Platform for change
ITV plc Report and accounts 2009
Contents
Financial summary
Chairman’s statement
About us
2009 at a glance
Directors’ report
Business review
Operating review
Stakeholders
Risks and uncertainties
Key performance indicators
Financial review
Governance
Board of Directors
Corporate Governance
Audit Committee report
Remuneration report
Other governance and statutory disclosures
Financial statements
01
02
04
06
08
27
30
32
34
44
46
50
53
62
63
Statement of directors’ responsibilities
64
Independent auditor’s report
65
Consolidated income statement
66
Consolidated statement of comprehensive income
67
Consolidated statement of financial position
68
Consolidated statement of changes in equity
70
Consolidated statement of cash flows
71
Notes to the accounts
ITV plc Company Financial Statements
108
Notes to the ITV plc Company Financial Statements 109
Other information
Shareholder information
Glossary of terms
Financial record
113
115
116
ITV plc Report and accounts 2009
01
Financial summary
Group revenues of £1,879m 2008: £2,029m
EBITA before exceptional items of £202m 2008: £211m
Adjusted cash flow of £358m* 2008: £158m
Profit before tax of £25m 2008: Loss before tax of £2,732m
Earnings per share of 2.3p 2008: Loss per share of 65.9p
Adjusted earnings per share of 1.8p* 2008: 1.8p
Net debt of £612m 2008: £730m
* See definitions on page 32.
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 the Business review, and what are believed
to be reasonable judgements. 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 2009
02
Chairman’s statement
Dear Shareholder
I am delighted to have joined ITV as Chairman on 1 January
2010. Whilst the business faces many difficult challenges, it
remains an exciting place to work with a unique role in national
life. Its revitalisation is important, not just to shareholders,
but to millions of viewers across the country. My objective is to
work with the executive team to transform the Company so as
to enable it to prosper in a rapidly changing media landscape.
Progress in 2009
ITV came through a very challenging year in 2009. Not only
was it the worst television advertising recession on record,
but the difficulties of the leadership succession provided a
distracting context for the business and the executive team.
Against this background, ITV delivered a remarkably resilient
performance, very much as a result of decisive management
action to reduce costs and strengthen the balance sheet.
As a consequence, the business avoided a serious liquidity
crisis and EBITA before exceptional items fell only marginally.
Adjusted cash flow increased by £200 million and net debt
reduced by over £100 million. ITV’s debt repayments have
been rescheduled and its pension scheme liabilities have
been stabilised. In the light of the continuing economic
uncertainty, the Board is not proposing payment of a final
dividend. However, financially we now have a more stable
platform from which to address the challenges ahead.
In response to the advertising downturn, the programme
budget was cut by over £100 million. Nonetheless, ITV ended
the year with a strong schedule performance. Although ITV1
continued to lose audience share, the ITV channel family held
its share overall. There were some significant programming
successes, notably The X Factor, but also Law & Order: UK,
Whitechapel, Dancing on Ice, and Britain’s Got Talent.
Both our valuable long-running soaps, Coronation Street
and Emmerdale, remain in good health. Such programming
success is critical to sustaining ITV’s share of the free-to-air
advertising market.
Our content business, ITV Studios, held profits, with increased
international production offsetting a decline in the UK business.
Internal ITV commissions in particular came under some
pressure, as the ITV1 programming budget was reduced.
Nevertheless, ITV Studios is making progress with its third party
business and remains a hive of creative talent.
Overall therefore, ITV has weathered the storm. The business
has a manageable balance sheet, a strong brand and a talented
broadcasting and creative team.
Future challenges
Against this recent context, it is clear that ITV now faces an
imperative for change. The traditional free-to-air advertising-
fuelled television model will see long-term decline in share of
viewing and share of UK media revenues. To secure and grow
shareholder value, we need to ensure we use the extraordinary
talent base of ITV to compete, not only in conventional
broadcasting, but also as a developer and exploiter of content
across multiple platforms in the UK and internationally.
Seizing the opportunities ahead will require changes to ITV’s
organisation, systems, people and culture.
Our first challenge will be to sustain the creative and commercial
health of our free-to-air broadcast business. In doing so, we face
intense competition from the BBC, whose taxpayer-funded
revenue has been unaffected by the economic downturn, and
from BSkyB, whose satellite platform continues to grow and,
as it does so, erode the share of traditional free-to-air viewing.
The rapid development of digital media means that the British
public will increasingly view television through the internet, via
internet-enabled television, personal computers and mobile
devices. ITV currently has a small share of online video, lagging
behind our competitors. Furthermore new competitors, such
as Google, are strongly positioned to play a leading role,
potentially displacing broadcasters as the initial point of access.
As the market for content globalises and rights ownership
becomes a more important part of the value chain, the
integrated broadcaster-producer model should be a source
of competitive advantage. However, ITV Studios, our content
creation and distribution business, has lost market share,
both within ITV and the wider UK market, partly as a result of
reduced internal commissions. Restoring growth at ITV Studios
and reinvesting in talent is a vital part of our future.
Finally, despite successive reviews by the Government and
Ofcom, ITV remains one of Britain’s most heavily regulated
businesses. Consequently our freedom to operate is severely
limited, in particular compared to our new media competitors.
The adverse impact on the profitability of all free-to-air
broadcasters is resulting in declining investment in UK content
with serious implications for Britain’s creative industries.
ITV plc Report and accounts 2009 Chairman’s statement
03
Archie Norman
Chairman
Outlook
In my short time at ITV, I have met many highly talented
people at all levels of the organisation. There is a shared
recognition that the business will need to change substantially
going forward if we are to return to sustained growth. In the
coming months we will outline in more detail the outcome
of our current strategic review and the journey ahead.
Whilst this new phase in the development of ITV is going
to be a challenging one, we enter it with a vibrant pipeline
of programmes, a very strong brand and a talented team.
Ours is a people business and, with the right people, culture,
motivation and leadership, the future of ITV will lie in our
own hands.
Archie Norman
Platform for change
The task therefore for the new management team at ITV is to
take advantage of the opportunity last year’s changes have
created and to address resolutely the challenges ahead. I am
therefore delighted that Adam Crozier will be joining from
Royal Mail Group as Chief Executive shortly. Adam has an
outstanding track record of transformational management,
has worked successfully with creative and media talent, and
has long experience of dealing with regulators and government.
As we embark on this journey, we inherit a platform for
change created out of the fire of recession by my predecessor,
Michael Grade, and by John Cresswell, the Interim Chief
Executive. Michael has been an iconic figure at the helm of ITV
and handed over a business with a spring once more in its step.
He arrived at a very difficult time for ITV and leaves a business
strengthened in many respects. Throughout, John Cresswell
has provided calm and strong leadership. We are grateful
to them both.
Since my arrival we have moved to streamline the Board
to prepare for the journey ahead and to create a strong
and very engaged team. As a result some very distinguished
non-executive directors have stood down. These include
our Deputy Chairman, Sir George Russell, who made a
substantial contribution to ITV from the days of the merger.
Sir James Crosby played an important role as ITV’s Senior
Independent Director, a position which has now been taken
on by Mike Clasper. Agnès Touraine and Heather Killen also
stood down from the Board towards the end of the year.
I would like to thank them all for their contribution.
Adam Crozier
Adam Crozier will join ITV as Chief Executive on 26 April 2010.
Adam joins ITV from Royal Mail Group, where he has been Group Chief Executive since 2003,
leading the modernisation of the group, transforming it from a heavily loss making position
to profi tability and reducing the cost base by £1.5 billion.
From 2000 to 2002, Adam was Chief Executive at The Football Association. During his time
at the FA, turnover doubled and fi nancing for the new Wembley Stadium was secured.
Between 1995 and 1999, Adam was Joint Chief Executive of Saatchi & Saatchi Advertising,
which he had joined in 1988.
Adam is a non-executive director of Debenhams plc; a non-executive director of Camelot
Group plc; and Chairman of the Employers’ Forum for Disability. Adam Crozier is 46 and holds
a BA in Business Organisation from Heriot Watt University.
ITV plc Report and accounts 2009
04
About us
ITV operates a family of UK television channels,
including ITV1, and delivers programmes online via
itv.com and ITV Player. ITV Studios produces and
distributes programmes in the UK and worldwide.
Broadcasting & Online
ITV Broadcasting operates ITV’s family of
channels: ITV1, ITV2, ITV3, ITV4 and CITV.
ITV1 is the largest commercial television
channel in the UK in terms of both audience
share and advertising revenues. In peak
viewing time, ITV1 attracts the largest
audience of any UK broadcaster, including
BBC1. ITV’s digital channels are available
on all multi-channel platforms and continue
to grow their audiences year-on-year.
Across its channels, ITV invests around
£1 billion each year in network and regional
programming, with the majority spent
on original UK production.
ITV’s channels are delivered free of charge
to consumers, funded by advertising
and sponsorship revenues, which totalled
£1,350 million in 2009.
ITV’s broadcast assets include the multiplex
operator SDN, which leases out digital
terrestrial capacity to channel operators on
the UK’s largest broadcast platform, Freeview.
ITV’s online operations include itv.com and
video on demand services on cable television
and other ‘closed’ platforms. itv.com delivers
ITV programming and clips to internet users
via ITV Player, funded by online advertising
and sponsorship.
Online revenues, primarily from online
display and video advertising, and including
Friends Reunited, totalled £37 million in 2009.
More on page 18 k
ITV plc revenues: £1.9 billion
ITV share of commercial viewing: 36.9%
ITV Studios
Broadcasting & Online
ITV plc EBITA: £202 million*
ITV Studios
Broadcasting & Online
40%
30%
20%
10%
0%
*Before exceptional items.
ITV channels
C4 channels Sky channels Five channels
ITV plc Report and accounts 2009 About us
05
ITV Studios
ITV Studios produces programming for
ITV’s own channels and for other UK and
international broadcasters. ITV Studios
also distributes programming, formats
and merchandising in the UK and
worldwide on multiple platforms.
ITV Studios makes more original programming
for ITV than any other producer, including
five of the top ten titles on ITV1 in 2009.
In addition, ITV Studios produces programmes
for the BBC, Channel 4, Five, Sky and other
UK broadcasters.
ITV Studios has a growing portfolio of
international production offices around
the world, including in the US, Germany,
Australia, Sweden, Spain and France.
In 2009, revenues from international
production were £138 million.
ITV Studios Global Entertainment is
ITV’s international distribution, home
entertainment, publishing, merchandising
and licensing business with offices in
London, Cologne, Hong Kong, Los Angeles,
Rio de Janeiro and Sydney.
With over 35,000 hours of original and
formatted programming from ITV Studios
and leading independent producers, Global
Entertainment distributes programmes to
broadcasters in 240 territories worldwide.
ITV Studios external revenues in 2009
totalled £335 million with an additional
£262 million of revenues from sales of
programming to ITV.
More on page 24 k
ITV employees at year end: 4,026
ITV Studios revenues: £597 million
Broadcasting & Online: 2,375
ITV Studios: 1,651
£400m
£300m
£200m
£100m
£0m
£335m
£262m
Programmes made for ITV
External revenues
ITV plc Report and accounts 2009
06
2009 at a glance
ITV’s priorities in 2009 were to strengthen the
balance sheet by focusing on cash; to deliver
substantial cost savings; and to maintain operational
progress across the core business.
January
February
March
April
May
June
Cash and financial position
Scheduled debt
repayments to
2014 of around
£700m
Secured ten-year
loan of £50m
Repaid £250m
bond and drew
down £125m
covenant free loan
Raised over £50m
via bond tap
extending existing
2015 bond
Reduced 2011
repayment by
around £200m via
bond exchange
Cost savings
£40m per annum
savings delivered
over 2006–08
PSB review
confirms ITV plan
to reduce regional
costs by £40m
£155m cost saving
target set for 2009,
including on and
off-screen savings
Core business
Broadcasting & Online
Digital Britain
report confirms
scope for further
savings in
regional news
Winter drama
launches include
Law & Order: UK,
Whitechapel and
Above Suspicion
ITV Player
launches on Virgin
Media television
platform
Freesat sells over
300,000 receivers
Third series of
Britain’s Got
Talent launches
and becomes the
most successful
series to date
Best ever month
on itv.com with
12.8m unique
users and 50m
video views
ITV2 overtakes
Five in terms of
volumes with
younger audiences
ITV Studios
Coronation Street
reaches its 7,000th
episode and
remains top rating
UK soap
Come Dine With
Me commissioned
for a further series
by Channel 4
Peak audience of
12.4m viewers
watch the final of
Dancing on Ice
Fox announce I’m
A Celebrity USA
line up, format
later sells to
Sweden and India
Entertainment
pilots, The Chase
and The Fuse air
on ITV1
Talkin’ ’Bout Your
Generation
launches in
Australia as the
highest rating
comedy series
premiere ever
ITV plc Report and accounts 2009 2009 at a glance
07
July
August
September
October
November
December
Reduction in
programme stock
drives £100m
working capital
gain over first half
ITV announces sale
of Friends
Reunited subject
to regulatory
clearance
Consultation on
pension initiatives
to reduce deficit
by around £100m
Launch of
convertible bond
which raised
£135m
Over £100m
of borrowings
repaid early
Repayments to
2014 reduced by
£371m to £324m
over the course
of 2009
Ofcom consult on
review of ITV
licence payments
Government
confirms Digital
Economy Bill to
address financing
for ITV regional
news
Targeted savings
delivered and
headcount
reduced by
over 1,200
ITV1 schedule
changes, with soap
moves and
Wednesday night
football
The X Factor
returns for its most
successful series
with the final
peaking at 19.3m
viewers
A peak of 9.8m
watch England
qualify for the
World Cup in 2010
ITV News
announces
relaunch, with
2009 ratings up
6% on 2008
ITV secures full
ownership of
breakfast franchise
GMTV
Project Canvas
receives provisional
approval from
the BBC Trust
Hell’s Kitchen USA
returns for sixth
season on Fox and
now watched in
over 90 territories
Four Weddings
sold to Germany
and US, following
UK run on Living
This Morning
relaunches on ITV1
and online with
ratings up 8%
ITV Studios
launches in Spain
with France
to follow
The Prisoner airs
on AMC in the US,
ahead of ITV
launch in 2010
Ninth series of
I’m A Celebrity UK
peaks with
11.5m viewers
ITV plc Report and accounts 2009
08
Operating review
The UK television advertising market experienced
record declines across 2009. We executed a concerted
response which ensured that ITV entered 2010 as a
leaner, fitter business, with a stronger balance sheet.
2009 was a very challenging year for ITV. UK television
advertising revenues fell by 9% in the final quarter of 2008
and weakened further across the first half of 2009, with ITV
advertising revenues falling by 15%. Such was the level of
market uncertainty, even then we could not be confident
that we were at the bottom of the downturn.
Given our high levels of financial and operational gearing,
ITV rapidly put in place an action plan, with three
over-arching priorities.
First and foremost, we needed to stabilise the finances of the
business to ensure that we could weather the economic storm.
Secondly, we needed to reduce our costs. We set out plans
to deliver savings in 2009 equivalent to 9% of our cost base.
Thirdly – and crucially – we were determined to maintain the
progress the business was starting to make. Cutting investment
or making savings by undermining ITV’s long-term health
would represent a false economy for our shareholders.
A year on, with some greater stability in the market, we have
delivered tangible progress against each of these objectives.
Cash and the balance sheet
With television advertising accounting for almost 70% of ITV
revenue, we had to work hard to ensure that the downturn
did not put undue pressure on cash and debt levels.
Whilst our EBITA before exceptional items reduced slightly,
we managed stock levels tightly and increased our adjusted
cash flow by £200 million. As a result, we reduced our net debt
by over £100 million at the year end.
We have also ensured that our debt is repayable over a longer
timeframe. We raised around £250 million of new borrowings
repayable over five to ten years, including a convertible bond.
We reduced our 2011 debt repayment by nearly 90%. All our
debt is covenant free and cash on the balance sheet is
sufficient to cover all repayments to 2015.
Whilst the immediate funding pressure has been reduced,
challenges remain. The pension deficit has increased, reflecting
actuarial changes. We are actively managing this risk, reducing
liabilities by £110 million through benefit changes. The next
major funding valuation is due in 2011.
Further details on the action we have taken to strengthen
the balance sheet are set out in the Financial review.
Cost savings
Across the three years to the end of 2008, ITV delivered
£40 million in cost savings. In the face of the economic
downturn, we committed to new savings of a different
order of magnitude, with a target of £155 million for 2009.
There are three elements to this cost reduction: regional
programming; network programming; and efficiencies
off-screen.
In regional programming, we reduced costs by £44 million.
We did this whilst maintaining service quality by simplifying
the regional map and reducing non-news output, both with
regulatory consent. Further regional savings may be deliverable
over time given the political consensus that the cost of our
licence commitments need to return to balance with reducing
licence benefits. Additional savings such further deregulation
would yield are not included in our savings targets.
We reduced network programming costs by £75 million during
the year. Our investment in original programming remained
substantial at £540 million, but reduced year-on-year by
almost £70 million. Nonetheless, ITV1 performed well, reducing
share of commercial impact decline compared to 2008 and
launching a number of successful new series, including Law &
Order: UK, The Cube, Above Suspicion and Whitechapel.
Off-screen we delivered £50 million of savings. Staff headcount
was reduced by over 1,200 posts and we closed operations where
further investment could no longer be justified. We have also
simplified our structure by integrating our Online business with
Broadcasting. We are seeking to dispose of the joint venture
Screenvision US and have agreed to sell Friends Reunited, subject
to final regulatory approval.
In total across 2009, we exceeded our target and delivered
£169 million in savings. These savings have protected our
profits in the face of revenue decline, but have also funded
important investments, including high definition, video on
demand and other emerging platforms and services, which will
continue into 2010.
ITV plc Report and accounts 2009
ITV plc Report and accounts 2009 Operating review
09
Core operating performance
In 2008 ITV held its share of audience and advertising,
whilst establishing its online video proposition and growing
its international production revenues. As important as it
was to reduce our cost base and to stabilise our finances,
we were determined to maintain this operational momentum
into 2009.
In fact, with our focus on delivery unwavering, we succeeded
in delivering further progress during the year across all of
our key business areas.
As well as holding our audience share once again, we increased
our share in peak viewing hours. We started to win back share
of the television advertising market from our competitors.
Online viewing of catch-up programming and clips started to
achieve consistent scale, driving revenue growth.
Our studios business continued to grow its external revenues,
leveraging successful UK productions overseas, and – in a tough
market context – held its profits year-on-year.
Further details of the operating progress made in 2009 are
set out over the following pages.
2010 and beyond
As set out in the Forward look on page 26, 2010 will be another
challenging year for ITV. But we are focused on delivering
further progress against our stated priorities.
In terms of our core operating performance, we will seek to
continue to hold our broadcast audiences and advertising
market share, whilst building our online reach. The breadth
of our service offering will increase with the planned launch
of an ITV1 HD service and ITV1+1, and continuing progress
towards bringing the Project Canvas video on demand service
to market. Our ITV Studios business has secured an extended
pilot deal with ITV channels and will look to leverage its UK
successes in the international market.
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John Cresswell
Interim Chief Executive
With respect to cash and the balance sheet, we will look to
maintain profit to cash conversion in excess of 90% on a rolling
three year basis. We will continue to manage our balance
sheet and our interest costs, whilst seeking to further de-risk
the pension liability.
We are continuing to keep a tight rein on costs, with the
review of licence payments and the next stage of regional
news reform offering further potential upside.
But whilst we have made progress and are clear on our
short-term priorities, the business continues to face some
considerable challenges over the longer term.
Whilst we are seeing year-on-year growth in the market in
early 2010, the outlook for UK television advertising remains
uncertain. ITV needs to look to protect its performance and
profits from the impact of advertising volatility by developing
alternative revenue streams. Online, we need to be exploiting
fully our deep programming archive, as well as catch-up and
clips. ITV Studios needs to deliver successful new international
formats, which will drive margin improvement alongside
revenue growth.
Such issues are being addressed in a strategic review which
is now underway. In the meantime, with a strong operating
performance, a lighter cost base and a number of key
commercial rivals under pressure, ITV is well positioned to
take full advantage if the stabilisation in the market continues
and we start to see a sustained economic recovery.
I am confident that the progress we have delivered over the
past year – in an unforgiving market context – means that ITV
is a leaner and fitter business in early 2010 than it was going
into the downturn in late 2008. ITV now has a stronger
platform to effect what will need to be an even more radical
transformation of the business over the next several years.
John Cresswell
ITV plc Report and accounts 2009 Operating review
10
x Joanna Lumley: Catwoman
x Whitechapel
ITV1
ITV1
x Emmerdale
x ITV1
ITV plc Report and accounts 2009 Operating review
11
x Britain’s Got Talent
ITV1
Britain’s Got Talent final attracted
an audience of 20 million viewers
ITV plc Report and accounts 2009 Operating review
12
x What Katie Did Next
ITV2
ITV plc Report and accounts 2009 Operating review
13
x The Xtra Factor
ITV2
x Tour de France
ITV4
x Ladies of Letters
x ITV3
£1 billion invested in programming
across the ITV family of channels
ITV plc Report and accounts 2009 Operating review
14
x England World Cup qualifi ers
150% rise in itv.com video views year-on-year
ITV plc Report and accounts 2009 Operating review
15
x This Morning
x Dancing on Ice
x Coronation Street
x
ITV plc Report and accounts 2009 Operating review
16
x The Prisoner
ITV1/AMC
x Hell’s Kitchen USA
Fox
ITV Studios Global Entertainment represents
35,000 hours of content
ITV plc Report and accounts 2009 Operating review
17
x Kändisdjungeln
TV4, Sweden
x Popstar to Operastar
ITV1
ITV plc Report and accounts 2009 Operating review
18
Broadcasting & Online
In a tough market, ITV’s channels outperformed their
commercial competition in terms of viewing and
advertising share. ITV’s core online service, itv.com,
grew its users, video views and revenues.
UK advertising came under considerable pressure during 2009,
with total revenues declining by 13%. Total UK television
advertising revenues declined by around 11%, slightly increasing
their share of the total advertising market to around 24%.
Growth in UK online advertising revenues was more muted than
recent years at around 3%. Nonetheless online advertising now
accounts for nearly a quarter of total UK advertising spend.
ITV’s outperformance in revenue terms across 2009 reflected
a positive negotiating round with advertisers, after ITV held
its viewing share across all its channels in 2008. In addition,
ITV was well positioned to compete for late monies as ITV’s
channels again held their viewing share in 2009. In peak
viewing hours, ITV’s channels actually increased their share
from 27.8% in 2008 to 28.2% in 2009.
ITV outperformed the wider television advertising market
significantly over 2009. As a result, although ITV’s television
advertising revenues declined by 9%, ITV’s share of the total
market increased from 43.8% in 2008 to 44.7%. This increase
followed ITV holding its market share year-on-year for the
first time in over two decades in 2008.
Across the year, there was considerable market volatility.
Over the first half, ITV net advertising revenue (NAR) was
down 15%, with year-on-year decline easing to 11% in the
third quarter. In the final quarter ITV NAR actually increased
year-on-year, with revenues in December up by 14%.
Quarterly change in net television advertising revenues
10%
0%
–10%
–20%
Q1
Q2
Q3
Q4
UK TV advertising market
ITV channels
This increase in peak share was delivered despite the continuing
pressure on ITV1 viewing from rising digital penetration.
During the year around 1.2 million UK homes converted
to digital multichannel. Three UK regions – the Borders, the
West Country and the North West – completed their transition
to digital, with analogue transmission ceasing. Across the UK,
by the end of 2009, around 95% of viewers were in multichannel
homes, with the remaining 5% due to convert by the conclusion
of switchover in 2012.
The main terrestrial channels, including ITV1, experience
viewing share decline as homes convert to multichannel.
However, this effect is easing as the UK approaches 100% digital
penetration. Since 2006, growth in viewing to ITV’s digital
channels has offset decline in ITV1 viewing share.
Of the different television platforms available to viewers, digital
terrestrial television, predominantly Freeview, accounts for 39%
of primary set reception, around the same level as satellite,
which is largely subscription but includes Freesat. Digital cable
– which is exclusively pay-TV – accounts for a further 13% of
homes. A small number of UK homes also subscribe to smaller
pay-TV operators, including Top Up TV and BT Vision.
UK television viewing levels remained flat in 2009, with the
average adult watching four hours of television a day. With the
BBC losing share, viewing of commercial television registered a
small increase, rising by 1% compared to 2008.
ITV channels delivered 326 billion commercial impacts –
individual adult viewings of 30 second television commercials –
an increase of 1% over the previous year. However, the volume
of commercial impacts across the market increased by 4%,
reflecting increased commercial viewing and more viewing
of digital channels carrying a higher volume of advertising.
As a result, ITV’s channels’ share of commercial impacts was
down slightly year-on-year at 40.0% (2008: 41.0%).
ITV plc Report and accounts 2009 Operating review
19
ITV1
On-screen performance
Across 2009, ITV1 delivered a 16.6% share of total UK viewing
compared to 17.2% in 2008. ITV1’s share of commercial viewing
(excluding the BBC) was 26.6% (2008: 27.8%). BBC1, BBC2 and
Channel 4 all suffered greater proportionate declines than ITV1.
ITV1 performed particularly strongly in peak viewing hours –
defined as 7.00 pm to 10.30 pm. ITV1 delivered a 23.7% peak
share overall (2008: 23.9%) and a 37.7% share of commercial
viewing in peak (2008: 38.6%). Again, ITV1’s main terrestrial
rivals all suffered proportionately greater declines. ITV1 delivered
nearly double the share in peak of Channel 4 and Five combined.
Share of commercial impacts is an important measure for
advertisers as it represents the proportion of all viewing of UK
commercials delivered by a channel. ITV1’s share of commercial
impacts in 2009 was 28.4% (2008: 30.0%). Across upmarket
ABC1 viewers and younger 16–34 year old viewers, ITV1
outperformed both its main commercial rivals, Channel 4
and Five, year-on-year.
Programming
The foundation of ITV1’s strong viewing performance in 2009
was a raft of successful new and returning programming,
within a significantly reformed schedule architecture. Although
the programme budget was reduced by 12% year-on-year,
ITV1 invested over £850 million in programming, including
£540 million in original UK commissions. ITV1 maintained
its spending on entertainment, but trimmed investment
in drama, with a focus on the soaps and 9.00 pm drama.
In entertainment, ITV1 had an exceptional year with each of
its four main entertainment events – Dancing on Ice, Britain’s
Got Talent, The X Factor and I’m A Celebrity – building their
audience. The final of the third series of Britain’s Got Talent
peaked with a 75% audience share, and was the most watched
non-sports programme on UK television for over five years.
In its sixth series, The X Factor introduced auditions before
a live audience and split its final stages over Saturday and
Sunday nights. The result was its most successful series
to date with the final attracting 19.3 million viewers.
Outside the four big franchises, entertainment successes
included Piers Morgan’s Life Stories, All Star Mr & Mrs,
The Royal Variety Performance and Ant & Dec’s Saturday
Night Takeaway. ITV also launched a successful new
entertainment format for Saturday nights, The Cube.
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ITV1’s soaps continued to deliver robust ratings. Coronation
Street averaged 9.2 million viewers (2008: 9.5 million), well
ahead of Eastenders on BBC1. Emmerdale averaged 6.7 million
(2008: 6.9 million).
Alongside the soaps, ITV1 delivered a number of highly
successful new 9.00 pm dramas. Whitechapel was the highest
rating new drama on any channel since 2006. Collision was
stripped across a week and peaked with 8.4 million viewers.
Law & Order: UK, a British version of the highly successful and
long-running US series, delivered an audience of 7.0 million.
In total, seven of the UK’s top ten new dramas across the year
were on ITV1, with a number of the most successful – including
Whitechapel, Above Suspicion and Law & Order: UK – returning
in 2010.
Top ten new dramas on UK television
Title
Whitechapel
Collision
Above Suspicion
Unforgiven
Murderland
The Day of the Triffi ds
Law & Order: UK
Demons
Hope Springs
Hunter
Channel
ITV1
ITV1
ITV1
ITV1
ITV1
BBC1
ITV1
ITV1
BBC1
BBC1
Audience
(million)
9.3
8.4
8.0
7.8
7.3
7.0
7.0
6.3
6.3
5.8
In comedy, a third series of Benidorm, with episodes extended
to an hour, delivered an average audience of 6.5 million.
Harry Hill’s TV Burp returned for a ninth series and averaged
6.7 million viewers.
The best performing sports programme on ITV1 in 2009 was
the UEFA Champions’ League final between Manchester United
and Barcelona, which peaked with 10.6 million viewers. Other
high performing sports programming included the FA Cup
and England home internationals.
Given the pressure on the programming budget, the ITV1
schedule included a greater emphasis on lower cost factual
programming. Strong factual performers included Piers Morgan
on…, Martin Clunes: Islands of Britain and Billy Connolly:
Journey to the Edge of the World. The best performing factual
programme in the year was Dancing on Ice: The Story of Bolero
which attracted an audience of 7.7 million viewers.
ITV plc Report and accounts 2009 Operating review
20
Broadcasting & Online
Daytime programming delivers over 20% of total ITV1 viewing.
During 2009, This Morning relaunched with Holly Willoughby
joining the presenting line-up and a range of editorial changes.
Ratings for the show improved with audiences in 2009 up 8%.
Other key daytime titles, The Jeremy Kyle Show and Loose
Women, held their audience shares on 2008.
In November 2009, ITV acquired the remaining 25% of GMTV
held by Disney. Full ownership of the breakfast franchise will
allow greater integration and cross-promotion between ITV1
and GMTV. Across 2009, GMTV held its audience share at 1.2%
(2008: 1.2%).
ITV reduced its investment in regional programming to
£68 million (2008: £112 million), as Ofcom approved
modernisation of ITV’s regional news services. Nonetheless
ITV1’s main regional news programmes at 6.00 pm continued
to deliver an average audience of 3.3 million viewers (2008:
3.4 million).
National and international news remains a key part of the ITV1
schedule. ITV invested in a significant marketing campaign to
support a relaunch of its national news programming during
the year. News at Ten’s average audience increased by 6%
compared to 2008. Across the year, ITV1’s main news
programmes delivered an average daily reach of 7.8 million,
compared to 1.8 million for Channel 4 News and 1.7 million
for Sky News.
Average daily news reach
8m
6m
4m
2m
0
ITV1
Channel 4
Sky News
The ITV1 network’s viewing figures across the year were
negatively impacted by the underperformance of the
independent ITV1 licensee, STV Group plc. STV increased its
level of opt outs from ITV1 dramas, including The Bill and
Doc Martin, and reduced its financial contribution to the
ITV1 network. STV’s share of commercial impacts fell by 12%
across the year.
Revenues
ITV1 television advertising revenues were £993 million, down
12% on 2008. Compared to recent years, ITV1 revenue growth
ran much closer to the overall market, where revenues were
down 11%.
The 2009 revenue performance was achieved despite the
continuing impact of Contract Rights Renewal (CRR). CRR allows
advertisers to reduce their commitment to ITV1 in line with the
channel’s share of commercial impact decline in the previous
year. ITV1’s share of commercial impact decline in 2008 was 6%.
However, 2009 ITV1 NAR decline ran relatively close to the
overall market decline, reflecting a strong on-screen performance
and a successful outcome to the advertising deal round.
The Competition Commission undertook a review of CRR during
2009 and, in early 2010, provisionally ruled that CRR should be
maintained. ITV had argued that CRR should be abolished
entirely and the outcome of the review is therefore disappointing.
ITV continues to believe that CRR is a disproportionate remedy
with negative consequences extending well beyond ITV.
The Competition Commission has provisionally concluded
that CRR should be amended to permit the inclusion of
an ITV1+1 and ITV1 HD service within CRR (see Forward look
on page 26).
ITV’s sponsorship revenues – predominantly in connection
with ITV1 programming – were £59 million in 2009 (2008:
£58 million). Sponsorship revenues were considerably more
resilient than NAR, reflecting longer term contracts and the
value to advertisers of allying themselves with successful
ITV programming. Major contracts in 2009 included esure’s
sponsorship of the National Weather and Harvey’s sponsorship
of Coronation Street. In addition, ITV secured important
contracts for 2010, including Lucozade and Hyundai’s
sponsorship of the 2010 World Cup.
ITV’s interactive revenues, primarily raised from competitions
and phone voting around ITV1 programmes, were £30 million
in 2009 (2008: £34 million). There were almost 100 million
viewer interactions, entries to competitions and votes across
the year. The X Factor final alone generated over 10 million
votes, up 28% year-on-year.
ITV plc Report and accounts 2009 Operating review
21
Digital channels
ITV’s family of digital channels – ITV2, ITV3, ITV4 and CITV – put
in another strong performance in 2009. Their combined share
of viewing was 5.3%, compared to 4.3% for the BBC’s digital
channels and 4.1% for the Channel 4 digital family.
