ITV plc
The London Television Centre
Upper Ground
London SE1 9LT
www.itv.com
investors: www.itvplc.com
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Transforming ITV
ITV plc Report and accounts 2010
ITV today
ITV is the largest commercial
television network in the UK.
It operates a family of channels
including ITV1, and delivers
content across multiple platforms
via itv.com and ITV Player.
ITV Studios produces and sells
programmes and formats in
the UK and worldwide.
Broadcasting & Online
ITV content is funded by advertising and
sponsorship revenues as well as viewer
competitions and voting. ITV1 is the largest
commercial channel in the UK. It attracts
the largest audience of any UK commercial
broadcaster and has the greatest share of
the UK television advertising market at
45.1%. ITV’s digital channels continue to
grow their audiences and most recently
saw the launch of high definition (HD)
versions of ITV1 on Freeview and Sky,
and ITV2, 3 and 4 on Sky. ITV1+1 also
recently launched.
ITV’s broadcast assets include the multiplex
operator SDN, which continues to grow its
revenues, and operates one of the six digital
terrestrial multiplex licences in the UK that
make up Freeview.
Online, ITV is focused on delivering ITV
programming across multiple platforms
including itv.com, video on demand on
cable television and other ‘closed’ platforms,
mobile devices and games consoles. itv.com
includes ITV Player, which allows users to
access catch-up and watch clips from the
best ITV programmes. Online revenues are
primarily sourced from advertising.
ITV Studios
ITV Studios comprises ITV’s UK production
operations, ITV’s international production
companies and ITV Studios Global
Entertainment.
ITV Studios produces programming for
ITV’s own channels and for other UK and
international broadcasters.
A wide range of programme genres are
produced, including: drama, soaps,
entertainment, factual, daytime, arts,
current affairs, quiz and game shows.
It has a growing portfolio of international
production offices around the world,
including in the US, Germany, Australia,
Sweden, Spain and France.
ITV Studios Global Entertainment is
ITV’s international distribution, home
entertainment, publishing, merchandising
and licensing business. It has over 35,000
hours of original and formatted programmes
that it distributes to broadcasters in 240
territories worldwide.
Total revenue (including internal)
EBITA before exceptional items
Broadcasting & Online
£1,771m
ITV Studios
£554m
24%
76%
Broadcasting & Online
£327m
ITV Studios
£81m
20%
80%
Financial record
Results
Revenue
Earnings before interest, tax and amortisation (EBITA) before exceptional items
Amortisation of intangible assets
Impairment of intangible assets
Share of profits or (losses) 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
117
2010
£m
2009
£m
2008
£m
2007
£m
2006
£m
2,064
408
(63)
–
(3)
–
19
361
(75)
286
(16)
270
(1)
269
6.9p
–
389
272
661
2
663
1,120
5
12
284
511
73
2,005
(188)
–
(1,105)
(49)
663
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
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.
ITV’s Directors’ report
The Directors’ report explains in detail how we have
performed this year and sets out a fair review of the
business, a 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 Directors’ report is prepared in line with the relevant
provisions of the Companies Act 2006. In preparing the
Directors’ report the Company has had regard to the
guidance issued by the Accounting Standards Board in its
Reporting Statement on narrative reporting. The Directors’
report 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 Directors’ report, 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.
Designed and produced by Radley Yeldar www.ry.com
Printed by Granite Communications Ltd. ISO 14001 and FSC accredited
01
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
Financial summary
Group external revenues
£2,064m 09/ £1,879m
EBITA before exceptional items*
£408m 09/ £202m
Adjusted cash flow*
£517m 09/ £345m
Profit before tax
£286m 09/ £25m
Basic earnings per share
6.9p 09/ 2.3p
Adjusted earnings per share*
6.4p 09/ 1.8p
Net debt
£188m 09/ £612m
*See definitions on page 26
We need to be
a lean ITV that can
create world class
content, executed
across multiple
platforms and sold
around the world.
Contents
Overview
ITV today
Financial summary
Chairman’s statement
Directors’ report
Strategy & operations
A strategy for the future
2011 and beyond
Performance & financials
Key Performance Indicators
Financial and performance review
Risks and uncertainties
ifc
01
02
04
24
26
28
38
Financial statements
Statement of directors’ responsibilities
Independent auditor’s report
Introduction and table of contents
Consolidated income statement
67
68
69
70
Consolidated statement of comprehensive income 71
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the accounts
ITV plc Company Financial Statements
72
73
74
75
111
Notes to the ITV plc Company Financial Statements 112
Other information
Shareholder information
115
117
Responsibility
40
Financial record
Governance
Board of directors
Corporate governance
Audit Committee report
Remuneration report
Other governance and statutory disclosures
46
48
53
56
66
02
ITV plc Report and accounts 2010
Chairman’s statement
by Archie Norman
‘Over the next ten years the
global market will change
beyond recognition’
Dear Shareholder
I arrived as Chairman a little over a year
ago as ITV emerged from one of the most
troubled periods in its history. Since then
we have embarked on a far reaching
programme of change.
The problems ITV experienced in 2009
were in part an inevitable consequence
of high gearing and recession. However,
they showed up in sharp relief our
dependence on a narrow and increasingly
volatile source of revenue in free to air
television advertising. And they highlighted
longer term trends which pose serious
challenges for the traditional television
model. Over the next ten years the global
market will change beyond recognition.
In the short term we can improve our
operating capability and performance.
In the long term we face a
transformational imperative.
The transformation imperative
In embarking on a transformation of
this extent there are a number of critical
ingredients for success. The first of these
is strong leadership. It is therefore very
important that Adam Crozier joined us at
the end of April as Chief Executive. Under
his unswerving direction the foundations
of change have already been laid and
momentum is starting to build within
the business. The top team has been
rebuilt and a new talented leadership
team is now in place.
Second we require clarity of vision and a
clear road map for change. Transformation
requires a sense of ‘time and place’ because
it is vital that everyone at ITV knows what
is required of them and where we are in
the journey. Therefore the team has set
out a five-year transformation plan that
has been briefed to shareholders and to
everyone in the business. That plan is
set out with great lucidity in this report.
‘In the short term
we can improve our
operating capability
and performance.
In the long term we
face a transformational
imperative’
03
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
Changed Board and Governance
Since I arrived we have reduced the size
of the Board and repositioned its focus
and activities. As we embark on the journey
ahead it is important we have a very engaged
Board close to the business who are able to
both support and challenge the executive
team. I am delighted that Lucy Neville-Rolfe
has joined us and believe we have a strong
non-executive team with immense breadth
of experience and outlook.
Since I last wrote to you John Cresswell
has left the Board. His steadfast leadership
helped guide the ship through stormy waters.
Rupert Howell, who has also departed
played an important role in sustaining
our advertising revenues in difficult times.
And Baroness Usha Prashar has stepped
down as a non-executive and Chairman
of the Remuneration Committee. We are
grateful to all of them for their contribution.
We now have a very strong team which
is mindful of its responsibilities not just
in helping deliver the strategy but also
in overseeing financial controls and
risk management.
Uncertain outlook
Whilst the advertising market remains in
growth at the time of writing we are not
depending on this continuing. The ‘bounce
back’ takes it to levels in real terms only
slightly above those achieved in the early
1990s. If it teaches us anything it is that
volatility can work both ways. However
we have a leaner business and one that is
immeasurably more robust with a stronger
balance sheet and strong leadership, a clear
plan for the journey ahead and better
operating performance.
Therefore the Board plans to restore the
payment of a dividend at the interim
results in July 2011.
Archie Norman
We are very much in the first phase which
involves building the foundations and
‘fixing the basics’. It is vital we build the
momentum for change but unless we do
the hard things first the vision is irrelevant.
Third we need the financial and operational
space to deliver change. That is why over
the last year we have been explicit with
our shareholders, our people, and our
other stakeholders that we are focused on
delivering value over five years. Of course
we want to do the best for shareholders
each year. But there are, sometimes painful
trade offs to be made. For instance in
technology and the creative process and
where necessary we will make the right
decision for the longer term.
Finally we fully recognise that change is
not just technological or financial. It requires
a different high performance culture,
organisation, and way of working. And our
success depends on attracting and retaining
people of extraordinary creative ability.
At ITV we have very talented people. But
they have been immersed in a historically
successful model that is now challenged.
That is why we have been bringing in new
skills and new people to enable our existing
teams to adapt to a new way of working
and the leadership team has already
made changes to how we communicate,
interact, assess performance, recruit and
reward people.
Strong financial performance
The financial performance of the last year
has been encouraging and has given us a
much stronger position to be able to make
the right decisions and investments required
for the long-term future of ITV. However, it
should not provide any excuse for taking
the pressure off: the most difficult
challenges are those that appear over the
horizon. Recovery in the advertising markets
is welcome but every day we see portents
of the landscape shift that will take place
over the next decade. Nevertheless the last
year’s performance was strong and tight
financial management, cost reduction and
working capital controls over the last two
years have converted market recovery into
a substantial reduction in our debt.
04
ITV plc Report and accounts 2010
A strategy for the future
by Adam Crozier Chief Executive
Transforming ITV
There is a great deal to do to transform ITV and there
are no quick fixes. ITV has launched a three phase
strategy to transform the business over the next five
years focusing on our four strategic priorities...
Create a lean, creatively dynamic and
fit-for-purpose organisation
Go to pages 06–09
Maximise audience and revenue share from
existing free-to-air broadcast business
Go to pages 10–15
Drive new revenue streams by exploiting our
content across multiple platforms, free and pay
Go to pages 16–19
Build a strong international content business
Go to pages 20–23
1
2
3
4
05
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
ITV has seen its core proposition of
free-to-air broadcasting steadily eroded.
ITV1’s share of viewing and commercial
impacts has gradually declined over many
years. We have been weak on technology
and our digital and platform strategy was
underdeveloped. Our Online operations
are subscale and until Q4 2010 we had
no access to the pay TV market which is
worth over £5 billion.
ITV Studios’ creative content pipeline had
depleted over time with no major new
entertainment programme format created
since 2006. This impacted our ability to
sell programmes both in the UK and
internationally. ITV Studios’ share of ITV
commissions has been falling for a number
of years and a fragmented approach to
rights ownership and management
hindered our ability to exploit our content.
We were slow to exploit our programme
and channel brands outside of the
traditional broadcast arena.
Transformation Plan
Adapting to this new media environment
requires urgent change to ITV’s strategy,
management, culture and organisation.
We have started to address the challenges
we face but there are no quick fixes.
We launched a three-phase strategy in
August 2010, to transform ITV over the next
five years. Phase 1 is to Fix the Company so
we are ready to compete; Phase 2 is to
Strengthen and grow the business, investing
on solid foundations and building platforms
for growth, and Phase 3’s focus is to
Accelerate, driving performance and value.
The Transformation Plan has four strategic
priorities which are covered over the
following pages. In order to execute and
deliver the plan, eight separate workstreams
have been set up which map to the four
priorities. Each workstream is sponsored
by a member of the Management Board.
We have set up a Transformation office,
headed by Simon Pitts, Director of Strategy
& Transformation, to coordinate and help
drive forward each workstream.
We are less than 12 months into our
five-year plan and have made some real
progress in driving change throughout the
organisation, but we are only at the start
of the journey.
Overview of results
We are pleased to report a significantly
improved financial performance in 2010
with total external revenues up 10% at
£2,064 million. This was largely driven
by the stronger than expected UK television
advertising market and ITV’s outperformance
of that market.
The growth in advertising and ITV’s
continued focus on cost reduction fed
through to substantially increased profits
with adjusted earnings per share at 6.4 pence
(2009: 1.8 pence). The decisive action taken
on cash management has led to a significant
reduction in our net debt position down
from £612 million at the end of 2009 to
£188 million at the end of 2010.
Whilst the recovery in the television
advertising market is helpful, it shows
how volatile the market is and our results
show how ITV remains overly reliant on
advertising revenue. Our Online revenues
grew but remain subscale compared to
our Broadcasting business and ITV Studios’
revenues declined emphasising the need
for creative renewal.
We face major ongoing challenges
to rebalance the business and to ensure
that in the long run we are fit to compete,
which is why we have embarked on the
five-year Transformation Plan to
fundamentally change the Company.
ITV’s significant challenges
The global media environment continues
to change dramatically. Audiences have
fragmented and free-to-air broadcasters
have lost viewing share with the rapid rise
of digital and pay TV. The boom in video
viewing via the internet, and other video
on demand services, has also contributed
to a vast increase in consumer choice and
seen advertising revenues diverted away
from television. Broadcasters have been
under pressure to reduce risk and buy
proven formats. The winners from this
trend have been format owners,
particularly US studios.
ITV has not responded to the changing
environment. In part this is because its
organisational ineffectiveness and
entrenched legacy culture limited our
ability to respond to the challenges of a
changing market place. The first phase of
our Transformation Plan is therefore to ‘fix’
the business which remains our initial priority.
‘While this is a strong
financial performance
for 2010, it does not
disguise the major
challenges that ITV
needs to face up to’
2010
Phase 1:
Fix
2015
Phase 2:
Strengthen
and grow
Phase 3:
Accelerate
Our eight workstreams map
to our four strategic priorities
– Alignment and simplicity
– Great place to work
– News review
– New regulatory deal
– Online and On Demand
– Pay TV
– Total value creation
– New creative process
06
ITV plc Report and accounts 2010
Transforming ITV
energise
The new Management Board is now in place and is committed
to delivering the Transformation Plan.
From left: Andrew Garard Legal, Andy Doyle HR, Simon Pitts Strategy & Transformation,
Mary Fagan Communications, Ian Griffiths Finance, Adam Crozier CEO, Fru Hazlitt Commercial & Online,
Peter Fincham Broadcasting, Kevin Lygo Studios, Paul Dale Technology & Platforms
07
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
1
2
3
4
Create a lean,
creatively
dynamic and
fit-for-purpose
organisation
What do we want to achieve?
The very best out of our leadership,
people, culture and creativity.
08
ITV plc Report and accounts 2010
Transforming ITV
‘Attracting creative talent is crucial
to the success of our business’
‘Our new top team will
measure our success by
delivery and execution’
How are we going to achieve it?
In order to turn ITV into a lean,
creatively dynamic and fit-for-
purpose organisation a relentless
pursuit of improvement needs to
be undertaken at all levels of the
business. Key to this strategy is
the continued strengthening of
the creative talent of the business.
To be a top class organisation requires
top class people. This will be achieved by
ensuring that we have the best possible
leadership team who are able to operate
in a seamless and agile manner, adapting
quickly to change when needed.
It does not stop with the leadership team.
Throughout the organisation we need to
recruit the best people, implementing
appropriate development programmes,
with incentives around delivering our
strategy. This will enable us to drive through
the cultural change necessary to become a
performance driven organisation, operating
transparently with no silos.
It is vital that Broadcasting & Online and ITV
Studios work closely together. This will help
us to develop an integrated creative process
with a focus on long-running returnable
franchises and the ability for Total Value
brand exploitation – extracting revenues
from a brand across a variety of platforms
and merchandise.
09
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
We continue to take steps to make the
business fit for purpose. We are starting
to identify where improvements in ITV’s
technological and management systems
and processes can be made, but they will
take time to implement and for the
benefits to be realised. In December,
we announced that, subject to planning
permission, we will move the Company’s
Manchester base to MediaCityUK in Salford
Quays and build a bespoke production
centre for Coronation Street. The move is
expected to complete in 2012/13. There is
expected to be a significant increase in
capital expenditure in 2011 associated
with the new Manchester base and our
investment in technology.
During 2010 targeted cost efficiencies of
£40 million were delivered. In 2011 we will
continue to focus on costs to ensure we
have the appropriate cost base across
the business and have identified a further
£15 million of savings that are largely
non-personnel related. However, there are
increased costs associated with a number
of the decisions we have made, such as
increased transmission costs as a result
of launching ITV1+1 and the digital HD
channels on Sky.
While important progress is being made in
Phase 1 of the Transformation Plan towards
creating a lean, creatively dynamic and
fit-for-purpose organisation, there is still
a great deal to do to fix the business.
What progress have we made?
We have made some significant
changes within the leadership
of ITV.
The new Management Board is now in place
with a number of new appointments: Kevin
Lygo was appointed Managing Director of
ITV Studios; Fru Hazlitt joined as Managing
Director of ITV Commercial & Online; Paul
Dale was recruited as Chief Technology Officer;
Mary Fagan is Group Communication &
Corporate Affairs Director and Simon Pitts
has been internally promoted to become
Director of Strategy & Transformation.
Six out of the ten members of the
Management Board are new and we now
have the right skills from inside and outside
the industry to deliver the strategy.
To complement this we have put in place
new internal board structures for each
division to facilitate change and speed up
decision making within the business.
It is imperative that cultural change is
driven throughout the business. Outside
of the Management Board, there have
also been significant people changes and
around a third of the wider leadership team
have changed. We have embarked on a
development programme for the leadership
team that will help drive changes down to
all levels of the business. To facilitate this
we held a number of employee roadshows
around the country in 2010. All ITV
employees were invited in order to share
the new strategy and give them an
opportunity to feed back their thoughts
and concerns. Employee engagement
measured in 2010 has improved from 65%
in 2009 to 75%, a positive result but there
is still some way to go.
The new creative process is now in place
between Broadcasting & Online and ITV
Studios and while it will take time to see the
results of this onscreen, progress is being
made – ITV Studios share of ITV1 Network
spend on original commissions has
increased from 50% in 2009 to 53% in 2010.
‘We have embarked on a
development programme
for the top leadership
team which will help drive
changes down to all levels
of the business’
10
ITV plc Report and accounts 2010
Transforming ITV
1
23
4
Maximise
audience
and revenue
share from our
existing free-
to-air broadcast
business
What do we want to achieve?
– Hold ITV Family viewing share
by platform
– Strengthen the channel family
– A new approach to commissioning
– Outperform the market in ad sales
– Regulatory relief
11
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
focus
Our focus will be on how we spend our programme
budget more efficiently to at least maintain our
share of viewing.
Below: Downton Abbey
12
ITV plc Report and accounts 2010
Transforming ITV
The Lakes achieved good audiences, especially
for factual programming, with its best episode
drawing an average audience of 4.9 million
‘In an increasingly
fragmented market we
must invest in quality
programming and
refresh the schedules
to strengthen all
of our channels’
How are we going to achieve it?
A key component in achieving our
objective of maximising audience
share from our existing free-to-air
broadcast business is to hold ITV’s
viewing share across our family
of channels.
In an increasingly fragmented market we
must invest in quality programming and
refresh the schedules to strengthen all
of our channels.
Our focus will be on how we spend our
programme budget more efficiently to
at least maintain our share of viewing.
We have announced ITV1’s network
programme budget will remain at around
£800 million in 2011. This is a small reduction
on the budget of £820 million in 2010, but
this amount included the cost of the football
World Cup. The key for us is investment in
long-running returnable series, which also
travel well internationally, particularly in
entertainment and drama.
A new approach to commissioning will play
a major part in achieving this. We recognise
television is a long-term business and we
need to move away from short-term slot
filling into building long-running returnable
franchises and brands. Commissioners will
lead integrated business teams including
Research and Development, Commercial
Finance and Marketing. Commissioning
decisions will be based on a wider range of
factors than has been the case in the past.
There will be emphasis on a Total Value
approach and a broader commercial input
to key commissioning decisions.
In order to maximise revenues from the
existing free-to-air broadcast business, and
to continue to outperform the television
advertising market, we need to focus on
delivering maximum value for our clients.
We must offer creative and collaborative
advertiser friendly solutions across our
family of channels and platforms and offer a
schedule that delivers what advertisers want.
Our pursuit of greater regulatory relief will
continue but we must focus on the factors
that are within our control as significant
regulatory change could well take time
to deliver.
Historic first Election debate attracted an audience of 9.7 million
13
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
‘In 2010, ITV outperformed
the television advertising
market by 1%’
What progress have we made?
ITV remains highly dependent on
the television advertising market
and therefore we must ensure that
we maximise our viewing and our
share of advertising revenues.
In 2010 ITV outperformed the television
advertising market by 1%, with the ITV
Family of channels’ share of total television
advertising revenues increasing from 44.7%
to 45.1%. ITV’s strongest performance
year-on-year was in June, due to the
increased demand for advertising on ITV1
around the Football World Cup.
Whilst we need to outperform our
competitors, we also need to balance
unpredictable linear television advertising
with other revenue streams across multiple
platforms. Despite significant growth in the
television advertising market in 2010, it is
still only back to 2006 levels. We have
restructured the sales team and appointed
a new Director of Television Sales, Kelly
Williams, and Director of Multiplatform and
Partnerships, Simon Daglish. We now have
the right team in place to deliver creative
and commercial advertiser solutions not
only in television but across all our platforms.
We had some very strong programmes
in 2010, for example X Factor, Britain’s Got
Talent, Coronation Street, Emmerdale and
Downton Abbey, the best performing new
drama on any channel in the year. However,
the schedule as a whole was not consistent
throughout the year and we remain reliant
on a number of very successful key shows.
The share of viewing for the family was
down 1%, with ITV1’s share of viewing down
by 4% and the Family of digital channels up
by 11%. ITV Family’s share of commercial
impacts (SOCI) in 2010 was broadly flat
compared to the previous year at 39.8%.
Whilst in 2010 ITV1 adult SOCI was down
4%, in the key demographics of ABC1 adults
and 16-34 year-old adults, ITV1’s SOCI
actually increased resulting in a significantly
improved audience profile for advertisers.
This has resulted in an aggregate Contract
Rights Renewal (CRR) ratchet of over 99%.
As this ratchet is used as a basis for 2011
negotiations, it gives us confidence in our
ability to outperform the television
advertising market again this year.
Other programme successes in 2010
included broadcasting five out of the
top ten new dramas, including DCI Banks,
The Little House and Downton Abbey.
The X Factor achieved its best rating episode
ever for the series final with 19.8 million
viewers. The I’m A Celebrity… Get Me Out
of Here! final attracted its highest audience
in six years. Coronation Street celebrated
its 50th anniversary with the live episode
and in the same week it achieved its
best episode ratings since February 2004.
The 2010 Football World Cup performed
well for ITV1 with the England vs. Algeria
match achieving the highest peak audience
of the year with 21.3 million and a 71%
viewing share. ITV also aired the historic first
Election debate, attracting an audience
of 9.7 million. However, certain slots in
the schedule have been disappointing.
Daybreak has not performed as we would
have hoped and the 9pm slot, particularly
on a Friday, remains a challenge for ITV.
In January 2011 we launched ITV1+1,
a one hour time shifted version of our
flagship channel, which followed the
launch of ITV1 HD in 2010. This has given
our viewers more choice and flexibility
with their viewing. So far in 2011 ITV1+1
has accounted for 2.5% of ITV1 impacts,
which we expect to grow in time.
X Factor achieved its best rating episode ever
for the series final with 19.8 million viewers
DCI Banks launched with an average audience
of 6.8 million
14
ITV plc Report and accounts 2010
Transforming ITV
Football World Cup 2010 performed well with
the England vs. Algeria match achieving a 71%
viewing share
‘We have now agreed
our vision for ITV1 out to
2013 and will work with
independent producers
and ITV Studios to
deliver it’
The Only Way is Essex peaked on ITV2 with
11% share of 16-34 Adults
What progress have we made? continued
The digital channels have performed very
well, particularly ITV3 which saw its SOCI
increase by 24%. ITV2 and ITV4 also
increased their SOCI by 3% and 17%
respectively but further investment is
planned to give them a clearer brand
identity. This strong performance helped
to hold ITV Family SOCI virtually flat despite
the decline in ITV1 SOCI.
Recognising that television is a long-term
business, we need to determine the vision
of our schedule several years in advance
while maintaining some flexibility. Peter
Fincham and his team have now agreed
our vision for ITV1 out to 2013 and will
work with independent producers and ITV
Studios to deliver it. In 2010 we announced
a three-year deal for the X Factor and
Britain’s Got Talent with Syco and
Fremantle Media, which secures two of our
most popular programmes until 2013. We
have also secured the rights to the Rugby
World Cup for 2011 and 2015. Our approach
to the provision of news on ITV is also
currently being reviewed.
Our strategy is not dependent on regulatory
relief, but we have made some progress in
this area and we will continue to push for
liberalisation. During the year Ofcom
relaxed certain airtime sales rules relating to
the requirement of commercial broadcasters
to sell all of their advertising inventory as
well as the bundling of airtime sales
packages across several channels. While
we operate under CRR, these have limited
impact on ITV.
In October Ofcom completed its review
of ITV’s licence payments and concluded
that Channel 3 payments should be cut
to almost zero, in recognition of the cost
of delivering public service obligations such
as news and current affairs. In December
Ofcom confirmed the new rules on product
placement that came into effect on
28 February 2011. The new rules contain
restrictions on the type of products that
can be placed and in which programmes
they can be placed. These restrictions
will impact our ability to exploit this new
revenue stream.
During 2010 the House of Lords began a
review of the CRR mechanism and concluded
in February 2011 that the CRR rules on the
sale of advertising are overly detrimental to
ITV and should be abolished. It also concluded
that the number of advertising minutes per
hour should be harmonised down to an
average of seven minutes per hour on all
commercial channels, subject to further
research by Ofcom.
We are encouraged by the House of
Lords’ recommendations and that the
Government appears to be increasingly
pro deregulation.
15
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
‘Coronation Street celebrated
its 50th anniversary with
the live episode and its best
audience since February 2004’
ITV2’s Celebrity Juice attracted a peak audience
of 1.9 million
16
ITV plc Report and accounts 2010
Transforming ITV
improve
We need to transform itv.com into a site which has a richer
and deeper relationship with our viewers and can be the
engine for our growth in new, connected platforms.
17
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
1
2
34
Drive new
revenue streams
by exploiting
our content
across multiple
platforms,
free and pay
What do we want to achieve?
– Enter pay TV
– Transform itv.com
– Own customer relationships on
connected platforms
– Total Value approach to brand
exploitation
– Build addressable advertising capabilities
18
ITV plc Report and accounts 2010
Transforming ITV
‘Develop new revenue
streams through building
our programme brands
and platform offerings’
How are we going to achieve it?
We need to develop a channel
portfolio that is more balanced
between pay and free television,
driving forward sponsorship and
product placement and developing
new revenue streams through
building our programme brands
and platform offerings.
itv.com needs to be transformed.
Navigation and the viewing experience will
be improved to cultivate a richer, deeper
relationship between ITV and its viewers.
In addition, we will maximise the reach
of our video on demand service, ITV Player,
making the service available on new
platforms. We will also undertake pay trials
on itv.com and are developing a payment
mechanism to enable us to do this.
We will continue to support and grow
the Freeview and Freesat platforms where
ITV channels perform strongly. Part of our
platform strategy will also be the launch of
YouView, the next generation of Freeview.
This will allow viewers to navigate seamlessly
between their favourite Freeview channels
and the most popular on demand content
on ITV Player and the BBC iPlayer,
subscription free.
Growing revenues from the SDN business,
which operates one of the six digital
terrestrial multiplex licences in the UK that
make up Freeview, also remains a focus.
In the past we have not exploited the full
value of our programming. With our new
Total Value approach to programme
commissioning and brand exploitation, we
intend to maximise the lifetime revenues
from our strongest brands.
As explained earlier we have restructured
the sales team to ensure we have the right
team in place to offer creative advertising
solutions and drive revenues across all
our platforms.
Corrie Nation
ITV Live iPhone app
‘Operationally we have
made progress but
Online continues to be
subscale compared to
our Broadcasting business’
19
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
With regards to platforms we have
successfully incorporated YouView as a
seven-way joint venture in September.
Though the project will not launch to
consumers until early 2012, the focus is
on getting the final proposition right for
viewers and advertisers. ITV’s part-owned
platforms, Freeview and Freesat, have
also performed well and are now used
by 11 million UK homes as their primary
source of television.
At the end of 2010 we launched ITV Player
on the PS3, and we are now working on
plans to launch ITV Player on Freesat and
YouView. Meanwhile SDN continues to grow
its revenues, and in 2010 it agreed three
new contracts, including the multiple
videostream contract with Channel 5.
We have agreed the initial key brands
that will be the focus of our Total Value
exploitation, including Coronation Street,
This Morning and Dancing on Ice. These are
not the only brands where we will look to
create more value, but we will develop our
approach on these brands and then roll-out
more fully where appropriate across our
large catalogue. For example, we have
already agreed a joint two-year broadcast
deal and a five-year commercial deal with
Alan Titchmarsh for his daytime chat show
and peak programming, as well as a
merchandising deal.
What progress have we made?
In August we announced our first
move into pay television, with the
digital channels ITV2, 3 and 4 HD
launching behind the Sky paywall
in autumn 2010.
This is a three-year deal and is profitable for
ITV from the outset, but it is only a small
first step into pay television and it does not
enable us to own the customer relationship
directly. Developing a pay strategy for the
future is a key part of our eight workstreams
and we have resourced it accordingly.
Online revenues, excluding Friends Reunited,
increased in 2010 by 17% to £28 million.
While this is a good performance it is off a
very low base and Online continues to be
subscale compared to our Broadcasting
business. Operationally Online has made
progress with unique users averaging
10.2 million per month in 2010, up 17%
year-on-year, and more valuable long form
viewing making up an increasing proportion
of it. Video views totalled 234 million
which was up 9% year-on-year. Long form
video views were up 79% year-on-year to
129 million, now making up 55% of the
total video views on itv.com.
However, itv.com is still not currently
fit-for-purpose with a poor navigation and
content experience. At the end of 2010 Robin
Pembrooke joined ITV as Managing Director
of Online and On Demand, and with his
senior team now in place, work has started
on improving the site. The Online vision for
2011 has been agreed, as has the necessary
investment required.
ITV Player launched on PS3
20
ITV plc Report and accounts 2010
Transforming ITV
1
2
34
Build a strong
international
content business
What do we want to achieve?
– Transform internal creative capability
– Focus on high value returnable series
on and off ITV
– Acquire attractive third party content
– Make our shows in more countries
– Build international distribution scale
21
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
extend
Extending our production and distribution
network internationally.
Above: Dancing on Ice
22
ITV plc Report and accounts 2010
Transforming ITV
Come Dine With Me is produced in 28 countries
around the world
The Chase, an ITV Studios game show,
performed strongly in daytime in 2010,
peaking at 2.5 million viewers
How are we going to achieve it?
Transforming the internal
creative capability of the business,
to ensure we have the very best
team in place, lies at the heart of
our goal to build ITV into a strong
international content business.
We need creative leadership with the ability
to attract talent throughout the division.
We will develop a mixed model to recruit and
manage on and off-screen talent including
partnerships.
As we build the right team and develop
the internal creative processes, we will focus
on developing high value returnable series
for both the ITV channels and third-party
broadcasters, in the UK and internationally.
We will concentrate on developing ideas
that work not only in the UK but also
internationally to exploit fully all possible
revenue streams. Entertainment and drama
formats travel best internationally and ITV
has strength in these areas, for example
I’m A Celebrity, Dancing on Ice and Lewis.
Factual entertainment series also travel well
and we have seen success with programmes
such as Four Weddings, Coach Trip and
Come Dine With Me.
The key to the success of the content
business is developing, or having a significant
stake in, the intellectual property rights for
the content that we show on our screens
and sell to other broadcasters. We must
own the rights to programmes and formats
so that we can exploit the long tail value of
them. In the shorter term we may look to
acquire rights to distribute internationally
with our own content to help drive revenues
while we develop our own pipeline.
To have the strongest possible international
content business we need to be making
and distributing our programmes in as
many territories as possible. The UK is core
to this but we need an effective distribution
and production network and access to ideas
and formats across geographies. Over the
next five years we will increase our number
of production bases to ensure we have a
presence in key global territories. We can
enter new markets organically, as we did in
France in early 2010 for less than £1 million
or we may invest or partner. In addition
to developed markets we will also look for
growth in developing markets.
I’m A Celebrity... Get Me Out of Here! has been sold in six territories to date
‘We will focus on
developing high value
returnable series for both
the ITV channels and
third-party broadcasters in
the UK and internationally’
23
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
‘Researching the creative
pipeline is key for ITV
going forward’
We announced that we will be moving the
Company’s Manchester base to MediaCityUK
in Salford Quays in 2012 and that we will be
building a high-tech production and studio
centre for Coronation Street at Trafford
Wharf, adjacent to the main MediaCityUK
site. The total cost of this is expected to
be less than £35 million and once we have
vacated the current Manchester site we
will look to maximise its value.
