of applying the
Group’s accounting policies. It also requires the use of estimates and assumptions that affect 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.
The areas involving a higher degree of judgement or complexity, or where the most sensitive estimates and assumptions are significant to
affecting the financial statements are set out in accounting policies 1.7 - 1.14 below:
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ITV plc Report and accounts 2008 Notes to the accounts
52
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 its recoverable amount being 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.
In determining the fair value of intangible assets arising on acquisition the directors are required to make judgements regarding the timing and
amount of future cash flows applicable to the businesses being acquired, discounted using an appropriate discount rate. Such judgements are based
on current budgets and forecasts, extrapolated for an appropriate period taking into account growth rates, expected changes to selling prices,
operating costs and the expected useful lives of assets following purchase. Judgements are also made regarding whether and for how long licences
will be renewed. The directors estimate the appropriate discount rate using post tax rates that reflect current market assessments of the time value
of money and the risks specific to the businesses being acquired.
Amortisation Amortisation is charged to the income statement over the estimated useful lives of intangible assets unless such lives are judged to be
indefinite. Goodwill is not amortised but is tested for impairment at each balance sheet date. The estimated 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
1 to 5 years
From 1 January 2008, the Group changed its estimated useful life for amortising capitalised website development costs, from 3 years to 1 year
based on its experience of the pace of change in this area. The change has been applied prospectively from the start of 2008 because it was a
change in accounting estimate rather than policy. The effect on the current year is to increase amortisation expense by £3 million with an
estimated decrease to the amortisation charge in 2009 of £2 million.
Impairment of assets
1.8)
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).
The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. The value in use is based on the discounted present
value of the future cash flows expected to arise from the cash generating unit to which the asset relates. Estimates are used in deriving these cash
flows and the discount rate that reflects current market assessments of the risks specific to the asset and the time value of money. The complexity
of the estimation process and issues related to the assumptions, risks and uncertainties inherent with the application of the intangible asset
accounting policies affect the amounts reported in the financial statements. In particular, if different estimates of the projected future cash flows or
a different selection of an appropriate discount rate or long-term growth rate were made, these changes could materially alter the projected value
of the cash flows of the asset, and as a consequence materially different amounts would be reported in the financial statements.
Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of goodwill allocated to
those units, and then to reduce the carrying amount of other assets in the unit on a pro-rata basis.
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.
1.9) 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 and programming for digital channels which are written off over a number of transmissions. Programme
costs and rights not yet written off are included in the balance sheet at the lower of cost and net realisable value. In assessing net realisable value
consideration is given to the contracted sales price and estimated costs to complete for programmes in production, and the estimated airtime
value of programme stock, sports rights and film rights. In assessing the airtime value of programme stock and film rights consideration is given to
whether the number of transmissions purchased can be efficiently played out over the licence period. Any reversals of write downs for programme
costs and rights are recognised as a reduction in operating costs.
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.
ITV plc Report and accounts 2008 Notes to the accounts
53
1 Accounting policies (continued)
1.10) Trade receivables
Trade receivables are recognised initially and subsequently at fair value. The Group provides goods and services to substantially all its customers on
credit terms. Estimates are used in determining the level of receivables that will not, in the opinion of the Directors, be collected. These estimates
include such factors as historical experience, the current state of the UK and overseas economies and industry specific factors. A provision for
impairment of trade receivables is established when there is sufficient evidence that the Group will not be able to collect all amounts due according
to their original terms.
1.11) 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.
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.
The Group recognises liabilities for anticipated tax issues based on estimates of the additional taxes that are likely to become due which requires
judgement. Amounts are accrued based on management’s interpretation of specific tax law and the likelihood of settlement. Where the final tax
outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax
provisions in the period in which such determination is made.
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. Recognition of deferred tax assets, therefore, involves judgement regarding the timing and level of future taxable income. 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.
1.12) 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 Group takes advice from independent actuaries relating to the appropriateness of the assumptions which
include life expectancy of members, expected salary and pension increases, inflation and the return on scheme assets. It is important to note,
however, that comparatively small changes in the assumptions used may have a significant effect on the income statement and balance sheet.
The calculations are 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. Under these valuation methods, the share price for ITV plc is projected to the end of the performance period as
is the Total Shareholder Return for ITV plc and the companies in the comparator group. Based on these projections, the number of awards that will
vest and their present value is determined. The valuation of these share-based payments also requires estimates to be made in respect of the
number of options that are expected to be exercised. Non-market vesting conditions are included in assumptions about the number of options that
are expected to vest. At each balance sheet date, the Group 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.
1.13) 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.
Third party valuations are used to fair value the Group’s derivatives. The valuation techniques use inputs such as interest rate yield curves and
currency prices/yields, volatilities of underlying instruments and correlations between inputs.
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 equity.
Any ineffective portion of the hedge is recognised immediately in the income statement.
For financial assets and liabilities designated at fair value through profit or loss the fair value change and interest income/expense are
not separated.
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ITV plc Report and accounts 2008 Notes to the accounts
54
1 Accounting policies (continued)
1.14) 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. These provisions are estimates for which the amount and timing of actual cash flows
are dependent on future events.
1.15) 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 annual depreciation charge is sensitive to the estimated useful life of each asset and the expected residual
value at the end of its life. 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
1.16) Distribution rights
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. The estimated
lives are based on historical experience with similar rights as well as anticipation of future events.
1.17) 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.
1.18) 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.
1.19) 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, in management’s judgement, to show more
accurately the underlying profits of the Group.
1.20) 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,
cash held to meet certain finance lease commitments and gilts over which unfunded pension promises have a charge.
1.21) Trade payables
Trade payables are recognised initially and subsequently at fair value.
ITV plc Report and accounts 2008 Notes to the accounts
55
1 Accounting policies (continued)
1.22) 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.
1.23) 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.
1.24) ITV shares held by Employee Benefit Trusts (EBT)
Transactions of the Group-sponsored EBT are included in the Group’s accounts. In particular, the EBT’s purchases of shares in ITV plc are debited
directly to equity.
1.25) Dividends
Dividends are recognised through equity in the period in which they are declared and, if required, approved by the Company’s shareholders.
1.26) 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 payment is established.
1.27) Net financing costs
Net financing costs principally comprise interest payable, foreign exchange gains/losses, finance charges on finance leases, interest receivable on
funds invested, gains and losses on hedging instruments that are recognised in the income statement, the difference between cost and redemption
value of borrowings and the expected return on pension scheme assets net of the interest cost on liabilities.
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ITV plc Report and accounts 2008 Notes to the accounts
56
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 endorsed by the EU and effective in 2008
Relevant to the Group’s results
IFRIC 11
IFRS 2 – Group and
treasury share
transactions
IFRIC 14
IAS 19 – The limit on a defined benefit
asset, minimum funding requirements
and their interaction.
This interpretation provides guidance on whether share-based transactions involving
Group entities should be accounted for as equity settled or cash settled
transactions, and addresses issues concerning share-based payment arrangements
that involve two or more entities within the same group.
This interpretation applies to all post-employment defined benefits and other
long-term employee defined benefits. The interpretation addresses when
refunds or reductions in future contributions should be regarded as available in
accordance with IAS 19, how a minimum funding requirement might affect the
availability of reductions in future contributions and when a minimum funding
requirement might give rise to a liability.
These interpretations have had no material effect on the Group’s results in 2008 or previous years.
Not relevant to the Group’s results
IFRIC 13
Customer loyalty programmes.
IAS 39 and IFRS 7 Amendment to IAS 39 Financial
Instruments: Recognition and
Measurement and IFRS 7 Financial
Instruments: Disclosures.
Where a customer loyalty programme operates, IFRIC 13 requires an entity to
separate sales revenue into revenue from sale of the goods or services and revenue
from sale of the loyalty points, with the latter being deferred until the loyalty points
are redeemed.
An amendment to the Standards, issued in October 2008, permits an entity to
reclassify non-derivative financial assets (other than those designated at fair value
through profit or loss by the entity upon initial recognition) out of the fair value
through profit or loss category in particular circumstances.
New standards, amendments and interpretations endorsed by the EU but not yet effective
Relevant to the Group’s results
Improvements to
IFRS
The Improvements to IFRS contain 24
amendments that result in accounting
changes for presentation, recognition or
measurement purposes. The effective
dates and transitional requirements are
set out on a standard by standard basis.
In addition there are 11 terminology or
editorial amendments that are expected
to have no or only minimal effects on
accounting.
Amendment to IFRS 2 Share-Based
Payment: Vesting Conditions and
Cancellations.
Amendments to IAS 1 Presentation of
Financial Statements - A revised
presentation.
IFRS 2
IAS 1
Not relevant to the Group’s results
IAS 23
Amendment to IAS 23 Borrowing costs.
IFRS 1 and IAS 27 Amendments to IFRS 1 and IAS 27 – Cost
of an investment in a subsidiary, jointly-
controlled entity or associate.
IAS 32 and IAS 1 Amendments to IAS 32 Financial
Instruments: Presentation and IAS 1
Presentation of Financial Statements.
An amendment to IAS 10 'Events after the Reporting Period' states that if dividends
are declared (ie the dividends are appropriately authorised and no longer at the
discretion of the entity) after the reporting period but before the financial
statements are authorised for issue, the dividends are not recognised as a liability at
the end of the reporting period because no obligation exists at that time. Such
dividends are disclosed in the notes in accordance with IAS 1 Presentation of
Financial Statements. This will affect the timing of the recognition of the Group’s
interim dividend.
The definition of vesting conditions in IFRS 2 has been amended to clarify that
vesting conditions are limited to service conditions and performance conditions.
Conditions other than service or performance conditions are considered non-vesting
conditions.
The Group will be required to present both a statement of comprehensive income
and a statement of changes in equity as financial statements. The statement of
comprehensive income effectively replaces the current statement of recognised
income and expense (SORIE).
This represents a change from the current requirement to present only one
financial statement: a SORIE or a statement of all changes in equity.
The revision of IAS 23 removes the option of immediately recognising an expense
for borrowing costs that are directly attributable to the acquisition, construction or
production of a qualifying asset. A qualifying asset is one that takes a substantial
period of time to get ready for use or sale. The effect on the Group is not expected
to be material.
The amendments require all dividends from a subsidiary, jointly-controlled entity or
associate to be recognised as income when the right to receive the dividend is
established. A consequential amendment to IAS 36 outlines when the receipt of
dividend income is deemed to be an indicator of impairment.
The amendments provide exemptions from the requirement to classify as a liability,
financial instruments under which an entity has an unavoidable obligation to deliver
cash.
ITV plc Report and accounts 2008 Notes to the accounts
57
Operating segmental information
2
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, which the Group first adopted
in 2007.
Management has determined the reportable segments based on the reports reviewed by the Management Committee. The Management
Committee comprises the executive directors.
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 investment in stv group plc (formerly SMG plc).
Global Content derives its revenue primarily from ITV Studios in the UK (a commercial production company), international production centres in
America, Germany, Sweden and Australia and the businesses in ITV Global Entertainment (“IGEL”). A proportion of revenue is generated internally via
programme sales to the Broadcasting segment. IGEL sells programming and exploits merchandising and licensing worldwide, and is a distributor of
DVD entertainment in the UK.
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 (“CSA”), 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 for the reportable segments for the years ended 31 December 2008 and 31 December 2007 is as follows:
Broadcasting
Global Content
2008
£m
2007
£m
2008
£m
2007
£m
1,652
1,750
622
564
(5)
(12)
(316)
(320)
1,647
1,738
306
244
2008
£m
36
–
36
Online
2007
£m
33
–
33
140
244
90
90
(20)
(12)
2008
£m
40
–
40
1
Other
2007
£m
Consolidated
2007
£m
2008
£m
67
2,350
2,414
–
(321)
(332)
67
2,029
2,082
(11)
211
311
–
(2)
1,589
3,934
–
645
–
590
(4)
115
2
419
(11)
65
2
84
(15)
2,414
2
5,027
14
12
1
4
29
46
44
68
–
8
2
51
61
66
79
(492)
(389)
(294)
(226)
(27)
(74)
8
10
(5)
1
91
123
(18)
(818)
(707)
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 (loss)/profit before tax is provided as follows:
EBITA before exceptional items
Operating exceptional items
Amortisation and impairment of intangible assets
Net financing costs
Share of (losses)/profits of joint ventures and associated undertakings
Investment income
Gain on sale, net of impairment, of properties (exceptional items)
Gain on sale, net of impairment, of subsidiaries and investments (exceptional items)
(Loss)/profit before tax
2008
£m
211
(97)
(2,761)
(60)
(15)
1
(17)
6
(2,732)
2007
£m
311
(35)
(84)
(33)
2
1
9
17
188
Total segment
revenue
Intersegment
revenue
Revenue from
external customers
EBITA before
exceptional items
Share of (loss)/profit
from joint ventures
and associated
undertakings
Total segment assets
Total assets include:
Investments in
associates and joint
ventures
Additions to non-
current assets
(other than financial
instruments)
Total segment
liabilities
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ITV plc Report and accounts 2008 Notes to the accounts
58
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
2008
£m
2,414
–
3
218
616
3,251
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 benefit pension deficit
Total liabilities per the balance sheet
2008
£m
818
30
32
1,523
56
55
25
178
2,717
2007
£m
5,027
100
59
36
498
5,720
2007
£m
707
23
10
1,296
206
75
52
112
2,481
The Group’s principal operations are in the United Kingdom. Its revenue from external customers in the United Kingdom is £1,821 million (2007:
£1,929 million), and the total revenue from external customers in other countries is £208 million (2007: £153 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 £1,443 million (2007: £4,279 million), and the total of these non-current assets located in other
countries is £1 million (2007: £1 million).
Revenues of approximately £382 million (2007: £382 million), £236 million (2007: £250 million) and £222 million (2007: £258 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 compensation (see note 7)
Pension costs
Total
2008
£m
287
36
10
14
347
2007
£m
260
31
15
18
324
Staff costs in the current year have increased by £23 million, including £8 million due to the year on year effect of acquisitions and business
expansion and £6 million due to certain staff costs no longer charged directly to programmes.
In addition, staff costs within exceptional items were £26 million (2007: £4 million) principally relating to redundancy payments and
reorganisation costs. Total staff costs including exceptional items for the year ended 31 December 2008 are £373 million (2007: £328 million). In
addition to the pension operating cost shown above is a net credit to net financing costs of £16 million (2007: credit of £18 million) and a net debit
to retained earnings in respect of actuarial losses of £124 million (2007: gains of £111 million).
The weighted average number of employees employed by the Group during the year was:
Broadcasting
Global Content
Online
Other
Total
2008
2,747
2,338
373
139
5,597
2007
2,785
2,444
286
185
5,700
Details of the directors’ emoluments, share options, pension entitlements and long-term incentive scheme interests are set out in the Remuneration
report.
ITV plc Report and accounts 2008 Notes to the accounts
59
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 operating costs
2008
£m
347
26
373
2,761
36
–
2,797
1,125
94
44
30
33
217
42
19
71
2
55
1,732
(226)
4,676
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
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.
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
2008
£m
0.9
0.2
0.1
0.5
0.6
–
2.3
2007
£m
0.8
0.2
0.1
0.4
0.3
0.1
1.9
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.
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ITV plc Report and accounts 2008 Notes to the accounts
60
5 Exceptional items
Operating exceptional items:
Reorganisation and restructuring costs
PRS reimbursements and fines
Onerous contract provisions
Kangaroo
Non-operating exceptional items:
Gain on sale, net of impairment, of properties
Gain on sale, net of impairment, of subsidiaries and investments
Impairment of available for sale financial assets
Kangaroo
Total exceptional items before tax
2008
£m
(40)
(6)
(50)
(1)
(97)
(17)
17
(7)
(4)
(11)
(108)
2007
£m
(8)
(18)
(9)
–
(35)
9
43
(26)
–
26
(9)
2008
In 2008 a charge of £40 million was incurred in respect of reorganisation and restructuring costs. This includes £18 million related to Regional News
and £22 million as a result of other efficiency programmes.
On 8 May 2008, Ofcom announced a fine to ITV of £6 million in respect of breaches of the programme code relating to premium rate services
on ITV1 and ITV2. At the date of approval of the 2007 accounts, the regulator had not yet confirmed the level of any fine that might have been
imposed in this context. Therefore no provision for a fine was able to be included in the 2007 accounts.
Provisions in respect of onerous contracts for sports rights of £50 million were put in place in 2008 as a consequence of the forecast significant
decline in the advertising market over the life of those contracts.