ITV’s digital channels are broadcast free-to-air on Freeview,
digital satellite and cable and are entirely funded by advertising
and sponsorship. Notwithstanding wider market weakness,
ITV’s digital channels increased their television advertising
revenues by 1% to £245 million, raising their share of the total
UK television advertising market to 8.5% (2008: 7.5%). Across the
year, ITV’s digital channels generated more advertising revenue
than the UK’s third largest commercial channel, Five.
Although ITV’s digital channels delivered increased viewing,
advertising revenues and share across 2009, investment in
programming for the channels was held at £110 million
(2008: £112 million). This reflects ITV’s strategy of seeking
to contain its programming costs.
ITV2
ITV2, together with a timeshifted sister service, ITV2+1,
is particularly targeted at the younger 16–34 year old
demographic, with a schedule including a mix of original
commissions, spin-offs from ITV1 programming, movies,
US acquired series and repeats.
In 2009, ITV2 retained its position as the UK’s top multichannel
station in terms of its share of commercial impacts, with a
12% increase in adult commercial impacts translating into
a 4.3% share of total market impacts. ITV2 increased its
share of viewing to 2.4% (2008: 2.1%).
Impacts across ITV2’s target younger audience increased by
15% on the previous year, with ITV2 overtaking the terrestrial
channel Five in this commercially valuable demographic.
ITV2 also delivers more upmarket impacts than any other
UK digital channel and improved its audience profile further
during 2009 with ABC1 impacts increasing by 13%.
ITV2 had a number of programming successes during the year.
The Xtra Factor attracted the channel’s highest ever peak
audience of 3.5 million viewers, ahead of the Britain’s Got More
Talent final episode which peaked at 3.3 million viewers. Other
programming successes included Peter Andre: Going It Alone,
which peaked with 2.4 million viewers.
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ITV3
ITV3 is aimed at an upmarket audience, with a schedule
including repeated ITV drama, acquired programming, films
and some original programming.
In 2009, ITV3 retained its position as the UK’s second largest
multichannel station in terms of commercial impact share,
with a share of 3.4% (2008: 3.1%) and impact volumes up
by 16% year-on-year.
Across the year, 241 ITV3 programmes achieved an audience
of more than 500,000, compared to 147 programmes in 2008.
ITV3 had its best ever programming performance in 2009 with
Ladies of Letters delivering 1.3 million viewers and an 8.2%
viewing share. Other successful programmes included Lewis
and Poirot, which both had episodes with audiences of over
1.0 million.
Top ten UK digital channels by share of commercial impacts
5%
4%
3%
2%
1%
0%
ITV2 ITV3
E4
Dave More4 Sky1 ITV4
Living
Virgin1 Five
USA
ITV plc Report and accounts 2009 Operating review
22
Broadcasting & Online
ITV4
ITV4 targets young male viewers, with a schedule including live
football, darts, Tour de France cycling, classic repeated drama
and US acquisitions.
ITV4 grew its impacts by 8% in 2009 and was the UK’s seventh
largest multichannel station in terms of commercial impact
share, with a 1.5% share of commercial impacts.
ITV4’s top performing programme of the year was the UEFA
Cup match between Manchester City and Hamburg, which
attracted a peak audience of 2.7 million viewers and averaged
a 13% share of male viewers. The top non-sport programme
on ITV4 was the action movie Crank, which attracted a peak
audience of 1.0 million viewers and a 10% share.
CITV
CITV is ITV’s channel for younger viewers and features a range
of UK and imported children’s programming. In 2009, CITV’s
share of commercial impacts for children increased by 6%
to 3.1%, with its volume of children’s impacts up by 6%.
SDN
SDN is a digital terrestrial television (DTT) multiplex operator
wholly owned by ITV. SDN earns revenues by leasing out
capacity on the DTT platform to channel providers, generally
on long-term contracts. Channels carried on the SDN multiplex
include QVC, Five and CITV.
SDN holds one of six digital terrestrial multiplex licences.
During 2009 the licence was renewed by the regulator Ofcom
and the second licence term runs to 2022. No spectrum fee
is payable until the end of 2014 at the earliest.
In 2009, SDN revenues increased by 33% to £44 million,
reflecting improved terms for a channel contract renewed
in early 2009 and the accommodation of a tenth broadcast
channel from May 2009.
Having considered the sale of SDN earlier in the year, in October
2009 ITV announced that preliminary discussions had been
opened with the Trustees of the ITV Pension Scheme over a
partnership arrangement under which SDN would provide asset
backing to the pension scheme. Such a partnership could serve
to reduce the pension deficit on a funding basis, with ITV
continuing to consolidate SDN’s revenues and cash flows.
Discussions regarding this proposal are continuing.
Freeview, Freesat and Project Canvas
ITV is a shareholder in Freeview, which markets the highly
successful UK free-to-air DTT platform. By the end of 2009,
Freeview was the primary means of television reception in
10.1 million UK homes, with a further 5.9 million homes using
Freeview on one or more non-primary sets.
ITV is also a joint venture partner in Freesat, which markets
subscription-free digital satellite television. Freesat was launched
in early 2008 by ITV and the BBC to provide free-to-air access
to digital satellite, including HD services from the BBC and ITV.
By the end of the year, subscription-free digital satellite
was the primary means of television reception in 0.7 million
UK homes.
ITV’s backing for Freeview and Freesat reflects ITV’s strategy
to future-proof the digital platforms on which ITV’s family of
channels performs strongest. Consistent with this strategy,
ITV is also a partner in Project Canvas, which aims to set a
standard for on demand services delivered via internet-
connected set-top boxes and televisions.
Project Canvas will allow all digital viewers – free-to-air as well
as pay – access to video on demand programming on the
television set. ITV’s partners in the project include the BBC,
BT, Five, Channel 4 and Talk Talk. Having been provisionally
approved by the BBC Trust in late 2009, preparations for
the launch of Project Canvas are continuing.
Year end penetration of UK television platforms
40%
30%
20%
10%
0%
Freeview
Pay
Satellite
Cable
Analogue
Terrestrial
Freesat
ITV plc Report and accounts 2009 Operating review
23
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Video on demand deals with Virgin Media and BT Vision allow
their combined 3.5 million subscribers access to hundreds of
hours of ITV content via their televisions on an on demand
basis. ITV also has a partnership with iTunes which makes
ITV’s programming available for paid-for download.
Early in 2009, the Competition Commission blocked Project
Kangaroo, the proposed joint venture between the BBC, ITV,
Channel 4 and Five to deliver an online video archive service.
Since that decision, ITV has been pursuing alternative means
of exploiting its extensive video archive via itv.com and
potential third-party partnerships.
During 2009, the online division was integrated into ITV’s
wider broadcasting operations, generating significant savings.
As with ITV’s existing digital channels, there is an opportunity
to leverage ITV’s investment in content and ITV1’s cross-
promotional power to drive traffic and revenues to online
and on demand services.
Online revenues totalled £37 million in 2009, up 3% on 2008.
Excluding Friends Reunited, itv.com revenues were £24 million,
up 33% on 2008. The largest single element of itv.com revenues
is accounted for by video advertising, with the balance including
payments from video on demand deals with pay-TV platforms.
Friends Reunited’s revenues declined by 28% to £13 million,
impacted by the decline in online display advertising prices
and the loss of subscription revenues from the core reunions
site following its relaunch in 2008.
In August 2009, ITV announced that it had agreed to sell Friends
Reunited to Brightsolid for £25 million. The proposed disposal
is currently being reviewed by the Competition Commission.
Online
The UK online advertising market continues to grow as
broadband penetration has reached 70% of UK households.
With faster broadband connections, the demand for online
video has increased and a number of new online video services
have been launched. Digital cable subscribers can already
access services, including ITV Player, via their television.
New services, such as Project Canvas, promise to accelerate
further the convergence of online video on demand and
television platforms.
ITV’s focus has been on building the reach of its online video
services delivered via itv.com and a number of partnerships.
In 2009, itv.com unique users averaged 8.7 million per month,
increasing by 33% on 2008. Online video viewing of ITV
programming has also continued to grow rapidly. Including
catch-up and short form clips, video views across the year on
itv.com totalled 215 million, up 150% from 2008. Both metrics
peaked in May, with Britain’s Got Talent boosting unique
users to 12.8 million and video views reaching 50 million
for the month.
Average monthly itv.com unique users
10m
8m
6m
4m
2m
0
8.7m
6.5m
5.0m
2007
2008
2009
ITV plc Report and accounts 2009 Operating review
24
ITV Studios
2009 was a challenging year for the UK and international
television production market. The economic downturn
impacted demand for original production from broadcasters.
With their own advertising revenues falling, commissioners
sought to apply downward pressure on producers’ prices
and margins or replaced original commissions with cheaper
acquisitions and repeats.
Despite the downturn amongst its broadcast customers, ITV
Studios increased its external revenues by 9% to £335 million
(2008: £306 million). However, overall revenues fell by 4%
to £597 million (2008: £622 million), reflecting a significant
reduction in internal ITV commissions. Following a similar
pattern of increased external revenues and reducing
ITV commissions the previous year, for the first time in
2009 external revenues represented the majority of overall
ITV Studios’ revenues.
EBITA before exceptional items was held at £91 million
(2008: £90 million), with efficiency savings, international
growth and some exchange rate gains offsetting lower
internal supply.
ITV Studios: Shifting composition of revenues
International production
2009: £597m
Distribution and exploitation
UK production
International production
2006: £632m
Distribution and
exploitation
UK production
UK Production
Internal revenues, largely commissions for ITV1, fell by
£54 million to £262 million. The reduction in internal
commissions partly reflected a reduction in ITV1’s budget.
However ITV Studios’ share of ITV1 commissions fell to 47%
in 2009, compared to 51% in 2008.
The most significant reduction in internal commissions was in
drama, with a number of established titles, including A Touch
of Frost and Heartbeat, not broadcast or transmitted in shorter
runs. In other cases, including Albert’s Memorial and Identity,
transmission has been delayed into 2010. Nonetheless ITV
Studios continued to deliver more ITV1 drama than any other
producer, with returning titles including Lewis and Blue Murder,
and new commissions including Gunrush and The Fattest Man
in Britain.
Entertainment commissions for ITV1 also reduced, but included
I’m A Celebrity, Dancing on Ice and The Krypton Factor.
Two new shows – The Fuse and The Chase – were delivered
under an ITV pilot deal, which is being extended in 2010.
With ITV1’s programme budget under pressure, more cost
effective factual programming has been a focus. ITV Studios
deliveries included Real Crime, Airline and Countrywise.
ITV Studios also continued to produce the key pillars of
ITV1’s daytime schedule, including The Jeremy Kyle Show,
This Morning, Loose Women and 60 Minute Makeover.
ITV Studios’ two soaps – Coronation Street and Emmerdale –
remained ITV1’s most effective ratings drivers over the course
of 2009. Coronation Street reached its 7,000th episode in
January 2009 and celebrates its 50th birthday in 2010.
Trading conditions beyond ITV were tough with other UK
broadcasters also cutting programme budgets. Reflecting
these trends, ITV Studios’ external UK production revenues
reduced by 15% to £58 million. However, successful third-party
commissions included The Street, Eggheads and University
Challenge for the BBC, Come Dine With Me and Countdown for
Channel 4 and two new formats for Living, My Ugly Best Friend
and Four Weddings.
Resources revenues from ITV’s studio facilities and post-
production business were £13 million (2008: £17 million),
reflecting the decline in UK production activity and closure
of studios in Leeds.
ITV Studios won 45 awards in 2009 (2008: 61 awards), with
winners including Ant & Dec’s Saturday Night Takeaway,
The Street and Loose Women.
ITV plc Report and accounts 2009 Operating review
25
Despite the downturn amongst its broadcast
customers, ITV Studios increased its external
revenues by 9% to £335 million and held EBITA
before exceptional items at £91 million.
International Production
ITV Studios Global Entertainment
ITV has been seeking to diversify its production revenues over
recent years. International production has been a particular
focus with ITV seeking to move from distributing programming
or selling format rights to producing original programming
in local markets for international broadcasters. In more
challenging trading conditions, ITV’s international production
businesses were able to maintain strong growth across 2009,
with revenues increasing by 41% to £138 million (including
some foreign exchange benefit).
This growth has been founded on ITV’s ability to deliver locally
adapted versions of proven UK hits to the international market.
ITV Studios produced Come Dine With Me – originally made
by ITV Studios for Channel 4 in the UK – for VOX in Germany,
for TV4 in Sweden and for Lifestyle in Australia. During the year,
ITV produced local versions of I’m A Celebrity for NBC in the
USA, RTL in Germany, Sony Entertainment Television in India
and TV4 in Sweden – as well as on ITV1.
The largest of ITV’s international production businesses, ITV
Studios USA, delivered a strong slate of programming including
Hell’s Kitchen and Kitchen Nightmares for Fox, Room Raiders
for MTV and Steven Seagal Lawman for A&E.
Alongside ITV Studios’ existing production offices in Germany,
Australia and Sweden, ITV opened a further production base
in Spain and, early in 2010, in France.
ITV’s distribution and exploitation business, ITV Studios Global
Entertainment, held its revenues broadly flat in 2009 at
£126 million (2008: £123 million). This was despite challenging
trading conditions, in particular in the UK DVD market, and
reflected some benefit from foreign exchange movements.
ITV Studios Global Entertainment represents more than
35,000 hours of original and formatted programming from
ITV Studios and leading independent producers and distributes
to broadcasters in more than 240 territories worldwide.
Major revenue earners in 2009 included Coronation Street,
Emmerdale, Poirot and Heartbeat, with Australia, Ireland,
Canada, the USA and Scandinavia the major territories.
A new version of The Prisoner, co-produced by ITV Studios
and AMC in the US, will be broadcast on ITV1 in 2010.
Major format sales include Come Dine With Me, which has
been sold to countries including Slovenia, Sweden, Australia
and Norway. New ITV Studios format Four Weddings has also
delivered international format sales following its UK success.
ITV Studios Home Entertainment markets a portfolio of over
3,000 television, music, film and publishing titles across formats
including DVD, Blu-ray, and downloads in the UK and
internationally. Major UK revenue earners included Harry Hill’s
TV Burp, Al Murray: The Pub Landlord, Coronation Street:
Romanian Holiday and Inspector Morse.
Lifetime revenues of ITV Studios formats
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£150m
£100m
£50m
£0
I’m A Celebrity Hell’s Kitchen
Come Dine
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ITV plc Report and accounts 2009 Operating review
26
Forward look
Forward look
Although the wider economic environment may be more
stable in 2010, the outlook remains highly uncertain and
ITV faces another challenging year.
of devices allowing free-to-air access to video on demand
services via the television, as part of Project Canvas, will
also continue.
Broadcasting & Online
In early 2010, the television advertising market has returned
to growth. Across the first quarter, ITV expects its television
advertising revenues to be up 7%, in line with the wider UK
television advertising market.
Into the second quarter, the level of Government spending
on UK television advertising may be impacted by the general
election. However it is hoped that this should be offset by
the positive impact of the football World Cup. Whilst ITV
has limited visibility on advertising beyond the first quarter,
ITV is seeking to hold its share of the total market for a third
year in succession.
Forecast change in ITV net TV advertising revenue, 2010
20%
16%
12%
8%
4%
0%
Jan
Feb
Mar
ITV has continued to deliver a stable ratings performance
in early 2010, with the ITV family maintaining its share of
commercial impacts year-on-year over the first six weeks.
Over the same period, ITV1’s share of commercial impacts was
28.7% (2009: 29.4%), reflecting the success of programming
including Above Suspicion, Take Me Out and Dancing on Ice.
As well as the start of the football World Cup, the second
quarter includes the fourth series of Britain’s Got Talent.
Following the Competition Commission review of CRR, ITV
anticipates launching ITV1+1 and the ITV1 HD channel later in
2010. ITV1+1 and the HD services will strengthen ITV’s channel
line up and the channel offering on DTT, the platform on
which ITV’s channels perform best. Preparations for the launch
With the CRR review completed, Ofcom intends to review
the rules on advertising minutage. Currently ITV1 (alongside
Channel 4 and Five) is required to broadcast a lower volume of
advertising than other UK commercial channels and must sell
all its inventory. ITV believes that it could potentially benefit
from greater flexibility with respect to such restrictions.
Ofcom is also set to consult on the limited introduction of
product placement to UK television later in 2010. While there is
uncertainty as to the scale of the market, product placement
represents an opportunity for further revenue diversification.
The requirement on ITV1 to broadcast regional news services
remains a costly obligation which ITV believes is unsustainable
in its current form. Government has confirmed a pilot scheme
which may see ITV plc relieved of regional news costs in two
regions as early as 2010/11 and a framework for external
funding of regional news across ITV by 2013. The Conservative
Party opposes these specific proposals, but has also supported
a reduction in ITV’s public service broadcasting obligations.
ITV1 has been required to make payments to the Treasury
for its Channel 3 licences, which in 2009 totalled £22 million
(2008: £30 million). An early review of the level of these licence
payments is currently underway with new rates expected
to be retrospectively applied from January 2010.
ITV Studios
Trading for ITV Studios is expected to remain tough during
2010, reflecting pressure on commissioning budgets amongst
broadcasters worldwide. Internal commissions will be impacted
as ITV’s programme budget accommodates additional
investment on the football World Cup. In international
production, a number of commissions secured in 2009 are
not expected to be recommissioned for 2010, but may
return for 2011.
Strategic review
Early in 2010, ITV launched a major strategic review. The review
will set out the journey ITV needs to embark on to deliver its
strategic objectives. The new Chief Executive Adam Crozier
is expected to set out the new strategy for the business later
in 2010.
Having exceeded its cost savings target for 2009, ITV is
continuing to keep a tight rein on costs in 2010, with total
schedule costs expected to be flat and further off-screen
savings in train. ITV continues to make targeted investment,
in particular to support the launch of ITV1 HD, ITV1+1 and
Project Canvas.
27
ITV plc Report and accounts 2009
Stakeholders
ITV’s major stakeholders include shareholders,
employees, suppliers, viewers and online users, UK
and international broadcasters, and advertisers.
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Diversity
ITV’s diversity policy aims to ensure equality of opportunity
irrespective of gender, marital status, race, origin, nationality,
religious belief, disability, age or sexual orientation in recruitment,
learning, development and promotion. This also covers the
arrangements for continued employment of and appropriate
training for employees who become disabled whilst working
at the Company.
ITV is an active participant in the major diversity forums.
Through these and direct activities undertaken by ITV regionally
and nationally, the Company is committed to working towards
achieving a workforce fully reflecting the audiences it serves.
The table on page 29 gives further information on ITV’s
workplace profile.
Communication
ITV recognises that creating an effective workplace requires
free circulation of information at all levels across the Company.
Employees are kept informed about significant business issues
and the Group’s performance using emails, the Company
intranet – The Watercooler – and open forums with members
of the Management Board at each main location. Regular
monthly leadership breakfasts are held for senior management,
who are asked to cascade the information to their teams.
The Watercooler also provides a platform on which employees
can interact, discuss current corporate issues and register
any matters of concern.
The Company has a framework for consultation and information-
sharing, under which Communication Groups on each ITV site
are responsible for maintaining a regular two way dialogue
with management on all issues concerning employees.
Health and Safety
The health and safety (H&S) of employees, contractors and
visitors at ITV is always a high priority. A management system
has been developed by the internal H&S team to meet the
specific risk profile of the business and is supported by a
comprehensive training programme. H&S is communicated
throughout the organisation by a network of local Committees,
who report to the ITV H&S Steering Group. The table on page
29 gives further information on ITV’s H&S statistics.
Employees
Given the difficult economic environment, ITV has seen its
headcount fall significantly during 2009. As at 31 December 2009,
the Company had 4,026 employees (2008: 5,232 employees).
In tough market conditions, building employee engagement
and commitment is an even greater priority for the Company.
In 2009, ITV undertook regular staff surveys to track staff
opinion, commitment and engagement (see page 33).
People development
Ensuring that staff have the necessary skills and experience to
deliver the Company’s corporate objectives in rapidly changing
market conditions is a priority for ITV.
The Company’s performance management process seeks to
ensure that ITV employees have clear and aligned objectives
which are evaluated each year. All managers are required to
undertake a formal Performance and Development Review
with their staff. In 2009, ITV refined its core training portfolio
to focus on those core skills that best meet the priorities
of the business.
ITV has also implemented a number of initiatives in 2009 that
give employees broader experience and enhance company-
wide commitment. These include the relaunch of the
volunteering scheme which allows employees to use their
creative and media skills through a range of volunteering
opportunities. A 12 month Fast Track scheme allows
talented ITV staff at the beginning of their careers to
build experience and skills on an accelerated basis.
Rewards and incentives
In order to attract, retain and motivate the best talent, ITV
aims to offer all employees a competitive package of pay,
benefits and incentives. In January 2010 ITV completed its
annual pay review and concluded that there should be no
increase in base salary for any ITV employees. However, to
provide recognition to its employees for their hard work
and loyalty shown during a difficult year, ITV made a share
award to the value of £340 to all eligible employees and
provided an extra day’s holiday.
ITV offers a number of initiatives as part of its benefits
package to incentivise all employees:
– an annual bonus scheme for all ITV employees, which
is dependent on ITV’s performance against key financial
and non-financial targets;
– an all-employee reward scheme, Create, which rewards
employees for any new ideas that generate profit
or improve the way ITV does business; and
– a Save As You Earn scheme which gives all employees
the chance to save and build a stake in the Company.
ITV plc Report and accounts 2009 Stakeholders
28
Customers
Suppliers
Our key customers are our viewers, our advertisers and
other broadcasters.
The heart of our business lies in delivering first-rate content
to viewers, either directly via our family of channels, or via
the sale of our content.
To understand ITV viewers and their expectations of us more
fully, throughout 2009 we continued to commission an
independent research company to recruit and survey our Vision
Panel – a fully representative panel of 10,000 adult television
viewers – and a smaller independent panel, My Digital Life, to
obtain feedback from the online market. This enables ITV to
measure audience reaction to our programmes and content
on a daily basis and to achieve an in-depth understanding of
viewer reaction and preferences. It also allows ITV to ask regular
questions about the family of digital channels, using the panel
to test new ideas and to find out people’s views on broader
media issues. The success of the research has led it to be used
by a wide range of areas within the business. In 2009 for the
first time it was used to help develop programme-related
merchandising opportunities.
Viewers must be confident about the quality and appropriateness
of ITV’s content and scheduling. ITV observes the 9.00 pm
watershed and alerts viewers to material that may cause
offence via announcements immediately before relevant
programming. ITV has detailed compliance processes and an
in-house compliance team that provides support and advice
for programme makers and commissioners before and during
production. ITV maintains a responsive complaints handling
service via ITV’s Viewer Services team, and viewers can raise
any issues directly with Ofcom. In 2009, 797 ITV programmes
were complained about to Ofcom, compared to 1,026 in 2008,
and 13 Ofcom adjudications found breaches compared to
16 in 2008.
The relationship with advertisers is essential to drive advertising
revenues. ITV continues to build close relationships with the
advertisers and agencies, to gain a better understanding
of their objectives and to enable ITV to meet those needs
more efficiently and effectively.
ITV Studios has supplied programming to broadcasters and
commissioners worldwide. The business works closely with its
partners to produce and supply the highest quality content,
which is commercially appealing and rewarding.
ITV conducts business with a large variety of suppliers and
believes that its terms are considered fair and reasonable.
To ensure ITV contracts with responsible suppliers,
environmental and health and safety questionnaires are
required to be completed as part of all tender processes.
A green and sustainable procurement agenda will continue
to be a key focus for the centralised procurement team.
Procurement plays a significant role in driving corporate
performance. A significant transformation within the
function and better accounting systems have enabled ITV’s
procurement function to be integrated more effectively into
the way ITV conducts its business. Procurement manages
spending along category lines enabling it to manage spend
more effectively. There are central contracts in place for
technology, broadcast, production and marketing spend,
with local deals only being used where a justification has
been agreed.
ITV has a variety of suppliers who are key to the business.
A number of the Company’s major suppliers are involved
in the broadcast of ITV’s family of channels and include Arqiva,
TNS, SES Astra and BT. Key suppliers of programming and
broadcasting programme rights include ITN, who provides ITV’s
national news programmes, Fremantle who produce Britain’s
Got Talent and The X Factor for ITV1, the Football Association
and NBC Universal Studios. ITV has recently signed a five year
outsourcing contract with Accenture for them to provide ITV
with technology operations and support services. Services will
be transitioned to Accenture during 2010. ITV ensures close
engagement with these suppliers and seeks to manage the
risks involved in the reliance upon them, where possible holding
long-term contracts. Other key suppliers include those who
provide the technology for outside broadcast, for example
O21 Television and SIS. ITV has de-risked its exposure to these
suppliers by moving away from reliance on a single partner.
Community
ITV is committed to engaging viewers across the country on
issues that affect their lives and have an impact on the
community in which they live. Both on and off-screen, ITV’s
network and regional teams play an important role in initiatives
which seek to encourage individuals to improve their lives,
support community projects or promote integration of
minority groups within their region.
In 2009 ITV was an active partner in the cross-industry
and government campaign to improve the nation’s health
and fitness. As a founding member of the Business4Life
movement, ITV supported the Change4Life campaign both
on-screen and online by launching The Feelgood Factor.
This initiative involved network and regional programming
with a focus on helping viewers make positive changes to
achieve a healthier lifestyle for themselves and their families.
ITV plc Report and accounts 2009 Stakeholders
29
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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 activity may fall within the wide definition
of political expenditure contained in the Companies Act 2006.
Shareholder authority for such expenditure was given at the
Annual General Meeting in 2009 and a similar resolution will be
proposed at the 2010 Annual General Meeting. During the year
the Group made no payments falling within the definition of
political expenditure (2008: £7,968).
Corporate Responsibility
ITV recognises the importance of Corporate Responsibility.
Full details on ITV’s Corporate Responsibility objectives and
activities will be set out in the separate Corporate Responsibility
report available on the Company’s website, www.itvplc.com.
The table below provides a summary of performance against
key Corporate Responsibility performance indicators.
Protecting the environment1
CO2 emissions from business
travel (tonnes)2
Total CO2 emissions (tonnes)2
Total waste (tonnes)
Total waste recycled
Total water use (m3)
Workplace profile (%)
Female employees
Ethnic minority employees3
Employees with a disability4
Employees aged over 50
Health and Safety5
Accidents requiring more
than three days off work
Major accidents
Fatal accidents
Access Services for ITV1 (% of programmes)
Subtitling
Audio description
Signing
2009
2008
6,831
46,383
2,195
65%
86,656
5,867
50,471
1,900
36%
93,175
48.2
9.1
3.1
12.9
6
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94.5
17.3
5.6
49.0
9.0
2.0
15.0
5
2
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95.5
13.2
5.3
(1) UK only, including landlord managed sites. Assistance with data compilation by Mason
Hardy Ltd.
(2) Calculated in accordance with the WRI/WBCSD Greenhouse Gas Protocol methodology.
(3) Percentage of those who disclosed their ethnicity.
(4) Percentage of those who disclosed their disability.
(5) Staff accidents excluding contractors.
In 2009 the ITV regional news programmes across the UK
helped give away £3.5 million of lottery funding in the People’s
Millions competition. Around 70 community projects received
awards of up to £50,000 from the Big Lottery Fund. Now in its
fifth year, the People’s Millions competition within regional
news programmes has helped give away more than £21 million
with hundreds of good causes benefiting as a result.
ITV engages in Diversity and Disability initiatives including
our award-winning in-house signing facility, Signpost,
which provides online signing services, news, information,
entertainment and education in and about sign language.
In 2009, Signpost won a national RADAR Award – the Disability
Network’s People of the Year Awards for ‘Doing it Differently’.
Environment
Careful management of environmental matters is a priority
for ITV. During 2009, ITV undertook a range of activities as
part of our environmental management programme, such
as supply chain and carbon management.
ITV continued to measure and monitor its carbon footprint
and environmental impact during 2009. The reshaping of the
business during the year, coupled with the ongoing focus on
resource management, has led to a reduction in both the
consumption of water and the size of the carbon footprint
of certain parts of the business. This decrease reflects changes
in the property profile of the Company and changing
operational practices.
Environmental legislation continues to evolve and ITV has
procedures in place to ensure new regulatory requirements
are identified, understood and proactively managed. ITV is
preparing to meet the regulatory requirements of the CRC
Energy Efficiency Scheme. A cross business working group
has been established to manage both the risks and
opportunities presented by the requirements. In preparation
for this legislation ITV has identified a wide range of
organisational responses.
ITV continues to operate an innovative waste management
contract with an external organisation that encourages waste
reduction and the recycling of materials. This contractual
arrangement has been in place since 2008 and the work
associated with it has been recognised with ITV winning a
Corporate Responsibility Award from the Management
Consultancy Association. During 2009 ITV saw an increase
in the percentage of waste that was diverted from landfill
and instead sent for recycling.
Donations
The Company made contributions to charities and equivalent
organisations amounting to £2 million (2008: £2 million) in cash
and £10 million (2008: £5 million) in kind, totalling £12 million
(2008: £7 million). Further details will be set out in our
Corporate Responsibility report.
ITV plc Report and accounts 2009
30
Risks and uncertainties
ITV operates in a market which is being transformed
by digital technologies. The broader economic
environment is also uncertain. In addition, ITV is
subject to regulatory risk.
The Company works hard to identify and manage the
major risks to which the business is subject across all areas
and including both financial and reputational risks.
ITV employs an Enterprise-wide Risk Management (ERM)
programme in order to identify and monitor major risks
impacting the business and in order to ensure that these risks
are appropriately managed with adequate mitigating actions in
place. The risk factors below were identified as most significant
from the 2009 ERM programme.
These risks do not necessarily comprise all the major risks to
which ITV is subject and they are not set out in any order of
priority. The business may be subject to risks and uncertainties
which are not known to ITV or which are currently judged
to be immaterial.
Further details on governance arrangements by which risks
and uncertainties are monitored and managed are set out
in the Audit Committee report.
Group
Risk description
Strategy execution
ITV needs to deliver the three core objectives
set out in response to the downturn – and
to develop its strategy for long-term growth
Structural risk
With the media market undergoing rapid
structural change and new platforms and
technologies constantly developing, ITV needs
to ensure that broadcasting and content
revenues and profits are not eroded
Market conditions
As a business with a high reliance on
cyclically-exposed television advertising revenues,
ITV needs to adapt to any potential deterioration
in economic and market conditions putting
pressure on ITV’s revenues, profits and cash flow
Impact
Mitigation
– Loss of market share
– Reduction in EBITA before exceptional items
– Deterioration in cash flows
– Strategy review launched in early 2010 will
produce clear plans for delivery of strategic
objectives across all relevant areas
– Regular review of progress against plans
– Reduction in television advertising revenues
– Reduction in EBITA before exceptional items
– Implementation of strategy to strengthen ITV’s
favoured platforms
– Devising new products and services to take
advantage of emerging opportunities
– Lower audience for ITV programming
– Improving return on investment for
and channels
programming spend
– Loss of volume and share of impacts
– Loss of television advertising market share
– Ensuring appropriate composition and targeting
of ITV’s channel portfolio
– Building strong customer relationships with
agencies and advertisers
People
ITV’s success is critically dependent on its ability
to attract and retain key people across the
business at all levels on and off-screen
– Business underperformance
– Reduced staff engagement
– Appropriate employment terms for on
and off-screen talent
– Investment in training and development
– Staff surveys and communication programmes
Balance sheet
In an uncertain economic context and a
transforming media market, ITV requires a robust
balance sheet, including pension obligations,
in order to be able to respond to market
opportunities and meet its long-term
funding obligations
– Limited access to financing and reduced liquidity
– Inability to fund potentially profitable
investment opportunities
– Diversion of cash flows to interest
and pension payments
– Extending debt maturities to ensure no
short-term liquidity pressure
– Ensuring appropriate funding across debt
and equity
– Regular contributions to pension scheme
and initiatives to address pension risk
ITV plc Report and accounts 2009 Risks and uncertainties
31
Broadcasting & Online
Risk description
Maintaining performance
To ensure that its channels’ audience and
advertising share are both maximised, ITV needs
to sustain and improve the quality of its
programming schedule, including by securing key
externally produced programmes, and to optimise
its sales performance
Compliance
To deliver on its regulatory obligations and
maintain the trust of its viewers and advertisers,
ITV needs to meet compliance requirements
applying to its broadcasting licences, in particular
with respect to premium-rate telephone services
Regulation
In a context of rapid market change, ITV needs
to ensure that inflexible regulation does not
prevent the Company delivering economically
viable deals with its suppliers, network partners
and customers
ITV Studios
Risk description
Rights ownership and exploitation
With the Company’s success critically dependent
on its ability to develop valuable programming
properties, ITV needs to sustain and exploit
commercially a creative pipeline of new formats
and original commissions
Margin protection and growth
With pressure on broadcasters’ budgets, including
ITV’s own, delivering sustainable margins on
production requires innovation with respect
to funding models, management and cost
Impact
Mitigation
– Lower audience for ITV programming
– Improving return on investment for
and channels
programming spend
– Loss of volume and share of impacts
– Loss of television advertising market share
– Loss of key externally supplied programming
– Ensuring appropriate composition and targeting
of ITV’s channel portfolio
– Building strong customer relationships with
agencies and advertisers
– Maintaining high level of internal commissions
to reduce reliance on external producers
– Damage to the ITV brand
– Lower audience commitment to ITV
– Appropriate compliance processes and
management
– Legal input into all business contracts
– Reporting to Ofcom on airtime sales
– Lower audiences for ITV programming
– Communicating to Government and regulator
and channels
– Loss of volume and share of impacts
– Lower broadcast revenues
the case for regulatory reform
– Extending broadcast revenue opportunities
via appropriate regulatory reform
– Managing remaining regulatory hurdles
to minimise negative business impact
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Impact
Mitigation
– Reduction in ITV Studios EBITA before
exceptional items
– Ensure appropriate employment policies
to attract and retain the best talent
– Continue to build international production
bases and wider broadcaster relationships
– Exploit and extend existing critical mass of
internal ITV commissions (e.g. via pilot deals)
– Reduction in ITV Studios EBITA before
exceptional items
– Development of co-production and
co-development partnerships
– Delivery of efficiency review savings targets
– Exploitation of commercial opportunities
beyond programming and format sales
ITV plc Report and accounts 2009
32
Key Performance Indicators
ITV’s Key Performance Indicators (KPIs) are used
by the Company to assess its own performance
against objective financial and non-financial criteria.
