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Delivering growth
through Transformation
ITV plc Annual Report and Accounts
for the year ended 31 December 2012
Stock code: ITV
22018-04 11/12/2012 Proof Two
Inside this report
Overview
Who We Are
Our Investor Proposition
2012 Key Highlights
Chairman’s Statement
Directors’ Report
Financial Statements
02
04
05
06
Strategy & Operations
CE0 Review
Performance Dashboard
Strategic Priority 1
Strategic Priority 2
Strategic Priority 3
Strategic Priority 4
Performance & Financials
Key Performance Indicators
Financial and Performance Review
Risks and Uncertainties
Responsibility
Operating Responsibly
10
14
16
20
24
28
34
36
48
52
Governance
Board of Directors
58
Management Board
60
Chairman’s Governance Statement
62
Corporate Governance
63
Audit Committee Report
70
Remuneration Report
75
Other Governance and Statutory Disclosures 89
Statement of Directors’ Responsibilities
91
94
95
96
Independent Auditor’s Report
Introduction and Table of Contents
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
97
Consolidated Statement of Financial Position 98
Consolidated Statement of Changes in Equity 99
Consolidated Statement of Cash Flows
101
Notes to the Accounts
102
Section 1: Basis of Preparation
102
Section 2: Results for the Year
107
Section 3: Operating Assets and Liabilities
115
Section 4: Capital Structure and Financing Costs 136
Section 5: Other Notes
150
152
ITV plc Company Financial Statements
Notes to the ITV plc Company
Financial Statements
Shareholder Information
Financial Record
Glossary
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Corporate Website
We maintain a corporate website at www.itvplc.com containing a
wide range of information of interest to institutional and private
investors including:
• Latest news and press releases
• Annual reports and investor presentations
See further content for the
2012 Annual Report online
at ar2012.itvplc.com
Scan the QR Code to
take you directly to our
corporate website
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. None of these
statements should be construed as a profit forecast.
153
157
160
IBC
Pictured:
Front Cover
Mr Selfridge
22018-04 11/12/2012 Proof Two
22018-04 11/12/2012 Proof Two Who We Are
ITV is an integrated producer broadcaster. It is the largest
commercial television network in the UK operating a family of
channels including the rebranded ITV. It also delivers content
across multiple platforms either directly or via itv.com and ITV
Player. ITV Studios is an international production and distribution
business which produces and sells programmes and formats in
the UK and worldwide.
UK Share of Broadcast
(SOB)
ITV plc: 45.8%
ITV plc
Channel 4
Channel 5
Sky Sold*
Other
14.3%
15.6%
7.9%
16.4%
45.8%
00%
*
Includes sales by Sky for non-Sky owned channels.
UK Share of Viewing (SOV)
ITV Family: 22.3%
ITV Family
BBC Family
C4 Family
C5 Family
Sky Family
Other
18.3%
22.3%
8.3%
6.0%
00%
11.5%
33.6%
Broadcast & Online
The ITV broadcast network is made
up of ITV – the largest commercial
channel in the UK – and the digital
channels ITV2, ITV3, ITV4 and CITV.
ITV2 and ITV3 are the largest digital
channels in the UK. The ITV Family
of channels attracts the largest
audience of any UK broadcaster other
than the BBC, with a 22.3% Share of
Viewing, and has the largest share of
the UK television advertising market
at 45.8%.
For viewers, ITV competes with
the BBC and other commercial
broadcasters – predominantly C4,
C5 and Sky. For advertising revenue,
ITV competes with commercial
broadcasters and other advertising
media, such as the Internet and
Press. Over the last few years
television has broadly maintained
its share of total advertising spend,
whilst the Internet, which is growing
rapidly, continues to take share from
Press.
ITV also delivers programming across
multiple platforms either through
ITV Player which allows users to
access catch up services, for example
on Virgin and Sky, or through
content deals, for example Netflix
and LoveFilm. ITV content is now
available on 15 platforms. Online, Pay
and Interactive revenues are sourced
through advertising and through pay
deals for either our entire schedule or
for selected programmes within our
catalogue.
Total UK Advertising
TV: 28.1%
36.5%
28.1%
00%
1.3%
6.6%
24.5%
3.0%
TV
Press
Radio
Cinema
Outdoor
Internet
02
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012Overviewar2012.itvplc.comStock code: ITV ITV Studios
ITV Studios is the largest
production company in the UK
producing over 3,000 hours
of original content each year featuring
Drama, Factual and Entertainment, and
has an archive of around 35,000 hours.
It comprises ITV’s UK and International
production companies and Global
Entertainment – ITV’s international
distribution business. In 2012 we made
a number of strategic acquisitions to
strengthen these businesses.
ITV Studios UK produces programming
for ITV’s own channels and for other
UK broadcasters – such as BBC, C4, C5
and Sky. ITV’s International production
business has five bases – US, Australia,
Germany, France and the Nordics, who
produce for local broadcasters in these
regions. Global Entertainment licenses
ITV’s finished programmes and formats
and third party content internationally.
In the UK and internationally we
compete with a large number of
independent producers, which range
in size from the super-indies such
as Fremantle and Endemol, to a
large number of small independent
producers. They are largely privately
owned and do not have the advantage
that ITV has of being an integrated
producer broadcaster.
Key to icons
International production bases:
ITV Studios UK
ITV Studios America
ITV Studios Australia
ITV Studios France
ITV Studios Germany
ITV Studios Nordic
Media environment
and our strategy
Our vision remains to create world class
content which we can make famous
on our channels, before exploiting its
value across multiple platforms, free
and pay, in the UK and internationally.
ITV operates in an evolving digital
market in which advances in
technology are changing the way
people consume media. In spite of
the rapid increase in online viewing,
linear viewing remains robust. The
proliferation of entertainment
platforms and the increasingly
competitive nature of the broadcasting
industry is creating demand for quality
and proven content and formats that
travel. As an integrated producer
broadcaster, with strong channel
brands and the ability to create
content, we are in a unique position to
be able to execute on our strategy.
Read more in our Glossary
on the Inside Back Cover
03
22018-04 11/12/2012 Proof TwoOverviewDirectors’ ReportStrategy & OperationsPerformance & FinancialsResponsibilityGovernanceFinancial Statementsar2012.itvplc.comStock code: ITV Our Investment Proposition
Delivering growth
through Transformation
• We are now three years into the Transformation Plan and are delivering real
growth across all parts of the business, with double digit earnings growth for
the third year in a row.
• Through our clear and consistent strategy we are creating a stronger, more
efficient and balanced business. As a producer broadcaster we are in a unique
position to exploit the increasing demand for proven content globally.
• Our Broadcasting business is robust and growing and our new Online, Pay &
Interactive revenue streams are increasing rapidly and are now a material part
of the business. We believe there are significant opportunities as digital media
continues to develop.
• Our focus on creativity and content is building strong sustainable organic
growth in our UK and International Studios business, which we are enhancing
through targeted acquisitions and partnerships in key creative markets.
• We have a strong and flexible balance sheet, which can support the investment
required to deliver our strategy, drive future growth and grow shareholder
returns. In the short term we remain cautious about the television advertising
market but the strength of our 2012 results and of our balance sheet gives the
Board confidence to propose a final dividend of 1.8p, giving a full year dividend
of 2.6p, and a special dividend of 4.0p.