An impairment of £14 million was charged on the Manchester properties prior to their reclassification from assets held for sale to fixed assets
and an impairment of £3 million has been charged on the remaining property classified in assets held for sale.
During the year, as part of the ongoing process to dispose of non-core businesses and investments, the Group sold its 50% interests in Arsenal
Broadband Limited and Liverpool FC.tv Limited, resulting in gains of £12 million and £13 million respectively. These and other smaller gains were
partially offset by £9 million of closure costs relating to CSA and a £3 million impairment in the Group’s investment in Screenvision Holdings (Europe)
Limited both of which are disclosed in the ‘other’ reporting segment.
An impairment of the holding in stv group plc, which is held in the Broadcasting segment, of £7 million (2007: £26 million) was made following
a significant and sustained decline in its share price.
A summary of the 2008 Kangaroo operating and exceptional costs is included in the table below:
Kangaroo costs
Impairment of intangible fixed assets
Impairment of investment in joint venture
Exceptional Kangaroo costs
Kangaroo losses included in Online Segment
Total Kangaroo costs in 2008
Accounting treatment
Operating exceptional costs
Non-operating exceptional costs
Operating costs
2008
£m
1
4
5
3
8
In 2009 ITV expects to incur £1 million of operating costs and £3 million of closure costs, which will be shown as operating exceptional costs, in
respect of Kangaroo.
2007
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 formed part of a larger project.
Provisions in respect of onerous contracts associated with CSA (£9 million) were put in place in 2007.
A net gain of £9 million was recognised from the sale of properties. A gain of £17 million was recognised from the sale of subsidiaries
and investments net of impairment of investments. This included 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 stv
group plc, which is held in the Broadcasting segment, (£26 million) following a significant and sustained decline in its share price.
Operating exceptional items included £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 (£10 million) and GMTV (£8 million).
ITV plc Report and accounts 2008 Notes to the accounts
61
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 2008 were £4 million (2007: £3 million).
Defined benefit schemes
The Group provides retirement benefits to some of its former and approximately 25% of its 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.
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 revaluation rather than projected earning increases. At the balance sheet date the accumulated benefit obligation was £2,310
million (2007: £2,550 million).
The assets and liabilities of all the Group’s defined benefit pension schemes recognised in the balance sheet at 31 December 2008 under IAS 19
(as explained in detail in this note) were £2,161 million (2007: £2,491 million) and £2,339 million (2007: £2,603 million) respectively, resulting in a net
deficit in the defined benefit schemes of £178 million (2007: £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 £1,800 million (2007: £1,100 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 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
was completed at 1 January 2008 by an independent actuary for the Trustees of the ITV Pension Scheme. The first triennial valuations of sections B
and C were 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.
Normal employer contributions into the schemes in 2009 for current service are expected to be in the region of £11 million (2007: £11 million)
assuming current contribution rates continue as agreed with the scheme trustees. In addition, deficit funding payments of £30 million per annum
are expected for the next five years. The Group estimates that the present value of the duration of UK scheme liabilities, on average, fall due over
14 years (2007: 16 years).
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ITV plc Report and accounts 2008 Notes to the accounts
62
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 gain
Interest cost
Net actuarial gain
Contributions by scheme participants
Benefits paid
Defined benefit obligation at 31 December
2008
£m
2,603
12
(2)
146
(314)
6
(112)
2,339
2007
£m
2,657
15
–
134
(96)
5
(112)
2,603
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 (loss)/gain
Employer contributions
Contributions by scheme participants
Benefits paid
Fair value of assets at 31 December
2008
£m
2,309
30
2,339
2008
£m
2,491
162
(438)
52
6
(112)
2,161
2007
£m
2,567
36
2,603
2007
£m
2,372
152
15
59
5
(112)
2,491
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 gain
Amount credited/(charged) to net financing costs:
Expected return on pension scheme assets
Interest cost
Total credited in the income statement
2008
£m
2,161
(2,339)
(178)
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)
2008
£m
(12)
2
(10)
162
(146)
16
6
2007
£m
(15)
–
(15)
152
(134)
18
3
ITV plc Report and accounts 2008 Notes to the accounts
63
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
2008
£m
(438)
314
(124)
2007
£m
15
96
111
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The cumulative amount of actuarial gains and losses recognised through the statement of recognised income and expense since 1 January 2004 is
an actuarial loss of £72 million (2007: £52 million gain).
Included within actuarial gains and losses are experience adjustments as follows:
Experience adjustments on scheme assets
Experience adjustments on scheme liabilities
2008
£m
(438)
–
2007
£m
15
(18)
2006
£m
32
(12)
2005
£m
219
9
2004
£m
56
(70)
At 31 December 2008 the scheme assets were invested in a diversified portfolio that consisted primarily of equity and debt securities.
The fair value of the scheme assets are shown below by major category:
Market value of assets – equities and property
Market value of assets – bonds
Market value of assets – other
Total scheme assets
Market
value
2008
£m
704
1,330
127
2,161
Market
value
2007
£m
1,284
1,087
120
2,491
Exposure through the different asset classes is obtained through a combination of executing swaps and investing in physical assets. Some of these
bond investments are issued by the UK Government. The risk of default on these is very small compared to the risk of default on corporate bond
investments, although some risk may remain. 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. Over 2008, yields have increased significantly relative to gilts and this is partly
attributed to an increase in default risk in respect of these bonds.
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.
In respect of overseas equity investments there is an additional risk associated with the exposure to unfavourable currency movements.
To reduce this risk, the Scheme aims to hedge broadly 60% of the overseas equity investment against currency movements.
The expected return for each asset class is weighted based on the target asset allocation for 2009 to develop the expected long-term rate
of return on assets assumption for the portfolio.
The benchmark for 2009 is to hold broadly 47% equities and 53% 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 22% of equities being held in the UK and 78% of
equities held overseas. Within the bond portfolio the aim is to hold 58% of the portfolio in government bonds (gilts) and 42% of the portfolio in
corporate bonds and other fixed interest securities.
The expected rates of return on plan assets by major category and target allocations for 2009 are set out below:
Equities and property
Bonds
Other
Expected long-
term rate
of return
2009
% p.a.
7.5
3.6 – 6.3
n/a
Planned asset
allocation
2009
% of assets
47
53
–
Expected long-
term rate
of return
2008
% p.a.
7.7
4.4 – 5.9
n/a
Planned asset
allocation
2008
% of assets
55
45
–
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. The expected yield on bond investments with fixed interest rates can be derived exactly from their market value.
The actual return on plan assets in the year ended 31 December 2008 was a decrease of £276 million (2007: increase of £167 million).
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 assumption
2008
3.80%
2.70%
2.80%
6.30%
2.80%
2007
4.65%
3.30%
3.40%
5.70%
3.40%
ITV plc Report and accounts 2008 Notes to the accounts
64
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 assumptions. 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 year of birth tables with medium cohort improvements, with a 1% per annum underpin and a one year age rating
(i.e. tables are adjusted so that a member is assumed to be one year older than actual age). Using these tables the assumed life expectations on
retirement are:
Retiring today at age
Males
Females
Retiring in 20 years at age
Males
Females
2008
60
26.5
29.8
60
28.5
31.9
2008
65
21.6
24.8
65
23.4
26.7
2007
60
24.4
27.4
60
25.5
28.4
2007
65
19.8
22.8
65
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. These tables differ from those used as at 31 December 2007 which were the PA92 tables with mortality projected to 2020 for
pensioners and 2035 for non-pensioners using the standard (non-cohort) improvements. This change resulted in an increase in the assumed life
expectations.
The sensitivities regarding the principal assumptions used to measure the scheme’s 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 7%
Increase/decrease by 7%
Increase/decrease by 1%
Increase by 2%
ITV plc Report and accounts 2008 Notes to the accounts
65
7 Share-based compensation
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 2008 was 52.34 pence (2007: 105.73 pence).
2008
Weighted
average exercise
price
(pence)
79.46
–
52.00
52.99
6.63
80.94
71.88
Number of
options
(’000)
131,803
20,929
15,132
(15,295)
(11,351)
(24,764)
116,454
2007
Weighted
average exercise
price
(pence)
86.67
–
86.72
67.13
34.50
74.73
79.46
Number of
options
(’000)
165,185
34,758
3,479
(8,087)
(28,469)
(35,063)
131,803
42,057
151.48
51,818
147.88
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
200.00–249.99
250.00–299.99
300.00–385.99
Weighted
average exercise
price
(pence)
–
53.80
84.95
101.96
114.55
133.63
217.78
270.25
385.31
Number of
options
(’000)
53,272
14,106
4,546
12,032
11,957
6,367
1,201
12,882
91
2008
Weighted
average
remaining
contractual
life
(years)
4.20
3.54
2.68
2.04
5.73
3.97
1.98
1.54
1.40
Weighted
average exercise
price
(pence)
–
63.37
54.59
101.94
114.62
132.37
217.78
269.13
385.31
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
Number of
options
(’000)
59,206
5,784
8,434
13,808
16,218
10,713
1,357
16,192
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.
Awards made under the Granada Media and Granada Commitment schemes, the Granada Media, Granada and Carlton Executive Share Option
schemes, the Carlton Equity Participation Plan, and the Carlton Deferred Annual Bonus Plan have all reached the end of their various performance
periods, and have vested or lapsed accordingly. Details of the performance criteria that applied to these awards have been detailed in the notes to
previous accounts, and in previous Remuneration reports. The Granada, Carlton and ITV Sharesave schemes are Inland Revenue Approved SAYE
schemes. Although some awards remain vested but unexercised under these Plans, they are not considered material for the purposes of disclosure
again in this note.
Exercises can be satisfied by market purchase or by new issue shares. No new shares may be issued to satisfy exercises under the terms of the
Deferred Share Award Plan. During the year all exercises were satisfied by using shares purchased in the market and held in the ITV Employees’
Benefit Trust rather than by issuing new shares.
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ITV plc Report and accounts 2008 Notes to the accounts
66
7 Share-based compensation (continued)
Assumptions relating to grants of share options during 2008 and 2007:
Scheme name
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
ITV – three year
ITV – five year
ITV – three year
ITV – five year
Date of
grant
Share price
at grant
(pence)
Exercise
price
(pence)
Expected
volatility
%
Expected life
(years)
Gross dividend
yield
%
05-Apr-07
05-Apr-07
04-Apr-08
04-Apr-08
13-Sept-07
13-Sept-07
13-Sept-07
03-Oct-07
03-Oct-07
02-Nov-07
02-Nov-07
12-Sep-08
12-Sep-08
02-Oct-08
02-Oct-08
111.10
111.10
65.00
65.00
106.40
106.40
106.40
104.00
104.00
96.20
96.20
49.90
49.90
42.30
42.30
86.60
86.60
52.00
52.00
–
–
–
–
–
–
–
–
–
–
–
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
3.25
5.25
3.25
5.25
2.25
2.25
4.25
2.25
4.25
2.25
4.25
2.25
4.25
2.25
4.25
2.84%
2.84%
2.84%
2.84%
2.96%
2.96%
2.96%
2.96%
2.96%
2.96%
2.96%
2.96%
2.96%
2.96%
2.96%
Risk free
rate
%
5.25%
5.12%
3.93%
4.09%
5.04%
5.04%
4.98%
5.04%
4.98%
5.04%
4.98%
5.04%
4.98%
5.04%
4.98%
Fair value
(pence)
33.00
36.00
17.00
19.00
44.00
59.00
48.00
41.00
45.00
28.00
36.00
14.00
18.00
12.00
16.00
The expected volatility is based on the historic volatility of ITV plc, which 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 compensation charges totalled £10 million in 2008 (2007: £15 million).
ITV plc Report and accounts 2008 Notes to the accounts
67
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
Other interest receivable
Financing costs:
Interest expense on financial liabilities measured at amortised cost
Foreign exchange loss
Interest on defined benefit pension plan obligations
Other interest expense
Net financing costs
2008
£m
23
162
123
8
316
(110)
(116)
(146)
(4)
(376)
(60)
2007
£m
30
152
14
4
200
(54)
(42)
(134)
(3)
(233)
(33)
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.
As a result of ITV's credit rating with Standard & Poor's being lowered to BB+ in August 2008 the 2011 €500 million bond and the 2017 £250
million bond were subject to coupon step ups. This has resulted in the recalculation of the amortised cost carrying value of the bonds as required
by IAS 39. The carrying value of the 2011 €500 million bond has increased by £12 million, and the 2017 £250 million bond by £18 million. This has
resulted in an increase in the amortised cost of the bonds and interest expense of £30 million (2007: £nil) during the current year. The increase in
the amortised cost of the bonds will unwind in future years resulting in a credit to interest expense.
9 Taxation
Recognised in the income statement:
Current tax expense:
Current tax charge before exceptional items
Current tax credit 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 credit/(expense) in the income statement
Reconciliation of taxation credit/(expense):
(Loss)/profit before tax
Taxation credit/(expense) at UK corporation tax rate of 28.5% (2007: 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
Impact of goodwill impairment
Other
2008
£m
(28)
23
(5)
198
193
(3)
–
(12)
(15)
178
2008
£m
(2,732)
779
(8)
(6)
–
186
1
(768)
(6)
178
2007
£m
(58)
3
(55)
25
(30)
(9)
3
(14)
(20)
(50)
2007
£m
188
(56)
3
(7)
4
11
4
(6)
(3)
(50)
In the year ended 31 December 2008 the effective tax rate is lower (2007: 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
including £57 million which has resulted in an adjustment through goodwill related to the ITV merger in February 2004 as required by IAS 12
(2007: 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 32% (2007: 31%).
A tax credit totalling £35 million (2007: expense of £47 million) has been recognised directly in equity representing current tax of £nil (2007: credit
of £nil) and a deferred tax credit of £35 million (2007: expense of £47 million).
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ITV plc Report and accounts 2008 Notes to the accounts
68
9 Taxation (continued)
Deferred tax assets/(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 compensation
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 compensation
Unremitted earnings of subsidiaries, associates and joint ventures
Other
At
1 January
2008
£m
(13)
(113)
3
31
11
(2)
4
(2)
6
(75)
At
1 January
2007
£m
(4)
(139)
7
86
21
(4)
26
(3)
3
(7)
Business
combinations
£m
–
–
–
–
–
–
–
–
–
–
Business
combinations
£m
–
(1)
–
–
–
–
–
–
–
(1)
Recognised
in the income
statement
£m
(2)
18
1
(17)
(11)
1
–
(1)
(4)
(15)
Recognised
in the income
statement
£m
(9)
24
(4)
(21)
(10)
2
(6)
1
3
(20)
Recognised
in equity
£m
–
–
–
35
–
–
–
–
–
35
Recognised
in equity
£m
–
3
–
(34)
–
–
(16)
–
–
(47)
At
31 December
2008
£m
(15)
(95)
4
49
–
(1)
4
(3)
2
(55)
At
31 December
2007
£m
(13)
(113)
3
31
11
(2)
4
(2)
6
(75)
The amount of the deferred tax liability at 31 December 2008 was reduced by £1 million (2007: £6 million) as a consequence of the re-statement of
the liability to the reduced 28% rate at which the liability is expected to reverse. Of this benefit £1 million (2007: £4 million) has been taken through
the income statement and £nil (2007: £2 million) through equity in accordance with IAS 12.
At 31 December 2008 total deferred tax assets are £59 million (2007: £55 million) and total deferred tax liabilities are £114 million (2007:
£130 million).
Deferred tax assets estimated at £0.6 billion and £0.1 billion (2007: £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 their 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 (2007: £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 2006 dividend of 1.8 pence per share
Interim 2007 dividend of 1.35 pence per share
Final 2007 dividend of 1.8 pence per share
Interim 2008 dividend of 0.675 pence per share
2008
£m
–
–
70
26
96
2007
£m
70
52
–
–
122
£1 million relating to the DRIP element of the 2008 interim dividend was paid before the balance sheet date. No final dividend will be declared for
2008.