As detailed in last year’s Annual Report, ITV has reviewed its
KPIs to ensure that they reflect the focus of the business on
cash and the balance sheet and on delivering public cost
savings targets, as well as maintaining the core operating
performance. As a result, three new KPIs have been introduced
for cash conversion, cost savings and for market share.
Profits, costs and cash
Cost savings
EBITA before exceptional items
Adjusted earnings per share
‘Profit to cash’ conversion
2009
£169m
£202m
1.8p
177%
2008
–
£211m
1.8p
75%
Financial KPIs
ITV’s financial KPIs provide yardsticks for assessing the financial
performance of the Group overall and across its major business
areas. Further detail on ITV’s financial performance can be
found in the Operating and Financial reviews.
Revenues and market share
Total ITV revenues
ITV net advertising revenues
ITV share of UK television advertising market
ITV Studios revenue (including internal)
Online revenues (excluding Friends Reunited)
2009
2008
£1,879m £2,029m
£1,291m £1,425m
43.8%
£622m
£18m
44.7%
£597m
£24m
Total revenues declined by 7% in 2009, with a fall in television
net advertising revenues (NAR) offset partially by an increase
in external studios and online revenues.
ITV NAR represents 69% of total ITV revenues. In 2009, ITV NAR
declined by 9% to £1,291 million. Notwithstanding this decline,
ITV substantially outperformed the wider UK television
advertising market which suffered its sharpest decline
on record, with revenues falling 11%.
Television advertising market share has been added as a new
financial KPI, reflecting the fact that wider market growth is
not under ITV’s control. In 2009, ITV NAR represented 44.7%
of the total UK market, compared to 43.8% the previous year.
ITV Studios revenue is a KPI reflecting ITV’s focus on increasing
total revenues from external customers and internal
commissions. Total studios revenues were down 4%, with
growth in international production offset by a significant
reduction in UK production.
Online revenues represent a further key focus for growth.
Reflecting its proposed disposal, Friends Reunited revenues
have been excluded. On this basis, online revenues – largely
from itv.com and video on demand deals – increased by 33%
to £24 million.
Cost savings targets of £155 million were set out for 2009,
as a key element in ITV’s response to the economic downturn.
ITV met this target delivering £169 million of savings over
the year.
Earnings before interest, tax and amortisation (EBITA)
before exceptional items remains ITV’s key profit indicator,
reflecting more accurately the business performance of
the Group in a consistent manner and in line with how the
business is managed and measured on a day-to-day basis.
Despite a decline in Group revenues of £150 million, EBITA
before exceptional items declined by only £9 million to
£202 million, reflecting the impact of significant cost savings
across the business.
Adjusted earnings per share represent the adjusted profit
for the year attributable to equity shareholders. Adjusted
profit is defined as profit for the year attributable to equity
shareholders, before exceptional items, impairment of
intangibles, amortisation of intangible assets acquired through
business combinations, adjusted financing costs (see page 38)
and prior period and other tax adjustments. Adjusted earnings
per share have remained at 1.8 pence, with the decline in EBITA
before exceptional items offset by reduced losses from joint
ventures and associates.
‘Profit to cash’ conversion has been another key focus in
2009 and has therefore been included as a KPI. ITV is seeking
to maximise the proportion of EBITA before exceptional items
converted into a measure of adjusted cash (defined as cash
generated from operations before exceptional items less cash
related to the acquisition of property, plant and equipment –
see page 39). In 2009, with a significant positive working capital
movement, adjusted cash represented 177% of EBITA before
exceptional items, compared to 75% in 2008. ITV is seeking
to keep this ‘profit to cash’ conversion ratio as high as
possible – and in excess of 90% on a rolling three year
basis – going forward.
ITV plc Report and accounts 2009 Key Performance Indicators
33
Staff engagement
Staff engagement
2009
65%
2008
68%
Staff engagement tracks 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 products and services. The 2009 survey
showed a slight decrease in staff engagement year-on-year
from 68% to 65%. This was a year of substantial change,
including a wide-ranging redundancy process and other
difficult decisions reflecting the uncertain economic outlook.
The senior team is currently working on plans to drive a positive
improvement in engagement with staff as part of the business
plan in 2010.
Strategy review
ITV is currently undertaking a strategic review. As a result,
there may be further revision of ITV’s KPI framework during
2010 to ensure continuing consistency with the Company’s
core strategic objectives.
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Non-financial KPIs
ITV’s non-financial KPIs provide metrics for assessing the
underlying operating performance of the Group. Whilst success
against each of these measures may not immediately be
reflected in ITV’s financial performance, each is critical
to the Group’s delivery of sustainable long-term success.
A number of non-financial KPIs reflect ITV’s performance
with respect to audiences of its channels and online.
Audience and reach
ITV channels’ share of commercial impacts
ITV1 volume of commercial impacts
ITV1 brand health
2009
40.0%
232 bn
31%
2008
41.0%
236 bn
34%
ITV channels’ share of commercial impacts represent
the proportion of all UK viewings of 30-second television
commercials accounted for by ITV channels. In 2009, ITV
delivered a 40.0% share of commercial impacts. Towards the
end of the year in particular, ITV channels delivered a very
strong performance, with family SOCI running at 41.8%
over the fourth quarter.
ITV1 adult impact volume represents the absolute number
of viewings of commercials generated by ITV1 and reflects
ITV’s focus on maintaining the reach of the UK’s largest
commercial channel. In 2009, ITV1 delivered 232 billion
adult impacts, down 2% on the previous year.
ITV1 brand health reflects the outcome of a regular survey
of viewers’ association between ITV1 and the drivers of
television viewing. Over and above ITV1’s retrospective viewing
performance, brand health allows the long-term strength
of ITV’s key channel brand and its resonance with UK viewers
to be tracked. In 2009, ITV1’s brand health score was 31% for
the full year compared to 34% in the final quarter of 2008,
when tracking commenced. A full year-on-year comparison
will be possible from 2010 and ITV continues to monitor
this KPI closely.
34
ITV plc Report and accounts 2009
Financial review
Having delivered targeted cost savings, generated
more cash, improved the debt maturity profile and
taken steps to reduce the pension risk, ITV has
entered 2010 in better financial health.
Broadcasting & Online
Broadcasting & Online revenues
Broadcasting & Online revenues comprise net advertising
revenue (NAR), sponsorship income, interactive revenues
(from premium rate telephony services and red button
services), SDN, online and other revenues.
ITV1
ITV digital channels
GMTV
ITV plc NAR
Sponsorship
Minority revenue
Media sales, PRS and other income
SDN
itv.com
Friends Reunited
Intra-segment revenue
Total Broadcasting & Online Revenue
2009
£m
993
245
53
1,291
59
47
69
44
24
13
(4)
1,543
2008
£m
1,127
242
56
1,425
58
63
68
33
18
18
–
1,683
Change
£m
(134)
3
(3)
(134)
1
(16)
1
11
6
(5)
(4)
(140)
2009 was a challenging year for ITV. UK television advertising
suffered its worst year-on-year decline on record and month
to month trading was volatile and uncertain. Against this
backdrop, ITV’s focus on its core operating performance,
on cash and on costs is evident in the financial results.
The following review focuses on the adjusted results as, in
management’s view, these show more accurately the business
performance of the Group in a consistent manner and reflect
how the business is managed and measured on a daily basis.
A reconciliation from the statutory to adjusted results is set out
later in this review.
Adjusted profit is defined as profit for the year attributable to
equity shareholders, before exceptional items, impairment of
intangibles, amortisation of intangible assets acquired through
business combinations, adjusted financing costs and prior
period and other tax adjustments.
The definition of adjusted financing costs has changed in 2009
to exclude the non-cash imputed pension interest cost and
mark-to-market movements on swaps and foreign exchange
movements on bonds, and other financing costs (see page 37).
2008 has been restated on the same basis.
Total revenue for the year ended 31 December 2009 was
7% lower at £1,879 million (2008: £2,029 million). Despite the
substantial fall in revenues, EBITA before exceptional items
was down only 4% at £202 million (2008: £211 million) as
£169 million of cost savings helped to mitigate the revenue
decline. Most of the key profit measures were held leading
to adjusted earnings per share of 1.8p (2008: 1.8p).
Revenue and EBITA before exceptional items by reportable
segment are as follows:
Broadcasting & Online revenue
Broadcasting & Online EBITA*
ITV Studios revenue
ITV Studios EBITA*
Other revenue
Other EBITA*
Total revenue
Total EBITA*
Adjusted profit
Adjusted earnings per share
*Before exceptional items.
2009
£m
1,543
111
335
91
1
–
1,879
202
70
1.8p
2008
£m
1,683
120
306
90
40
1
2,029
211
71
1.8p
Change
£m
(140)
(9)
29
1
(39)
(1)
(150)
(9)
(1)
–
ITV plc Report and accounts 2009 Financial review
35
The television advertising market overall was down 11% in 2009,
following a decline of 5% in 2008. ITV plc outperformed the
wider market with NAR decline of 9% and, as a result, increased
its share of UK television advertising to 44.7% (2008: 43.8%).
Nonetheless ITV NAR decreased by £134 million to £1,291 million
(2008: £1,425 million). In effect, ITV’s outperformance of the
market was worth £26 million compared to the decline in ITV’s
revenues had they performed in line with the overall market
(see below).
ITV net advertising revenues (NAR)
£1,450m
£1,400m
£1,350m
£1,300m
£1,250m
£1,200m
£1,150m
2008
Market
impact
ITV
outperformance
2009
Under the Contract Rights Renewal remedy, advertisers are
entitled to reduce their advertising share commitment to ITV1
in proportion to the decline in ITV1’s share of commercial
impacts (SOCI) the previous year. For all adults, ITV1 SOCI
declined by 6% during 2008. In the event, across 2009 ITV1 NAR
decline ran relatively close to overall market decline, down by
12% at £993 million (2008: £1,126 million), reflecting a strong
on-screen performance and a successful outcome to the
advertising deal round.
ITV’s digital channels – ITV2, ITV3, ITV4 and CITV – increased
their advertising revenues by 1% to £245 million (2008:
£242 million). In the context of significant market decline,
this represents a strong performance and reflects consistent
growth in digital channel SOCI, which in 2009 reached 9.5%
(2008: 8.8%). GMTV NAR was down 5%. GMTV outperformed
the wider television advertising market as revenues include a
high proportion of categories, including retail and food, which
were stronger than the wider market across the year.
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Ian Griffiths
Group Finance Director
Sponsorship income was £59 million (2008: £58 million).
Although closely related to advertising, sponsorship tends
to be committed under longer term contracts which can
mitigate the impact of advertising market movements
in the short-term.
Minority revenues comprise ITV Network programme sales to
Channel 3 licences not owned by ITV (STV, UTV and Channel).
Minority revenues were £16 million lower than in the prior year
partly reflecting lower schedule costs, but also as a result of
STV’s decision to opt out of more of ITV1 drama.
Media sales, PRS and other income comprise revenues from
premium rate telephony services, airtime sales on behalf of
third-parties and interactive transactions associated with ITV
and GMTV programming. Revenues were held flat despite the
weak market. Whilst the volume of viewer interactions increased,
PRS revenues declined due to an increase in the use of free
online voting.
SDN revenues were £44 million (2008: £33 million). The increase
in revenues reflected the launch of a tenth videostream and
new contracts with Discovery and Virgin Media coming into
effect during the year.
Online revenue, which primarily comprises itv.com advertising
revenues, revenues from video on demand deals with BT and
Virgin Media and Friends Reunited revenues, was held flat
for the year.
Revenues from itv.com increased by 33% to £24 million,
reflecting increased video advertising revenue. itv.com video
views were up by 150% to 215 million over the year, with key
programme drivers including Britain’s Got Talent, The X Factor
and Coronation Street. Prices for itv.com video advertising
retained a premium to television and other market competitors,
but reduced during the year as online video inventory increased.
Friends Reunited revenues fell by 28% to £13 million, due in
part to the loss of subscription revenues from the core reunions
site following its move to a fully advertising funded model in
May 2008.
ITV plc Report and accounts 2009 Financial review
36
Broadcasting & Online costs
Broadcasting & Online costs break down as follows:
ITV1
Regional news and non-news
Total ITV1
ITV2, ITV3, ITV4, CITV
GMTV
Total schedule costs
Other costs
Total costs
2009
£m
797
68
865
110
31
1,006
2008
£m
867
112
979
112
34
1,125
Change
£m
(70)
(44)
(114)
(2)
(3)
(119)
426
1,432
438
1,563
(12)
(131)
Schedule costs
Total ITV schedule costs reduced by £119 million in 2009 to
£1,006 million (2008: £1,125 million) with ITV exceeding its
stated savings targets of £105 million across network and
regional programming.
ITV1 schedule costs declined by £70 million. Digital channels
and GMTV schedule costs reduced by £5 million in total. In
February 2009, ITV launched the new regional service moving
from 17 separate 6.00 pm regional news half hours to nine
programmes. As a result of this ITV delivered £44 million
of savings.
Other Broadcasting & Online costs
Other Broadcasting & Online costs of £426 million (2008:
£438 million) include industry and regulatory costs, as well as
staff and overhead costs. The year-on-year decline is from cost
savings delivered as part of the efficiency review and lower
licence fees of £22 million (2008: £30 million). Some of these
savings were offset by increased investment in transmission,
HD and other development investment.
Broadcasting & Online EBITA before exceptional items
Broadcasting & Online EBITA before exceptional items for
2009 was £9 million lower at £111 million (2008: £120 million),
with the decline in NAR offset by the delivery of targeted
efficiency savings, increased SDN profits and the closure
of underperforming online businesses.
ITV Studios
ITV Studios revenues
UK production
Resources
International production
Distribution and exploitation
Total external revenue
Original supply to ITV
Total revenue
2009
£m
58
13
138
126
335
262
597
2008
£m
68
17
98
123
306
316
622
Change
£m
(10)
(4)
40
3
29
(54)
(25)
ITV Studios 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.
Total external sales were £335 million (2008: £306 million).
Including original supply to ITV, total revenues were
£597 million (2008: £622 million).
Original UK production for other broadcasters was £58 million
(2008: £68 million), as other UK broadcasters reduced
commissioning budgets and changed genre mix.
International production revenues increased by 41% to
£138 million (2008: £98 million). Growth was particularly strong
in the US and Swedish production businesses, reflecting local
versions of I’m A Celebrity for the US, Sweden and India.
Commissioning cycles suggest that these productions are
unlikely to return in these territories in 2010, but they remain
active prospects for 2011.
Distribution and exploitation sales were £126 million (2008:
£123 million), including a significant co-production deal for
The Prisoner for AMC. DVD sales in the UK were relatively
robust but international sales declined year-on-year.
External revenues benefited from a favourable £16 million
foreign exchange movement across international production
and a further £7 million positive movement in distribution
and exploitation.
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 2009 internal
programming amounted to £262 million of ITV network
programme spend (2008: £316 million). As ITV responded
to the advertising downturn by reducing its schedule costs,
there was a loss of, or reduction in, episodes for a number
of established ITV commissions, including Heartbeat, Lewis
and The Royal. These losses were only partially offset
by new commissions, such as Piers Morgan’s Life Stories.
ITV plc Report and accounts 2009 Financial review
37
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ITV Studios EBITA before exceptional items
ITV Studios EBITA before exceptional items was £91 million
(2008: £90 million). Underlying margins have been impacted
by the change in programme mix and reduced ITV supply, and
by pricing pressures in production and distribution worldwide.
However, these pressures have been offset by delivery of
significant targeted cost savings and a trading foreign
exchange gain of £3 million. In addition, a £2 million increase
in development generated a range of options, pilots, and new
business streams that are live prospects in 2010 and beyond.
Operating exceptional items
Reorganisation and restructuring
PRS
Pension scheme changes
Onerous contract provision
Onerous property provision
Kangaroo closure costs
Total operating exceptional items
2009
£m
(40)
–
110
(1)
(14)
(2)
53
2008
£m
(40)
(6)
–
(50)
–
(1)
(97)
Net operating exceptional income in the year was £53 million
(2008: cost of £97 million).
These include £40 million of reorganisation and restructuring
costs associated with the previously announced efficiency
savings programmes.
Pension scheme changes have taken place following consultation
with the scheme members to implement a cap on increases
to pensionable salary levels for active members and to offer
retired members the option of altering the structure of their
pension by receiving an uplift now in return for giving up
rights to future annual increases. Both of these changes will
reduce the future costs and risks of operating the pension
schemes and have resulted in a gain of £110 million to the
income statement.
The onerous property provision in 2009 of £14 million relates
to the vacation of large parts of the Gray’s Inn Road office,
following headcount reductions and consolidation of ITV’s
London property into the Southbank.
STV Group plc (STV)
Over the course of 2009, ITV and STV have become involved in
a series of legal disputes with pleadings filed by each side.
Based on its view of these matters, ITV believes that it is owed
approximately £20 million net under these claims. ITV is
confident in the basis of its claims, supported by legal opinion
and advice, and intends to pursue resolution of these issues to
a satisfactory outcome. Therefore no provision has been made.
In reaching this view ITV notes that STV has recently completed
a re-financing of its business. In not providing against the
recoverability of these balances, ITV is relying on its expectation
that STV will file unqualified financial statements prepared
on a going concern basis in due course.
Amortisation and impairment of intangible assets
Total intangible assets at 31 December 2009 are £1,030 million
(2008: £1,140 million), being goodwill of £711 million (2008:
£749 million) and acquired and internally developed intangible
assets of £319 million (2008: £391 million). The net movement
in goodwill of £38 million has resulted from the transfer of
£34 million to assets held for sale regarding Friends Reunited
and £4 million in relation to the disposal of Enable Media Limited.
No impairment charge for goodwill has been recognised in
2009 (2008: £2,695 million including £57 million as required by
IAS 12). The total amortisation charge for the year on acquired
and internally developed intangible assets is £59 million
(2008: £66 million).
Net financing costs
Financing costs directly attributable to bonds
Cash-related net financing income
Cash-related financing costs
Amortisation of bonds
Adjusted financing costs
Mark-to-Market on swaps and foreign exchange
Imputed pension interest
Other financing income/(costs)
Net financing costs
2009
£m
(74)
1
(73)
(6)
(79)
(7)
(15)
10
(91)
2008
£m
(99)
24
(75)
(2)
(77)
31
16
(30)
(60)
Reported net financing costs are £91 million (2008: £60 million).
Adjusted financing costs on the new definition are £79 million
(2008: £77 million).
ITV plc Report and accounts 2009 Financial review
38
Loss on sale, net of impairment, of subsidiaries
and investments
There is a £51 million net loss on the sale and impairment
of subsidiaries and investments for the year (2008: gain
of £6 million), which largely relates to the impairment of
Friends Reunited (£32 million), but also impairments to the
Group’s investment in its associate ITN, and Carlton Screen
Advertising.
Tax
The total tax credit of £69 million (2008: credit of £178 million)
arises as a result of the resolution of prior periods’ tax liabilities,
principally in the US.
The adjusted rate of tax on adjusted profits is 32% as
shown below:
Profit before tax as reported
Operating exceptional items (net)
Amortisation and impairment of intangible assets*
Non-operating exceptional items
Adjustments to net financing costs
Adjusted profit before tax
Tax credit as reported
Net charge for exceptional and other items
Credit in respect of amortisation and impairment
of intangible assets*
Credit in respect of adjustments to net financing costs
Credit in respect of prior period items
Other tax adjustments
Adjusted tax charge
Adjusted rate of tax
*Amortisation of intangible assets arising from business combinations.
2009
£m
25
(53)
51
73
12
108
2009
£m
69
21
(14)
(3)
(82)
(26)
(35)
32%
Cash-related financing costs directly attributable to bonds
of £74 million (2008: £99 million) have reduced in the year due
to the changes made to the Group’s debt profile and lower
interest rates. Other net income is lower in 2009 due to lower
interest rates. In 2009, cash on deposit was earning an average
return of less than 1%, compared to 5% across 2008. Non-cash
amortisation principally relates to the 2014 Eurobond, 2015
Bond tap and 2016 Convertible Bond, each of which will accrete
up to par value over the life of the bond.
The difference between the reported net financing costs and
adjusted financing costs largely relates to mark-to-market
on swaps, foreign exchange on bonds, the imputed pension
interest and other financing costs. The £7 million charge
(2008: £31 million gain) relating to mark-to-market on swaps
and foreign exchange on bonds, is as a result of increases in
the implied interest rates at the end of 2009, compared to
the end of 2008.
The 2009 charge for non-cash imputed pension interest was
£15 million, a movement of £31 million compared to 2008.
This is as a result of a combination of a reduction in the
expected return on pension assets and an increase in the
expected interest cost on liabilities.
Other financing costs include the amortised cost adjustment of
£10 million, representing the unwind of part of the £30 million
charge taken in 2008, when decline in ITV’s credit rating to sub
investment grade resulted in a step-up in the coupon rate of
some of ITV’s bonds. These costs also include the gains and
losses from bond buy-backs during the year and the bond
exchange in June, and the effective interest on the unwind
of the discount on the sports provision.
Results of joint ventures and associates
The total value of the Group’s investments in joint ventures
and associates at 31 December 2009 is £5 million (2008:
£66 million). The decline in the value primarily relates to the
transfer of Screenvision US (£47 million) to assets held for
sale following the decision to actively market the investment.
Losses of joint ventures and associates recognised in the
income statement in the year are £7 million (2008: loss of
£15 million). The losses in 2009 largely related to Screenvision
US, Freesat and ITN.
Non-operating exceptional items
Loss on sale and impairment of non-current assets
The charge of £22 million (2008: £17 million) results from
the impairment of non-current assets, primarily leasehold
improvements, relating to the regional news restructure
and the partial vacation of the Gray’s Inn Road building.
ITV plc Report and accounts 2009 Financial review
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Cash flow, working capital management
and net debt
Cash flow and working capital management
Cash and working capital management has been a key focus
in 2009. Although EBITA before exceptional items were broadly
flat, ITV’s adjusted cash flow is £200 million more than the
previous year. The key to this was a significant improvement
in working capital where there was an inflow of £121 million
(2008: outflow of £67 million). The majority of the working
capital improvement came through reduced inventory levels
for programme and distribution rights, as a result of managing
commitments and just-in-time commissioning. The ‘profit to
cash’ ratio increased substantially from 75% in 2008 to 177%
in 2009. Going forward, it is expected that the ‘profit to cash’
ratio on a rolling three-year basis will be at least 90%.
EBITA before exceptional items (‘profit’)
Decrease/(increase) in programme rights
and other inventory and distribution rights
Decrease/(increase) in receivables
(Decrease)/increase in payables
Working capital movement
Depreciation
Share-based compensation
Cash generated from operations*
Acquisition of property, plant and equipment
(‘capex’)
Adjusted cash flow
2009
£m
202
125
11
(15)
121
38
11
372
(14)
358
2008
£m
211
(82)
(34)
49
(67)
36
10
190
(32)
158
‘Profit to cash’ ratio
*Before exceptional items.
177%
75%
Earnings per share
Basic earnings per share are 2.3 pence (2008: loss per share of
65.9 pence). Adjusted earnings per share (as defined earlier)
are 1.8 pence (2008: 1.8 pence).
Reconciliation between reported and adjusted earnings
EBITA pre exceptionals
Exceptional items
Amortisation and impairment
Financing costs
JVs and associates
Profit before tax
Tax
Profit after tax
Non-controlling interests
Earnings
Number of shares
Earnings per share
Adjustments
£m
–
20
51
12
–
83
(104)
(21)
–
–
Reported
£m
202
(20)
(59)
(91)
(7)
25
69
94
(3)
91
3,882
2.3p
Adjusted
£m
202
–
(8)
(79)
(7)
108
(35)
73
(3)
70
3,882
1.8p
The £20 million exceptional items are the operating exceptional
profit of £53 million less £22 million loss on sale and impairment
of non-current assets and less £51 million of loss on sale, net
of impairment, of subsidiaries and investments as described
earlier in this review.
The tax and financing costs sections of this review explain
the adjustments to these balances.
Dividend
At the 2009 interim results the Board decided that, due to the
uncertain economic context and its impact on the UK television
advertising market, it was prudent to not declare an interim
dividend. The trading outlook remains uncertain and ITV still
has significant debt and pension obligations. As a result, the
Board is not proposing the payment of a final dividend.
The total dividend for the year is therefore nil pence per
share (2008: 0.675 pence per share).
Assets and disposal groups held for sale
During the year the Group confirmed that it was actively
marketing for sale its 100% owned subsidiary, Friends Reunited;
the joint ventures, Screenvision US and Screenvision Europe;
and ITV properties in Bedford, Birmingham and Bristol.
ITV plc Report and accounts 2009 Financial review
40
Net debt
Net debt has fallen by £118 million to £612 million with
£358 million of adjusted cash flow, arising from the focus on
working capital management, which has more than offset
some significant one off cash payments required in 2009.
Net debt at 31 December 2008
Adjusted cash flow
Net interest paid
Exceptional cash
Taxation net receipts
Equity dividends paid
Acquisition of subsidiaries
Defined benefit pension deficit funding
Other
Net debt at 31 December 2009
£m
(730)
358
(76)
(63)
41
(25)
(73)
(31)
(13)
(612)
The main one off cash outflows were: £63 million of cash costs
in relation to the cost of change and efficiency review; net tax
receipts of £41 million reflecting taxation repayments for prior
periods which more than offset payments made for the
current period; equity dividends of £25 million relating to the
2008 interim dividend; £50 million final payment due under
the Friends Reunited earn out; and £23 million for acquiring
the 25% of GMTV not already owned.
Liquidity risk and going concern
The sections on pages 40, 41 and 42 regarding liquidity risk
and going concern form part of the audited accounts.
See section 1.1 – Basis of preparation in Accounting policies.
The Group’s financial risk factors are set out in note 23 to
the financial statements.
The Group has a high degree of operational gearing and is
exposed to the economic cycle. It is also highly regulated, in
particular in respect of television advertising sales. It competes
for advertising revenues, not only with other commercial
television channels, but also with other forms of display
advertising, in particular online. These factors combined with
technological change, in particular the migration to digital
television, have resulted in declining profitability since 2005
and consequent downward pressure on ITV’s credit rating.
In the second half of 2008, ITV’s credit ratings were lowered
from investment grade (BBB-/Baa3) to sub investment grade
(BB+/Ba1) as the economy weakened and television advertising
revenues declined.
With the decline in television advertising revenues and the
wider economic uncertainty, ITV faced significant funding
risk at the start of 2009. Given the operational gearing of the
business, ITV was at risk of further credit-rating downgrades
and of breaching financial covenants under the Group’s
undrawn £450 million syndicated bank facility. In the context
of wider credit market conditions, ITV could not take for
granted that it could obtain finance from the capital markets,
nor could it expect its banks to relax the financial covenants in
the bank facility. Whilst ITV had sufficient cash to repay the
£250 million bond in March 2009, it needed to strengthen its
liquidity position to ensure that it could cover the repayment
of the €500 million 2011 bond and thus allow the Group scope
to restructure and recover.
Funding
Alongside the cost saving programme and concerted focus
on working capital management, ITV also ran a number of
initiatives during 2009 to strengthen liquidity, extend its debt
maturity profile and improve the Group’s financial ratios.
These comprised raising further covenant-free finance
without going to the public markets, undertaking a tender and
exchange offer and various bond buy-backs. The table below
sets out these initiatives and further details can be found in
note 22.
2019 New bilateral facility
2009 Eurobond repaid
2013 Loan drawdown
2015 Bond tap
2011 Bond tender and exchange
2013 Loan repayment
2016 Convertible bonds
2011 Bonds partially repaid
Transaction date
February 2009
March 2009
March 2009
May 2009
June 2009
October 2009
November 2009
Nov/Dec 2009
£m
50
(250)
125
58
(69)
(75)
132
(102)
ITV also retired its £450 million revolving credit facility during
the year.
Since the year end ITV has bought back €27 million of the 2011
bonds and £42 million of 2015 bonds.
ITV plc Report and accounts 2009 Financial review
41
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As a result of these initiatives, ITV’s scheduled five year debt
repayments (post swaps) were reduced from £695 million
at the start of 2009 to £324 million at the year end.
ITV is financed using debt instruments with a range of
maturities. ITV’s borrowings at 31 December 2009 (net of
currency hedges and secured gilts) are repayable as follows:
Amount repayable
€118 million Eurobond*
£110 million Eurobond
£50 million bank loan
€188 million Eurobond*
£425 million Eurobond
£135 million Convertible bond
£250 million Eurobond
£200 million bank loan**
Finance leases
Total repayable
Maturity
October 2011
March 2013
May 2013
June 2014
October 2015
November 2016
January 2017
March 2019
Various
£m
38
110
50
126
425
135
250
62
73
1,269
* Net of Cross Currency Swaps.
** Net of £138 million (nominal) Gilts secured against the loan.
At the balance sheet date at 31 December 2009 ITV had
£582 million of cash and cash equivalents. This figure excludes
£4 million of cash held within the disposal group but includes
£96 million of cash equivalents whose use is restricted to
finance lease commitments and unfunded pension promises.
Cash and cash equivalents also include £50 million held
principally in overseas and part owned subsidiaries, which is
therefore not readily accessible. At the reporting date ITV had
a £75 million undrawn, covenant free, bilateral bank facility
secured on advertising receivables available to May 2013.
There are no financial covenants on any of ITV’s debt.
Maturity profile at December 2009
circa £300m
£500m
£400m
£300m
£200m
£100m
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Convertible bond
Maturity profile at December 2008
circa £700m
£400m
£300m
£200m
£100m
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
ITV plc Report and accounts 2009 Financial review
42
Going concern
As a result of the funding activities undertaken and the
improvements in working capital, the Group has reduced its
current level of net debt and has also improved both its
short-term and medium-term liquidity position. The Group
continues to review forecasts of the television advertising
market to determine the impact on ITV’s liquidity position.
At 31 December 2009, while the television market continues
to present challenges to the Group’s liquidity, ITV has taken
decisive actions to mitigate this impact and, during 2010, will
continue to evaluate opportunities to push out maturity and
create further headroom. The Group’s forecasts and projections,
taking account of reasonably possible changes in trading
performance, show that the Group should be able to operate
within the level of its current financing. ITV’s forecasts
have been prepared on a more cautious basis than external
market expectations.
After making enquiries, the directors have a reasonable
expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future.
Accordingly, the Group continues to adopt the going concern
basis in preparing its consolidated financial statements.
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
reviews. Despite not having a lending facility 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:
–
–
–
–
ITV’s financing policy is to fund itself long-term
Financing:
using debt instruments with a range of maturities. It is
substantially funded from the UK and European capital
markets and has a bilateral bank facility;
the Group’s interest rate policy
Interest rate management:
is to have between 50% and 70% of its total indebtedness
at fixed rates over the medium term in order to provide a
balance between certainty of cost and benefit from low
floating rates. ITV uses interest rate swaps and options in
order to achieve the desired mix between fixed and floating
rates. The funding and liquidity activities undertaken by
ITV in 2009 resulted in the issuance of fixed rate debt and
the retirement of a portion of floating rate debt. ITV has
applied the policy to total gross indebtedness thereby
excluding cash which is currently treated as a deduction
from floating rate debt and on which low levels of interest
are being achieved;
where currency exposures exist,
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;
ITV operates strict investment guidelines
Investment in cash:
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.