04
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012Overviewar2012.itvplc.comStock code: ITV 2012 Key Highlights
Group external revenues
£2,196m
c r e
(2011: £2,140m)
a s e o
n 2
9
0
0
£m
2,200
% In
7
1
6
9
1
2
,
0
4
1
2
,
4
6
0
2
,
3%
YoY
9
7
8
1
,
09 10 11
12
2,100
2,000
1,900
1,800
Adjusted profit before tax
£464m
£m
500
9
0
(2011: £398m)
a s e o
c r e
% In
0
3
3
0
n 2
4
6
4
8
9
3
400
300
200
100
0
1
2
3
8
0
1
17%
YoY
09 10 11
12
Non-NAR revenues*
£1,036m
(2011: £922m)
12%
YoY
9
0
0
n 2
a s e o
c r e
% In
2
2
6
3
0
1
,
2
2
9
0
5
8
9
2
8
09 10 11
12
Adjusted EPS
9.2p
(2011: 7.9p)
a s e o
c r e
% In
1 1
4
9
0
0
n 2
.
2
9
9
7
.
4
6
.
16%
YoY
8
1
.
09 10 11
12
£m
1,100
1,000
900
800
700
Pence
10
7.5
5
2.5
0
EBITA before exceptionals
£520m
£m
600
0
2
5
450
9
0
0
n 2
a s e o
2
6
4
8
0
4
(2011: £462m)
c r e
% In
7
5
1
2
0
2
13%
YoY
09 10 11
12
Net cash/(debt)
£206m
(2011: £45m)
c r e
m In
8
1
8
£
a s e o
9
0
0
n 2
5
4
6
0
2
)
8
8
1
(
)
2
1
6
(
£
161m
YoY
09 10 11
12
Reported profit before tax is £348 million
Reported EPS is 6.9p
Facts and Figures – 2012 vs 2011
3%
26%
22%
16%
Increase in digital
channel’s Share of
Viewing (SOV)
Increase in Online,
Pay and Interactive
revenue
Growth in long form
video requests
Increase in ITV
Studio’s revenues
* Non-NAR revenues include all ITV revenues, both internal and external, except net advertising revenues.
300
150
0
£m
300
150
0
-150
-300
-450
-600
-750
05
22018-04 11/12/2012 Proof TwoOverviewDirectors’ ReportStrategy & OperationsPerformance & FinancialsResponsibilityGovernanceFinancial Statementsar2012.itvplc.comStock code: ITV Chairman’s Statement
Archie Norman
Delivering growth
Dear Shareholder
It is now over three years since
I joined ITV as Chairman. Adam
Crozier took over as Chief Executive
shortly afterwards and set out the
Transformation Plan to make ITV a
more robust, better balanced business
with longer term growth potential.
Since that time, much has been
achieved, and the plan is still as
relevant today as it was then and
the transformation programme is
far from over.
The business has delivered good
progress in profit, cash and shareholder
returns. This is clearly a result of
better operating performance, tighter
management of costs and more
effective execution. But perhaps even
more importantly, a new balance to
the business is emerging with strong
growth in the ITV Studios UK and
international content business, and
the development of a significant
growing online and pay business.
Whilst the traditional UK ‘free to air’
broadcast business is looking much
more robust than it did three years ago,
ITV is increasingly developing other
profit growth opportunities and is
less dependent on the UK advertising
market.
The changing media technology
landscape means it is imperative
that the pace of change continues.
Although viewer appetite for great
television is as strong as ever, the
way in which people are watching
has changed and will continue to
change in years to come with more
“catch up”, more mobile viewing,
more multi screen viewing and the roll
out of connected television. These
developments present opportunities
for exploiting our content in different
Our people
remain key to
ITV and to the
delivery of the
Transformation
Plan
Pictured:
Paul O’Grady: For the Love
of Dogs (left)
For the Love of Dogs won
Most Popular Factual
Entertainment programme
at the 2013 NTA awards.
06
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012Overviewar2012.itvplc.comStock code: ITV ways as well as challenges to
conventional broadcasting. Good
progress has been made but there
remains much work to be done to
ensure ITV is well placed to grow in this
new landscape.
The strong progress in reshaping
the business has been driven by
far reaching changes in people,
management and organisation. ITV’s
competitiveness depends on its ability
to attract and integrate strong creative
and commercial talent.
Over the last three years the top team
has been greatly strengthened and the
pace of change continues throughout
the organisation. With that there is
emerging a new ITV culture, more
forward looking, more “One ITV” and
more international than in the past.
We have made a number of very
targeted acquisitions, notably Gurney
Productions in the USA and we will
continue to look at selective
Pictured:
Endeavour (above)
Endeavour was the third most watched new
drama in 2012 with 8.2 million viewers.
opportunities in line with our global
content strategy. Our approach to
assessing whether to acquire new
businesses is driven by both strict
financial criteria and an assessment
of the creative pipeline potential and
cultural fit with our organisation.
As a result of the improvement in the
operational performance of ITV, cost
reduction and tight cash management,
our balance sheet is unrecognisable
from three years ago. Given the
uncertain UK advertising market and
the potential need to invest to secure
future growth, we intend to retain a
conservative balance sheet. At the
same time we are committed to driving
shareholder value. These considerations
informed the Board’s decision to
increase substantially the dividend and
to pay a special dividend this year.
ITV is, after the BBC, the UK’s largest
investor in original UK programming
and a huge employer and developer
of creative talent. We are also one of
the UK’s most regulated businesses. It
is therefore very important that the
Secretary of State has announced
her intention to renew our licence for
another ten years. The growth of the
internet will pose many challenges to the
future regulation of visual media in the
UK but it is important that the licensing
and regulatory framework for the
existing business is now more secure.
We continue to develop the Board.
I am keen to ensure we keep a relatively
small, high calibre Board close to the
business, including both diversity of
talent and the particular skills and
experience required to help provide
stewardship to our transformation
programme. I am delighted therefore
that Roger Faxon has joined us with
his international perspective and
experience of the digital transformation
in the music industry, and his track
record in creative industries.
I would like to thank all the colleagues
in ITV for their contribution to a year of
great change and progress. And finally
our shareholders for their continuing
support during a remarkable few years.
Archie Norman
Chairman
07
22018-04 11/12/2012 Proof TwoOverviewDirectors’ ReportStrategy & OperationsPerformance & FinancialsResponsibilityGovernanceFinancial Statementsar2012.itvplc.comStock code: ITV Emmerdale celebrated 40 years in October
2012 with its first ever live episode.
Attracting a peak of 10.7 million viewers,
it was its highest audience in nearly three
years. The ITV2 follow-up show achieved
similar success and was watched
by 1.9 million.
Pictured:
Emmerdale
Photo by Matt Frost/ITV/Rex Features
22018-04 11/12/2012 Proof Twoar2012.itvplc.comStock code: ITV CEO Review
Strategy & Operations
22018-04 11/12/2012 Proof Twoar2012.itvplc.comStock code: ITV Chief Executive’s Review
Adam Crozier
ITV delivering growth
The Transformation Plan is delivering growth across all parts
of the business, as we create a better, more efficient and more
balanced business.
We have a clear, consistent strategy
that our people support and are driving
forward through our four priorities.
Over the last three years we have
consistently grown our revenues,
delivered double digit earnings growth
and converted that earnings growth
to cash to strengthen our financial
position. During that time we have
increased our EBITA before exceptional
items (EBITA) by 157% to £520m, our
adjusted EPS by 411% to 9.2p and we
have improved our cash position by
over £800m.
Our Broadcast business is robust
and growing and our Online, Pay &
Interactive revenue streams are now
a material part of the business with
significant opportunities as digital
media continues to develop. Our focus
on creativity and content is building
strong sustainable organic growth
in our UK and International Studios
business, which we are enhancing
through targeted acquisitions and
partnerships in key creative markets.