We already have some great examples of
formats which we are exploiting in multiple
territories. Come Dine With Me, which we
make for Channel 4 in the UK, is produced
in 28 countries, with ITV producing the
versions in six of these, and Four Weddings
that we make for Living in the UK is
broadcast in 15 countries, and produced or
co-produced by ITV in eight. We have also
recently agreed a US production deal for
one of our key daytime programmes,
Jeremy Kyle, and we have sold a number
of other shows to Latin America.
Following the opening of our Spanish office
in 2009 we opened an office in France in
early 2010. Both of these territories won
their first commissions in 2010, May the
Best House Win in Spain and Coach Trip
in France. We now have production bases
in seven countries.
What progress have we made?
We now have a new creative
leadership team in place following
the appointment of Kevin Lygo as
Managing Director of ITV Studios,
Denise O’Donoghue as Managing
Director ITV Studios UK and Maria
Kyriacou as Managing Director of
ITV Studios Global Entertainment.
However, we still need to rebuild the creative
talent team to ensure that we have the
right people across the business and this
process is underway.
In 2010 total ITV Studios external revenues
and profits were down. The market was
tough with broadcasters de-risking, but
ITV’s ability to sell programmes was also
impacted by its depleted pipeline. Internal
revenues were broadly flat, but ITV Studios
share of ITV1 network spend increased
from 50% to 53%.
Our creative pipeline needs strengthening
as we have not created an international
entertainment hit since Dancing on Ice in
2006. This is obviously inhibiting our ability
to sell both in the UK and internationally.
However, a number of ITV Studios dramas
will be on ITV1 in 2011, including Vera and
Marchlands, and new entertainment pilots
are being considered by the ITV Network.
While this is promising, it is only a start and
refreshing the creative pipeline is key for ITV
going forward. As a result we have
significantly increased the development
budget for 2011.
We need to maintain the ongoing success
of our soaps and other popular long running
programmes. In 2010 we invested in new
HD studios in Leeds which secured the future
of the production of Emmerdale there.
Four Weddings which we produce for Living in
the UK, is broadcast in 15 countries
Coach Trip, which we produce in UK for Channel 4,
has recently been commissioned in France
24
ITV plc Report and accounts 2010
2011 and beyond
‘As we enter 2011, ITV is in a much
stronger position financially which
enables us to invest in the business
and make the right decisions for
the long-term future of ITV’
Jason Manford joins ITV with fresh
entertainment show Comedy Rocks
Britain’s Got Talent returns with a new judging panel
We are less than 12 months into our
five-year Transformation Plan and are
already making significant progress.
However, there is still a great deal to do
and many challenges we must confront
to ensure that in the long-term we are
fit to compete.
Over the next 12 months we need to
maintain and build on the momentum
of change that we have created.
While you will see rapid progress across
all our four priorities our focus will be on
transforming itv.com, on strengthening
our creative talent and creative pipeline
and improving our technology. We expect
to invest £25 million of our three-year
£75 million investment fund in 2011 –
£7 million in Online, £12 million in Content
and £6 million for Digital channels in our
development fund.
Our capital expenditure will more than
double in 2011 to approximately £80 million
as we upgrade technology across the
business and invest in future-proofing our
Soaps, in particular the new site for
Coronation Street. While we are making
significant investments in the business
we will still maintain our focus on cost
management to ensure we have the right
cost across the organisation. We have
identified £15 million of cost savings that
will be delivered in 2011.
Creating a lean, creatively dynamic
and fit-for-purpose organisation
We will continue to recruit the right creative
talent across the organisation. There is a
new creative process between Broadcasting
and ITV Studios, with these businesses
working more closely together. We are
creating a high performance culture
that aligns incentives throughout the
Company to reward creative and
commercial performance.
Maximise audience and revenue
share from our existing free-to-air
broadcast business
In 2011 we aim to again outperform the
television advertising market and to maintain
the ITV Family share of viewing. To do this
we must improve the consistency of the
schedule across the year. We are launching
many new programmes, including dramas
Marchlands, Vera and Monroe as well as the
new documentary strand Perspectives and
authored factual series featuring Caroline
Quentin and Martin Clunes.
25
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
‘We expect to invest
£25 million of our
three-year £75 million
investment fund in 2011
– £7 million in Online,
£12 million in Content
and £6 million for
Digital channels’
Brenda Blethyn OBE stars in Vera, a new
murder mystery
New ITV Studios drama Marchlands launched on ITV1 with an average audience of 7.8 million
Some of our most successful programmes
return in 2011 including the X Factor,
Britain’s Got Talent, I’m A Celebrity and
Downton Abbey as well as Coronation
Street and Emmerdale. Top sporting events
such as the Rugby World Cup, Champions
League, the FA Cup and Euro 2012 qualifiers
are also on ITV this year.
Drive new revenue streams by exploiting
our content across multiple platforms,
free and pay
To help drive new revenue streams a
multiplatform commissioning structure
will be put in place. We are developing our
product placement offerings and will launch
Total Value exploitation across a number of
key brands. We will deliver an improved and
redesigned itv.com and start to undertake
pay trials online. YouView will commence
consumer trials in late 2011 and is planned
to be fully launched in early 2012. All these
initiatives will take time to make an impact
and we are unlikely to receive the benefits
until 2012.
Build a strong international
content business
Building a strong international content
business remains a key priority and we
will increase investment in programme
development and pilots to create returnable
commercial franchises. We are rebuilding the
senior talent team and are looking at new
ways of working with talent and production
companies as well as considering the
potential for partnerships and investments
across the international ITV network.
Outlook
We have a great deal still to do and we will
measure the success of the Transformation
Plan by both delivery and execution.
We have developed a new set of key
performance indicators that align our
performance and accountability to the
Transformation Plan.
As we enter 2011, ITV is in a much stronger
position financially which enables us to
invest in the business and make the right
decisions for the long-term future of ITV.
The television advertising market has
performed strongly so far in 2011. In Q1 ITV
net advertising revenue (NAR) is expected
to be up 12% and initial forecasts for April
are for NAR to be up between 8% and 12%.
However, the comparatives we face are
becoming increasingly tough. The outlook
into the rest of 2011 remains uncertain
and we are cautious about the broader
economic outlook and its impact on our
market. We will maintain our focus on cash
and costs in 2011 and on delivering the
Transformation Plan to secure the long-
term stability of the Company.
Adam Crozier Chief Executive
ITV has secured the rights to the
Rugby World Cup 2011 and 2015
26
ITV plc Report and accounts 2010
Key Performance Indicators
ITV has redefined its Key Performance Indicators (KPI) to align
performance and accountability to the Transformation Plan.
ITV’s KPI include core financial performance indicators and strategic performance indicators.
While these KPI will be the key measures of success over the next five years, we will keep
them under review to ensure that they remain the most appropriate measures in line
with our strategy.
Core financial performance
EBITA before
exceptional items
Earnings before interest, tax and amortisation
(‘EBITA’) before exceptional items more
accurately reflects 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.
2010
2009
£408m £202m
EBITA before exceptional items has increased
during the year to £408 million mainly due to
a £205 million increase in television advertising
revenues and the continued positive impact
of cost savings, which were partially offset by
increased transmission and schedule costs in
the year.
Adjusted earnings per share
Adjusted earnings per share represent the
adjusted profit for the year attributable to
equity shareholders. It more accurately reflects
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.
Adjusted profit is defined as profit for the year
attributable to equity shareholders before
exceptional items, impairment of intangible
assets, amortisation of intangible assets
acquired through business combinations,
financing cost adjustments (see page 32) and
prior period and other tax adjustments.
‘Profit to cash’ conversion
‘Profit to cash’ conversion represents the
proportion of EBITA before exceptional items
converted into a measure of adjusted cash flow
(defined as cash generated from operations
before exceptional items less cash related to the
acquisition of property, plant and equipment
and intangible assets – see page 35). 2009 has
been restated to include cash related to the
acquisition of intangible assets.
It remains ITV’s aim to keep this ‘profit to cash’
conversion as high as possible, and in excess of
90% on a rolling three-year basis.
2010
6.4p
2009
1.8p
Adjusted earnings per share has increased to 6.4
pence reflecting the significant improvement in
trading and EBITA before exceptional items, the
reduction in adjusted financing costs as a result
of the repurchase of debt and the reduction in
the adjusted tax rate due to the utilisation of
prior year losses.
2010
2009
127% 171%
A ‘profit to cash’ conversion ratio of over 100%
has been achieved for the second successive
year. This shows that ITV has maintained a
strong focus on working capital, in particular
stock balances. The high conversion rates over
the past two years have been key factors in the
net debt reduction. ‘Profit to cash’ conversion
in 2011 will be lower than 2010 since stock has
been reduced to more normalised levels and
capital expenditure will be higher.
Strategic performance indicators
KPI description
ITV Family Share of Viewing (SOV)
ITV Family Share of Viewing (SOV) is ITV’s share
of the total viewing audience over the year
achieved by ITV’s family of channels compared
to the entire television market, including the
BBC Family. ITV aims to at least maintain the
ITV Family SOV.
ITV Family Share of Commercial Impacts
(SOCI)
This is the share of total UK television commercial
impacts which is delivered by ITV’s family of
channels. An impact is one viewer watching one
30-second commercial. SOCI is the trading
currency in the television advertising market.
ITV aims to maximise its SOCI.
ITV Family Share of Broadcast (SOB)
ITV’s UK television advertising market share
is known as its Share of Broadcast (SOB).
To maximise revenues from ITV’s free-to-air
business, ITV aims to continue to maximise
its SOB and to outperform the UK television
advertising market.
27
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
Performance
ITV Family SOV
2010
2009
22.9% 23.1%
ITV Family SOV has declined by 1% in the year.
The movement in SOV can be split between
viewing performance on each platform and the
change in usage of each of these platforms
during the year (‘platform mix’). Removing the
impact of the change in platform mix, 2009’s
SOV adjusted for the 2010 platform mix was
22.8%. Adjusted SOV therefore actually slightly
improved during the year.
ITV Family SOCI
39.8% 40.0%
ITV Family SOCI was broadly flat year-on-year.
ITV1’s SOCI was down 4% year-on-year, but this
was largely offset by the strength in the ITV
digital channels, particularly ITV3.
ITV Family SOB
45.1% 44.7%
In 2010, ITV NAR gained market share increasing
its SOB to 45.1% of the total UK television
market. This was due to strong performances
by both the sales team and on screen as ITV
continues to deliver the big audiences and
brands that are most demanded by advertisers.
Non-NAR revenues
Non-NAR revenues includes all ITV revenues,
both internal and external, except net advertising
revenues (NAR). Growing non-NAR revenues is
key to the Transformation Plan as we aim to
rebalance the business away from its reliance
on advertising revenues.
Non-NAR revenues
£829m £850m
The reduction in non-NAR revenues in 2010
by £21 million to £829 million is due to a
£43 million reduction in total revenue in ITV
Studios, partially offset by smaller increases in
Broadcasting & Online non-NAR revenues.
itv.com unique users
Average monthly unique users are a measure of
the number of individual users visiting itv.com.
itv.com video views
Video views are a measure of the total number
of videos viewed on itv.com in the year. It
includes long and short form video views.
Percentage of ITV1 output from ITV Studios
This represents the proportion of the total
original commissions spend on ITV1
transmitted in the year, delivered by ITV
Studios. In order to grow the content business,
ITV Studios needs to increase its supply of high
potential programmes to the ITV Network.
Once they have been made famous in the UK,
they can then be sold around the world.
itv.com unique users
10.2m 8.7m
Unique users are up 17% year-on-year, but
Online remains subscale compared to our
Broadcasting business.
itv.com video views
234m 215m
Video views are up 9% year-on-year. An
increasing proportion is long form views which
are more valuable to ITV; this now constitutes
55% of total video views with 129 million long
form video views in 2010.
Percentage of
ITV1 output from
ITV Studios
53%
50%
The percentage of ITV1 output from ITV
Studios has increased in the year. This has been
driven by the delivery of daytime and factual
programmes. Going forward ITV aims to deliver
more entertainment and drama programming.
However, it should be noted that ITV1’s spend
on original commissions has declined in the
year by £32 million since sport costs increased
due to the football World Cup.
28
ITV plc Report and accounts 2010
Financial and performance review
by Ian Griffiths Group Finance Director
‘The focus on cash
and costs is clearly
evident in our much
improved financial
position, most notably
the net debt reduction’
External revenue versus 2009 (£m)
2,200
2,100
2,000
22
42
205
2,064
1,879
1,900
1,800
9
0
0
2
R
A
N
e
u
n
e
v
e
r
r
e
h
t
O
0
1
0
2
i
s
o
d
u
t
S
V
T
I
Key financials
External revenue
EBITA before exceptional items
Adjusted earnings per share (‘EPS’)
Net debt
2010
£m
2,064
408
6.4p
(188)
2009
£m
1,879
202
1.8p
(612)
Change
£m
185
206
4.6p
424
Overview
ITV has delivered a strong financial performance in 2010 with external revenues and profits
significantly up on prior year. This has been driven largely by the strong cyclical recovery in
the television advertising market and ITV’s outperformance of that market. Despite this
cyclical recovery, ITV has maintained its focus on cost control and cash management. Costs
have been reduced and increased revenues have been effectively converted into increased
profits. The continued focus on cash management, alongside improved profits, has led to a
significant reduction in net debt.
ITV is now in a substantially stronger financial position than two years ago, but this does not
disguise the ongoing challenges that the business faces.
The following review is focused on adjusted results as, in management’s view, these show
more meaningfully the business performance of the Group in a consistent manner and
reflect how the business is managed and measured on a daily basis. We have also restructured
the notes to the accounts, to present a clearer view of our financial performance and
financial position as at 31 December 2010.
External revenue and EBITA before exceptional items
Total revenue for the year ended 31 December 2010 was 10% higher at £2,064 million
(2009: £1,879 million). The improvement in Net Advertising Revenue (‘NAR’), driven by the
strong television advertising market, has been partially offset by a 13% reduction in external
revenue in ITV Studios, mainly from international productions.
EBITA before exceptional items versus 2009 (£m)
500
400
300
200
100
0
60
19
205
17
23
408
202
9
0
0
2
R
A
N
s
g
n
v
a
s
i
t
s
o
C
s
t
s
o
c
n
o
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s
s
i
m
s
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l
s
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S
0
1
0
2
r
e
h
t
o
d
n
a
i
s
o
d
u
t
S
V
T
I
Net debt versus 2009 (£m)
612
517
800
600
400
200
0
9
0
0
2
d
e
t
s
u
d
A
j
w
o
l
f
h
s
a
c
23
64
x
a
T
t
s
e
r
e
t
n
I
30
19
188
r
e
h
t
O
0
1
0
2
i
g
n
d
n
u
f
t
i
c
i
f
e
d
n
o
i
s
n
e
P
69
s
e
s
s
e
n
i
s
u
b
f
o
e
a
s
l
m
o
r
f
s
d
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e
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p
t
e
N
26
g
n
i
t
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r
e
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O
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t
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l
a
n
o
i
t
p
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c
x
e
29
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
The increase in NAR is the principal reason that EBITA before exceptional items more than
doubled to £408 million (2009: £202 million). Cost savings of £60 million have been made
(£40 million of efficiency savings and £20 million from the reduction in the licence fee)
which further boosted profitability, but these have been offset by increased schedule costs,
increased transmission costs to support the launch of the HD channels and YouView,
and reduced ITV Studios profits.
The improved EBITA before exceptional items has driven the increase in adjusted EPS
to 6.4p (2009: 1.8p).
Net debt
Cash management has remained a key focus in 2010, with net debt reducing from
£612 million at 31 December 2009 to £188 million at 31 December 2010.
Adjusted cash flow of £517 million (2009: £345 million) has increased this year not only as
a result of improved profits but also from another year of strong ‘profit to cash’ conversion.
The continued focus on cash resulted in a ‘profit to cash’ ratio in 2010 of 127% (2009: 171%)
as we continued to reduce our stock levels and manage working capital tightly.
Aside from adjusted cash flow, £69 million was raised from the sale of Friends Reunited and
Screenvision US. The cash costs of operating exceptional items in 2010 mainly relate to items
provided for in previous years, such as the cash costs which underpin the efficiency savings
delivered over the past two years. The return to corporation tax payments in 2010 is a
consequence of improved profitability.
Broadcasting & Online
Broadcasting & Online revenues
Net Advertising Revenue (‘NAR’)
Broadcast sponsorship
Minority revenue
SDN external revenues
itv.com
Media sales, PRS and other income
Total Broadcasting & Online revenue
Total schedule costs
Other costs
Total Broadcasting & Online EBITA before exceptional items
2010
£m
1,496
60
54
43
28
90
1,771
(1,023)
(421)
327
2009
£m
1,291
59
47
40
24
82
1,543
(1,006)
(426)
111
Change
£m
205
1
7
3
4
8
228
(17)
5
216
The year-on-year changes in the Broadcasting & Online segment have been driven by the
television advertising market, resulting in a £205 million improvement in NAR to £1,496 million
(2009: £1,291 million). The television advertising market was up 15% in the year and ITV has
outperformed the market once again with ITV Family revenue up 16%. ITV’s share of
broadcast, at 45.1%, was up 0.4 share points on last year.
Of the £205 million increase in total ITV NAR, the improvement in the television advertising
market accounted for £191 million and the increase in ITV’s share is worth £14 million. ITV
has outperformed the television advertising market for the past three years, as we continue
to deliver the big audiences and brands that are most demanded by our advertisers. This
market outperformance was achieved despite a 5% decline in ITV1 SOCI in 2009 compared
to 2008; 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 SOCI in the
previous year.
30
ITV plc Report and accounts 2010
Financial and performance review continued
‘Growing non-NAR
revenues is key to
rebalancing the business
away from its reliance
on television advertising
revenues’
The rate of television advertising market growth of 15% has outstripped the 6% rise in the
total market of commercial impacts, with the result that there has been some inflation
of pricing compared to the prior year, reversing some of the deflation of earlier years.
Television advertising, however, continues to offer value for money given its reach and
2010 has seen television take share from other media. Over the year, the total radio
advertising market grew by 4%, internet by 11%, and press declined by 1%; these all
compare to television, which grew by 15%.
Broadcast sponsorship income was broadly flat at £60 million (2009: £59 million). Although
closely related to advertising, sponsorship tends to be committed under longer term contracts
which can mitigate the impact of short-term movements in the advertising market.
Minority revenues comprise ITV Network programme sales to Channel 3 licences not
owned by ITV (STV, UTV & Channel). These revenues increased by £7 million to £54 million
(2009: £47 million) due to the higher network programme budget, and fewer programmes
being subject to an opt out claim than in 2009.
SDN, which operates one of the six digital terrestrial multiplex licences in the UK that make
up Freeview, grew external revenues by £3 million to £43 million (2009: £40 million). In 2010
SDN agreed three new contracts, including the multi videostream deal with Channel 5. As a
result of these new contracts we expect to continue to grow revenues from the SDN
business in 2011.
The itv.com revenues, excluding Friends Reunited, were up 17% compared to last year, albeit
off a low base. Unique users were up 17% and video views up 9%, with long form viewing,
which is more valuable to advertisers, making up an increased proportion of total video
views. This, combined with the strong online advertising market, resulted in the increase
in itv.com revenues.
Media sales, PRS and other income has grown and includes premium rate telephony
services, airtime sales on behalf of third parties, interactive transactions associated with
ITV and our first steps into pay television.
Total ITV schedule costs increased by £17 million in 2010 to £1,023 million (2009: £1,006 million).
The increase is principally due to the inclusion of the football World Cup.
Other Broadcasting & Online costs of £421 million (2009: £426 million) include industry and
regulatory costs, as well as staff and overhead costs. The year-on-year decline is mainly from
the delivery of cost savings and lower licence fees. There has been an increase in transmission
costs, mainly due to the launch of the HD channels and costs associated with YouView.
A review of Channel 3 licence fees resulted in a £20 million saving as Ofcom recognised the
cost of delivering public service obligations such as news and current affairs and adjusted the
regional broadcasting licence fees accordingly.
‘The decline in revenues
across ITV Studios
highlights the need for
creative renewal’
ITV Studios
UK production and resources
International production
Distribution and exploitation
Total external revenue
Original supply to ITV
Total revenue
Total costs
Total ITV Studios EBITA before exceptional items
31
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
2010
£m
64
106
123
293
261
554
(473)
81
2009
£m
71
138
126
335
262
597
(506)
91
Change
£m
(7)
(32)
(3)
(42)
(1)
(43)
33
(10)
ITV Studios includes original productions for the UK and international markets, the
distribution and exploitation of internally generated and acquired rights, and studios and
facilities revenue. ITV Studios’ creative content pipeline has depleted over time which,
coupled with an environment where broadcasters are taking less risk with new content and
budgets are still relatively tight, has impacted ITV’s ability to sell programmes both in the
UK and internationally. This highlights the need for creative renewal.
UK production and resources external revenue (for other UK broadcasters) has decreased by
10% to £64 million (2009: £71 million), and the number of external hours produced have also
reduced by 10%. Programmes such as The Street and Animal Cops did not return, but these
were partially offset by the growth of programmes such as Coach Trip and Four Weddings.
International production revenues reduced by 23% to £106 million (2009: £138 million).
This was largely driven by I’m A Celebrity where there has not been any production in
2010 in the USA, Germany or Sweden; nothing of scale replaced these. This is reflected
in the total number of hours produced internationally which reduced by 11% in 2010
compared to 2009.
Distribution and exploitation sales were down by 2% to £123 million (2009: £126 million).
Television sales revenues held up well on the back of strong drama sales, but were offset by
lower co-production revenues. Home Entertainment revenues, primarily DVD, remain under
pressure, particularly in the UK.
Original supply to ITV channels is not included in reported ITV plc consolidated revenue
as it represents an internal programming cost of sale. This internal supply is broadly flat
at £261 million (2009: £262 million) as programmes delivered in 2009 such as Heartbeat
and The Royal did not recur, but there were new programmes such as Popstar to Opera Star
and The Chase in 2010.
ITV Studios’ cost base has reduced by £33 million to £473 million (2009: £506 million).
Most of the costs in the production business are variable and linked to revenue. The fixed
costs have been reduced as part of the ongoing challenge to the cost base and those
savings have helped maintain overall margins of 15%.
32
ITV plc Report and accounts 2010
Financial and performance review continued
Exceptional items
Operating exceptional items
Income/(cost)
Reorganisation and restructuring
Onerous contract provision
Onerous property provision
Pension scheme changes
Kangaroo closure costs
Total operating exceptional items
2010
£m
(17)
1
7
28
–
19
2009
£m
(40)
(1)
(14)
110
(2)
53
Net operating exceptional income in the year was £19 million (2009: £53 million).
These include £17 million of reorganisation and restructuring costs in relation to cost savings
that have been delivered. There was a £7 million credit to onerous property provisions following
the successful subletting of some excess space and consolidation of London offices.
The pension exceptional credit relates to pension scheme initiatives undertaken in the
year to reduce the pension liability. Further details are included in section 3.6 of the
financial statements.
Non-operating exceptional items
Total non-operating exceptional items are £nil (2009: cost of £73 million). A £4 million gain
(2009: £51 million loss) on sale and impairment of subsidiaries and investments, principally
relating to the sale of Screenvision US, was offset by a £4 million (2009: £22 million) loss on
sale and impairment of non-current assets.
‘Financing costs have
reduced as we have
repurchased some of
our more expensive debt’
Net financing costs
Income/(cost)
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 net financing income
Net financing costs
2010
£m
(59)
1
(58)
(11)
(69)
5
(13)
2
(75)
2009
£m
(74)
1
(73)
(6)
(79)
(7)
(15)
10
(91)
The cash-related financing costs of £58 million (2009: £73 million) are primarily the interest
costs relating to ITV’s bond debt, which have reduced significantly year-on-year, mainly due
to £146 million of debt repurchases. Cash-related net financing income remains low, despite
the increasing cash balances, as most of the cash reserves are held on short-term deposit
with low interest rates.
Amortisation of bonds is non-cash in the short term but will result in a cash payment on
settlement. This principally relates to the 2014 Eurobond, 2015 Bond tap and 2016
Convertible Bond.
Adjusted financing costs are used to reflect the controllable interest costs of ITV’s net debt.
The principal differences between the reported net financing costs and adjusted financing
costs relate to mark-to-market movements on swaps and foreign exchange on bonds, which
are volatile and unrealised within the year, and the imputed pension interest.
The £5 million gain (2009: £7 million charge) relating to mark-to-market on swaps and foreign
exchange on bonds is as a result of decreases in the implied interest rates at 31 December
2010 compared to 31 December 2009.
Other net financing income includes the unwind of the amortised cost adjustment (as described
in note 4.1) and the net losses from bond buy-backs.
33
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
‘The adjusted tax rate of
23% is expected to remain
at, or close to, this level for
at least the next two years’
Tax
The total reported tax charge of £16 million (2009: credit of £69 million) results in an
effective tax rate significantly lower than the statutory rate of tax. This is primarily due to
the recognition of a deferred tax asset of £68 million in respect of tax losses not previously
recognised. The deferred tax asset is being recognised as the Group is making sufficient
taxable profits to be able to utilise these brought forward tax losses.
Corporation tax paid during the year of £23 million arises as a result of the return to
profitability of the Group during the year, partially offset by utilisation of tax losses and
pension contributions. The significant initiatives made towards addressing the pension
deficit have resulted in tax relief for the Group.
Taking the brought forward losses and pension relief into account the Group should pay a
relatively low level of cash tax compared to the statutory charge over the next two to three
years. The timing of these deductions does not effect the statutory tax charge due to the
deferred tax impact, which is recognised in full in the year.
The adjusted tax rate for adjusted profits is lower than the standard tax rate as the
utilisation of losses is in excess of normal disallowable costs:
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 (charge)/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.
2010
£m
286
(19)
48
–
6
321
2010
£m
(16)
5
(13)
(2)
–
(47)
(73)
23%
2009
£m
25
(53)
51
73
12
108
2009
£m
69
21
(14)
(3)
(82)
(26)
(35)
32%
The purpose of presenting an adjusted tax charge is to more closely reflect the expected
cash tax in respect of the current year’s profit before tax. The Group adjusts its reported tax
charge for exceptional items and material or non-recurring items, including amortisation of
intangibles, adjustments to net financing costs and certain tax adjustments. In 2010 the
other adjustments of £47 million primarily represents the deferred tax benefit of tax losses
available for use in future years. These losses are expected to be utilised over the next two
to three years and as a result the adjusted tax rate in that period is expected to be lower
than the statutory rate.
34
ITV plc Report and accounts 2010
Financial and performance review continued
‘Improved profits, reduced
interest and a lower
effective tax rate have all
helped adjusted EPS rise
from 1.8p to 6.4p’
Earnings per share
Adjusted earnings per share is 6.4 pence (2009: 1.8 pence). Basic earnings per share is
6.9 pence (2009: 2.3 pence).
Reconciliation between reported and adjusted earnings
EBITA before exceptional items
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
–
(19)
48
6
–
35
(57)
(22)
–
(22)
Reported
£m
408
19
(63)
(75)
(3)
286
(16)
270
(1)
269
3,884
6.9p
Adjusted
£m
408
–
(15)
(69)
(3)
321
(73)
248
(1)
247
3,884
6.4p
The adjustments shown above, such as exceptional items, remove the impact of those
items that, in management’s view, do not show the performance of the business in a
consistent manner and do not reflect how the business is managed and measured on
a daily basis.
Amortisation of intangible assets acquired through business combinations is not included
within adjusted earnings. Amortisation of software licences and development is included as
management consider these assets to be core to supporting the operations of the business.
The tax and financing costs sections of this review explain the principal adjustments to
these balances.
Dividend
The Board intends to restore payment of a dividend at the interim results in July 2011.
Disposals and assets held for sale
The Group continues to dispose of non-core assets. Two businesses, Friends Reunited and the
50% interest in Screenvision US, were sold for a net consideration of £69 million. Properties
at Bristol and Birmingham were sold for a total consideration of £7 million.
The Group continues to actively market for sale its 50% interest in the joint venture
Screenvision Europe and its surplus properties.
35
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
Cash flow, working capital management and net debt
Cash flow and working capital management
With profits and cash flows overly dependent on the volatile television advertising market,
it is important that ITV manages its cash and working capital tightly. 2010 was another
good year in this regard, with 127% ‘profit to cash’ conversion being delivered, well ahead
of our benchmark of 90% over a rolling three-year period. It will be difficult to repeat this
level of ‘profit to cash’ conversion in 2011, primarily because our capital expenditure is rising
and programme rights and other inventory are now reduced to more normalised levels.
EBITA* (‘profit’)
Decrease in programme rights and other
inventory and distribution rights
(Increase)/decrease in receivables
Decrease in payables
Working capital movement
Depreciation
Share-based compensation
Cash flow generated from operations*
Acquisition of property, plant and equipment and intangible assets
Adjusted cash flow
2010
£m
408
2009
(restated)
£m
202
108
(8)
(1)
99
30
8
545
(28)
517
125
11
(15)
121
38
11
372
(27)
345
‘Profit to cash’ ratio
* Before exceptional items.
2009 has been restated to include cash spend on the acquisition of intangible assets, since this is core to supporting the
operations of the business.
127%
171%
Maturity profile at 31 December 2010 (£m)
400
300
200
100
0
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
Convertible bond
Liquidity risk
The Group has a high degree of operational gearing and is exposed to the economic cycle.
Between 2005 and 2009 ITV’s profitability declined as the economy weakened and volatile
television advertising revenues fell. This resulted in a lowering of ITV’s credit ratings by
Standard & Poor’s, Fitch and Moody’s respectively from investment grade (BBB-/BBB-/Baa3)
to sub investment grade (B+/BB-/B1). However, with the upturn in television advertising
revenues in 2010 combined with good cash and cost control, these pressures have been
partially eased. Although still sub investment grade, in May 2010 Standard & Poor’s revised
ITV’s credit ratings outlook from Negative to Stable (B+) and then put it on ‘credit watch
positive’ in January 2011. In August 2010 Fitch and Moody’s both increased ITV’s credit
ratings by one notch to BB and Ba3 respectively.
Funding
ITV is aware of the perceived inefficiency of holding £860 million of cash and cash equivalents
and over £1 billion of gross debt, but it is important to note the speed at which the net
debt has reduced over the past two years. The extent of decline of the television advertising
market in 2008 and 2009, and then the subsequent recovery in 2010, was unexpected.
This recovery, combined with tight cash control, has allowed net debt to reduce significantly
over two years from £730 million at 31 December 2008 to £188 million at 31 December
2010. In addition to net debt of £188 million at 31 December 2010, the Group also has an
IAS 19 Pension Deficit of £313 million.
In 2010 ITV bought back €63 million (£54 million) nominal of the 2011 bonds, £42 million
nominal of 2015 bonds and repaid the £50 million May 2013 loan. As at 31 December 2010,
ITV’s net sterling position after the impact of cross currency swaps against the remaining
€54 million 2011 Eurobond is a receivable of £16 million. This receivable has arisen due to
large positive swap values arising from favourable currency movements; when ITV
exchanged or bought back these series of bonds it was more efficient to enter into
new swaps to protect this position rather than terminate existing swaps.
In October 2010 ITV increased the size of its undrawn, covenant free bilateral bank facility
secured on advertising receivables from £75 million to £125 million and the maturity of this
facility was extended from March 2013 to September 2015. This facility remains undrawn.