Under the guidelines ITV can deposit up to £100 million
for a period of three to six months with remaining deposits
having a maturity of up to three months.
Pensions
Reducing pension risk and uncertainty
As part of the strategy to manage the risks associated with the
pension schemes, the Group implemented a programme of
measures to manage the cost of providing the defined benefit
arrangements and to provide greater security for the benefits
that members have built up. These initiatives form part of a
long-term strategy to manage the group pension liabilities
and reduce the principal risks and uncertainties.
ITV plc Report and accounts 2009 Financial review
43
The Group offered existing pensioners the opportunity to uplift
part of their pension, in return giving up any rights to future
annual increases on this part of their pension. This resulted in
a past service pension credit of £38 million. The Group also
launched an offer to active members to redesign their pension
benefits. Members were offered a choice of capping any
increases to their pensionable pay to a maximum of 1% per
year or opting out of the defined benefit sections of the
scheme to join the defined contribution section. This resulted
in a curtailment gain of £72 million. These gains totalling
£110 million are disclosed as exceptional operating income
and have offset the deficit to an equal extent. The changes
made will reduce the future costs and risks of operating the
pension schemes.
Since the year end we have also announced the launch of
an enhanced transfer programme aimed at the deferred
pensioner population, which if successful will further reduce
the pension funding liabilities.
Actuarial valuations and deficit funding
Full actuarial valuations are carried out every three years. The
latest completed 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. As a result of these surpluses no
deficit funding payments are currently being paid into these
sections. Actuarial valuations of Sections B and C are being
undertaken as at 1 January 2010.
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 to an
amount of £190 million or 9% of the liabilities in that section.
This deficit is being addressed by a recovery plan agreed with
the trustees, under which the Company continues to pay
£30 million in each of the five calendar years to 2013. The next
valuation of Section A is due at 1 January 2011.
IAS 19
The Group’s defined contribution schemes gave rise to an
operating charge in 2009 of £4 million (2008: £4 million).
The aggregate IAS 19 deficit on defined benefit schemes
at 31 December 2009 was £436 million (2008: £178 million).
This increase was primarily driven by a decrease in the discount
rate applied to liabilities and an increase in the expected rate
of inflation partially offset by higher than expected returns
on scheme assets and the benefits from the actions taken
in the year as set out above.
Trustees’ investment strategy
The trustees continue to review the investment strategy for
the main defined benefit pension scheme. The asset allocation
has changed during 2009 and holdings of equities have been
moved to other return seeking assets. At 31 December 2009,
47% of the assets of the defined benefit pension schemes were
invested in return seeking assets and 53% 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.
Movement in the pension deficit
International Financial Reporting Standards
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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
£600m
£500m
£400m
£300m
£200m
£100m
0
Dec
2008
Change in
liabilities
Change in
value of
assets
Pension
initiatives
Other
Dec
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ITV plc Report and accounts 2009
44
Board of Directors
Archie Norman
Chairman
Mike Clasper CBE
Senior Independent Director
Appointment to the Board: 1 January 2010
Age: 55 (1 May 1954)
Committee membership: Audit, Nomination (Chairman), Remuneration
Appointment to the Board: 3 January 2006
Age: 56 (21 April 1953)
Committee membership: Audit, Nomination, Remuneration
External appointments:
– Adviser to Wesfarmers Limited (2009)
– Deputy Chairman of Coles Group (2007)
– Chairman of HSS Hire Services Group (2007)
– Founder, Aurigo Management Partners LLP (2006)
– Senior Adviser to Lazard (2003)
– Trustee of Cystic Fibrosis Trust (2009)
– Governor, National Institute of Economic and Social Research (1997)
Previous experience:
– Chairman of Energis (2002–2005)
– Member of Parliament (1997–2005). Chief Executive and Deputy Chairman
of the Conservative Party (1998–1999); Shadow Minister for Europe (1999–
2000); Shadow Secretary of State for Department of Environment, Transport
and the Regions (2000–2001); Founder, Policy Exchange (2001)
– Chief Executive (1991–1996) and Chairman (1996–1999) of ASDA Group plc
– Finance Director of Kingfisher plc (1986–1991)
– Chairman of Chartwell Land plc (1987–1991)
– Non-executive director of British Rail (1992–1994), Railtrack plc (1994–2000),
and Geest plc (1988–1991)
– Partner, McKinsey and Co (1979–1986)
Qualifications: MA, MBA
External appointments:
– Chairman of Which? Ltd (2008)
– Chairman of HM Revenue & Customs (2008)
– Chairman of West London Consortium (2006)
Previous experience:
– Member of the Investor Board of EMI Group (2007–2008)
– Operational Managing Director of Terra Firma (2008)
– Member of the National Employment Panel (2006–2008)
– Founder member, Corporate Leaders Group on Climate Change
– Chief Executive (2003–2006) and Deputy Chief Executive (2001–2003) of BAA plc
– President of Global Home Care, Procter & Gamble (1999–2001)
Qualifications: MA
Andy Haste
Non-executive director
Rupert Howell
Managing Director,
ITV Brand and Commercial
Appointment to the Board: 11 August 2008
Age: 48 (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 of 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)
Appointment to the Board: 28 February 2008, joined the Group in 2007
Age: 53 (6 February 1957)
Committee membership: General Purpose
External appointments:
– Director of the Advertising Association (2007)
– Trustee, The Media Trust (2008)
Previous experience:
– President, EMEA and Chairman, UK and Ireland Group (2003–2007), Regional
Director, EMEA (2006–2007) of McCann Erickson UK Group Limited
– President of the European Association of Communications Agencies
(2006–2007)
– Chief Executive of 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
The particulars above relate to directors in office at the date of this report.
For a full list of directors who served during the year, please see page 48.
Details of their interests in shares and share schemes are set out in the
Remuneration report.
ITV plc Report and accounts 2009 Board of Directors
45
John Cresswell
Interim Chief Executive
Ian Griffiths
Group Finance Director
Appointment to the Board: 16 January 2006, joined the Group in 2000
Age: 48 (2 May 1961)
Committee membership: General Purpose
Appointment to the Board: 9 September 2008
Age: 43 (26 September 1966)
Committee membership: General Purpose
Previous experience:
– Finance Director (2006–2008), Interim Chief Executive (2006–2007)
and Chief Operating Officer (2005–2006) of ITV plc
– Chief Operating Officer of Granada Content (2004–2005)
– Non-executive director of The Liverpool Football Club and Athletic
Grounds plc (2003–2007)
– Chief Operating Officer and Finance Director (2001–2004) and Director
of Operations (2000–2001) of Granada Content
– Chief Operating Officer (1998–2000) and Finance Director (1996–1998)
of United Broadcasting and Entertainment Limited
– Finance Director of Meridian Broadcasting Limited (1993–1995)
Qualifications: BSc, ACA
Previous experience:
– Group Finance Director of Emap plc (2005–2008)
– Senior finance roles held within Emap plc including Director of Financial
Control (2000–2005) and Head of Finance at Emap Business
Communications (1995–2000)
– Manager in audit and corporate finance, Ernst & Young (1988–1994)
Qualifications: MA, ACA
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John Ormerod
Non-executive director
Baroness Usha Prashar CBE
Non-executive director
Appointment to the Board: 18 January 2008
Age: 61 (9 February 1949)
Committee membership: Audit (Chairman), Nomination, Remuneration
Appointment to the Board: 7 February 2005
Age: 61 (29 June 1948)
Committee membership: Nomination, Remuneration (Chairman)
External appointments:
– Deputy Chairman and Chairman of audit committee of Tribal Group plc (2009)
– Non-executive director and Chairman of audit committee of
External appointments:
– Committee Member of the Iraq Inquiry (2009)
– Chairman of the Judicial Appointments Commission (2005)
Computacenter plc (2007) and Gemalto NV (2006)
– Non-executive director and Chairman of Merlin Claims Services Holdings
Limited (2007)
– Trustee of The Design Museum (2006)
– Senior Independent Director and Chairman of audit committee of Misys plc
(2005)
Previous experience:
– Non-executive director of Negative Equity Protection Holdings Limited
(2007–2009), Millen Group Limited (2007–2009) and BMS Associates Limited
(2004–2008)
– Member of audit and retail risk control committees of HBOS plc (2004–2008)
– Trustee of The Roundhouse Trust (2003–2008)
– Chairman of Walbrook Group (2004–2007)
– Chairman of audit committee of 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)
Qualifications: MA, FCA
Previous experience:
– Non-executive director of the Cabinet Office (2006–2009)
– 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)
– Chairman of the Parole Board for England and Wales (1997–2000)
Qualifications: BA, Diploma in Social Administration
46
ITV plc Report and accounts 2009(cid:31)
Corporate Governance
ITV plc is subject to the requirements of the Combined Code on
Corporate Governance adopted by the Financial Reporting Council (the
Code) and seeks to comply with the voting guidelines of major
institutional investors where appropriate. This report describes how the
Company has applied the main principles set out in section 1 of the
Code and is split into the following five sections:
– The Board;
– Conflicts of interest;
– Board effectiveness;
– Relations with shareholders; and
– How the Board operates.
The Board considers that the Company has complied with the provisions
of the Code with the following exceptions:
– Michael Grade was Executive Chairman until 31 December 2009,
contrary to Code provision A.2.1. Following the appointment of
Archie Norman as non-executive Chairman and John Cresswell
as Interim Chief Executive with effect from 1 January 2010,
the Company now complies with this provision.
– Archie Norman was appointed a member of the Audit Committee
on 2 February 2010. This is to enable the Committee to remain
quorate until Andy Haste is able to take up membership later in
the year. At this point Archie Norman will resign as a Committee
member ensuring compliance with Code provision C.3.1.
The Board
Composition and appointments
The composition of the Board during 2009 is set out in the table on
page 48.
In April 2009 Michael Grade announced his intention to step down
as Executive Chairman at the end of the year. As a result, the Board
commenced a search for a non-executive Chairman and a Chief
Executive. In November 2009 the Board announced that Archie Norman
would take up the role of non-executive Chairman on 1 January 2010.
On 28 January 2010, the Board made a further announcement that
it had appointed Adam Crozier as the new Chief Executive, and that he
would take up the role later in the year. Until this time, John Cresswell
will act as Interim Chief Executive. Sir George Russell, Sir James Crosby,
Heather Killen and Agnès Touraine stepped down from the Board with
effect from 31 December 2009.
The Board currently consists of three executive directors and five
non-executive directors. Biographical details for each of the directors are
set out on pages 44 and 45.
Roles
A summary of the roles of each of the Chairman, the Chief Executive
and the Senior Independent Director are shown in the table on the right.
Full job descriptions have been agreed by the Board.
Tenure
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.
Archie Norman, who has a contract of service with the Company,
will be seeking election at the AGM on 7 May 2010.
Outside appointments
With the approval of the Board, executive directors may accept external
appointments as non-executive directors of other companies and retain
any related fees paid to them. Details of fees received by executive
directors during 2009 can be found in the Remuneration report .
Role
Chairman
Description
Archie Norman’s principal responsibilities are to:
– lead the Board, ensuring that it is effective in
setting and implementing the Group’s direction
and strategy; and
– act as the Company’s leading representative for
all key shareholders.
The Board is satisfied that his other professional
commitments do not interfere with the performance
of his duties for the Company.
John Cresswell, as Interim Chief Executive, has
responsibility for the performance of the Company’s
businesses, as dictated by the overall strategy agreed
by the Board.
Mike Clasper’s principal responsibilities are to:
– act as Chairman of the Board when the Chairman
is conflicted;
– act as a conduit to the Board for the
communication of shareholder concerns when
other channels are inappropriate; and
– ensure that the Chairman is provided with
effective performance feedback.
Chief Executive
Senior
Independent
Director
Non-executive directors
The Board considers each of its current non-executive directors to be
independent in both character and judgement. They constructively
challenge and help develop proposals on strategy, and bring strong,
independent judgement, knowledge and experience to the Board’s
deliberations.
The Board also considers that the non-executive directors are of
sufficient calibre and number that their views carry significant weight
in the Board’s decision making.
Terms of engagement: non-executive directors all have a contract of
service, and are appointed for an initial period of three years. 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 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: non-executive directors are expected to commit
18 to 20 days per annum. This includes attendance at Board meetings,
Board committee meetings, the AGM, and an annual strategy away
day. The Board is satisfied that each of the non-executive directors
commits sufficient time to the business of the Company.
Professional advice and Board support
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. The directors also have access to
the advice and services of the Company Secretary, who acts as
secretary to the Board, and Group Secretariat who ensure that board
processes and corporate governance practices are followed.
Insurance and indemnities
The Company maintains liability insurance for its directors and officers
with a cover limit of £75 million which is renewed on an annual basis.
The Company has also entered into deeds of indemnity with its
directors.
ITV plc Report and accounts 2009 Corporate Governance
47
Conflicts of interest
The Board is authorised to approve conflicts. It has delegated the
authorisation of conflicts to the Nomination Committee and adopted
a conflicts of interest policy.
– 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
The policy outlines how conflicts will be dealt with and the process
director of a listed company.
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. The Board is confident that these procedures
operate effectively.
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 Code. The directors are made
aware on appointment that their performance will be subject to an
annual evaluation and that a director would not be put up for re-election
at an AGM unless the Chairman has decided that they continue to
perform effectively and show commitment to the role.
Some of the actions taken during the year resulting from the 2008
evaluation include introducing more discussion on the corporate domain
including the competitive and regulatory environment, giving more
attention to stakeholder priorities and shareholder views, and reviewing
the size and composition of the Board.
An internal evaluation of the effectiveness of the individual directors
of the Board and its committees was carried out in 2009, led by the
Senior Independent Director. The evaluation process included a
confidential written questionnaire with questions covering a range of
issues such as board structure, board processes, board roles and
responsibilities, the Board’s relationship with management, board
agendas, committee processes, individual effectiveness, training and
continuing professional development.
The results from the evaluation process were collated and passed to
the Board for consideration. The review made the following suggestions,
amongst others, for enhanced effectiveness:
– to simplify board reporting, ensuring that non-critical items are
kept to a minimum allowing the Board to focus on key strategic and
operational issues; and
– to focus on succession planning and leadership development.
The Board will review the recommendations and adopt new processes
and procedures during the year as appropriate.
Induction and continuing professional development
The Company has a policy and programme for induction and
continuing professional development. 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;
– 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;
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This 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. This is done through:
– regular updates on changes affecting the Group and the market in
which it operates through written briefings and meetings with senior
executives across the Group and from meetings with key advisers;
– regular updates on changes to the legal and governance
requirements of the Group and in relation to their own position as
directors; and
– presentations given before board meetings on business matters and
technical update sessions from external advisers where appropriate.
The directors are 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.
Relations with shareholders
The Board attaches a high priority to effective communication with
shareholders. In addition to the final and interim results presentations
and the AGM, a series of meetings between institutional shareholders
and senior management were held throughout 2009. In fulfilment of
the obligations under the Code, the Chairman gave feedback to the
Board on issues raised with him by major shareholders. This process will
continue throughout 2010.
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.
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 Chairman will review the Group’s
current trading. Notice of the AGM, together with any related
documents, is made available to shareholders on the Company’s
website or mailed to them, if they have elected to receive hard copies, at
least 20 working days 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 made available on a regulatory information service and on the
Company’s website at www.itvplc.com.
The Company regularly seeks feedback on perception of the
Company amongst its shareholders and the investor community more
broadly via its corporate brokers. An independent Investor Audit was last
undertaken in 2007 to assess investor and wider market perception of
the Company. The Company is currently considering commissioning
another review during 2010.
ITV plc Report and accounts 2009(cid:31) Corporate Governance
48
How the Board operates
Board meetings
The number of meetings held during the year and attendance of
directors is set out in the table below. Board members receive all papers
tabled at meetings even if they are unable to attend. The Board
approves annually a schedule of matters to be considered at each
meeting and at each meeting of its Committees.
Responsibility and delegation
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.
Board Committees
The Board has delegated certain responsibilities to the committees
detailed on the following pages. The terms of reference for each
committee are reviewed annually and the current versions are available
on the Company’s website at www.itvplc.com.
Audit Committee: see the report of the Audit Committee on page 50.
Disclosure Committee: the Disclosure Committee comprises certain
senior management of the Company. The function of the Committee,
in accordance with the Company’s Inside Information Policy, is to ensure
compliance with continuing obligations under the Disclosure and
Transparency Rules and the Listing Rules through the timely public
disclosure of material information.
General Purpose Committee: the General Purpose Committee (formerly
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.
Nomination Committee: see the Nomination Committee section on
page 49.
Remuneration Committee: see the Remuneration report on page 53.
Board and Committee membership, and attendance at meetings in 2009
Attendance in 2009
Current directors
Mike Clasper
John Cresswell
Ian Griffiths
Andy Haste
Rupert Howell
Archie Norman
John Ormerod
Baroness Usha Prashar
Directors who stepped
down in the year
Sir James Crosby
Michael Grade
Heather Killen
Sir George Russell
Agnès Touraine
Status
Date of appointment
to Board
Date of resignation
from Board and Committees
Independent
Executive
Executive
Independent
Executive
Independent (1)
Independent
Independent
3 January 2006
16 January 2006
9 September 2008
11 August 2008
28 February 2008
1 January 2010
18 January 2008
7 February 2005
Independent
Executive
Independent
Independent
Independent
3 December 2003
8 January 2007
8 August 2007
2 December 2003
8 August 2007
31 December 2009
31 December 2009
31 December 2009
31 December 2009
31 December 2009
Notes:
(1) Independent on appointment to the Board.
(2) A number of additional Nomination Committee meetings were held in 2009 to discuss changes to the composition of the Board.
(3) Non-attendance has been due to illness or unavoidable prior commitments.
Board
Audit
Committee
8
8
8
8
8
8
–
8
7
7
8
8
8
8
6
6
–
–
–
–
–
6
–
–
–
–
6
6
Remuneration
Committee
Nomination
Committee
2(2)
Strategy
day
1
1
1
1
1
1
–
1
1
–
1
1
1
1
5
–
–
–
4
–
–
–
5
5
–
5
–
–
2
–
–
1
–
–
2
2
2
–
2
2
2
ITV plc Report and accounts 2009(cid:31) Corporate Governance
49
Nomination Committee
The Committee is comprised entirely of non-executive directors.
The current members are:
– Archie Norman (Chairman) (appointed 1 January 2010)
– Mike Clasper
– Andy Haste
– John Ormerod
– Baroness Usha Prashar
Sir James Crosby served as Chairman of the Committee until he
stepped down from the Board on 31 December 2009 and Archie
Norman took over as Chairman with effect from 1 January 2010.
Heather Killen, Sir George Russell and Agnès Touraine also served on the
Committee during the year until they stepped down from the Board on
31 December 2009. Full details of attendance at Committee meetings
can be found in the table on page 48.
Role: the role of the Committee is to:
– review the structure, size and composition of the Board;
– identify and nominate for board approval, candidates to fill
board vacancies;
– evaluate the balance of skills, knowledge and experience on
the Board;
– consider succession planning for directors and other senior
executives; and
– consider any conflicts of interest that may be reported by directors
of the Company.
Activities in 2009: the Committee focused 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.
Following Michael Grade’s announcement of his intention to step
down as Executive Chairman, the Committee commenced a search
for a Chief Executive and a non-executive Chairman with the help of a
professional search firm. Archie Norman was appointed Chairman with
effect from 1 January 2010, and Adam Crozier will take up the position
of Chief Executive on 26 April 2010.
The Committee will continue to review succession planning for key
executives throughout the Group in 2010 to ensure an appropriate
framework is in place.
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ITV plc Report and accounts 2009
50
Audit Committee report
Dear Shareholder,
On the following pages we set out the Audit Committee’s report for
2009. The report comprises four sections:
– Committee overview;
– Activities in 2009;
– Auditor’s independence and objectivity; and
– Internal control.
Throughout 2009 the Audit Committee (the Committee) continued
to monitor the integrity of the financial statements of the Company,
to assist the Board in reviewing the effectiveness of the Company’s
internal control and risk management systems, and to review
arrangements for its employees to raise concerns in confidence.
The Committee has also been responsible for reviewing the
effectiveness of the Company’s internal audit function and making
recommendations to the Board in relation to the re-appointment 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.
This report has been written to give a full description of our
activities in 2009.
John Ormerod
Chairman, Audit Committee
3 March 2010
Committee overview
Composition
The Committee is comprised entirely of non-executive directors. The
current members are:
– John Ormerod (Chairman)
– Mike Clasper
– Archie Norman (appointed 2 February 2010)
Mike Clasper served as Chairman of the Committee throughout 2009.
In view of his role as Chairman of HMRC, discussions relating to the
Company’s tax position were chaired by John Ormerod. Following Mike
Clasper’s appointment as Senior Independent Director, John Ormerod
took over as Chairman with effect from 1 January 2010. Archie Norman
will only serve as a member of the Committee until Andy Haste is able
to take up membership later in the year, in order to ensure the
Committee remains quorate.
Agnès Touraine and Sir George Russell served on the Committee
during the year until they stepped down from the Board on 31
December 2009. Full details of attendance at Committee meetings can
be found in the table on page 48.
The Code requires the Board to be satisfied that at least one member
of the Committee has recent and relevant financial experience. The
Board considered this requirement during 2009, and concluded that the
wide range of business and financial experience of the Committee
members as a whole, gained at the highest level of UK FTSE 100
companies and other blue-chip organisations, was sufficient to enable
the Committee to fulfil its terms of reference in a robust and
independent manner. Biographical details of the members of the
Committee including their qualifications are set out on pages 44 and 45.
At the invitation of the Chairman of the Committee, the Chief
Executive, Group Finance Director, Group Financial Controller, Head of
Internal Audit and representatives of senior management regularly
attend Committee meetings. The Committee as a whole has the
opportunity to meet privately with the internal and external auditors
prior to meetings as required.
Role
The role of the Committee is 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.
ITV plc Report and accounts 2009 Audit Committee report
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Activities in 2009
The Committee’s activities during the year included:
– reviewing the Group’s 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;
Auditor’s independence and objectivity
The Committee regularly monitors the other services being provided to
the Group by its external auditor, and has developed a formal policy to
ensure this does not impair their independence or objectivity which is
available in full on the Company’s website at www.itvplc.com.
The policy is based on the five key principles which underpin the
provision of other services by the external auditor. These are that the
auditor should not:
– reviewing and approving the annual external audit process, the
– audit its own firm’s work;
external auditors strategy and plan for the audit, considering the
findings of that work and confirming that all significant matters
had been satisfactorily resolved;
– make management decisions for the Group;
– have a mutuality of financial interest with the Group;
– reviewing the management letter arising from the 2008 year-end
– develop a close personal relationship with the employees of
external audit;
the Group; or
– monitoring regularly the non-audit services being provided to the
– be put in the role of advocate for the Group.
Group by its external auditor. 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 Auditor’s
independence and objectivity section below;
– undertaking a review of the internal audit function, its plan and
resources available. The internal audit plan is constructed by taking a
risk based approach, encompassing financial, reputation, 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. A decision was taken during the year to use
external third parties to provide internal audit services in order to take
advantage of the specialist resources available through use of
consultants, and Deloitte were appointed to provide such services;
– 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;
– continuing to monitor the implementation of the integrated
finance processes and system;
– reviewing the Group’s technology function, resulting in a decision
to outsource this area in 2010 resulting in further cost savings and
efficiencies;
– reviewing the analysis supporting the carrying value 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 Financial review on page 42;
– reviewing the effectiveness of the whistleblowing process through
which the employees may, in confidence, raise concerns;
– considering regulatory and professional developments in respect
of financial accounting and reporting; and
– receiving reports from the Treasury department on their activities.
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 policy sets a 1:1 ratio for the annual split between audit and
other fees charged by the external auditor. Although the Committee
believes that awareness of the 1:1 ratio is important, it is also of the view
this should not act as a hard ceiling on non-audit fees but as a guide that
may be exceeded from time to time to ensure flexibility so that the
Company receives the best and most appropriate advice. Non-audit
services will be subject to market tenders or tests and will be awarded
to the most appropriate provider. Approval is required from the
Committee Chairman for any engagement of the external auditor
where the fee is likely to be in excess of £0.1 million. A report on the level
of non-audit work is provided to the Committee half-yearly. 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 senior 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
auditor be proposed to shareholders at the AGM in May 2009. The
resolution was passed and KPMG Audit Plc were re-appointed for a
further year.
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 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.
ITV plc Report and accounts 2009 Audit Committee report
52
– 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 and management: 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 function provides the assurance role reporting
to management, the 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 Committee receive
presentations from senior management covering the risks of the
operating units. Following such presentations and review, senior
management 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 Report and accounts annually. Details on
the Company’s key risks can be found on pages 30 and 31.
– Reviewing and monitoring the effectiveness of internal controls:
controls are monitored by senior management, Internal Audit 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 Board is required to review, at least annually, all material internal
controls including financial, operational, and compliance controls and
risk management systems. The Board has conducted a review of the
effectiveness of the Group’s systems of internal controls for the year
ended 31 December 2009. In the opinion of the Board, the Company
has complied with the internal control requirements of the Combined
Code throughout the year, maintaining an ongoing process for
identifying, evaluating and minimising risk.
Approval
The Audit Committee report was approved by the Board on 3 March
2010 and signed on its behalf by John Ormerod.
53
ITV plc Report and accounts 2009
Remuneration report
Dear Shareholder,
On the following pages we set out the Remuneration report for 2009.
The report comprises five sections:
– Committee overview;
– Remuneration policy;
– Delivering remuneration policy;
– Non-executive directors; and
– Detailed audited disclosures.
During the year, the Remuneration Committee (the Committee) has
endeavoured to ensure that arrangements remain focused, relevant
and aligned with the need to create shareholder value over the short,
medium and long-term. In taking decisions during 2009, the
Committee has been mindful that the market in which the Company
operates continues to be complex and challenging. The Committee
would encourage shareholders to note the following:
– In considering the overall remuneration package for executive
directors and senior executives of the Company (together the Senior
Executive Group), the Committee looks to balance the need to
attract and retain high quality talent with the need to be cost
effective and to reward exceptional performance. As a result, a
significant proportion of the Senior Executive Group’s remuneration
is dependent on the achievement of stretching performance
conditions that support the creation of shareholder value.
– In relation to 2009 performance, the Committee believes that the
level of bonus awards are a fair reflection of Company performance
during the year and in particular reflect the efforts made by the
Senior Executive Group to maintain operational progress across the
core business, reduce ITV’s cost base and manage cash and working
capital, which have delivered strong financial results in a very
challenging advertising market.
– In light of the current strategic review, we intend to undertake a full
review of incentive plans during 2010 in consultation with major
shareholders. The aim of the review will be to ensure incentive
arrangements are strongly aligned with the priorities arising out
of the strategic review and support the transformation of ITV.
Further details are set out in full over the following pages.
Baroness Usha Prashar
Chairman, Remuneration Committee
3 March 2010
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Committee overview
Composition
The Committee is comprised entirely of non-executive directors.
The current members are:
– Baroness Usha Prashar (Chairman)
– Mike Clasper (appointed 2 February 2010)
– Andy Haste
– Archie Norman (appointed 2 February 2010)
– John Ormerod (appointed 1 March 2010)
Sir James Crosby and Heather Killen served on the Committee during
the year until they stepped down from the Board on 31 December
2009. Full details of attendance at Committee meetings can be found
in the table on page 48.
Role
The role of the Committee is to:
– approve the remuneration strategy and policy for the Senior
Executive Group;
– review the ongoing appropriateness and relevance of the
remuneration policy; and
– approve the design of, and determine targets for, the Company’s
annual bonus arrangements and share incentive plans, and
determine the level of awards made under them as they apply
to the Senior Executive Group.
The Committee also maintains an active dialogue with shareholder
representatives.
Activities in 2009
The Committee’s activities during the year included:
– ensuring that decisions taken in respect of the Senior Executive
Group’s remuneration packages are sensitive to the activities being
undertaken in the wider group, while also remaining appropriate in
ITV’s commercial environment;
– considering the terms of remuneration for the roles of Chairman
and Chief Executive;
– agreeing performance targets in relation to the 2010 bonus; and
– agreeing remuneration packages for the Senior Executive Group and
termination arrangements for those individuals whose employment
ceased.
Advisers
The Committee obtains advice from various sources in order to ensure
it makes informed decisions. The Committee’s main advisers are set out
below, and certain executives and other external advisers are invited to
attend as appropriate. No individual is involved in decisions relating to
their own remuneration.
Adviser
Andy Doyle,
Group HR Director
Deloitte LLP*
Lovells LLP
Towers Watson
Area of advice
Main internal adviser, provides updates on
remuneration, employee relations and human
resource issues affecting the Company.
Independent advisers on remuneration policy and
the external remuneration environment; providing
performance testing for LTIPs.
Legal matters.
Salary benchmarking data.
*During the year Deloitte also provided the Group with tax and corporate finance advice
under separate engagement terms.
ITV plc Report and accounts 2009 Remuneration report
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Remuneration policy
As a company that operates in the particularly competitive media
market, ITV aims to balance the need to attract and retain the high
quality talent that is key to the Company’s success with the need to be
cost effective and to reward exceptional performance. The Committee
has designed a remuneration policy which balances these factors, while
also taking into account prevailing best practice and investor
expectations.
In addition to the above, the remuneration policy for the Senior
Executive Group is based on the following key principles:
– a significant proportion of remuneration should be tied to the
achievement of specific stretching performance conditions which
align remuneration with the creation of shareholder value;
– performance is measured over clearly specified time horizons, over
the short, medium and long-term, and encourages executives to take
action in line with the business strategy without taking excessive
risks; and
– individuals should be rewarded for success and steps should be taken,
within contractual obligations, to prevent rewards for failure.
Payments to directors on termination will only reflect contractual
obligations.
When developing remuneration policy, the Committee obtains advice
from the key advisers outlined on page 53. The Committee also
considers the wider context of the Group when taking decisions.
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 as set out in the table below. Details of how these
components are delivered is set out in the Delivering remuneration
policy section.
Components
Fixed
Base salary
Pensions
Function
To recognise the individual’s skills and experience and
provide a market competitive base reward.
To provide an opportunity for executives to build up an
income for retirement.
Other benefits To ensure remuneration is market competitive.
Variable
Short-term
incentives
To incentivise and reward exceptional performance
against financial and non-financial annual targets that
deliver value to shareholders.
To drive sustained long-term performance that
supports the creation of shareholder value.
Long-term
incentives
By way of illustration, the balance between the fixed and variable
elements of the total remuneration package (excluding pension) for
executive directors is illustrated in the charts below. The charts illustrate
the mix at both target and maximum performance and show the
typical delivery of remuneration through cash and shares, over the short
and longer term. Broadly there is a 50:50 split between fixed and
variable pay at target performance and a 25:75 split at maximum
performance, showing the high proportion of performance-related pay
that is ‘at risk’ in the total remuneration package.
Shareholder alignment
The Committee continues to recognise the importance of executive
directors aligning their interests with shareholders through the
commitment of a significant amount of their own investment capital.
Shareholding guidelines are in place, which encourage executive
directors to build up and hold ITV plc shares with a value equivalent to at
least 100% of their salary within five years of appointment. Details of
the executive directors’ current personal shareholdings are shown on
page 61.
ITV plc Report and accounts 2009 Remuneration report
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2010 Bonus: The Committee has set 2010 performance targets to
ensure they are heavily weighted to corporate financial performance,
and with a strong emphasis on ITV’s strategic goals. In setting these
targets, the Committee has determined there will be no Bonus awards
made if the Company’s profit is below a threshold level. In addition, the
performance scales have been set such that maximum bonuses will
only be paid for performance that is well above budgeted performance.
It is anticipated that awards made to the executive directors for 2010
performance will continue to be made partly in deferred shares and
partly in cash. However, this may form part of the incentives review that
will be undertaken during 2010.
Long-term incentives
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 shareholder value.
The plans under which awards have been made to date, and are still
outstanding, are:
– Performance Share Plan: this was the only long-term incentive used
for awards made in 2009. Awards were made on 1 June 2009 after
the cost savings review was completed, and were scaled back from
historic levels to a maximum of 100% of salary. The performance
conditions that apply to the 2009 awards are outlined in the table on
page 56. The intention is to make awards under this plan in 2010.
– Turnaround Plan: no awards have been made under this plan since
2008. Awards in the form of nil-cost options were made to a number
of key senior executives in 2007 and 2008 with a maximum value
of up to 550% of the individual’s salary. Individuals who received
this award did not receive an award under the Company’s other
long-term incentive plans in 2007 or 2008.
Up to 50% of the portion of the award subject to TSR (25% of the
total award) was subject to performance over the three-year period
to 31 December 2009. As the TSR condition was not met, 25% of the
total award has lapsed. The balance will be tested at 31 December
2011.
– Commitment Scheme: no awards have been made under this
scheme since 2006. John Cresswell is the only executive director
with outstanding awards.