ITV plc Report and accounts 2008 Notes to the accounts
69
11 Earnings per share
(Loss)/profit for the year attributable to equity shareholders of the parent company
Exceptional items (including related tax effect of a credit of £23 million,
2007: credit of £6 million)
(Loss)/profit for the year before exceptional items
Amortisation and impairment of intangible assets (including related tax credit of £19 million,
2007: £19 million)
IAS 39 charge in respect of amortised cost adjustment (including related tax credit of £9 million,
2007: £nil)
Prior period tax adjustments
Profit for the year before exceptional items, amortisation and impairment of intangible assets,
amortised cost adjustment and prior period tax adjustments
Weighted average number of ordinary shares in issue – million
Dilution impact of share options – million
(Loss)/earnings per ordinary share
Adjusted earnings per ordinary share
Basic (loss)/earnings per ordinary share
Add: Loss per ordinary share on exceptional items
(Loss)/earnings per ordinary share before exceptional items
Add: Loss per ordinary share on amortisation and impairment of intangible assets
Add: IAS 39 charge in respect of amortised cost adjustment
Subtract: Profit per ordinary share on prior period tax adjustments
Adjusted earnings per ordinary share for the year before exceptional items, amortisation and
impairment of intangible assets, amortised cost adjustment and prior period tax adjustments
Basic
£m
(2,556)
2008
Diluted
£m
(2,556)
85
(2,471)
85
(2,471)
2,742
2,742
21
(186)
21
(186)
Basic
£m
137
3
140
65
–
(11)
2007
Diluted
£m
137
3
140
65
–
(11)
106
106
194
194
3,877
–
3,877
3,877
9
3,886
3,874
–
3,874
3,874
23
3,897
(65.9)p
(65.8)p
3.5p
3.5p
(65.9)p
2.2p
(63.7)p
70.7p
0.5p
(4.8)p
(65.8)p
2.2p
(63.6)p
70.6p
0.5p
(4.8)p
3.5p
0.1p
3.6p
1.7p
–
(0.3)p
3.5p
0.1p
3.6p
1.7p
–
(0.3)p
2.7p
2.7p
5.0p
5.0p
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.
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ITV plc Report and accounts 2008 Notes to the accounts
70
12 Property, plant and equipment
Cost
At 1 January 2007
Additions
Reclassification from assets held for sale
Disposals and retirements
At 31 December 2007
Additions
Reclassification from assets held for sale
Disposals and retirements
At 31 December 2008
Depreciation
At 1 January 2007
Charge for the year
Reclassification from assets held for sale
Disposals and retirements
At 31 December 2007
Charge for the year
Disposals and retirements
At 31 December 2008
Net book value
At 31 December 2008
At 31 December 2007
Freehold land
and buildings
Improvements to leasehold
land and buildings
Vehicles, equipment and fittings
£m
23
–
–
–
23
–
27
(1)
49
–
–
–
–
–
1
(1)
–
49
23
Long
£m
Short
£m
Owned
£m
Leased
£m
58
–
8
–
66
–
3
–
69
7
2
3
–
12
1
–
13
56
54
15
6
–
–
21
–
–
(1)
20
6
2
–
–
8
1
(1)
8
12
13
250
31
–
(30)
251
21
–
(31)
241
142
31
–
(29)
144
30
(25)
149
92
107
4
12
–
–
16
–
–
(1)
15
2
–
–
–
2
3
(1)
4
11
14
Total
£m
350
49
8
(30)
377
21
30
(34)
394
157
35
3
(29)
166
36
(28)
174
220
211
Included within the book values above is expenditure of £10 million (2007: £11 million) on property, plant and equipment which are in the course of
construction. Also included within the book values above is £11 million relating to assets held under finance leases (2007: £14 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 2007
Acquisition of subsidiaries
Internal development
At 31 December 2007
Acquisition of subsidiaries
Purchase of brands and internal development
At 31 December 2008
Amortisation and impairment
At 1 January 2007
Charge for the year
Impairment charge
At 31 December 2007
Charge for the year
Impairment charge and goodwill reduction
At 31 December 2008
Net book value
At 31 December 2008
At 31 December 2007
Goodwill
£m
Brands
£m
Customer
contracts and
relationships
£m
Licences
£m
Software
development
£m
Film
libraries and
other
£m
3,443
35
–
3,478
6
–
3,484
20
–
20
40
–
2,695
2,735
749
3,438
199
–
–
199
–
1
200
50
18
–
68
18
–
86
114
131
338
–
–
338
–
–
338
182
22
8
212
22
–
234
104
126
121
–
–
121
–
–
121
20
9
–
29
9
–
38
83
92
4
–
22
26
–
20
46
–
1
–
1
8
–
9
37
25
78
5
–
83
1
–
84
16
6
–
22
9
–
31
53
61
Total
£m
4,183
40
22
4,245
7
21
4,273
288
56
28
372
66
2,695
3,133
1,140
3,873
ITV plc Report and accounts 2008 Notes to the accounts
71
13 Intangible assets (continued)
Amortisation of intangible assets is shown within operating costs in the income statement. The components of the £2,695 million impairment
charge and goodwill reduction in 2008 are explained below
Impairment tests for cash-generating units containing goodwill
The following units have significant carrying amounts of goodwill:
Broadcasting
GMTV
SDN
Global Content
Online
2008
£m
265
33
76
307
68
749
2007
£m
2,631
54
76
301
376
3,438
The recoverable amount of each CGU is based on value in use calculations. These calculations require the use of estimates and use pre-tax cash
flow projections based on the Group’s current five-year plan. Cash flows beyond the five-year period are extrapolated using an estimated growth
rate of 2%–2.5% depending on the CGU and are appropriate because these are long-term businesses. The growth rates used are consistent with
the long-term average growth rates for the industry.
Impairment tests are carried out annually, or when indicators show that assets may be impaired. Current market estimates imply a downturn in
the advertising market in 2009 and 2010 which constitutes an impairment indicator for the Broadcasting, GMTV and Online CGUs which are reliant
on advertising revenue. The impairment tests carried out as a consequence have resulted in a total impairment charge of £2,695 million for the year
(2007: £28 million) being applied against the goodwill in these CGUs.
A pre-tax market discount rate of 11.9% has been used in discounting the projected cash flows for each CGU. The pre-tax market discount rate
used in the previous year on the same basis was 10.9%. The discount rate has been revised to reflect the latest market assumptions for the Risk
Free-rate and Equity Risk Premium and also to take into account the net cost of debt. Management believe that there is currently no reasonably
possible change in discount rate which would reduce the headroom in the SDN or Global Content CGUs to zero.
Broadcasting
The goodwill in this CGU arose as a result of the acquisition of broadcasting businesses since 1999, the largest of which were the acquisition by
Granada of United News and Media’s broadcast businesses in 2000 and the merger of Carlton and Granada in 2004 to form ITV plc. In 2007, as a
result of the early adoption of IFRS 8 Operating Segments, this goodwill was apportioned between the Broadcasting and Online CGUs based on the
relative Net Present Value of the cash flows of the two segments. Broadcasting goodwill was reduced in the year by £57 million, as required by
IAS12, following the recognition of deferred tax assets not recognised at the time of the Carlton/Granada merger.
An impairment charge of £2,309 million arose in the Broadcasting CGU during the course of 2008, resulting in the carrying value of the goodwill
in this CGU being written down to its recoverable amount. The impairment charge arose as a result of the downturn in the short-term outlook for
the advertising market, which is an area highly exposed to the general downturn in the economy, the use of cautious medium-term assumptions
as a consequence and long-term growth rates in line with the industry average.
The main assumptions on which the forecast cash flows were based include the television share of advertising market, share of commercial
impacts, programme and other costs. The key assumption in assessing the recoverable amount of Broadcasting goodwill is the size of the TV
advertising market. The TV advertising market has been very volatile in recent months and the expectations in the short term have deteriorated.
In forming its assumptions about the TV advertising market, the Group has used a combination of long term trends, industry forecasts and in-house
estimates which place greater emphasis on recent experience. These are broadly in the range of -10% to -16% for 2009 and +2% to -4% for 2010,
with the most recent to the bottom end of these ranges. It is also assumed that ITV elects to renew its broadcasting licences in 2014. If the
estimated TV advertising market growth for 2009 used in the value in use calculation for the Broadcasting CGU (included in the “Broadcasting”
segment) had been 1% lower than the estimate used at 31 December 2008 the Group would have recognised a further impairment against
goodwill of £132 million.
GMTV
The goodwill in this CGU arose on the acquisition of a 75% shareholding in GMTV Limited in 2004.
An impairment charge of £21 million arose in the GMTV CGU during the course of 2008, resulting in the carrying value of the goodwill in this
CGU being written down to its recoverable amount. The impairment charge arose as a result of the downturn in the short-term outlook for the
advertising market which is an area highly exposed to the general downturn in the economy.
The main assumptions on which the forecast cash flows are based are as described under the Broadcasting CGU above.
If the estimated TV advertising market growth for 2009 used in the value in use calculation for the GMTV CGU (included in the “Broadcasting”
segment) had been 1% lower than the industry estimate used at 31 December 2008 the Group would have recognised a further impairment against
goodwill of £5 million.
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ITV plc Report and accounts 2008 Notes to the accounts
72
13 Intangible assets (continued)
SDN
The goodwill in this CGU arose on the acquisition of SDN (the licence operator for DTT Mutliplex A) in 2005 and represented the wider strategic
benefits of the acquisition to ITV plc. The strategic benefits were principally the enhanced ability to promote Freeview as a platform, business
relationships with the channels which are on Multiplex A and additional capacity available from 2010.
The main assumptions on which the forecast cash flows were based are income to be earned from medium-term contracts and the market
price of available multiplex video streams in the period up to and beyond digital switch over. These assumptions have been determined by using a
combination of current contract terms, recent market transactions and in-house estimates of video stream availability and pricing. It is also assumed
that the Multiplex ‘A’ licence is renewed to 2022.
Management believe that currently no reasonably possible change in the income and availability assumptions would reduce the headroom in
this CGU to zero.
Global Content
The goodwill in this CGU arose as a result of the acquisition of production businesses since 1999, the largest of which were the acquisition by
Granada of United News and Media’s production businesses in 2000 and the merger of Carlton and Granada in 2004 to form ITV plc.
The key assumptions on which the forecast cash flows were based include revenue (including the 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 estimates and in-house estimates of growth rates in all markets.
Management believe that currently no reasonably possible change in the revenue and margin assumptions would reduce the headroom in
this CGU to zero.
Online
As noted above, in 2007 as a result of the adoption of IFRS 8, broadcasting goodwill was apportioned between the Broadcasting and Online CGUs
based on the relative Net Present Value of the cash flows of the two segments. This resulted in £257 million of Online goodwill. The remainder of
the Online goodwill arose on the acquisition of Friends Reunited in 2005.
An impairment charge of £308 million arose in the Online CGU during the course of 2008, resulting in the carrying value of the goodwill in this
CGU being written down to its recoverable amount. The impairment charge arose as a result of the downturn in the short-term outlook for the
advertising market which is an area highly exposed to the general downturn in the economy and the over-supply of white-space advertising on
online sites, leading to a significant fall in its value.
The key assumption on which the cash flows were based is the Group’s online advertising revenue growth. Online advertising is dependent on a
number of factors including Online’s share of the total advertising market, as well as page impressions, unique users, average dwell times, video views
and advertising rates (CPT) generated by the Group’s online sites. However no one factor is key in determining the Group’s online advertising
revenue. The Group’s online revenue growth assumptions have been determined by using a combination of industry forecasts and in-house
estimates of growth rates which are based on recent experience. Industry estimates of growth in the online advertising market range from 4% to
17% in 2009 and 9% to 20% in 2010.
If the estimated online revenue growth for 2009 used in the value in use calculation for the Online CGU (included in the “Online” segment) had
been 1% lower than the estimate used at 31 December 2008, the Group would have recognised a further impairment against goodwill of £6 million.
2007
The £28 million impairment charge in 2007 related to the CSA CGU and was a result of structural changes in the cinema advertising market. Of the
£28 million, £20 million of the impairment related to goodwill and £8 million to other intangible assets. The majority of the business and assets were
sold in 2008.
ITV plc Report and accounts 2008 Notes to the accounts
73
14 Investments in joint ventures and associated undertakings
At 1 January 2007
Additions
Repayment of loans
Exchange movement and other
At 31 December 2007
Additions
Share of attributable losses
Repayment of loans
Impairment
Exchange movement and other
At 31 December 2008
Joint
ventures
£m
59
4
(1)
1
63
17
(18)
(7)
(7)
2
50
Associated
undertakings
£m
7
9
–
–
16
10
–
(10)
–
–
16
Total
£m
66
13
(1)
1
79
27
(18)
(17)
(7)
2
66
The £17 million of additions to joint ventures during the year includes further loans and investments of £8 million in Screenvision (Holdings) Europe,
which subsequently repaid loans and interest of the equivalent amount. Further additions consist of investments of £4 million in Freesat and £5
million in Kangaroo.
The £18 million of losses of joint ventures and £7 million loan repayment above exclude the £3 million in respect of a loan previously written
off which has now been repaid. This amount is included as a credit in the share of loss of associates and joint ventures in the income statement.
Of the share of attributable losses of joint ventures, £nil (2007: £2 million) was allocated to assets held for sale (see note 27) in line with their
balance sheet classification.
Impairments of the Group’s investments in joint ventures of £7 million consist of the impairment down to £nil of the Group’s investments in
Screenvision (Holdings) Europe (£3 million) prior to its reclassification to assets held for sale and Kangaroo (£4 million) following the Competition
Commission’s decision to block this joint venture.
Additions in associated undertakings of £10 million include loans of £6 million to ITN, £3 million to Mammoth Screen and an investment of
£1 million in Crackit Productions. Loan repayments of £10 million have been received in the year and consist of £4 million from ITN and £6 million
from Mammoth Screen.
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
2008
£m
66
(63)
122
–
2008
£m
37
75
(37)
(33)
84
(102)
2007
£m
69
(68)
117
2
2007
£m
54
45
(24)
(28)
68
(68)
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.
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ITV plc Report and accounts 2008 Notes to the accounts
74
15 Available for sale financial assets
At 1 January
Additions
Revaluation to fair value
Impairment (see note 5)
At 31 December
2008
£m
10
2
–
(7)
5
2007
£m
37
–
(1)
(26)
10
The Group’s interests in available for sale investments are listed in note ix in the ITV plc company financial statements section of this report.
Additions of £2 million relate to a purchase of shares of Electric Farm Entertainment LLC representing a 10% stake. The Group has an option
to purchase a further 41% of the share capital. This option has been valued and has a fair value of £nil.
16 Distribution rights
Cost
At 1 January
Additions
At 31 December
Charged to income statement
At 1 January
Expense for the year
At 31 December
Net book value
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
2008
£m
2007
£m
68
14
82
61
8
69
13
2008
£m
125
57
237
62
29
6
516
57
11
68
46
15
61
7
2007
£m
116
23
222
55
22
2
440
Net programme rights and other inventory written off in the year was £29 million (2007: £28 million), including £2 million (2007: £nil) for reversals
relating to inventory previously written down to net realisable value. In addition to these amounts, there are exceptional costs for onerous contract
provisions in respect of onerous sports rights of £50 million (2007: £nil), as disclosed in note 5, of which £5 million (2007: £nil) has been written off
against sports rights and £1 million (2007: £nil) has been written off against prepayments above. The remaining £44 million (2007: £nil) has been
included in provisions, see note 26.