36
ITV plc Report and accounts 2010
Financial and performance review continued
‘Gross debt has been
reduced in the year due
to the repurchase of
some of the more
expensive debt’
IAS 19 pension deficit versus 2009 (£m)
600
500
436
80
147
400
300
200
100
0
9
0
0
2
n
i
e
g
n
a
h
C
s
e
i
t
i
l
i
b
a
i
l
28
28
313
r
e
h
t
O
0
1
0
2
n
o
i
s
n
e
P
s
e
v
i
t
a
i
t
i
n
i
n
i
e
g
n
a
h
C
s
t
e
s
s
a
f
o
e
u
a
v
l
ITV is financed using debt instruments with a range of maturities. Borrowings at
31 December 2010 (net of currency hedges and secured gilts) are repayable as follows:
Amount repayable
€54 million Eurobond*
£110 million Eurobond
€188 million Eurobond*
£383 million Eurobond
£135 million Convertible bond
£250 million Eurobond
£200 million bank loan**
Finance leases
Total repayable
Maturity
October 2011
March 2013
June 2014
October 2015
November 2016
January 2017
March 2019
Various
£m
(16)
110
126
383
135
250
62
61
1,111
* Net of cross currency swaps.
**Net of £138 million (nominal) Gilts secured against the loan.
At 31 December 2010 ITV had £860 million of cash and cash equivalents. This figure includes
£89 million of cash equivalents whose use is restricted to finance lease commitments and
unfunded pension commitments. Cash and cash equivalents also include £47 million held
principally in overseas and part owned subsidiaries.
As explained above, steps have been taken to repurchase some of the more expensive debt.
The remaining debt now held is not expensive given our credit rating (at an average gross
cost of debt of 7%), is an appropriate mix of medium to long-term debt and has no financial
covenants. As ITV drives forward the Transformation Plan it is also important that some
flexibility is maintained to invest in the business.
Pensions
Reducing pension risk and uncertainty
As part of the long-term strategy to manage the risks and uncertainties associated with
the pension schemes, the Group has continued to implement a programme of measures
to manage the cost and risks of providing the defined benefit arrangements and to provide
greater security for the benefits that members have built up.
During 2010, ITV implemented two initiatives to reduce these risks, resulting in a £28 million
income statement gain. With effect from 1 April 2010, ITV is offering all new pensioners the
opportunity to uplift part of their pension in return for giving up rights to annual increases
on that part of their pension. Additionally, the offer was extended to existing pensioners who
retired after the initial offer was made in 2009. The level of member acceptance resulted in a
past service credit of £27 million over 2010, reflecting the reduction in the liabilities due to the
option being accepted by these pensioners and the expected take-up of this option in the
future. In addition, the Group carried out an enhanced transfer value (‘ETV’) programme
aimed at reducing the liabilities in respect of the deferred pensioner population. This resulted
in a net settlement gain of £1 million, reflecting the difference between the liabilities
removed and the ETV paid.
IAS 19
Detailed analysis of the Group’s pension schemes, including timing of actuarial valuations,
are included in note 3.6 of the financial statements.
The Group’s defined contribution schemes gave rise to an operating charge in 2010 of
£6 million (2009: £4 million).
The aggregate IAS 19 deficit on defined benefit schemes at 31 December 2010 was £313 million
(2009: £436 million). This decrease was driven by an increase in the value of the scheme
assets, the benefits from the actions taken in the year as set out above and the reduction
in liabilities due to the Government’s decision to link statutory pension increases to the
Consumer Price Index rather than the Retail Price Index. This was offset in part by a decrease
in the discount rate applied to liabilities.
‘We continue to
implement a programme
of measures to manage
the cost and risks of
providing the defined
benefit arrangements’
37
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
SDN pension partnership
In the first half of 2010 the Group and the Trustee of the ITV Pension Scheme (‘the
Scheme’) created a pension funding partnership, ITV Scottish Limited Partnership (‘the
Partnership’). The Partnership owns SDN Limited and the Group has contributed an interest
in the Partnership worth £124 million to the main section of the Scheme. The Group retains
control, and continues to consolidate the revenue and cashflow, of the Partnership and SDN.
Under the Partnership arrangements, the Group has committed to making a payment
to the main section of the Scheme of up to £150 million in 2022, if and to the extent that it
remains in deficit. In addition, the Partnership will make an annual distribution of £8 million
to the Scheme for 12 years from 2011. The Partnership’s interest in SDN will provide collateral
for these payments. The Scheme’s interest in the Partnership reduces the deficit on a funding
basis, although the agreement does not impact the deficit on an IAS 19 basis, as it is not an
asset controlled by the Scheme. The deferred tax balance associated with the pension deficit
has been adjusted to reflect this transaction (see note 2.3 in the financial statements).
Deficit funding
The Group has agreed with the Trustee the level of contributions to the main section of
the ITV Pension Scheme through to 2014. From 2011 the Group will make deficit funding
contributions of £35 million per annum. From 2012 the Group’s annual contribution will
be increased by £5 million, unless during the previous year the Group implemented
initiatives which reduce the Scheme’s deficit by at least £10 million, compared with the level
absent such initiatives. In addition from 2012, if the Group’s reported EBITA before exceptional
items exceeds £300 million in the previous year, the Group will increase this contribution by
an amount representing 10% of EBITA before exceptional items over this threshold level.
These arrangements supersede the Group’s previous commitment to make annual
contributions of £30 million per annum through to 2013. Further deficit contributions of
£8 million will commence from 2011 as a result of the SDN partnership, as described above.
Assuming no unforeseen circumstances, no further change is currently expected in ITV’s
committed contributions to the main section of the Scheme before 2015. The triennial
valuation, as at 1 January 2010, of the two smaller sections of the defined benefit pension
scheme, sections B and C, is in progress.
Trustees’ investment strategy
The Trustees continue to review the investment strategy for the main defined benefit pension
scheme. The asset allocation of the main section of the Scheme as at 31 December 2010
was broadly that 47% of the assets were invested in equity, property and other return
seeking assets, and 53% were invested in bonds and other liability-matching investments.
The Trustees also use derivative instruments to hedge partial exposures to movements in
interest rates, inflation and foreign exchange rates.
Ian Griffiths Group Finance Director
38
ITV plc Report and accounts 2010
Risks and uncertainties
The effective identification and management of risks is essential for ITV to
successfully execute the Transformation Plan, to protect its reputation and
to enhance shareholder value.
Monitoring
Bi-annual review by
Management Board and
the ITV plc Board. Bi-annual
review of mitigating
activities by internal audit.
Monthly review by
Management Board and
ongoing attention from
risk owners.
HILL
Risks
Strategic
Risks
Process Level
Risks
Ongoing review by internal
audit as part of the cyclical
audit programme.
Risk management approach and structure
In 2010 ITV undertook a review of its risk management process and has developed a new
approach. ITV is of the belief that it provides a greater focus on the key risks whilst retaining
(and building upon) the output of the previous process. This new approach covers risks at
all levels of the organisation and examines business risks from both a top down and
bottom up basis.
The new approach breaks down risks into three core groups
– High impact, low likelihood (HILL) risks – of low inherent likelihood but where there would
be major consequences were the risk to materialise;
– Strategic risks – would impact the successful execution of the strategy; and
– Process level risks – risks that are embedded into every day activity within the
organisation.
Number of risks
‘In 2010 ITV undertook
a review of its risk
management process
and has developed a
new approach’
Risk management process
Each strategic risk is owned by a member of the Management Board. The risk owner will
formally report to the Management Board, which has overall responsibility for the content
and operation of the risk management framework, on a monthly basis.
The ITV plc Board regularly reviews the risk management framework (including risk at all
three levels), its content and its operation. The Board is responsible for establishing a robust
and appropriate process, including regularly reviewing the risks themselves. The Audit
Committee keeps under review the effectiveness of the risk management process.
HILL risks
These risks can be described as those that would be considered to have a low degree of
likelihood of occurring, but, if they were to materialise would have a very significant impact
on the organisation. They are pervasive risks that impact the whole of the organisation. They
are generally more static in nature and as such are subject to a lower frequency of review.
The following HILL risks have been identified and for each risk mitigating actions have been
put in place. The risk that:
– there is a major regulatory breach that results in the loss of the Channel 3 licence, or the
Channel 3 licence is not renewed in 2014 and no contingency plan is in place to cover that
loss
– there is a major decline in advertising revenues, or that there is a double dip recession,
significantly impacting ITV’s overall financial performance
– there is a significant or unexpected change in regulation or legislation
– there is a significant loss of programme rights
– a major physical incident results in ITV being unable to continue with scheduled
broadcasting
– a significant event removes a number of the key management team from the business on
a long-term or permanent basis
– ITV loses its credit status or lines of funding with existing lenders
– there is a major collapse in investment values leading to a material pension scheme deficit
– there is a major health and safety incident that results in a significant loss of human life
– there is a sustained denial of transmission facilities at Technicolor, our third party
outsourced provider
– there is a loss of a major data centre
– there is a sustained cyber/viral attack causing prolonged system denial or major
reputational damage
39
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
Strategic risks
The top strategic risks are those that impact the successful execution of the strategy and as
a result require regular Management Board monitoring. A risk owner at Management Board
level has been identified for each risk, mitigating actions have been put in place and key risk
indicators identified. All of the strategic risks identified have been mapped to the four strategic
priorities of the Transformation Plan and have been grouped by five key risk themes.
See table below.
Strategic priorities
1 Create a lean, creatively dynamic and fit-for-purpose organisation
2 Maximise audience and revenue share from existing free-to-air broadcast business
3 Drive new revenue streams by exploiting our content across multiple platforms, free and pay
4 Build a strong international content business
Risk
Strategic priorities
ITV lacks sufficient experienced and creative talent to deliver the
Transformation Plan
ITV employees are not sufficiently engaged in the new strategy
The extensive degree of change that the business will undergo will
overload a small number of key personnel
Risk theme
People
Culture
Organisation, structure and process
ITV lacks the process maturity and experience to support new
core processes and outsourcing
Technology
The market
The lack of commercial and strategic clarity between Studios and
Broadcasting & Online will result in sub-optimal decisions
being made
A significant and high profile transmission incident
causes significant reputation damage to ITV
ITV fails to identify and secure sufficient programme rights
Management information is not sufficient to support process
improvement, integration or decision-making
ITV fails to invest in, develop or operate international businesses
Current technological environment and business processes are
not sufficient to support the growth in interactive and direct
customer relationships
ITV’s infrastructure does not support the developing needs of the
business going forward
ITV remains over-reliant on the advertising market and therefore
heavily exposed to the economic cycle
Process level risks
Process level risks are those that are embedded into the everyday activities of each of the
divisions of the organisation. These risks are mapped to the annual internal audit programme.
40
ITV plc Report and accounts 2010
Responsibility
‘As a broadcaster and
producer, ITV’s activities
can impact the lives of
millions of people’
41
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
The leadership team has undergone
development reviews, incorporating
psychometric tests and coaching support.
The output of this has resulted in improved
clarity on the make up of our leadership
team and the identification of strengths
and capability gaps. ITV has begun to
address these gaps by means of a four
stage leadership development programme
– ‘Leading Transformation’. This programme
has begun to create a network of leaders
with a common frame of reference on how
we lead at ITV. Next year, we will continue
to roll out the Leading Transformation
programme to our leadership team with
a focus on strengthening the network,
leading change and managing sustainable
commercial relationships.
Key to our business transformation is the
creation of a high performance culture
and we have established a programme
to upskill all our managers in performance
management with practical sessions
facilitated by credible leaders in the business.
This is in support of our end of year
performance reviews. The launch of the
performance management cycle will enable
managers to drive performance throughout
the year and ensure we focus and build
capability around clear and effective
objective setting, personal development
and succession as well as performance.
We continue to be inclusive in our approach
to training and development and this year
over 1,800 of our colleagues have benefited
from a formal training course. We have run
new programmes to develop middle and
senior managers as well as establishing
monthly development master classes
open to all colleagues.
Responsibility
As a broadcaster and producer, ITV’s
activities can impact the lives of millions
of people: our employees, our viewers
and online users, UK and international
broadcasters, suppliers and the community
and environment in which we operate.
We have a responsibility to all these people
to behave in a responsible manner. ITV1’s
average weekly reach alone is 42.7 million
people. This is 75% of the UK population
and as such ITV is in a unique position with
the potential to have a significant impact
on the way the world is viewed from live
General Election debates to the latest
pop sensation.
Our people
Our people are fundamental to our business
and to the delivery of the Transformation
Plan. Therefore, attracting and retaining
talent is critical to our success. Our focus
over the last nine months has been on
fixing the business and making it fit for
purpose. This has involved not only making
sure we have the best leadership team but
the right people across the whole organisation
and building their engagement and
commitment to the Transformation Plan.
ITV has launched a new bespoke
engagement survey which enables us
to gain an accurate picture of morale
and engagement at team level as well as
business area level. Employee engagement
has improved from 65% to 75%. However,
there is still work to be done and ITV will
work with managers to improve employee
engagement. The new survey approach
provides the leadership team with better
information to increase employee
engagement and commitment and to
target improvements on how ITV can
become a better place to work.
People development
In 2010, ITV has started to deliver against
an ambitious people development agenda,
in support of our business transformation.
People development is important across
the business. The initial focus has been
on assessing and further developing the
leadership capability of our 120 leaders, who
will then help their own teams to develop.
‘ITV has launched a new
bespoke engagement
survey which enables
us to gain an accurate
picture of morale
and engagement at
team level as well as
business area level’
42
ITV plc Report and accounts 2010
Responsibility continued
‘Effective, open, two-way
internal communication
is vital to making ITV
a great place to work
and to the successful
delivery of our five-year
Transformation Plan’
Benefits and incentives
A key element of the Transformation Plan is
to make ITV a great place to work. We want
to create an environment of ‘one ITV’, a
single, dynamic organisation. We aim to
establish a performance driven culture that
recognises employees for their personal
achievements and contribution towards
delivering ITV’s goals.
In 2010 ITV launched Relish, a new benefits
package, which is available to all employees
and provides valuable cost savings to both
the Company and employees. A new
option for 2011, gives all employees the
opportunity to access private healthcare
cover for themselves and their dependants.
The introduction of Relish has been well
received with over 50% of eligible
employees participating.
In January 2011, ITV’s annual pay review
awarded all eligible employees earning
under £60,000 a 3% increase, as well as an
additional one-off award to the value of
£300. Part of this one-off award was made
in ITV shares to give all employees a stake
in the business.
As part of the shift towards ensuring
performance is at the heart of our business,
the 2011 pay award for eligible employees
earning £60,000 or above is linked to their
performance rating for 2010. This is the first
step towards our goal of creating a strong
link between performance and reward for
all ITV employees.
Diversity
Our Diversity and Equality strategy aims
to ensure equality of opportunity to all
employees irrespective of gender, marital
status, race, origin, nationality, religious
belief, disability, age or sexual orientation.
ITV is recognised as a positive employer
and holds the ‘two-tick’ disability symbol to
demonstrate its commitment in recruiting
and retaining individuals with disabilities.
ITV is an active participant in the major
national and industry specific diversity
forums. Throughout the year it has
achieved successes in finding and
developing new diverse talent as well as
delivering specific employee engagement
initiatives to work towards a workforce
that fully reflects the audience it serves.
The table on page 45 gives further
information on ITV’s workplace profile.
Communication
Effective, open, two-way internal
communication is vital to making
ITV a great place to work and to the
successful delivery of our five-year
Transformation Plan.
Employees receive regular updates on
our Transformation Plan through a number
of different channels. Everyone had the
opportunity to hear our strategy directly
from the Management Board at company-
wide roadshows. Bi-monthly breakfast
meetings are held for the senior leadership
team and information from these are
cascaded down through teams across the
Company. The Company intranet – the
Watercooler – has been re-launched and
now provides a number of social media
functions where colleagues can give
feedback and ask questions right across
the Company.
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 45 gives
further information on ITV’s H&S statistics.
43
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
ITV Studios supply 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.
Suppliers
ITV conducts business with a large variety
of suppliers and believes that its terms are
considered fair and reasonable. To ensure
ITV trades responsibly, environmental and
health and safety questionnaires are
completed on all transactions.
The procurement team is organised in a
way that supports the business in choosing
and managing the correct supplier. Specific
focus has been in the areas of technology,
production, property and site, travel and
marketing. An internal review was
undertaken in 2010 which has led to the
appointment of two new Commercial
Vendor Managers. This will develop the
focus on the commercial management of
our key technology suppliers and partners.
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, Technicolor, SES Astra and
BT. Other key suppliers include those who
provide the technology for outside broadcast
such as SIS. In 2010, ITV signed a five-year
outsourcing contract with Accenture for
them to provide ITV with technology
operations and support services.
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, The Rugby
Football Union and NBC Universal Studios.
ITV work closely with all key suppliers and
seek to appropriately manage any risks
arising from these arrangements, for
example by signing long-term contracts
in areas such as programme supply, or by
working with more than one supplier in
areas where we do not wish to become
reliant on a single partner.
Customers
Our key customers are our viewers, our
advertisers and other broadcasters.
To understand ITV viewers and their
expectations of us more fully, throughout
2010 we continued to commission an
independent research company to recruit
and survey our Vision Panel. The panel is
representative of 8,000 adult television
viewers along with 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.
ITV also undertakes qualitative research,
using focus groups to obtain feedback on
a range of programming.
All ITV programmes must comply with
the Ofcom Broadcasting Code in relation to
their content and scheduling. ITV observes
the 9.00 pm watershed, and alerts viewers
to material that may cause offence
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, and reviews programmes
before broadcast. ITV maintains a responsive
complaints handling service via ITV’s Viewer
Services team, and viewers can also raise
any concerns about programmes directly
with Ofcom. In 2010, 1,145 ITV programmes
were complained about to Ofcom, compared
to 797 in 2009, and Ofcom adjudications
found six breaches compared to 13 in 2009.
Our relationship with advertisers is key
to driving advertising revenues. ITV has
restructured its Commercial and Online
division as we forge ahead with our strategic
plan. The Commercial department will have
a renewed focus on our customers and
clients giving more opportunities for
advertisers to promote their brands across
a number of platforms. This will ensure that
they rely on us even more to help them
stand out in an increasingly competitive
market as well as to deliver a better return
on investment.
‘All ITV programmes must
comply with the Ofcom
Broadcasting Code in
relation to their content
and scheduling’
44
ITV plc Report and accounts 2010
Responsibility continued
‘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’
Environment
In 2010, ITV continued to focus on the
careful management of environmental
matters across all areas of the organisation.
Our environmental management
programme is built around a broad range
of activities, although the focus for 2010
was heavily influenced by the need
to comply with the new Carbon Reduction
Commitment – Energy Efficiency
Scheme (CRC).
ITV continued to measure and monitor its
carbon footprint and environmental impact
during 2010. We are currently working on
new ways to identify opportunities to
improve our performance. The changes
to our property portfolio during the year,
coupled with the ongoing focus on resource
management, has led to a reduction in the
size of the carbon footprint of certain parts
of the business and an improving situation
with regard to water consumption.
Procedures to ensure new environmental
regulatory requirements are identified,
understood and proactively managed were
put in place during 2009. These procedures
allowed us to promptly fulfil the complex
registration requirements of the CRC.
Having met the obligations we are currently
reviewing our operation and property
portfolio to identify any areas of opportunity
for reducing our energy consumption.
Our cross business CRC working group has
identified a number of organisational
priorities for the coming year. These include
the building of carbon skills into the
business and preparing for the purchase
of carbon in April 2012.
Our innovative waste management
continued to deliver strong results,
encouraging waste reduction and the
recycling of materials. The total mass of
waste produced by ITV during 2010 shows
a reduction of more than 15% when
compared with the same figure for 2009. In
terms of recycling, 60% of waste produced
was sent to recycling which is slightly lower
than 2009 but in excess of our target of
50%. In order to ensure the best possible
results, both for the business and in terms
of environmental protection, ITV is
undertaking a programme of verification
audits which will be reported next year.
Community
ITV is proud to play a wider social role and
we actively engage our 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 aim to take
part in important initiatives that encourage
individuals to seek to improve their lives,
support community projects or promote
integration of minority groups within
their region.
In 2010, ITV continued to be 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 continued to support the Change4Life
campaign both onscreen and online.
Through network and regional programming
viewers are encouraged to achieve a
healthier lifestyle. Campaigns include the
ITV Feelgood Factor Award and the launch
of ITV’s Walk4Life Day in September.
In 2010 ITV regional news programmes
across the UK helped give away £3.5 million
of lottery funding in the People’s Millions
competition. Around 75 community
projects received awards of up to £50,000
from the Big Lottery Fund. Now in its sixth
year, the People’s Millions competition
within regional news programmes has
helped give away more than £25 million
with hundreds of good causes benefiting
as a result.
Young people and their views on what
needs fixing in our communities is the focus
for another regional news initiative called
ITV Fixers. In partnership with the Public
Service Broadcasting Trust and funded by
the Nationwide Foundation and by V –
the youth volunteering charity. Young
volunteers with the support of mentors
from the Trust make a film about their
projects which were transmitted on ITV
regional news programmes.
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 2010,
SignPost won four more awards including
an RTS Best Online Production and a UK
IT Industry Medal.
As a member of various diversity
organisations, such as Stonewall, Cultural
Diversity Network and Employers’ Forum
on Disability, we look to support under-
represented groups and local communities.
This is achieved by offering services and
facilities in-kind for events and lend our
name to endorse key projects.
‘In 2010, ITV continued
to focus on the careful
management of
environmental matters
across all areas of the
organisation’
45
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
Donations
ITV supports a range of charities. In 2010,
ITV produced and broadcast Socceraid
which raised in excess of £2.8 million for
UNICEF; whilst viewers of This Morning’s
Xmas Appeal supported the children’s
cancer charity CLIC Sargent with donations
of £400,000.
The Company made contributions to
charities and equivalent organisations
amounting to £1.5 million (2009: £2 million)
in cash and £5.7 million (2009: £10 million)
in kind, totalling £7.2 million (2009: £12
million). In kind donations include a Pro
Bono Bank initiative which, through a novel
arrangement with the Solicitors Regulation
Authority, enables ITV in-house lawyers to
provide free legal advice to charities. Further
details will be set out in our Corporate
Responsibility report.
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 2010 and
a similar resolution will be proposed at the
2011 Annual General Meeting. During the
year the Group made no payments falling
within the definition of political expenditure
(2009: nil).
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 tables below provide a summary of performance against key Corporate Responsibility
performance indicators:
Protecting the environment(1)
CO2 emissions from business travel (tonnes)(2)
Total CO2 emissions (tonnes)(2)
Total waste (tonnes)
Total waste recycled
Total water use (m3)(3)
Workplace profile (%)
Female employees
Ethnic minority employees(4)
Employees with a disability(5)
Employees aged over 50
Health and safety(6)
Accidents requiring more than three days-off work
Major accidents
Fatal accidents
Access services for ITV1 (% of programmes)
Subtitling
Audio description
Signing
2010
5,774
44,427
1,800
60%
87,000
2009
6,831
46,383
2,195
65%
86,656
2010
49.9
9.7
2.7
15
2010
5
2
0
2010
98.2
21.5
6.4
2009
48.2
9.1
3.1
12.9
2009
6
5
0
2009
94.5
17.3
5.6
(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) Our reported water position represents an estimate pending final data unavailable at the time of reporting.
(4) Percentage of those who disclosed their ethnicity.
(5) Percentage of those who disclosed their disability.
(6) Employee accidents excluding contractors.
46
ITV plc Report and accounts 2010
Board of directors
The particulars below 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 52. Details of their interests
in shares and share schemes are set out in
the Remuneration report.
Archie Norman
Chairman
Adam Crozier
Chief Executive
Appointment to the board: 1 January 2010
Age: 56 (01 May 1954)
Committee membership: Nomination
(Chairman), Remuneration
External appointments:
– Adviser to Wesfarmers Limited (2009)
– Director of Coles Group (2007)
– Chairman, HSS Hire Services Group (2007)
– Founder, Aurigo Management
Partners LLP (2006)
– Senior Adviser to Lazard (2003)
– Trustee, Cystic Fibrosis Trust (2009)
– Governor, National Institute of Economic
and Social Research (1997)
Previous experience:
– Chairman, 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), ASDA Group plc
– Finance Director, Kingfisher plc (1986–1991)
– Chairman, 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
Appointment to the board: 26 April 2010
Age: 47 (26 January 1964)
Committee membership: General Purpose
External appointments:
– Non-executive director of Debenhams plc
(2006)
Previous experience:
– Group Chief Executive, Royal Mail
Group (2003–2010)
– Non-executive director of Camelot
Group plc (2007–2010)
– Chief Executive of the Football
Association (2000–2002)
– Joined Saatchi & Saatchi Advertising in 1988.
Joint Chief Executive (1995–1998)
Qualifications: BA
Mike Clasper CBE
Senior independent director
Appointment to the board: 3 January 2006
Age: 57 (21 April 1953)
Committee membership: Audit, Nomination,
Remuneration
External appointments:
– Chairman of Which? Ltd (2008)
– Chairman of HM Revenue & Customs (2008)
– Chairman of the 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 of the Corporate Leaders
Group on Climate Change
– Chief executive of BAA plc (2003–2006),
deputy chief executive BAA plc (2001–2003)
– President of Global Home Care, Procter
& Gamble (1999–2001)
Qualifications: MA
Ian Griffiths
Group Finance Director
Lucy Neville-Rolfe CMG
Non-executive director
John Ormerod
Non-executive director
47
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
Appointment to the board: 9 September 2008
Age: 44 (26 September 1966)
Committee membership: General Purpose
External appointments: None
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
Appointment to the board: 3 September 2010
Age: 58 (02 January 1953)
Committee membership: Nomination
External appointments:
– Executive Director, Corporate and Legal
Affairs, Tesco plc (2006)
– Deputy Chair, British Retail Consortium (1998)
– Chairman, Dobbies Garden Centres (2007)
– Non-executive director, The Carbon Trust (2008)
– Member of the Coalition Government’s
Efficiency and Reform Board (2010)
– Member of China-Britain Business Council
(2007), UK-India Business Council (2008)
and Corporate Leaders Group on Climate
Change (2006)
Previous experience:
– Group Director of Corporate Affairs
(1997–2006) and Company Secretary
(2004–2006), Tesco plc
– Director of Deregulation Unit, BIS (then
DTI) and Cabinet Office (1995–1997)
– Member of Prime Minister’s Policy
Unit (1992–1994)
– Ministry of Agriculture Fisheries
& Food (1973–1992)
Qualifications:
– BA, MA, FCIS
Andy Haste
Non-executive director
Appointment to the board: 18 January 2008
Age: 62 (09 February 1949)
Committee membership: Audit (Chairman),
Nomination, Remuneration
External appointments:
– Non-executive Chairman of Tribal Group plc
(2010, director from 2009)
– Senior independent director and chairman
of audit committee Misys plc (2005)
– Non-executive director and chairman of
audit committee Gemalto NV (2006) and
Computacenter plc (2006)
– Trustee of The Design Museum (2006)
Previous experience:
– Non-executive director of Negative Equity
Protection Holdings Limited (2007–2009),
Millen Group Limited (2007–2009),
BMS Associates Limited (2004–2008) and
Merlin Claims Services Holdings Limited
(2007–2010)
– Member of audit and retail risk control
committees HBOS plc (2004–2008)
– Trustee of The Roundhouse Trust (2003–2008)
– Chairman of Walbrook Group (2004–2007)
– Chairman of audit committee Transport for
London (2004–2006)
– Practice senior partner, London, Deloitte &
Touche (2002–2004)
– Regional managing partner, UK and Ireland
and senior partner, UK, Arthur Andersen
(2001–2002)
– Held various positions within Arthur
Andersen from 1970
Qualifications: MA, FCA
Appointment to the board: 11 August 2008
Age: 49 (01 January 1962)
Committee membership: Audit, Nomination,
Remuneration (Chairman)
External appointments:
– Group Chief Executive of RSA Insurance
Group plc (2003)
Previous experience:
– Chief Executive of AXA Sun Life plc
(1999–2003)
– Director of AXA UK plc (life and pensions)
(1999–2003)
– President and CEO, GE Capital Global Consumer
Finance UK, Western Europe and Eastern
Europe (1998–1999)
– CEO, GE Capital Global Consumer Finance
UK (1996–1998)
– President of National Westminster Bank US
Consumer Credit Business (1995–1996), senior
vice-president and head of US Consumer Loan
Products Division (1992–1995)
48
ITV plc Report and accounts 2010
Corporate governance
Leadership
Board structure
Set out below is an outline of the governance structure at ITV.
ITV plc Board
General Purpose
Formal Board Committees
Remuneration
Audit
Nomination
Disclosure
Dear Shareholder,
The Board of ITV takes corporate governance within the organisation
seriously and follows the main principles set out in the UK Corporate
Governance Code. On the following pages we set out ITV’s
Governance policy. The report comprises the following sections:
ITV Management Board
ITV Studios Board
ITV Broadcasting Board
– Leadership;
– How the Board operates;
– Effectiveness;
– Relations with shareholders;
– Audit Committee report; and
– Remuneration report.
Our aim is to ensure that shareholders are given the information they
need to decide whether the management and the Board are being
effective.
During 2010 ITV plc complied with the requirements of the Combined
Code on Corporate Governance (the Code) with one exception (C.3.1).
I was appointed a member of the Audit Committee on 2 February
2010 to enable the Committee to remain quorate until Andy Haste
took up membership. I stepped down as a member of the Audit
Committee with effect from 31 December 2010.
From 1 January 2011 ITV plc has followed the requirements of the UK
Corporate Governance Code (the New Code) and will continue to do
so during 2011. The Board has decided that due to recent changes
to the structure of the Board the requirement for annual election of
Board members (B.7.1) will not be put in place in 2011.
Archie Norman
2 March 2011
Details of membership of the ITV Management Board can be found
on our website at www.itvplc.com. The Board has approved a formal
framework for approval of expenditure within the Company around this
governance framework.
Composition and appointments
The composition of the Board during 2010 is set out in the table on
page 52.
The Board currently consists of two executive directors and five non-
executive directors. Biographical details for each of the directors are set
out on pages 46 and 47.
During the year we made the following changes to the Board:
– Archie Norman, Adam Crozier and Lucy Neville-Rolfe were appointed
to the Board with effect from 1 January 2010, 26 April 2010 and
3 September 2010 respectively; and
– Baroness Usha Prashar, John Cresswell and Rupert Howell stepped
down from the Board with effect from 31 March 2010, 23 April 2010
and 1 June 2010 respectively.
John Ormerod completed three years as a non-executive director in
January 2011. It was agreed that he should serve a further term subject
to the Board succession planning framework.
Roles
A summary of the roles of each of the Chairman, the Chief Executive
and the Senior Independent Director are shown in the table below.
Full job descriptions have been agreed by the Board.
Role
Description
Chairman
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.
Chief Executive Adam Crozier has responsibility for the performance of
the Company’s businesses, as dictated by the overall
strategy agreed by the Board.
Senior
Independent
Director
Mike Clasper was appointed as Senior Independent
Director on 1 January 2010. His 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.
49
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
How the Board operates
Meetings
The number of meetings held during the year and attendance of
directors is set out in the table on page 52. The Board approves annually
a schedule of matters to be considered at each meeting and at each
meeting of its committees. Meetings are normally held in London and
when appropriate at different regional offices.
Board meetings are structured around the following areas:
– operational and functional updates;
– financial updates;
– strategy and risk; and
– other reporting.
Senior executives are regularly invited to attend meetings for specific
items.
Some of the matters scheduled for consideration in 2011 include:
– strategy for international content business;
– strategy for news; and
– strategy for the schedule, commissioning and brands.
Meetings between the Chairman and non-executive directors are
scheduled on the annual board programme to formally discuss
governance issues. The Chief Executive is sometimes invited to attend.
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.
The matters reserved to the Board are available on our website at
www.itvplc.com
50
ITV plc Report and accounts 2010
Corporate governance continued
Board Committees
The Board has delegated certain responsibilities to its 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
General Purpose Committee: the Committee is comprised of 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.
Remuneration Committee: see the Remuneration report on page 56.
Audit Committee: see the Audit Committee report on page 53.
Nomination Committee: The Committee is comprised of the
non-executive directors.
Archie Norman became Chairman of the Committee on 1 January 2010
and Lucy Neville-Rolfe joined the Committee on 27 September 2010.
Full details of attendance at Committee meetings can be found in the
table on page 52.
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.
During 2010 these tasks were undertaken by the full Board. The Board
intends to resume the normal Nomination Committee programme in
2011.
Disclosure Committee: the Committee is comprised of 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.