While there is still much to do this is
clear evidence that ITV is transforming
into a more robust, efficient and
balanced company.
Our vision
Our vision remains to create world class
content which we can make famous
on our channels, and exploit across
multiple platforms, both free and pay,
in the UK and internationally. As an
integrated producer broadcaster we
are in a unique position to be able to
do this. Our aim remains to rebalance
the business to reduce our reliance
on advertising. The progress we are
making is now clearly evident in our
financial and operating results.
2012 Group financial
performance
In 2012 we delivered another strong
financial performance with growth
across all parts of the business. Group
external revenues were up 3% and total
revenues up 5%. This, in line with our
strategy, was driven by growth in non
net advertising (non-NAR) revenues.
These were up £114 million (12%) to
£1,036 million (2011: £922 million),
particularly in Studios and Online, Pay
& Interactive. EBITA increased 13% to
£520 million (2011: £462 million) and
adjusted EPS was up 16% to 9.2p (2011:
7.9p).
This builds on the significant progress
we have already achieved since we
announced the Transformation Plan:
• Total revenues have grown 19%
since 2009 from £2,141 million to
£2,546 million
• Non-NAR revenues have grown 22%
from £850 million to £1,036 million
• EBITA has grown 157% from
£202 million to £520 million
• Adjusted EPS has grown 411% from
1.8p to 9.2p.
Group External Revenues
Group External Revenues grow by 3%
£2,196m
(2011: £2,140m)
c r e
% In
7
1
6
9
1
2
,
0
4
1
2
,
9
0
0
n 2
a s e o
4
6
0
2
,
9
7
8
1
,
09 10 11
12
3%
YoY
10
£m
2,200
2,100
2,000
1,900
1,800
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVStrategy & Operations In 2012 we maintained our focus on
cash and costs and delivered £30
million of cost savings, £10 million
ahead of our initial target. Our profit
to cash conversion remains high and
we ended the year with £206 million
of net cash, having been in a net debt
position of £612 million in 2009.
The Board has proposed a final
dividend of 1.8p (2011: 1.2p) giving
a full year dividend of 2.6p (2011:
1.6p). The Board is committed to
a progressive dividend, taking into
account the outlook for the business,
while balancing the need to invest and
to maintain a robust financial position
against the backdrop of an uncertain
economic environment.
In addition to the final dividend, the
Board is proposing a special dividend
of 4p per share (£156 million). Over
the last three years we have made
significant progress in transforming the
Group – commercially, creatively and
financially. While only part way through
the Transformation Plan, ITV is now
becoming a better business, delivering
good revenue and profit growth and
generating significant levels of cash
which can be reinvested to drive
growth and deliver shareholder returns.
Non-NAR revenue growth
Non-NAR revenues grow over £100m
This cash distribution reflects the
significant progress made and our need
to retain a conservative and flexible
balance sheet while continuing to
invest to deliver the Transformation
Plan. Going forward we will balance
capital discipline with the need to
invest for future growth and maintain
flexibility.
2012 Strategic and
operational performance
Broadcast & Online revenues increased
£14 million (1%) to £1,834 million
(2011: £1,820 million) and EBITA was
up £34 million (9%) to £413 million
(2011: £379 million) in a broadly flat
advertising market driven by the good
growth in our higher margin non-NAR
revenues. We again outperformed the
television advertising market but our
on-screen viewing performance was, as
expected, negatively impacted by the
extraordinary year for UK television. In
2012 there were many unique events
such as the Queen’s Jubilee and the
London Olympics – largely on the BBC
– which will not return in 2013. We do
£1,036m
(2011: £922m)
c r e
% In
2
2
9
0
0
n 2
a s e o
6
3
0
1
,
2
2
9
0
5
8
9
2
8
12%
12%
YoY
09 10 11
12
£m
1,100
1,000
900
800
700
The changing
media environment
highlights the
importance of
creating and owning
intellectual property.
Pictured:
Hell’s Kitchen USA
ITV Studios America delivered its 10th
series of Hell’s Kitchen to Fox in 2012, with
commissions secured for an 11th and 12th
series.
11
22018-04 11/12/2012 Proof TwoFinancial Statementsar2012.itvplc.comStock code: ITVOverviewDirectors’ ReportStrategy & OperationsPerformance & FinancialsResponsibilityGovernance Chief Executive’s Review continued
Pictured:
Surprise Surprise
Surprise Surprise returned to our screens
11 years after the last series aired, this time
presented by Holly Willoughby.
not expect this performance to impact
our advertising share in 2013 and the
deals we have done support this view.
We are focused on growing our share
of viewing in 2013.
Broadcast & Online non-NAR revenues
were driven by our Online, Interactive
and Pay revenues which grew by 26%
to £102 million (2011: £81 million). We
have further improved the quality
of our online offering and made it
available on more platforms, which led
to a 22% increase in long form video
requests.
Our Studios business delivered strong
organic growth across all three
divisions as we continue to invest in
the creative pipeline. Total Studios
revenues were up £100 million (16%)
to £712 million (2011: £612 million)
and we delivered over £100 million of
EBITA for the first time in ITV’s history.
We have also made a number of small
strategic acquisitions in the UK and
internationally to strengthen our global
Studios business.
We track our performance against a
number of operating metrics as well as
the financial indicators, which are set
out in more detail over the following
pages. Over the last few years, the
significant progress we have made is
evident.
We have:
•
Increased employee engagement
each year of the Plan;
• Delivered £90 million of cost savings
over the last three years;
• Outperformed the television
advertising market each year since
we launched the strategy;
• Stabilised SOV after years of decline;
• Grown Online, Pay and Interactive
revenues by over 104% since 2009;
• Grown long form video requests by
over 200% since 2009;
• Grown ITV Studios’ revenues by
almost 20% since 2009;
• Grown ITV Studios’ share of ITV
output from 50% in 2009 to 58%
(including ITV Breakfast) in 2012.
Our strategy is the right
strategy for the changing
media environment
The media environment in which we
operate is dynamic and we must ensure
that we adapt with it. Digital media
continues to grow rapidly with many
new ways of watching television and
being entertained, which presents
great opportunities for content owners
£m
600
0
2
5
450
EBITA before
exceptional items
Double digit growth in EBITA
£520m
5
1
(2011: £462m)
7
a s e o
c r e
% In
9
0
0
n 2
2
6
4
8
0
4
2
0
2
13%
YoY
09 10 11
12
Adjusted EPS
Double digit growth in EPS
0
9.2p
(2011: 7.9p)
0
n 2
a s e o
c r e
% In
1 1
4
9
9
7
.
.
2
9
4
6
.
16%
YoY
8
1
.
09 10 11
12
12
300
150
0
p
10
7.5
5
2.5
0
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVStrategy & Operations Net Cash/(Debt)
Strong cash generation
£206m
8
£
(2011: £45m)
8
1
a s e o
c r e
m In
9
0
0
n 2
5
4
6
0
2
)
8
8
1
(
)
2
1
6
(
161m
£
YoY
09 10 11
12
£m
300
150
0
-150
-300
-450
-600
-750
such as ITV. Despite the significant
growth of digital media, it still remains
a relatively small part of total viewing
at less than two percent and linear
television viewing remains robust.
It is therefore imperative that while
we drive new revenue streams our
Broadcast business remains strong.