The table on page 56 outlines the key features of the above plans.
The Company also operates an all employee Save As You Earn (SAYE)
scheme. The executive directors’ participation in this scheme are set out
in the Detailed audited disclosures section.
In line with the Turnaround Plan (TP), a corresponding long-term
cash-based incentive also exists for the wider employee population, not
including participants in the TP, known as the Turnaround Incentive
Opportunity, which is dependent on the same performance conditions.
Performance graph
The graph below shows the Total Shareholder Return (TSR)
performance of the Company against the FTSE 100 and FTSE 250 index
over the five year period to 31 December 2009. Both indices have been
shown as the Company has been a constituent of both over the
previous five years.
Delivering remuneration policy
Base salary
Market positioning of base salary is approached on an individual basis,
and 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 to attract superior talent.
Executive directors’ base salaries are reviewed on an annual basis,
effective from 1 January. In January 2010 the Company completed its
annual pay review and concluded that there should be no increase in
base salary for any ITV employees. This means the salaries of John
Cresswell, Ian Griffiths and Rupert Howell have not increased since 2008.
The base salaries for the executive directors are set out in the
emoluments table in the Detailed audited disclosures section.
Pensions
As with other companies, the form in which pension benefits are
delivered has changed for ITV in recent years. Since 2002, the Company
has been offering a defined contribution pension scheme to all new
employees. The majority of the Senior Executive Group receive their
pension through defined contribution pension arrangements. The
executive directors’ pension arrangements are set out on page 61.
Other benefits
Other benefits include private medical insurance and car related
allowances which are offered where appropriate.
Short-term incentives
Annual incentives are provided for the Senior Executive Group through
the ITV Annual Bonus Scheme (Bonus). The performance conditions
that apply are set on an individual basis and are closely linked to the
Company’s corporate, financial and strategic priorities. The Bonus
extends to all ITV employees, providing a comprehensive and fully
integrated bonus framework which rewards all employees when ITV is
successful.
The total Bonus opportunity for executive directors will not normally
exceed 150% of a participant’s annual salary. Typically half of any
pre-tax Bonus award to the executive directors has been automatically
deferred into restricted shares or nil-cost options under the Deferred
Share Award Plan (DSA), vesting 12 and 24 months after the end of the
financial year to which the Bonus relates. Participants have been able to
elect to take the balance of the Bonus in cash or as further share awards
under the DSA. The DSA does not provide for any form of matching
award.
2009 Bonus: Bonus opportunities for the Senior Executive Group in 2009
were designed to focus on profit generation (EBITA before exceptional
items), cost savings, the efficient management of cash (profit to cash
conversion) and employee engagement, with stretching targets set at
the start of the financial year. In addition, the Committee determined
that 2009 Bonus awards may be scaled back if profits were below a
threshold level. In early 2009, it was also the Committee’s intention to
make all awards wholly in the form of nil-cost options or restricted
shares.
ITV’s performance in 2009 in these key financial areas has been
strong, particularly in a challenging advertising market. As set out in the
Business review section, operational progress across the core business
has been maintained, significant cost savings have resulted in profits
being stabilised, and extensive efforts on cash conversion have resulted
in improved cash and working capital management. As a result, all the
financial targets set under the Bonus were met in full. The Committee
has therefore determined that the 2009 Bonus awards will not be scaled
back and believes the level of Bonus to be a fair reflection of the
Company’s performance during the year. For executive directors awards
will be made in the typical way with half being deferred into restricted
shares under the DSA and the balance in cash.
ITV plc Report and accounts 2009 Remuneration report
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Summary of long-term incentive plans
Performance Share Plan
(PSP)
Co-investment requirements None
Turnaround Plan
(TP)
Requirement to:
– acquire a number of shares with a value of up to
100% of salary within a specified period from
date of grant; and
– hold the shares for the duration of the relevant
performance period.
Commitment Scheme
(CS)
Requirement to:
– acquire a number of shares with a value of up to
300% of salary within a specified period from date
of grant to receive a matching award comprised of
either or both of a nil cost option and market value
option each over a maximum of three times the
number of shares committed; and
– hold the shares for the duration of the relevant
performance period.
Performance period
– three years from the date of grant.
– 25% of total award – 1 January 2007 to 31
– up to 50% of the matching award – three years
December 2009 (see page 55).
from the date of grant.
– 75% of total award – 1 January 2007 to 31
– remainder – four years from the date of grant.
December 2011.
Performance conditions
75% TSR
– measured equally against two distinct
50% TSR
– measured against a the customised FTSE 100
100% TSR
– measured against the customised FTSE 100
comparator groups drawn from the FTSE 250
and a specific international industry peer group
detailed in the notes on page 60.
comparator group detailed in the notes on page
60, excluding certain industry sectors that are less
relevant as a benchmark of performance.
comparator group detailed in the notes on page
60, excluding certain industry sectors that are less
relevant as a benchmark of performance.
25% STRATEGIC
– measured in equal proportions against two
50% STRATEGIC
– measured in equal proportions against four
strategic targets, which for awards made on 1 June
2009 were:
Strategic target
SOCI* (ITV Family)
EPS Growth
Threshold
Maximum
36.6%
RPI +3%
38.5%
RPI +5%
– Earnings Per Share (EPS) growth will be measured
over the relevant three year financial period with
EPS for the 2008 financial year as the base year.
strategic targets:
Strategic target
SOCI* (ITV Family)
Revenue growth
Adjusted EPS (in line
with that reported in
Group’s financial
statements)
Share price
Threshold
36.6%
2% p.a.
8p
Maximum
38.5%
5% p.a.
12p
£1.35
£2.25
– share price will be measured as an average over
any 28 day period within the final three years
of the TP.
Vesting
75% TSR
– Below median – nil
– Median – nil
– Upper quartile – 100%
– Vesting will occur on a straight line basis in
between.
50% TSR
– Below median – nil
– Median – 25%
– Upper quartile – 100%
– Vesting will occur on a straight line basis in
between.
100% TSR
– Below median – nil
– Median – 25%
– Upper quartile – 100%
– Vesting will occur on a straight line basis in
between.
25% STRATEGIC
– Threshold performance – 25% of the award
50% STRATEGIC
– Threshold performance – 25% of the award
relating to each target will vest
relating to each target will vest
– Maximum performance – 100% of the award
– Maximum performance – 100% of the award
relating to each target will vest
relating to each target will vest
– Vesting will occur on a straight line basis
– Vesting will occur on a straight line basis
in between.
in between.
Exercise period
– Once vested, awards can be exercised for
– Once vested, awards can be exercised until
– Once vested, awards can be exercised for up to
12 months.
31 December 2012.
ten years from date of grant.
– Any portion of the award that does not vest or is
not exercised will lapse.
– Any portion of the award that does not vest or is
not exercised by 31 December 2012 will lapse and
the TP will terminate.
– Any portion of the award that does not vest or is
not exercised will lapse.
Leavers
Standard good leaver provisions apply (broadly relating to compassionate circumstances) and include pro-ration for service. If a participant ceases to be employed
for any other reason, the award will lapse unless determined otherwise.
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.
The proportion that vests may be capped depending on the time elapsed since grant.
*SOCI as a measure of performance, and its importance to the business, is explained further in the Business review.
ITV plc Report and accounts 2009 Remuneration report
57
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. The additional fee for membership
of the Nomination Committee ceased from 1 January 2010. There were
no changes to the level of fees paid during 2009, and none are proposed
for 2010. The annual fees payable are as follows:
Non-executive directors’ fees
Board member
Senior Independent Director
Audit Committee member
Audit Committee Chairman
Remuneration Committee member
Remuneration Committee Chairman
£000
55
25
5
20
5
15
Note:
Details of committee membership can be found in the Corporate Governance section.
From 1 January 2009 the non-executive directors have used 25%
of their annual fees, after statutory deductions, to acquire shares in
the Company. The shares are purchased quarterly and are held by a
nominee on their behalf. The shares release when they retire from the
Board. Details of their shareholdings can be found on page 61.
Chairman
Archie Norman joined the Company as Chairman on 1 January 2010.
As announced at the time of his appointment, his remuneration will
comprise a cash fee of £300,000 per annum and an annual award of
400,000 shares over the initial three-year appointment term. He will
not be required to apply a percentage of his cash fee to acquire shares
as the Committee considers him to be sufficiently aligned with
shareholders’ interests following his purchase of 380,000 shares on
appointment, together with the share element of his remuneration.
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Service contracts
Executive directors have service contracts which provide for 12 months’
notice on either side. There are no special provisions that apply in the
event of a change of control.
John Cresswell
Ian Griffiths
Rupert Howell
Date of appointment
16 January 2006
9 September 2008
28 February 2008
Nature of
contract
Rolling
Rolling
Rolling
Notice period
from Company
Notice period
from director
12 months 12 months
12 months 12 months
12 months 12 months
Compensation
provisions
for early
termination
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
and retain any related fees paid to them.
During the year Michael Grade retained fees for external non-
executive directorships as set out below:
Company
Pinewood Shepperton Plc
Ocado Limited
2009
£000
102
100
2008
£000
102
100
Payments to outgoing executive director
When agreeing the terms of Michael Grade’s departure the Committee
were keen to ensure that any payments made only reflected
contractual obligations.
As Michael Grade indicated his intention to leave in April 2009 and
stood down in December 2009, the Committee agreed he should
receive payment for the residual four months of his contractual notice
period to April 2010. However, the Committee determined that this
payment should be made at the rate he would have been paid as
non-executive Chairman, rather than his Executive Chairman salary.
As a result, a payment of £167,000 was made on his departure.
Michael Grade’s Bonus payment in respect of 2009 performance was
assessed against performance targets set at the start of the financial
year and calculated in line with the bonus payments for other executive
directors as disclosed on page 55. The payment made is included in the
emoluments table on page 58.
Details of Michael Grade’s outstanding awards under the Company’s
long-term incentive plans are outlined in the Detailed audited disclosures
section.
Interim Chief Executive
John Cresswell was appointed to the position of Interim Chief Executive
on 1 January 2010 and will hold the position until Adam Crozier joins the
Company as Chief Executive on 26 April 2010. In order to reflect the
increase in his responsibilities during this transitional period he will
receive an additional allowance of £125,000 per annum pro-rata for the
period he serves as Interim Chief Executive.
ITV plc Report and accounts 2009 Remuneration report
58
Detailed audited disclosures
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 2009 to 31 December 2009 were as follows:
Emoluments
Gains on exercise of share options
2009
£000
5,309
1,092
6,401
2008
£000
2,893
87
2,980
Notes:
(1) Gains on exercise figure for 2009 is higher as it shows both the nil-cost options awarded
under the 2008 Bonus vesting and being exercised, and the value on release of the
remaining restricted shares awarded under the 2007 Bonus. John Cresswell also exercised
his nil-cost options under the Granada Commitment Scheme during the year. Further
information is contained in the tables on pages 59 and 60.
(2) The value on release of restricted shares awarded under the DSA will be included in the
gains on exercise figure going forward in order to make year-on-year comparisons more
representative. The 2008 gains on exercise figure with this value included would have been
£504,000.
Directors’ emoluments
The directors’ emoluments for the year ended 31 December 2009 are set out in the table below. The main reasons for the difference in total
emoluments year-on-year are:
2008 total emoluments: £2.9 million
– The total emoluments figure does not include any 2008 short-term incentives (Bonus), as they were awarded in nil-cost options under the DSA
with no cash payments.
– The figures for Rupert Howell and Ian Griffiths are from the date of their appointment to the Board, in February and September 2008
respectively. If the total emoluments figure for 2008 included their salary for a full year, as in 2009, then the 2008 total emolument figure is
£3.2 million on a like-for-like basis.
2009 total emoluments: £5.3 million
– The 2009 Bonus is higher as financial targets were met as described on page 53.
Emoluments
Notes
1, 2
3, 7
3, 7
Name of director
Executive
Michael Grade
John Cresswell
Ian Griffiths
Rupert Howell
Non-executive
Mike Clasper
Sir James Crosby
Andy Haste
Heather Killen
John Ormerod
Baroness Usha Prashar
Sir George Russell
Agnès Touraine
Past director’s remuneration (for comparative purposes)
Basic salary/
Fees
£000
Benefits in
kind (4)
£000
Pension
contributions
£000
Short-term
incentives
(cash)(5)
£000
Total for the
year ended
31 December 2009
£000
Total for the
year ended
31 December 2008
£000
825
575
425
450
80
100
65
65
65
75
165
65
–
63
20
13
49
–
–
–
–
–
–
–
–
–
74
–
64
67
–
–
–
–
–
–
–
–
–
1,164
363
210
267
–
–
–
–
–
–
–
–
–
2,126
958
712
833
80
100
65
65
65
75
165
65
–
934
599
127
474
80
100
24
65
62
75
165
65
123
Total emoluments
2,955
145
205
2,004
5,309
2,893
Notes:
(1) Pension contribution represents a cash payment in lieu of pension and is described further in the pension entitlements section of this report.
(2) The benefits in kind figure includes a cash payment in lieu of accrued but unused holiday at the year end.
(3) Pension contributions represent payments made into Personal Pension Plans and are described further in the pension entitlements section of this report.
(4) This disclosure includes the cost of private medical insurance and car related benefits.
(5) Executive directors will receive a 2009 Bonus as follows. Michael Grade will receive 141% of salary and will be paid fully in cash. John Cresswell will receive 126% of salary and Rupert Howell
118.5% salary, with 50% paid in cash as shown above, and 50% awarded as restricted shares under the DSA. Ian Griffiths will receive 141% of salary, and has elected to take 65% as restricted
shares under the DSA and the remainder in cash.
(6) Non-executive directors’ fees include an element which is used to purchase shares as described on page 57. Details of their shareholdings are shown on page 61.
(7) The figures for 2008 reflect emoluments from the date of appointment to the Board which are set out on page 48.
At
1 January
2009
Awarded
in year
Exercised/
Released
in year
Lapsed
in year
At
31 December
2009
Share price
used for
award
(pence)
Exercise price
(pence)
Date of exercise/
release
Share price
at date of
exercise/
release
(pence)
Pre-tax gain at
date of exercise/
release
(£)
Vesting date/
Exercise period
ITV plc Report and accounts 2009 Remuneration report
59
Directors’ interests in share options
Information given in the table below is for the period from 1 January 2009 to 31 December 2009.
Notes
Award date
John Cresswell
Deferred Share Award Plan
14 March 2008
24 April 2009
1
2
241,491
– 241,491
– 264,314 264,314
–
264,315
–
–
–
–
–
264,315
65.30
31.00
31.00
Performance Share Plan
13 September 2006
1 June 2009
Turnaround Plan
13 September 2007
3, A
B
607,595
–
– 1,608,392
– 607,595
–
–
–
1,608,392
98.75
35.75
4, A 2,849,100
–
– 712,275
2,136,825
111.00
Save As You Earn scheme
4 April 2008
17 July 2009
Commitment Scheme
22 August 2003
22 August 2003
5
5
6
6
19 April 2005
10, C
283,407
19 April 2005
20 March 2006
10, C
11, D
283,407
518,358
20 March 2006
11, D
518,358
Executive Share Option Schemes
22 December 2000
7
959
6 July 2001
7
36,399
28 September 2001
7
113,851
9 January 2002
10 July 2002
7 January 2003
Michael Grade
7
7
7
1,040
19,240
18,200
–
–
–
–
–
–
–
–
–
–
– 283,407
–
– 283,407
– 259,179
–
259,179
– 259,179
259,179
–
–
–
–
–
–
959
36,399
113,851
1,040
19,240
18,200
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
125.75
–
115.75
217.78
137.02
91.35
143.27
106.25
76.92
–
–
–
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–
–
–
–
–
–
31 December 2009
31 December 2009
–
54.24
54.24
–
130,985
143,634
–
–
– 31 December 2010 –
31 December 2011
–
–
–
–
–
–
–
–
–
–
–
–
–
June 2012 –
June 2013
– 31 December 2011–
31 December 2012
–
–
–
September 2014 –
March 2015
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
August 2005 –
August 2010
–
–
March 2010 –
March 2016
March 2010 –
March 2016
December 2003 –
December 2010
July 2004 –
July 2011
September 2004 –
September 2011
January 2005 –
January 2012
July 2005 –
July 2012
January 2006 –
January 2013
Deferred Share Award Plan
14 March 2008
24 April 2009
1
2
740,352
– 740,352
–
– 758,468
–
758,468
65.30
31.00
Turnaround Incentive Award
13 September 2007
8, A 5,657,042
Save As You Earn scheme
4 April 2008
9
32,307
–
–
– 1,703,648
3,953,394
106.06
–
–
32,307
–
52.00
31 December 2009
–
54.24
–
401,567
–
– 31 December 2009 –
31 December 2010
–
–
–
–
– 31 December 2011 –
31 December 2012
–
January 2010 –
June 2010
32,307
–
–
54,370
–
–
32,307
–
–
54,370
–
35.75
52.00
28.60
301,785
471,944
– 301,785
–
–
–
–
–
471,944
–
100.72
20 October 2009
–
50.98
–
153,850
–
ITV plc Report and accounts 2009 Remuneration report
At
1 January
2009
Awarded
in year
Exercised/
Released
in year
Lapsed
in year
At
31 December
2009
Notes
Share price
used for
award
(pence)
Exercise price
(pence)
Date of exercise/
release
Share price
at date of
exercise/
release
(pence)
Pre-tax gain at
date of exercise/
release
(£)
Vesting date/
Exercise period
60
Award date
Ian Griffiths
Deferred Share Award Plan
2 October 2008
24 April 2009
2
2
177,515
–
– 177,515
48,840
–
48,840
48,841
–
–
–
–
–
48,841
42.25
31.00
31.00
Performance Share Plan
1 June 2009
Turnaround Plan
2 October 2008
B
– 1,188,812
–
–
1,188,812
35.75
4, A 4,023,669
–
– 1,005,917
3,017,752
42.25
Rupert Howell
Deferred Share Award Plan
14 March 2008
24 April 2009
1
2
48,756
48,756
–
– 206,855 206,855
–
206,855
–
–
–
–
–
206,855
65.30
31.00
31.00
Performance Share Plan
1 June 2009
Turnaround Plan
3 October 2007
B
– 1,101,399
–
–
1,101,399
35.75
4, A 2,357,143
–
– 589,286
1,767,857
105.00
–
–
–
–
–
–
–
–
–
–
31 December 2009
31 December 2009
–
54.24
54.24
–
96,284
26,490
–
–
– 31 December 2010 –
31 December 2011
–
–
–
–
–
June 2012 –
June 2013
– 31 December 2011–
31 December 2012
31 December 2009
31 December 2009
–
54.24
54.24
–
26,445
112,198
–
–
– 31 December 2010 –
31 December 2011
–
–
–
–
–
June 2012 –
June 2013
– 31 December 2011–
31 December 2012
Notes:
(1) Awarded in the form of restricted shares.
(2) Awarded in the form of nil-cost options. The award made to Ian Griffiths on 2 October 2008 was a one off award under the terms of his employment.
(3) The 2006 PSP awards reached the end of their performance period in 2009 and lapsed as the TSR performance condition was not met.
(4) 25% of the award was tested on 31 December 2009, and as the performance condition was not met this portion of the award lapsed.
(5) John Cresswell chose to withdraw from the 2008 scheme in order to participate in the 2009 scheme resulting in his options lapsing.
(6) The performance condition applicable for the awards made under the Granada Commitment Scheme was TSR relative to Granada’s international media comparator group. 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 options are shown in ITV plc shares and were adjusted following the merger of Granada with Carlton in 2004. The balance shown represents options that have vested at the relevant
vesting dates, but not been exercised.
(7) Awards outstanding under the Granada Media and Granada Schemes. The options are shown in ITV plc shares and were adjusted following the merger of Granada with Carlton in 2004.
(8) In accordance with the terms of the award, 25% of the total award would vest at 31 December 2009 if the TSR condition was satisfied. As the performance condition was not satisfied, this
portion of the award will be tested with the remaining balance of the award on 31 December 2011. On cessation of employment on 31 December 2009, 75% of the award due to be tested on
31 December 2011 was pro-rated for service and a proportion lapsed accordingly.
(9) On cessation of employment on 31 December 2009, the award vested and became exercisable over a pro-rated number of shares for a period of six months.
(10) Lapsed on 19 April 2009 as performance conditions were not met.
(11) 50% lapsed on 20 March 2009 as performance conditions were not met. Remaining balance is unvested and will be tested on 20 March 2010.
The comparator groups for each award are set out in the table below, and apply as marked in the notes column:
A
B
C
D
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.
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 basic
materials, financial services, oil and gas and industrials industries), and an industry sector specific group of 23 companies: British Sky Broadcasting Group, Scripps Networks, Canal Plus, Telecinco,
CBS, Tf1 (Tv.Fse.1), Daily Mail & General Trust, Time Warner, M6-Metropole TV, Trinity Mirror, Mediaset, Viacom Digital, Modern Times Group, Virgin Media, News Corporation, Vivendi, Pearson,
WPP Group, Premier AG, Yell Group, Proseiben Sat 1 Pf., Zon Multimedia and RTL Group.
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.
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.
Directors’ interests
The figures set out below represent shareholdings in the ordinary
share capital of ITV plc beneficially owned by directors and their
family interests. Between the end of the financial year and 3 March
2010, there were no changes in directors’ interests in shares.
Director
Mike Clasper
John Cresswell
Sir James Crosby
Michael Grade
Ian Griffiths
Andy Haste
Rupert Howell
Heather Killen
John Ormerod
Baroness Usha Prashar
Sir George Russell
Agnès Touraine
31 December
2009
46,784
1,260,462
138,388
879,814
233,358
33,302
199,350
45,302
75,372
30,017
112,847
124,301
31 December
2008
18,000
784,660
98,058
436,407
100,000
10,000
48,755
22,000
50,000
3,000
62,090
100,000
Share price information
The market price of the ITV plc ordinary shares at 31 December 2009
was 52.35 pence and the range during the year was 17.50 pence to
55.05 pence.
Approval
The Remuneration report was approved by the Board on 3 March
2010 and signed on its behalf by Baroness Usha Prashar.
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61
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
2009
£000
108
Increase in
accrued
pension in
the year
£000
11
Accrued
pension
31 December
2009
£000
119
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.
During 2009, ITV consulted with defined benefit scheme
members regarding changes to future benefit accrual. With effect
from January 2010, pensionable salary increases for all defined
benefit members, including John Cresswell, are capped at 1%.
Further information on this can be found in note 6 of the
consolidated financial statements or on page 43.
Transfer
value
1 January
2009
£000
1,240
Contributions
made by
the director
£000
46
Increase
in transfer
value in
the year
net of
contributions (1)
£000
201
Transfer
value
31 December
2009
£000
1,487
Name of director
John Cresswell
Notes:
(1) Transfer values at 31 December 2009 have been calculated in accordance with the
transfer value members would receive if they transferred their pension elsewhere.
The Trustees of the ITV Pension Scheme updated the transfer value factors over 2009
to allow for increasing evidence that people are living longer than previously expected
which has contributed to the increase in the transfer value to 31 December 2009.
The increase in the transfer value also 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
director’s pension will become payable to a surviving spouse. A pension may become
payable to any surviving dependant 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 (55 from 6 April 2010).
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
59
The transfer values disclosed above do not represent a sum paid or
payable to John Cresswell. Instead they represent a potential liability
of the pension scheme.
Michael Grade, Ian Griffiths and Rupert Howell were not members
of any Company pension scheme during the year. The Company
made contributions to Personal Pension Plans belonging to Ian
Griffiths and Rupert Howell with a value of 15% of their respective
basic salaries. Michael Grade received a cash payment of 9% of his
basic salary in lieu of pension contributions. These payments are
included in the emoluments table on page 58.
No directors were members of defined contribution schemes
operated by the Group.
62
ITV plc Report and accounts 2009
Other governance and statutory disclosures
Substantial shareholdings
As at 3 March 2010 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(1)
Brandes Investment Partners, L.P.
Legal and General Investment
Management Ltd
Blackrock, Inc.
AXA S.A.
Notes:
(1) Subsidiary of British Sky Broadcasting Group plc.
(2) A profile of shareholdings is set out on page 113.
Shares
291,684,730
275,411,157
200,841,036
194,695,694
170,580,317
%
7.50
7.08
5.16
5.01
4.39
Share capital
Issued: 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. Further details of the
movements in the authorised and issued share capital of the
Company during the year are set out on page 110.
Rights: 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 at www.itvplc.com or by writing to the
Company Secretary.
Restrictions: 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, certain employees are required to seek approval to deal in ITV
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, the Company’s
Articles of Association may be amended by special resolution of the
shareholders.
Purchase of own shares: The directors have the authority to
purchase up to 388.9 million of the Company’s ordinary shares. The
authority remains valid until the 2010 Annual General Meeting, or 13
August 2010 if earlier.
Trusts: 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 2009 are set out
in note 30. During the year shares have been released from the trust
in respect of share 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.
Change of control
All of the Company’s share schemes 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.
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 payment practice.
The number of days’ purchases outstanding for payment by the
Company as at 31 December 2009 was nil days (2008: nil).
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 2009 and remain in force for the
benefit of each of the directors of ITV Pension Scheme Limited, an
associated 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.
Audit
The directors who held office at the date of approval of the Directors’
report confirm that, so far as they are each aware, there is no
relevant audit information of which the Company’s auditor is
unaware; and each director has taken all steps that they ought to
have taken as a director in order to make themselves aware of any
relevant audit information and to establish that the Company’s
auditor is 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 2010 Annual
General Meeting.
Annual General Meeting
The Annual General Meeting will be held on Friday 7 May 2010
at 11.00 am 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.
By order of the Board
Andrew Garard
Company Secretary
3 March 2010
ITV plc
The London Television Centre
Upper Ground
London
SE1 9LT
Registered number 4967001
Contacts and documents for corporate governance
Chairman
Senior Independent Director
Interim Chief Executive
Company Secretary
Telephone: 020 7157 3000
Archie Norman
Mike Clasper
John Cresswell
Andrew Garard
The following documents are available on the Company’s website
at www.itvplc.com:
– Terms of engagement for non-executive directors;
– Schedule of matters reserved for the Board;
– Terms of reference for Audit, Disclosure, General Purpose,
Nomination and Remuneration Committees;
– Guidelines for seeking independent advice;
– Directors’ indemnity; and
– Terms of reference for remuneration consultants.
63
ITV plc Report and accounts 2009
Statement of directors’ responsibilities in respect of
the annual report and the financial statements
The directors are responsible for preparing the Annual Report and the Group and parent company financial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare Group and parent company financial statements for each financial year. Under that law they are
required to prepare the Group 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).
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the
state of affairs of the Group and parent company and of their profit or loss for that period. In preparing each of the Group and parent company
financial statements, the directors are required to:
– select suitable accounting policies and then apply them consistently;
– make judgements and estimates that are reasonable and prudent;
– for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
– for the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material
departures disclosed and explained in the parent company financial statements; and
– prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent company will
continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions
and 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 2006. 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, Directors’ 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.
Each of the directors, the names of whom are set out on pages 44 and 45, confirms that to the best of his or her knowledge:
– the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets and
liabilities, financial position and the profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
– the Directors’ report includes a review of the development and performance of the business and the position of the issue and the undertakings
included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
By order of the Board
Andrew Garard
Company Secretary
3 March 2010
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64
ITV plc Report and accounts 2009
Independent auditors’ report to the members
of ITV plc
We have audited the Consolidated and Company financial statements of ITV plc for the year ended 31 December 2009 set out on pages 63 to 112.
The financial reporting framework that has been applied in the preparation of the consolidated financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the EU. The financial reporting framework that has been applied in the preparation
of the parent company financial statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice).
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of part 16 of the Companies Act 2006. 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 auditors’ 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
As explained more fully in the Directors’ Responsibilities Statement set out on page 63, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance
with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices
Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/UKP.
Opinion on financial statements
In our opinion:
– the Consolidated and Company financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs
as at 31 December 2009, and of the Group’s profit for the year then ended;
– the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;
– the parent company financial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice;
– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
– the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
– the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the
financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
– adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
– the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
– certain disclosures of directors’ remuneration specified by law are not made; or
– we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
– the Directors’ report, set out on page 42, in relation to going concern; and
– the part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the June 2008 Combined
Code specified for our review.
Richard Bawden (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
8 Salisbury Square
London EC4Y 8BB
3 March 2010
65
ITV plc Report and accounts 2009
Consolidated income statement
For the year ended 31 December:
Revenue
Operating costs
Earnings before interest, tax and amortisation (EBITA) before exceptional items
Net operating income/(costs) – exceptional items
Amortisation of intangible assets
Impairment of intangible assets
Total operating costs
Operating profit/(loss)
Financing income
Financing costs
Net financing costs
Share of profit or loss of joint ventures and associated undertakings
Investment income
Loss on sale and impairment of non-current assets (exceptional items)
(Loss)/gain on sale and impairment of subsidiaries and investments (exceptional items)
Profit/(loss) before tax
Taxation
Profit/(loss) for the year
Profit/(loss) attributable to:
Owners of the company
Non-controlling interests
Profit/(loss) for the year
Earnings/(loss) per share
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Note
2
5
13
4
8
14
5
5
9
2009
£m
1,879
(1,677)
202
53
(59)
–
(1,683)
196
201
(292)
(91)
(7)
–
(22)
(51)
25
69
94
2008
£m
2,029
(1,818)
211
(97)
(66)
(2,695)
(4,676)
(2,647)
316
(376)
(60)
(15)
1
(17)
6
(2,732)
178
(2,554)
91
3
94
(2,556)
2
(2,554)
11
11
2.3p
2.3p
(65.9)p
(65.9)p
B
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Operating exceptional items during the year mainly comprise reorganisation and restructuring costs, onerous property provisions and gains arising
from pension scheme changes (see note 5 for details).
ITV plc Report and accounts 2009
66
Consolidated statement of comprehensive income
For the year ended 31 December:
Profit/(loss) for the year
Other comprehensive income:
Exchange differences on translation of foreign operations
Revaluation of available for sale financial assets
Amounts recycled to the income statement in respect of cash flow hedges
Other movements in respect of cash flow hedges
Actuarial losses on defined benefit pension schemes
Income tax on other comprehensive income
Other comprehensive cost for the year, net of income tax
Total comprehensive cost for the year
Total comprehensive cost attributable to:
Owners of the Company
Non-controlling interests
Total comprehensive cost for the year
2009
£m
94
2008
£m
(2,554)
(4)
2
(9)
–
(391)
101
(301)
(207)
(210)
3
(207)
16
2
–
4
(124)
35
(67)
(2,621)
(2,623)
2
(2,621)
67
ITV plc Report and accounts 2009
Consolidated statement of financial position
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
Net deferred tax asset
Current assets
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
Assets held for sale
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
Liabilities held for sale
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 losses
Total equity attributable to equity shareholders of the parent company
Non-controlling interests
Total equity
Ian Griffiths
Group Finance Director
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31 December
2009
£m
31 December
2008
£m
Note
12
13
14
15
22
25
16
9
17
18
18
18
25
22
27
22
25
19
20
26
27
22
25
6
9
21
26
30
161
1,030
5
1
149
151
16
50
1,563
388
432
7
439
5
582
78
1,492
(9)
(4)
(646)
(31)
(677)
(31)
(47)
(3)
(771)
220
1,140
66
5
–
199
13
–
1,643
516
444
10
454
19
616
3
1,608
(259)
(7)
(748)
(26)
(774)
(56)
(43)
–
(1,139)
721
469
(1,431)
(30)
(436)
–
(12)
(29)
(1,938)
(1,264)
(25)
(178)
(55)
(15)
(41)
(1,578)
346
534
389
120
308
11
8
(491)
345
1
346
389
120
273
24
6
(286)
526
8
534
ITV plc Report and accounts 2009
68
Consolidated statement of changes in equity
Balance at 1 January 2009
Total comprehensive income for
the year
Profit
Other comprehensive
income/(cost)
Revaluation of available for sale
financial assets
Exchange differences on translation
of foreign operations
Amounts recycled to the income
statement in respect of cash flow
hedges
Actuarial losses on defined benefit
pension schemes
Income tax on other
comprehensive income
Total other comprehensive
income/(cost)
Total comprehensive income/(cost)
for the year
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Equity dividends
Equity portion of the convertible
bond
Movements due to share-based
compensation
Total contributions by and
distributions to owners
Change in ownership interest in
subsidiaries that do not result in a
loss of control
Non-controlling interest acquired
Total changes in ownership interests
in subsidiaries
Total transactions with owners
Balance at 31 December 2009
Attributable to equity shareholders of the parent company
Share
capital
£m
389
Share
premium
£m
120
Merger and
other reserves
£m
273
Translation
reserve
£m
24
Available for
sale reserve
£m
6
Retained
losses
£m
(286)
Total
£m
526
Non-controlling
interests
£m
8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
389
–
–
120
–
–
–
–
–
–
–
–
–
35
–
35
–
–
35
308
–
–
(4)
(9)
–
–
(13)
(13)
–
–
–
–
–
–
–
11
–
2
–
–
–
–
2
2
–
–
–
–
–
–
–
8
91
91
–
–
–
2
(4)
(9)
(391)
(391)
101
101
(290)
(301)
(199)
(210)
–
1
8
9
–
36
8
44
(15)
(15)
(15)
(6)
(491)
(15)
29
345
3
–
–
–
–
–
–
3
(2)
–
–
(2)
(8)
(8)
(10)
1
Total
equity
£m
534
94
2
(4)
(9)
(391)
101
(301)
(207)
(2)
36
8
42
(23)
(23)
19
346
Merger and other reserves
Merger and other reserves at 31 December 2009 include merger reserves arising on the Granada/Carlton and previous mergers of £119 million (2008:
£119 million), capital reserves of £112 million (2008: £112 million), capital redemption reserves of £36 million (2008: £36 million), revaluation reserves
of £6 million (2008: £6 million) and £35 million (2008: £nil) in respect of the equity element of the 2016 convertible bond. In 2008 a transfer of
£2,429 million between retained losses and merger reserves was made in respect of the impairment of goodwill that 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 £9 million recycled to the income statement in respect of cash flow hedges (2008:
£4 million movement).