The current membership of each committee (other than the Disclosure
Committee) is set out below:
General Purpose
Remuneration
Audit
Nomination
*
*
*
Mike Clasper
Adam Crozier
Ian Griffiths
Andy Haste
Lucy Neville-Rolfe
Archie Norman
John Ormerod
* Denotes Chairman
Internal Control
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 2010. In the opinion of the Board, the Company has
complied with the internal control requirements of the Code throughout
the year, maintaining an ongoing process for identifying, evaluating and
minimising risk. Further information is set out in the Audit Committee
report on page 55.
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.
The graph below shows the current balance of the Board.
0-2 years
2-4 years
4-6 years
1
3
3
Succession planning and diversity
The Board has agreed a succession planning framework to ensure that:
– board tenure is appropriate and encourages fresh thinking and new
ideas;
– the Board is sufficiently diverse and has the appropriate mix of
generalist and specialist skills; and
– non-executive directors have the appropriate level of independence,
from the executive and each other.
Outside appointments
With the approval of the Board, executive directors as part of their
professional development 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 2010 can
be found in the Remuneration report on page 61.
Non-executive directors
Effectiveness
51
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
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;
– receive information about the Company’s corporate governance
practices and procedures and the latest financial information about
the Group; and
– are advised of their legal and other duties and obligations as a director
of a listed company.
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 at board and committee meetings on business
matters and technical update sessions from external advisers where
appropriate.
The Chairman addresses the development needs of the Board as a
whole, with a view to developing its effectiveness. He ensures that
the directors’ professional development needs are identified and that
they are adequately informed about the Company and their
responsibilities as 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. Each brings skills and experience in
different aspects.
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. An outline of the terms of
engagement can be found on our website at www.itvplc.com
Time commitment: non-executive directors are expected to commit
18 to 20 days per annum. 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
which is renewed on an annual basis. The Company has also entered into
deeds of indemnity with its directors. A copy of the indemnity can be
found on our website at www.itvplc.com
Conflicts of interest
The Board is authorised to approve conflicts. It has delegated the
authorisation of conflicts to the Nomination Committee and has
adopted a Conflicts of Interest Policy.
The policy outlines how conflicts will be dealt with and the process for
directors to follow when notifying the Company of an actual or potential
conflict. When deciding whether to authorise a conflict or potential
conflict of interest, only those that have no interest in the matter under
consideration will be able to take the relevant decision. In addition, the
Nomination Committee will be able to impose limits or conditions when
giving authorisation where appropriate.
The Board has considered in detail the current external appointments
of the directors which may give rise to a situational conflict and has
authorised potential conflicts where appropriate.
This authorisation can be reviewed at any time but will always be
subject to annual review. The Board is confident that these procedures
operate effectively.
52
ITV plc Report and accounts 2010
Corporate governance continued
Performance evaluation
Relations with shareholders
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). 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.
The evaluation is focused around board processes, board roles and
responsibilities, board culture and committee roles and processes.
Some of the actions taken during the year resulting from the 2009
evaluation include:
Objectives
Achievements
Review content of board papers for
presentation and clarity of issues
Finance reports and management reports
have all been refined
Review the balance of time spent
on strategic and routine business
Annual board programme has been
reviewed and refined
Ensure sufficient board succession
planning in place
Succession planning will be considered
further during 2011
During 2010 the Board changed significantly and a formal external
evaluation was not considered appropriate. However, an informal internal
evaluation of the effectiveness of the individual directors and of the
Board and its committees was carried out by the Chairman and Senior
Independent Director.
The quality of papers circulated and presentations made to the Board
has improved significantly allowing more time for discussion and
debate. The Board are satisfied that questions are answered honestly
and constructively.
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 2010. The Chairman
gave feedback to the Board on issues raised with him by major
shareholders. This process will continue throughout 2011.
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. The Company considers annually whether it is
appropriate to commission an investor audit.
Details of the AGM are set out page 66 and shareholder information can
be found on page 115.
Board and Committee membership, and attendance at meetings in 2010
Current directors
Mike Clasper
Adam Crozier
Ian Griffiths
Andy Haste
Lucy Neville-Rolfe
Archie Norman
John Ormerod
Status
Notes
Date of appointment
to Board
Independent and SID
Executive
Executive
Independent
Independent
Independent
Independent
3 January 2006
26 April 2010
9 September 2008
11 August 2008
3 September 2010
1 January 2010
18 January 2008
1
2, 3
Directors who stepped down
in the year
John Cresswell
Rupert Howell
Baroness Usha Prashar
Executive
Executive
Independent
4
Date of resignation
from Board and
Committees
23 April 2010
1 June 2010
7 February 2005 31 March 2010
16 January 2006
28 February 2008
Notes:
(1) Missed one board meeting due to an RSA board meeting.
(2)
(3) Missed one audit committee due to unavoidable overseas commitment.
(4) Missed two board meetings and one remuneration committee meeting due to involvement with the Iraq Inquiry.
Independent on appointment to the Board.
Attendance in 2010
Board
Committee
Audit
Remuneration
Committee
8
8
5
8
7
2
8
8
3
4
1
6
6
–
–
3
–
5
6
–
–
–
5
5
–
–
5
–
5
4
–
–
1
Audit Committee report
Dear Shareholder,
On the following pages we set out the Audit Committee’s report for
2010. The report comprises four sections:
– Committee overview;
– Activities in 2010;
– Auditors; and
–
Internal control.
Throughout 2010 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.
During the year the Committee reviewed the results of a
fundamental review of the Group’s risk management process.
Changes are being implemented to sharpen the focus on key risks
assisting the Board to identify the changing risks faced by the Group;
to establish the Group’s risk appetite; and through internal audit and
other procedures to monitor the risk management processes.
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.
The Committee reports regularly to the Board on its work.
John Ormerod
Chairman, Audit Committee
2 March 2011
53
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
Committee overview
Composition
The Committee is comprised entirely of non-executive directors.
The current members are:
– John Ormerod (Chairman)
– Mike Clasper
– Andy Haste (appointed 27 September 2010)
John Ormerod was appointed as Chairman on 1 January 2010.
Archie Norman was appointed to the Committee on 2 February 2010
and stepped down on 31 December 2010.
Full details of attendance at Committee meetings can be found in the
table on page 52.
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 2010, 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 46 and 47.
At the invitation of the Chairman of the Committee, the Chief Executive,
Group Finance Director, Group Legal Director, Group Financial Controller,
Head of Internal Audit (Deloitte), external auditors (KPMG) 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 internal control and risk management
systems;
– review the arrangements for employees to raise concerns, in
confidence, about possible wrongdoing in financial reporting or
other matters;
– monitor and review the effectiveness of the 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.
54
ITV plc Report and accounts 2010
Audit Committee report continued
Activities in 2010
The Committee’s activities during the year included:
– reviewing the Group’s financial statements (including the format and
layout of the detailed disclosures);
– reviewing the appropriateness of the Group’s accounting policies,
reviewing key judgements and estimates and considering related
accounting treatments in specific areas such as revenue recognition;
assumptions underlying the quantification of pension scheme
liabilities; impairment of goodwill and other assets and provisions for
taxation and other liabilities;
– reviewing the analysis supporting the carrying value of goodwill;
– reviewing the Group’s cash flow forecasts and facilities to support the
going concern statement in the annual report. The going concern
statement is set out on page 75;
– reviewing and approving the annual external audit process, the
external auditor’s strategy and plan for the audit, considering the
findings of that work and confirming that all significant matters had
been satisfactorily resolved;
– reviewing the management letter arising from the 2009 year-end
external audit and monitoring implementation of recommended
improvements;
– monitoring regularly the non-audit services being provided to the
Group by its external auditor. Further information is given in the
Auditors section;
– approving the internal audit plan, 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 internal audit relationship with Deloitte with agreement
to continue on this basis for a further 12 months and reviewing
procedures to ensure appropriate independence is maintained;
– reviewing the results of a fundamental review of the Group’s risk
management processes;
– continuing to monitor the implementation of the integrated finance
processes and system;
– reviewing the effectiveness of the whistleblowing process through
which the employees may, in confidence, raise concerns;
– reviewing processes for the prevention of bribery and fraud;
– receiving reports from the Treasury department on their
activities; and
– considering regulatory and professional developments in respect of
financial accounting and reporting.
Auditors
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 may not provide a service which:
– places them in a position to audit their own work;
– creates a mutuality of interest;
– results in the auditor developing close personal relationships with ITV
employees;
– results in the auditor functioning as a manager or employee of ITV; or
– puts the auditor in the role of advocate for ITV.
The Committee has pre-approved the categories of other services that
may be performed by the external auditor 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 that generally only the auditor can reasonably provide are
regarded as audit services.
The auditors are eligible for selection to provide non-audit services only to
the extent that their skills and experience make them a competitive and
most appropriate supplier of these services.
The Committee believes that a 1:1 ratio for the annual split between
audit and other fees charged by the external auditor is important.
However, 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 provided by the auditor is given
to the Committee half-yearly.
Details of the related audit and other services are set out in note 2.1 of
the consolidated financial statements. The significant engagements are
categorised as follows:
– tax restructuring work in relation to overseas subsidiaries; and
– reviewing indirect and payroll tax controls and processes.
The senior audit partner and the independent reviewing partner serve no
more than five years continuously in either role and other key partners
serve no longer than seven consecutive years. The Committee monitors
the tenure of partners and senior staff.
Performance
The Committee performs a specific evaluation of the performance of
the external auditor 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 periodic market testing either through
benchmarking or a form of audit tender.
Re-appointment
During the year the Committee considered the tenure (KPMG Audit Plc
has been ITV’s auditor since 2004), 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 2010. The resolution was passed and
KPMG Audit Plc was re-appointed for a further year.
55
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
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 strategy is reviewed and
approved by the Board. The Group performs a comprehensive annual
strategy review and five-year financial planning exercise. The five-year
plan feeds into the annual budget cycle. The executive directors
review the detailed budgets, strategies and action plans and the
Board approves the overall Group budget as part of its normal
responsibilities. The results of operating units are reported monthly,
with actual results compared to budget and forecasts and key trends
and variances explained and analysed.
– Organisational structure and authorisation procedures: the
Group has an established organisational structure with clearly stated
lines of responsibility and reporting. Authorisation procedures, and
approval limits in respect of matters such as purchase commitments,
capital expenditure, investment and treasury transactions were
reviewed during the year in line with new board structures shown
on page 48.
– Risk assessment and management: management is responsible
for identifying the risks facing the business and for establishing
controls and procedures to monitor and mitigate those risks.
The Board is responsible for establishing a robust risk management
process and for regularly reviewing the identified risks. The
Committee keeps the effectiveness of the process under regular
review. Details on the Company’s key risks can be found on pages
38 and 39.
– Control environment: financial controls, policies and procedures are
considered as part of the Group’s ongoing risk assessment process.
These controls are reviewed to ensure risks are identified and the
processes and procedures are in accordance with and aligned to the
strategy. The internal audit team provides objective assurance as
to the effectiveness of the Group’s systems of internal control
and risk management, reporting to both the Management Board
and the Committee.
– 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. Remedial plans
are put in place where controls are weak or there are opportunities for
improvement. 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.
Approval
The Audit Committee report was approved by the Board on 2 March
2011 and signed on its behalf by John Ormerod.
56
ITV plc Report and accounts 2010
Remuneration report
In order to successfully achieve the transformation of ITV into a lean,
creatively dynamic and fit-for-purpose organisation, it is crucial that
executive directors and senior executives (together the Senior
Executive Group) work together as an effective team focused on
delivering medium-term shareholder value. As ITV operates in a
talent based market, our creative renewal also depends on attracting
and retaining the best people.
The new incentive arrangements to support the Transformation Plan
emphasise the delivery of strategic change, co-operative endeavour
and three to five year outcomes aligned to shareholder value.
All the changes are within the limits of ITV’s existing share plans.
The Committee would encourage shareholders to note the following:
– 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;
– the compulsory deferral period for part of the annual bonus
has been significantly extended to three years and the
Senior Executive Group is encouraged to make further long-term
personal investment in ITV to create alignment with the
shareholder experience;
– benefits awarded to the Senior Executive Group are delivered
within the same framework as for all other ITV employees; and
– in relation to 2010 performance, the Committee believes that
the level of bonus payments is a fair reflection of company
performance during the year, and reflect the efforts made by
the Senior Executive Group in completing the strategic review.
It also reflects the progress made against phase one of the
Transformation Plan, whilst maintaining expected operational
progress across the core business, reducing ITV’s cost base and
managing cash and working capital, all of which were achieved
in 2010.
The Committee reports regularly to the Board on its work.
Andy Haste
Chairman, Remuneration Committee
2 March 2011
Dear Shareholder,
On the following pages we set out the Remuneration report for 2010.
The report comprises five sections:
– Committee overview;
– Remuneration policy;
– Delivering remuneration policy;
– Non-executive directors; and
– Detailed audited disclosures.
The new five-year strategy discussed earlier recognises that far
reaching changes will be needed to deliver a path to sustainable
growth in shareholder value over the medium-term.
In order to ensure that ITV’s incentives framework is closely aligned
to the priorities of the Transformation Plan and to address the failure
of previous arrangements to drive change in the business, the
Remuneration Committee (the Committee) undertook a full review
of incentive arrangements during 2010. As the previous
arrangements were too heavily weighted towards short-term results
and have not proved to be well aligned to shareholder value, a new
incentive structure has been developed in dialogue with major
shareholders.
57
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
Activities in 2010
The Committee’s activities during the year included:
– undertaking a fundamental review of the Company’s remuneration
strategy, and developing and agreeing an amended incentive
framework for the Senior Executive Group, which supports the
transformation of ITV. The incentive framework that has been
developed reduces short-term cash, while increasing long-term focus
and alignment with the shareholder experience;
– 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;
– agreeing performance targets in relation to the 2011 bonus; and
– agreeing remuneration packages for new appointments to the Senior
Executive Group, which are aligned with the terms offered to all other
ITV employees, and termination arrangements for those individuals
within the Senior Executive Group whose employment ceased.
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 essential 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 and
delivery of the Transformation Plan;
– focus on sustained long-term performance and alignment of
executives with the shareholder experience. Performance is measured
over clearly specified timescales, and encourages executives to take
action in line with the Transformation Plan, using good business
management principles and well planned considered 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 only reflect contractual
obligations.
When developing remuneration policy, the Committee obtains advice
from the key advisers outlined in the Advisers section. When determining
remuneration for the Senior Executive Group and all employees of ITV,
the Committee also considers any relevant environmental, governance
and social issues.
Committee overview
Composition
The Committee is comprised entirely of non-executive directors. The
current members are:
– Andy Haste (Chairman)
– Mike Clasper (appointed 2 February 2010)
– Archie Norman (appointed 2 February 2010)
– John Ormerod (appointed 1 March 2010)
Baroness Usha Prashar served as Chairman of the Committee during
the year until she stepped down from the Board on 31 March 2010.
Andy Haste became acting Chairman and was formally appointed
Chairman on 30 November 2010. Full details of attendance at
Committee meetings can be found in the table on page 52.
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*
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; provide
performance testing for LTIPs.
Hogan Lovells LLP Legal matters.
Towers Watson
Salary benchmarking data.
*During the year Deloitte also provided the Group with advice on tax and corporate finance, and
acted on a consultancy basis to provide internal audit and systems support under separate
engagement terms.
Role
The role of the Committee is primarily to:
– review the ongoing appropriateness and relevance of the Group
remuneration policy;
– approve the remuneration policy and strategy for the Senior Executive
Group including the executive directors and company secretary;
– approve the design of the Company’s annual bonus arrangements
and long-term incentive plans, including the performance targets
that apply for the Senior Executive Group; and
– determine individual award levels for the Senior Executive Group
based on performance against annual bonus targets and long-term
incentive performance conditions.
The Committee also maintains an active dialogue with shareholder
representatives.
58
ITV plc Report and accounts 2010
Remuneration report continued
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.
Components
Fixed
Base salary
Pension
Other benefits
Variable
Short-term
incentives
Long-term
incentives
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
income on retirement.
To reflect market competitive practice.
To incentivise and reward exceptional performance
against financial and non-financial annual targets thus
delivering value to shareholders and contributing to the
transformation of ITV.
To drive sustained long-term performance that
supports the creation of shareholder value in
alignment with shareholders’ interests.
Details of how these components are delivered are set out in the
Delivering remuneration policy section. By way of illustration, the
balance between the fixed and variable elements of the total
remuneration package (excluding pension) for executive directors is
shown in the charts below. The charts illustrate the mix at both target
and maximum performance levels and show the typical delivery of
remuneration through cash and shares, over the short and longer term.
Broadly, there is a 40:60 split between fixed and variable pay at target
performance and a 23:77 split at maximum performance, showing the
high proportion of performance-related pay that is ‘at risk’ in the total
remuneration package.
Salary
Cash bonus
Deferred share award
Long-term incentive
(core PSP)
Long-term incentive
(matching PSP)
5%
12%
29%
40%
21%
14%
23%
14%
14%
28%
Fixed vs variable
pay at target
performance
Fixed vs variable
pay at maximum
performance
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 within three to five years of
appointment with a value equivalent to 200% of salary for Adam Crozier,
and 150% of salary for Ian Griffiths. Shareholding guidelines are also in
place for members of the Management Board. Details of the executive
directors’ current personal shareholdings are shown on page 65.
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 for an
appropriate premium to attract and retain superior talent.
Executive directors’ base salaries are reviewed on an annual basis,
effective from 1 January, and the same annual review process is applied
to the Senior Executive Group as to all other ITV employees. In 2010
there was a pay freeze and no increase was made to Ian Griffiths’s salary.
Following completion of the 2011 salary review, the Company agreed a
salary increase of 3% for all ITV employees earning under £60,000, with
any increase for those earning £60,000 and above being linked to their
performance rating for 2010. The executive directors both received a
salary increase of 3% in line with overall personal and company wide
performance. The base salaries for the executive directors are set out
in the emoluments table in the Detailed audited disclosures section.
Pension Benefits
ITV offers members of the Senior Executive Group a pension benefit in
line with that offered to other ITV employees. The majority of the Senior
Executive Group are either members of the ITV Defined Contribution
Scheme or receive a cash payment equivalent to the employer
contribution. The executive directors’ pension arrangements are set
out on page 65.
Incentives
The Committee undertook a full review of incentive plans during 2010 to
ensure that they effectively supported the aims of the Transformation
Plan and to address the failure of previous arrangements to drive change
in the business. As a result of this review, a new overall framework has
been introduced based on the following principles:
– simple overall architecture;
– a break from what has gone before: fracturing the legacy culture and
attracting and re-energising senior executives;
– shareholder aligned incentives: reduced reliance on short-term cash;
increased long-term focus and alignment with the shareholder
experience;
– application of strategic change metrics: linked to both strategy and
financial performance;
– support a culture of accountability: valuing execution and delivery,
with a clear commercial focus; and
– reward sustained performance over an extended period.
Under the new incentive framework, annual bonus deferral periods have
been extended to three years and executives would need to voluntarily
defer part of their annual bonus into shares in order to maintain previous
long-term incentive plan (LTIP) award levels. There is a clear expectation
that, across the senior executive team, key individuals will demonstrate
their commitment to the business by investing on a voluntary basis.
Overall, award levels remain within the limits of existing share plans.
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. A bonus
arrangement extends to all ITV employees, providing a comprehensive
and fully integrated incentive framework which rewards all employees
when ITV is successful.
59
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
– core PSP awards reduced to 90% of salary (from the previous
maximum level of 150%). Adam Crozier would have previously
received 150% and Ian Griffiths 125%.
– if an individual voluntarily defers one-third of their annual Bonus
into shares, they will be awarded additional shares under the PSP
(on a 1:1 basis subject to the performance conditions that apply
to PSP awards).
– aggregate PSP awards will not exceed the current 150% limit.
In order to ensure that executives are only rewarded if value is delivered
to shareholders, awards will be subject to an initial EPS performance
gateway. If this gateway is achieved, performance will then be assessed
by reference to the following:
– 50% on EPS. This represents the key financial metric of the
business. The EPS growth targets that have been set are considered
by the Committee to be appropriately demanding and in line with
market practice.
– 25% on SOV. This is aligned with the strategic priorities of the
business.
– 25% on non-net advertising revenue (NAR) growth and increased
internal supply. These are key measures of success over the
transformation period as the Company reduces its reliance on spot
advertising revenues and generates greater shareholder value from
its integrated production and broadcast businesses.
SOV and non-NAR are both measures of performance that are important
to our business as further explained in the Performance and financials
section.
Further details of the performance conditions are available on page 60.
The intention is to make awards under this arrangement in 2011.
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 and 2010. Awards were made on 26 March
2010. This Plan will continue to be used under the new incentives
framework.
– Turnaround Plan: no awards have been made under this plan
since 2008.
The table on page 60 outlines the key features and performance
conditions of the above plans. The Company also operates an
all employee Save As You Earn scheme. The executive directors’
participation in this scheme is set out in the Detailed audited
disclosures section.
In line with the Turnaround Plan, a corresponding long-term cash-based
incentive also exists for the wider employee population, not including
participants in the Turnaround Plan, 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 2010. Both indices have been shown
as the Company has been a constituent of both over the previous
five years.
)
6
0
0
2
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n
a
J
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a
0
0
1
o
t
d
e
s
a
b
e
r
(
R
S
T
e
g
a
r
e
v
a
g
n
i
l
l
o
r
h
t
n
o
m
e
n
o
–
ITV
FTSE 100
FTSE 250
200
150
100
50
0
2006
2007
2008
2009
2010
Source: Datastream
Under the new incentive framework the Bonus arrangements for the
Senior Executive Group will be as follows:
– one-third of any Bonus paid in cash;
– one-third of any Bonus compulsorily deferred into shares for
three years under the Deferred Share Award Plan (DSA); and
– one-third of any Bonus may be taken in cash or deferred into shares
under the DSA for three years.
This represents a significant increase on the previous deferral period for
executive directors of 12 and 24 months after the end of the financial
year to which the Bonus relates.
As part of the changes to substantially increase the deferral
requirements, and in conjunction with the change to the structure of the
long-term incentives, the 2011 Bonus opportunity for Adam Crozier has
been increased to 180% and for Ian Griffiths to 165% (both from 150%).
2010 Bonus: Bonus opportunities for the Senior Executive Group in 2010
were designed to focus on profit generation (EBITA before exceptional
items) and the efficient management of cash (profit to cash conversion).
Targets were set so that generally maximum payout could only be
achieved for significant outperformance. In addition, the Committee
determined that no 2010 Bonus award would be paid if profits were
below a threshold level.
ITV’s financial performance in 2010 has been strong, as outlined in the
Performance and financials section. In light of performance during the
year, the following payment levels against financial targets for executive
directors have been approved:
Target
Achieved
Bonus
Payout
Profit generation (EBITA before exceptional items)
maximum payment for 120% of budget
132%
100%
Cash management (profit to cash conversion)
maximum payment for 90% conversion
127%
100%
In addition, Adam Crozier and Ian Griffiths received payout levels of 90%
and 75% respectively for performance against 2010 individual targets.
The 2010 Bonus awards to the executive directors will be made in line
with the new incentives framework set out above.
2011 Bonus: The Committee has set 2011 performance targets to
ensure they continue to drive and support both the Transformation Plan
and delivery of key operational outcomes. The Committee ensures that
the maximum bonus opportunity can only be achieved for significant
outperformance of all corporate, financial and individual bonus
outcomes, with on target performance achieving a 60% payout
of maximum bonus opportunity.
The majority of the bonus opportunity (60%) is based upon the
achievement of corporate and financial targets. The remainder of the
bonus opportunity (40%) is based upon the contribution that the
executive makes toward the overall Transformation Plan through the
delivery of specific targets.
The corporate and financial targets are weighted to the area of the
business for which the executive has primary responsibility. For Adam
Crozier and Ian Griffiths the targets are set at a corporate level. Across
the Senior Executive Group these targets include operating profit, profit
to cash conversion, platform adjusted Share of Viewing (SOV), Online
targets, revenue targets, content creation targets and delivery of agreed
cost savings targets.
The individual targets for members of the Senior Executive Group focus
on their specific areas of responsibility and the way in which they
contribute to delivery of the overall transformation.
Long-term incentives
As part of the new incentives framework to support the delivery of the
Transformation Plan, the following changes have been made to the
terms of the long-term incentive awards to be made to the Senior
Executive Group under the Performance Share Plan (PSP):
60
ITV plc Report and accounts 2010
Remuneration report continued
Summary of long-term incentive plans
Existing arrangements
Performance Share Plan
(PSP)
150%
Award Level
(plan maximum)
Co-investment requirements None
Turnaround Plan
(TP)
550%
New arrangements from 2011
Performance Share Plan
(PSP)
150%
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.
– award levels will be significantly reduced unless a
voluntary deferral is made of annual bonus into
shares for a period of three years.
– awards for executive directors will not exceed 90%
of salary unless they make this voluntary deferral.
Performance period
– three years from the date of grant.
– 25% of total award – 1 January 2007 to 31 December
– three years from the date of grant.
2009.
– 75% of total award – 1 January 2007 to 31 December
2011.
Performance conditions
75% TSR
– measured equally against two distinct
comparator groups drawn from the FTSE 250
and a specific international industry peer group.
50% TSR
– measured against a customised FTSE 100 comparator
group excluding certain industry sectors that are less
relevant as a benchmark of performance.
Gateway EPS
– a Gateway condition of cumulative adjusted EPS of
21 pence must be reached before any portion of the
award vests.
25% STRATEGIC – for awards made in 2009
– measured in equal proportions against two targets:
50% STRATEGIC
– measured in equal proportions against four targets:
Strategic target
SOCI (ITV Family)
EPS Growth
Threshold
36.6%
RPI +3%
Maximum
38.5%
RPI +5%
– EPS base year 2008.
Strategic target
SOCI (ITV Family)
Revenue growth
EPS (adjusted)
Share price
Threshold
36.6%
2% p.a.
8p
£1.35
Maximum
38.5%
5% p.a.
12p
£2.25
25% STRATEGIC – for awards made in 2010
– measured in equal proportions against two targets:
– share price will be measured as an average over any
28-day period within the final three years of the TP.
Strategic target
Threshold
Family SOV growth No change (to
2009 figures)
Maximum
2%
EPS (cumulative
adjusted)
18p
20p
– EPS cumulative years 2010 to 2012.
TSR
FTSE 250
TSR
Industry Peer Group
Strategic:
EPS
Strategic:
SOCI for 2009
SOV for 2010
12.5%
12.5%
37.5%
37.5%
TSR
Strategic:
SOCI
Strategic:
Revenue
Strategic:
EPS
Strategic:
Share price
12.5%
12.5%
12.5%
12.5%
50%
75% TSR
– Median and below – nil
– Above median to upper quartile – vesting on
a straight line basis
– Upper quartile – 100%.
50% TSR
– Below median – nil
– Median – 25%
– Upper quartile – 100%
– Vesting on a straight line basis in between.
25% STRATEGIC – for awards made in 2009
– Threshold performance – 25%
– Maximum performance – 100%
– Vesting on a straight line basis in between.
50% STRATEGIC
– Threshold performance – 25%
– Maximum performance – 100%
– Vesting on a straight line basis in between.
25% STRATEGIC – for awards made in 2010
– Threshold performance – EPS:30%, SOV:50%
– Maximum performance – 100%
– Vesting on a proportionate basis in between.
50% EPS
Strategic target
EPS (cumulative
adjusted)
Threshold
21p
Maximum
24p
– EPS cumulative years 2011 to 2013.
50% OTHER STRATEGIC
– measured in equal proportions against two targets:
Strategic target
Family SOV growth
Non-NAR growth and
increased internal
supply
Threshold
No change (to
2010 figures)
Maximum
2%
5%
10%
EPS
SOV
Non-NAR
25%
25%
50%
50% EPS
– Threshold performance – 30%
– Maximum performance – 100%
– Vesting on a straight line basis in between.
50% STRATEGIC
– Threshold performance – SOV:50%, Non-NAR:30%
– Maximum performance – 100%
– Vesting on a proportionate basis (SOV) and a straight
line basis (Non-NAR) in between.
Vesting
Exercise period
– Once vested awards can be exercised for
– Once vested awards can be exercised until
12 months, any portion of the award that does
not vest or is not exercised will lapse.
31 December 2012, any portion of the award that
does not vest or is not exercised will lapse.
– Once vested awards can be exercised for 12 months,
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-rating 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.
61
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
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.
Date of
appointment
Nature of
contract
Notice period
from
Company
Notice period
from director
Ian Griffiths
Adam Crozier
9 September
2008
Rolling 12 months 12 months
26 April 2010
Rolling 12 months 12 months
Compensation
provisions for
early
termination
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 Adam Crozier retained fees for an external non-executive
directorship as set out below:
Company
Debenhams plc
2010
£000
36
Payments to outgoing executive directors
Michael Grade ceased to be a director on 31 December 2009. He received
a payment of £167,000 in respect of his remaining contractual notice
period to 30 April 2010, and £35,000 in respect of remaining contractual
obligations.
Both John Cresswell and Rupert Howell ceased to be directors during the
financial year. When agreeing the terms of their departure the
Committee ensured that any payments made reflected contractual
obligations.
John Cresswell ceased to be a director on 23 April 2010. The date of
cessation of his employment was 30 June 2010, and he received a
payment of £713,305 including a payment in lieu of notice equivalent
to 12 months’ salary and the value of benefits (including 12 months’
pension entitlement).
Rupert Howell ceased to be a director on 1 June 2010. The date of
cessation of his employment was 31 July 2010, and he received a
payment of £558,700, including a payment in lieu of notice equivalent
to 12 months’ salary and the value benefits (including pension
contributions). This payment was subject to mitigation for a period of
four months following cessation of employment due to the role that
Rupert held.
All of their outstanding share awards have been treated in accordance
with the relevant plan rules. As such the DSA awards released on
cessation of employment. The awards oustanding under the PSP and TP
were pro-rated for service and a proportion lapsed accordingly. The share
options outstanding after pro-ration will remain subject to performance
conditions at the normal vesting dates.
Non-executive directors
Each non-executive director has a contract of service with the Company,
further details of which can be found in the Governance section. Fees
paid to the non-executive directors are determined by the Board based
on market information, 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 has
been no change in the level of fees paid since 2007, and it has been
agreed that the basic annual fee will increase by £2,500 to £57,500
with effect from 1 January 2011. The annual fees payable in 2010
were as follows:
Non-executive directors’ fees
Board member
Additional fees for:
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 Governance section.
The non-executive directors are required to use 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 65.
The Chairman receives an annual fee of £300,000 and no further
payment for membership of committees. He also received an award of
400,000 shares for each year (total 1.2 million shares) of his initial three-
year appointment term. These will be released at the end of the initial
term on 31 December 2012. 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.
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 2010 to 31 December 2010 were as follows:
Emoluments
Gains on exercise of share options
2010
£000
3,645
172
3,817
2009
£000
5,309
1,092
6,401
Notes:
Gains on exercise of share options:
(1) Valued on date of release to participant.
(2)
(3)
Includes the exercise of share options and the release of restricted shares under the DSA
in order to make year-on-year comparisons more representative.
Includes value of restricted shares awarded in March 2010. Participants entered into a
section 431 election to pay income tax on the value of the awards on the date of grant,
so the value of awards released on 31 December 2010 was net of income tax.
(4) Figure for 2010 is lower than 2009 as no awards were exercised by John Cresswell and
Rupert Howell during the period from 1 January 2010 until the date they ceased to be
directors of ITV plc.
(5) Further information is contained in the tables on pages 63 and 64.
62
ITV plc Report and accounts 2010
Remuneration report continued
Directors’ emoluments
The directors’ emoluments for the year ended 31 December 2010 are set out in the table below.