The changing media environment
highlights the importance of creating
and owning intellectual property. All
new platforms need quality content to
be a success and we have over 35,000
hours of new and archive content to
distribute to them. We must ensure
that we continue to invest in a healthy
content pipeline and take advantage
of our integrated producer broadcaster
model by making the programmes
famous on our network.
2013 and beyond
We remain focused on delivering the
Transformation Plan and building
on the momentum achieved over
the last three years. We will continue
to improve the efficiency of the
business, with another £20 million
of non-Network Programme Budget
(non-NPB) cost savings. Together with
a strong balance sheet this gives us
the strength and flexibility to invest in
the business. These savings will fund
incremental non-NPB investments of
£20-25 million.
In 2013 we will focus on improving our
on-screen performance and we have
already had success with programmes
such as Mr Selfridge and Splash!.
We will reinvest £20 million of our
Champions League and FA Cup sports
rights savings and therefore deliver a
saving on the NPB of £15 million. Our
objective remains to outperform the
television advertising market and look
at ways to further increase the value of
the 30-second spot. We are cautious
on television advertising in 2013 but
ITV Family NAR in Q1 is expected to be
up 5%.
We will continue to exploit
opportunities in digital media as we
grow our Online, Pay and Interactive
revenues, using our advantage as a
producer and owner of intellectual
property. Key to this is a strong creative
pipeline and therefore it is imperative
that we continue to strengthen our UK
and international production capability.
We will continue to make selected
acquisitions or partnerships if they fit
our strategy and strict financial criteria.
Delivering our strategy is driving
improved results, enhanced
shareholder returns and future growth
prospects and we are focused on
building on this progress in 2013.
Transforming ITV
Our strategy to transform ITV focuses on our four strategic priorities.
1111
22
Create a lean, creatively
dynamic and fit-for-purpose
organisation
Go to pages 16 – 18
Maximise audience and revenue
share from our existing free-to-
air broadcast business
Go to pages 20 – 22
3
4
Drive new revenue streams by
exploiting our content across
multiple platforms, free and pay
Go to pages 24 – 26
Build a strong international
content business
Go to pages 28 – 31
13
22018-04 11/12/2012 Proof TwoFinancial Statementsar2012.itvplc.comStock code: ITVOverviewDirectors’ ReportStrategy & OperationsPerformance & FinancialsResponsibilityGovernance Strategy & Operations
Performance Dashboard
Reporting progress against our five year Transformation Plan
Create a lean,
creatively dynamic
and fit-for-purpose
organisation
Maximise audience
and revenue share
from our existing
free-to-air broadcast
business
Drive new revenue
streams by exploiting
our content across
multiple platforms,
free and pay
Build a strong
international
content business
Milestones achieved
• Record employee
engagement at 88%
• Announced rebrand
• £30m cost savings
• Driving value from
integrated producer
broadcaster model
• Third year double digit
EBITA growth
• Net cash £206m
• 15-year pension
funding plan agreed
Focus for 2013
• Take benefits of the
rebrand through the
business
• Drive complexity out of
the business
• £20m cost saving target
Milestones achieved
• Again outperformed
the TV ad market
•
•
Increased variety and
quality of schedule
ITV2 and ITV3 remain
largest digital channels
• Won 7 NTAs
•
Innovative
partnerships with
advertisers
• Government support
for licence renewal
Milestones achieved
Improved quality of ITV
•
Player
ITV content available
on 15 platforms
• Long form video
requests up 22%
•
• Launched pay
proposition on ITV
Player and third party
pay deals
Innovative ad formats
•
• Online, Pay and
Interactive revenues
over £100m
Focus for 2013
•
Improve ITV family SOV
Focus for 2013
• Growing online from
Milestones achieved
• Strong organic revenue
growth across all
businesses, up £100m
• EBITA over £100m
•
ITV Studio’s share of
ITV output – 58%
Investing in creative –
103 new commissions,
108 recommissions
• Creating programmes
•
that travel
• Strategic acquisitions
Focus for 2013
•
Invest in creative talent
and pilots to maintain a
healthy pipeline
• Reinvest some of sports
rights cost savings
• Maximise value of large
audiences
• Objective to outperform
• Relentless focus on cash
the TV ad market
• Maintain a robust,
efficient and flexible
balance sheet
• Drive further value from
30 second spot and
related revenues
• Finalise agreement for
new 10 year licence
increased distribution and
consumer behaviour
• Roll out pay VOD
• Focus on long running
opportunities on mobile
returnable series
•
Increase number of third
party pay deals and
renegotiate existing deals
• Develop further
innovative and targeted
advertising opportunities
• Exploit programmes that
travel internationally
• Further strengthen
international production
capability
• Scale international
distribution business
• Employee Engagement
KPI – Non-Financial
•
•
•
ITV Family Share of
Viewing (SOV)
ITV Family Share of
Commercial Impacts (SOCI)
ITV Family Share of
Broadcast (SOB)
• Total long form video
• Number of new
views
commissions for ITV
Studios
• Percentage of ITV output
from ITV Studios
KPI – Financial
• EBITA before exceptional items • Adjusted earnings per share • ‘Profit to cash’ conversion • Non-NAR revenues
Read more on our Key Performance
Indicators on Pages 34 and 35
14
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITV ar2012.itvplc.com
Stock code: ITV
1
Create a lean, creatively
dynamic and fit-for-purpose
organisation
1515
22018-04 11/12/2012 Proof TwoFinancial Statementsar2012.itvplc.comStock code: ITVOverviewDirectors’ ReportStrategy & OperationsPerformance & FinancialsResponsibilityGovernance Strategic Priority
Create a lean, creatively
dynamic and fit-for-purpose
organisation
Our people are key to the Transformation Plan and we
can’t change the business without them. Record employee
engagement, at 88%, is up for the third year in a row which is
encouraging as we look to the plans we have for growth into
2013 and beyond.
Making ITV a lean, creatively dynamic
and fit-for-purpose organisation was
a key priority when we announced
the Transformation Plan in 2010 and
it remains so today. We have made
great strides in driving out waste and
complexity in the business, developing
our people, delivering cultural change
at all levels of the organisation
and investing in our technology,
infrastructure and brand.
One ITV
People are at the heart of our success
and we continue to invest in them and
their development to help drive the
Transformation Plan. We are pleased
to see our engagement survey score
again rise in 2012 to 88% (2011: 85%)
– up for the third year in a row with
company participation in the survey
over 80%.
We continue to focus on simplicity
within the business – working as
OneITV – to make it easy for our people
to do their jobs, ensure that businesses
do not work in silos and that externally
we are easy to deal with. Through
this we can maximise the benefit
from being an integrated producer
broadcaster, driving revenue from all
our brands by making our content
famous on our channels before selling
it internationally. This has helped us
drive strong revenue and earnings
growth across all parts of the business.
In autumn 2012 we began the move of
our people at the Manchester office to
MediaCity. This provides new state-
of-the-art offices and studio facilities
and will be completed with the move
of Coronation Street in late 2013/early
2014.
ITV at the heart of popular
culture
In January 2013 we rebranded ITV
to better reflect ITV as a modern
and unified company and to improve
our relationship with our viewers.
Developed in-house by ITV Creative,
it stretches across all our channels,
Online and Studios businesses globally.
Pictured:
Downton Abbey
The award winning Downton Abbey was the
highest rated drama in 2012.