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
(see note 24).
Non-controlling interests
Included within the net £7 million movement in the year is £3 million profit attributable to non-controlling interests, net of £2 million for dividends
paid to such interests and £8 million in respect of the 25% non-controlling interest element purchased in GMTV in November 2009.
ITV plc Report and accounts 2009
69
Consolidated statement of changes in equity
Balance at 1 January 2008
Total comprehensive income/(cost)
for the year
(Loss)/profit
Other comprehensive
income/(cost)
Revaluation of available for sale
financial assets
Exchange differences on translation
of foreign operations
Movement in respect of cash flow
hedges
Actuarial losses on defined benefit
pension schemes
Income tax on other
comprehensive income
Transfer from merger reserve
Total other comprehensive costs
Total comprehensive income/(costs)
for the year
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Equity dividends
Movements due to share-based
compensation
Total contributions by and
distributions to owners
Total transactions with owners
Balance at 31 December 2008
Attributable to equity shareholders of the parent company
Share
capital
£m
389
Share
premium
£m
120
Merger and
other reserves
£m
2,702
Translation
reserve
£m
4
Available for
sale reserve
£m
4
Retained
earnings/(losses)
£m
14
Total
£m
3,233
Non-controlling
interests
£m
6
Total
equity
£m
3,239
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
389
–
–
120
–
–
–
–
–
–
(2,429)
(2,429)
(2,429)
–
–
–
–
273
–
–
(2,556)
(2,556)
2
(2,554)
–
16
4
–
–
–
20
20
–
–
–
–
24
2
–
–
–
–
–
2
2
–
–
–
–
6
–
–
–
2
16
4
(124)
(124)
35
2,429
2,340
35
–
(67)
(216)
(2,623)
(96)
(96)
12
12
(84)
(84)
(286)
(84)
(84)
526
–
–
–
–
–
–
–
2
–
–
–
–
8
2
16
4
(124)
35
–
(67)
(2,621)
(96)
12
(84)
(84)
534
B
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70
ITV plc Report and accounts 2009
Consolidated statement of cash flows
For the year ended 31 December:
Cash flows from operating activities
Operating profit/(loss) before exceptional items
Depreciation of property, plant and equipment
Amortisation and impairment of intangible assets
Share-based compensation
Decrease/(increase) in programme rights and other inventory, and distribution rights
Decrease/(increase) in receivables
(Decrease)/increase in payables
Movement in working capital
Cash generated from operations before exceptional items
Cash flow relating to operating exceptional items:
Net operating income/(costs)
(Increase)/decrease in payables and provisions and the impact of the exceptional
pension gain
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
Net taxation received
Net cash inflow 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 joint ventures
Loans granted to associates and joint ventures
Loans repaid by associates and joint ventures
Proceeds from sale of subsidiaries and available for sale investments
Net cash outflow 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
Acquisition of non-controlling interests
Dividends paid to non-controlling interest
Repayment of loan by employees’ benefit trust
Purchase of own shares via employees’ benefit trust
(Purchase)/sale of held to maturity investments
Equity dividends paid
Net cash (outflow)/inflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Effects of exchange rate changes and fair value movements on cash
and cash equivalents
Less: cash related to disposal group (note 28)
Cash and cash equivalents at 31 December
Note
£m
2009
£m
2008
£m
£m
(2,550)
36
2,761
10
(82)
(34)
49
(67)
372
190
(63)
309
(66)
243
(40)
150
(59)
91
(97)
57
(39)
40
(99)
(4)
43
(6)
35
1
(32)
(21)
(3)
(26)
20
–
(71)
(32)
(25)
110
(6)
–
–
2
–
100
(123)
(202)
(30)
616
–
(4)
582
58
117
498
1
–
616
12
13
7
143
38
59
11
125
11
(15)
121
5
53
(116)
(31)
44
(116)
(4)
41
(50)
–
4
(14)
(13)
–
(6)
4
4
(508)
516
(7)
(23)
(2)
–
(3)
(150)
(25)
29
14
14
29
22
22
28
22
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ITV plc Report and accounts 2009
Notes to the accounts
1 Accounting policies
1.1) Basis of preparation
The Group accounts consolidate those of ITV plc, (“the Company”), a company domiciled in the United Kingdom and its subsidiaries (together
referred to as “the Group”) and the Group’s interests in associates and jointly controlled entities.
As required by EU law (IAS Regulation EC 1606/2002) the Group’s accounts have been prepared and approved by the directors in accordance
with International Financial Reporting Standards as adopted by the EU (“IFRS”).
The accounts are principally prepared on the historical cost basis. Areas where other bases are applied are identified in the accounting
policies below.
The Company has elected to prepare its parent company financial statements in accordance with UK GAAP.
The disclosures on pages 40–42 in respect of liquidity risk and going concern form part of the audited accounts.
The Group has adopted the following standards and amendments effective from 1 January 2009 that are relevant to these financial statements:
– IAS 1 “Amendments to IAS 1 Presentation of Financial Statements – A revised presentation”. The Group has presented both a consolidated
statement of comprehensive income and a consolidated statement of changes in equity as primary financial statements. The consolidated
statement of comprehensive income effectively replaces the consolidated statement of recognised income and expense. As a result, the Group
presents in the consolidated statement of changes in equity all owner changes in equity, where as all non-owner changes in equity are presented
in the consolidated statement of comprehensive income. The Group has elected to present a separate consolidated income statement.
Comparative information has been re-presented so that it is also in conformity with the revised standard. Since the adoption of this accounting
standard only impacts presentation aspects there is no impact on earnings/(loss) per share.
– IFRS 2 “Amendment to IFRS 2 Share-Based Payment: Vesting Conditions and Cancellations”. The definition of vesting conditions 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. This has had no material impact on the Group’s results.
– IFRS 7 “Amendments to IFRS 7 Improving Disclosures about Financial Instruments”. These amendments enhance disclosures over fair value
measurements relating to financial instruments and improving disclosures over liquidity risk. Specifically, as a result of adopting the amendment,
the Group has introduced a three-level disclosure hierarchy for financial instruments held at fair value (see note 24). Since the adoption of this
accounting standard only impacts presentation aspects there is no impact on earnings/(loss) per share.
– Improvements to IFRS 1 – Various standards amended – The improvements contain 24 amendments that result in accounting changes for
presentation, recognition or measurement purposes and 11 terminology or editorial amendments that have no or only minimal effects on
accounting but have been reflected where relevant in the accounting policies set out in Note 1.2 to 1.30.
The Group has also chosen to early adopt the following standards that are effective from 1 July 2009:
– IFRS 3 “Business Combinations (2008)” and IAS 27 “Consolidated and Separate Financial Statements (2008)” for all business combinations and
acquisitions of non-controlling interests occurring in the financial year starting 1 January 2009. The Group has applied these standards for the
acquisitions disclosed in note 29. Under the new accounting policy, the acquisition of the non-controlling interest of 25% in GMTV is accounted
for as a transaction with equity holders in their capacity as equity holders and therefore no goodwill is recognised as a result of such transactions.
Previously, goodwill was recognised arising on the acquisition of a non-controlling interest in a subsidiary, which represented the excess of the
cost of the additional investment over the carrying amount of the interest in the net assets acquired at the date of acquisition. The change in
accounting policy is applied prospectively and had no material impact on earnings/(loss) per share.
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. Participation revenues
relate to interactive and ‘red button’ services.
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ITV plc Report and accounts 2009 Notes to the accounts
72
1 Accounting policies (continued)
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 Board
of Directors, the chief operating decision maker.
1.4) Subsidiaries, associates, special purpose entities 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. Under the equity method the investment in the entity is stated as one line item at cost plus the
investor’s share of retained post-acquisition profits and other changes in net assets.
The Group establishes special purpose entities (SPEs) for trading and investment purposes. An SPE is consolidated if, based on an evaluation of
the substance of its relationships with the Group and the SPE’s risks and rewards, it is concluded that the Group controls the SPE. SPEs controlled by
the Group are established under terms that impose strict limitations on the decision-making powers of the SPEs’ management and that result in the
Group receiving the majority of the benefits related to the SPE’s operations and net assets, being exposed to the majority of risks incidental to the
SPE’s activities and receive the majority of the residual or ownership risks related to the SPE’s or their assets.
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 the
financial statements, are set out in accounting policies 1.7 – 1.14 below:
Intangible assets
1.7)
Business combinations and goodwill All business combinations that have occurred since 1 January 2009 are accounted for by applying the
acquisition method. Goodwill is measured as the fair value of the consideration transferred including the recognised amount of any non-controlling
interests in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured
at the acquisition date. 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. The Group measures a non-
controlling interest at its proportionate interest in the identifiable net assets of the acquiree. Transaction costs that the Group incurs in connection
with a business combination, such as legal fees, due diligence fees and other professional and consulting fees, are expensed as incurred. All business
combinations that have occurred since 1 January 2004 to 31 December 2008 have been accounted for by applying the purchase method in
accordance with IFRS 3 “Business Combinations (2004)”. Goodwill on these combinations represents the difference between the cost of the
acquisition and the fair value of the identifiable net assets acquired.
For business combinations prior to 1 January 2004, 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.
ITV plc Report and accounts 2009 Notes to the accounts
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Intangible assets (continued)
1 Accounting policies (continued)
1.7)
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 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 pre tax rates that reflect current market assessments of the time value
of money and the risks specific to the businesses being acquired. The values of brands acquired 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
cash flows then being discounted back to their present value.
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 reporting date. Internally generated software development costs in relation
to itv.com are expensed as incurred. 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
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 statement of financial position 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.
ITV entered into sale and leaseback agreements in relation to certain programme titles. Related outstanding sale and leaseback obligations,
which comprise the principal and accrued interest, are included within borrowings. The finance related element of the agreement is charged to the
income statement over the term of the lease on an effective interest basis. Sale and leaseback obligations are secured against an equivalent cash
balance held within cash and cash equivalents.
ITV plc Report and accounts 2009 Notes to the accounts
74
1 Accounting policies (continued)
1.10) Trade receivables
Trade receivables are recognised initially and subsequently at amortised cost. 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 reporting date. Taxation is recognised in the income statement, the statement of comprehensive income and the statement of changes in
equity according to the accounting treatment of the related transaction.
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.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable in respect
of previous years.
Deferred tax is provided on any temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and those for taxation purposes. The following temporary differences are not provided for:
– the initial recognition of goodwill;
– the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and
– differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities.
A deferred tax asset is recognised only to the extent that it is probable that sufficient taxable profit will be available to utilise the temporary
difference. 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 operating cost 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 statement
of financial position.
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 comprehensive income.
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 groups. 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. Vesting conditions are limited to service conditions and performance conditions. Conditions other than service or performance
conditions are considered non-vesting conditions. At each reporting 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.
ITV plc Report and accounts 2009 Notes to the accounts
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1 Accounting policies (continued)
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 within net financing costs. Derivatives with a positive fair value are recorded as assets and negative fair values as liabilities.
The fair value of foreign currency forward contracts is determined by using the difference between the contract exchange rate and the quoted
forward exchange rate at the reporting 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 reporting 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 classified at fair value through profit or loss the fair value change and interest income/expense are
not separated.
1.14) Provisions
A provision is recognised in the statement of financial position 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 the amount can be measured reliably.
Provisions are determined by discounting the expected future cash flows by a rate that reflects current market assessments of the time value of
money and the risks specific to the liability. The unwinding of the discount is recognised as a financing cost. 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 depreciated on a straight line basis over their estimated useful lives. 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 an effective interest 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
Leasehold improvements
Vehicles, equipment and fittings
not depreciated
up to 60 years
shorter of residual lease term or 60 years
shorter of residual lease term or estimated useful life
3 to 20 years
1.16) Distribution rights
Programme rights acquired primarily for the purposes of distribution are classified within the statement of financial position 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 that 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 reporting 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.
ITV plc Report and accounts 2009 Notes to the accounts
76
1 Accounting policies (continued)
1.18) Foreign currencies (continued)
Financial statements of foreign operations The assets and liabilities of foreign operations are translated into the functional currency of the Group at
the rate of exchange ruling at the reporting date. The revenues and expenses of foreign operations are translated into the functional currency of the
Group 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 and in other comprehensive income.
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. On disposal of an investment in a foreign operation the associated translation reserve balance is released to the
income statement as part of the gain or loss on disposal.
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. They are included in the adjustments that, in
management’s judgement, are required in order to show more accurately the business performance of the Group in a consistent manner
and to reflect how the business is managed and measured on a day-to-day basis.
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 at fair value and subsequently at amortised cost.
1.22) Borrowings
Borrowings are recognised initially at fair value including directly attributable transaction costs, with subsequent measurement at amortised cost
using the effective interest rate method. The difference between the amount initially recognised and the 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, disposal groups 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 components of a disposal group are re-measured in accordance with the Group’s
accounting policies. Thereafter generally the assets or disposal groups are measured at the lower of their carrying amount and fair value less costs
to sell. Any impairment loss on a disposal group is first allocated to goodwill and then to remaining assets and liabilities on a pro-rata basis except to
programming rights and other inventory, financial assets and deferred tax assets, which continue to be measured in accordance with the Group’s
accounting policies. Impairment losses on initial classification as held for sale and subsequent gains or losses on re-measurement are recognised in
the income statement. Gains are not recognised in excess of any cumulative impairment loss.
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 statement of financial position and classified as current assets or liabilities, with disposal
groups being separated between assets held for sale and liabilities held for sale.
Disposal groups are classified as discontinued operations where they represent a major line of business or geographical area of operations.
The income statement for the comparative period is re-presented to show the discontinued operations separate from the continuing operations.
1.24) ITV shares held by Employees’ Benefit Trust (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 on the earlier of their approval by the Company’s shareholders or their payment.
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 comprises interest income on funds invested (including gilts classified as available-for-sale financial assets), gains/losses on the
disposal of financial instruments, changes in the fair value of financial instruments classified at fair value through profit or loss, interest expense
on borrowings and finance leases, unwinding of the discount on provisions and foreign exchange gains/losses. Interest income and expense is
recognised as it accrues in profit or loss, using the effective interest method.
1.28) Derecognition and recognition
The Group recognises a financial asset or liability when it becomes a party to the contract. Financial instruments are derecognised from the balance
sheet when the contractual cash flows expire or when the Group no longer retains control of substantially all the risks and rewards under the
instrument.
1.29) Held to maturity assets
Where the Group has the positive intent and ability to hold financial assets to maturity, they are classified as held to maturity. Held to maturity
financial assets are recognised initially at fair value including any directly attributable transaction costs. Subsequent to initial recognition, held to
maturity financial assets are measured at amortised cost using the effective interest method, less any impairment losses.
ITV plc Report and accounts 2009 Notes to the accounts
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1 Accounting policies (continued)
1.30) Compound financial instruments
Compound financial instruments issued by the Group comprise convertible notes that can be converted to share capital at the option of the holder.
The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does not have an
equity conversion option. The equity component is recognised initially at the difference between the fair value of the compound financial
instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and
equity components in proportion to their initial carrying amounts.
Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective
interest method. The equity component of a compound financial instrument is not remeasured subsequent to initial recognition.
1.31) Application of new EU endorsed accounting standards, amendments to existing EU endorsed standards and interpretations
Set out below are the standards, amendments and interpretations that are effective in 2009 but are not considered relevant to the Group’s results:
New standards, amendments and interpretations endorsed by the EU and effective in 2009
Not relevant to the Group’s results
IAS 39
Amendment to IAS 39 Reclassification of
Financial Assets: Effective Date and
Transition.
Amendment to IAS 23 Borrowing Costs.
IAS 23
IFRS 1 & IAS 27
Amendments to IFRS 1 and IAS 27
Cost of an Investment in a Subsidiary,
Jointly-Controlled Entity or Associate.
IAS 1 & IAS 32
IFRIC 12
IFRIC 15
IFRIC 16
Financial Instruments: Presentation –
Amendments to IAS 32 and IAS 1 Puttable
Financial Instruments and Obligations
Arising on Liquidation.
Service Concession Arrangements.
Agreements for the Construction
of Real Estate.
Hedges of a Net Investment in
A Foreign Operation.
This amendment clarified the effective date and transition requirements of the
amendment to IAS 39, and states that the entities will apply this amendment
on or after 1 July 2008.
Comprehensive revision to prohibit immediate expensing of borrowing costs for
costs that are directly attributable to the acquisition, construction or production
of a qualifying asset.
The amendments allow first-time adopters relief from certain requirements of
IAS 27 and by removing the definition of the cost method from the standard
and replacing it with a requirement to present dividends as income in the separate
financial statements of the investor.
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.
This interpretation provides guidance to operators of public to private service
concession arrangement in relation to certain recognition and measurement issues.
This interpretation deals with the accounting for revenue arising from agreements
for the construction of real estate.
This interpretation deals with hedge accounting for the foreign currency risk arising
from a net investment in a foreign operation.
Other than those standards the Group has elected to adopt early (as disclosed in Note 1.1), a number of new standards, amendments and
interpretations are not yet effective for the Group and have not been applied in preparing these consolidated financial statements.
New standards, amendments and interpretations endorsed by the EU but not yet effective
Not relevant to the Group’s results
IAS 39
Amendment to IAS 39 Financial
Instruments: Recognition and
Measurement: Eligible Hedged Items.
The amendment clarifies how the principles that determine whether a hedged
risk or portion of cash flows is eligible for designation should be applied in particular
situations. The amendment addresses two particular situations, including the
designation of a one-sided risk in a hedged item; and the designation of inflation in
particular situations. The amendment applies to hedging relationships in the scope
of IAS 39 and is effective for annual periods beginning on or after 1 July 2009.
Amendment to IFRIC 9 and IAS 39 requires an entity to assess whether an
embedded derivative is required to be separated from a host contract when the
entity reclassifies a hybrid financial asset out of the fair value through profit or loss
category and is effective for annual periods beginning on or after 30 June 2009.
IFRIC 9 & IAS 39
Amendments to IFRIC 9 and IAS 39
Embedded Derivatives.
IFRIC 17
Distributions of Non-Cash Assets to Owners. The interpretation addresses the accounting when an entity distributes non-cash
IFRIC 18
Transfers of assets from customers.
IAS 32
Classification of Rights Issues.
assets as dividends to its owners, by focusing on the measurement of the dividend
payable and is effective for annual periods beginning on or after 1 July 2009.
This interpretation deals with the accounting for contributed property, plant and
equipment, whereby an entity receives from a customer an item of property, plant
and equipment that the entity must then use either to connect the customer
to a network or to provide the customer with ongoing access to a supply of goods
or services or to do both. It is effective for annual periods beginning on or after
1 July 2009.
The amendment requires that rights, options or warrants to acquire a fixed number
of the entity’s own equity instruments for a fixed amount of any currency are
equity instruments if the entity offers the rights, options or warrants pro rata to all
of its existing owners of the same class of its own non-derivative equity instruments.
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ITV plc Report and accounts 2009 Notes to the accounts
78
Operating segmental information
2
The Board of Directors considers the business primarily from a product perspective. The reportable segments are therefore Broadcasting & Online,
ITV Studios 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 Board of Directors. The Broadcasting & Online
segment now includes the results of the previously disclosed Online segment which is now managed as part of the Broadcasting business.
The comparatives have been restated in this note to reflect this significant change in the nature of the Group’s operations. The Global Content
segment has changed its name to ITV Studios to reflect the rebranding of this business during the year.
Broadcasting & Online is responsible for commissioning and scheduling programmes on the ITV channels, marketing and programme publicity
and online rights exploitation. It derives its revenue primarily from the sale of advertising airtime and sponsorship. Other sources of revenue are from
online advertising, premium rate services and the digital terrestrial multiplex, SDN. The Broadcasting & Online segment also includes the Group’s
investment in STV Group plc.
ITV Studios (formerly Global Content) derives its revenue primarily from ITV Studios UK (a commercial programme production company),
international production centres in America, Germany, Sweden and Australia and the businesses in ITV Studios Global Entertainment. A proportion
of revenue is generated internally via programme sales to the Broadcasting & Online segment. ITV Studios Global Entertainment sells programming,
exploits merchandising and licensing worldwide, and is a distributor of DVD entertainment in the UK.
Other comprises the Group’s 100% interest in Carlton Screen Advertising (“CSA”), which sells cinema screen advertising in the UK, and was put into
creditors voluntary liquidation in the year and its 50% interest in Screenvision US and Europe, which operate cinema screen advertising businesses in
continental Europe and the United States and were held for sale at the reporting date.
The segment information provided for the reportable segments for the years ended 31 December 2009 and 31 December 2008 is as follows:
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
Broadcasting & Online
ITV Studios
2009
£m
1,543
–
2008
£m
1,683
–
1,543
1,683
111
120
2009
£m
597
(262)
335
91
2008
£m
622
(316)
306
90
2009
£m
1
–
1
–
Other
2008
£m
40
–
40
1
2009
£m
2,141
(262)
Consolidated
2008
£m
2,345
(316)
1,879
2,029
202
211
(4)
(4)
–
–
(3)
(11)
(7)
(15)
1,295
1,704
745
645
3
14
2
1
35
(489)
37
(519)
29
(256)
44
(294)
–
–
–
–
65
2,040
2,414
51
5
66
10
(5)
64
(745)
91
(818)
Depreciation in the year was £38 million (2008: £36 million), of which £25 million (2008: £25 million) relates to the Broadcasting & Online, £13 million
(2008: £10 million) to ITV Studios and £nil (2008: £1 million) to Other.
Sales between segments are carried out at arm’s length. The revenue from external parties reported to the Board of Directors is measured in
a manner consistent with the income statement. Income statement and statement of financial position 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 Board of Directors.
The Board of Directors assess the performance of the reportable segments based on a measure of EBITA before exceptional items, which is
defined as operating profit/(loss) before impairment and amortisation of intangible assets and operating income/(cost) – exceptional items.
This measurement basis excludes the effect of non-recurring income and expenditure. Amortisation, investment income and share of
profit/(losses) of joint ventures and associates are also excluded to reflect more accurately how the business is managed and measured on a day to
day basis. Net financing costs are not allocated to segments as this type of activity is driven by the central treasury function, which manages the
cash position of the Group.
A reconciliation of EBITA before exceptional items to profit/(loss) before tax is provided as follows:
EBITA before exceptional items
Operating income/(costs) – exceptional items
Amortisation and impairment of intangible assets
Net financing costs
Share of losses of joint ventures and associated undertakings
Investment income
Loss on sale and impairment of non-current assets (exceptional items)
(Loss)/gain on sale and impairment of subsidiaries and investments (exceptional items)
Profit/(loss) before tax
2009
£m
202
53
(59)
(91)
(7)
–
(22)
(51)
25
2008
£m
211
(97)
(2,761)
(60)
(15)
1
(17)
6
(2,732)
ITV plc Report and accounts 2009 Notes to the accounts
79
2 Operating segmental information (continued)
The amounts provided to the Board of Directors 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
Total derivative financial assets
Net deferred tax assets
Cash and cash equivalents
Total assets per the statement of financial position
2009
£m
2,040
149
78
156
50
582
3,055
The amounts provided to the Board of Directors 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
Dividends payable
Total derivative financial liabilities
Total borrowings
Current tax liabilities
Net deferred tax liability
Defined benefit pension deficit
Total liabilities per the statement of financial position
2009
£m
745
23
–
34
1,440
31
–
436
2,709
2008
£m
2,414
–
3
218
–
616
3,251
2008
£m
818
30
25
32
1,523
56
55
178
2,717
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The Group’s principal operations are in the United Kingdom. Its revenue from external customers in the United Kingdom is £1,621 million
(2008: £1,821 million), and the total revenue from external customers in other countries is £258 million (2008: £208 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 £1,212 million (2008: £1,443 million), and the total of these non-current assets located in other
countries is £1 million (2008: £1 million).
Revenues of approximately £324 million (2008: £382 million), £226 million (2008: £236 million), £194 million (2008: £222 million) and
£190 million (2008: £193 million) are derived from four external customers. The Group’s major customers are all media buying agencies.
These revenues are attributable to the Broadcasting & Online segment 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
2009
£m
244
33
11
16
304
2008
£m
287
36
10
14
347
Staff costs within exceptional items were £32 million (2008: £26 million) principally relating to redundancy payments and reorganisation costs.
Total staff costs including exceptional items for the year ended 31 December 2009 are £336 million (2008: £373 million).
In addition to the pension costs shown above, is a net debit to net financing costs of £15 million (2008: credit of £16 million) and a net debit
to retained earnings in respect of actuarial losses of £391 million (2008: losses of £124 million).
The weighted average number of employees employed by the Group during the year was:
Broadcasting & Online
ITV Studios
Other
Total
2009
2,606
1,908
5
4,519
2008
3,120
2,338
139
5,597
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 2009 Notes to the accounts
80
4 Total operating costs
Staff costs
Before exceptional items
Exceptional items
Depreciation, amortisation and impairment
Amortisation and impairment of intangible assets
Depreciation
Other operating costs
Broadcasting schedule costs
Broadcasting transmission costs
Broadcasting industry costs
Licence fees
CSA direct costs
ITV Studios 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
2009
£m
304
32
336
59
38
97
1,006
97
40
22
1
233
14
(85)
2
106
1,436
(186)
1,683
2008
£m
347
26
373
2,761
36
2,797
1,125
94
44
30
33
217
19
71
2
97
1,732
(226)
4,676
ITV Studios non-staff costs are net of the recharge for programmes supplied to ITV Broadcasting channels (which is eliminated on consolidation
as internal revenue).
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
2009
£m
0.7
0.2
0.4
0.2
0.6
0.1
2.2
2008
£m
0.9
0.2
0.1
0.5
0.6
–
2.3
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 2009 Notes to the accounts
81
5 Exceptional items
Operating exceptional items:
Reorganisation and restructuring costs
PRS reimbursements and fines
Onerous contract provisions
Onerous property provision
Pension scheme changes
Kangaroo closure costs
Total net operating exceptional items
Non-operating exceptional items:
Loss on sale and impairment of non-current assets
(Loss)/gain on sale, net of impairment, of subsidiaries, joint ventures and associates
Gain/(loss) on sale, net of impairment, of available for sale financial assets
Gain/(loss) from sale of Kangaroo joint venture assets
(Loss)/gain on sale and impairment of subsidiaries and investments
Total non-operating exceptional items
Total exceptional items before tax
2009
£m
(52)
(1)
2
2009
£m
(40)
–
(1)
(14)
110
(2)
53
(22)
(51)
(73)
(20)
2008
£m
17
(7)
(4)
2008
£m
(40)
(6)
(50)
–
–
(1)
(97)
(17)
6
(11)
(108)
2009
In 2009 a charge of £40 million was incurred in respect of reorganisation and restructuring costs in relation to announced efficiency savings
programmes.
An increase in provisions in respect of onerous contracts for sports rights of £1 million were put in place in 2009 as a consequence of the forecast
significant decline in the advertising market over the life of those contracts .
A £14 million charge was incurred in respect of a property vacated as a result of the significant headcount reductions in the year.
Pension scheme changes have taken place following consultation with the Scheme members to implement a cap on increases to pensionable
salary levels and to offer retired members the option of altering the structure of their pension by receiving an uplift now in return for giving up rights
to future annual increases. Both of these changes will reduce the future cost and risks of operating the Pension Schemes and have resulted in a gain
of £110 million, £38 million of which relates to a past service cost and £72 million to a curtailment gain (see note 6), and a corresponding reduction in
the defined benefit pension deficit.
A £2 million charge was incurred in the year relating to closure costs associated with Kangaroo. A £2 million gain is included within non-operating
exceptional items. This reverses an impairment taken in the prior year in respect of the Group’s investment in Kangaroo following the sale of the
joint venture’s tangible assets during the year.
The £22 million charge for loss on sale and impairment of non-current assets relates to a £5 million impairment on properties included within
assets held for sale to reflect their estimated market value, a £14 million impairment on property, plant and equipment to reflect their estimated
recoverable amount and a net £3 million loss on the disposal of property plant and equipment. This includes a £2 million gain on disposal of a
Manchester property for £2 million cash consideration, offset by the disposal of plant and equipment with a net book value of £5 million for £nil
cash consideration following the efficiency reviews, primarily in regional news and studios related properties.
The net £52 million loss on sale, net of impairment, of subsidiaries, joint ventures and associates includes an impairment loss of £32 million on
the remeasurement of the Friends Reunited disposal group to the lower of its carrying amount and fair value less costs to sell. It also includes a net
loss on sale of subsidiaries of £5 million, £6 million loss on the sale of Enable Media Limited off set by a £1 million gain on the sale of JFMG Limited.
Net impairments of joint ventures and associates of £9 million include £7 million for ITN. The remaining £2 million of this comprises numerous
movements disclosed in note 14. A £6 million charge was also incurred during the year in relation to Carlton Screen Advertising Limited being put
into creditors’ voluntary liquidation. The charge incurred is equal to the value of its net assets no longer consolidated by the Group following the
transfer of control of the entity to the liquidator. The Group has a £29 million other debtor due from Carlton Screen Advertising Limited, which is
fully provided for pending the outcome of the liquidation.
The net £1 million loss on sale, net of impairment, of available for sale assets includes a £1 million impairment incurred on marking the Group’s
investment in STV Group plc to its fair value following a significant and sustained decline in it’s share price, a £1 million impairment of the Group’s
10% investment in Electric Farm Entertainment LLC and a £1 million gain on disposal of shares in Ambassador Theatre Group Limited.
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.
A £1 million charge was incurred in the year relating to closure costs associated with Kangaroo. A £4 million charge, included within non-operating
exceptional items, related to the impairment of the joint venture investment to £nil.
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 was made in 2008 following a significant
and sustained decline in its share price.
ITV plc Report and accounts 2009 Notes to the accounts
82
6 Pension schemes
The Group operates a number of 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 2009 were £4 million (2008: £4 million).
Defined benefit schemes
The Group provides retirement benefits to some of its former employees and approximately 25% of current monthly paid employees through
defined benefit schemes. The Group’s main scheme was formed from a merger of a number of schemes on 31 January 2006. The level of
retirement benefit is principally based on pensionable 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 consolidated statement of financial position. 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 pensionable salary increases. At the reporting date the
accumulated benefit obligation was £2,720 million (2008: £2,310 million).
The assets and liabilities of all of the Group’s defined benefit pension schemes recognised in the consolidated statement of financial position
at 31 December 2009 under IAS 19 (as explained in detail in this note) were £2,251 million (2008: £2,161 million) and £2,687 million (2008:
£2,339 million) respectively, resulting in a net deficit in the defined benefit schemes of £436 million (2008: £178 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
consolidated statement of financial position date with a suitable insurer. This amount represents the amount that would be required to settle the
scheme liabilities at the consolidated statement of financial position 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 consolidated statement of financial
position date is £1,500 million (2008: £1,800 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 as at 1 January 2008 by an independent actuary for the Trustees of the ITV Pension Scheme. The first triennial valuation of sections
B and C were completed as at 1 January 2007 and the next triennial valuation of these sections are being undertaken as at 1 January 2010.
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 2010 for current service are expected to be in the region of £9 million (2009: £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 four years. The Group estimates the average duration of UK scheme liabilities to be 14 years (2008: 14 years).