Emoluments
Name of director
Current directors
Adam Crozier
Ian Griffiths
Mike Clasper
Andy Haste
Lucy Neville-Rolfe
Archie Norman
John Ormerod
Directors who stepped
down in the year
John Cresswell
Rupert Howell
Baroness Usha Prashar
Past directors’ emoluments
(for comparative purposes)
Total emoluments
Status
Notes
Basic salary/
Fees
£000
Benefits in
kind(7)
£000
Pension
contributions(8)
£000
Award/
Payment on
appointment
£000
Short-term
incentives
(cash)(9)
£000
Total for the
year ended
31 December
2010
£000
Total for the
year ended
31 December
2009
£000
Executive
Executive
Non-executive
Non-executive
Non-executive
Non-executive
Non-executive
Executive
Executive
Non-executive
1
2
3
4
5
6
532
425
90
69
18
300
79
221
187
18
–
1,939
13
14
–
–
–
–
–
7
19
–
–
53
48
64
–
–
–
–
–
–
28
–
334
–
–
–
–
–
–
–
–
–
252
186
–
–
–
–
–
433
308
–
1,179
689
90
69
18
300
79
661
542
18
–
712
80
65
–
–
65
958
833
75
–
140
–
334
–
1,179
–
3,645
2,521
5,309
Notes:
(1) The figures shown for Adam Crozier reflect:
– emoluments paid from the date of appointment on 26 April 2010;
– pension contributions representing a cash payment in lieu of pension described further in the pension entitlements section of this report; and
– a one-off cash payment of £200,000 made as a part of his joining package; the taxable value of £133,665, following the release of 198,636 ITV shares on 26 October 2010 as a part of the
restricted share award made on 26 April 2010 as detailed on page 63.
(2) The figures shown for Lucy Neville-Rolfe reflect fees paid from the date of appointment on 3 September 2010.
(3) An award over 1.2 million shares was made on appointment as shown in the table on page 63.
(4) The figures shown for John Cresswell reflect:
– emoluments received up until 23 April 2010 when he stepped down from the Board;
– £133,484 for emoluments for the period from 24 April 2010 up until his cessation of employment on 30 June 2010; and
– an allowance of £125,000 per annum paid prorata for the period of time he served as Interim Chief Executive, from 1 January 2010 until 23 April 2010. This payment is
included in the basic salary figure.
(5) The figures shown for Rupert Howell reflect:
– emoluments and benefits in kind paid up until 1 June 2010 when he stepped down from the Board; and
– £93,920 for emoluments for the period from 2 June 2010 up until his cessation of employment on 31 July 2010.
(6) The figures shown for Baroness Prashar reflect fees paid up until 31 March 2010 when she stepped down from the Board.
(7) This disclosure includes the cost of private medical insurance and car related benefits.
(8) Pension contributions represent payments made into Personal Pension Plans, or cash payments in lieu of pension, and are described further in the pension entitlements section.
(9) Short-term incentives:
– current executive directors will receive a bonus for 2010 as detailed in the table below:
Adam Crozier
Ian Griffiths
Percentage of maximum bonus opportunity earned
95% (resulting value pro-rated for time employed)
87.5%
Value paid in cash
(shown in the
table above)
£
Value compulsorily
deferred into shares
under the DSA
£
Value voluntarily
deferred into shares
under the DSA
£
252,496
185,938
252,496
185,938
252,496
185,938
Total paid for
2010 Bonus
£
757,488
557,814
– John Cresswell received a bonus for 2010 representing 82.5% of his bonus opportunity which has been pro-rated for time served.
– Rupert Howell will receive a bonus for 2010 representing 78% of his bonus opportunity which has been pro-rated for time served.
(10) Non-executive directors’ fees include an element which is used to purchase shares as described on page 61. Details of their shareholdings are shown on page 65.
Directors’ interests in share options
Information given in the table below is for the period from 1 January 2010 to 31 December 2010.
63
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
Current directors
Award date
Adam Crozier
Restricted Share Award
26 April 2010
Nil-cost Option Award
26 April 2010
Ian Griffiths
Deferred Share Award Plan
24 April 2009
26 March 2010
26 March 2010
Performance Share Plan
1 June 2009
26 March 2010
Turnaround Plan
2 October 2008
Archie Norman
Restricted Share Award
17 March 2010
1
2A
3
4
4
At 1 January
2010
Awarded in
year
Notes
Exercised/
Released in
year
Lapsed in
year
At
31 December
2010
Share price
used for
award
(pence)
Exercise price
(pence)
Date of
exercise/
release
Share price
at date of
exercise/
release
(pence)
Gain at
date of
exercise/
release
(£)
Vesting date/Exercise period
–
595,908
198,636
–
397,272
70.48
– 4,115,044
–
– 4,115,044
56.50
48,841
–
48,841
–
–
191,861
191,862
191,861
–
–
–
–
A 1,188,812
–
A
–
933,820
B 3,017,752
–
5
– 1,200,000
–
–
–
–
–
31.00
–
191,862
– 1,188,812
933,820
–
59.89
59.89
35.75
56.89
– 3,017,752
42.25
– 1,200,000
50.17
–
–
–
–
–
–
April 2011 and
October 2011
April 2013 – April 2014
31 December
2010
31 December
2010
–
71.4148
34,880
–
71.4148
–
137,017
–
–
December 2011
–
–
–
–
–
–
–
–
–
June 2012 – June 2013
– March 2013 – March 2014
–
–
December 2011 –
December 2012
December 2012
–
–
–
–
–
–
–
–
–
Notes:
(1) One-off award made on joining ITV with a value of £420,000 to release in three tranches of 198,636 on 26 October 2010, 26 April 2011 and 26 October 2011. Whilst held under award the
shares cannot be sold or transferred. The value of the shares released on 26 October 2010 is shown in the emoluments table on page 62.
(2) An award over nil-cost options subject to the same provisions and performance conditions attaching to the awards made under the PSP in March 2010. In accordance with the terms of this
award, the number of shares subject to award was calculated using the market price on 27 January 2010, the date before Adam Crozier’s appointment was announced.
(3) Awarded in the form of nil-cost options.
(4) Awarded in the form of restricted shares. All participants entered into a section 431 election to pay income tax on the value of the awards on the date of grant. No further income tax
Is payable on release.
(5) One-off award made on joining ITV. Initially the award was to be released as 400,000 shares annually over the initial three-year appointment term. On Mr Norman’s request, and with the
approval of the Remuneration Committee, the terms of the award were altered during the year under a Deed of Variation, and all 1.2 million shares will now release on 31 December 2012.
As announced on 18 November 2009, the number of shares awarded was calculated using the market price immediately before his appointment as Chairman was announced. Whilst held
under award the shares cannot be sold or transferred.
The comparator groups for each award are set out in the table below, and apply as marked in the notes column:
A
B
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.
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.
64
ITV plc Report and accounts 2010
Remuneration report continued
Directors’ interests in share options
Information given in the table below is for the period from 1 January 2010 until the date they stepped down from the Board.
Directors who stepped down in the year
At 1 January
2010
Awarded in
year
Notes
Exercised/
Released in
year
Lapsed in
year
At date
stepped
down from
the Board(6)
Share price
used for
award
(pence)
Exercise price
(pence)
Date of
exercise/
release
Share price
at date of
exercise/
release
(pence)
Gain at
date of
exercise/
release
(£)
Award date
John Cresswell
Deferred Share Award Plan
24 April 2009
26 March 2010
Performance Share Plan
1 June 2009
Turnaround Plan
13 September 2007
Save As You Earn scheme
17 July 2009
Commitment Scheme
22 August 2003
20 March 2006
20 March 2006
Executive Share Option
Schemes
22 December 2000
6 July 2001
28 September 2001
9 January 2002
10 July 2002
7 January 2003
Rupert Howell
Deferred Share Award Plan
24 April 2009
26 March 2010
Performance Share Plan
1 June 2009
26 March 2010
Turnaround Plan
1
2
264,315
–
–
356,867
–
–
–
–
–
–
–
–
–
–
–
–
A 1,608,392
B 2,136,825
54,370
3
4, C
4, C
471,944
259,179
259,179
959
36,399
113,851
1,040
19,240
18,200
5
5
5
5
5
5
1
2
206,855
–
–
262,663
A 1,101,399
–
A
–
791,001
3 October 2007
B 1,767,857
–
Notes:
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
264,315
356,867
31.00
59.89
– 1,608,392
35.75
– 2,136,825
111.00
–
–
–
–
–
54,370
35.75
28.60
471,944
259,179
259,179
–
–
–
–
–
–
–
–
–
–
–
959
36,399
113,851
1,040
19,240
18,200
206,855
262,663
– 1,101,399
791,001
–
–
–
–
–
–
–
–
–
–
31.00
59.89
35.75
56.89
– 1,767,857
105.00
100.72
–
115.75
217.78
137.02
91.35
143.27
106.25
76.92
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Vesting date/Exercise period
June 2010 – June 2011
June 2010
June 2012 – June 2013
December 2011 –
December 2012
June 2010 –
December 2010
–
–
–
–
–
–
–
–
–
–
–
–
–
–
December 2003 –
December 2010
July 2004 – June 2011
September 2004 –
June 2011
January 2005 –
June 2011
–
–
July 2005 – June 2011
– January 2006 – June 2011
–
–
July 2010 - July 2011
July 2010
June 2012 – June 2013
–
– March 2013 – March 2014
–
December 2011 –
December 2012
(1) Awarded in the form of nil-cost options.
(2) Awarded in the form of restricted shares. All participants entered into a section 431 election to pay income tax on the value of the awards on the date of grant. No further income tax
Is payable on release.
(3) 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; and 100% 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 remaining balance of options were not exercised and have lapsed.
(4) The remaining 50% lapsed on 20 March 2010 as performance conditions were not met.
(5) 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.
(6)
All outstanding share awards held by John Cresswell and Rupert Howell have been treated in accordance with the relevant plan rules. As such the DSA awards released on cessation of
employment. The awards oustanding under the PSP and TP were pro-rated for service and a proportion lapsed accordingly. The share options outstanding after pro-ration will remain subject
to performance conditions at the normal vesting dates.
The comparator groups for each award are set out in the table below, and apply as marked in the notes column:
A
B
C
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.
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.
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.
65
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
Pension entitlements
Directors’ interests
Adam Crozier, 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.
Adam Crozier 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 62.
No directors were members of money purchase schemes operated
by the Group.
No directors were members of defined contribution schemes operated
by the Group.
John Cresswell ceased to be a director on 23 April 2010, and remained
an active member of the defined benefit pension scheme until he
ceased employment with the Company on 30 June 2010. His accrued
entitlements under the scheme are as follows:
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 2 March 2011,
there were no changes in directors’ interests in shares.
Director
Mike Clasper
Adam Crozier
Ian Griffiths
Andy Haste
Lucy Neville-Rolfe
Archie Norman
John Ormerod
31 December 2010
68,693
97,126
449,098
49,261
3,615
380,000
94,628
31 December 2009
(or date of
appointment if later)
46,784
–
233,358
33,302
–
380,000
75,372
Name of director
John Cresswell
Accrued
pension
1 January
2010
£000
119
Increase
in accrued
pension in
the year
£000
6
Accrued
pension
31 December
2010
£000
125
Share price information
The market price of the ITV plc ordinary shares at 31 December 2010
was 70.05 pence and the range during the year was 48.28 pence
to 74.2 pence.
Approval
The Remuneration report was approved by the Board on 2 March 2011
and signed on its behalf by Andy Haste.
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 John Cresswell’s membership in the Scheme. The increase in
accrued pension during the year reflects an increase in the pension
entitlement as a result of an additional six months of service.
Transfer
value
1 January
2010
£000
1,487
Increase
in transfer
value in the
year net of
contributions(1)
£000
298
Contributions
made by
the director
£000
23
Transfer value
31 December
2010
£000
1,808
Name of director
John Cresswell
Notes:
(1) The transfer value at 31 December 2010 has been calculated in accordance with the
transfer value John Cresswell would receive if he transferred his pension elsewhere.
The Trustees of the ITV Pension Scheme updated the transfer value factors over 2010 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 2010. 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 the
director’s pension will become payable to a surviving spouse. A pension may become
payable to any surviving dependent children.
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 55.
(4)
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
–
Transfer value of
increase in the
year less
director’s
contributions
£000
(22)
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.
66
ITV plc Report and accounts 2010
Other governance and statutory disclosures
Substantial shareholdings
Creditor payment policy
As at 2 March 2011 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).
AXA S.A.
Blackrock, Inc.
Brandes Investment Partners, L.P.
Sky Holdings Ltd(1)
Legal and General Investment
Management Ltd
Notes:
(1) Subsidiary of British Sky Broadcasting Group plc.
(2) A profile of shareholdings is set out on page 115.
Shares
170,580,317
429,509,856
275,411,157
291,684,730
%
4.39
11.04
7.08
7.50
153,692,144
3.95
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
2010 was nil days (2009: 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 2010 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.
Share capital
Audit
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 113.
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 Disclosure and
Transparency 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 2011 Annual General Meeting, or 6 August 2011
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 2010 are set out in
note 4.7.6. 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.
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 2011 Annual General Meeting.
Annual General Meeting
The Annual General Meeting will be held on Wednesday, 11 May 2011
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 will be available
on the Company’s website at www.itvplc.com.
By order of the Board
Andrew Garard
Company Secretary
2 March 2011
ITV plc
The London Television Centre
Upper Ground
London SE1 9LT
Registered number 4967001
Documents for corporate governance
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 to the Board;
– Terms of reference for the Audit, Disclosure, General Purpose,
Nomination and Remuneration Committees;
– Auditor’s Independence Policy;
– Guidelines for seeking independent advice;
– Directors’ indemnity; and
– Terms of reference for remuneration consultants.
Statement of directors’ responsibilities in respect
of the annual report and financial statements
67
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
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, 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 46 and
47, 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
2 March 2011
68
ITV plc Report and accounts 2010
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 2010 set out on pages 70 to
114. The financial reporting framework that has been applied in the
preparation of the Group 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 67, 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/private.cfm
Opinion on financial statements
In our opinion:
– the 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 2010,
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
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’ statement, set out on page 75, in relation to going
concern;
– 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; and
– certain elements of the report to shareholders by the Board
on directors’ remuneration.
Richard Bawden (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square
London E14 5GL
2 March 2011
Introduction and table of contents
69
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
In preparing these financial statements we have changed the format and layout following the
principles outlined in the Financial Reporting Council’s publication ‘Louder than words’. We have
made these changes to make ITV’s financial statements less complex and more relevant to
shareholders. We have grouped notes under three key headings; ‘Results for the year’, ‘Operating
assets and liabilities’ and ‘Capital structure and financing costs’. Each section sets out the accounting
policies applied in producing these notes together with any key judgements and estimates used.
The purpose of these changes is to provide readers with a clearer understanding of what drives
financial performance of the Group. Text in speech bubbles provides commentary on each section
in plain English.
Notes to the financial statements provide additional information required by statute, accounting standards or Listing
Rules to explain a particular feature of the financial statements. The notes which follow will also provide explanations
and additional disclosure to assist readers’ understanding and interpretation of the annual report and the financial
statements.
Contents
Profit before tax
Intangible assets
Primary statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Section 1 – Basis of preparation
Section 2 – Results for the year
2.1
2.2 Exceptional items
2.3 Taxation
2.4 Earnings per share
Section 3 – Operating assets and liabilities
3.1 Working capital
3.2 Property, plant and equipment
3.3
3.4 Assets held for sale, acquisitions and disposals
3.5 Provisions
3.6 Pensions
Section 4 – Capital structure and financing costs
4.1 Net debt
4.2 Borrowings and held to maturity investments
4.3 Derivative financial instruments
4.4 Net financing costs
4.5 Financial risk factors
4.6 Fair value hierarchy
4.7 Equity
Section 5 – Other notes
5.1 Related party transactions
5.2 Contingent liabilities
5.3 Subsequent events
ITV plc Company financial statements
Page
70
71
72
73
74
75
77
77
79
80
82
83
83
85
87
91
92
93
97
97
99
101
102
103
105
106
109
109
110
110
111
70
ITV plc Report and accounts 2010
Consolidated income statement
For the year ended 31 December:
Revenue
Operating costs
Operating profit
Presented as:
Earnings before interest, tax, amortisation (EBITA) before exceptional items
Operating exceptional items
Amortisation of intangible assets
Operating profit
Financing income
Financing costs
Net financing costs
Share of profits or (losses) of joint ventures and associated undertakings
Loss on sale and impairment of non-current assets (exceptional items)
Gain/(loss) on sale and impairment of subsidiaries and investments (exceptional items)
Profit before tax
Taxation
Profit for the year
Profit attributable to:
Owners of the Company
Non-controlling interests
Profit for the year
Earnings per share
Basic earnings per share
Diluted earnings per share
Note
2.1
2.1
2.2
3.3
4.4
4.4
4.4
2.1
2.2
2.2
2.3
2010
£m
2,064
(1,700)
364
2009
£m
1,879
(1,683)
196
408
19
(63)
364
185
(260)
(75)
(3)
(4)
4
286
(16)
270
269
1
270
202
53
(59)
196
201
(292)
(91)
(7)
(22)
(51)
25
69
94
91
3
94
2.4
2.4
6.9p
6.6p
2.3p
2.3p
Operating exceptional items during the year mainly comprise reorganisation and restructuring costs, onerous property provisions and gains arising
from pension scheme changes (see note 2.2 for details).
Consolidated statement of comprehensive income
For the year ended 31 December:
Profit for the year
Other comprehensive income:
Foreign currency translation differences
Revaluation of available for sale financial assets
Amounts recycled to the income statement in respect of cash flow hedges
Actuarial gains/(losses) on defined benefit pension schemes
Income tax (charge)/credit on other comprehensive income
Other comprehensive income/(cost) for the year, net of income tax
Total comprehensive income/(cost) for the year
Total comprehensive income/(cost) attributable to:
Owners of the Company
Non-controlling interests
Total comprehensive income/(cost) for the year
71
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
2010
£m
270
3
(3)
–
67
(22)
45
315
314
1
315
2009
£m
94
(4)
2
(9)
(391)
101
(301)
(207)
(210)
3
(207)
72
ITV plc Report and accounts 2010
Consolidated statement of financial position
As at 31 December
Non-current assets
Property, plant and equipment
Intangible assets
Investments in joint ventures and associated undertakings
Available for sale financial assets
Held to maturity investments
Derivative financial instruments
Distribution rights
Net deferred tax asset
Current assets
Programme rights and other inventory
Trade and other receivables due within one year
Trade 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 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
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
Note
3.2
3.3
4.1
4.3
3.1.1
2.3
3.1.2
3.1.4
3.1.4
4.3
4.1
3.4
4.2
4.3
3.1.5
3.1.6
3.5
3.4
4.2
4.3
3.6
3.5
4.7.1
4.7.1
4.7.2
2010
£m
2009
£m
151
969
2
3
148
89
12
73
1,447
284
442
6
448
69
860
3
1,664
(55)
(3)
(672)
(26)
(698)
(65)
(34)
–
(855)
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)
809
721
(1,223)
(39)
(313)
(3)
(15)
(1,593)
(1,431)
(30)
(436)
(12)
(29)
(1,938)
663
346
389
120
304
14
5
(171)
661
2
663
389
120
308
11
8
(491)
345
1
346
Consolidated statement of changes in equity
73
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
Balance at 1 January 2010
Total comprehensive income for the year
Profit
Other comprehensive income/(cost)
Revaluation of available for sale financial assets
Foreign currency translation differences
Actuarial gains 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 portion of the convertible bond
Movements due to share-based compensation
Purchase of own shares via employees’ benefit trust
Total contributions by and distributions to owners
Change in ownership interest in subsidiaries that do not
result in a loss of control
Total changes in ownership interests in subsidiaries
Total transactions with owners
Balance at 31 December 2010
Balance at 1 January 2009
Total comprehensive income for the year
Profit
Other comprehensive income/(cost)
Revaluation of available for sale financial assets
Foreign currency translation differences
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
Purchase of own shares via employees’ benefit trust
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
Note
Share
capital
£m
389
Share
premium
£m
120
Merger and
other
reserves
£m
308
Translation
reserve
£m
11
Available for
sale reserve
£m
8
Retained
losses
£m
(491)
Non-
controlling
interests
£m
1
Total
£m
345
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4)
–
–
(4)
–
–
3
–
–
3
3
–
–
–
–
–
–
389
–
–
120
–
(4)
304
–
–
14
–
269
269
(3)
–
–
–
(3)
(3)
–
–
–
–
–
–
5
–
–
67
(22)
45
314
4
8
(6)
6
(3)
3
67
(22)
45
314
–
8
(6)
2
–
6
(171)
–
2
661
1
–
–
–
–
–
1
–
–
–
–
–
–
2
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)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
389
–
–
–
120
–
–
–
–
–
–
–
–
–
35
–
–
35
–
–
35
308
–
–
(4)
(9)
–
–
(13)
(13)
–
–
–
–
–
–
–
–
11
–
2
–
–
–
–
2
2
–
–
–
–
–
–
–
–
8
91
–
–
–
(391)
101
(290)
(199)
–
1
11
(3)
9
(15)
(15)
(6)
(491)
Non-
controlling
interests
£m
8
3
–
–
–
–
–
–
3
(2)
–
–
–
(2)
(8)
(8)
(10)
1
Total
£m
526
91
2
(4)
(9)
(391)
101
(301)
(210)
–
36
11
(3)
44
(15)
(15)
29
345
3.6
2.3
4.1
4.7.7
4.7.7
4.7
Note
3.6
2.3
4.1
4.7
4.7
4.7
Total
equity
£m
346
270
(3)
3
67
(22)
45
315
–
8
(6)
2
–
2
663
Total
equity
£m
534
94
2
(4)
(9)
(391)
101
(301)
(207)
(2)
36
11
(3)
42
(23)
(23)
19
346
74
ITV plc Report and accounts 2010
Consolidated statement of cash flows
For the year ended 31 December:
Cash flows from operating activities
Profit before tax
(Gain)/loss on sale and impairment of subsidiaries and investments (exceptional items)
Loss on sale and impairment of non-current assets (exceptional items)
Share of (profits) or losses of joint ventures and associated undertakings
Net financing costs
Operating exceptional items
Depreciation of property, plant and equipment
Amortisation and impairment of intangible assets
Share-based compensation
Decrease in programme rights and other inventory, and distribution rights
(Increase)/decrease in receivables
Decrease in payables
Movement in working capital
Cash generated from operations before exceptional items
Cash flow relating to operating exceptional items:
Net operating income
Increase 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 (paid)/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 property, plant and equipment
Acquisition of property, plant and equipment
Acquisition of intangible assets
Loans granted to associates and joint ventures
Loans repaid by associates and joint ventures
Proceeds from sale of subsidiaries, joint ventures and available for sale investments
Net cash inflow/(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
Purchase of own shares via employees’ benefit trust
Purchase of held to maturity investments
Equity dividends paid
Net cash outflow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January
Effects of exchange rate changes and fair value movements
Less: cash related to disposal group
Cash and cash equivalents at 31 December
Note
£m
2010
£m
2009
£m
£m
25
51
22
7
91
(53)
38
59
11
125
11
(15)
121
545
372
(63)
309
(66)
243
(26)
519
(117)
402
53
(116)
(31)
44
(116)
(4)
41
(50)
4
(14)
(13)
(6)
4
4
51
(71)
(508)
516
(7)
(23)
(2)
(3)
(150)
(25)
(168)
285
582
(7)
–
860
(202)
(30)
616
–
(4)
582
286
(4)
4
3
75
(19)
30
63
8
108
(8)
(1)
99
19
(45)
(30)
40
(100)
(4)
(23)
–
7
(26)
(2)
(6)
9
69
(155)
–
(7)
–
–
(6)
–
–
2.2
2.2
4.4
2.2
3.2
3.3
4.7
3.1
2.2
4.1
4.1
4.1
Section 1 Basis of preparation
75
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
This section lays out the Group’s accounting policies that relate to the financial
statements as a whole. Where an accounting policy is specific to one note, the policy
is described in the note to which it relates. This section also shows new EU endorsed
accounting standards, amendments and interpretations, whether these are effective
in 2010 or later years. In both cases we explain how they are expected to impact the
performance of the Group.
The financial statements consolidate those of ITV plc, (‘the Company’)
and its subsidiaries (together referred to as ‘the Group’) and include
the Group’s interests in associates and jointly controlled entities.
The Company is domiciled in the United Kingdom.
As required by EU law (IAS Regulation EC 1606/2002) the Group’s
accounts have been prepared in accordance with International Financial
Reporting Standards as adopted by the EU (‘IFRS’), and approved by
the directors.
The financial statements are principally prepared on the basis of
historical cost. Areas where other bases are applied are identified in
the relevant accounting policy.
The Company has elected to prepare its parent company financial
statements in accordance with UK GAAP.
Going concern
As a result of the funding activities undertaken, improvements in
working capital, disposals and the upturn in television advertising, the
Group has in 2010 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 and will
continue to evaluate opportunities to push out maturity and create
further cash 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 funding.
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.
Subsidiaries, joint ventures, associates and special purpose entities
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 in order 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. 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.
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 in control or joint control over those policies.
These investments are also accounted for using the equity method.
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. Those SPEs
controlled by the Group are established under terms that impose strict
limitations on the decision-making powers of their management and
that result in the Group receiving the majority of the benefits related
to the SPEs’ operations and net assets, being exposed to the majority
of risks incidental to their activities and receiving the majority of the
residual or ownership risks related to the SPEs or their assets.
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 use 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.
Classification of financial instruments
The financial assets and liabilities of the Group are classified into the
following financial statement captions in the statement of financial
position in accordance with IAS 39: financial instruments:
– ‘Loans and receivables’ – separately disclosed as cash and cash
equivalents (excluding gilts over which unfunded pension promises
have a charge) and trade and other receivables;
– ‘Available for sale financial assets’ – measured at fair value through
other comprehensive income. Includes gilts over which unfunded
pension commitments have a charge and equity securities that do
not meet the definition of subsidiaries, joint ventures or associates;
– ‘Held to maturity investments’;
– ‘Financial assets/liabilities at fair value through profit or loss’ –
separately disclosed as derivative financial instruments-
assets/liabilities; and
– ‘Financial liabilities measured at amortised cost’ – separately disclosed
as borrowings and trade and other payables.
Details on the accounting policies for measurement of the above
instruments are set out in the relevant note.
Recognition and derecognition of financial assets and liabilities
The Group recognises a financial asset or liability when it becomes a
party to the contract. Financial instruments are no longer recognised in
the statement of financial position when the contractual cash flows
expire or when the Group no longer retains control of substantially all the
risks and rewards under the instrument.
Cash and cash equivalents
Cash and cash equivalents comprise 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.
The carrying value of cash and cash equivalents is considered to
approximate fair value.
76
ITV plc Report and accounts 2010
Section 1 Basis of preparation continued
Foreign currencies
Accounting estimates and judgements
The primary economic environment in which the Group operates is the
UK. The consolidated financial statements are therefore presented in
pounds sterling (‘£’).
Where Group companies based in the UK transact in foreign currencies,
these transactions are translated into pounds sterling at the exchange
rate on that day. Foreign currency monetary assets and liabilities are
translated into pounds sterling at the year-end exchange rate. Where
there is a movement in the exchange rate between the date of the
transaction and the year-end, a foreign exchange gain or loss may arise.
Any such differences are recognised in the income statement. Non-
monetary assets and liabilities measured at historical cost are translated
into pounds sterling at the exchange rate on the date of the transaction.
The assets and liabilities of Group companies outside of the UK
are translated into pounds sterling at the year-end exchange rate.
The revenues and expenses of these companies are translated into
pounds sterling at the average monthly exchange rate during the year.
Where differences arise between these rates, they are recognised in
the translation reserve within equity and other comprehensive income.
Exchange differences arising on the translation of the Group’s interests
in joint ventures and associates are recognised in the translation reserve
within equity and other comprehensive income.
In respect of all Group companies outside of the UK 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 interest in a joint venture or an associate, the related
translation reserve is released to the income statement as part of the
gain or loss on disposal.
The preparation of financial statements requires management to
exercise judgement in 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,
with revisions 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 are set
out below and in more detail in the related notes:
– Revenue recognition (note 2.1)
– Classification of financial instruments (included in this note)
– Consolidation of SPEs (included in this note)
The areas involving the most sensitive estimates and assumptions that
are significant to the financial statements are set out below and in more
detail in the related notes:
– Intangible assets (note 3.3)
– Impairment of assets (note 3.2 and note 3.3)
– Programme rights and other inventory (note 3.1)
– Trade receivables (note 3.1)
– Taxation (note 2.3)
– Defined benefit pension schemes (note 3.6)
– Employee benefits (note 4.7)
– Provisions (note 3.5)
Application of new or amended EU endorsed accounting standards
Accounting Standard
Requirement
Impact on financial statements
IFRS 8: Operating Segments
IFRS 8 was amended to state that segment information for
total assets is only required if such information is regularly
reported to the chief operating decision-maker (‘CoDM’).
The Group has not disclosed total assets since this
information is not regularly reported to the CoDM.
IAS 1: Presentation of Financial
Statements
IAS 1 was amended to state that the classification of the
liability component of a convertible instrument as current or
non-current is not affected by terms that, at the option of
the holder, result in settlement of the liability through issue
of equity instruments.
The holders of ITV’s convertible bond have no
ability to force early conversion of the convertible
bond, and therefore the liability component
continues to be held as a non-current liability.
IAS 17: Leases – Classification of
leases of land and buildings
The standard was amended such that leases over a long
(several decades) period of time may now be classified as a
finance lease, even if at the end of the lease term title does
not pass to the lessee.
The Group continues to hold such leases as
operating leases.
IAS 36: Impairment of Assets
The standard was amended to confirm that the largest
unit to which goodwill can be allocated is the operating
segment level, as defined in IFRS 8, before applying the
aggregation criteria.
The Group has reconsidered the allocation of
goodwill in the current year (see note 3.3).
The directors considered the impact of other new and revised accounting standards, interpretations or amendments on the Group that are currently
endorsed but not yet effective. It was concluded that none were relevant to the Group’s results.
Section 2 Results for the year
77
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
This section focuses on the results and performance of the Group. On the following
pages you will find disclosures explaining the Group’s results for the year, segmental
information, exceptional items, taxation and earnings per share.
2.1 Profit before tax
This section analyses the Group’s profit before tax by reference to the activities performed by the Group and an analysis
of key operating costs.
Earnings before interest, tax, amortisation and exceptional items remains the Group’s key profit indicator. This reflects the
way the business is managed and how the directors assess the performance of the Group.
Accounting policies
Revenue recognition
Revenue is stated exclusive of VAT and consists of sales of goods and
services to third parties. Revenue from the sale of products is recognised
when the Group has transferred both the significant risks and rewards of
ownership and control of the products sold and the amount of revenue
can be measured reliably.
Key classes of revenue are recognised on the following bases:
Class of revenue
Advertising
Sponsorship
Programme production
Programme rights
Multiplex services
Participation revenues*
Recognition criteria
on transmission or display
on transmission of the sponsored
programme or series
on delivery
when contracted and available for
exploitation
as the service is provided
as the service is provided
* Participation revenues relate to interactive and ‘red button’ services and arise principally in the
‘Broadcasting & Online’ segment.
Segmental information
Operating segments, which have not been aggregated, are reported in
a manner that is consistent with the internal reporting provided to the
Board of directors, regarded as the chief operating decision-maker.
The Board of directors considers the business primarily from a product
or activity perspective. The reportable segments for the years ended
31 December 2010 and 31 December 2009 are therefore ‘Broadcasting &
Online’, ‘ITV Studios’ and ‘Other’ (2009 only) the results of which are
outlined below:
Total segment revenue
Intersegment revenue
Revenue from external customers
EBITA before exceptional items
Share of profits or (losses) of joint
ventures and associated undertakings
Broadcasting
& Online
2010
£m
1,771
–
1,771
327
ITV Studios
2010
£m
554
(261)
293
81
Consolidated
2010
£m
2,325
(261)
2,064
408
(3)
–
(3)
Total segment revenue
Intersegment revenue
Revenue from
external customers
EBITA before
exceptional items
Share of profits or (losses)
of joint ventures and
associated undertakings
Broadcasting
& Online
2009
£m
1,543
–
ITV Studios
2009
£m
597
(262)
Other
2009
£m
1
–
Consolidated
2009
£m
2,141
(262)
1,543
335
111
91
1
–
1,879
202
(4)
–
(3)
(7)
‘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, participation revenue and the digital terrestrial
multiplex, SDN.
‘ITV Studios’ derives its revenue primarily from ITV Studios UK (a
commercial programme production company), international production
centres in America, Germany, Sweden and Australia and the distribution
and exploitation 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.