Employee
Engagement Survey
Record employee engagement
88%
(2011: 85%)
16%
Increase on 2011
8
8
5
8
5
7
••%
Increase on 2009
5
6
09 10 11
12
16
%
100
90
80
70
60
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVStrategy & Operations ar2012.itvplc.com
Stock code: ITV
i
w
e
v
r
e
v
O
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
n
o
i
t
a
r
e
p
O
&
y
g
e
t
a
r
t
S
e
c
n
a
m
r
o
f
r
e
P
y
t
i
l
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b
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t
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l
a
i
c
n
a
n
F
i
17
22018-04 11/12/2012 Proof Twoar2012.itvplc.comStock code: ITV
Strategic Priority
continued
Cost Efficiency Savings
£90m of cost savings delivered in three years
£30m
(2011: £20m)
2012
2011
2010
£30m
£40m
Cumulative
Total
£90m
£20m
Relentless focus on efficiency
We need to ensure that we have
the right cost base for the Company,
balancing efficiency with the need to
invest for the long-term growth of
the business. In 2012 we achieved £30
million of cost savings which was £10
million ahead of the target we set at
the start of the year. These savings
follow on from £60 million delivered
across 2010 and 2011.
This focus on costs and cash over the
last three years, along with the action
we have taken to buy back debt, has
helped to significantly strengthen and
improve the efficiency of the balance
sheet and returns to shareholders.
Our cash generation is strong and
with a robust balance sheet this gives
us flexibility to invest in our strategic
goals. We have also put in place a new
pension agreement with the Trustees
which gives us more certainty about
our pension contributions over the next
10 to 15 years.
2013 and beyond
Our people will always be key to our
success. In 2012 employee engagement
was at record levels and we want to
continue to build on this to attract and
retain the best talent and skills at ITV.
We will continue to challenge how
we do things across ITV to drive out
complexity and focus on efficiencies.
We have identified a further £20
million of non-NPB cost savings in 2013
and will deliver a £15 million reduction
in NPB after reinvesting £20 million of
sports cost savings into the schedule.
Our cost savings will fund £20-25
million of incremental investment in
2013. In addition to this in January we
bought our head office – the London
Television Centre, to give us flexibility
in our property strategy as prior to the
acquisition we were locked into a 56
year lease. It is essential that while we
remain operationally and financially
fit-for-purpose, we must balance cost
and cash discipline with the need to
invest in the business and to drive
future growth and improve shareholder
returns.
Pictured:
I’m A Celebrity . . . Get Me Out Of Here!
The 2012 series was the second best ever with
an average audience of 10.5 million.
18
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVStrategy & Operations 2
Maximise audience and
revenue share from
our existing free-to-air
broadcast business
ar2012.itvplc.com
Stock code: ITV
19191919
22018-04 11/12/2012 Proof Twoar2012.itvplc.comStock code: ITV Strategic Priority
Maximise audience and revenue
share from our existing free-to-
air broadcast business
A strong broadcast business is an integral part of the
Transformation Plan as it provides a showcase on which to
make our content famous and deliver significant profit and cash
generation.
Our Broadcast business is core to the
Transformation Plan. As an integrated
producer broadcaster, ITV and our
digital channels provide a showcase for
ITV Studios content, on which we can
make our programming famous before
distributing it around the world.
The Broadcast business also drives
significant revenue, profit and cash,
which are essential to the delivery of
the plan and to increasing shareholder
returns. Maintaining a healthy
Broadcast business, maximising our
audience share of free-to-air television
viewing and our revenue share from it
is therefore key to the delivery of our
strategy.
ITV again outperformed the
television advertising market
Our core Broadcasting business
remains robust and has performed
well in a challenging market. In
2012 we have again outperformed
the television advertising market
with ITV Family NAR flat against the
television market which, based on
our estimates, was down around 1%.
We have outperformed the television
advertising market every year since
we launched the Transformation Plan
and have grown our Share of Broadcast
(SOB) from 44.7% in 2009 to 45.8% in
2012.
We have achieved this through the
increased variety and quality of our
schedule and through the unrivalled
reach that we offer. Our main
channel, now rebranded ITV, is the
UK’s strongest marketing platform
delivering mass audiences, which are
highly valued by advertisers. Our digital
channels ITV2, ITV3 and ITV4 deliver
more targeted demographics, which
together with ITV ensures that we
deliver both mass and targeted reach.
Our broadcast performance has helped
drive a 9% growth in Broadcast &
Online EBITA to £413 million (2011:
£379 million), which is a 272% increase
on 2009.
2012: an unprecedented year
for UK television
For on-screen viewing we compete
with other public service broadcasters
and with a large number of digital
channels. Over the last few years we
have stabilised our Share of Viewing
(SOV) after years of decline.
Share of Broadcast
(SOB)
Continue to grow SOB year on year
%
46.0
.
8
5
4
45.5
45.0
44.5
44.0
.
3
5
4
.
1
5
4
.
7
4
4
09 10 11
12
45.8%
(2011: 45.3%)
••%
Increase on 2011
••%
Increase on 2009
20
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVStrategy & Operations However, 2012 was an unprecedented
year for UK television with many unique
events including the Queen’s Jubilee
and the London Olympics, which was
broadcast solely on the BBC, and the
Paralympics on Channel 4. In fact, 9
out of the top 10 programmes aired
in 2012 will not return in 2013. The
extraordinary nature of 2012 impacted
our viewing share with ITV Family Share
of Viewing (SOV) down 3% and ITV
Family Share of Commercial Impacts
(SOCI) down by a similar amount and
on the main ITV channel SOV and SOCI
were down 6% and 5% respectively.
The ITV digital channels continued to
grow well with SOV up 3% and SOCI up
by 2%.
ITV had many on-screen successes
in 2012. Based on series average, ITV
broadcast the highest-rating drama
in Downton Abbey, the highest-
rating soap in Coronation Street and
in Britain’s Got Talent, the highest-
rating entertainment show. In 2012
ITV broadcast 99% of all commercial
audiences over 5 million.
New and returning drama in 2012 also
included Mrs Biggs, The Bletchley Circle,
A Mother’s Son, Vera and Lewis. Many
of our entertainment programmes
continued to deliver very significant
audiences, for example I’m A Celebrity
. . . Get Me Out Of Here!, and while some
saw their audiences decline year on
year, for example The X Factor, they
remain a key part of our schedule and
we continually look at ways to refresh
these shows to improve their on-screen
performance.
The soaps – Coronation Street and
Emmerdale – continue to regularly
drive very large audiences. While year
on year their performance was slightly
down, they outperformed their rivals
on other channels, with Emmerdale
celebrating its 40th anniversary year
with a live performance that attracted
a peak audience of 10.7 million.
News, Sport and our Daytime
programmes continue to be important
parts of our schedule. Euro 2012 was
a great success for ITV in terms of
viewing and advertising performance.
We remain committed to providing
high quality, impartial news both
national and international as well as
in the nations and regions. We have
refreshed part of our Daytime schedule
with the relaunch of Daybreak and This
Morning continues to deliver strong
regular audiences. Our afternoon
schedule has performed very strongly,
in particular The Chase which regularly
delivers audiences of over three million.
In 2012 we also saw the successful
return of our hard-hitting investigative
series, Exposure, and our politics and
current affairs show, The Agenda.
ITV2 and ITV3 remain the UK’s two
largest digital channels and ITV4
continues to grow well. We have
further invested in brand defining
content for our digital channels, which
has helped to drive valuable audiences
in key demographics. The Only Way
is Essex and Celebrity Juice both
delivered strong audiences on ITV2.
The Tour de France and French Open, as
well as the Europa League, IPL Cricket
and the Isle of Man TT drove good
audiences on ITV4.