ITV plc Report and accounts 2008 Notes to the accounts
75
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
2008
£m
336
24
84
444
9
1
10
454
2007
£m
317
14
68
399
7
1
8
407
As at 31 December 2008, trade receivables of £14 million (2007: £9 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
Charged during the year
Receivables written off during the year as uncollectible
Unused amounts reversed
At 31 December
2008
£m
9
9
(1)
(3)
14
2007
£m
16
3
(3)
(7)
9
Trade receivables that are less than three months past due are not usually considered impaired. As at 31 December 2008, trade receivables of
£134 million (2007: £86 million) were past due but not impaired. Of this, £52 million (2007: £46 million) relates to non-consolidated licensee
customers in the Broadcasting segment where the Group has supplier and customer relationships. Further amounts relating to these same
customers of £4 million (2007: £3 million) and £14 million (2007: £8 million) are included in current trade receivables and other receivables
respectively. There is also a credit of £42 million (2007: credit of £40 million) included in trade and other payables relating to these customers. The
net balance due from non-consolidated licensees is £28 million (2007: £17 million), £22 million of which is due from stv group plc (2007: £14 million)
and £6 million is due from UTV (2007: £3 million). The remainder of trade receivables past due but not impaired 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
2008
£m
211
48
21
65
345
2008
£m
175
13
201
334
25
748
2007
£m
238
32
8
46
324
2007
£m
183
9
102
331
52
677
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ITV plc Report and accounts 2008 Notes to the accounts
76
20 Current liabilities – trade and other payables due after more than one year
Trade payables
21 Non-current liabilities – other payables
Other payables
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 €500 million bond
Amortised cost adjustment (see note 8)
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 €500 million bond
Net debt
2008
£m
26
2008
£m
15
2007
£m
9
2007
£m
65
1 January
2008
£m
381
117
498
100
(27)
(6)
(1,184)
(79)
(1,296)
30
–
(668)
1 January
2007
£m
824
137
961
–
(468)
(3)
(1,152)
(72)
(1,695)
–
(734)
Net
cash flow and
acquisitions
£m
122
(5)
117
(100)
25
6
(110)
–
(79)
–
–
Currency and
non-cash
movements
£m
–
1
1
–
(250)
(7)
102
7
(148)
117
30
31 December
2008
£m
503
113
616
–
(252)
(7)
(1,192)
(72)
(1,523)
147
30
(62)
–
(730)
Net
cash flow and
acquisitions
£m
(444)
(20)
(464)
100
441
3
–
–
444
–
Currency and
non-cash
movements
£m
1
–
1
–
–
(6)
(32)
(7)
(45)
30
31 December
2007
£m
381
117
498
100
(27)
(6)
(1,184)
(79)
(1,296)
30
80
(14)
(668)
Included within cash equivalents is £67 million (2007: £71 million) the use of which is restricted to meeting finance lease commitments under
programme sale and leaseback commitments and gilts of £33 million (2007: £32 million) over which the unfunded pension promises have a charge.
In July 2008 ITV issued a £110 million bond with a maturity of March 2013 and a coupon of 3-month sterling LIBOR plus 2.7%. During 2008 ITV
redeemed loan notes totalling £25 million.
In August 2007 ITV purchased a £100 million senior note issued by UBS AG (“UBS”) under UBS’s Euro Note Programme. This note was redeemed
for cash in November 2008. During the year the return earned was 8.2% on a per annum basis.
At the time of issue of the 2011 €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 2008 the currency element of the swap is a £147 million asset (2007: £30 million asset) and
this offsets the exchange rate movement of the bond. The interest element of the swap is a £5 million asset (2007: £7 million liability) resulting in an
overall net asset total at 31 December 2008 of £152 million (2007: £23 million net asset total).
ITV plc Report and accounts 2008 Notes to the accounts
77
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 2008, 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 (2007: £2 million) higher/lower. Equity would have been £9 million (2007: £7 million) higher/lower.
At 31 December 2008, 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 £2 million (2007: £1 million) higher/lower. Equity would have been £5 million (2007: £5 million) higher/lower.
b) Price risk
The Group is exposed to equity securities price risk due to its investment in stv group plc. During 2008 stv group plc performed a 1 for 20 share
consolidation. The share price at 31 December 2008 was 78 pence (equivalent to 3.9 pence before the share consolidation) and represents a 76% fall
in the year (2007: 75%) versus the 31% decrease (2007: 3% increase) in the FTSE 100. The investment in stv group 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 in the
year an impairment charge has been recognised in the income statement. This £7 million charge reflected the decline in the share price in the year
as an impairment of £26 million was also recognised in 2007. If the share price had increased/decreased by another 10% at 31 December 2008 the
impairment charge would have been £0.2 million lower/higher.
c) Fair value interest risk
The Group’s principal interest rate risk arises from long-term borrowings and associated interest rate swaps. Borrowings issued at or swapped to
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 held 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 profit or loss so any movement in the fair value goes through the
income statement rather than equity.
At 31 December 2008, if interest rates had increased/decreased by 0.1%, post-tax profit for the year would have been £1 million (2007: £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 this impacts the availability and cost of future finance.
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 and perceived state support. Counterparty
limits were reviewed and reduced during 2008. Deposits longer than one month require the approval of the Management Committee.
c) Borrowings
In August 2008 Standard & Poors lowered ITV’s credit rating to BB+. As a consequence the coupons on the €500 million 2011 and £250 million 2017
bonds issued in October 2006 increased by 1.25% with effect from October 2008 and January 2009 respectively. In September 2008 Moody’s
Investor Service lowered ITV’s credit rating to Ba1 and consequently ITV’s credit rating is “sub-investment grade” with both major agencies. The
combination of ITV’s lower credit rating and the deterioration in credit conditions adversely impacts the availability and costs of future finance.
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 and
takes into account the accessibility of cash and cash equivalents.
At 31 December 2008 the Group has available £650 million (2007: £530 million) of undrawn committed facilities. Of these £450 million are
bank facilities, subject to covenants, which expire in June 2011 and £200 million relates to bank facilities which mature in May 2013 and have
no financial covenants.
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ITV plc Report and accounts 2008 Notes to the accounts
78
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 2008
Non-derivative financial liabilities
Borrowings
Trade and other payables
Other non-current payables
Derivative financial liabilities
Interest rate swaps
Forward foreign exchange contracts – cash flow hedges
Outflows
Inflows
Forward foreign exchange contracts – fair value through profit or loss
Outflows
Inflows
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 – cash flow hedges
Outflows
Inflows
Forward foreign exchange contracts – fair value through profit or loss
Outflows
Inflows
Total contractual
cash flows
£m
Less than
1 year
£m
Between
1 and 2 years
£m
Between
2 and 5 years
£m
(1,368)
(774)
(15)
40
(31)
40
(80)
87
(2,101)
(263)
(748)
–
9
(31)
40
(57)
60
(990)
(11)
(18)
(1)
8
–
–
(17)
20
(19)
(479)
(7)
(14)
8
–
–
(6)
7
(491)
Total contractual
cash flows
£m
Less than
1 year
£m
Between
1 and 2 years
£m
Between
2 and 5 years
£m
(1,294)
(686)
(68)
47
(63)
68
(54)
54
(1,996)
(37)
(677)
–
(9)
(33)
36
(35)
35
(720)
(261)
(5)
(56)
3
(30)
32
(12)
12
(317)
(371)
(4)
(12)
41
–
–
(7)
7
(346)
Over
5 years
£m
(615)
(1)
–
15
–
–
–
–
(601)
Over
5 years
£m
(625)
–
–
12
–
–
–
–
(613)
Capital management
The capital structure of the Group consists of debt, which includes borrowings disclosed in note 24, cash and cash equivalents and equity
attributable to equity holders of the parent company (“equity”). Equity comprises issued capital, reserves and retained earnings disclosed in note 30.
The Group’s objective when managing capital 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. The Group is not subject
to any externally imposed capital requirements.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, increase net debt by
issuing new debt or drawing down upon facilities or reduce net debt by issuing new shares or selling assets.
ITV plc Report and accounts 2008 Notes to the accounts
79
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
2008
Total
£m
Loans and
loan notes
£m
Finance
leases
£m
252
–
603
589
1,192
1,444
7
8
26
38
72
79
259
27
8
629
627
1,264
1,523
249
365
570
1,184
1,211
6
8
26
45
79
85
2007
Total
£m
33
257
391
615
1,263
1,296
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Loans repayable within one year
Loans repayable within one year as at 31 December 2008 include £1 million (2007: £4 million) of loan notes issued in connection with the purchase
of Carlton Communications Limited Preference Shares with a coupon of sterling LIBOR minus 0.5%, and an unsecured £250 million Eurobond which
has a coupon of 5.625% and matured on 2 March 2009. This was classified as loans payable after more than one year as at 31 December 2007.
Loans repayable within one year as at 31 December 2007 included £21 million of loan notes issued in connection with the purchase of Friends
Reunited with a coupon of sterling LIBOR minus 0.525%.
Loans repayable between two and five years
Loans repayable between two and five years as at 31 December 2008 include an unsecured €500 million Eurobond which has a coupon of 6.0% and
matures in October 2011. The coupon on this bond stepped up from 4.75% to 6.0% with effect from October 2008 as a result of ITV’s credit rating
with Standard & Poor’s being lowered to BB+ in August 2008. In July 2008 ITV issued an unsecured £110 million Eurobond which has a coupon of
three months sterling LIBOR plus 2.7% and matures in March 2013.
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 stepped up to 7.375% with
effect from January 2009 as a result of ITV’s credit rating with Standard & Poor’s being lowered to BB+ in August 2008.
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
11
45
40
96
Interest
£m
4
11
2
17
2008
Principal
£m
7
34
38
79
Minimum
lease payments
£m
10
47
50
107
2007
Principal
£m
6
34
45
85
Interest
£m
4
13
5
22
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 2008 was £11 million (2007: £14 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.
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 additional disclosure of fair value has been made as the carrying value is a reasonable approximation of the fair value.
ITV plc Report and accounts 2008 Notes to the accounts
80
24 Analysis of borrowings (continued)
Loans and loan notes
£250 million Eurobond
€500 million Eurobond
£110 million Eurobond
£325 million Eurobond
£250 million Eurobond
Other loans
Maturity
Mar 09
Oct 11
Mar 13
Oct 15
Jan 17
Basis of measurement
Fair value
Amortised cost
Amortised cost
Amortised cost
Amortised cost
Amortised cost
2008
£m
250
493
110
323
266
2
1,444
Book value
2007
£m
249
365
–
322
248
27
1,211
2008
£m
250
391
110
211
163
2
1,127
Fair value
2007
£m
249
358
–
300
241
27
1,175
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 the Group’s accounting policy which prevents an accounting mismatch.
The book value of the 2011 €500 million Eurobond has increased in the year principally as a result of currency movements of £117 million which
are hedged (see note 22). The book values of the 2011 €500 million Eurobond and the 2017 £250 million Eurobond have increased due to revisions
in amortised cost of £12 million and £18 million respectively due to the effect of coupon step ups (see note 8).
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 2008
Balance sheet assets
Available for sale financial assets
Derivative financial instruments
Trade and other receivables
Cash and cash equivalents
At 31 December 2008
Balance sheet liabilities
Borrowings
Derivative financial instruments
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
Loan and
receivables
£m
At fair value
through profit
or loss
£m
Derivatives used
for hedging
£m
Available
for sale
£m
–
–
454
583
1,037
–
208
–
–
208
–
10
–
–
10
At fair value
through profit
or loss
£m
Derivatives used
for hedging
£m
250
31
281
–
1
1
Loan and
receivables
£m
At fair value
through profit
or loss
£m
Derivatives used
for hedging
£m
–
100
–
407
466
973
–
–
31
–
–
31
–
–
5
–
–
5
At fair value
through profit
or loss
£m
Derivatives used
for hedging
£m
249
10
259
–
–
–
5
–
–
33
38
Other
financial
liabilities
£m
1,273
–
1,273
Available
for sale
£m
10
–
–
–
32
42
Other
financial
liabilities
£m
1,047
–
1,047
Total
£m
5
218
454
616
1,293
Total
£m
1,523
32
1,555
Total
£m
10
100
36
407
498
1,051
Total
£m
1,296
10
1,306
ITV plc Report and accounts 2008 Notes to the accounts
81
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 profit or loss
Forward foreign exchange contracts – cash flow hedges
Forward foreign exchange contracts – fair value through profit or loss
Non-current portion:
Interest rate swaps – fair value through profit or loss
Forward foreign exchange contracts – cash flow hedges
Forward foreign exchange contracts – fair value through profit or loss
Assets
£m
2
10
7
19
194
–
5
199
218
2008
Liabilities
£m
Assets
£m
2007
Liabilities
£m
(2)
(1)
(4)
(7)
(25)
–
–
(25)
(32)
–
3
1
4
30
2
–
32
36
–
–
(1)
(1)
(9)
–
–
(9)
(10)
Interest rate swap asset valuations as at 31 December 2008 include £152 million in respect of cross currency interest rate swap hedges against the
2011 €500 million Eurobond. Under these swaps ITV receives cash flows in Euros which match both the original 4.75% coupon and redemption
payments under the bonds and pays in sterling 6.22% semi-annually on a notional of £167.3 million and three month sterling LIBOR plus 1.14% on a
notional of £167.3 million and at maturity of the bonds it pays £334.6 million. The remaining £44 million asset valuation relates to
a number of floating rate swaps including a £125 million swap matched against half of the 2017 £250 million bond. Under this swap ITV receives
6.125% (to match the bond coupon) and pays three month sterling LIBOR plus 0.51% with three month sterling LIBOR capped at 5.25% for rates
between 5.25% and 8.0%. ITV also has a £162.5 million swap matched against half of the 2015 £325 million bond. Under this swap ITV receives
5.375% (to match the bond coupon) and pays the higher of six month sterling LIBOR minus 0.2% or six month US$ LIBOR minus 1.0%, set in arrears
or in advance. In addition ITV has swaps totalling £162.5 million matched against the other half of the 2015 £325 million bond. Under these swaps
ITV receives 5.375% (to match the bond coupon) and pays a weighted average of three month sterling LIBOR plus 1.45%.
Interest rate swap liability valuations of £27 million as at 31 December 2008 relate to various fixed rate swaps. ITV has a £162.5 million swap with
a maturity of October 2015 under which it receives three month sterling LIBOR and pays 4.35%. The bank has the right to cancel the swap. ITV also
has a £125 million swap with a maturity of January 2017 under which it receives three month sterling LIBOR and pays 4.36%. The bank has the right
to cancel the swap.
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 sport and other programme rights and transponder costs.
26 Provisions
At 1 January 2008
Additions in the year
Utilised in the year
At 31 December 2008
Boxclever
£m
15
–
–
15
Property
£m
1
1
–
2
Contract
provisions
£m
11
50
(14)
47
Restructuring
provisions
£m
–
18
(2)
16
Other
provisions
£m
4
1
(1)
4
Total
£m
31
70
(17)
84
Of the provisions £43 million (2007: £27 million) are shown within current liabilities.
The Boxclever provision relates to potential liabilities that may arise as a result of Boxclever having been placed into administration, most of which
relate to pension arrangements.
Property provisions are in place in respect of various vacant properties. Utilisation will be over the life of these leases.
Included within Contract provisions of £47 million are £44 million for onerous sports rights commitments and £3 million for closure costs at CSA.
Restructuring provisions of £16 million are in respect of regional news.
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ITV plc Report and accounts 2008 Notes to the accounts
82
27 Assets held for sale
The movements in assets held for sale are summarised in the table below:
At 1 January 2008
Impairment
Transfer to property, plant and equipment
Sale of property
Sale of joint ventures
At 31 December 2008
2008
£m
59
(17)
(30)
(4)
(5)
3
The Group is actively marketing its interest in Screenvision (Holdings) Europe Limited and as such has classified this joint venture investment as
an asset held for sale carried at £nil. The investment being sold is not core to the Group’s main activities and is disclosed in the Other segment.
An impairment charge of £17 million has been recognised on properties during the year including £14 million relating to the Manchester
properties following consultation with an independent valuer. These properties have been reclassified into property, plant and equipment at a net
book value of £30 million reflecting management’s decision to cease actively marketing these properties. A further impairment has been recognised
on a freehold property still classified as held for sale due to a fall in market rental yields. The property remaining as held for sale is being actively
marketed as it is deemed to be surplus to future operating requirements and disposal is anticipated to be completed within one year.
The Group sold its interest in certain properties and joint ventures previously held for sale with a total net book value of £4 million and
£5 million respectively during the year.
28 Acquisitions and disposals of businesses
Acquisitions and disposals in 2008
Silverback
On 13 May 2008, the Group acquired 100% of the shares in Silverback AB, a Swedish based independent production company and programme
formats business. The fair value of the initial consideration, including costs associated with the acquisition, is £5 million with an additional £3 million
being treated as compensation contingent on the retention of key employees and the future performance of the acquired business. This represents
the present value of the expected contingent consideration which may be up to £9 million dependent on the satisfaction of those conditional
factors. The intangible assets recognised at fair value of £1 million represent formats. A deferred tax liability of less than £1 million was recognised
in respect of these intangible assets. Goodwill of £5 million was also recognised representing the benefits of this acquisition to the Global Content
segment.
Had the acquisition occurred on 1 January 2008, the estimated revenue for the Group would have been £1 million higher at £2,030 million,
the increase in operating profit before amortisation and exceptional items would have been immaterial at less than £1 million.
Imago
On 29 September 2008, the Group acquired 51% of the shares in Imago TV Film und Fernsehproduktion GmbH, a Berlin-based production and
original format creation business. The fair value of the initial consideration, including costs associated with the acquisition, is £2 million with an
additional £2 million being treated as compensation contingent on the retention of key employees and the future performance of the acquired
business. This represents the present value of the expected contingent consideration which may be up to £3 million dependent on the satisfaction
of those conditional factors. There were no material intangible assets recognised. Goodwill of £1 million was also recognised representing the
benefits of this acquisition to the Global Content segment.