Depreciation in the year was £30 million (2009: £38 million), of which
£19 million (2009: £25 million) relates to ‘Broadcasting & Online’ and
£11 million (2009: £13 million) to ‘ITV Studios’.
Sales between segments are carried out at arms-length terms.
In preparing the segment information, costs have been allocated
between reportable segments consistently on the basis of a relevant
allocation methodology. For example, rent is allocated on the basis
of square feet occupied. This reflects the basis of reporting to the
Board of directors.
78
Section 2 Results for the year continued
The Board of directors assess the performance of the reportable
segments based on a measure of EBITA before exceptional items.
This is defined as operating profit before amortisation of intangible
assets and operating exceptional items. The Board of directors uses
this measurement basis as it 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 before tax is
provided as follows:
EBITA before exceptional items
Operating income – exceptional items
Amortisation and impairment of intangible
assets
Net financing costs
Share of profits or (losses) of joint ventures and
associated undertakings
Loss on sale and impairment of non-current
assets (exceptional items)
Gain/(loss) on sale and impairment of
subsidiaries and investments (exceptional items)
Profit before tax
2010
£m
408
19
(63)
(75)
(3)
(4)
4
286
2009
£m
202
53
(59)
(91)
(7)
(22)
(51)
25
The Group’s principal operations are in the United Kingdom. Its revenue
from external customers in the United Kingdom is £1,865 million
(2009: £1,621 million), and the total revenue from external customers
in other countries is £199 million (2009: £258 million).
Revenues of approximately £400 million (2009: £324 million),
£270 million (2009: £194 million), £202 million (2009: £190 million)
and £196 million (2009: £226 million) are derived from four external
customers. The Group’s major customers are all media buying agencies
acting on behalf of a number of customers. These revenues are
attributable to the ‘Broadcasting & Online’ segment and contain the only
customers which individually represent over 10% of the Group’s revenues.
Operating costs
Staff costs
Staff costs can be analysed as follows:
Wages and salaries
Social security and other costs
Share-based compensation (see note 4.7)
Pension costs
2010
£m
212
32
8
17
269
2009
£m
244
33
11
16
304
Staff costs within exceptional items were £11 million (2009: £32 million)
and principally relate to redundancy payments. Total staff costs
including exceptional items for the year ended 31 December 2010 are
£280 million (2009: £336 million).
The number of employees (excluding short-term contractors and
freelancers), calculated on a weighted average basis, during the year was:
Broadcasting & Online
ITV Studios
Other
2010
2,312
1,635
–
3,947
2009
2,606
1,908
5
4,519
Details of the directors’ emoluments, share options, pension
entitlements and long-term incentive scheme interests are set out in the
Remuneration report.
Operating leases
The total future minimum lease payments under non-cancellable
operating leases fall due for payment as follows:
Within one year
Later than one year and not later than five years
Later than five years
2010
£m
11
38
138
187
2009
£m
13
39
145
197
These leases primarily relate to the Group’s properties, which principally
comprise offices and studios. Leases typically run for a period of between
five and ten years and may have an option to renew after that date.
Lease payments are typically subject to market review every five years
to reflect market rentals, but because of the uncertainty over the
amount of any future changes, such changes have not been reflected
in the table above. None of the leases include contingent rentals.
The total future minimum sublease payments expected to be
received under non-cancellable subleases at the year end is £8 million
(2009: £5 million).
The total operating lease expenditure recognised during the year was
£12 million (2009: £14 million) and total sublease payments received was
£5 million (2009: £4 million).
Audit fees
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
2010
£m
0.7
0.2
0.2
0.8
–
–
1.9
2009
£m
0.7
0.2
0.4
0.2
0.6
0.1
2.2
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.
79
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
2.2 Exceptional Items
Exceptional items are excluded from management’s assessment of profit. In management’s judgement exceptional items
are material and non-recurring. They are excluded in order to understand the Group’s underlying quality of earnings and
reflect how the business is managed and measured on a day-to-day basis.
Accounting policies
Exceptional items, as disclosed on the face of the income statement, are
items that 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 financial statements.
Exceptional items
C – Pension scheme changes (see note 3.6)
Operating exceptional gains of £28 million were recognised in 2010 in
relation to changes made to the ITV Pension Scheme. These included:
– a past service credit of £25 million in relation to the introduction of a
member option to change pension payments at retirement;
– a past service credit of £2 million in relation to the one-off change to
Operating and non operating exceptional items are analysed as follows:
pension payments; and
(Charge)/credit
Operating exceptional items:
Reorganisation and restructuring costs
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
Gain/(loss) on sale and impairment of
subsidiaries and investments
Total non-operating exceptional items
Total exceptional items before tax
A – Reorganisation and restructuring costs
Ref.
A
B
C
D
E
2010
£m
(17)
1
7
28
–
19
(4)
4
–
19
2009
£m
(40)
(1)
(14)
110
(2)
53
(22)
(51)
(73)
(20)
– a settlement gain of £1 million in relation to the enhanced transfer
value exercise.
In 2009 operating exceptional gains of £110 million were recognised for
the following:
– a curtailment gain of £72 million for changes that were made to
implement a cap on increases to pensionable salary levels; and
– a £38 million past service credit for changes made offering 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.
D – Loss on sale and impairment of non-current assets
The £4 million (2009: £22 million) loss on sale and impairment of non-
current assets relates to:
– a net £3 million (2009: £14 million) impairment on property, plant
and equipment no longer used at properties expected to be vacated;
– a net £1 million (2009: £3 million) loss arising on the disposal of
property, plant and equipment; and
In 2010 a charge of £17 million (2009: £40 million) was recognised in
relation to cost saving restructuring initiatives.
– a £nil (2009: £5 million) impairment on properties, included within
assets held for sale, to reflect their estimated market value.
B – Onerous property provision
A £7 million credit (2009: charge of £14 million) in respect of sublet
property at Gray’s Inn Road was recognised during the year.
This provision release relates to changes in the anticipated use of the
site previously expected to be excess space, as a result of significant
headcount reductions in 2009. This provision was raised as an operating
exceptional in 2009, and therefore the partial release of this provision
has been credited to operating exceptional items.
E – Gain/(loss) on sale, net of impairment, of subsidiaries, joint
ventures and associates
The £4 million gain on sale, net of impairment of subsidiaries, joint
ventures and associates principally relates to the sale of Screenvision US
(Technicolor Cinema Advertising LLC) as disclosed in note 3.4.
In 2009 the net £51 million loss principally included a £32 million
impairment loss on Friends Reunited; £5 million net loss on sale of
subsidiaries; £9 million net impairment of joint ventures and associates;
and a £6 million charge in relation to Carlton Screen Advertising Limited
(‘CSA’) being put into creditors’ voluntary liquidation.
80
ITV plc Report and accounts 2010
Section 2 Results for the year continued
2.3 Taxation
This section lays out the tax accounting policies, the current and deferred tax charges or credits in the year (which together
make up the total tax charge or credit in the income statement), a reconciliation of profit or loss before tax to the tax
charge or credit and the movements in deferred tax assets and liabilities.
Accounting policies
The tax charge for the period is recognised in the income statement and
the statement of comprehensive income, according to the accounting
treatment of the related transaction. The tax charge comprises both
current and deferred tax.
Taxation – Income statement
The total taxation (charge)/credit in the income statement is analysed
as follows:
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. The current tax charge is based on tax rates that are
enacted or substantively enacted at the year-end.
Current tax:
Current tax charge before exceptional items
Current tax credit on exceptional items
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.
Deferred tax arises due to certain 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.
2010
£m
(64)
3
(61)
–
(61)
53
(8)
–
45
(16)
2009
£m
(13)
10
(3)
68
65
21
(31)
14
4
69
Adjustment for prior periods
Deferred tax:
Origination and reversal of
temporary differences
Deferred tax on exceptional items
Adjustment for prior periods
Total taxation (charge)/credit in the
income statement
In order to understand how, in the income statement, a tax charge of
£16 million arises on a profit before tax of £286 million, the taxation
charge that would arise at the standard rate of UK corporation tax is
reconciled to the actual tax charge as follows:
Profit before tax
Taxation charge at UK corporation tax rate of
28% (2009: 28%)
Non-taxable/non-deductible exceptional items
Non-taxable income/non-deductible expenses
Recognition of tax losses brought forward
Over provision in prior periods
Other
Total taxation (charge)/credit in the
income statement
2010
£m
286
(80)
–
(1)
68
–
(3)
(16)
2009
£m
25
(7)
(21)
(8)
26
82
(3)
69
Non-deductible expenses are expenses that are not expected to be
allowable for tax purposes. Similarly non-taxable income is income that
will not be taxed.
81
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
Tax losses brought forward may be utilised against current year profits if
the brought forward losses and the current year profits are of the same
type. Use of tax losses in this way leads to a reduction of the tax charge.
Tax losses of £68 million (2009: £26 million) include a credit for utilisation
of financing losses linked to previous investments (‘loan relationship
deficits’) of £16 million (2009: £23 million) and the recognition of
deferred tax of £45 million (2009: £3 million) on the remaining loan
relation deficits and a credit of £5 million (2009: £nil) on the recognition
of a deferred tax asset on other losses.
Over provision in prior periods may arise if a more favourable outcome is
obtained for tax purposes than was expected when the provision was
made. Upon confirmation that the more favourable tax treatment will
apply, the over provision may be released to lower the current year tax
charge. The opposite is true of under provisions.
The emergency budget on 22 June 2010 announced a change to the UK
corporation tax rate from 28% to 27%. This was substantially enacted
on 20 July 2010 and will be effective from 1 April 2011. This will reduce
the Group’s future tax charge and accordingly deferred tax assets and
liabilities have been revalued at 27%.
The effective tax rate is the tax charge (or credit) on the face of the
income statement expressed as a percentage of the profit (or loss)
before tax. In the year ended 31 December 2010, the effective tax
rate is lower (2009: lower) than the standard rate of UK corporation tax
primarily because circumstances have changed such that the Group is
now making taxable profits, and it is envisaged that it will be possible to
utilise brought forward tax losses. As set out in the financial review ITV
uses an adjusted tax rate to show the cash tax impact on its adjusted
earnings.
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
At
1 January
2009
£m
Recognised in
the income
statement
£m
Recognised
in equity
£m
At
31 December
2009
£m
(15)
(95)
4
49
(1)
4
(3)
2
(55)
16
13
(2)
(25)
–
–
–
2
4
–
–
–
98
–
3
–
–
101
1
(82)
2
122
(1)
7
(3)
4
50
At 31 December 2010, total deferred tax assets are £139 million
(2009: £136 million) and total deferred tax liabilities are £66 million
(2009: £86 million).
The deferred tax balance relating to:
– property, plant and equipment principally relates to timing
differences arising on assets qualifying for capital allowances;
– intangible assets mainly relates to timing differences on intangible
assets arising on business combinations;
– programme rights relates to timing differences on intercompany
Taxation – Other comprehensive income
profits on stock;
Within other comprehensive income a tax charge totalling £22 million
(2009: credit of £101 million) has been recognised representing deferred
tax. An analysis of this is included below in the deferred tax movement
table.
Taxation – Statement of financial position
The table below outlines the deferred tax assets/(liabilities) that are
recognised in the statement of financial position, together with their
movements in the year:
Property, plant and
equipment
Intangible assets
Programme rights
Pension scheme deficits
Tax losses
Interest-bearing loans and
borrowings, and derivatives
Share-based compensation
Unremitted earnings of
subsidiaries, associates and
joint ventures
Other
At
1 January
2010
£m
Recognised in
the income
statement
£m
Recognised
in equity
£m
At
31 December
2010
£m
1
(82)
2
122
–
(1)
7
(3)
4
50
1
17
–
(24)
50
–
–
3
(2)
45
–
–
–
(22)
–
–
–
–
–
(22)
2
(65)
2
76
50
(1)
7
–
2
73
– pension scheme deficits relates to timing differences on the IAS 19
pension deficit as well as the spreading of tax relief on one-off large
pension funding payments;
– tax losses relates to timing differences in receiving the benefit of
the Group’s tax losses;
– interest-bearing loans and borrowings and derivatives relates
to timing differences on hedging instruments;
– share-based compensation relates to timing differences on
share schemes;
– unremitted earnings of subsidiaries, associates and joint ventures
relates to tax losses of associated companies; and
– other relates to timing differences on miscellaneous items including
sale and leaseback arrangements and various provisions.
A deferred tax asset of £45 million in relation to carried forward loan
relationship deficits of £168 million has been recognised after the
utilisation in 2010 of part of the loan relationship deficits on which
deferred tax was not recognised at 31 December 2009. Additionally a
deferred tax asset of £5 million has been recognised in relation to other
carried forward tax losses. The deferred tax on these losses has now been
recognised as circumstances have changed such that the Group is now
making taxable profits and it is envisaged that it will be possible to utilise
these losses going forward.
The deferred tax balance associated with the pension deficit has been
adjusted to reflect the current tax benefit obtained in the current year
following the contribution of £171 million to the Group’s defined benefit
pension scheme.
A deferred tax asset of £602 million (2009: £625 million) in respect of
capital losses of £2,230 million (2009: £2,230 million) has not been
recognised due to uncertainties as to the amount and whether a capital
gain 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 £9 million (2009: £10 million) that
time expire between 2017 and 2026 have not been recognised.
82
ITV plc Report and accounts 2010
Section 2 Results for the year continued
2.4 Earnings per share
Earnings per share (‘EPS’) is the amount of post-tax profit attributable to each share.
Basic EPS is calculated on the Group profit for the year attributable to equity shareholders of the parent company of
£269 million (2009: £91 million) divided by 3,884 million (2009: 3,882 million) being the weighted average number of
shares in issue during the year.
Diluted EPS takes into account the dilutive effect of all share options being exercised and assumes that the £135 million
convertible bond is converted to shares in its entirety.
Basic EPS is adjusted in order to more accurately show the business performance of the Group in a consistent manner
and reflect how the business is managed and measured on a day-to-day basis. Adjusted EPS is adjusted for exceptional
items, impairment of intangible assets, amortisation of intangible assets acquired through business combinations, net
financing cost adjustments and prior period and other tax adjustments.
The calculation of basic, diluted and adjusted EPS is set out below:
Basic earnings per share
Profit for the year attributable to equity
shareholders of the parent company
Weighted average number of ordinary shares
in issue – million
Dilution impact of share options
Dilution impact of convertible bond
Total weighted average number of ordinary shares
in issue – million
Earnings per ordinary share
Profit for the year attributable to equity
shareholders of the parent company
Weighted average number of ordinary shares
in issue – million
Dilution impact of share options
Dilution impact of convertible bond
Total weighted average number of ordinary shares
in issue – million
Earnings per ordinary share
Adjusted earnings per share
Profit for the year attributable to equity
shareholders of the parent company
Exceptional items
Profit for the year before exceptional items
Amortisation and impairment of acquired
intangible assets
Adjustments to net financing costs
Other tax adjustments
Adjusted profit
Total weighted average number of ordinary shares
in issue – million
Adjusted earnings per ordinary share
Ref.
Basic
£m
2010
Diluted
£m
269
270
3,884 3,884
27
–
192
–
A
3,884 4,103
6.6p
6.9p
Ref.
Basic
£m
2009
Diluted
£m
91
92
3,882 3,882
13
–
192
–
A
3,882 4,087
2.3p
2.3p
Adjusted
Ref.
£m
269
(14)
255
35
4
(47)
247
B
C
D
E
F
2010
Diluted
£m
270
(14)
256
35
4
(47)
248
3,884 4,103
6.0p
6.4p
Profit for the year attributable to equity
shareholders of the parent company
Exceptional items
Profit for the year before exceptional items
Amortisation and impairment of acquired
intangible assets
Adjustments to net financing costs
Prior period tax adjustments
Other tax adjustments
Adjusted profit
Total weighted average number of ordinary shares
in issue – million
Adjusted earnings per ordinary share
Adjusted
£m
Ref.
91
41
132
37
9
(82)
(26)
70
B
C
D
E
F
2009
Diluted
£m
92
41
133
37
9
(82)
(26)
71
3,882 4,087
1.7p
1.8p
A – Diluted earnings per share are impacted by the £135 million 2016
Convertible Eurobond issued in November 2009.
B – The exceptional items detailed in Section 2.2 are adjusted to reflect
profit for the year before exceptional items. The 2010 exceptional items
include a related tax effect of a charge of £5 million (2009: charge of
£21 million).
C – Amortisation and impairment of acquired intangible assets of
£48 million (2009: £51 million) is adjusted, including a related tax credit
of £13 million (2009: £14 million). The rationale for adjustments to
amortisation of intangibles is provided in the Financial and performance
review.
D – Adjustments to net financing costs of £6 million (2009: £12 million)
includes a related tax effect of a credit £2 million (2009: credit of
£3 million). The rationale for adjustments made to financing costs is
provided in the Financial and performance review.
E – Other tax adjustments reflect the reversal of the credit arising from
the recognition of the deferred tax asset generated on certain losses
partially offset by those losses utilised in the current year.
F – Adjusted profit is defined as profit for the year before exceptional
items, amortisation and impairment of acquired intangible assets, net
financing cost adjustments and other tax adjustments.
Section 3 Operating assets and liabilities
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This section shows the assets used to generate the Group’s trading performance and
the liabilities incurred as a result. Liabilities relating to the Group’s financing activities
are addressed in Section 4. Deferred tax assets and liabilities are shown in Section 2.3.
On the following pages there are sections covering working capital, non-current
assets, other payables due after more than one year, provisions and pensions.
3.1 Working capital
Working capital represents the assets and liabilities the Group generates through its trading activity. The Group therefore
defines working capital as distribution rights, programme rights and other inventory, trade and other receivables and trade
and other payables.
Careful management of working capital is vital as it ensures that the Group can meet its trading and financing obligations
within its ordinary operating cycle. One of the Group’s key performance indicators is ‘profit to cash’ conversion; the effective
management of working capital will help meet the Group target that its ‘profit to cash’ ratio on a rolling three year basis is
at least 90%.
In the following section you will find further information regarding working capital management and analysis of the
elements of working capital.
Accounting policies
Distribution rights
‘Distribution rights’ are programme rights acquired from producers
primarily for the purposes of commercial exploitation through onward
distribution to customers, principally through licensing to broadcasters,
and are classified as non-current assets as these rights are used to derive
long-term economic benefit for the Group.
Distribution rights are recognised initially at cost and charged through
operating costs in the income statement over a maximum five year
period that is dependent on cumulative sales and programme genre, or
based on forecast future sales. Certain film rights are expensed over a
period of up to 10 years reflecting the estimated longer period over
which these types of rights can be exploited. These estimates are
based on historical experience with similar rights as well as anticipation
of future events. Advances paid for the acquisition of distribution rights
are disclosed as distribution rights as soon as they are contracted.
These advances are not expensed until the programme is available for
distribution. Up to that point they are assessed annually for impairment
through the reassessment of the future sales expected to be earned
from that title.
Programme rights and other inventory
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 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 programme is available for transmission. Programmes
produced internally, either for the purpose of broadcasting or to be sold
in the normal course of the Group’s operating cycle, are recognised
within current assets at production cost.
Programme costs and rights, including those acquired under sale and
leaseback arrangements are generally expensed to operating costs in
full on first transmission. However, film rights and certain acquired
programmes are expensed over a number of transmissions reflecting
the pattern in which the right is consumed.
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 for programmes in production,
consideration is given to the contracted sales price and estimated costs
to complete. For programme stock, sports rights and film rights, the net
realisable value assessment is based on estimated airtime value, with
consideration 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.
Historically, ITV has 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.
Trade receivables
Trade receivables are recognised initially at the value of the invoice
sent to the customer and subsequently at the amounts considered
recoverable (amortised cost). Where payments are not due for more
than one year, they are shown in the financial statements at their
net present value to reflect the economic cost of delayed payment.
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.
The carrying value of trade receivables is considered to approximate
fair value.
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ITV plc Report and accounts 2010
Section 3 Operating assets and liabilities continued
Trade payables
Trade payables are recognised at the value of the invoice received from
a supplier.
The carrying value of trade payables is considered approximate to
fair value.
Working capital management
Cash and working capital management continues to be a key focus.
During the year the cash inflow from working capital was £99 million
(2009: £121 million) as follows:
Programme rights and other inventory written off in the year was
£3 million (2009: £11 million). There have been no reversals relating to
inventory previously written down to net realisable value (2009: £nil).
3.1.3 Programme commitments
There are operating commitments in respect of programming entered
into in the ordinary course of business with programme suppliers, sports
organisations and film distributors in respect of rights to broadcast on
the ITV network. Commitments in respect of these purchases, which are
not reflected in the statement of financial position, are due for payment
as follows:
Within one year
Later than one year and not more
than five years
3.1.4 Trade and other receivables
Trade and other receivables can be analysed as follows:
Due within one year:
Trade receivables
Other receivables
Prepayments and accrued income
Due after more than one year:
Trade receivables
Total trade and other receivables
2010
£m
396
315
711
2010
£m
354
14
74
442
6
6
448
2009
£m
377
396
773
2009
£m
353
22
57
432
7
7
439
£360 million (2009: £360 million) of total trade receivables that are not
impaired are aged as follows:
Current
Up to 30 days overdue
Between 30 and 90 days overdue
Over 90 days overdue
2010
£m
301
7
1
51
360
2009
£m
230
43
8
79
360
With a focus on cash collection, the ageing of trade receivables has
improved significantly in the year. The £51 million balance over 90 days
overdue principally relates to non-consolidated licensee customers.
Decrease in programme rights and other
inventory and distribution rights
(Increase)/decrease in receivables
(Decrease) in payables
Working capital inflow
2010
£m
108
(8)
(1)
99
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.
3.1.1 Distribution rights
Movements in distribution rights during the year are shown in the
table below:
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
2010
£m
99
12
111
83
16
99
12
2009
£m
125
11
(15)
121
2009
£m
82
17
99
69
14
83
16
3.1.2 Programme rights and other inventory
The programme rights and other inventory at the year-end are shown
in the table below:
Acquired films
Production
Commissions
Sports rights
Prepayments
Other
2010
£m
170
52
36
21
4
1
284
2009
£m
207
48
73
23
36
1
388
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As at 31 December 2010, trade receivables of £8 million (2009:
£8 million) were provided against. Movements in the Group’s provision
for impairment of trade receivables can be shown as follows:
3.1.5 Trade and other payables due within one year
Trade and other payables due within one year can be analysed
as follows:
At 1 January
Charged during the year
Receivables written-off during the year
as uncollectible (utilisation of provision)
Unused amounts reversed
At 31 December
2010
£m
8
5
(1)
(4)
8
2009
£m
14
4
(6)
(4)
8
Trade payables
Social security
Other payables
Accruals and deferred income
2010
£m
56
16
183
417
672
2009
£m
83
13
162
388
646
3.1.6 Trade payables due after more than one year
Trade payables due after more than one year can be analysed as follows:
Trade payables
2010
£m
26
2009
£m
31
This relates to film creditors for which payment is due after more than
one year.
Trade receivables that are less than 90 days overdue are not usually
considered impaired. The majority of the £8 million provision is therefore
held against trade receivables that are over 90 days overdue.
Trade receivables of £59 million (2009: £130 million) were past due but
not impaired. Of this, £55 million (2009: £88 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 £12 million (2009:
£1 million) and £5 million (2009: £7 million) are included in current
trade receivables and other receivables respectively. There is also a
credit of £49 million (2009: credit of £61 million) included in trade and
other payables relating to these customers. The net balance due from
non-consolidated licensees is therefore £23 million (2009: £35 million),
the majority of which relates to STV Group plc.
3.2 Property, plant and equipment
The following section shows the physical assets used by the Group to generate revenues and profits. These assets include
office buildings and studios, as well as various items of equipment used in broadcast transmission, programme production
and for support activities.
The cost of these assets is the amount initially paid for them. A depreciation expense is charged to the income statement
to reflect annual wear and tear and the reduced value of the asset. Depreciation is calculated by estimating the number of
years the Group expects the asset to be used (useful economic life). If there has been a technological change or decline in
business performance the directors review the value of assets to ensure they have not fallen below their depreciated value.
If an asset’s value falls below its depreciated value an additional one-off impairment charge is made against profit.
This section also explains the accounting policies followed by ITV and the specific estimates made in arriving at the
net book value of these assets.
Accounting policies
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and impairment losses. Certain items of property, plant and
equipment that were 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
included 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:
Asset class
Freehold land
Freehold buildings
Leasehold properties
Leasehold improvements
Vehicles, equipment
and fittings
Depreciation policy
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
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ITV plc Report and accounts 2010
Section 3 Operating assets and liabilities continued
Impairment of assets
Property, plant and equipment that is subject to depreciation is reviewed annually for impairment or whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. Indicators of impairment may include changes in technology and business performance.
Property, plant and equipment
Property, plant and equipment can be analysed as follows:
Cost
At 1 January 2009
Additions
Reclassification
Reclassification to assets held for sale
Disposals and retirements
At 31 December 2009
Additions
Reclassification
Reclassification to assets held for sale
Disposals and retirements
At 31 December 2010
Depreciation
At 1 January 2009
Charge for the year
Impairment charge for the year (see note 2.2)
Reclassification
Reclassification to assets held for sale
Disposals and retirements
At 31 December 2009
Charge for the year
Impairment charge for the year (see note 2.2)
Reclassification to assets held for sale
Disposals and retirements
At 31 December 2010
Net book value
At 31 December 2010
At 31 December 2009
Freehold land
and buildings
Improvements to leasehold
land and buildings
Vehicles, equipment and fittings
£m
49
–
5
–
–
54
–
3
–
(5)
52
–
3
6
3
–
–
12
1
–
–
(5)
8
44
42
Long
£m
69
–
(1)
(14)
(4)
50
5
–
(3)
–
52
13
3
2
–
(5)
(1)
12
1
–
(1)
–
12
40
38
Short
£m
Owned
£m
Finance leases
£m
20
–
–
–
–
20
–
–
–
–
20
8
2
4
–
–
–
14
1
1
–
–
16
4
6
241
14
(4)
–
(40)
211
22
(3)
(2)
(3)
225
149
27
2
(3)
–
(31)
144
25
2
–
(3)
168
57
67
15
–
–
–
–
15
–
–
–
–
15
4
3
–
–
–
–
7
2
–
–
–
9
6
8
Total
£m
394
14
–
(14)
(44)
350
27
–
(5)
(8)
364
174
38
14
–
(5)
(32)
189
30
3
(1)
(8)
213
151
161
Included within the book values above is expenditure of £9 million (2009: £3 million) on property, plant and equipment that is in the course
of construction.
Capital commitments
There are £2 million of capital commitments at 31 December 2010 (2009: £1 million).
87
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3.3 Intangible assets
The following section shows the non-physical assets used by the Group to generate the revenues and profits of the business.
These assets include goodwill, brands, customer contracts and relationships, licences, software development and film
libraries. The cost of these is the amount that the Group has paid or, where there has been a business combination, the fair
value of the identifiable intangible assets that can be sold separately or arise from legal rights. In the case of goodwill, the
cost is the amount the Group has paid in acquiring a business in excess of the fair value of the individual assets and liabilities
acquired. The value of goodwill is that ‘intangible’ value that comes from, for example, a uniquely strong market position
and the outstanding productivity of its employees.
The value of intangible assets, with the exception of goodwill, is expensed to the income statement over the number of
years the Group expects to use the asset, the useful economic life, via an annual amortisation charge. Where there has been
a technological change or decline in business performance the directors review the value of assets to ensure they have not
fallen below their amortised value. Should an asset’s value fall below its amortised value an additional one-off impairment
charge is made against profit.
This section explains the accounting policies followed by the Group and the specific estimates made in arriving at the
net book value of these assets.
Accounting policies
Goodwill
Goodwill represents the future economic benefits that arise from assets
that are not capable of being individually identified and separately
recognised. The goodwill recognised by the Group has all arisen as a
result of business combinations.
Due to changes in accounting standards, the goodwill shown on the
Group’s statement of financial position has been calculated using
three different methods depending on the date of acquisition of the
related business:
Method 1: All business combinations that have occurred since 1 January
2009 are accounted for by applying the acquisition method. Under this
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 at 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 can be 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.
Acquisitions of non-controlling interests are accounted for as
transactions with owners and therefore no goodwill is recognised as
a result of such transactions. 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.
Method 2: All business combinations that occurred between 1 January
2004 and 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 and did not include the value of the non-controlling
interest. Transaction costs that the Group incurred in connection with a
business combination, such as legal fees, due diligence fees and other
professional and consulting fees, are included in the cost of acquisition.
Method 3: For business combinations prior to 1 January 2004, 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.
Other intangible assets
Other intangible assets are those that are identifiable and can be sold
separately or which arise from legal rights.
Within ITV there are two types of intangible assets: those acquired and
those that have been internally generated (such as software licences and
development).
Other intangible assets acquired directly by the Group are stated at cost
less accumulated amortisation. Those separately identified intangible
assets acquired as part of a business combination are shown at fair value
at the date of acquisition less accumulated amortisation.
The main intangible assets that the Group has been required to value are
brands, licences and customer relationships and contracts.
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ITV plc Report and accounts 2010
Section 3 Operating assets and liabilities continued
The table below details the Group’s valuation method on initial recognition, amortisation method and estimated useful life by class of intangible asset.
Class of intangible asset
Brands
Customer contracts
and relationships
Licences
Software licences
and development*
Film libraries
Valuation method
Applying a royalty rate to the expected future revenues
over the life of the brand
Expected future cash flows from those contracts and
relationships existing at the date of acquisition are estimated.
If applicable, a contributory charge is deducted for the use of
other assets needed to exploit the cash flow.
The net cash flow is then discounted back to present value.
Start-up basis of expected future cash flows existing at the
date of acquisition.
If applicable, a contributory charge is deducted for the use of
other assets needed to exploit the cash flow.
The net cash flow is then discounted back to present value.
Initially at cost and subsequently at cost less accumulated
amortisation
Initially at cost and subsequently at cost less accumulated
amortisation
Amortisation method
Straight line
Estimated useful life
up to 11 years
Straight line
up to 6 years for customer
contracts
Straight line
5 to 10 years for customer
relationships
11 to 17 years depending on
term of license
Straight line
1 to 5 years
Sum of digits
20 years
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 CGU
to which the asset relates. Growth assumptions assumed as part of the
transformation plan are not included in the estimated future cash flows
used for impairment testing.
Estimates are used in deriving these cash flows and the discount rate.
Such estimates reflect current market assessments of the risks specific
to the asset and the time value of money. The estimation process is
complex due to the inherent risks and uncertainties. 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 in respect of goodwill are not reversed. 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.
*Internally generated software development costs in relation to itv.com are expensed as incurred.
In determining the fair value of intangible assets arising on acquisition,
the directors are required to make estimates regarding the timing and
amount of future cash flows to be derived from exploiting the assets
being acquired. These cash flows are then discounted using an
appropriate discount rate. Such estimates 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,
and this drives our amortisation policy for those assets. 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.
Amortisation
Amortisation is charged to the income statement over the estimated
useful lives of intangible assets unless such lives are judged to be
indefinite. Indefinite life assets, such as goodwill, are not amortised
but are tested for impairment at each year-end.
Impairment
Goodwill is not subject to amortisation and is tested annually for
impairment and when circumstances indicate that the carrying value
may be impaired.
Other intangible assets are subject to amortisation and are reviewed for
impairment whenever events or changes in circumstances indicate that
the amount carried in the statement of financial position is less than its
recoverable amount.
Any impairment is recognised in the income statement. Impairment is
determined for goodwill by assessing the recoverable amount of each
asset or cash-generating unit (or group of cash-generating units) to
which the goodwill relates. Assets are grouped at the lowest levels for
which there are separately identifiable cash flows (‘cash-generating unit’
or ‘CGU’).