Our programming is aimed at the heart
of popular culture and therefore it is
very encouraging that at the National
Television Awards, which are voted for
by the public, we won seven awards
including:
• Best serial drama for Coronation
Street
• Best drama for Downton Abbey
• Best entertainment show for I’m a
Celebrity
• Best daytime programme for
This Morning
ITV Family Share of
Viewing (SOV)
2012: an unprecedented year
for UK television
22.3%
(2011: 23.1%)
.
1
3
2
.
9
2
2
.
1
3
2
.
3
2
2
13%
Increase on 2011
••%
Increase on 2009
%
25
20
15
10
5
0
09 10 11
12
ITV Family Share of
Commercial Impacts (SOCI)
2012: an unprecedented year
for UK television
38.3%
(2011: 39.5%)
.
0
0
4
.
8
9
3
.
5
9
3
.
3
8
3
13%
Increase on 2011
••%
Increase on 2009
09 10 11
12
%
40
30
20
10
0
21
22018-04 11/12/2012 Proof TwoFinancial Statementsar2012.itvplc.comStock code: ITVOverviewDirectors’ ReportStrategy & OperationsPerformance & FinancialsResponsibilityGovernance Strategic Priority
continued
Although we had many successes
on-screen, overall 2012’s viewing
performance was below where we
would like it to be and we are working
to improve this. In 2013 we have
already achieved some initial success
with programmes such as Splash! and
Mr Selfridge.
Television broadcast industry
remains stable
While the media environment continues
to develop rapidly the traditional linear
Television business model remains
robust. Television advertising as a share
of UK total advertising is at a similar
level to 2009 at 28.1% in 2012 as the
Internet takes share from Press and
direct mail. Levels of linear viewing
remain relatively flat with the number
of hours viewed in 2012 at 28.1 hours
per week, at a similar level to 2009.
Online viewing is growing fast, creating
significant opportunities for us;
however, this type of viewing is currently
incremental to linear viewing and
remains a relatively small percentage of
total viewing at less than 2%.
Increasing the value of the 30
second spot and driving related
revenues
We compete with other commercial
broadcasters for television advertising
and with other media across the wider
market for share of total advertising.
We continue to develop our commercial
offering across our Broadcast & Online
business, looking at ways to strengthen
and increase the value of our advertising
and drive related revenue streams
to ensure we take as much share as
possible, for example with sponsorship
and product placement.
ITV Commercial has been working
more closely with clients and agencies
to innovate and enhance the value of
the traditional 30 second spot. In 2012
we reached an agreement with audio
recognition provider Shazam to be the
exclusive UK distributor for Shazam
functionality in broadcast advertising.
This enables us to offer clients the
chance for their spot ads to become
interactive experiences where viewers
who have the Shazam app on their
smartphones can interact with the
enabled adverts to enter competitions,
get additional information about a
brand or product, view special content
or download free music.
Regulation
A key positive development towards
the end of 2012 was the announcement
by the Secretary of State for Culture,
Media and Sport that the Government
has agreed that ITV’s Public Service
Broadcasting licences should be
renewed for a full ten year term from
their expiry at the end of 2014. This
decision paves the way for the final
phase of the renewal process, which is
overseen by Ofcom, to go ahead and
should be finalised in 2013.
2013 and beyond
Looking to 2013 we will continue to
focus on improving our Share of Viewing
and drive through the benefits of the ITV
Rebrand in our channels and programme
strategy. We will reinvest £20 million of
our sports cost savings and therefore
deliver a saving on the programme
budget of around £15 million.
We do not expect our viewing
performance in 2012 to impact our
advertising performance in 2013 and
the deals we have in place support
this view. Our objective remains to
outperform the television advertising
market over the full year. In Q1 2013
ITV Family NAR is expected to be up
5%, again outperforming the television
advertising market; however, we
remain cautious for the television
advertising market over the full year.
We also continue to look at ways of
enhancing our broadcasting revenues
through innovative ways of working
with our advertisers, extending the
value of our programme brands and
growing other non-NAR revenues.
TV advertising as a share
of total advertising market
TV advertising share remains broadly stable
28.1%
(2009: 27.5%)
09
12
27.5
28.1
0
10
20
30 %
Linear viewing levels
Average number of hours watched per week
per person
28.1 hrs/wk
(2009: 26.3hrs/wk)
09
12
26.3
28.1
0
10
20
30 hrs/wk
Video on Demand
(VOD) catch up
< 2%
of our total viewing.
22
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVStrategy & Operations ar2012.itvplc.com
Stock code: ITV
3
Drive new revenue streams
by exploiting our content
across multiple platforms,
free and pay
23
22018-04 11/12/2012 Proof Twoar2012.itvplc.comStock code: ITV Strategic Priority
Drive new revenue streams by
exploiting our content across
multiple platforms, free and pay
Creating and owning more of our own content
enables us to drive new revenue streams by making it
available across a range of channels and platforms.
The explosion in new technology
platforms over the last few years has
driven a rapid increase in Video on
Demand (VOD) viewing, most recently
driven by mobile viewing. VOD is
measured separately to linear viewing
and currently is incremental to it as
people are given more opportunities
to watch content. The growth in new
platforms has made it clearer than
ever that their success depends on
having content – whether current or
archive – which people want to watch
whenever and wherever on a range
of platforms. This represents a huge
ongoing opportunity for ITV as we have
highly demanded content that these
platforms need.
Online advertising
Over the last few years we have
significantly increased the distribution
of our content, from two platforms
in 2009 to 15 in 2012, including iOS,
Android, PS3, Freesat and YouView
following its successful launch this
summer. We have also enhanced the
quality and reliability of our ITV Player
and relaunched our News and Sports
sites as its become clearer that what
viewers want is video content online –
which is our strength. The investment
in quality and distribution over the last
few years has delivered rapid growth in
long form video requests, which were
up 22% year on year in 2012 to 458
million, an increase of over 200% since
2009. This has driven online revenues
up 40% in 2012.
Pay and Interactive
Our Pay and Interactive revenues have
also grown as it has now become
clearer that people want access to
great content anywhere, through
whichever device they choose, with
the option of interacting with the
content directly or through second
screen engagement. This growth and
the increase in online advertising has
helped drive strong growth in our total
Online, Pay and Interactive revenues
up £21 million (26%) to £102 million in
2012. This is now a material revenue
stream to ITV making up around 10% of
our non-NAR revenues.
Online, Pay &
Interactive Revenues
Online, Pay & Interactive revenues
have doubled since 2009
£102m
(2011: £81m)
% In
4
0
1
9
0
0
n 2
a s e o
c r e
1
8
26%
YoY
8
5
0
5
09 10 11
12
24
£m
120
100
2
0
1
80
60
40
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVStrategy & Operations Pay revenues are generated from
content deals with third party platform
owners and in the future will come
from online transactions directly with
the consumer through the ITV Player.
Pay revenues grew again in 2012 with
the first year’s contribution from the
Netflix, Lovefilm and Sky archive video
VOD deals, which launched early in the
year, and the catch up deal with Sky
which launched in the autumn.
In Autumn 2012 we successfully
rolled out our direct-to-consumer pay
proposition on PCs which is integrated
into our ITV Player. It is early days and
we continue to explore how to develop
these transactional VOD services
further as we roll them out across
mobile devices.
We continue to look for new ways
that viewers can interact with
our programmes, deepening our
relationship with them, increasing
programme loyalty and driving value
for our advertisers. We now have 4.4
million contactable email addresses
and across the official pages of shows
broadcast on ITV there are over 22
million Facebook ‘likes’ as we further
interact with our viewers through social
media.