Had the acquisition occurred on 1 January 2008, the estimated revenue for the Group would have been £3 million higher at £2,032 million and
operating profit before amortisation and exceptional items £1 million higher at £212 million for the year ended 31 December 2008.
The Group also acquired a one way call option to acquire the remaining 49% of the shares in Imago. The option payment will become exercisable
following the audit of Imago’s year ended 31 December 2011 financial statements. The Group has valued the option at a fair value of £nil.
The acquired net assets of Silverback and Imago are set out in the table below:
Intangible assets
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Net assets
Net assets acquired (after minority interest)
Goodwill on acquisition
Fair value of consideration
Book value
before acquisition
£m
–
1
1
(2)
–
Fair value
adjustments
£m
1
–
–
–
1
Fair value
to ITV plc
£m
1
1
1
(2)
1
1
6
7
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 values 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 contracts 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% – 15%.
Disposals During the period the Group disposed of its interests in Arsenal Broadband Limited and Liverpool FC.tv Limited. The Group’s 50% interest
in Arsenal Broadband Limited was sold for a total cash consideration of £14 million and resulted in a gain on disposal of £12 million. The Group’s
50% interest in Liverpool FC.tv Limited was sold for a total cash consideration of £16 million and resulted in a gain on disposal of £13 million.
ITV plc Report and accounts 2008 Notes to the accounts
83
28 Acquisitions and disposals of businesses (continued)
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 took 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 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
represented the benefit of the acquisition across the Group when combined with existing Group assets and businesses.
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. 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 were adjusted and an additional £1 million of
goodwill was recognised in 2007.
Disposals
During 2007, 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.
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 v in the ITV plc company financial statements section of
this annual report.
Employee benefit trust
The Group has investments in its own shares as a result of shares purchased by the ITV Employee Benefit Trust. As at 31 December 2008 the trust
held the following shares:
ITV Employee Benefit Trust
2008
Number
of shares
4,144,550
Market value
Number
£m
of shares
2 15,647,090
2007
Market value
£m
13
The nominal value of own shares held is £0.4 million (2007: £1.6 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 restricted shares under the Deferred Share Award Plan.
The total number of shares held by the trust at 31 December 2008 is 4,144,550 (2007: 15,647,090) ordinary shares representing 0.11% (2007:
0.40%) of ITV’s issued share capital.
In accordance with the Trust Deed, the Trustees of the ITV Employee 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 trust to satisfy
awards vesting under the Group’s share schemes as follows:
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Shares released from:
ITV Employee Benefit Trust
Number of shares released
7,626,685
692,825
569,788
2,461,832
151,410
Nominal value
£
762,668
69,283
56,979
246,183
15,141
11,502,540 1,150,254
Scheme
Deferred Share Award Plan
Carlton Sharesave Plan
Granada Sharesave Plan
Granada Commitment Plan
ITV Employee Bonus Plan
ITV plc Report and accounts 2008 Notes to the accounts
84
30 Capital and reserves
At 1 January 2007
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
Total recognised income
and expense
Movements due to share-
based compensation
Equity dividends
Transfer from merger reserve
At 31 December 2008
Share
capital
£m
401
(12)
–
–
–
–
389
–
–
–
–
389
Attributable to equity shareholders of the parent company
Share
premium
£m
120
–
Merger and
other reserves
£m
2,690
12
Translation
reserve
£m
(3)
–
Available for sale
reserve
£m
17
–
Retained
earnings
£m
(69)
–
Total
£m
3,156
–
Minority
interest
£m
7
–
–
–
–
–
120
–
–
–
–
120
–
–
–
–
2,702
–
–
–
(2,429)
273
7
–
–
–
4
20
–
–
–
24
(13)
201
195
–
–
–
4
4
–
(122)
14
4
–
(122)
3,233
2
(2,645)
(2,623)
–
–
–
6
12
(96)
2,429
(286)
12
(96)
–
526
1
–
(2)
–
6
2
–
–
–
8
Total
equity
£m
3,163
–
196
4
(2)
(122)
3,239
(2,621)
12
(96)
–
534
Merger and other reserves
Merger and other reserves at 31 December 2008 include merger reserves arising on the Granada/Carlton and previous mergers of £119 million (2007:
£2,548 million), capital reserves of £112 million (2007: £112 million), capital redemption reserves of £36 million (2007: £36 million) and revaluation
reserves of £6 million (2007: £6 million). A transfer of £2,429 million between retained earnings and merger reserve has been made in the year in
respect of the impairment of goodwill which arose on the Granada/Carlton and other mergers.
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 £4 million related to cash flow hedges (2007: £5 million).
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
There are contingent liabilities in respect of certain litigation and guarantees, and in respect of warranties given in connection with certain disposals
of businesses.
ITV plc Report and accounts 2008 Notes to the accounts
85
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
2008
£m
16
45
152
213
2007
£m
17
53
153
223
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
(2007: £8 million).
The total operating lease expenditure recognised during the year was £19 million (2007: £19 million) and total sublease payments received
totalled £4 million (2007: £3 million).
33 Capital and other commitments
There are £1 million of capital commitments at 31 December 2008 (31 December 2007: £1 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 2009 the Group paid £50 million in respect of the final payment of the earn-out relating to the Friends Reunited acquisition in 2005.
In February 2009 ITV increased its liquidity by £50 million under a new ten-year loan which is not subject to financial covenants. The interest cost
under the loan is fixed at 8.85% for the first three years and thereafter is at a variable rate, subject to a cap of 15.6%. The lender has the right to loan
ITV up to a further £150 million at any time.
On 2 March 2009 the Group repaid the £250 million Eurobond and drew down on a £125 million facility that matures in May 2013.
35 Related party transactions
Transactions with associated undertakings and joint ventures:
Sales to joint ventures
Sales to associated undertakings
Purchases from joint ventures
Purchases from associated undertakings
The purchases from associated undertakings relate to purchase of news services from ITN.
Amounts owed by joint ventures
Amounts owed by associated undertakings
Amounts owed to associated undertakings
Amounts owed by pension scheme
2008
£m
–
2
1
42
2008
£m
27
7
–
1
2007
£m
2
1
–
40
2007
£m
33
5
1
3
Amounts owed by joint ventures relate to loan balances with Screenvision (Holdings) Europe which have been fully provided for at the balance sheet
date.
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 compensation
Amounts paid to the Group’s retirement benefit plans are set out in note 6.
2008
£m
6
–
2
5
13
2007
£m
5
1
2
6
14
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86
ITV plc Report and accounts 2008
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
Amounts owed to subsidiary undertakings
Accruals and deferred income
Other creditors
Dividends
Net current (liabilities) / 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
2008
£m
2008
£m
2007
£m
2007
£m
1,699
–
194
1,893
1,816
100
30
1,946
78
1
283
362
(252)
(88)
(33)
(53)
(25)
(451)
74
1
244
319
(25)
(28)
(28)
(53)
(52)
(186)
(89)
1,804
(1,192)
(25)
(1,217)
587
389
120
36
42
587
133
2,079
(1,186)
(2)
(1,188)
891
389
120
36
346
891
The accounts were approved by the Board of Directors on 4 March 2009 and were signed on its behalf by:
John Cresswell
Ian Griffiths
ITV plc Report and accounts 2008
Notes to the ITV plc Company Financial Statements
87
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 the IFRS equivalent to that standard.
The financial statements have been prepared on a going concern basis notwithstanding net current liabilities of £89 million. The directors believe
this to be appropriate based on the availability of funds from other group companies. This should enable the Company to meet its liabilities as they
fall due for payment.
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
Four (2007: 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.
iii Investments in subsidiary undertakings
The principal subsidiary undertakings are listed in note ix. The movements during 2008 were as follows:
At 1 January 2008
Impairment
At 31 December 2008
iv Borrowings
£m
1,816
(117)
1,699
Loans repayable within one year
Loans repayable within one year as at 31 December 2008 include £1 million (2007: £4 million) of loan notes issued in connection with the purchase
of Carlton Communications Limited Preference Shares with a coupon of sterling LIBOR minus 0.5%, and an unsecured £250 million Eurobond which
has a coupon of 5.625% and matured on 2 March 2009. This was classified as loans payable after more than one year as at 31 December 2007.
Loans repayable within one year as at 31 December 2007 included £21 million of loan notes issued in connection with the purchase of Friends
Reunited with a coupon of sterling LIBOR minus 0.525%.
Loan repayable after more than one year
Loans repayable after more than one year include an unsecured €500 million Eurobond which has a coupon of 6.0% and matures in October 2011.
The coupon on this bond stepped up from 4.75% to 6.0% with effect from October 2008 as a result of ITV’s credit rating with Standard & Poor’s being
lowered to BB+ in August 2008. In July 2008 ITV issued an unsecured £110 million Eurobond which has a coupon of 3 months sterling LIBOR plus
2.7% and matures in March 2013. An unsecured £325 million Eurobond has a coupon of 5.375% and matures in October 2015, and an unsecured
£250 million Eurobond has a coupon of 6.125% and matures in January 2017. The coupon on this bond stepped up to 7.375% with effect from
January 2009 as a result of ITV’s credit rating with Standard & Poor’s having been lowered to BB+ in August 2008. Further information relating to
these bonds is given in note 24 of the consolidated financial statements.
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ITV plc Report and accounts 2008 Notes to the ITV plc Company Financial Statements
88
v Called up share capital
Ordinary shares of 10 pence each
Authorised:
5,826,377,627 (2007: 5,826,377,627)
Allotted, issued and fully paid:
3,889,129,751 (2007: 3,889,129,751)
Total
2008
£m
Authorised
2007
£m
Allotted, issued
and fully paid
2008
£m
2007
£m
583
583
583
583
389
389
389
389
The Company’s ordinary shares give the shareholder equal rights to vote, receive dividends and to the 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 2008
Retained loss for year for equity shareholders
Share-based compensation
At 31 December 2008
Share
capital
£m
389
–
–
389
Share
premium
£m
120
–
–
120
Other
reserves
£m
36
–
–
36
Profit and
loss account
£m
346
(314)
10
42
Total
£m
891
(314)
10
587
The loss after tax for the year dealt with in the accounts of ITV plc is £218 million (year ended 31 December 2007: profit of £131 million) before
dividends declared of £96 million (2007: £122 million).
vii Contingent liabilities
Under a group registration, the Company is jointly and severally liable for VAT at 31 December 2008 of £13 million (31 December 2007: £28 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.
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.
viii Capital and other commitments
There are no capital commitments at 31 December 2008 (31 December 2007: none).
ITV plc Report and accounts 2008 Notes to the ITV plc Company Financial Statements
89
ix Principal subsidiary undertakings and investments
Principal subsidiary undertakings
The principal subsidiary undertakings of the Company at 31 December 2008, 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 Studios Limited (formerly ITV Productions Limited)
ITV Network Limited (1)
ITV Services Limited
ITV2 Limited
ITV Digital Channels Limited
12 Yard Productions (2)
3sixtymedia Limited (80% owned)
Carlton Communications Limited
Friends Reunited Limited
GMTV Limited (75% owned)
Granada Limited
ITV Global Entertainment Limited
(formerly Granada International Media Limited)
ITV Global Entertainment, Inc (3)
(formerly Granada International Media, Inc)
Granada Productions Pty Limited (4)
Granada Entertainment USA (5)
Granada Produktion für Film und Fernsehen GmbH (6)
Granada Ventures Limited
Imago TV Film und Fernsehproduktion GmbH
(51.2% owned) (6)
Jaffe/Braunstein Entertainment LLC (51% owned) (3)
SDN Limited
Silverback AB (7)
(1) Interest in company limited by guarantee.
(2) A partnership.
(3) Incorporated and registered in the USA.
(4) Incorporated and registered in the Australia.
(5) Registered in the USA.
(6) Incorporated and registered in Germany.
(7) Incorporated and registered in Sweden.
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
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
Production of television programmes
Operation of Freeview Multiplex A
Production and distribution of television programmes
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A list of all subsidiary undertakings will be included in the Company’s annual return to Companies House.
ITV plc Report and accounts 2008 Notes to the ITV plc Company Financial Statements
90
ix Principal subsidiary undertakings and investments (continued)
Principal joint ventures, associated undertakings and investments
The Company indirectly held at 31 December 2008 the following holdings in significant joint ventures, associated undertakings and investments:
Name
The Ambassador Theatre Group Limited
Freesat (UK) Limited
Independent Television News Limited
Mammoth Screen Limited
Screenvision Holdings (Europe) Limited***
stv group plc (formerly SMG plc) *†
Technicolor Cinema Advertising LLC**
Crackit Productions Limited
Electric Farm Entertainment LLC**
* Incorporated and registered in Scotland.
** Incorporated and registered in USA.
*** Classified as an Asset Held for Sale in 2008.
Interest in
ordinary
share capital
2008
%
7.34
Interest in
ordinary
share capital
2007
%
7.34
Note
c
b
a
a
b
c
b
a
c
50.00
50.00
40.00
40.00
25.00
50.00
7.36
50.00
25.00
10.00
25.00
50.00
5.60
50.00
–
–
a Associated undertaking.
b Joint venture.
c Available for sale investment.
Principal activity
Operation of theatres and production of theatrical
productions
Provision of a standard and high definition enabled
digital satellite proposition
Supply of news services to broadcasters in the UK
and elsewhere
Production of television programmes
European cinema advertising
Television broadcasting in central and north Scotland
US cinema advertising
Production of television programmes
Digital studio company
† The Company did not participate in stv group plc’s tender offer during the year and as a result its percentage holding in stv group plc’s issued share capital has increased.
x Post balance sheet events
In January 2009 the Company paid £50 million in respect of the final payment of the earn-out relating to the Friends Reunited acquisition in 2005.
In February 2009 ITV increased its liquidity by £50 million under a new ten-year loan which is not subject to financial covenants. The interest cost
under the loan is fixed at 8.85% for the first three years and thereafter is at a variable rate, subject to a cap of15.6%. The lender has the right to loan
ITV up to a further £150 million at any time.
On 2 March 2009 the Group repaid the £250 million Eurobond and drew down on a £125 million facility that matures in May 2013.
91
ITV plc Report and accounts 2008
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 having
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. The following balancing controls are in
place to ensure high standards of corporate governance are maintained:
– John Cresswell is Chief Operating Officer and the executive team
report directly to him as shown below.
– 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. A Chief
Executive will be appointed at that time.
The Board
Composition: The Board currently comprises four executive members
(the Executive Chairman, the Chief Operating Officer, the Group Finance
Director, and Managing Director, ITV Brand and Commercial) and eight
independent non-executive directors. Biographical details for each of the
directors are set out on pages 40 and 41.
The composition of the Board during 2008 is set out in the Directors’
report.
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: John Cresswell is Chief Operating Officer 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 is the senior independent
director. His role is designed to provide an effective level of governance
control and to ensure there is an 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 non-executive directors
and 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 40. 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 (AGM) 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 AGM on 14 May 2009 are set out in the Directors’
report. The reasons why the Board believes they should be
re-elected are set out in the explanatory notes to the notice of the AGM.
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 2008 can be found in the Remuneration report.
Non-executive directors
The non-executive directors constructively challenge and help
develop proposals on strategy. They bring strong, independent
judgement, 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 formally without the executive directors present in 2008
and plan to do so again regularly in 2009.
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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 below) 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.
Mike Clasper completed three years as a non-executive director in
January 2009. It was agreed that he should serve a further term subject
to the Board succession planning framework.
Time commitment: The time commitment expected of the non-
executive directors is 18 to 20 days per annum, which has increased
following a review by the Nomination Committee in February 2009.
It includes attendance at Board meetings, Board committee meetings,
the AGM, 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.
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 to 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 nine times in 2009
(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 2008, the Board focused on the following areas of strategic
importance to the Company, amongst others:
– delivering the business strategy in the rapidly changing economic
climate;
– the Company’s preparations for digital switchover, including the
provision of High Definition services, and the launch of the free-to-
view satellite proposition, Freesat, a joint venture with the BBC;
– refining and implementing the Enterprise-wide Risk Management
process begun in 2007;
– development of the Online businesses, including reviewing editorial
policy and how to leverage their success;
– the review of the Contract Rights Renewal (CRR) undertakings by
Ofcom and the Office of Fair Trading; and
– responding to Ofcom’s second Public Service Broadcasting review.