ITV plc Report and accounts 2009 Notes to the accounts
83
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 (redundancies)
Operating exceptional curtailment gain (salary cap)
Past service cost (augmentations)
Operating exceptional past service credit (one off change to pension payment)
Interest cost
Net actuarial loss/(gain)
Contributions by scheme participants
Benefits paid
Defined benefit obligation at 31 December
2009
£m
2,339
7
(2)
(72)
1
(38)
143
439
4
(134)
2,687
2008
£m
2,603
12
(2)
–
–
–
146
(314)
6
(112)
2,339
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 scheme assets at 1 January
Expected return on assets
Net actuarial gain/(loss)
Employer contributions
Contributions by scheme participants
Benefits and expenses paid
Fair value of scheme assets at 31 December
2009
£m
2,653
34
2,687
2009
£m
2,161
128
48
44
4
(134)
2,251
2008
£m
2,309
30
2,339
2008
£m
2,491
162
(438)
52
6
(112)
2,161
The assets and liabilities of the scheme are recognised in the consolidated statement of financial position 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 consolidated statement of financial position
Amounts recognised through the income statement are as follows:
2009
£m
2,251
(2,687)
(436)
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)
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Amount charged to operating costs:
Current service cost
Curtailment gain (redundancies)
Past service cost (augmentations)
Amount credited to operating income - exceptional items:
Curtailment gain
Past service credit (one-off change to pensions payment)
Amount (charged)/credited to net financing costs:
Expected return on pension scheme assets
Interest cost
Total credited in the consolidated income statement
2009
£m
(7)
2
(1)
(6)
72
38
110
128
(143)
(15)
89
2008
£m
(12)
2
–
(10)
–
–
–
162
(146)
16
6
Two operating exceptional gains were recognised in 2009 in relation to changes made to the ITV Pension Scheme: a curtailment gain of £72 million
in relation to the cap on increase to pensionable salaries; and a past service credit of £38 million in relation to the one off change to pension
payments. These are included within the figures above.
ITV plc Report and accounts 2009 Notes to the accounts
84
6 Pension schemes (continued)
The amounts recognised through the consolidated statement of comprehensive income/(cost) are:
Actuarial gains and (losses):
Arising on scheme assets
Arising on scheme liabilities
2009
£m
48
(439)
(391)
2008
£m
(438)
314
(124)
The cumulative amount of actuarial gains and losses recognised through the consolidated statement of comprehensive income since 1 January
2004 is an actuarial loss of £319 million (2008: £72 million gain).
Included within actuarial gains and losses are experience adjustments as follows:
Experience adjustments on scheme assets
Experience adjustments on scheme liabilities
2009
£m
48
–
2008
£m
(438)
–
2007
£m
15
(18)
2006
£m
32
(12)
At 31 December 2009 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 – equity-type assets
Market value of assets – bonds
Market value of assets – other
Total scheme assets
Market
value
2009
£m
869
1,263
119
2,251
2005
£m
219
9
Market
value
2008
£m
704
1,330
127
2,161
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. In 2009 yields have reduced relative to gilts which is partly attributed to a
decrease in default risk in respect of these bonds.
The trustees also have a substantial holding of equity-type investments (predominantly equities with some exposure to hedge funds and
infrastructure). 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 this 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 2010 to develop the expected long-term rate
of return on assets assumption for the portfolio.
The benchmark for 2010 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 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 are set out below:
Equity and Property
Bonds
Expected
long-term rate
of return
2010
% p.a.
8.1
4.0 – 5.0
Planned asset
allocation
2010
% of assets
47
53
Expected
long-term rate
of return
2009
% p.a.
7.5
3.6 – 6.3
Planned asset
allocation
2009
% of assets
47
53
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 2009 was an increase of £176 million (2008: decrease of £276 million).
The principal assumptions used in the scheme valuations at the end of the reporting period were:
Rate of general increase in salaries
Rate of pensionable salary increases
Rate of increase in pension payment (LPI 5% pension increases)
Rate of increase to deferred pensions
Discount rate for scheme liabilities
Inflation assumption
2009
4.40%
0.90%
3.30%
3.40%
5.70%
3.40%
2008
3.80%
3.80%
2.70%
2.80%
6.30%
2.80%
ITV plc Report and accounts 2009 Notes to the accounts
85
6 Pension schemes (continued)
IAS 19 requires that the discount rate used be determined by reference to market yields at the reporting 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
2009
60
26.5
29.8
60
28.5
31.9
2009
65
21.6
24.8
65
23.4
26.7
2008
60
26.5
29.8
60
28.5
31.9
2008
65
21.6
24.8
65
23.4
26.7
The tables above reflect published mortality investigation data in conjunction with the results of investigations into the mortality experience
of scheme members.
The sensitivities regarding the principal assumptions used to measure the 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 Group’s 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 of certain scheme assets so there is no net effect on the Group’s liability.
Assumption
Discount rate
Rate of inflation
Life expectations
Change in assumption
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 by 2%
B
u
s
i
n
e
s
s
r
e
v
i
e
w
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
ITV plc Report and accounts 2009 Notes to the accounts
86
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 2009 was 38.37 pence (2008: 52.34 pence).
Range of exercise prices (pence)
Nil
20.00–49.99
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)
–
28.60
55.40
84.75
101.90
114.14
137.33
217.78
270.09
385.31
Number of
options
(’000)
47,851
13,326
5,377
1,462
11,321
6,787
3,401
1,035
11,337
91
2009
Weighted
average exercise
price
(pence)
71.88
–
28.60
39.23
–
52.19
63.94
160.42
Number of
options
(’000)
116,454
26,821
13,498
(12,794)
(8,772)
(33,218)
101,989
33,694
2008
Weighted
average exercise
price
(pence)
79.46
–
52.00
52.99
6.63
80.94
71.88
151.48
Number of
options
(’000)
131,803
20,929
15,132
(15,295)
(11,351)
(24,764)
116,454
42,057
2009
Weighted
average
remaining
contractual
life
(years)
3.23
3.71
2.58
1.99
1.04
4.22
1.87
0.98
0.54
0.40
Weighted
average exercise
price
(pence)
–
–
53.80
84.95
101.96
114.55
133.63
217.78
270.25
385.31
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
Number of
options
(’000)
53,272
–
14,106
4,546
12,032
11,957
6,367
1,201
12,882
91
Share schemes
Full details of the 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 and ITV Save As You Earn 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
in this note.
Exercises can be satisfied by market purchase or issue of new 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.
ITV plc Report and accounts 2009 Notes to the accounts
87
7 Share-based compensation (continued)
Assumptions relating to grants of share options during 2009 and 2008:
Scheme name
Save As You Earn
ITV – three year
ITV – five year
ITV – three year
ITV – five year
Performance Share Plan
ITV – three year
Turnaround Plan
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
%
Risk free
rate
%
04-Apr-08
04-Apr-08
17-Jul-09
17-Jul-09
65.00
65.00
35.00
35.00
52.00
52.00
28.60
28.60
25.00%
25.00%
53.00%
43.00%
3.25
5.25
3.25
5.25
2.84%
2.84%
–
–
3.93%
4.09%
2.40%
3.10%
Fair value
(pence)
17.00
19.00
17.00
18.00
01-Jun-09
40.00
12-Sep-08
12-Sep-08
02-Oct-08
02-Oct-08
49.90
49.90
42.30
42.30
–
–
–
–
–
53.00%
3.00
–
2.10%
30.20
25.00%
25.00%
25.00%
25.00%
2.25
4.25
2.25
4.25
2.96%
2.96%
2.96%
2.96%
5.04%
4.98%
5.04%
4.98%
14.00
18.00
12.00
16.00
The expected volatility has been revised upwards for awards made in 2009, reflecting historic volatility of ITV plc’s share price and equity markets as
a whole over the preceding three or five years, dependent on the expected life of the award, prior to the grant date of the share options awarded.
The expected volatility of the 2008 awards was 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 Save As You Earn Schemes as these do not have any market performance conditions.
Share-based compensation charges totalled £11 million in 2009 (2008: £10 million).
8 Net financing costs
Financing income:
Interest income
Expected return on defined benefit pension scheme assets
Gain on bond exchange
Change in fair value of instruments classified at fair value through profit or loss
Foreign exchange gain
Financing costs:
Interest expense on financial liabilities measured at amortised cost
Interest on defined benefit pension plan obligations
Losses on early settlement
Change in fair value of instruments classified at fair value through profit or loss
Foreign exchange loss
Other interest expense
Net financing costs
The foreign exchange gain/loss is economically hedged by cross currency interest rate swaps. See note 25 for further details.
2009
£m
23
128
14
–
36
201
(93)
(143)
(8)
(37)
–
(11)
(292)
(91)
2008
£m
31
162
–
123
–
316
(110)
(146)
–
–
(116)
(4)
(376)
(60)
B
u
s
i
n
e
s
s
r
e
v
i
e
w
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
ITV plc Report and accounts 2009 Notes to the accounts
88
9 Taxation
Current tax
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 on exceptional items
Adjustment for prior periods
Total taxation credit in the income statement
Reconciliation of taxation credit:
Profit/(loss) before tax
Taxation (charge)/credit at UK corporation tax rate of 28% (2008: 28.5%)
Non-taxable/non-deductible exceptional items
Non-taxable income/non-deductible expenses
Tax losses
Over provision in prior periods
Impact of tax rate change
Impact of goodwill impairment
Other
2009
£m
(13)
10
(3)
68
65
21
(31)
14
4
69
2009
£m
25
(7)
(21)
(8)
26
82
–
–
(3)
69
2008
£m
(28)
23
(5)
198
193
(3)
–
(12)
(15)
178
2008
£m
(2,732)
779
(8)
(6)
–
186
1
(768)
(6)
178
In the year ended 31 December 2009 the effective tax rate is lower (2008: 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. In addition, a tax
credit totalling £101 million (2008: credit of £35 million) has been recognised directly in equity representing current tax of £nil (2008: credit of £nil)
and a deferred tax credit of £101 million (2008: credit of £35 million).
Tax losses of £26 million (2008: £nil) relate to a credit for utilisation of loan relationship deficits of £23 million (2008: £nil), offset by a charge for
unrecognised deferred tax on tax losses arising in the year of £9 million (2008: £nil) and a credit for other tax losses arising in the year of £12 million
(2008: £nil).
ITV plc Report and accounts 2009 Notes to the accounts
89
9 Taxation (continued)
Deferred tax assets/(liabilities) recognised and their movements are:
Property, plant and equipment
Intangible assets
Programme rights
Pension scheme deficits
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
2009
£m
(15)
(95)
4
49
(1)
4
(3)
2
(55)
At
1 January
2008
£m
(13)
(113)
3
31
11
(2)
4
(2)
6
(75)
Recognised
in the income
statement
£m
16
13
(2)
(25)
–
–
–
2
4
Recognised
in the income
statement
£m
(2)
18
1
(17)
(11)
1
–
(1)
(4)
(15)
Recognised
in equity
£m
–
–
–
98
–
3
–
–
101
Recognised
in equity
£m
–
–
–
35
–
–
–
–
–
35
At
31 December
2009
£m
1
(82)
2
122
(1)
7
(3)
4
50
At
31 December
2008
£m
(15)
(95)
4
49
–
(1)
4
(3)
2
(55)
B
u
s
i
n
e
s
s
r
e
v
i
e
w
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
At 31 December 2009 total deferred tax assets are £136 million (2008: £59 million) and total deferred tax liabilities are £86 million
(2008: £114 million).
Deferred tax assets of £625 million and £60 million (2008: £625 million and £83 million) in respect of capital losses of £2,230 million (2008:
£2,233 million) and loan relationship deficits of £214 million (2008: £296 million) 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 (2008: £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 2007 dividend of 1.8 pence per share
Interim 2008 dividend of 0.675 pence per share
No 2009 interim dividend was declared. No final dividend will be declared for 2009 (2008 £nil).
2009
£m
–
–
–
2008
£m
70
26
96
ITV plc Report and accounts 2009 Notes to the accounts
90
11 Earnings per share
Profit/(loss) for the year attributable to equity shareholders of the parent company
Exceptional items (including related tax effect of a debit of £21 million,
2008: credit of £23 million)
Profit/(loss) for the year before exceptional items
Amortisation and impairment of acquired intangible assets (including related tax credit
of £14 million, 2008: £14 million)
Adjustments to net financing costs (including related tax effect of a credit £3 million,
2008: debit of £6 million)
Prior period tax adjustments
Other tax adjustments
Profit for the year before exceptional items, amortisation and impairment of acquired intangible
assets, net financing cost adjustments and prior period and other tax adjustments
Weighted average number of ordinary shares in issue – million
Dilution impact of share options – million
Dilution impact of convertible bond – million
Earnings/(loss) per ordinary share
Adjusted earnings per ordinary share
Basic earnings/(loss) per ordinary share
Add: Loss per ordinary share on exceptional items
Earnings/(loss) per ordinary share before exceptional items
Add: Loss per ordinary share on amortisation and impairment of acquired intangible assets
Add: Gain/(loss) per ordinary share on adjustments to net financing costs
Subtract: Profit per ordinary share on prior period tax adjustments
Subtract: Profit per ordinary share on other tax adjustments
Adjusted earnings per ordinary share for the year
2009
Diluted
£m
92
41
133
2008
(restated)
Diluted
£m
(2,556)
85
(2,471)
Basic
£m
(2,556)
85
(2,471)
37
2,739
2,739
9
(82)
(26)
71
3,882
13
192
4,087
(11)
(186)
–
(11)
(186)
–
71
71
3,877
–
–
3,877
3,877
9
–
3,886
Basic
£m
91
41
132
37
9
(82)
(26)
70
3,882
–
–
3,882
2.3p
2.3p
(65.9)p
(65.9)p
2.3p
1.1p
3.4p
1.0p
0.2p
(2.1)p
(0.7)p
1.8p
2.3p
1.0p
3.3p
0.9p
0.2p
(2.1)p
(0.6)p
1.7p
(65.9)p
2.2p
(63.7)p
70.6p
(0.3)p
(4.8)p
–
1.8p
(65.9)p
2.2p
(63.7)p
70.6p
(0.3)p
(4.8)p
–
1.8p
An adjusted earnings per share figure has been disclosed because in the view of the directors this gives a fairer reflection of core business
performance. The basis for adjusted earnings per share has been changed in the year to more accurately reflect this and the 2008 comparison has
been restated accordingly. Net financing costs are now adjusted for the non-cash imputed pension interest charge, mark-to-market movements on
swaps and foreign exchange movements on bonds, the impact of amortised cost adjustments from coupon step-ups, one off gains and losses on
exchanges and buybacks of bonds and the effective interest on the onerous contract provision. Internally generated intangible asset amortisation is
now also included within adjusted earnings.
Diluted earnings per share have been impacted in 2009 by the issue of the £135 million Convertible Eurobond 2016 in November 2009.
The conversion of share options in 2008 is anti-dilutive, so the diluted loss per share in 2008 has been shown as the same as basic loss per share
in accordance with IAS 33 “Earnings per Share”.
ITV plc Report and accounts 2009 Notes to the accounts
91
12 Property, plant and equipment
Cost
At 1 January 2008
Additions
Reclassification from assets held for sale
Disposals and retirements
At 31 December 2008
Additions
Reclassification
Reclassification to assets held for sale
Disposals and retirements
At 31 December 2009
Depreciation
At 1 January 2008
Charge for the year
Disposals and retirements
At 31 December 2008
Charge for the year
Impairment charge for the year (see note 5)
Reclassification
Reclassification to assets held for sale
Disposals and retirements
At 31 December 2009
Net book value
At 31 December 2009
At 31 December 2008
Freehold land
and buildings
Improvements to leasehold
land and buildings
Vehicles, equipment and fittings
£m
23
–
27
(1)
49
–
5
–
–
54
–
1
(1)
–
3
6
3
–
–
12
42
49
Long
£m
66
–
3
–
69
–
(1)
(14)
(4)
50
12
1
–
13
3
2
–
(5)
(1)
12
38
56
Short
£m
Owned
£m
Finance Leases
£m
21
–
–
(1)
20
–
–
–
–
20
8
1
(1)
8
2
4
–
–
–
14
6
12
251
21
–
(31)
241
14
(4)
–
(40)
211
144
30
(25)
149
27
2
(3)
–
(31)
144
67
92
16
–
–
(1)
15
–
–
–
–
15
2
3
(1)
4
3
–
–
–
–
7
8
11
Included within the book values above is expenditure of £3 million (2008: £10 million) on property, plant and equipment that is in the course
of construction. 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 2008
Acquisition of subsidiaries
Purchase of brands and software development
At 31 December 2008
Purchase of software development
Reclassification to assets held for sale
Disposals
At 31 December 2009
Amortisation and impairment
At 1 January 2008
Charge for the year
Impairment charge
At 31 December 2008
Charge for the year
Reclassification to assets held for sale
Disposals
At 31 December 2009
Net book value
At 31 December 2009
At 31 December 2008
Goodwill
£m
Brands
£m
Customer
contracts and
relationships
£m
Licences
£m
Software
development
£m
Film
libraries and
other
£m
3,478
6
–
3,484
–
(115)
(4)
3,365
40
–
2,695
2,735
–
(81)
–
2,654
711
749
199
–
1
200
–
(26)
(1)
173
68
18
–
86
17
(9)
–
94
79
114
338
–
–
338
–
(8)
(2)
328
212
22
–
234
21
(5)
(1)
249
79
104
121
–
–
121
–
–
–
121
29
9
–
38
9
–
–
47
74
83
26
–
20
46
13
–
(7)
52
1
8
–
9
8
–
(5)
12
40
37
83
1
–
84
–
(3)
(2)
79
22
9
–
31
4
(2)
(1)
32
47
53
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Total
£m
377
21
30
(34)
394
14
–
(14)
(44)
350
166
36
(28)
174
38
14
–
(5)
(32)
189
161
220
Total
£m
4,245
7
21
4,273
13
(152)
(16)
4,118
372
66
2,695
3,133
59
(97)
(7)
3,088
1,030
1,140
Included within the book values above is expenditure of £6 million (2008: £nil) on software development that is in the course of development.
ITV plc Report and accounts 2009 Notes to the accounts
92
13 Intangible assets (continued)
Amortisation of intangible assets is shown within operating costs in the income statement.
Impairment tests for cash generating units containing goodwill
The following units have significant carrying amounts of goodwill:
Broadcasting
Online
GMTV
SDN
ITV Studios
2009
£m
265
30
33
76
307
711
2008
£m
265
68
33
76
307
749
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 1%–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. The impairment tests carried out as a
consequence have resulted in no impairment charge for the year (2008: £2,695 million) being applied against the goodwill in these CGUs.
A pre-tax market discount rate of 12.9% 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 11.9%. 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 a consistent discount rate can be
applied to all CGUs due to similarity of the risk factors affecting them and their geographical spread. Management believe that there is currently
no reasonably possible change in discount rate that would reduce the headroom in any CGU 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.
No impairment charge arose in the Broadcasting CGU during the course of 2009 (2008: £2,309 million), due to the anticipated stabilisation in the
advertising market in 2010 and the cost savings achieved in 2009. Management believe that currently no reasonably possible change in the
advertising market would reduce the headroom in this CGU to zero. Broadcasting goodwill was reduced in the year by £nil (2008: £57 million)
as required by IAS 12, following the recognition of deferred tax assets not recognised at the time of the Carlton/Granada merger.
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. 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 -3% to +3% for 2010 and
+2% to +5% for 2011, with our assumptions at the cautious end of these ranges. It is also assumed that ITV elects to renew its broadcasting licences
in 2014.
The impairment charge in 2008 arose as a result of the downturn in the short-term outlook for the advertising market. The outlook
for advertising, including Online, improved in particular towards the end of 2009 and video on demand continued to grow.
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 operating segments. This resulted in £257 million of Online goodwill.
The remainder of the Online goodwill arose on the acquisition of Friends Reunited in 2005.
No impairment charge arose in the Online CGU during the course of 2009 (2008: £308 million). However, a net £34 million (2008: £nil) of goodwill
associated with the disposal groups has been transferred from intangible assets to assets held for sale and a net £4 million was disposed of on the
sale of the Enable Media business.
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 2010 and 9% to 20% in 2011.
Management believe that currently no reasonably possible change in the revenue assumptions would reduce the headroom in this CGU to zero.
The impairment charge in 2008 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 rates. The outlook for advertising, including Online, improved in particular towards the end of 2009 and video on demand continued to grow.
GMTV
The goodwill in this CGU arose initially on the acquisition of a 75% shareholding in GMTV Limited in 2004. The remaining 25% interest in this
subsidiary was purchased in November 2009 and did not give rise to an adjustment to goodwill in accordance with IAS27.
No impairment charge arose in the GMTV CGU during the course of 2009 (2008: £21 million). The main assumptions on which the forecast
cash flows are based are as described under the Broadcasting CGU above. Management believe that currently no reasonably possible change in
the advertising market would reduce the headroom in this CGU to zero.
The impairment charge in 2008 arose as a result of the downturn in the short-term outlook for the advertising market, which has since recovered
in 2009.
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ITV plc Report and accounts 2009 Notes to the accounts
93
13 Intangible assets (continued)
SDN
The goodwill in this CGU arose on the acquisition of SDN (the licence operator for DTT Multiplex 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.
ITV Studios
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.
14 Investments in joint ventures and associated undertakings
At 1 January 2008
Additions
Share of attributable losses
Repayment of loans
Impairment
Exchange movement and other
At 31 December 2008
Additions
Share of attributable losses
Repayment of loans
Transfer to assets held for sale
Impairment
At 31 December 2009
Joint
ventures
£m
63
17
(18)
(7)
(7)
2
50
3
(5)
–
(47)
(1)
–
Associated
undertakings
£m
16
10
–
(10)
–
–
16
3
(2)
(4)
–
(8)
5
Total
£m
79
27
(18)
(17)
(7)
2
66
6
(7)
(4)
(47)
(9)
5
The £3 million of additions to joint ventures during the year relate to further loans granted of £3 million to Freesat.
The £5 million share of losses of joint ventures includes £3 million from Screenvision US and £2 million from Freesat. Of the share of attributable
losses of joint ventures, £3 million was allocated to assets held for sale in line with their statement of financial position classification.
The £47 million transfer to assets held for sale relates to the carrying value of the joint venture investment in Screenvision US, now held for sale
(see note 27). As an asset held for sale equity accounting ceases at the date of classification. This has resulted in unrecognised profits of £5 million.
The joint venture investment in Freesat has also been impaired by £1 million during the year. The investment is now carried at its estimated value in
use of £nil. Any unrecognised losses following its impairment to £nil, when equity accounting ceases, are immaterial.
The £3 million of additions in associated undertakings include loans granted of £2 million to ITN and £1 million to Carbon Media Limited, a new
associated undertaking in the year. The £2 million share of attributable losses in associated undertakings include £2 million from ITN. ITN made £4
million of loan repayments during the year. The £8 million impairment of associated undertaking investments includes £7 million for ITN and £1
million for Crackit Productions Limited. Both are carried at their estimated value in use amount.
The aggregated summary financial information in respect of associates in which the Group has an interest is as follows:
Assets
Liabilities
Revenue
(Loss)/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
2009
£m
52
(70)
106
(5)
2009
£m
31
46
(24)
(43)
71
(73)
2008
£m
66
(63)
122
–
2008
£m
37
75
(37)
(33)
84
(102)
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.
ITV plc Report and accounts 2009 Notes to the accounts
94
15 Available for sale financial assets
At 1 January
Additions
Impairment
Disposals
At 31 December
2009
£m
5
–
(2)
(2)
1
2008
£m
10
2
(7)
–
5
The Group’s interests in available for sale financial assets are listed in note ix in the ITV plc Company financial statements section of this report. The
Group’s investment in STV Group plc is marked to market. However, following a significant and sustained decline in its share price an impairment of
£1 million has been taken against this investment in the year. A further impairment of £1 million relates to the impairment of the Group’s 10%
investment in Electric Farm Entertainment LLC to £nil. The £2 million disposal relates to the sale of the Group’s interests in Ambassador Theatre
Group Limited to a consortium including Exponent Private Equity LLP for a £3 million cash consideration resulting in a £1 million gain on sale (see
note 5).
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
2009
£m
2008
£m
82
17
99
69
14
83
16
2009
£m
73
23
207
48
36
1
388
68
14
82
61
8
69
13
2008
£m
125
57
237
62
29
6
516
Net programme rights and other inventory written off in the year was £11 million (2008: £29 million), including £nil (2008: £2 million) 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 sports rights of £1 million (2008: £50 million), as disclosed in note 5. Of the total provision £4 million (2008: £5 million) has
been written off against sports rights and £nil (2008: £1 million) has been written off against prepayments above. £35 million (2008: £44 million)
remains in provisions, see note 26.
ITV plc Report and accounts 2009 Notes to the accounts
95
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
2009
£m
353
22
57
432
7
–
7
439
2008
£m
336
24
84
444
9
1
10
454
As at 31 December 2009, trade receivables of £8 million (2008: £14 million) were impaired and provided for. The individually impaired receivables
relate mainly to the Broadcasting & Online and ITV Studios segments due to concerns over their recoverability. Movements in 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
2009
£m
14
4
(6)
(4)
8
2008
£m
9
9
(1)
(3)
14
Trade receivables that are less than three months past due are not usually considered impaired. As at 31 December 2009, trade receivables
of £130 million (2008: £134 million) were past due but not impaired. Of this, £88 million (2008: £52 million) relates to non-consolidated licensee
customers in the Broadcasting & Online segment where the Group has supplier and customer relationships. Further amounts relating to these same
customers of £1 million (2008: £4 million) and £7 million (2008: £14 million) are included in current trade receivables and other receivables
respectively. There is also a credit of £61 million (2008: credit of £42 million) included in trade and other payables relating to these customers.
The net balance due from non-consolidated licensees is £36 million, the majority of which relates to STV Group plc.
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
2009
£m
230
43
8
79
360
2009
£m
83
13
162
388
–
646
2008
£m
211
48
21
65
345
2008
£m
(restated)
93
13
223
394
25
748
The 2008 comparatives for current liabilities have been restated to reflect the current year classification. This is to show a better reflection of the
nature of the Group’s liabilities. The Group’s VAT creditor has been reclassified from trade payables to other payables and film creditors have been
reclassified from trade payables to accruals where, at the reporting date, the programme is in rights but no invoice has been received.
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ITV plc Report and accounts 2009 Notes to the accounts
96
20 Current liabilities – trade and other payables due after more than one year
Other payables
21 Non-current liabilities – other payables
Other payables
22 Analysis of net debt
Cash
Cash equivalents
Cash and cash equivalents
Cash held within the Disposal Group
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
Currency component of swaps held against Euro denominated bonds
Convertible Bond Equity Component
Amortised cost adjustment
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
Currency component of swaps held against Euro denominated bonds
Amortised cost adjustment
Net debt
2009
£m
31
2009
£m
12
2008
£m
26
2008
£m
15
1 January
2009
£m
503
113
616
–
–
(252)
(7)
(1,192)
(72)
(1,523)
147
–
30
(730)
1 January
2008
£m
381
117
498
100
(27)
(6)
(1,184)
(79)
(1,296)
30
–
(668)
Net cash flow
and acquisitions
£m
(20)
(11)
(31)
–
150
249
7
(221)
–
35
–
(36)
–
Currency and
non-cash
movements
£m
(4)
1
(3)
4
(1)
2
(8)
47
7
48
(39)
1
(10)
31 December
2009
£m
479
103
582
4
149
(1)
(8)
(1,366)
(65)
(1,440)
108
(35)
20
118
–
(612)
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)
ITV plc Report and accounts 2009 Notes to the accounts
97
22 Analysis of net debt (continued)
Included within cash equivalents is £62 million (2008: £67 million), the use of which is restricted to meeting finance lease commitments under
programme sale and leaseback commitments and gilts of £34 million (2008: £33 million) over which the unfunded pension promises have a charge.
The purpose of the amortised cost adjustment is to exclude the impact of the coupon step-up on total net debt. ITV’s Standard & Poor’s credit
rating was lowered to BB+ in August 2008, resulting in a coupon step-up in the 2011 and 2017 bonds. The recalculation of the amortised cost
carrying values as required by IAS 39 resulted in an increase in net debt of £30 million as at 31 December 2008. This increase will be unwound in
future years as a reduction in interest expense.
In February 2009 ITV raised a net £50 million through a £200 million covenant free loan with a maturity of March 2019, secured against the
purchase of 4.5% March 2019 gilts with a nominal value of £138 million (for a cost of £150 million). The cash receipt relating to the £200 million loan
and the cash payment relating to the £150 million gilts are both presented within cash flows from financing activities in the consolidated statement
of cash flows, as the gilts are held as security for the £200 million loan and thus form an integral part of the financing transaction. The cost of the
£200 million loan is fixed at 8.85% for the first three years and a variable rate thereafter, depending in part on the performance of an interest rate
algorithm. The total return on the gilts receivable by ITV is 11% of the nominal value. The gilts are accounted for as a held to maturity investment.
In March 2009 ITV repaid its £250 million Eurobond and drew down a £125 million covenant free loan with a maturity of May 2013 at a variable
rate of 12-month sterling LIBOR plus 6.814%. In May 2009 ITV completed a £100 million tap of the existing £325 million October 2015 Eurobond
raising net proceeds of £58 million with an effective interest rate of 15.6%.
In June 2009, under the terms of an exchange offer, ITV repaid €81 million (£69 million) of the €500 million October 2011 bond and exchanged
at par €188 million of the 2011 bonds for the issuance at par of new bonds with a maturity of June 2014 and carrying a coupon of 10%; this resulted
in an accounting gain of £14 million. A pro rata proportion of the cross-currency interest rate swaps entered into at the time of issue of the 2011
bond were restructured and extended to match the terms of the new 2014 bonds. Under the terms of the swaps ITV receives 10% on a notional
amount of €188 million and pays 12.9% on a notional amount of £63 million and three-month sterling LIBOR plus 7.9% on a notional amount of £63
million. At maturity of the swaps ITV receives €188 million to match its principal repayment to bondholders and pays £126 million.
In October 2009 ITV repurchased £75 million of the £125 million May 2013 loan at a loss of £6 million.
In November 2009 ITV issued a £135 million convertible Eurobond with a maturity date of November 2016. The coupon on the bond is 4.0% and
the initial conversion price is 70.44 pence, a premium on issue of 40%. The bonds are accounted for partly as debt and partly as equity, net of issue
costs. The debt and equity components are accreted to par over the life of the bond; the accretion of the equity component is accounted for as a
transfer from other reserves to retained losses. The effective interest rate on the carrying value of the debt component is 9.3%.
In November and December 2009 ITV repurchased €114 million nominal value of the remaining October 2011 bonds, resulting in an accounting
loss of £2 million. As at 31 December, 2009 €118 million of these bonds remained outstanding. Subsequent to the repurchase, ITV entered into new
cross currency interest rate swaps to offset existing swaps. Under the terms of the cross currency interest rate swaps matching the €118 million
2011 bonds, ITV receives 4.75% on a notional amount of €118 million and pays 26.7% on a notional amount of £5 million and three-month LIBOR
minus 4.1% on a notional amount of £33 million. The net interest rate payable by ITV reflects the impact of exchange and interest rate differences
between the original swaps and the new swaps. At maturity of the swaps ITV receives €118 million to match its principal repayment to bondholders
and pays £38 million.
As at 31 December 2009 the currency element of the cross currency interest rate swaps is a £108 million asset (2008: £147 million asset) and this
offsets the exchange rate movement of the 2011 and 2014 bonds. The interest element of the swap is a £12 million asset (2008: £5 million asset)
resulting in an overall net asset total at 31 December 2009 of £120 million (2008: £152 million net asset total).
2008
In July 2008 ITV issued a £110 million bond with a maturity of March 2013 and a coupon of three-month sterling LIBOR plus 2.7%. During 2008
ITV redeemed loan notes totalling £25 million.
In November 2008 ITV redeemed for cash a £100 million senior note issued by UBS AG (“UBS”) under UBS’s Euro Note Programme.
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ITV plc Report and accounts 2009 Notes to the accounts
98
22 Analysis of net debt (continued)
Ageing of borrowings
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
2009
Total
£m
Loans and
loan notes
£m
Finance
leases
£m
1
106
316
944
1,366
1,367
8
9
39
17
65
73
9
252
115
355
961
1,431
1,440
–
603
589
1,192
1,444
7
8
26
38
72
79
2008
Total
£m
259
8
629
627
1,264
1,523
Loans repayable between one and two years
Loans repayable between one and two years as at 31 December 2009 comprise an unsecured €118 million Eurobond which has a coupon of 6.0%
and matures in October 2011. After cross currency swaps the net amount repayable in October 2011 is £38 million.
Loans repayable between two and five years
Loans repayable between two and five years as at 31 December 2009 includes an unsecured £50 million bank loan which has a coupon of 12-month
sterling LIBOR plus 6.814% and matures in May 2013, an unsecured £110 million Eurobond which has a coupon of three-months sterling LIBOR plus
2.7% and matures in March 2013 and an unsecured €188 million Eurobond (£126 million net of cross currency swaps) which has a coupon of 10.0%
and matures in June 2014.