Enhancing the value of our
online offering
In addition to making our traditional
linear spot ads work harder through
deals such as the one we signed with
Shazam, we have also been running
an ad innovation programme in which
we have trialled and launched several
new online ad formats to make VOD
advertising more engaging for our
viewers and more valuable for our
advertisers.
Current ITV Content Platforms
2012
5
1
2009
2
Number of Platforms
Long Form Video
Requests
Grown by over 200% since 2009
458m
(2011: 376m)
22%
YoY
% In
5
0
2
9
0
0
n 2
a s e o
c r e
6
7
3
1
6
2
0
5
1
m
500
8
5
4
400
300
200
100
09 10 11
12
25
22018-04 11/12/2012 Proof TwoFinancial Statementsar2012.itvplc.comStock code: ITVOverviewDirectors’ ReportStrategy & OperationsPerformance & FinancialsResponsibilityGovernance Strategic Priority
continued
These include Ad Play, which poses
a multiple choice question about
the product or brand; Ad Sync, which
provides a synchronised second screen
experience for broadcast advertisers
during our live entertainment shows;
and Ad Explore, which allows users to
explore more about the advertiser’s
product or service.
2013 and beyond
In 2013 we will continue to invest in
our online offering to further drive
viewing and build advertising revenues
in line with increasing audiences. We
will also further enhance the value of
our online advertising and seek to use
our increasing data knowledge to build
targeted opportunities.
Developing online market
The way people are watching digital
media is evolving. Mobile and tablet
viewing is growing the fastest and
is closing the gap on itv.com as the
largest ad funded platform in terms
of views. We are continuing to explore
opportunities for mobile viewing,
building on the 7.1 million downloads of
the ITV Player app since launch.
We are platform agnostic and the key
remains to deliver video content to the
largest and fastest growing platforms
and then either serve advertising to
them or develop our pay opportunities
around them. The content deals we
have done to date are largely non-
exclusive which give us flexibility as we
renegotiate current deals, allowing us
to consider other pay opportunities,
including pay channels.
Pictured:
The Only Way Is Essex
The Only Way Is Essex was the third most
watched ITV show online in 2012 after
Coronation Street and Emmerdale, attracting
39 million views.
26
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVStrategy & Operations ar2012.itvplc.com
Stock code: ITV
4
Build a strong international
content business
27
22018-04 11/12/2012 Proof Twoar2012.itvplc.comStock code: ITV Strategic Priority
Build a strong international
content business
A strong international content business lies at the heart of our
strategy. Our goal is to create and own more of our own content,
make it famous in the UK on our channels and exploit it across
multiple platforms in the UK and internationally.
The investment we have made in a
strong and healthy creative pipeline
is reflected in the level of new
commissions and recommissions. In
2012 we have again delivered over 100
new commissions while, crucially, the
number of recommissions has grown
from 101 to 108 as we focus on formats
that return and deliver more value.
This is also reflected in the number of
hours of programming delivered which
increased 10% in the UK and 47%
internationally.
UK production
In the UK we have grown our revenues
on and off ITV. We have increased
the level of content we own through
the growth in ITV Studios’ share of
ITV output which increased again to
58%, up from 50% in 2009 including
the impact of ITV Breakfast. On ITV
we have delivered new commissions
including Surprise Surprise, Fool
Britannia, Mrs Biggs and Titanic and
recommissions of Vera, Lewis, The
Chase and The Agenda.
Over the last few years there has
been increasing global demand from
Broadcasters and platform owners
for proven content, which provides
great opportunities for ITV as a leading
content creator and producer.
Since 2010 we have been transforming
ITV Studios commercially and creatively
in the UK and overseas, investing in
creative talent and in the programme
pipeline to exploit these opportunities.
The progress we have made is now
coming through in the financial and
operating performance indicators.
We delivered strong organic growth
across all three businesses within
Studios in 2012, with total revenue up
£100 million (16%) to £712 million and
EBITA over £100 million for the first
time in ITV’s history. UK Productions
which produces content for ITV and
other UK broadcasters grew 18%,
International Productions which
produces content in certain local
countries, including local versions of
UK formats, grew 21%, and Global
Entertainment which distributes
ITV’s and third party content globally
grew 6%. Since 2009 revenues and
EBITA have increased 19% and 18%
respectively.
Studios Revenues
Growth across all divisions
£712m
(2011: £612m)
£m
800
700
2
1
7
600
500
c r e
% In
9
1
7
9
5
9
0
0
n 2
a s e o
2
1
6
4
4
5
09 10 11
12
16%
YoY
28
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVStrategy & Operations
Off ITV our new commissions included
Shetland for BBC and Special Ops Cops
for Channel 5 and recommissions such
as Come Dine With Me, Countdown and
University Challenge.
International production
Our international production business
is growing organically through our
production bases in the US, Australia,
Germany, France and the Nordics with
almost 50% more hours delivered
in 2012. Many of our UK formats are
also being produced internationally,
for example May the Best House Win,
Come Dine With Me, The Audience and
The Chase. In fact we have ten formats
that are produced in three or more
territories – up from four in 2011. The
success of 2012 is as a result of growth
across all our territories but particularly
in the US where programmes such as
Hell’s Kitchen and The Bill Cunningham
Show have performed well and new
commissions such as Kentucky Fried
Action and Car Brokers have been
secured.
Global Entertainment
The strong production growth in the
UK and internationally is strengthening
the catalogue for international sales
for our distribution business, Global
Entertainment. In 2012 this was driven
particularly through the sale of Titanic
to 290 territories and Prime Suspect to
213 territories. This growth more than
offset the decline in DVD sales and
delivered a 6% increase in revenues in
2012.
Acquisitions – building on our
strong organic growth
We have built on our organic growth as
we work in a variety of ways – through
acquisitions, partnerships and joint
ventures. In 2012 we agreed terms
with Reshet, the Israeli broadcaster,
to jointly develop formats and
programmes for their local network
and the international market whereby
ITV will then distribute them globally.
Number of
New Commissions
2012: 103
(2011: 111)
Number of
Recommissions
2012: 108
(2011: 101)
Pictured:
Come Dine With Me
Come Dine With Me continues to go from
strength to strength with the format now being
produced in 36 countries.
29
22018-04 11/12/2012 Proof TwoFinancial Statementsar2012.itvplc.comStock code: ITVOverviewDirectors’ ReportStrategy & OperationsPerformance & FinancialsResponsibilityGovernance Strategic Priority
continued
In the second half of the year we made
a number of acquisitions in key creative
markets with companies that produce
in genres that travel and return. These
acquisitions were made against strict
strategic and financial criteria including
a proven creative track record,
ownership of IP, return on capital
employed and discounted cash flow.
We bought Mediacircus and Tarinatalo
to extend ITV’s presence in the Nordic
region and we bought So Television, to
help build our entertainment capability
in the UK. We have structured the deals
in a way to lock in creative talent and
align incentives.
In December 2012 we acquired 61.5%
of Gurney Productions, a US factual
entertainment company, to build on
our strength and complement ITV’s
existing position as a producer for
major television networks in the US.
There are put and call options in place
over the remaining 38.5%.
To enable us to do this we need to
further enhance our creative capability
by focusing our growth and investment
in three areas where we believe we can
drive the most value:
• Key creative markets in the UK and
US which have a track record for
creating IP,
Given the timing of these acquisitions
they have not had a material impact on
the 2012 results.