Attendance: Attendance of directors at board and strategy meetings
and the AGM during 2008 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.
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 on these Committees is provided
below. During 2008 the Board also established a Budget Committee to
scrutinise the 2009 and 2010 budgets. The Committee is comprised of
Michael Grade, John Cresswell, Ian Griffiths, Mike Clasper, Heather Killen,
John Ormerod, and Sir George Russell.
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.
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Conflicts of Interest
The Companies Act 2006 (CA 2006) provisions relating to the duty of a
director to avoid a situation in which they have or can have a direct or
indirect interest that conflicts or possibly may conflict with the interests
of the Company came into effect on 1 October 2008. This duty is in
addition to the existing duty that a director owes to the Company to
disclose to the Board any transaction or arrangement under
consideration by the Company. The CA 2006 allows directors of public
companies to authorise conflicts and potential conflicts where the
Articles of Association contain a provision to that effect. At the AGM
held on 15 May 2008 shareholders approved amendments to the
Company’s Articles of Association which included provisions giving the
directors authority to approve such situations and to include other
provisions to allow conflicts of interest to be dealt with in a similar way
to the position that existed before 1 October 2008.
The Board has delegated the authorisation of conflicts to the
Nomination Committee and adopted a Conflict of Interest policy.
The policy outlines how conflicts will be dealt with and the process
for directors to follow when notifying the Company of an actual or
potential conflict. When deciding whether to authorise a conflict or
potential conflict of interest, only those that have no interest in the
matter under consideration will be able to take the relevant decision.
In addition, the Nomination Committee will be able to impose limits
or conditions when giving authorisation where appropriate.
The Board has considered in detail the current external
appointments of the directors which may give rise to a situational
conflict and has authorised potential conflicts where appropriate.
This authorisation can be reviewed at any time but will always be
subject to annual review.
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 2007
evaluation included:
– scheduling meetings to allow more time for the directors to meet
informally, including without the executive directors present;
– presentations to the Board on the competitive marketplace and
developing trends and technologies;
– formal performance and development reviews of senior
management presented to the Board on a regular basis; and
– implementing an escalation procedure in the Enterprise-wide
Risk Management process.
An internal evaluation of the effectiveness of the Board and its
committees, individual directors and the Executive Chairman was
carried out in 2008, led by the senior independent director.
The evaluation process included a written questionnaire and an
interview with each director. 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.
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:
– to simplify board reporting;
– to encourage non-executive directors to input additional items into
the Board programme for the year; and
– to offer non-executive directors more opportunities to attend
industry conferences.
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.
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, brokers 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:
– 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.
The directors are also expected to take responsibility for identifying
their own professional development needs and to ensure that they are
adequately informed about the Company and their responsibilities
as directors.
Internal control
The Combined Code requires the Board to review, at least annually,
all material internal controls including financial, operational, and
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. The Board has conducted a review of the
effectiveness of the Group’s systems of internal controls for the year
ended 31 December 2008.
Relations with shareholders
The Board attaches a high priority to effective communications with
shareholders. In addition to the preliminary and interim results
presentations and the AGM, a series of meetings between institutional
shareholders, the Executive Chairman, the senior independent director,
Chief Operating Officer and the Group 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.
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 both following the
Company’s announcements and in response to individual ad hoc
requests. The Company also makes available for meetings with
institutional shareholders other members of senior management.
Save in exceptional circumstances, all members of the Board will
attend the AGM 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 AGM, together with any related
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documents, is made available to shareholders on the Company’s
website or mailed to them, if they have elected to receive hard copies,
about seven weeks before the meeting. 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 information service and on the Company website at
www.itvplc.com the following day.
An independent Investor Audit was undertaken during 2007 to
assess investor and wider market perception of the Company and
therefore it was not deemed necessary to undertake an independent
audit during 2008. The Company will consider commissioning another
independent Investor Audit during 2009.
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 2008 the Audit Committee
comprised:
Mike Clasper (Chairman)
John McGrath
John Ormerod
Sir George Russell
Agnès Touraine
Appointed
Resigned
17 January 2008
18 January 2008
John McGrath resigned from the Board on 17 January 2008 and Mike
Clasper replaced him as Chairman of the Audit Committee.
Attendance during 2008:
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 2008, and
concluded that the appointment of John Ormerod had strengthened
the Committee’s ability to meet this requirement, and 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.
Biographical details of the members of the Committee including their
qualifications are set out on pages 40 and 41.
Terms of reference: The Committee’s main roles 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.
The full terms of reference for the Committee are available at
www.itvplc.com.
Activities in 2008: Please see the Audit Committee report.
Remuneration Committee
Composition and attendance: During 2008 the Remuneration
Committee comprised:
Appointed
Resigned
Baroness Usha Prashar
(Chairman)
Sir James Crosby
Andy Haste
Heather Killen
Sir Brian Pitman
Attendance during 2008:
1 December 2008
15 May 2008
Terms of reference: The Committee’s main roles 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 2008: Please see the Remuneration report.
ITV plc Report and accounts 2008 Corporate governance
95
Nomination Committee
Composition and attendance: During 2008 the Nomination Committee
comprised:
Appointed
Resigned
Sir James Crosby (Chairman)
Mike Clasper
Andy Haste
Heather Killen
John Ormerod
Sir Brian Pitman
Baroness Usha Prashar
Sir George Russell
Agnès Touraine
11 August 2008
4 February 2008
4 February 2008
5 February 2008
15 May 2008
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 full terms of reference for the Committee are available at
www.itvplc.com.
Contacts for corporate governance
Executive Chairman
Senior independent director
Chief Operating Officer
Company Secretary
Michael Grade
Sir James Crosby
John Cresswell
James Tibbitts
4 February 2008
Telephone: 020 7156 6000
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Following a recommendation arising from the 2007 Board Evaluation
process, membership of the Committee was expanded during the year
to include all non-executive directors.
Attendance during 2008:
Terms of reference: The Committee’s main roles and responsibilities
include to:
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;
– Conflicts of Interest policy;
– Directors’ indemnity; and
– review the structure, size and composition of the Board at least
– Terms of reference for remuneration consultants.
annually;
– identify and nominate for board approval, candidates to fill board
vacancies;
– evaluate the balance of skills, knowledge and experience on the
Board at least annually;
– consider succession planning for directors and other senior executives
at least annually; and
– consider any conflicts of interest that may be reported by directors
of the Company.
The full terms of reference for the Committee are available at
www.itvplc.com.
Activities in 2008: During the year the Committee continued its work
on succession planning for the board. The objectives of the succession
planning 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 directors and from each other.
Implementing these objectives involves a continuous process of
refreshment of the Board with new appointments and with rotation of
membership of board committees. With these objectives in mind, the
Committee led the search for a new non-executive director, Andy Haste,
who was appointed to the Board during the year. The Committee also
led the search for a new Group Finance Director, Ian Griffiths, who was
appointed to the Board during the year. The searches were conducted
with the help of a professional search firm. Non-executive 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 to ensure an appropriate framework is in place.
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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.
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.
In view of Mike Clasper’s role as Chairman of HMRC, discussions relating
to the Company’s tax position are chaired by John Ormerod.
Full details on membership of the Committee throughout 2008,
and details of attendance at Committee meetings, can be found in the
Corporate Governance section.
At the invitation of the Chairman of the Committee, the Chief
Operating Officer, Group Finance Director, Deputy Group Finance
Director, the Director of Internal Audit and representatives of senior
management regularly attend Audit Committee meetings. The
Committee as a whole has the opportunity to meet privately with the
internal and external auditors prior to each meeting and did so before
each meeting held in 2008.
Activities in 2008
The Committee met five times 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;
– 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 2007 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. This is explained further in the section
on Auditor’s independence and objectivity below;
– 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, encompassing financial, reputational,
and broader macro-economic risks, 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 Enterprise-wide Risk Management
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 effectiveness of procedural changes implemented
following the review of premium rate services in 2007;
– monitoring the implementation of a new integrated finance,
procurement and HR system;
– conducting post-acquisition reviews of businesses acquired in 2007
and 2008;
– reviewing the analysis supporting the impairment of goodwill before
consideration by the Board;
– reviewing the Group’s cash flow forecasts and facilities to support the
going concern statement in the annual report before consideration
by the Board. The going concern statement is contained in the
Business Review on page 36.
– regularly reviewing the effectiveness of the whistleblowing process
through which the employees may, in confidence, raise concerns
about possible improprieties in matters of financial reporting or other
matters;
– considering regulatory and professional developments in respect of
financial accounting and reporting; and
– receiving reports from the Treasury department on their activities.
ITV plc Report and accounts 2008 Corporate governance
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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, which is
available in full at www.itvplc.com. The policy is based on the five key
principles which underpin the provision of other services by 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, develop a close personal relationship with the
employees of 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 including the Guidance on Audit
Committees issued by the Financial Reporting Council in October 2008.
Committee approval is required for any engagement of the external
auditors where the fee is likely to be in excess of £0.1 million. Details of
the related audit and other services are set out in note 4 of the
consolidated financial statements.
The Committee 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.
It is the Company's policy to carry out regular market testing either
through benchmarking or a form of audit tender.
During the year the Committee considered the tenure, performance
and audit fees of the external auditor, and the level of non-audit work
undertaken, and recommended to the Board that a resolution for the
re-appointment of KPMG Audit Plc for a further year as the Company's
auditors be proposed to shareholders at the AGM in May 2008. The
resolution was passed and KPMG Audit Plc were re-appointed for a
further year.
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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.
– 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 is responsible for identifying the risks
facing the Company’s business and for establishing controls and
procedures to monitor and mitigate those risks. As part of those
controls and procedures, the Company has established an Enterprise-
wide Risk Management (ERM) programme providing formal risk
assessments. The ERM programme is co-ordinated through the
Company’s Risk department and the Internal Audit department
provides the assurance role reporting to the Executive Committee,
Audit Committee and the Board.
The ERM programme is being embedded within operational
processes and will help to identify new business opportunities as
well as provide risk analysis for all new projects and businesses.
The annual ERM programme cycle passes through a number of
phases as it escalates through the business. The Audit Committee
receive presentations from the executive team covering the risks of
the operating units. Following such presentations and review, the
executive team carry out a further risk consolidation process and
then present the Company’s overall major risks to the Board for
consideration of the top risks which are then disclosed in summary
form within the published Annual Report and Accounts.
– 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.
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. The Committee
members are subject to the programme of continuing professional
development that applies to the full board. The programme will be
supplemented in 2009 with presentations by the external auditors at
Committee meetings focusing on governance, legal and accounting
developments.
Approval
This report was approved by the Board of Directors on 4 March 2009
and signed on its behalf by:
Mike Clasper
Chairman, Audit Committee
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ITV plc Report and accounts 2008
Remuneration report
Role of the Remuneration Committee
The role of the Remuneration Committee (“Committee”) is to review
and approve the remuneration strategy and policy for the Executive
Chairman, executive directors and senior executives of the Company
(together the “Senior Executive Group”). The Committee also has
responsibility for the Company’s performance related pay schemes and
share incentive plans, and the level of awards made under them as they
apply to the Senior Executive Group. Further details regarding the role
and responsibilities of the Committee can be found in the Corporate
Governance section. Further details regarding the activities of the
Committee during the year are shown below.
The Committee also maintains an active dialogue with shareholder
representatives and its full terms of reference are available on the
Company’s website at www.itvplc.com.
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
– Andy Haste
– Heather Killen
Full details on membership of the Committee throughout 2008, and
details of attendance at Committee meetings, can be found in the
Corporate Governance section.
Advisers
The Committee has appointed Deloitte 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. 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 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.
Activities in 2008
During 2008, the Committee met six times, and discharged its
responsibilities which included:
– reviewing the total remuneration packages of the Senior Executive
Group and their suitability within ITV’s commercial environment;
– reviewing the base salaries of the Senior Executive Group as part
of the annual company salary review;
– agreeing annual bonus targets for the Senior Executive Group in
relation to the year ahead;
– reviewing performance against bonus targets set for the previous
year, and agreeing both the annual incentive awards for the Senior
Executive Group and the outcome of the all employee bonus
scheme;
– agreeing the operation of the all employee Turnaround Incentive
Opportunity;
– agreeing an appropriate long term incentive strategy to operate
following the Turnaround Plan performance period;
– agreeing remuneration packages for new members of the Senior
Executive Group and termination arrangements for those leaving;
and
– approving the Remuneration report.
Responding to challenges in the current market
In light of the complex and challenging market in which ITV currently
operates, the Committee has been pro-active in reviewing and taking
decisions on directors’ remuneration arrangements during the year.
The Committee has endeavoured to ensure that arrangements
remain focused, relevant and aligned with the needs of the business to
support the delivery of value to shareholders over the short, medium
and long term.
In this context the Committee has made a number of decisions
with regard to remuneration arrangements, resulting in restraint
and moderation in the current environment. These include:
– setting base salaries. The executive directors have not been
awarded any increase at 1 January 2009 as a result of the salary
review. This means that the salaries of Michael Grade and John
Cresswell remain at the level they were in January 2007, and Ian
Griffiths and Rupert Howell did not receive any increase on their
2008 salaries;
– reviewing reported financial performance of the Group in 2008,
and exercising its discretion, to scale back bonus payments to the
executive directors which had been earned against performance
targets set at the start of 2008, so that the payment for the
achievement of non financial measures was limited;
– resolving that bonus payments made to executive directors in
respect of 2008 will be made wholly in shares and subject to the
normal deferral requirements under the Deferred Share Award Plan
(“DSA”), to improve the alignment of executives’ interests with
those of shareholders;
– calibrating the performance targets for the 2009 bonus framework
at realistic but stretching levels, as well as incorporating a number
of features that align with shareholders’ interests. In particular,
bonus entitlements in relation to any performance target may be
scaled back based on the overall level of profit reported by the
Group, and no payment will be made unless a threshold level of
profit is achieved in 2009;
– confirming that any bonus payments made in respect of 2009 are
likely to be made as awards of shares under the DSA for all
participants, subject to the normal deferral requirements;
– undertaking a period of consultation with shareholders with regard
to the intended operation of the Performance Share Plan (“PSP”) in
2009. The Committee has proposed a number of further changes
to the initial framework in response to shareholder views. For 2009,
these changes include a reduction in the level of awards (by one
third) and a reduction in the initial level of vesting (so that vesting
for achieving median relative TSR is reduced from 35% of the
maximum to nil); and
– introducing Shareholding Guidelines (see below).
Remuneration policy
The Board is committed to operating the most appropriate
remuneration policy for the Company. In doing this the Committee has
designed a remuneration policy which is intended to fully support the
Company’s commercial objectives while taking into account prevailing
best practice and investor expectations.
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;
– performance is measured over clearly specified time horizons over
the short, medium and long term;
– 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; and
ITV plc Report and accounts 2008 Remuneration report
99
– 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 one off long term incentive
specifically linked to achievement of the business strategy during
the period up to 2011.
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 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, changing 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 policy on a regular basis through the vote
on the Remuneration report at the Annual General Meeting.
Components of reward
The reward package for the Senior Executive Group consists of a
combination of fixed and variable elements intended to provide
motivation and reward for short, medium and long term performance
and to retain key executives over the longer term. Each component is
intended to fulfil a different function within the remuneration
framework.
The balance between the fixed and variable elements of the total
remuneration package 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 in a typical year 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 30:70 split between
fixed and variable pay at this level, showing the high proportion of
performance related pay in the total reward package.
Salary and approach to competitive positioning
Market positioning of salary and other elements of reward is
approached on an individual basis. In making salary decisions, the
Committee takes account of robust salary surveys and an individual’s
skills before reaching its conclusions. The aim is for base salary to be set
around market median, whilst recognising the need on occasion for an
appropriate premium for superior talent. The Board is of the view that
a high calibre Senior Executive Group is critical to developing and
delivering the business strategy and to delivering long term value.
In line with the majority of employees, base salaries are reviewed
on an annual basis, effective from 1 January. In January 2009, the
Company concluded its annual pay review and a decision was taken to
focus any increase in salary spend on the lower salary levels within the
organisation. Salaries for the executive directors remained constant as a
result of the January 2009 salary review.
Short term and deferral incentives
Annual incentives are provided for the Senior Executive Group through
the Annual Incentive Opportunity (“Bonus”). The total opportunity for
executive directors will not normally exceed 150% of a participant’s
annual salary.