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Goodwill
£m
Brands
£m
Customer
contracts and
relationships
£m
Software
licences and
development
£m
Film
libraries
and other
£m
Licences
£m
3,484
–
(115)
(4)
3,365
–
3,365
2,735
–
(81)
–
2,654
–
2,654
711
711
200
–
(26)
(1)
173
–
173
86
17
(9)
–
94
16
110
63
79
338
–
(8)
(2)
328
–
328
234
21
(5)
(1)
249
20
269
59
79
121
–
–
–
121
–
121
38
9
–
–
47
9
56
65
74
46
13
–
(7)
52
2
54
9
8
–
(5)
12
15
27
27
40
84
–
(3)
(2)
79
–
79
31
4
(2)
(1)
32
3
35
44
47
Total
£m
4,273
13
(152)
(16)
4,118
2
4,120
3,133
59
(97)
(7)
3,088
63
3,151
969
1,030
Intangible assets
Intangible assets can be analysed as follows:
Cost
At 1 January 2009
Additions
Reclassification to assets held for sale
Disposals
At 31 December 2009
Additions
At 31 December 2010
Amortisation and impairment
At 1 January 2009
Charge for the year
Reclassification to assets held for sale
Disposals
At 31 December 2009
Charge for the year
At 31 December 2010
Net book value
At 31 December 2010
At 31 December 2009
There has been no movement in the net book value of goodwill in the
current year. The 2009 net movement in goodwill of £38 million resulted
from the transfer of £34 million to assets held for sale regarding Friends
Reunited and £4 million from the disposal of Enable Media Limited.
Management believes that a consistent discount rate can be applied to
all CGUs, due to the similarity of the risk factors affecting them and their
geographical spread. There is currently no reasonably possible change in
discount rate that would reduce the headroom in any CGU to zero.
Also included within the book values above is expenditure of £1 million
(2009: £6 million) on software that is in the course of development.
Goodwill impairment tests
The following CGUs represent the carrying amounts of goodwill.
Broadcasting & Online
SDN
ITV Studios
2010
£m
328
76
307
711
2009
£m
328
76
307
711
There has been no impairment charge for the year (2009: nil).
When assessing impairment, the recoverable amount of each CGU is
based on value in use calculations. These calculations require the use of
estimates, specifically: pre-tax cash flow projections; long-term growth
rates; and a pre-tax market discount rate.
Cash flow projections are based on the Group’s current five-year plan.
Beyond the five-year plan these projections are extrapolated using an
estimated long-term growth rate of 1%–2.5% (2009: 1%–2.5%) depending
on the CGU. The growth rates used are consistent with the long-term
average growth rates for the industry and are appropriate because these
are long-term businesses.
A pre-tax market discount rate of 11.8% (2009: 12.9%) has been used in
discounting the projected cash flows for each CGU. The discount rate has
been revised to reflect the latest market assumptions for the Risk Free-
rate, the Equity Risk Premium and the net cost of debt.
Broadcasting & Online
As a result of the strategic review, the Group reconsidered the
appropriate level to test goodwill impairment during the year and
concluded that the Broadcasting, GMTV and Online CGUs previously
assessed separately are a single CGU, ‘Broadcasting & Online’.
These businesses jointly rely on the ITV licences, brands and content
to generate cash inflows. This classification is consistent with the
Broadcasting & Online operating segment and is the level at which
management monitor goodwill.
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.
No impairment charge arose in the Broadcasting & Online CGU during
the course of 2010 (2009: nil), due to the improvement of 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.
The main assumptions on which the forecast cash flows projections for
this CGU are based include; the television share of the advertising market,
share of commercial impacts, and programme and other costs.
The key assumption in assessing the recoverable amount of
Broadcasting & Online 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 2011 and 0% to +4% for
2012, with the Group’s assumptions at the cautious end of these ranges.
It is also assumed that ITV renews its broadcasting licences in 2014.
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Section 3 Operating assets and liabilities continued
SDN
ITV Studios
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.
No impairment charge arose in the SDN CGU during the course of 2010
(2009: nil).
The main assumptions on which the forecast cash flows are 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.
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.
No impairment charge arose in the ITV Studios CGU during the course of
2010 (2009: nil).
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.
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Financial statements
3.4 Assets held for sale, acquisitions and disposals
The following section outlines what the Group is either holding for sale, has acquired, or has disposed of in the year.
Accounting policies
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, the sale
is highly probable. A disposal group consists of assets that are to be
disposed of, by sale or otherwise, in a single transaction together with
the directly associated liabilities. The group includes goodwill acquired in
a business combination if the disposal group is a cash-generating unit to
which goodwill has been allocated.
The Group disposed of its 50% interest in Screenvision US (Technicolor
Cinema Advertising LLC) on 14 October 2010 for a total consideration
of $80 million (£50 million). Consideration of $75 million (£47 million)
has been received resulting in a gain on disposal of £4 million. $5 million
(£3 million) is contingent on contractual commitments.
The Group disposed of its long leasehold interest in properties at
Birmingham and Bristol on the 12 August 2010 and 23 August 2010
respectively for a total consideration of £7 million resulting in a net
£1 million loss on sale.
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 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 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.
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.
Disposals
Assets held for sale
The £3 million included in assets held for sale relates to property, plant
and equipment (2009: £78 million related to the Group’s investments in
Screenvision US and Friends Reunited as well as certain properties).
The movement in assets held for sale since 1 January 2010 is
summarised in the table below:
At 1 January 2010
Transfer from property, plant and equipment
Net repayment of loans from Screenvision US
Disposal of Screenvision US
Disposal of Friends Reunited
Disposal of properties held for sale
At 31 December 2010
The movements in liabilities held for sale since 1 January 2010 is
summarised in the table below:
At 1 January 2010
Disposal of Friends Reunited
At 31 December 2010
2010
£m
78
4
(4)
(39)
(28)
(8)
3
2010
£m
(3)
3
–
All disposals were included within assets held for sale in 2009.
The Group disposed of its 100% interest in Friends Reunited Holdings
Limited on 25 March 2010 to Brightsolid Online Innovation Limited
(a wholly-owned subsidiary of D.C. Thompson Limited) for a cash
consideration of £27 million. The sale resulted in no material gain or loss
on disposal in 2010.
During the year the Group began actively marketing property that is
surplus to requirements and disposal is anticipated to be completed
within one year. Property was transferred from property, plant and
equipment at a net book value of £4 million. The property in Bedford,
classified as an asset held for sale in prior periods, continues to be
classified as such, since it continues to be actively marketed.
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ITV plc Report and accounts 2010
Section 3 Operating assets and liabilities continued
3.5 Provisions
A provision is recognised by the Group where an obligation exists, relating to events in the past, and it is probable that cash
will be paid to settle it.
A provision is made where the Group is not certain how much cash will be required to settle a liability, so an estimate is
made. The main estimates relate to the cost of holding properties that are no longer in use by the Group and contracts
the Group has entered into that are now unprofitable.
Accounting policies
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 cash will be paid to settle it and the amount
can be estimated 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
in the income statement. These provisions are estimates for which the
amount and timing of actual cash flows are dependent on future events.
Provisions
The movements in provisions during the year are as follows:
At 1 January 2010
Addition/(release)
Unwind of discount
Utilised
At 31 December 2010
Contract
provisions
£m
35
(1)
1
(15)
20
Restructuring
provisions
£m
8
5
–
(8)
5
Property
provisions
£m
17
(6)
1
(4)
8
Other
provisions
£m
16
–
–
–
16
Total
£m
76
(2)
2
(27)
49
The table includes provisions of £34 million that are classified as current
liabilities (2009: £47 million).
Contract provisions are for onerous sports rights commitments and are
expected to be utilised over the remaining contract period.
Restructuring provisions are in respect of previously announced
efficiency programmes and are expected to be utilised within one year.
The amount utilised in 2010 was the remaining provision from 2009.
Property provisions principally relate to onerous lease contracts due to
empty space created by the significant reduction in headcount in 2009.
Utilisation of the provision will be over the anticipated life of the leases or
earlier if exited.
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.
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Financial statements
3.6 Pensions
In this section we explain the accounting policies governing the Group’s treatment of the pension schemes that ITV have
in place, followed by analysis of the deficit on the defined benefit pension scheme and how this has been calculated.
The Group has offered its employees the opportunity to participate in a number of defined benefit schemes, however,
these schemes are now closed to new members. The Group continues to offer employees the defined contribution pension
scheme and where taken up makes payments into this scheme on their behalf.
The Group is required to disclose in the statement of financial position the net of the defined benefit pension assets and
liabilities representing the Group’s present obligation to its past and current employees. In the event of a net liability
the directors are obliged to determine how this deficit will be addressed. The assets are calculated at fair value and the
obligations are measured by discounting the best estimate of future cash flows to be paid out by the scheme. The Group
discloses the assets and obligations of the scheme and the assumptions used to calculate these. The detailed disclosures
are included in the section below. In addition we have placed text boxes to explain some of the technical terms used
in the disclosure.
Accounting policies
The Group’s pension schemes
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 then 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 that comparatively
small changes in the assumptions used may have a significant effect
on the income statement and statement of financial position.
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 method is an
accrued benefits valuation method in which the scheme liabilities make
allowance for projected earnings. These calculations are performed by a
qualified actuary.
Actuarial gains and losses are recognised in full in the period in which
they arise through the statement of comprehensive income.
Unfunded schemes in relation to previous directors are accounted for
under IAS 19. Assets are held outside of the pension scheme in the form
of gilts included within cash and cash equivalents.
Under the defined contribution schemes, the Group pays
fixed contributions into a separate fund on behalf of the
employee and has no further obligations to employees.
The risks and rewards associated with this type of scheme
are assumed by the members rather than the employer.
In a defined benefit scheme the employer underwrites
investment, mortality and inflation risks. In the event of
poor returns the employer needs to address this through
a combination of increased levels of contribution or by
making adjustments to the scheme. Schemes can be
funded where regular cash contributions are made by the
employer into a fund which is invested, or unfunded where
no regular money or assets are put aside to cover future
payments. The main ITV schemes are funded.
Under the defined benefit scheme, the Group has an
obligation to provide the member with future benefits in
the form of cash payments. The Group makes contributions
to the ITV Pension Scheme, a separate trustee-administered
fund that is not consolidated in these financial statements,
but is reflected on the defined benefit pension deficit line
on the statement of financial position. The pension trustees
manage and invest the assets of the scheme. 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 documentation.
In an unfunded scheme the Group is responsible for holding
assets to meet pension obligations.
The following section outlines the key elements of the
Group’s defined contribution and defined benefit schemes
during the year and as at the 31 December 2010.
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ITV plc Report and accounts 2010
Section 3 Operating assets and liabilities continued
Defined contribution schemes
Total contributions recognised as an expense in relation to defined
contribution schemes during 2010 were £6 million (2009: £4 million).
This is the default scheme for all new employees.
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 Group’s main scheme 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
and the next triennial valuation of this section is being undertaken as
at 1 January 2011. The first triennial valuation of sections B and C were
completed as at 1 January 2007 and the next triennial valuation of these
sections as at 1 January 2010 is in progress. The Group will monitor
funding levels annually.
The defined benefit pension deficit
The defined benefit pension deficit at 31 December 2010 was
£313 million (2009: £436 million).
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 in the current and previous
years are:
Total defined benefit
scheme obligations
Total defined benefit
scheme assets
Net amount recognised within
the consolidated statement of
financial position
Addressing the deficit
2010
£m
2009
£m
2008
£m
2007
£m
2006
£m
(2,746) (2,687) (2,339) (2,603) (2,657)
2,433 2,251 2,161 2,491 2,372
(313)
(436)
(178)
(112)
(285)
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 levels of ongoing contributions to the defined benefit schemes are
based on the current service costs (as assessed by the scheme trustees)
and the expected future cash flows of the scheme. Normal employer
contributions into the schemes in 2011 for current service are expected
to be in the region of £10 million (2010: £9 million) assuming current
contribution rates continue as agreed with the scheme trustees.
From July 2010, these figures include member contributions paid by the
employer under a salary sacrifice arrangement. In addition, the following
deficit funding payments are expected for forthcoming years, these
funding arrangements are fixed to 2014, regardless of the Section A
valuation due to be completed in 2011. Sections B and C funding
arrangements may vary:
– In 2011 the Group will make deficit funding contributions of
£35 million.
– From 2012 the Group’s annual contribution will be increased
by £5 million, unless during the previous year the Group has
implemented initiatives which reduce the Scheme’s deficit by at
least £10 million, compared with the level absent such initiatives.
– In addition from 2012, if the Group’s reported EBITA before
exceptional items for the year ended 31 December 2011 exceed
£300 million, the Group will increase this contribution by an amount
representing 10% of EBITA before exceptional items over this
threshold level.
– As a result of the SDN pension partnership a further £8 million of
annual deficit contributions will commence from 2011. Under the
partnership arrangements, the Group has committed to making a
payment to the Scheme of up to £150 million in 2022, if and to the
extent that the Scheme remains in deficit at that time.
The Group estimates the average duration of UK scheme liabilities
to be 15 years (2009: 14 years).
The remaining sections provide further detail of the value of scheme
assets and liabilities, how these are accounted for and the impact on the
income statement.
Total defined benefit scheme obligations
The defined benefit obligation (the pension scheme liabilities)
may change due to the following:
– Current service cost/(credit) – changes in the present value
of the obligation attributable to the members’ current
period’s service. This is charged to operating costs in the
income statement.
– Curtailment losses/gains – these occur when the Company
is demonstrably committed to amend a scheme so that
the benefits for future services are reduced or eliminated.
A change in future benefits is treated as a curtailment and
recognised in operating costs in the income statement
rather than an actuarial gain or loss recognised in equity,
if the effect of the re-measurement is significant.
– Past service costs/(credits) – these occur when there is a
change in the present value of the obligation, in respect of
a member’s prior period of service. These can arise due to
changes in the benefit entitlement of members and are
recognised through operating costs.
– Settlement gains – these occur when the Company
enters into a transaction to eliminate all further legal or
constructive obligations for some or all of the benefits
provided by the plan. Settlement gains can arise from
enhanced transfer values exercises, fully insuring benefits
or on business disposals.
–
Increase due to interest cost – this is the unwinding of the
discount on the present value of the obligation. Broadly,
it is determined by multiplying the discount rate at the
beginning of the period by the present value of the
obligation during the period. This is recognised through
net financing costs in the income statement.
– Actuarial losses/gains – arise from differences between
the actual and expected outcome in the valuation of the
obligation. These can be experience adjustments, which
are differences between the assumptions made and what
actually occurred, or they can result from changes in
assumptions. Actuarial gains and losses are recognised
through retained losses within equity.
– Cash contributions/benefits paid – cash contributions by
scheme participants will increase the obligations by the
scheme whereas any benefits paid out by the scheme will
lower the obligations of the scheme.
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The movement in the present value of the defined benefit obligation
for these schemes is analysed below:
Defined benefit obligation at 1 January
Current service cost
Curtailment loss/(gain) (redundancies)
Operating exceptional curtailment gain
(salary cap)
Past service cost (augmentations)
Operating exceptional past service credit
(one-off change to pension payment)
Operating exceptional past service credit
(introduction of pensions payment
change option)
Settlement (enhanced transfer values)
Interest cost
Net actuarial loss
Contributions by scheme participants
Benefits paid
Defined benefit obligation at 31 December
2010
£m
2,687
5
1
–
–
(2)
(25)
(21)
149
80
2
(130)
2,746
2009
£m
2,339
7
(2)
(72)
1
(38)
–
–
143
439
4
(134)
2,687
The present value of the defined benefit obligation is analysed
between wholly unfunded and funded defined benefit schemes
in the table below:
In July 2010, the UK Government announced changes to the inflation
index used for statutory increases (both for pensions in payment and
pensions in deferment) to apply to private sector pension schemes.
This has resulted in an actuarial gain of £45 million during the period in
respect of the ITV pension scheme.
In estimating the life expectancy of pension scheme members,
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
2010
60
26.6
29.9
60
28.6
32.0
2010
65
21.7
24.9
65
23.5
26.8
2009
60
26.5
29.8
60
28.5
31.9
2009
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 defined benefit obligation are set out below:
Defined benefit obligation in respect
of funded schemes
Defined benefit obligation in respect
of wholly unfunded schemes
Total defined benefit obligation
2010
£m
2009
£m
Assumption
2,709
2,653
Discount rate
37
2,746
34
2,687
Rate of inflation
Change in assumption
Increase/decrease
by 0.5%
Increase/decrease
by 0.5%
Impact on scheme liabilities
Decrease/increase
by 8% (£220 million)
Increase/decrease
by 5% (£137 million)
Increase
by 2% (£55 million)
Life expectations
Increase by 1 year
Assumptions used to calculate the best estimate of future
cash flows to be paid out by the scheme include: future salary
levels, future pensionable salary levels, the estimate of
increases in pension payments, the life expectations of
members, the effect of inflation on all these factors and
ultimately the discount rate used to estimate the present
day fair value of these obligations.
When deciding on these assumptions the Group will take
independent actuarial advice relating to the appropriateness
of the assumptions.
The sensitivities above 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 net pension deficit 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.
Total defined benefit scheme assets
The principal assumptions used in the scheme valuations at the
year-end were:
Discount rate for scheme liabilities
Inflation assumption
Rate of pensionable salary increases
Rate of increase in pension payment
(LPI 5% pension increases)
Rate of increase to deferred pensions (CPI)
2010
5.40%
3.40%
0.90%
3.30%
2.90%
2009
5.70%
3.40%
0.90%
3.30%
3.40%
IAS 19 requires that the discount rate used be determined by reference
to high quality fixed income investments in the UK that match the
estimated term of the pension obligations. The discount rate has been
based on the yield available on AA rated corporate bonds of a term
similar to the liabilities.
The inflation assumption has been set by looking at the difference
between the yields on fixed and index-linked Government bonds.
The inflation assumption is used to calculate the remaining assumptions
except where caps have been implemented as part of the Group’s
actions during 2009.
Pension scheme assets are measured at their fair value and
can change due to the following:
– The expected return on scheme assets is determined
based on the market expectations at the beginning
of the year and calculated as the expected percentage
return multiplied by the fair value of the scheme assets.
This expected return on scheme assets is recognised
through net financing costs in the income statement.
– Actuarial gains and losses arise from differences between
the actual and expected outcome in the valuation of the
assets. These can be experience adjustments, which are
differences between the assumptions made and what
actually occurred, or they can result from changes in
assumptions. For example differences in the actual asset
performance versus the expected performance would be
an actuarial gain/(loss). Actuarial gains and losses are
recognised through retained losses within equity.
– Employer’s contributions and cash contributions by
scheme participants are paid into the scheme to be
managed and invested.
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ITV plc Report and accounts 2010
Section 3 Operating assets and liabilities continued
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
Employer contributions
Contributions by scheme participants
Settlement (enhanced transfer values)
Benefits and expenses paid
Fair value of scheme assets at 31 December
2010
£m
2,251
136
147
47
2
(20)
(130)
2,433
2009
£m
2,161
128
48
44
4
–
(134)
2,251
At 31 December 2010 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
2010
£m
901
1,242
290
2,433
Market value
2009
£m
869
1,263
119
2,251
Exposure through the different asset classes is obtained through a
combination of executing swaps and investing in physical assets.
The trustees have a substantial holding of equity-type investments,
mainly shares in listed and unlisted companies. The investment return
related to these is variable, and they are generally considered ‘riskier’
investments. However, it is generally accepted that the yield on these
investments will contain a premium to compensate investors for this
additional risk. There is significant uncertainty about the likely size of this
risk premium. In respect of overseas equity investments there is also a
risk of unfavourable currency movements which the Group manage by
hedging broadly 60% of the overseas investments against currency
movements.
The trustees also hold corporate bonds and other fixed interest securities.
The risk of default on these is assessed by various rating agencies.
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 expected return for each asset class is weighted based on the target
asset allocation for 2011 to develop the expected long-term rate of
return on assets assumption for the portfolio. The benchmark for 2011 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 scheme assets by major category and
target allocations are set out below:
Expected
long-term rate
of return
2011
% p.a.
7.8
3.7–4.7
Planned asset
allocation
2011
% of assets
47
53
Expected
long-term rate
of return
2010
% p.a.
8.1
4.0–5.0
Planned asset
allocation
2010
% of assets
47
53
Equity and property
Bonds
The expected yield on bond investments with fixed interest rates
can be derived exactly from their market value. The actual return on the
scheme’s return seeking assets for the year ended 31 December 2010
was an increase of £283 million (2009: increase of £176 million).
Amounts recognised through the income statement
Amounts recognised through the income statement in the various
captions are as follows:
Amount charged to operating costs:
Current service cost
Curtailment (loss)/gain (redundancies)
Past service cost (augmentations)
Amount credited to operating income
– exceptional items:
Curtailment gain (salary cap)
Past service credit (one-off change
to pensions payment)
Past service credit (introduction of
pensions payment change option)
Settlement gain (enhanced transfer values)
Amount (charged)/credited to net
financing costs:
Expected return on pension scheme assets
Interest cost
Total credited in the consolidated
income statement
2010
£m
2009
£m
(5)
(1)
–
(6)
–
2
25
1
28
(7)
2
(1)
(6)
72
38
–
–
110
136
(149)
(13)
128
(143)
(15)
9
89
Operating exceptional gains of £28 million, included above, were
recognised in 2010 in relation to changes made to the ITV Pension
Scheme. These included:
– a past service credit of £25 million in relation to the introduction of a
member option to change pension payments at retirement
– a past service credit of £2 million in relation to the one off change to
pension payments, and
– a settlement gain of £1 million in relation to the enhanced transfer
value exercise.
Amounts recognised through the consolidated statement of
comprehensive income/(cost)
The amounts recognised through the consolidated statement of
comprehensive income/(cost) are:
Actuarial gains and (losses):
Arising on scheme assets
Arising on scheme liabilities
2010
£m
147
(80)
67
2009
£m
48
(439)
(391)
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 £252 million (2008: £319 million loss).
Included within actuarial gains and losses are experience adjustments
as follows:
2010
£m
2009
£m
2008
£m
2007
£m
2006
£m
Experience
adjustments on
scheme assets
Experience
adjustments on
scheme liabilities
147
48
(438)
15
32
(3)
–
–
(18)
(12)
Section 4 Capital structure and financing costs
97
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Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
The directors have to determine the appropriate capital structure of ITV specifically
how much is raised from shareholders (equity) and how much is borrowed from
financial institutions (debt) in order to finance the Group’s activities both now and
in the future.
The Board’s focus during the year was on reducing net debt and improving the Group’s
credit rating. As these improvements continue the Board will review its policies on capital
structure to support the Transformation Plan.
The Board is mindful that equity capital cannot be easily flexed and in particular
raising new equity would only be likely in the context of an acquisition. Debt can be
issued and repurchased more easily but there are high transaction costs in frequent
adjustment and debt holders are under no obligation to accept any offer to repurchase.
This section outlines how the Group manages its capital. The Group considers its capital structure and dividend policy at
least twice a year ahead of announcing results in the context of its ability to continue as a going concern and deliver its
business plan. The Group focuses on leverage, credit ratings and interest cost, particularly when considering investment.
On the following pages there are sections on the Group’s net debt, borrowings and held to maturity investments, derivative
financial instruments, net financing costs, financial risk factors, fair value hierarchies, equity and share-based compensation.
The Group is not subject to any externally imposed capital requirements.
4.1 – Net debt
Net debt is the Group’s key measure used to evaluate total outstanding debt net of the current cash resources.
In defining total outstanding debt the directors consider it appropriate to include the following:
– the currency impact of swaps held against those debt instruments;
– equity components of debt instruments; and
– the accounting impact on specific bonds due to the increase in coupon rates caused by the downgrade of ITV’s
investment status in August 2008.
Analysis of net debt
The table below analyses the Group’s components of net debt and their movements in the year:
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
1 January
2010
£m
479
103
582
4
149
Net cash flow
and acquisitions
£m
282
(6)
276
(4)
–
Currency and
non-cash
movements
£m
–
2
2
–
(1)
31 December
2010
£m
761
99
860
–
148
(1)
(8)
(1,366)
(65)
(1,440)
108
(35)
20
(612)
1
8
146
4
159
–
–
–
431
(47)
(8)
50
8
3
(10)
4
(5)
(7)
(47)
(8)
(1,170)
(53)
(1,278)
98
(31)
15
(188)
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Section 4 Capital structure and financing costs continued
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 and cash equivalents
Included within cash equivalents is £53 million (2009: £62 million), the
use of which is restricted to meeting finance lease commitments under
programme sale and leaseback commitments, and gilts of £36 million
(2009: £34 million) over which the unfunded pension promises have
a charge.
Held to maturity investments
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). As at December 2010 this gilt has a carrying
value of £148 million.
Loan and loan notes due within one year
During the course of the year ITV repurchased €63 million (£54 million)
of the October 2011 bonds with €54 million (£47 million) remaining due
within one year. In 2009 ITV repaid €195 million (£171 million) of this
October 2011 bond and exchanged at par €188 million for the issuance
at par of new bonds with a maturity of June 2014 and a coupon of 10%.
Loan and loan notes due after one year
In 2010 ITV conducted further repurchases of £42 million of the
£425 million October 2015 bonds reducing the outstanding balance to
£383 million. These bonds carry a coupon of 5.375%.
In December 2010 ITV repaid the remaining £50 million of the
£125 million May 2013 loan (2009: £75 million repaid).
Included within loan notes due after one year is the £200 million
covenant free loan raised in February 2009 with a maturity of March
2019. This loan is secured against the 4.5% March 2019 gilts with a
nominal value of £138 million (for a cost of £150 million) described
above. Interest on the loan is fixed at 6.75% for the first three years and a
variable rate thereafter, depending in part on the performance of an
interest rate algorithm. The interest mechanism on these instruments
was adjusted during the year. The change was not significant and did not
1 January
2009
£m
503
113
616
–
–
Net cash flow
and acquisitions
£m
(20)
(11)
(31)
–
150
Currency and
non-cash
movements
£m
(4)
1
(3)
4
(1)
31 December
2009
£m
479
103
582
4
149
(252)
(7)
(1,192)
(72)
(1,523)
147
–
30
(730)
249
7
(221)
–
35
–
(36)
–
118
2
(8)
47
7
48
(39)
1
(10)
–
(1)
(8)
(1,366)
(65)
(1,440)
108
(35)
20
(612)
impact the accounting treatment. The lender has the option to increase
this debt by £150 million.
In March 2009 ITV repaid its £250 million Eurobond.
Currency components of swaps held against euro denominated bonds
As at 31 December 2010 the currency element of the cross currency
interest rate swaps is a £98 million asset (2009: £108 million asset) and
this offsets the exchange rate movement of the 2011 and 2014 Euro
denominated bonds. The interest element of the swap is a £10 million
asset (2009: £12 million asset) resulting in an overall net asset total at
31 December 2010 of £108 million (2009: £120 million net asset total)
Convertible bond
In November 2009 ITV issued a £135 million convertible Eurobond with
a maturity date of November 2016 and a coupon of 4%. As the bond
contains an option for the issuer to convert a portion of the debt into
ITV’s equity, the components are treated as separate instruments.
The accounting policy for this compound instrument is detailed in
note 4.2.
The debt portion is £100 million (2009: £96 million) and is included within
Loans and loan notes due after one year. The effective interest rate on
the carrying value of the debt component is 9.4%. The equity
component of £31 million (2009: £35 million) is shown separately.
Amortised cost adjustment
The purpose of the amortised cost adjustment is to exclude the impact
of the coupon step-up on 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 a non-cash increase in net debt of
£30 million as at 31 December 2008. The accounting treatment unwinds
this increase in future years as a reduction in interest expense. As this
adjustment has no impact on the cash interest paid the interest charged
to unwind the adjustment is excluded from net financing costs as
described in the Financial and performance review.
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Financial statements
4.2 Borrowings and held to maturity investments
The Group borrows money from financial institutions in the form of bonds and other financial instruments. These generally
have fixed interest rates and are for a fixed term.
Some of these financial instruments are complex in that they require the Group to hold investments, of a lesser value,
in assets that have fixed interest rates and a fixed maturity date.
The interest payable and receivable on these instruments is shown in the Net financing costs note in Section 4.4
Accounting policies
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. Under the
amortised cost method the difference between the amount initially
recognised and the redemption value is recorded in the income
statement over the period of the borrowing on an effective
interest basis.
Where the Group has identified that the treatment of a borrowing
(amortised cost) and its related derivative (fair value) result in a
mismatch, the Group has adopted the fair value option within IAS 39
(revised) to eliminate this accounting mismatch. This is considered more
appropriate than the amortised cost method 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 borrowings at fair value in all periods subsequent
to initial recognition, with resultant gains or losses recorded in the
income statement.
Compound financial instruments
Compound financial instruments are instruments that are classified
as partly debt and partly equity due to the terms of the instrument.
The Group has one compound financial instrument which is a convertible
note that can be converted to share capital at the option of the holder
at maturity.
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 re-measured subsequent to initial recognition but is
transferred to retained losses over the term of the instrument on an
effective interest rate basis.
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.
Borrowings and held to maturity investments
The table below analyses the Group’s borrowings by when they fall due
for payment:
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
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
2010
Total
£m
47
8
55
–
607
563
1,170
1,217
10
34
9
53
61
Loans and
loan notes
£m
Finance
leases
£m
10
641
572
1,223
1,278
2009
Total
£m
1
8
9
106
9
115
316
944
1,366
1,367
39
17
65
73
355
961
1,431
1,440
Current loans and loan notes due within one year
Loans repayable in one year or less as at 31 December 2010 comprise
an unsecured €54 million Eurobond (£47 million) which has a coupon
of 6.0% and matures in October 2011. After cross currency swaps there
is a net amount receivable in October 2011 of £16 million. In 2009 this
bond was classified as due in more than one year but not more than
two years.
Loans and loan notes repayable between two and five years
Loans repayable between two and five years as at 31 December 2010
includes an unsecured £110 million Eurobond which has a coupon of
three-month sterling LIBOR plus 2.7% and matures in March 2013, an
unsecured €188 million Eurobond (£126 million net of cross currency
swaps) which has a coupon of 10.0% and matures in June 2014 and an
unsecured £383 million Eurobond which has a coupon of 5.375% and
matures in October 2015.
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Section 4 Capital structure and financing costs continued
Loans and loan notes repayable after five years
Loans repayable after five years includes 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 6.75% until March 2012 and
a variable rate thereafter and matures in March 2019.
Fair values versus book value
The tables below provide fair value information for the Group’s
borrowings and held to maturing investments:
Assets
Held to maturity
investments
Book value
Maturity
2010
£m
2009
£m
2010
£m
Fair value
2009
£m
Mar 19
148
149
150
143
The fair value of held to maturity investments is based on quoted
market bid prices at the year-end.
Maturity
Liabilities
€54 million Eurobond
(previously €118
million Eurobond)
Oct 11
£110 million Eurobond Mar 13
£50 million loan
May 13
€188 million Eurobond Jun 14
£383 million Eurobond
(previously
£425 million
Eurobond)
£135 million
Convertible bond
Nov 16
£250 million Eurobond Jan 17
£200 million loan
Mar 19
Other loans
Oct 15
Book value
2010
£m
2009
£m
2010
£m
Fair value
2009
£m
47
110
–
150
106
110
50
156
48
109
–
185
109
105
58
187
347
384
373
387
100
263
200
–
1,217
96
264
200
1
1,367
172
258
269
–
1,414
147
240
244
1
1,478
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 repurchases. After taking account of cross currency interest
rate swaps ITV will receive a net £16 million at maturity.
The book value of the 2015 £383 million Eurobond decreased in the year
as a result of repurchases.
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 4.1.
Finance leases
The following table analyses when finance lease liabilities are due
for payment:
2010
2009
Minimum
lease
payments
£m
11
Interest
£m
3
Principal
£m
8
Minimum
lease
payments
£m
12
Interest
£m
4
Principal
£m
8
50
10
71
6
44
1
10
9
61
58
18
88
10
1
15
48
17
73
In one year or less
In more than one
year but not more
than five years
In more than five
years
Finance leases principally comprise programmes under sale and
leaseback arrangements and a contractual arrangement relating to
the provision of news accounted for as a lease. The net book value of
tangible assets held under finance leases at 31 December 2010 was
£9 million (2009: £8 million).
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Financial statements
4.3 Derivative financial instruments
A derivative is a financial instrument used to manage risk. Its value changes over time in response to underlying variables
such as exchange rates or interest rates and is for a fixed period. In accordance with Board approved policies, the Group uses
derivatives to manage its exposure to fluctuations in interest on its borrowings and foreign exchange rates. These policies are
included within Section 4.5.