Loans repayable after five years
Loans repayable after five years includes an unsecured £425 million Eurobond which has a coupon of 5.375% and matures in October 2015, an
unsecured £135 million convertible Eurobond which has a coupon of 4.0% and matures in November 2016, an unsecured £250 million Eurobond
which has a coupon of 7.375% and matures in January 2017 and an unsecured bank loan for £200 million which has a coupon of 8.85% for its first
three years and a variable rate thereafter which matures in March 2019.
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
12
58
18
88
Interest
£m
4
10
1
15
2009
Principal
£m
8
48
17
73
Minimum
lease payments
£m
11
45
40
96
2008
Principal
£m
7
34
38
79
Interest
£m
4
11
2
17
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 2009 was £9 million (2008: £11 million).
ITV plc Report and accounts 2009 Notes to the accounts
99
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23 Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, price risk and interest rate 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 reviews.
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 unless a natural hedge exists.
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 €118 million and €188 million bonds have been fully hedged by cross-currency
interest rate swaps.
The Group’s investments in subsidiaries are not hedged as those currency positions are considered to be long term in nature.
At 31 December 2009, 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 (2008: £2 million) higher/lower. Equity would have been £13 million (2008: £9 million) higher/lower.
At 31 December 2009, 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 £3 million (2008: £2 million) higher/lower. Equity would have been £2 million (2008: £5 million) higher/lower.
b) Price risk
The Group is not exposed to any material price risk.
c) Interest rate 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 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 classified 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 2009, if interest rates had increased/decreased by 0.1%, post-tax profit for the year would have been £1 million (2008: £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 (see note 18)
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. Deposits longer
than six months require the approval of the General Purpose Committee.
c) Borrowings
ITV’s credit ratings with Standard & Poors and Moody’s Investor Service are B+/B1 respectively and are “sub-investment grade” with both 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 it
has a bilateral bank facility.
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 possible future credit ratings and headroom and takes into
account the accessibility of cash and cash equivalents.
At 31 December 2009 the Group has available £75 million (2008: £650 million) of undrawn committed facilities. The £75 million facility is
provided by one bank and is secured on advertising receivables. The facility has no financial covenants and matures in May 2013. The reduction from
2008 reflects the cancellation of the £450 million syndicated facility and the drawing down of a £125 million loan.
ITV plc Report and accounts 2009 Notes to the accounts
100
23 Financial risk factors (continued)
The table below analyses the Group’s financial liabilities and 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 cash flows so will not always
reconcile with the amounts disclosed on the statement of financial position.
At 31 December 2009
Non-derivative financial liabilities
Borrowings
Held to maturity investments
Trade and other payables
Other non-current payables
Derivative financial instruments
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 2008 (restated)
Non-derivative financial liabilities
Borrowings
Trade and other payables
Other non-current payables
Derivative financial instruments
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
Over
5 years
£m
(2,167)
288
(677)
(12)
165
–
–
(77)
77
(2,403)
(108)
15
(646)
–
13
–
–
(61)
61
(726)
(215)
15
(23)
(10)
79
–
–
(16)
16
(154)
(639)
45
(8)
(2)
64
–
–
–
–
(540)
Total contractual
cash flows
£m
Less than
1 year
£m
Between
1 and 2 years
£m
Between
2 and 5 years
£m
(1,933)
(774)
(15)
187
(31)
40
(347)
(748)
–
9
(31)
40
(80)
87
(2,519)
(57)
60
(1,074)
(82)
(18)
(1)
8
–
–
(17)
20
(90)
(780)
(7)
(14)
155
–
–
(6)
7
(645)
(1,205)
213
–
–
9
–
–
–
–
(983)
Over
5 years
£m
(724)
(1)
–
15
–
–
–
–
(710)
2008 is restated as clarified by the amendment to IFRS 7 and now includes contractual interest. Borrowings are now shown gross rather than net of
cross currency swaps relating to the 2011 €118 million and 2014 €188 million Eurobonds, which are now shown separately within derivative financial
instruments.
Held to maturity investments are included within the table above because the £138 million March 2019 gilts are used as security against the
£200 million 2019 loan, and the net repayment in 2019 is £62 million.
Capital management
The capital structure of the Group consists of debt, which includes borrowings disclosed in note 22, 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 the consolidated
statement of changes in equity. 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 gross 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 2009 Notes to the accounts
101
24 Financial instruments
a) Fair values versus carrying amounts
The tables below provide fair value information for all financial instruments listed in note 24 (c), other than those where the carrying value is a
reasonable approximation of fair value.
Assets
Held to maturity investments
Maturity
Mar 19
2009
£m
149
Book value
2008
£m
–
2009
£m
143
Fair value
2008
£m
–
The fair value of held to maturity investments is based on quoted market bid prices at the reporting date.
Liabilities
€118 million Eurobond (previously €500 million Eurobond)
£110 million Eurobond
£50 million loan
€188 million Eurobond
£425 million Eurobond (previously £325 million Eurobond)
£135 million Convertible bond
£250 million Eurobond
£200 million loan
Other loans
Maturity
Oct 11
Mar 13
May 13
Jun 14
Oct 15
Nov 16
Jan 17
Mar 19
Book value
Fair value
2009
£m
106
110
50
156
384
96
264
200
1
1,367
2008
£m
493
110
–
–
323
–
266
–
2
1,194
2009
£m
109
105
58
187
387
147
240
244
1
1,478
2008
£m
391
110
–
–
211
–
163
–
2
877
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows,
discounted at the market rate of interest at the reporting date.
The book value of the 2011 Eurobond decreased in the year principally as a result of an exchange offer and repurchases of the 2011 bonds in
November and December 2009 (see note 22). After taking account of cross currency interest rate swaps, ITV’s net principal repayment on the 2011
Eurobond will be £38 million in 2011.
The book value of the 2015 £425 million Eurobond increased due to the £100 million tap of the existing £325 million Eurobond on the same
terms, raising net proceeds of £58 million.
The fair value of the £135 million Convertible bond is based upon the par value, whereas the bonds are accounted for partly as debt and partly
as equity, net of issue costs, as described in note 22.
B
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e
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t
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ITV plc Report and accounts 2009 Notes to the accounts
102
24 Financial instruments (continued)
b) Fair value hierarchy for instruments measured at fair value
Assets measured at fair value
Available for sale financial instruments
STV shares
Available for sale gilts
Financial assets at fair value through profit or loss
Interest rate swaps
Forward foreign exchange contracts
Total
Liabilities measured at fair value
Financial liabilities at fair value through profit or loss
Interest rate swaps
Forward foreign exchange contracts
Total
Fair value
31 December 2009
£m
Level 1
31 December 2009
£m
Level 2
31 December 2009
£m
Level 3
31 December 2009
£m
1
34
154
2
191
1
34
–
–
35
–
–
154
2
156
–
–
–
–
–
Fair value
31 December 2009
£m
Level 1
31 December 2009
£m
Level 2
31 December 2009
£m
Level 3
31 December 2009
£m
33
1
34
–
–
–
33
1
34
–
–
–
Level 1
Fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2
Fair values measured using inputs, other than quoted prices included within Level 1, that are observable for the asset or liability either directly
or indirectly.
Interest rate swaps and options are accounted for at their fair value based upon termination prices. Forward foreign exchange contracts
are accounted for at the difference between the contract exchange rate and the quoted forward exchange rate at the reporting date.
Level 3
Fair values measured using inputs for the asset or liability that are not based on observable market data.
ITV plc Report and accounts 2009 Notes to the accounts
103
24 Financial instruments (continued)
c) Financial instruments application
The accounting policies for financial instruments have been applied to each financial position caption as follows:
At 31 December 2009
Statement of financial position assets
Available for sale financial assets
Held to maturity investments
Derivative financial instruments
Trade and other receivables
Cash and cash equivalents*
At 31 December 2009
Statement of financial position liabilities
Borrowings
Derivative financial instruments
At 31 December 2008
Statement of financial position assets
Available for sale financial assets
Derivative financial instruments
Trade and other receivables
Cash and cash equivalents
At 31 December 2008
Statement of financial position liabilities
Borrowings
Derivative financial instruments
*Excludes cash in the disposal group of £4 million.
Held to
maturity
investments
£m
Loan and
receivables
£m
At fair value
through profit
or loss
£m
Derivatives
used for
hedging
£m
Available
for sale
£m
–
149
–
–
–
149
–
–
–
439
548
987
–
–
156
–
–
156
–
–
–
–
–
–
At fair value
through profit
or loss
£m
Derivatives
used for
hedging
£m
–
34
34
–
–
–
Loan and
receivables
£m
At fair value
through profit
or loss
£m
Derivatives
used for
hedging
£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
1
–
–
–
34
35
Other
financial
liabilities
£m
1,440
–
1,440
Available
for sale
£m
5
–
–
33
38
Other
financial
liabilities
£m
1,273
–
1,273
B
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i
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e
s
s
r
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v
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w
G
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n
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F
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c
i
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l
s
t
a
t
e
m
e
n
t
s
Total
£m
1
149
156
439
582
1,327
Total
£m
1,440
34
1,474
Total
£m
5
218
454
616
1,293
Total
£m
1,523
32
1,555
ITV plc Report and accounts 2009 Notes to the accounts
104
25 Derivative 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
2009
Liabilities
£m
3
–
2
5
151
–
–
151
156
(3)
–
(1)
(4)
(30)
–
–
(30)
(34)
Assets
£m
2
10
7
19
194
–
5
199
218
2008
Liabilities
£m
(2)
(1)
(4)
(7)
(25)
–
–
(25)
(32)
Interest rate swap assets as at 31 December 2009 include £120 million of cross currency interest rate swaps relating to the €118 million 2011
Eurobond and the €188 million 2014 Eurobond (see note 22).
The remaining £34 million of assets relates to a number of floating rate swaps. ITV has a £125 million swap matched against half of the 2017
£250 million bond. Under this swap ITV receives 6.125% (to match the original bond coupon) and pays three-month sterling LIBOR plus 0.51% with
the 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 part of the
2015 £425 million bond. Under this swap ITV receives 5.375% (to match the bond coupon) and pays six-month sterling LIBOR plus 0.3%. In addition,
ITV has other swaps totalling £162.5 million matched against part of the 2015 £425 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 liabilities of £33 million as at 31 December 2009 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 £162.5 million swap with a maturity of October 2015 under which it receives six-month sterling LIBOR plus 0.3%, 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 a £125 million swap with a maturity
of January 2017 under which it receives three-month sterling LIBOR and pays 4.31%. The bank has the right to cancel the swap.
All forward foreign exchange contracts hedge underlying currency exposures. The forward foreign exchange contracts which were designated
as cash flow hedges related to contractual payments for sport and other programme rights and transponder costs. All cash flow hedges outstanding
at 31 December 2008 matured during 2009.
26 Provisions
At 1 January 2009
Additions in the year
Unwind of discount
Utilised in the year
At 31 December 2009
Contract
provisions
£m
47
1
3
(16)
35
Restructuring
provisions
£m
16
7
–
(15)
8
Property
provisions
£m
2
16
–
(1)
17
Other
provisions
£m
19
–
–
(3)
16
Total
£m
84
24
3
(35)
76
Of the provisions £47 million (2008: £43 million) are shown within current liabilities.
Contract provisions of £35 million are for onerous sports rights commitments; there were additions of £4 million in 2009, including £3 million
from the unwind of the discount on the provision, and £13 million was utilised. The remaining £3 million of the CSA contract provision was utilised in
the year.
Restructuring provisions of £8 million are in respect of previously announced efficiency programmes. The £15 million utilised in 2009 was in
respect of regional news.
Property provisions of £17 million mainly relate to onerous lease contracts due to empty space created by the significant reduction in headcount
in 2009. Utilisation will be over the anticipated life of the leases or earlier if exited. Of the additions of £16 million, £14 million has been classified as an
operating exceptional cost in relation to a provision in respect of Gray’s Inn Road.
Other provisions of £16 million mainly relate to potential liabilities that may arise as a result of Boxclever having been placed into administration,
most of which relate to pension arrangements.
ITV plc Report and accounts 2009 Notes to the accounts
105
27 Assets held for sale
Property, plant and equipment
Investment in joint ventures
Disposal group assets (note 28)
Assets held for sale
Disposal group liabilities (note 28)
Liabilities held for sale
The liabilities held for sale are new in the year and are disclosed below.
The movements in assets held for sale are summarised in the table below:
At 1 January 2009
Transfer from property, plant and equipment
Impairment of properties held for sale
Transfer from investments in joint ventures and associated undertakings
Net repayment of loans from investments in joint ventures and associated undertakings
Assets classed as disposal group (note 28)
Impairment of disposal group (note 28)
At 31 December 2009
2009
£m
7
43
28
78
2009
£m
(3)
(3)
2009
£m
3
9
(5)
47
(4)
60
(32)
78
During the year the Group began actively marketing properties in Birmingham and Bristol, which are deemed to be surplus to future operating
requirements and for which disposal is anticipated to be completed within one year. These properties were transferred from property, plant and
equipment at a net book value of £9 million. The property in Bedford, classified as an asset held for sale in prior periods, continues to be classified
as held for sale at the end of the year. Impairments of £5 million have been recognised in respect of these properties reflecting the currently
challenging property market conditions.
The Group is actively marketing its 50% interest in Screenvision US (Technicolor Cinema Advertising LLC) and has classified this joint venture
investment as an asset held for sale carried at £47 million. The investment being sold is not core to the Group’s main activities and is disclosed in the
Other segment (note 2). During the year the Group received net repayments of loans of £4 million from this entity. This sale is expected to complete
within one year.
The Group continues to also actively market its interest in Screenvision (Holdings) Europe Limited, 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.
28 Disposal group
The disposal group consists of the non-core business, Friends Reunited. In August 2009, the Group announced that it had agreed to sell Friends
Reunited to Brightsolid Limited for a total cash consideration of £25 million with a variable component dependent on the net current assets of the
business on the date of completion. On 2 November, the Office of Fair Trading referred the acquisition to the Competition Commission for further
investigation. The Competition Commission is currently reviewing the proposed transaction with a final decision expected by 16 April 2010. The
Friends Reunited social networking business, within the Broadcasting & Online segment, is consequently presented as held for sale.
At 31 December 2009 the disposal group comprised assets of £28 million less liabilities of £3 million.
An impairment loss of £32 million on the remeasurement of the disposal group to the lower of its carrying amount and fair value less costs to sell
has been recognised in non-operating exceptionals (see note 5).
Intangible assets
Trade and other receivables due within one year
Cash and cash equivalents
Disposal group assets
Trade and other payables due within one year
Disposal group liabilities
31 December
2009
£m
23
1
4
28
31 December
2009
£m
(3)
(3)
B
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s
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G
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n
a
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a
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a
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t
s
ITV plc Report and accounts 2009 Notes to the accounts
106
29 Acquisitions and disposals of businesses
Acquisitions and disposals in 2009
GMTV
On 26 November 2009, the Group acquired the remaining 25% interest in the shares of GMTV Limited, the national breakfast time channel 3
licensee, taking its total percentage of shareholding to 100%. The results of this entity have always been disclosed within the consolidated income
statement of the Group at 100% with an adjustment made to reflect the previous non-controlling interest’s share. The impact of the acquisition of
the remaining non-controlling interest is reflected in the consolidated statement of changes in equity.
The fair value of the consideration paid is £23 million. The non-controlling interest reserve of £8 million was debited on acquisition with the excess
of consideration over the identifiable net assets acquired of £15 million debited to retained losses in accordance with IAS 27.
Friends Reunited
In January 2009 the Group paid £50 million in respect of the final payment of the earn-out arrangement relating to the Friends Reunited acquisition
undertaken in 2005 previously disclosed within other payables in note 19 of this report.
Disposals
The Group disposed of its 100% interest in Enable Media Limited on the 22 September 2009 for £nil cash consideration resulting in a loss on disposal
of £6 million. The Group’s 63% interest in JFMG Limited was sold on 18 February 2009 for £1 million cash consideration resulting in a gain on disposal
of £1 million.
30 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.
Employees’ Benefit Trust
The Group has investments in its own shares as a result of shares purchased by the ITV Employees’ Benefit Trust. As at 31 December 2009 the trust
held the following shares:
ITV Employees’ Benefit Trust
2009
Number
of shares
3,528,761
Market value
Number
£m
of shares
2 4,144,550
2008
Market value
£m
2
The nominal value of own shares held is £0.35 million (2008: £0.41 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 2009 is 3,528,761 (2008: 4,144,550) ordinary shares representing 0.09%
(2008: 0.11%) of ITV’s issued share capital.
In accordance with the Trust Deed, the Trustees of the ITV Employees’ Benefit Trust have the power to exercise all voting rights in relation to any
investment (including shares) held within that trust. During the year the following ordinary shares were purchased/(released) from the above trust to
satisfy awards vesting under the Group’s share schemes as follows:
Shares released from:
ITV Employees’ Benefit Trust
Number of shares
(released)/purchased
(8,175,476)
(64,945)
(531,785)
(634,112)
8,790,529
Nominal value
£
(817,548)
(6,495)
(53,179)
(63,411)
879,053
Scheme
ITV Deferred Share Award Plan
Carlton Deferred Award Bonus Plan
Granada Commitment Scheme
ITV Employee Bonus Plan
Shares purchased
Shares released under the ITV Employee Bonus Plan include 264,784 shares awarded to all employees in March 2009 and an additional 369,328
shares awarded to all eligible employees in December 2009 as described on page 27.
31 Contingent liabilities
There has been a disagreement between the Group, STV Group plc and the two licence holding subsidiaries, STV Central and STV North, as to
the amounts of money due and payable to the Group. A legal claim, based upon the balances outstanding at 30 April 2009, for approximately
£38 million in respect of outstanding invoices, was filed on 22 September 2009 and Particulars of Claim were served on 24 September 2009.
The Group recognises that certain amounts are due to STV and these and other amounts are the subject of a counterclaim served by STV on 13
November 2009. Prior to the litigation, the Group and STV have come to an arrangement whereby amounts owed to each other will be set off,
although until the current litigation is resolved, that amount cannot be accurately identified. For the period after 30 April 2009, the Group and STV
have agreed to operate a monthly payment on account scheme so that the operations may continue effectively.
In a separate action STV Central and STV North issued proceedings on 16 November 2009 against ITV Network and other Group companies in
relation to the exploitation of new media rights in the UK. Through the proceedings STV Central and STV North seek an injunction to prevent the ITV
Network from entering into any UK wide deals involving new media rights and seek declarations in relation to how the rights are owned and may be
exploited. The Group rejects this claim and intends to defend it robustly. No provision has been made in these financial statements for this claim.
On 24 February 2010, STV issued a letter alleging that the Group has acted with unfair prejudice against the interests of STV and that ITV
Network is in breach of its fiduciary duties to STV. ITV Network rejects these allegations and will vigorously defend any claim that is brought.
There are other 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 2009 Notes to the accounts
107
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
2009
£m
13
39
145
197
2008
£m
16
45
152
213
The Group leases a number of properties principally comprising offices and studios under operating leases. Leases typically run for a period of
between five and ten years and may or may not have an option to renew 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 reporting date is £5 million
(2008: £8 million).
The total operating lease expenditure recognised during the year was £14 million (2008: £19 million) and total sublease payments received
totalled £4 million (2008: £4 million).
33 Capital and other commitments
There are £1 million of capital commitments at 31 December 2009 (31 December 2008: £1 million). There are also a number of operating
commitments in respect of programming entered into in the ordinary course of business.
34 Subsequent events
In January and February 2010 the Group repurchased £42 million of the 2015 £425 million Eurobonds. In February 2010 the Group repurchased
€27 million (£23 million) nominal of the 2011 €118 million Eurobonds, leaving the net repayable in 2011 after cross currency swaps as £15 million.
35 Related party transactions
Transactions with associated undertakings and 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 by pension scheme
2009
£m
1
2
43
2009
£m
25
4
1
2008
£m
2
1
42
2008
£m
27
7
1
Amounts owed by joint ventures relate to loan balances with Screenvision (Holdings) Europe Limited which have been fully provided for at the
reporting 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.
Amounts paid to the Group’s retirement benefit plans are set out in note 6.
Transactions with key management personnel
Key management consists of ITV plc executive, non-executive directors and ITV’s senior executive team. Key management personnel compensation
is as follows:
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Short-term employee benefits
Post-employment benefits
Termination benefits
Share-based compensation
2009
£m
10
1
2
5
18
2008
£m
6
–
2
5
13
108
ITV plc Report and accounts 2009
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 assets/(liabilities)
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
2009
£m
2009
£m
2008
£m
2008
£m
1,671
149
151
1,971
1,699
–
194
1,893
173
–
146
319
–
(173)
(21)
–
–
(194)
78
1
283
362
(252)
(88)
(33)
(53)
(25)
(451)
125
2,096
(1,366)
(29)
(1,395)
701
389
120
71
121
701
(89)
1,804
(1,192)
(25)
(1,217)
587
389
120
36
42
587
The accounts were approved by the Board of Directors on 3 March 2010 and were signed on its behalf by:
Ian Griffiths
109
ITV plc Report and accounts 2009
Notes to the ITV plc Company Financial Statements
i Accounting policies
Basis of preparation
As permitted by section 408 (3) of the Companies Act 2006, a separate profit and loss account, dealing with the results of the parent company,
has not been presented.
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.
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 the adoption of UITF 41. Annual FRS 20 share based payment compensation costs are recharged to the
subsidiary’s through the profit and loss account.
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 including directly attributable transaction costs, with subsequent measurement at amortised cost
using the effective interest rate method. The difference between initial fair value and the 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 and other foreign 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 the movement recorded
in the profit and loss account within net financing costs. Derivatives with a positive fair value are recorded as assets and negative fair values as
liabilities.
The fair value of foreign currency forward contracts is determined by using the difference between the contract exchange rate and the quoted
forward exchange rate at the balance sheet date. 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.
Third party valuations are used to fair value the Company’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 profit and loss account.
For financial assets and liabilities classified at fair value through profit or loss the fair value change and interest income/expense are not
separated.
Dividends
Dividends are recognised through equity on the earlier of their approval by the Company’s shareholders or their payment.
ii Employees
Four (2008: four) 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 2009 were as follows:
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At 1 January 2009
Impairment
At 31 December 2009
£m
1,699
(28)
1,671
An impairment charge of £28 million was recognised in respect of Friends Reunited now carried at its fair value less costs to sell of £25 million.
iv Borrowings
Loan repayable after more than one year
Loans repayable after more than one year as at 31 December 2009 comprise an unsecured €118 million Eurobond which has a coupon of 6.0% and
matures in October 2011, an unsecured loan from a bank for £50 million which has a coupon of 12-month sterling LIBOR plus 6.814% and matures in
May 2013, an unsecured £110 million Eurobond which has a coupon of three-months sterling LIBOR plus 2.7% and matures in March 2013, an
unsecured €188 million Eurobond which has a coupon of 10.0% and matures in June 2014, an unsecured £425 million Eurobond which has a coupon
of 5.375% and matures in October 2015, an unsecured £135 million convertible Eurobond which has a coupon of 4.0% and matures in November
2016, an unsecured £250 million Eurobond which has a coupon of 7.375% and matures in January 2017 and an unsecured loan from a bank for
£200 million which has a coupon of 8.85% for its first three years and a variable rate thereafter which matures in March 2019.
ITV plc Report and accounts 2009 Notes to the ITV plc Company Financial Statements
110
v Called up share capital
Ordinary shares of 10 pence each
Authorised:
8,000,000,000 (2008: 5,826,377,627)
Allotted, issued and fully paid:
3,889,129,751 (2008: 3,889,129,751)
Total
2009
£m
Authorised
2008
£m
Allotted, issued
and fully paid
2009
£m
2008
£m
800
583
800
583
389
389
389
389
The Company’s ordinary shares give shareholder’s 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 2009
Retained profit for year for equity shareholders
Share-based compensation
Equity portion of the convertible bond
At 31 December 2009
Share
capital
£m
389
–
–
–
389
Share
premium
£m
120
–
–
–
120
Other
reserves
£m
36
–
–
35
71
Profit and
loss account
£m
42
67
11
1
121
Total
£m
587
67
11
36
701
The profit after tax for the year dealt with in the accounts of ITV plc is £67 million (year ended 31 December 2008: loss of £218 million) before
dividends declared of £nil (2008: £96 million).
vii Contingent liabilities
Under a group registration, the Company is jointly and severally liable for VAT at 31 December 2009 of £25 million (31 December 2008: £13 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 2009 (31 December 2008: none).
ITV plc Report and accounts 2009 Notes to the ITV plc Company Financial Statements
111
ix Principal subsidiary undertakings and investments
Principal subsidiary undertakings
The principal subsidiary undertakings of the Company at 31 December 2009, all of which are wholly-owned (directly or indirectly) and incorporated
and registered in England and Wales except where stated, are:
Name
12 Yard Productions(1)
3sixtymedia Limited(2)
Carlton Communications Limited
Friends Reunited Limited
GMTV Limited
Granada Limited
Granada Ventures Limited
ITV Broadcasting Limited
ITV Consumer Limited
ITV Digital Channels Limited
ITV Global Entertainment Limited
ITV Network Limited(3)
ITV Services Limited
ITV Studios Limited
ITV2 Limited
SDN Limited
Granada Media Australia Pty Limited(4)
Granada Produktion für Film und Fernsehen GmbH(5)
Imago TV Film und Fernsehproduktion GmbH(5, 6)
Silverback AB(7)
ITV Global Entertainment, Inc(8)
ITV Studios, Inc. (formerly Granada Entertainment USA)(8)
Jaffe/Braunstein Entertainment LLC(9)
Principal activity
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
Production and distribution of video and DVD products
Broadcast of television programmes
Development of platforms, broadband, transactional and mobile services
Operation of digital television channels
Rights ownership and distribution of television programmes and films
Scheduling and commissioning television programmes
Provision of services for other companies within the Group
Production of television programmes
Operation of digital television channels
Operation of Freeview Multiplex A
Production of television programmes
Production of television programmes
Production of television programmes
Production and distribution of television programmes
Distribution of television programmes
Production of television programmes
Production of television programmes
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(1) A partnership.
(2) 80% owned.
(3) Interest in company limited by guarantee.
(4) Incorporated and registered in Australia.
(5) Incorporated and registered in Germany.
(6) 67.72% owned.
(7) Incorporated and registered in Sweden.
(8) Incorporated and registered in the USA.
(9) 51% owned.
A list of all subsidiary undertakings will be included in the Company’s annual return to Companies House.
ITV plc Report and accounts 2009 Notes to the ITV plc Company Financial Statements
112
ix Principal subsidiary undertakings and investments (continued)
Principal joint ventures, associated undertakings and investments
The Company indirectly held at 31 December 2009 the following holdings in significant joint ventures, associated undertakings and investments:
Name
Carbon Media Limited
Crackit Productions Limited
Freesat (UK) Limited
Independent Television News Limited
ISAN UK Limited
Mammoth Screen Limited
Screenvision Holdings (Europe) Limited(1)
STV Group plc (2)
Technicolor Cinema Advertising LLC (1, 3)
Electric Farm Entertainment LLC (3)
(1) Classified as an Asset Held for Sale.
(2) Incorporated and registered in Scotland.
(3) Incorporated and registered in USA.
Interest in ordinary
share capital
2009
%
25.00
25.00
50.00
Note
a
a
b
a
a
a
b
c
b
c
40.00
25.00
25.00
50.00
7.36
50.00
10.00
Interest in ordinary
share capital
2008
%
–
25.00
50.00
Principal activity
Production of television programmes
Production of television programmes
Provision of a standard and high definition enabled digital
satellite proposition
40.00 Supply of news services to broadcasters in the UK and elsewhere
– Operates voluntary numbering system for the identification of
audiovisual works
Production of television programmes
European cinema advertising
Television broadcasting in central and north Scotland
US cinema advertising
Digital studio company
25.00
50.00
7.36
50.00
10.00
a Associated undertaking.
b
c Available for sale financial asset.
Joint venture.
x Post balance sheet events
In January and February 2010 the Company repurchased £42 million of the 2015 £425 million Eurobonds. In February 2010 the Company
repurchased €27million (£23 million) nominal of the 2011 €118 million Eurobonds, leaving the net repayable in 2011 after cross currency swaps as
£15 million.
113
ITV plc Report and accounts 2009
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 2009.
Holders
Number
Shares held
Millions
%
%
2,514
69,104
462
9,904
9,488
18,524
13,153
10,374
6,410
2,162
1,379
149
231
86
132
35
36
17
3,661.29
153.84
74.00
0.36
1.42
6.22
9.58
14.71
20.06
15.55
27.18
10.78
56.25
61.17
309.71
250.53
699.99
2,405.62
3.49
95.87
0.64
100.00
13.74
13.16
25.70
18.25
14.39
8.89
3.00
1.91
0.21
0.32
0.12
0.18
0.05
0.05
0.03
100.00
94.14
3.96
1.90
100.00
0.01
0.04
0.16
0.25
0.38
0.51
0.40
0.70
0.28
1.45
1.57
7.96
6.44
18.00
61.85
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
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;
– 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
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.
Share dealing services
The Company’s shares can be traded through most banks, building
societies and stockbrokers. Additionally, the Company’s registrars offer
online and telephone dealing for UK resident shareholders through
Capita IRG Trustees Limited. To use this service shareholders should
contact Capita:
0871 664 0364 from the UK (calls cost 10 pence per minute plus
network charges) or 1 890 946 375 from Ireland
www.capitadeal.com
ShareGift
ShareGift is a charity share donation scheme for shareholders who may
wish to dispose of a small quantity of shares where the market value
makes it uneconomic to sell on a commission basis. The scheme is
administered by the Orr Mackintosh Foundation and further
information can be obtained by contacting them:
020 7930 3737
www.sharegift.org
Share price information
The current price of ITV plc ordinary shares is available on Ceefax and
on the Company website at www.itvplc.com.
ITV plc Report and accounts 2009 Shareholder information
114
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
The London Television Centre
Upper Ground
London SE1 9LT
020 7157 3000
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
7 May 2010
May 2010
August 2010
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/pages/register
– Report the matter to the FSA either by calling 0300 500 5000 or by
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.
115
ITV plc Report and accounts 2009
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.
Contract Rights Renewal (CRR) – the remedy agreed by Carlton and
Granada in 2003 as a pre-condition of the merger 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 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 switchover
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
ITV1 adult SOCI – SOCI for the adult demographic delivered on ITV1
Net Advertising Revenue (NAR) – the amount of money received
by the broadcaster as payment for spot advertising net of any
commission paid
Ofcom – the regulator established to govern UK broadcasting as well as
other areas of the media and telephony industry
Office of Fair Trading (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
Premium Rate Services (PRS) – 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 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 – 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
116
ITV plc Report and accounts 2009
Financial record
Results
Revenue
Earnings before interest, tax and amortisation (EBITA) before exceptional items
Amortisation of intangible assets
Impairment of intangible assets
Share of profit or loss of joint ventures and associated undertakings
Investment income
Exceptional items
Profit/(loss) before interest and tax
Net financing costs
Profit/(loss) before tax
Taxation
Profit/(loss) after tax
Non-controlling interests
Profit/(loss) for the financial year
Basic earnings/(loss) per share
Dividend per share
Consolidated statement of financial position
Share capital
Reserves
Total equity attributable to equity shareholders of the parent company
Non-controlling interests
Net assets
Represented by:
Property, plant and equipment and intangible assets
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
2009
£m
2008
£m
2007
£m
2006
£m
2005
£m
1,879
202
(59)
–
(7)
–
(20)
116
(91)
25
69
94
(3)
91
2.3p
–
389
(44)
345
1
346
1,191
6
16
388
565
50
2,216
(612)
–
(1,182)
(76)
346
2,029
211
(66)
(2,695)
(15)
1
(108)
(2,672)
(60)
(2,732)
178
(2,554)
(2)
(2,556)
(65.9)p
0.675p
389
137
526
8
534
1,360
71
13
516
528
–
2,488
(730)
(55)
(1,085)
(84)
534
2,082
311
(56)
(28)
2
1
(9)
221
(33)
188
(50)
138
(1)
137
3.5p
3.15p
389
2,844
3,233
6
3,239
4,084
89
7
440
472
–
5,092
(668)
(75)
(1,079)
(31)
3,239
2,181
375
(56)
(20)
8
3
4
314
(26)
288
(66)
222
(3)
219
5.5p
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
2,196
460
(481)
–
11
5
(28)
346
(35)
311
(85)
226
(4)
222
5.4p
3.12p
423
2,870
3,293
12
3,305
4,182
274
13
388
432
74
5,363
(481)
–
(1,525)
(52)
3,305
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: Granite Colour are ISO 14001 and FSC accredited.
Paper: The cover and text material used for this report is printed on revive 50:50 Silk a recycled paper containing 50% recycled waste and 50% virgin fibre and manufactured
at a mill certified with ISO 14001 environmental management standard. The pulp used in this product is bleached using a Elemental Chlorine Free process (ECF)
ITV plc
The London Television Centre
Upper Ground
London SE1 9LT
www.itv.com
Investors: www.itvplc.com