Typically half of any pre-tax Bonus entitlement will automatically be
deferred into shares or nil-cost options 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.
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Participants may elect to take the balance of the Bonus in cash or as
further share awards under the DSA.
To ensure a greater alignment with shareholders’ interests, executive
directors’ Bonus entitlements in respect of 2008 performance will be
awarded fully in deferred shares under the DSA. In addition, for all
Bonus payments that may be paid for 2009, it is anticipated (subject to
the discretion of the Committee) that all participants will receive their
Bonus awarded fully in shares under the DSA subject to the normal
deferral requirements.
As part of the terms of his appointment, Ian Griffiths received a one off
award under the DSA in October 2008. This award was made in the form
of deferred shares with a face value of £75,000 and will vest fully on 31
December 2009. In accordance with the terms of the award, vesting is
conditional on Ian Griffiths remaining an employee of the Company,
and not having served notice prior to 31 December 2009.
2008 performance Bonuses made to the Senior Executive Group in
respect of 2008 performance were dependent on performance against
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 of the business and are
aligned with the business strategy. Full details of the key business drivers
can be found in the Business review.
The level of Bonus is also dependent on specific business and
individual targets, which are all closely related to shareholder value
creation. Given the importance of improving performance through
cultural change, an element of the Bonus also depends on an
improvement in culture.
In the context of the current challenging economic environment, the
Committee has exercised its discretion to scale back the Bonus
payments for the executive directors, which had been earned against
performance targets set at the start of 2008, so that the payment for
the achievement of non financial measures was limited.
2009 performance The performance targets for 2009 have been
reviewed to ensure that they are predominantly weighted to corporate
financial performance. A significant portion of any award that may be
made for 2009 performance will be dependent on profit, cost savings
and the efficient management of cash, all being measures that strongly
support the delivery of improved returns to shareholders in 2009.
A number of features have been introduced with shareholders’
interests in mind – in particular all Bonus entitlements in relation to any
performance target may be scaled back based on the overall level of
profit reported by the Group, and no payment will be made under any
Bonus arrangement at all unless a threshold level of profit is achieved in
2009.
The Bonus framework extends to a senior management population
of around 130 individuals, including the Senior Executive Group. The
performance measures that apply across this group are considered on
an individual and team basis and are fully integrated with the corporate,
financial and strategic measures that apply to the Senior Executive
Group. 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.
Long term incentive arrangements – new proposals
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.
Currently, the Turnaround Plan (“Plan”) provides the main long term
incentive opportunity by supporting the business strategy up until its
conclusion in 2011. When the Plan was introduced, the Company made
a commitment that awards would not be made under ITV’s other long
term incentive plans in 2007 or 2008, and to review the operation of
these long term plans from 2009. The performance period under the
Plan will come to an end on 31 December 2011, and the Committee
recognises that there is a need to establish effective incentives during
2009 in order to motivate sustained performance beyond then.
The Committee believes that the most appropriate framework will
be a rolling programme of awards under a single long term incentive
programme. The existing Performance Share Plan (“PSP”) provides
a suitable vehicle, and it has been developed for use as the main
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100
long term incentive going forward, for ITV’s senior management
population of around 130 individuals, including the Senior Executive
Group. This being the case, it is not currently intended that any further
awards will be made under the Commitment Scheme.
The basis on which awards will be made under the PSP in 2009 is set
out below, with the details of outstanding awards made under the PSP
in previous years in the PSP table below.
Although the PSP has already received formal shareholder approval,
the Committee has consulted widely with the Company’s largest
institutional shareholders, and their views are reflected in the final
proposals.
2009 PSP awards For 2009, it is proposed that the face value of awards
under the PSP will be reduced to a maximum of 100% of salary (being a
reduction of one third from the previous maximum award levels of
150% of salary). In addition, the level of vesting for achieving median
performance in relation to the Total Shareholder Return (“TSR”)
comparator groups will be reduced from 35% to nil.
The decision to reduce the face value of award levels has been taken
for 2009 in response to investor concerns, in the context of the current
economic climate, regarding incentive awards with a face value set by
reference to a multiple of base salary during a period when the share
price may be artificially depressed. The proposed reduction in award
level is therefore intended to moderate the overall cost of these
incentives to the Company’s shareholders.
The Committee’s decision to decrease the initial level of vesting
in respect of the TSR condition demonstrates the Company’s policy
of delivering significant reward only for significant out performance
relative to the market, as well as management’s confidence in the
business and their commitment to deliver superior performance.
The combined effect of these two changes on participants is to
significantly reduce the overall expected value of PSP awards made in
2009 by around 40% when compared with previous awards made under
the PSP.
These changes are proposed in respect of the awards to be made in
late May 2009. Otherwise the key terms of the PSP remain in keeping
with those previously approved by the shareholders in 2004.
Performance measures for 2009 PSP awards made in 2009 will be
subject to performance criteria over a three year period with 75%
subject to TSR performance, and 25% subject to two equally weighted
business specific performance measures.
The portion of the award subject to TSR will be measured equally
against two distinct comparator groups – the constituents of the FTSE
250 index (excluding companies from the following industries: basic
materials, financial services, oil and gas and industrials), and an industry
sector specific group of 23 companies as detailed below.
British Sky Broadcasting Group
Canal Plus
CBS
Daily Mail & General Trust
M6-Metropole TV
Mediaset
Modern Times Group
News Corporation
Pearson
Premier AG
Proseiben Sat 1 Pf.
RTL Group
Scripps Networks
Telecinco
Tf1 (Tv.Fse.1)
Time Warner
Trinity Mirror
Viacom Digital
Virgin Media
Vivendi
WPP Group
Yell Group
Zon Multimedia
The Committee has determined that it was appropriate that no portion
of the award will vest at median, representing a significant reduction
from the 35% vesting level for outstanding awards under the PSP, and
that 100% will vest at upper quartile. Vesting will occur on a straight line
basis in between. There will be no vesting for performance below
median. TSR will be measured over a three year period from the date of
grant.
The remaining 25% of the award will be measured in equal
proportions against two business specific performance measures, which
for awards made in 2009 are detailed in the table below.
In setting the targets below, the Committee has assessed the current
complex and challenging markets. The performance levels are
considered to provide realistic but stretching goals against measures
that provide a balance between efficiency, the health of the business
and operating performance.
Strategic target
SOCI (ITV Family)
EPS Growth
Threshold
36.6%
RPI +3%
Maximum
38.5%
RPI +5%
The level of vesting for the achievement of threshold performance will
be 25% of the relevant proportion of the award, rising on a pro-rata basis
to 100% vesting for the relevant proportion if the maximum target is
achieved.
Growth in underlying earnings per share will be measured over the three
year period, 2009-2011, with EPS for the 2008 financial year as the base
year from which growth over the three years will be measured.
SOCI will be measured over a performance period aligned with the TSR
performance period and measured over the three year period from the
date of grant.
Leaver provisions Standard good leaver provisions will apply to these
awards (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 in full,
irrespective of performance. If a participant ceases to be employed for
any other reason, the award will lapse unless the Committee determines
otherwise.
Change of control If a change of control occurs, awards will become
exercisable based upon the Company’s performance such that if the
change of control occurs before the second anniversary of the award,
performance will be measured wholly against TSR. If it occurs after this
date it will be measured against TSR and progress towards achievement
of strategic targets will be considered. In addition, the number of ITV
shares that vest will be capped at one third of the number subject to the
award if the change of control occurs before the first anniversary of the
date of the award, two thirds after the first anniversary and 100% from
the second anniversary. The ITV shares that vest will then be capable of
exercise for one month from the date the change of control becomes
effective.
Shareholding guidelines
The Committee recognises the importance of executive directors
aligning their interests with shareholders through the commitment
of a significant amount of their own investment capital. Accordingly
shareholding guidelines have been introduced from 2009 to encourage
the executive directors to build up and hold ITV plc shares with a value
equivalent to at least 100% of their salary (certain other executives will
be encouraged to hold 75%). Details of the executive directors’ current
personal shareholdings are shown in the Directors’ report.
Long term incentive arrangements – existing arrangements
The following sections describe those plans under which awards have
been made to date, and are still outstanding. Given the long term
incentive plan described above, there is no intention to make further
awards under these existing arrangements.
Turnaround Plan (“Plan”) The Plan was introduced in 2007 for use as
the primary long term incentive supporting the business strategy by
incentivising senior executives through alignment with the key
indicators of shareholder value creation over the period to 2012 (being
the completion of the digital switchover process).
Since the Plan was adopted, an award in the form of nil-cost options
has been made to a number of key senior executives 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 are 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 is 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
(25% of the total award) may vest at 31 December 2009 if the TSR
condition is satisfied at that time. Any portion of the award that does
not vest at that point will lapse. The balance of the award will be tested
at 31 December 2011.
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101
Individuals who received an award under the Plan did not receive
an award under the Company’s other long term incentive plans in
2007 or 2008.
Turnaround Incentive Award for the Executive Chairman In
accordance with his terms of appointment, an award was granted to
the Executive Chairman in 2007 as a long term incentive based on the
same five year horizon as for the Plan detailed above. The award was
granted in the form of a nil-cost option with a value equivalent to 150%
of initial salary per annum over the five year performance period. As a
condition of the award he is required to hold shares with a value of 100%
of his salary 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 TSR (25% of the
total award) may vest at 31 December 2009 if the TSR condition is
satisfied at that time. Any portion of the award that does not vest at
that point will remain in effect and be retested with the balance of the
award at 31 December 2011.
The Executive Chairman did not receive any award under the
Company’s other long term incentive plans in 2007 or 2008.
Performance conditions for the Turnaround Plan and the Turnaround
Incentive Award The performance conditions were agreed following
consultation with our biggest 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 business strategy.
TSR 50% of an award is subject to TSR performance measured against
a 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 in the
notes to the Turnaround Plan table below.
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
SOCI (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.
8p
£1.35
Maximum
38.5%
5% p.a.
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 Plan, as approved by shareholders in 2007,
contains a provision giving the Committee discretion over the
performance criteria. If the Committee exercises its judgement on these
matters and makes an adjustment to the targets or the vesting
outcome which is considered material, the Committee will inform
shareholders of the factors they considered in subsequent
Remuneration reports.
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 determined otherwise.
Change of control In the event of a change in control occurring in the
remainder of the performance period, the awards will be pro-rated for
time as follows:
– 80% if the event occurs between 1 January 2009 and 31 December
2009; and
– 100% thereafter.
If a change of control occurs prior to 31 December 2009, the whole of
the pro-rated award will become subject to the Company’s relative TSR
performance to the relevant date. After this point, performance will be
measured according to the TSR condition and progress towards
achievement of strategic targets will be considered.
All employee Turnaround Incentive Opportunity In recognition of the
contribution all employees can make to the future success of the
Company, and following the adoption of the Turnaround Plan, a
corresponding long term cash-based incentive was introduced from
January 2008 for the wider management and employee population,
not including participants in the Plan, known as the Turnaround
Incentive Opportunity.
In order to align the interests of participants and provide all
employees with a clear focus on the business 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 1 January 2008.
Performance graph
The graph below shows the TSR performance of the Company against
the FTSE 100 index. The FTSE 100 was selected for comparison as it
represents a broad equity market index of which the Company was
a member for the majority of the financial year.
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The graph 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. The TSR holdings have been
rebased to 100 at the date of listing to reflect the requirement to show
performance from this date onwards.
ITV plc Report and accounts 2008 Remuneration report
102
One month averaging has been applied throughout, with the exception
of the month following the merger of Granada with Carlton. 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.
Previous Remuneration reports have included a graph showing TSR
performance from 16 October 2002 (the date of the announcement of
the merger). As the merger took place five years ago, in February 2004,
we no longer consider this to be the appropriate basis on which to assess
the Company’s performance.
Service contracts
Executive directors have service contracts which provide for 12 months’
notice on either side.
Executive directors
Date of appointment
Nature of
contract
Notice period
from Company
Notice period
from director
Michael Grade
8 January 2007 Rolling 12 months 12 months
John Cresswell 16 January 2006 Rolling 12 months 12 months
Ian Griffiths
9 September 2008 Rolling 12 months 12 months
Rupert Howell 28 February 2008 Rolling 12 months 12 months
Compensation
provisions for
early
termination
None
None
None
None
Note:
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).
Executive directors’ non-executive directorships
With specific approval of the Board, 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.
During the year Michael Grade retained fees for external non-
executive directorships for the period he was a director as set out below:
The annual fees payable are as follows:
Non-executive directors’ fees
Deputy Chairman (1)
Board member
Senior independent director
Audit Committee member
Audit Committee Chairman
Nomination Committee member
Nomination Committee Chairman
Remuneration Committee member
Remuneration Committee Chairman
31 December
2008
£
165,000
55,000
25,000
5,000
20,000
5,000
15,000
5,000
15,000
31 December
2007
£
165,000
55,000
25,000
5,000
20,000
5,000
15,000
5,000
15,000
Notes
(1) Sir George Russell receives no further payment in relation to Committee responsibilities.
(2) Details of committee membership can be found in the Corporate Governance section.
From 1 January 2009 the non-executive directors will use 25% of their
annual fees, after statutory deductions, to acquire shares in the
Company. The shares will be purchased quarterly and will be held by a
nominee on their behalf. The shares will be released when they retire
from the Board.
Audited information
The following tables 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 KPMG Audit Plc.
Aggregate directors’ remuneration
The total amounts of directors’ remuneration for the period from
1 January 2008 to 31 December 2008 were as follows:
2008
£000
2,893
87
2,980
2007
£000
3,784
168
3,952
Company
Pinewood Shepperton Plc
Ocado Limited
2008
£000
102
100
2007
£000
98
98
Emoluments
Gains on exercise of share options
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 executive director
Dawn Airey resigned as a director on 29 April 2008. No payment was
made to her in connection with the cessation of her employment and
all outstanding share awards lapsed accordingly.
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.
Fees paid to the non-executive directors are determined by the
Board based on market information supplied by Deloitte, 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.
The fees are reviewed annually. There were no changes to the level
of fees paid during 2008, and none are proposed for 2009.
Fees/Basic
Salary
£000
Benefits in
kind (11)
£000
Pension
contributions
£000
Short term
incentives (10)
£000
Notes
Total for the
year ended
31 December
2008
£000
Total for the
year ended
31 December
2007
£000
ITV plc Report and accounts 2008 Remuneration report
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Audited information continued
Directors’ emoluments
The directors’ emoluments for the year ended 31 December 2008 were as follows:
Name of director
Executive
Michael Grade
John Cresswell
Ian Griffiths
Rupert Howell
Dawn Airey
Non-executive
Mike Clasper
Sir James Crosby
Andy Haste
Heather Killen
John McGrath
John Ormerod
Sir Brian Pitman
Baroness Usha Prashar
Sir George Russell
Agnès Touraine
Past directors’ remuneration (for comparative purposes)
8
1, 9
2, 9
3, 9
4
7
5
6
825
575
108
375
75
80
100
24
65
4
62
24
75
165
65
–
35
24
3
43
9
–
–
–
–
–
–
–
–
–
–
–
74
–
16
56
11
–
–
–
–
–
–
–
–
–
–
–
Aggregate emoluments
2,622
114
157
Notes:
(1) From his appointment to the Board on 9 September 2008.
(2) From his appointment to the Board on 28 February 2008.
(3) From her appointment to the Board on 28 February 2008, to her resignation on 29 April 2008.
(4) From his appointment to the Board on 11 August 2008.
(5) From his appointment to the Board on 18 January 2008.
(6) Up to his retirement from the Board on 15 May 2008
(7) Up to his retirement from the Board on 17 January 2008.
(8) Pension contribution represents a cash payment in lieu of pension and is described further in the pension entitlements section of this report.
(9) Pension contributions represent payments made into Personal Pension Plans and are described further in the pension entitlements section of this report
(10) The Bonus payments for 2008 performance are to be awarded in the form of nil-cost options under the DSA, see the DSA section below for further details.
(11) This disclosure includes the cost of private medical insurance and car benefits.
Incentive and performance related awards
Information given in the tables below is for the period from 1 January 2008 to 31 December 2008.
Turnaround Plan (“Plan”) Options over ordinary shares in ITV plc awarded to executive directors under the terms of the Plan are as follows, the
performance conditions applicable to the awards shown are set out in the remuneration policy above.