Derivative financial instruments are initially recognised as either assets or liabilities at fair value and are subsequently
re-measured at fair value at each reporting date. Movements in instruments measured at fair value are recorded in the
income statement in net financing costs.
Analysis of these derivatives and the various methods used to calculate their respective fair values is detailed in this section.
Accounting policies
The Group uses a limited number of derivative financial instruments to
hedge its exposure to fluctuations in interest and 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 re-measured 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.
Derivative financial instruments
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.
The following table shows the fair value of derivative financial instruments analysed by type of contract.
Current
Interest rate swaps – fair value through profit or loss
Forward foreign exchange contracts – fair value through profit or loss
Non-current
Interest rate swaps – fair value through profit or loss
2010
Assets
£m
Liabilities
£m
Assets
£m
69
–
69
(3)
–
(3)
89
(39)
158
(42)
3
2
5
151
156
2009
Liabilities
£m
(3)
(1)
(4)
(30)
(34)
Interest rate swap assets as at 31 December 2010 include £108 million of
cross-currency and interest rate swaps relating to the €54 million 2011
Eurobond and the €188 million 2014 Eurobond (see note 4.2).
ITV also has a £162.5 million swap matched against part of the 2015
£383 million bond. Under this swap ITV receives 5.375% (to match the
bond coupon) and pays six-month sterling LIBOR plus 0.3%.
The remaining £50 million of assets relate 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 has other swaps totalling £162.5 million matched against part of
the 2015 £383 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%.
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ITV plc Report and accounts 2010
Section 4 Capital structure and financing costs continued
Interest rate swap liabilities of £42 million as at 31 December 2010 relate
to various fixed and floating 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 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.
ITV has a £120.5 million swap with a maturity of October 2015 under
which it receives 5.375% (to match the bond coupon) and pays the
higher of six-month sterling LIBOR plus 2.905% or six-month US$ LIBOR
plus 2.105%, set in arrears with a cap on payment of 8%.
4.4 Net financing costs
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.
ITV has a £125 million swap with a maturity of January 2017 under
which it receives 7.375% (to match the bond coupon) and pays the
higher of six-month sterling LIBOR plus 4.52% or six-month US$ LIBOR
plus 3.72%, set in arrears with a cap on payment of 10%.
All forward foreign exchange contracts hedge underlying currency
exposures.
This section details the interest income generated on the Group’s financial assets and the interest expense incurred on its
borrowings and other financial assets and liabilities. In reporting its ‘adjusted profits’, the Group adjusts financing costs for
mark-to-market movements on swaps and foreign exchange, imputed pension interest and other financing costs when
assessing the net financing costs. The rationale for adjustments made to financing costs is provided in the Financial and
performance review.
Accounting policies
Net financing costs comprise interest income on funds invested,
gains/losses on the disposal of financial instruments, changes in the
fair value of financial instruments, interest expense on borrowings and
finance leases, unwinding of the discount on provisions, foreign exchange
gains/losses and implied interest on pension assets and liabilities. Interest
income and expense is recognised as it accrues in profit or loss, using the
effective interest method.
Net financing costs
Net financing costs can be analysed as follows:
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 scheme
obligations
Losses on early settlement
Change in fair value of instruments classified at
fair value through profit or loss
Other interest expense
Net financing costs
2010
£m
2009
£m
26
23
136
–
11
12
185
128
14
–
36
201
(93)
(93)
(149)
(10)
–
(8)
(260)
(75)
(143)
(8)
(37)
(11)
(292)
(91)
The foreign exchange gain relates principally to Euro denominated bonds
that are economically hedged by cross currency interest rate swaps.
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Financial statements
4.5 Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risks (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 minimise 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 function 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 movements in foreign exchange rates, primarily with
respect to the US dollar and the Euro. Foreign exchange risk arises from:
differences in the dates commercial transactions are entered into and
the date they are settled; 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
€54 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 2010, 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 (2009: £2 million) higher/lower.
Equity would have been £13 million (2009: £13 million) higher/lower.
At 31 December 2010, 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 (2009: £3 million) higher/lower.
Equity would have been £2 million (2009: £2 million) higher/lower.
b) Price risk
The Group is not exposed to any material price risk.
c) Interest rate risk
Interest rate risk is the risk that the Group is impacted by significant
changes in interest rates. 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 40% and 60% of its
borrowings 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 2010, if interest rates had increased/decreased by 0.1%,
post-tax profit for the year would have been £2 million (2009: £1 million)
lower/higher.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations. It arises principally from the Group’s receivables from
customers, cash and held to maturity investments. There is also credit
risk relating to the Group’s own credit rating as this impacts the
availability and cost of future finance.
a) Trade and other receivables
The Group’s exposure to credit risk is influenced mainly by the individual
characteristics of each customer. The majority of trade receivables relate
to airtime sales contracts with advertising agencies and advertisers.
Credit insurance has been taken out against these companies to
minimise the impact on the Group in the event of a possible default.
b) Cash and held to maturity investments
The Group operates strict investment guidelines with respect to surplus
cash and the emphasis is on preservation of capital. Counterparty limits
for cash deposits are largely based upon long-term ratings published by
the major credit rating agencies and perceived state support. Deposits
longer than six months require the approval of the General Purpose
Committee.
c) Borrowings
ITV’s credit ratings with Standard & Poor’s and Moody’s Investor
Service are B+/Ba3 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 2010 the Group has available £125 million (2009:
£75 million) of undrawn committed facilities. The £125 million facility
is provided by one bank and is secured on advertising receivables.
The facility has no financial covenants and matures in September 2015.
The facility was renewed during the year resulting in the increased size
and longer maturity.
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ITV plc Report and accounts 2010
Section 4 Capital structure and financing costs 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 (including interest),
so will not always reconcile with the amounts disclosed on the statement of financial position:
At 31 December 2010
Non-derivative financial liabilities
Borrowings
Held to maturity investments
Trade and other payables
Other payables – non current
Derivative financial instruments
Interest rate swaps
Forward foreign exchange contracts – fair value through profit or loss
Outflows
Inflows
At 31 December 2009
Non-derivative financial liabilities
Borrowings
Held to maturity investments
Trade and other payables
Other payables – non current
Derivative financial instruments
Interest rate swaps
Forward foreign exchange contracts – fair value through profit or loss
Outflows
Inflows
Total
contractual
cash flows
£m
(1,812)
231
(698)
(3)
Less than
1 year
£m
Between
1 and 2 years
£m
Between
2 and 5 years
£m
(138)
11
(672)
–
(90)
11
(22)
(3)
(899)
33
(4)
–
Over
5 years
£m
(685)
176
–
–
142
74
9
50
9
(13)
14
(2,139)
(13)
14
(724)
–
–
(95)
–
–
(820)
–
–
(500)
Total
contractual
cash flows
£m
(2,167)
288
(677)
(12)
Less than
1 year
£m
Between
1 and 2 years
Between
2 and 5 years
£m
£m
Over
5 years
£m
(108)
15
(646)
–
(215)
15
(23)
(10)
(639)
45
(8)
(2)
(1,205)
213
–
–
165
13
79
64
9
(77)
77
(2,403)
(61)
61
(726)
(16)
16
(154)
–
–
(540)
–
–
(983)
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.
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4.6 Fair value hierarchy
The financial instruments included on the ITV statement of financial position are measured at either fair value
or amortised cost. The measurement of this fair value can in some cases be subjective, and can depend on the inputs
used in the calculations. ITV generally uses external valuations using market inputs or market values (e.g. external share
prices) and does not calculate its own fair values. The different valuation methods are called ‘hierarchies’ and are
described below.
The table below sets out the financial instruments included on the ITV statement of financial position 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
Liabilities measured at fair value
Financial liabilities at fair value through profit or loss
Interest rate swaps
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
Liabilities measured at fair value
Financial liabilities at fair value through profit or loss
Interest rate swaps
Forward foreign exchange contracts
Fair value
31 December
2010
£m
Level 1
31 December
2010
£m
Level 2
31 December
2010
£m
Level 3
31 December
2010
£m
1
36
158
195
1
36
–
37
–
–
158
158
–
–
–
–
Fair value
31 December
2010
£m
Level 1
31 December
2010
£m
Level 2
31 December
2010
£m
Level 3
31 December
2010
£m
(42)
(42)
–
–
(42)
(42)
–
–
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.
106
ITV plc Report and accounts 2010
Section 4 Capital structure and financing costs continued
4.7 Equity
This section explains material movements recorded in shareholders equity that are not explained elsewhere in the financial
statements. The movements in equity and the balance at 31 December 2010 are presented in the consolidated statement
of changes in equity.
The Group utilises share award schemes as part of its employee remuneration packages. The various ITV Share-based
compensation schemes are explained in this section as they are accounted for through retained losses.
Accounting policies
Available for sale reserve
Available for sale assets 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 then recorded in the
income statement.
Dividends
Dividends are recognised through equity on the earlier of their approval
by the Company’s shareholders or their payment.
Share-based compensation
The Group operates a number of share-based compensation schemes.
The fair value of the equity instrument granted is measured at grant
date and spread over the vesting period via a charge to 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.
Vesting conditions are limited to service conditions and performance
conditions. Conditions other than service or performance conditions are
considered non-vesting conditions. Non-market vesting conditions are
included in assumptions about the number of options that are expected
to vest. 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.
4.7.1 Share capital and share premium
The Group’s share capital at 31 December 2010 of £389 million (2009:
£389 million) and share premium of £120 million (2009: £120 million)
is the same as that of ITV plc. Details of this are given in the ITV plc
Company financial statements section of this annual report.
4.7.2 Merger and other reserves
Merger and other reserves at 31 December 2010 include merger reserves
arising on the Granada/Carlton and previous mergers of £119 million
(2009: £119 million), capital reserves of £112 million (2009: £112 million),
capital redemption reserves of £36 million (2009: £36 million),
revaluation reserves of £6 million (2009: £6 million) and £31 million
(2009: £35 million) in respect of the equity element of the 2016
convertible bond.
4.7.3 Translation reserve
The translation reserve comprises all foreign exchange differences
arising on the translation of the accounts of, and investments in,
foreign operations.
4.7.4 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.
4.7.5 Retained losses
The retained losses reserve comprises of profit for the year attributable
to owners of the company of £269 million (2009: £91 million) and other
items recognised directly through equity as presented on the
consolidated statement of changes in equity.
4.7.6 Non-controlling interests
In 2010 £1 million of profit was attributable to non-controlling interests.
The £7 million movement in 2009 was £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 in GMTV purchased in November 2009.
4.7.7 Share-based compensation
A transaction will be classed as a share-based transaction where the
Group receives services from employees and pays for these in shares or
similar equity instruments. If the Group incurs a liability whose amount
is based on the price or value of the Group’s shares then this will also fall
under a share-based transaction.
The Group operates a number of share-based compensation schemes.
A description of each type of share-based payment arrangement that
existed at any time during the period, including the general terms and
conditions of each arrangement, such as vesting requirements, the
maximum term of options granted, and the method of settlement
(e.g. whether in cash or equity) are set out in the Remuneration report.
Exercises of share options granted to employees 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.
Share-based compensation charges totalled £8 million in 2010 (2009:
£11 million).
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Financial statements
The table below summarises the movements in the number of share options outstanding for the Group and their weighted average exercise price:
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
2010
Weighted
average
exercise price
(pence)
63.94
–
42.90
21.63
1.79
121.42
22.32
Number
of options
(’000)
101,989
25,792
3,438
(6,311)
(8,141)
(39,465)
77,302
2009
Weighted
average
exercise price
(pence)
71.88
–
28.60
39.23
–
52.19
63.94
Number
of options
(’000)
116,454
26,821
13,498
(12,794)
(8,772)
(33,218)
101,989
8,767
121.61
33,694
160.42
For those options exercised in the year, the average share price during 2010 was 59.99 pence (2009: 38.37 pence).
Of the options still outstanding, the range of exercise prices and weighted average remaining contractual life of these options can be analysed
as follows:
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
Share schemes
Full details of the ITV share plans and awards can be found in the
Remuneration report.
Awards made under the ITV Commitment Scheme, Granada Media
and Granada Commitment schemes, the Granada Media, Granada
and Carlton Executive Share Option schemes, the Carlton Equity
Participation Plan, the Carlton Deferred Annual Bonus Plan and the
Granada Save As You Earn (SAYE) 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 financial statements, and in
previous remuneration reports and have not been repeated in these
Weighted
average
exercise price
(pence)
–
31.56
54.69
85.03
105.99
112.30
136.40
–
280.00
–
2010
Weighted
average
remaining
contractual life
(years)
2.54
2.83
1.62
1.03
1.44
0.94
0.90
–
0.05
–
Number
of options
(’000)
50,161
15,238
3,643
1,046
1,878
2,183
2,584
–
569
–
Weighted
average
exercise price
(pence)
–
28.60
55.40
84.75
101.90
114.14
137.33
217.78
270.09
385.31
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
Number
of options
(’000)
47,851
13,326
5,377
1,462
11,321
6,787
3,401
1,035
11,337
91
financial statements on the grounds of relevance. The ITV SAYE scheme
is an Inland Revenue Approved SAYE scheme. Although awards remain
vested but unexercised under these Plans, they are not considered
material for the purposes of disclosure in this note.
The awards made under the ITV Performance Share Plan and the ITV
Turnaround Plan all have market based performance conditions that are
taken into account in the fair value calculation using a Monte-Carlo
pricing model. The Black-Scholes model is used to value the SAYE
Schemes as these do not have any market performance conditions.
Assumptions made relating to grants of share options during 2010 and
2009 are as follows:
Scheme name
Save As You Earn
ITV – three year
ITV – five year
ITV – three year
ITV – five year
Performance Share Plan
ITV – three year
ITV – three year
ITV – three year
Nil-Cost Options award under deed
ITV – three year
Date of
grant
Share price at
grant
(pence)
17-Jul-09
17-Jul-09
01-Apr-10
01-Apr-10
01-Jun-09
26-Mar-10
03-Aug-10
35.00
35.00
62.95
62.95
40.00
58.70
51.60
26-Apr-10
69.40
Exercise
price
(pence)
28.60
28.60
42.90
42.90
–
–
–
–
Expected
volatility
%
Expected
life
(years)
Gross dividend
yield
%
Risk
free rate
%
53.00%
43.00%
56.00%
45.00%
53.00%
56.00%
57.00%
3.25
5.25
3.25
5.25
3.00
3.00
3.00
56.00%
3.00
–
–
–
–
–
–
–
–
2.40%
3.10%
1.97%
2.89%
2.10%
1.88%
1.42%
Fair
value
(pence)
17.00
18.00
21.45
22.75
30.20
39.55
34.15
2.00%
50.35
108
ITV plc Report and accounts 2010
Section 4 Capital structure and financing costs continued
The expected volatility for awards made in 2010 reflects the historic
volatility of ITV plc’s share price and equity markets as a whole over the
preceding three or five years, and depending on the expected life of the
award, prior to the grant date of the share options awarded.
Employees’ Benefit Trust
The Group has investments in its own shares as a result of shares
purchased by the ITV Employees’ Benefit Trust (‘EBT’). Transactions
with the Group-sponsored EBT are included in these financial statements.
In particular, the EBT’s purchases of shares in ITV plc are debited directly
to equity.
The table below shows the number of ITV plc shares held in the trust at
31 December 2010 and the purchases/(releases) from the EBT made in
the year to satisfy awards under the Group’s share schemes.
Shares held at:
1 January 2010
Number of shares
(released)/purchased
3,528,761
Nominal value
£
352,876
(6,776,765)
(677,677)
(984,401)
(377,507)
(98,440)
(37,751)
(113,406)
7,037,274
2,313,956
(11,340)
703,727
231,395
31 December 2010
Scheme
ITV Deferred Share
Award Plan
Granada
Commitment
Scheme
ITV SAYE Scheme
Employee
Share Award
Shares purchased
The total number of shares held by the EBT at 31 December 2010
represents 0.06% (2009: 0.09%) of ITV’s issued share capital. The market
value of own shares held is £2 million (2009: £2 million).
The shares will be held in the EBT until such time as they may be
transferred to participants of the various Group share schemes. Rights to
dividends have been waived by the EBT in respect of shares held which
do not relate to restricted shares under the Deferred Share Award Plan.
In accordance with the Trust Deed, the Trustees of the EBT have the
power to exercise all voting rights in relation to any investment (including
shares) held within that trust.
Section 5 Other notes
5.1 Related party transactions
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Financial statements
The related parties identified by the directors include joint ventures, associated undertakings, investments and key
management personnel.
To enable users of our financial statements to form a view about the effects of related party relationships on the Group,
we disclose the related party relationship when control exists, irrespective of whether there have been transactions
between the related parties.
Amounts paid to the Group’s retirement benefit plans are set out in
note 3.6. During the year the Group and the Trustee of the main section
of the ITV Pension Scheme concluded a partnership, backed by SDN.
The full details of this arrangement are set out in note 3.6 and the
Financial and performance review.
Transactions with key management personnel
Key management consists of ITV plc executive and non-executive
directors and the ITV Management Board. Key management personnel
compensation is as follows:
Short-term employee benefits
Post-employment benefits
Termination benefits
Share-based compensation
2010
£m
8
1
2
4
15
2009
£m
10
1
2
5
18
Related party transactions
Transactions with joint ventures and associated undertakings
Transactions with joint ventures and associated undertakings during the
year were:
Sales to joint ventures
Sales to associated undertakings
Purchases from joint ventures
Purchases from associated undertakings
2010
£m
13
2
21
50
2009
£m
4
2
13
46
The transactions with joint ventures primarily relate to sales and
purchased of digital multiplex services with Digital 3&4 Limited.
The purchases from associated undertakings relate to the purchase of
news services from ITN. All transactions with associated undertakings
and joint ventures arise in the normal course of business on an arms-
length basis. None of the balances are secured.
The amounts owed by and to these related parties at the year-end were:
Amounts owed by joint ventures
Amounts owed by associated undertakings
Amounts owed by pension scheme
Amounts owed to joint ventures
Amounts owed to associated undertakings
2010
£m
1
8
1
1
–
2009
£m
25
4
1
1
1
110
ITV plc Report and accounts 2010
Section 5 Other notes continued
Principal joint ventures, associated undertakings and investments
The Company indirectly held at 31 December 2010 the following holdings in significant joint ventures, associated undertakings and investments:
Name
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)
Digital 3&4 Limited
YouView TV Limited
(1) Classified as an Asset Held for Sale.
(2)
Incorporated and registered in Scotland.
5.2 Contingent liabilities
Interest in
ordinary share
capital 2010
%
25.00
Interest in
ordinary share
capital 2009
%
25.00
Note
a
b
a
a
a
b
c
b
b
50.00
50.00
40.00
40.00
25.00
25.00
50.00
6.91
50.00
14.30
25.00
25.00
50.00
7.36
50.00
–
a
b
c
Associated undertaking.
Joint venture.
Available for sale financial asset.
Principal activity
Production of television programmes
Provision of a standard and high definition
enabled digital satellite proposition
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
Operates the Channel 3 and 4 digital terrestrial multiplex
Internet connected television platform
A contingent liability is a liability that is not sufficiently certain to qualify for recognition as a provision where uncertainty
may exist regarding the outcome of future events.
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.
Since then STV has admitted over £37 million in full satisfaction of the
Group’s claim.
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. None of these items are expected to have a
material affect on the Group’s results or financial position.
5.3 Subsequent events
Where the Group receives information in the period between 31 December 2010 and the date of this report about
conditions related to certain events that existed at the year-end, we update our disclosures that relate to those conditions
in light of the new information. Such events can be categorised as adjusting or non-adjusting depending on whether
the condition existed in 2010. If non-adjusting events after the year-end are material, non-disclosure could influence the
economic decisions that users make on the basis of the financial statements.
Accordingly, for each material category of non-adjusting event after the reporting period we disclose in this section the
nature of the event and an estimate of its financial effect, or a statement that such an estimate cannot be made.
There are no subsequent events.
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
Derivative financial instruments
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
Net current (liabilities)/assets
Total assets less current liabilities
Creditors – amounts falling due after more than one year:
Borrowings
Derivative financial instruments
Net assets
Capital and reserves:
Called up share capital
Share premium
Other reserves
Profit and loss account
Shareholders’ funds – equity
111
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Financial statements
Note
iii
iv
iv
v
vi
vi
vi
2010
£m
2010
£m
2009
£m
2009
£m
1,646
148
89
1,883
1,671
149
151
1,971
9
67
33
109
(47)
(111)
(16)
(174)
173
–
146
319
–
(173)
(21)
(194)
(65)
1,818
(1,171)
(39)
(1,210)
608
389
120
67
32
608
125
2,096
(1,366)
(29)
(1,395)
701
389
120
71
121
701
The accounts were approved by the Board of directors on 2 March 2011 and were signed on its behalf by:
Ian Griffiths
Director
112
ITV plc Report and accounts 2010
Notes to the ITV plc Company Financial Statements
i Accounting policies
Basis of preparation
These accounts have been prepared in accordance with UK Generally
Accepted Accounting Practice (UK GAAP).
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.
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.
Subsidiaries
Dividends
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 subsidiaries 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.
Dividends are recognised through equity on the earlier of their approval
by the Company’s shareholders or their payment.
ii Employees
Four (2009: four) directors of ITV plc were employees of the Company
during the year, two of which remain at year end. 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 2010 were as follows:
At 1 January 2010
Disposal of Friends Reunited
At 31 December 2010
£m
1,671
(25)
1,646
The Company disposed of its 100% interest in Friends Reunited Holdings
Limited on 25 March 2010 to Brightsolid Online Innovation Limited
(a wholly-owned subsidiary of D.C. Thompson Limited) for a cash
consideration of £27 million. The sale resulted in no material gain
or loss on disposal in 2010.
iv Borrowings
Current loans and loan notes due within one year
Loans repayable in one year or less as at 31 December 2010 comprise
an unsecured €54 million Eurobond (£47 million) which has a coupon of
6.0% and matures in October 2011.
Loan repayable after more than one year
Loans repayable after more than one year as at 31 December 2010
includes an unsecured £110 million Eurobond which has a coupon of
three-month sterling LIBOR plus 2.7% and matures in March 2013, an
unsecured €188 million Eurobond (£126 million net of cross-currency
swaps) which has a coupon of 10.0% and matures in June 2014 and an
unsecured £383 million Eurobond which has a coupon of 5.375% and
matures in October 2015. Maturing in November 2016 is an unsecured
£135 million convertible Eurobond which has a coupon of 4.0%.
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 6.75% until March 2012 and a variable rate
thereafter which matures in March 2019.
113
Overview
Strategy & operations
Performance & financials
Responsibility
Governance
Financial statements
v Called up share capital
Ordinary shares of 10 pence each
Authorised:
8,000,000,000 (2009: 8,000,000,000)
Allotted, issued and fully paid:
3,889,129,751 (2009: 3,889,129,751)
Total
Authorised
Allotted, issued
and fully paid
2010
£m
2009
£m
2010
£m
2009
£m
800
800
800
800
389
389
389
389
The Company’s ordinary shares give shareholders 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 2010
Retained loss for year for
equity shareholders
Share-based compensation
Equity portion of the
convertible bond
At 31 December 2010
Share
capital
£m
389
Share
premium
£m
120
Other
reserves
£m
71
Profit
and loss
account
£m
121
Total
£m
701
–
–
–
–
–
–
(101)
8
(101)
8
–
389
–
120
(4)
67
4
32
–
608
The loss after tax for the year dealt with in the accounts of ITV plc is
£101 million (year ended 31 December 2009: profit of £67 million).
On 17 February 2011 the Company received a dividend of £75 million
from its subsidiary Carlton Communications Limited, resulting in an
increase in profit and loss reserves.
vii Contingent liabilities
Under a group registration, the Company is jointly and severally liable
for VAT at 31 December 2010 of £39 million (31 December 2009:
£25 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 2010 (2009: none).
ix Related party transactions
Transactions with key management personnel
Key management consists of ITV plc executive directors.
Key management personnel compensation is as follows:
Short-term employee benefits
Termination benefits
Share-based compensation
2010
£m
3
1
2
6
2009
£m
5
–
3
8
114
ITV plc Report and accounts 2010
Notes to the ITV plc Company Financial Statements continued
x Principal subsidiary undertakings and investments
Principal subsidiary undertakings
The principal subsidiary undertakings of the Company at 31 December 2010, 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 (Investments) Limited
3sixtymedia Limited(1)
Carlton Communications Limited
ITV Breakfast Limited (previously GMTV Limited)
Granada Limited
Granada Ventures Limited
ITV Broadcasting Limited
ITV Consumer Limited
ITV Digital Channels Limited
ITV Global Entertainment Limited
ITV Network Limited(2)
ITV Services Limited
ITV Studios Limited
ITV2 Limited
SDN Limited
Granada Media Australia Pty Limited(3)
Granada Produktion für Film und Fernsehen GmbH(4)
Imago TV Film und Fernsehproduktion GmbH(4, 5)
ITV Global Entertainment, Inc(6)
ITV Studios, Inc. (formerly Granada Entertainment USA)(6)
ITV Scottish Limited Partnership(7)
Principal activity
Production of television programmes
Supplier of facilities for television productions
Holding company
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
Distribution of television programmes
Production of television programmes
Holding company
Interest in company limited by guarantee.
Incorporated and registered in Australia.
Incorporated and registered in Germany.
(1) 80% owned.
(2)
(3)
(4)
(5) 67.72% owned.
(6)
Incorporated and registered in the USA.
(7) 99.9% owned SPE partnership with the remaining interest held by the ITV pension scheme. Fully consolidated in the Group
accounts. Incorporated and registered in Scotland holding the ownership interest in SDN. The Group has taken advantage
of the exemption conferred by Regulation 7 of the Partnership (Accounts) Regulations 2008 and has, therefore, not
appended the accounts of this qualifying partnership to these accounts. Separate accounts for the partnership are not
required to be, and have not been filed at Companies House.
A list of all subsidiary undertakings will be included in the Company’s annual return to Companies House.
Principal joint ventures, associated undertakings and investments
The Company indirectly held at 31 December 2010 the following holdings in significant joint ventures, associated undertakings and investments:
Interest in
ordinary
share capital
2010
%
25.00
50.00
Interest in
ordinary
share capital
2009
%
25.00
50.00
40.00
25.00
25.00
50.00
6.91
50.00
14.30
40.00
25.00
25.00
50.00
7.36
50.00
–
Note
a
b
a
a
a
b
c
b
b
a
b
c
Associated undertaking.
Joint venture.
Available for sale financial asset.
Name
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)
Digital 3&4 Limited
YouView TV Limited
(1) Classified as an Asset Held for Sale.
(2)
Incorporated and registered in Scotland.
xi Post balance sheet events
There are no post balance sheet events.
Principal activity
Production of television programmes
Provision of a standard and high definition enabled digital
satellite proposition
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
Operates the Channel 3 and 4 digital terrestrial multiplex
Internet connected television platform
Shareholder information
Shareholder profile
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 2010.
Holders
Number
Shares held
Millions
%
%
2,412
66,999
409
3.45 3,659.54
95.96 151.63
0.59
77.95
100.00
94.09
3.90
2.01
100.00
9,813
9,194
19,527
11,757
9,279
6,091
1,995
1,329
161
280
102
178
47
51
16
0.36
14.05
1.38
13.17
6.16
27.97
8.66
16.84
13.37
13.30
18.97
8.72
14.34
2.86
26.28
1.90
11.54
0.23
67.93
0.40
0.15
71.64
0.25 423.62
0.07 326.67
0.07 1,098.94
0.02 1,799.25
0.01
0.04
0.16
0.22
0.34
0.49
0.37
0.67
0.30
1.75
1.84
10.89
8.40
28.26
46.26
100.00
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, The Registry, 34 Beckenham Road, Beckenham
BR3 4TU.
0871 664 0300 (calls cost 10 pence per minute plus network charges)
from the UK and +44 20 8639 3399 from outside the UK. Lines are open
Monday to Friday 8.30 am to 5.30 pm.
Alternatively you could email them at: ssd@capitaregistrars.com
Shareholders who receive duplicate sets of company mailings because
they have multiple accounts should write to 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.
You will need your investor code (IVC) which can be found on your share
certificate(s) to register to use the Shareholder Portal.
115
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. Lines are open
Monday to Friday 8.00 am to 4.30 pm.
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.
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
116
ITV plc Report and accounts 2010
Shareholder information continued
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
11 May 2011
May 2011
July 2011
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.
Financial record
Results
Revenue
Earnings before interest, tax and amortisation (EBITA) before exceptional items
Amortisation of intangible assets
Impairment of intangible assets
Share of profits or (losses) 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
117
2010
£m
2009
£m
2008
£m
2007
£m
2006
£m
2,064
408
(63)
–
(3)
–
19
361
(75)
286
(16)
270
(1)
269
6.9p
–
389
272
661
2
663
1,120
5
12
284
511
73
2,005
(188)
–
(1,105)
(49)
663
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
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.
ITV today
ITV is the largest commercial
television network in the UK.
It operates a family of channels
including ITV1, and delivers
content across multiple platforms
via itv.com and ITV Player.
ITV Studios produces and sells
programmes and formats in
the UK and worldwide.
Broadcasting & Online
ITV content is funded by advertising and
sponsorship revenues as well as viewer
competitions and voting. ITV1 is the largest
commercial channel in the UK. It attracts
the largest audience of any UK commercial
broadcaster and has the greatest share of
the UK television advertising market at
45.1%. ITV’s digital channels continue to
grow their audiences and most recently
saw the launch of high definition (HD)
versions of ITV1 on Freeview and Sky,
and ITV2, 3 and 4 on Sky. ITV1+1 also
recently launched.
ITV’s broadcast assets include the multiplex
operator SDN, which continues to grow its
revenues, and operates one of the six digital
terrestrial multiplex licences in the UK that
make up Freeview.
Online, ITV is focused on delivering ITV
programming across multiple platforms
including itv.com, video on demand on
cable television and other ‘closed’ platforms,
mobile devices and games consoles. itv.com
includes ITV Player, which allows users to
access catch-up and watch clips from the
best ITV programmes. Online revenues are
primarily sourced from advertising.
ITV Studios
ITV Studios comprises ITV’s UK production
operations, ITV’s international production
companies and ITV Studios Global
Entertainment.
ITV Studios produces programming for
ITV’s own channels and for other UK and
international broadcasters.
A wide range of programme genres are
produced, including: drama, soaps,
entertainment, factual, daytime, arts,
current affairs, quiz and game shows.
It has a growing portfolio of international
production offices around the world,
including in the US, Germany, Australia,
Sweden, Spain and France.
ITV Studios Global Entertainment is
ITV’s international distribution, home
entertainment, publishing, merchandising
and licensing business. It has over 35,000
hours of original and formatted programmes
that it distributes to broadcasters in 240
territories worldwide.
Total revenue (including internal)
EBITA before exceptional items
Broadcasting & Online
£1,771m
ITV Studios
£554m
24%
76%
Broadcasting & Online
£327m
ITV Studios
£81m
20%
80%
Financial record
Results
Revenue
Earnings before interest, tax and amortisation (EBITA) before exceptional items
Amortisation of intangible assets
Impairment of intangible assets
Share of profits or (losses) 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
117
2010
£m
2009
£m
2008
£m
2007
£m
2006
£m
2,064
408
(63)
–
(3)
–
19
361
(75)
286
(16)
270
(1)
269
6.9p
–
389
272
661
2
663
1,120
5
12
284
511
73
2,005
(188)
–
(1,105)
(49)
663
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
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.
ITV’s Directors’ report
The Directors’ report explains in detail how we have
performed this year and sets out a fair review of the
business, a 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 Directors’ report is prepared in line with the relevant
provisions of the Companies Act 2006. In preparing the
Directors’ report the Company has had regard to the
guidance issued by the Accounting Standards Board in its
Reporting Statement on narrative reporting. The Directors’
report 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 Directors’ report, 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.
Designed and produced by Radley Yeldar www.ry.com
Printed by Granite Communications Ltd. ISO 14001 and FSC accredited
ITV plc
The London Television Centre
Upper Ground
London SE1 9LT
www.itv.com
investors: www.itvplc.com
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ITV plc Report and accounts 2010