Director
Award date Notes
At
1 January
2008
Awarded
in year
Exercised
in year
Lapsed
in year
At
31 December
2008
Share price
used for award
(pence)
John Cresswell
13 September
2007
2, 3 2,849,100
–
Ian Griffiths
2 October 2008
2, 3
– 4,023,669
–
–
– 2,849,100
111.00
– 4,023,669
42.25
Rupert Howell
Dawn Airey
3 October 2007
3 October 2007
2, 3 2,357,143
1,3 2,357,143
–
–
–
– 2,357,143
– 2,357,143
–
105.00
105.00
Performance testing dates
25% December 2009,
75% December 2011
25% December 2009,
75% December 2011
25% December 2009,
75% December 2011
–
Notes:
(1) Lapsed on cessation of employment.
(2) 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.
(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, Home Retail Group, Intercontinental Hotels Group, Kingfisher, Marks & Spencer Group, Next, Pearson, Reed Elsevier, Thomson Reuters, SABMiller, Scottish & Newcastle, Vodafone
Group, WPP and Yell Group.
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
934
599
127
474
95
80
100
24
65
4
62
24
75
165
65
–
1,934
1,231
–
–
–
63
92
–
23
73
–
58
61
165
25
59
2,893
3,784
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Turnaround Incentive Award (“Award”) Options over ordinary shares in ITV plc awarded to Michael Grade under the Award are as follows, the
performance conditions applicable to the Award are set out above.
Award date
At
1 January
2008
Awarded
in year
Exercised
in year
At
31 December
2008
Share price
used for award
(pence)
Notes
13 September 2007
1, 2 5,657,042
–
– 5,657,042 106.0625
Performance testing dates
25% December 2009
75% December 2011
Notes:
(1) 25% of the 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 retested with the remaining 75% of the award at
31 December 2011.
(2) The comparator group is as listed in note (3) above for the Turnaround Plan.
Deferred Share Award Plan (“DSA”) Awards and options over ordinary shares in ITV plc awarded to executive directors under the terms of the DSA
are as follows:
Director
Award date Notes
At
1 January
2008
Awarded
in year
Exercised/
Released
in year
Lapsed
in year
At
31 December
2008
Share price
at date of
award
(pence)
Date of exercise/release
Share price
at date of
exercise/
release
(pence)
Vesting date
John Cresswell 17 March 2006
John Cresswell 15 March 2007
John Cresswell 14 March 2008
Michael Grade 14 March 2008
Ian Griffiths
2 October 2008
Rupert Howell 14 March 2008
14 March 2008
Dawn Airey
1, 5 67,298
1, 5 113,151
– 67,298
– 113,151
– 482,982 241,491
2
180,449 482,982 421,940
– 1,480,704 740,352
– 177,515
–
– 97,511 48,755
– 97,511
2, 3
1, 4
2
2
–
–
– 241,491
– 241,491
– 740,352
– 177,515
– 48,756
–
– 97,511
– 116.75
17 March 2008
– 105.25 31 December 2008
65.30 31 December 2008
–
61.02
40.43
–
40.43 31 December 2009
65.30 31 December 2008
42.25
–
65.30 31 December 2008
–
65.30
40.43 31 December 2009
– 31 December 2009
40.43 31 December 2009
–
–
Notes:
(1) Awarded in the form of nil cost options.
(2) Awarded in the form of restricted shares.
(3) Lapsed on cessation of employment.
(4) A one off award made under his terms of appointment.
(5) The combined market value of the nil-cost options on the dates of exercise was £86,812. This is disclosed in the aggregate directors’ remuneration table on the previous page as a gain on exercise
of share options.
(6) In the event of a change of control, restricted shares will vest and nil cost options become exercisable in full.
For 2008 performance the executive directors will receive awards over nil-cost options under the DSA. Michael Grade, John Cresswell and Rupert
Howell will each receive an award under the DSA equal to 28.5% of salary; Ian Griffiths will receive an award equal to 7.13% of salary.
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
27 September 2005
13 September 2006
Notes
1, 2
1
At
1 January
2008
158,393
607,595
765,988
Awarded
in year
–
Exercised
in year
–
Lapsed
in year
158,393
At
31 December
2008
–
–
–
–
–
–
158,393
607,595
607,595
Share price
at date of
award
(pence)
112.50
98.75
Exercise period
–
September 2009 –
September 2010
Notes:
(1) The comparator group is as listed in note (3) above for the Turnaround Plan.
(2) Lapsed on 27 September 2008, as performance conditions were not met.
Prior to 2007, the PSP was used to provide a long term incentive for the senior management population with a maximum award per individual of
150% of salary in respect of any financial year. Following the introduction of the Turnaround Plan in 2007, it was agreed that no PSP awards would
be made to any Turnaround Plan or Turnaround Incentive Opportunity participants for two years following the adoption of the Plan. As a result no
awards have been made under the PSP since 2006. John Cresswell is the only executive director to hold awards under the PSP.
Vesting of outstanding awards is dependent on the TSR performance of the Company against a customised FTSE 100 comparator group
(detailed above), excluding those sectors which do not provide a benchmark of performance that would be relevant to the Company 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.
If a change of control occurs the awards will become exercisable based upon the Company’s performance against the TSR condition to the
relevant date, as if this condition applied to the whole award. The ITV plc shares that vest will then be capable of exercise for one month from the
date of change of control.
The 2005 PSP awards reached the end of their performance period in 2008 and lapsed as the TSR performance condition was not met. The 2006
PSP awards remain outstanding, and will be tested in 2009. On the basis of TSR tests carried out on 31 December 2008 the achievement of the
performance conditions attaching to these awards remains challenging.
Vesting date
Exercise period
– August 2005 –
August 2010
– August 2005 –
August 2010
ITV plc Report and accounts 2008 Remuneration report
105
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:
At
1 January
2008
vested
1, 2, 6 301,785
At
1 January
2008
unvested
–
Vested
in year
–
Exercised
in year
–
Lapsed
in year (5)
At
31 December
2008
vested
– 301,785
At
31 December
2008
unvested
–
Exercise
price
(pence)
Nil
Award date Notes
Granada 22 August
2003
Granada 22 August
2003
1, 2, 6 471,944
–
ITV
ITV
ITV
ITV
19 April
2005
19 April
2005
20 March
2006
20 March
2006
3
3
4
4
– 566,814
– 566,814
– 518,358
– 518,358
773,729 2,170,344
–
–
–
–
–
–
–
– 471,944
–
100.72
– 283,407
– 283,407
Nil
19 April 2009
– 283,407
– 283,407
125.75
19 April 2009
April 2009 –
April 2015
April 2009 –
April 2015
–
–
–
– 518,358
Nil 50% March 2009
50% March 2010
March 2009 –
March 2016
–
– 518,358
115.75 50% March 2009
50% March 2010
March 2009 –
March 2016
– 566,814 773,729 1,603,530
Notes:
(1) The performance condition applicable for the awards made under the Granada Commitment Scheme was TSR relative to Granada’s international media comparator group companies as set out
in note (2) below. 25% of awards vest at median; 100% 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. The balance shown represents options that vested at the relevant testing dates, but have not been exercised.
(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, Home Retail Group, Hays, InterContinental Hotels Group, Kingfisher, Ladbrokes, Marks &
Spencer Group, Next, O2, Pearson, Reed Elsevier, Rentokil Initial, Thomson Reuters, 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, Home Retail Group, InterContinental Hotels Group, Kingfisher, Ladbrokes, Marks & Spencer Group, Next,
PartyGaming, Pearson, Reed Elsevier, Rentokil Initial, Thomson Reuters , Rexam, SABMiller, Scottish & Newcastle, Vodafone Group, Wolseley, WPP and Yell Group.
(5) Lapsed on 19 April 2008 as performance conditions were not met. The remainder are subject to performance testing on 19 April 2009.
(6) ITV plc shares and adjusted following the merger of Granada with Carlton in 2004.
No awards under the ITV Commitment Scheme (the “Scheme”) have been made since 2006, and there are currently no plans to use the Scheme
going forward. John Cresswell is the only executive director with outstanding awards under the Scheme.
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
(detailed above), excluding those sectors which do not provide a benchmark of performance that would be relevant to the Company. There is no
vesting for performance below median. 25% of the award vests at median and 100% at upper quartile. Vesting will occur on a straight line basis
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).
The awards made under the Scheme in 2005 reached the end of the initial three year performance period in April 2008 and 50% of the awards
lapsed as the TSR performance condition was not met. The outstanding balance will be tested in April 2009. On the basis of TSR tests carried out on
31 December 2008 the achievement of the performance conditions attaching to these awards remains challenging.
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ITV Savings-Related Share Option Scheme (“SAYE”) Options over ordinary shares in ITV plc awarded to executive directors under the terms of the
SAYE are as follows:
Director
Michael Grade
Award date
4 April 2008
At
1 January
2008
–
Awarded
in year
32,307
Exercised
in year
–
Lapsed
in year
–
At
31 December
2008
32,307
Exercise price
(pence)
52.00
John Cresswell
4 April 2008
–
32,307
–
–
32,307
52.00
Exercise period
June 2013 –
December 2013
June 2013 –
December 2013
Granada Share Option Schemes 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
Award date
22 December 2000
At
1 January
2008
959
Awarded
in year
–
Exercised
in year
–
Lapsed
in year
–
At
31 December
2008
959
Exercise price
(pence)
217.78
Granada ESOS
6 July 2001
36,399
Granada ESOS
28 September 2001
113,851
Granada ESOS
9 January 2002
1,040
Granada ESOS
10 July 2002
19,240
Granada ESOS
7 January 2003
18,200
Granada SAYE
9 January 2003
25,120
214,809
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
36,399
137.02
113,851
91.35
1,040
143.27
19,240
106.25
18,200
76.92
25,120
–
65.38
25,120
189,689
Note: The numbers in the table above are in ITV plc shares and have been adjusted following the merger of Granada with Carlton in 2004.
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
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:
Name of director
John Cresswell
Accrued
pension
1 January
2008
£000
96
Increase in
accrued
pension in
the year
£000
12
Accrued
pension
31 December
2008
£000
108
The following table sets out the transfer value of his accrued benefits
under the scheme calculated in a manner consistent with the
Occupational Pension Schemes (Transfer Values) Regulations 2008.
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 additional year of service.
Transfer
value
1 January
2008
£000
1,064
Contributions
made by
the director
£000
40
Increase
in transfer
value in
the year
net of
contributions (1)
£000
136
Transfer
value
31 December
2008
£000
1,240
Name of director
John Cresswell
Notes:
(1) Transfer values at 31 December 2008 have been calculated in accordance with the transfer
value members would receive if they transferred their pension elsewhere. The increase in
transfer value includes the effect of fluctuations 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 executive
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
11
Transfer value of
increase in the year less
director’s contributions
£000
57
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.
The Company also made contributions to Personal Pension Plans
belonging to Rupert Howell, Ian Griffiths and Dawn Airey with a value
of 15% of their respective basic salaries. These payments are included
in the emoluments table.
Michael Grade was not a member of any Company pension scheme
during the year. Michael Grade receives a cash payment of 9% of his
basic salary in lieu of pension contribution. This payment is included in
the directors’ emoluments table.
No directors were members of money purchase schemes operated
by the Group.
Share price information
The market price of the ITV plc ordinary shares at 31 December 2008
was 39.75 pence and the range during the year was 26.0 pence to 84.2
pence.
Approval
This report was approved by the Board of directors on 4 March 2009 and
signed on its behalf by:
Baroness Usha Prashar
Chairman, Remuneration Committee
107
ITV plc Report and accounts 2008
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 2008
Holders
Number
Shares held
Millions
%
%
3,375
68,136
506
9,903
9,664
19,496
12,116
9,481
6,854
2,304
1,442
172
267
97
135
33
35
18
3,672.98
159.34
56.80
0.36
1.45
6.44
8.90
13.66
21.57
16.54
28.49
12.66
64.14
70.55
296.47
231.30
729.23
2,387.29
4.69
94.61
0.70
100.00
13.75
13.42
27.07
16.82
13.16
9.52
3.20
2.00
0.24
0.37
0.13
0.19
0.05
0.05
0.03
100.00
94.44
4.10
1.46
100.00
0.01
0.03
0.17
0.23
0.35
0.56
0.43
0.73
0.33
1.65
1.81
7.62
5.95
18.75
61.38
100.00
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
charges) from the UK and +44 20 8639 3399 from outside the UK
Share dealing services
Capita IRG Trustees Limited offer a telephone and online share dealing
service for UK resident shareholders. To use this service shareholders
should contact Capita:
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
Alternatively you could email them at:
shareholder.services@capitaregistrars.com
Shareholders who receive duplicate sets of company mailings because
they have multiple accounts should write to Capita to have the accounts
amalgamated.
By logging on to www.capitashareportal.com shareholders can benefit
from a number of online services as follows:
– Cast your proxy vote online;
– Elect to receive shareholder communication electronically;
– View your holding balance, indicative share price and valuation;
– View transactions on your holding and dividend payments you have
received;
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 at www.itvplc.com.
– Update your address or register a bank mandate instruction to have
dividends paid directly to your bank account;
– Access a wide range of shareholder information including
Dividend Reinvestment Plan
Capita operate a Dividend Reinvestment Plan (DRIP) to provide UK
shareholders with a facility to invest cash dividends by purchasing
further ITV plc shares. Further details are available from Capita.
downloadable forms.
www.capitashareportal.com
You will need your investor code (IVC) which can be found on your share
certificate(s) to register to use the Shareholder Portal.
Individual Savings Accounts (ISAs)
The Company has a corporate sponsored Stocks and Shares ISA. The ISA
offers 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 Limited
Lovell Park Road
Leeds LS1 1NS
0870 600 9966
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108
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
PO Box 9501
Nottingham NG80 1WD
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.
0845 703 4599
mps@dma.org.uk
www.mpsonline.org.uk
Registered office
ITV plc
200 Gray’s Inn Road
London WC1X 8HF
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 14 May 2009
May 2009
August 2009
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. These operations are
commonly known as “boiler rooms”.
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 by visiting:
www.fsa.gov.uk/register
– Report the matter to the FSA either by calling 0845 606 1234 or
visiting:
www.moneymadeclear.fsa.gov.uk
– If the calls persist, hang up.
If you deal with an unauthorised firm, you will not be eligible to receive
payment under the Financial Services Compensation Scheme. The FSA
can be contacted by completing an online form at:
www.fsa.gov.uk/pages/doing/regulated/law/alerts/overseas.shtml
Details of any sharedealing facilities that the Company endorses will
only be included in company mailings.
More detailed information can be found on the FSA website:
www.moneymadeclear.fsa.gov.uk
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 Capita in a safe place, or destroy
correspondence by shredding.
– If you change address inform Capita in writing or via the Shareholder
Portal. If you receive a letter from Capita 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 Capita of the details of
your new account. You can do this via post or online using the
Shareholder Portal. Respond to any letters Capita sends you about
this.
– If you are buying or selling shares only deal with brokers registered
in your country of residence or the UK.
109
ITV plc Report and accounts 2008
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 (loss)/profit before exceptional items
Share of (losses)/profits of joint ventures and associated undertakings
Investment income
Exceptional items
(Loss)/profit before interest and tax
Net financing costs
(Loss)/profit before tax
Taxation
(Loss)/profit after tax
Minority interests
(Loss)/profit for the financial year
Basic (loss)/earnings per share
Dividend per share
2008
£m
389
137
526
8
534
1,360
71
–
13
516
528
–
2,488
(730)
(55)
(1,085)
(84)
534
2,029
(2,550)
(15)
1
(108)
(2,672)
(60)
(2,732)
178
(2,554)
(2)
(2,556)
(65.9)p
0.675p
2007
£m
2006
£m
2005
£m
2004
£m
389
2,844
3,233
6
3,239
4,084
89
100
7
440
472
–
5,192
(668)
(75)
(1,179)
(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
422
2,671
3,093
16
3,109
4,055
233
–
12
368
347
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
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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.
Design and production: Radley Yeldar
Print: CTD Printers are ISO 14001 and FSC accredited.
Paper: The cover and text material used for this report is Revive 100 offset made from 100% post-consumer recovered fibre and is FSC certified. The insert is Era Silk which contains 50% de-inked
post consumer waste and 50% FSC certified Virgin Pulp. They are both fully bio-degradable and recyclable
ITV Cover (Working Copy).qxp 2/3/09 23:41 Page 1
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ITV plc
200 Gray’s Inn Road
London WC1X 8HF
www.itv.com
Investors: www.itvplc.com
Driven by content
ITV plc Report and accounts 2008