Our content strategy
Our goal remains to create and produce
more great content in the UK and
internationally and to distribute it
through Global Entertainment. We will
focus on strong returning programme
brands that travel in genres such as
Entertainment, Factual Entertainment
and Drama.
• Production centres, i.e. Australia,
Germany, France and the Nordics;
and,
• Emerging creative markets, e.g.
Israel who have had some early
successes in creating IP.
As we continue to grow
internationally we are focused on
how we can optimise value from our
quality content. We have different
opportunities depending on the type
of content we produce. We sell dramas
such as Titanic or Mr Selfridge through
Global Entertainment.
Pictured:
Duck Dynasty
Duck Dynasty owned by Gurney Productions,
which we acquired in December 2012, is currently
one of the biggest cable TV shows in the US.
30
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVStrategy & Operations % of ITV Output from
ITV Studios
Continues to grow year on year
58%*
(2011: 55%)
2%
Increase on 2011
••%
Increase on 2009
8
5
5
5
3
5
0
5
09 10 11
12
*
Includes ITV Breakfast.
%
60
55
50
45
We will continue to drive strong
organic growth in the UK and
internationally as well as build on our
growing strength and capability with
selective partnerships, joint ventures or
acquisitions in key creative markets.
Pictured:
Mrs Biggs
ITV Studios produced drama Mrs Biggs achieved
an average audience of 5.2 million viewers
across its five episodes.
Adam Crozier
Chief Executive
With formats such as The Chase
or Come Dine With Me we can sell
through Global Entertainment either as
a finished programme, or as a format
which can then be produced by a local
broadcaster or producer. Alternatively
we can produce it ourselves in that
territory for a local broadcaster. The
margins vary with each option – the
percentage margin is highest if we sell
the format or the finished programme
but the absolute margin is higher if we
produce it locally.
2013 and beyond
In 2013 we will further invest in our
creative talent and development to
maintain a healthy pipeline in the
key genres that travel to ensure we
can take advantage of the expected
increase in global demand for quality
content.
View the Adam Crozier
interview online @
ar2012.itvplc.com/
adamcrozierinterview
31
22018-04 11/12/2012 Proof TwoFinancial Statementsar2012.itvplc.comStock code: ITVOverviewDirectors’ ReportStrategy & OperationsPerformance & FinancialsResponsibilityGovernance Pictured:
Behind the scenes of Titanic
Photo by ITV/Rex Features
22018-04 11/12/2012 Proof Twoar2012.itvplc.comStock code: ITV Directors’ Report
Performance & Financials
22018-04 11/12/2012 Proof Twoar2012.itvplc.comStock code: ITV Key Performance Indicators
We have defined our Key Performance Indicators (KPIs) to align performance and accountability to the Transformation Plan.
These KPIs will be the key measures of success over the life of the Transformation Plan and cover all four strategic priorities.
Related Priority
KPI
Performance
EBITA before exceptional items
This is the key profitability measure used across the whole
business. Earnings before interest, tax and amortisation
before exceptional items (‘EBITA’) reflects our performance
in a consistent manner and in line with how the business is
managed and measured on a day-to-day basis.
2012
£520m
% Change
13%
2011
£462m
13% is a £58 million increase in EBITA and is primarily due
to a 3% increase in external revenues, driven by non-
NAR revenues – particularly high margin Online, Pay and
Interactive revenues – and £100 million increase in Studios
revenue. This and the delivery of cost savings has increased
profitability.
Adjusted earnings per share
Adjusted earnings per share represents the adjusted profit for
the year attributable to equity shareholders.
2012
9.2p
% Change
16%
2011
7.9p
Adjusted profit is defined as profit for the year attributable to
equity shareholders before exceptional items, amortisation
and impairment of intangible assets acquired through
business combinations, financing cost adjustments and prior
period and other tax adjustments.
It 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.
‘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).
A key priority is to keep tight control on cash and costs
and this measure primarily reflects our working capital
management and capital expenditure control. As such, 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.
Adjusted earnings per share has increased to 9.2p, a 16%
increase, reflecting the improvement in revenue and profits
and the reduction in adjusted financing costs as we improve
the efficiency of the balance sheet.
2012
95%
Absolute Change
(8)%
2011
103%
Profit to cash conversion is again over our 90% rolling
three-year target despite the step up in capex in 2012.
This demonstrates our continued focus on working
capital management which has helped drive a significant
improvement in our cash position.
Employee Engagement
To turn ITV into a world class organisation that is lean,
creatively dynamic and fit-for-purpose requires high quality
employees who are engaged in the work that they do, and
are committed to the Transformation Plan.
Employee engagement measures pride in the work we do,
pride in working for ITV and also what we say about our
programmes and services.
2012
88%
Absolute Change
3%
2011
85%
Employee engagement has again improved year on
year which indicates employees’ pride in ITV and their
commitment to supporting change across the business.
Company participation in the survey was also high at 80%.
ITV Family Share of Viewing (SOV)
Strategic priority 2 aims to maximise audience share from
our existing free-to-air broadcast business, and ITV Family
Share of Viewing (SOV) is the clearest indicator of this. ITV
Family SOV is ITV’s share of the total viewing audience
over the year achieved by ITV’s family of channels as a
proportion of total television viewing, including the BBC
family. ITV aims to at least maintain the ITV Family SOV.
2012
22.3%
% Change
(3)%
2011
23.1%
2012 was an extraordinary year for television, with many
unique events that will not return, for example the Queen’s
Jubilee and the London Olympics. This impacted ITV Family
SOV which was down 3% year on 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 change in platform mix, 2011’s SOV
adjusted for the 2012 platform mix was 23.1%.
34
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVPerformance & Financials 11 Create a lean, creatively
11
Create a lean, creatively
dynamic and fit-for-purpose
dynamic and fit-for-purpose
organisation
organisation
22
Maximise audience and
revenue share from our 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
Related Priority
KPI
Performance
ITV Family Share of Commercial Impacts (SOCI)
Strategic priority 2 aims to maximise audience share
from our existing free-to-air broadcast business, and ITV
Family Share of Commercial Impacts (SOCI) is another key
indicator of this. SOCI is the trading currency in the television
advertising market, and since it only covers commercial
television it does not include the BBC. 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. We aim to maximise our SOCI.
2012
38.3%
% Change
(3)%
2011
39.5%
ITV Family SOCI was down 3% year on year. ITV’s SOCI
was down 5% year on year but this was partly offset by
2% growth on the digital channels. ITV’s SOCI was also
impacted by the extraordinary year for UK television
viewing.
ITV Family Share of Broadcast (SOB)
ITV’s share of UK television advertising revenues is known
as its Share of Broadcast (SOB). To maximise revenues
from our free-to-air business, which is a key component
of strategic priority 2, we aim to continue to maximise
our SOB and to outperform the UK television advertising
market.
Total long form video requests
The Transformation Plan looks to drive new revenue streams
by exploiting our content across multiple platforms, and
long form video requests are a key measure of this.
Long form video requests are a measure of the total
number of videos viewed across all platforms (such as itv.
com, Virgin and mobile devices).
A long form video is a programme that has been broadcast
on television and is available to watch online and on
demand in its entirety.
We have rearticulated our video views KPI as ‘video
requests’. This is simply to have a consistent term across
new platforms where some providers count the consumer
VOD requests rather than the views. Our total long form
video requests in 2011 equalled our total long form video
views, so there has been no change to the prior year
comparatives.
Non-NAR revenues
Growing non-NAR revenues is key to the Transformation
Plan as we aim to rebalance the business away from our
reliance on television advertising revenues. Non-NAR
revenues include all ITV revenues, both internal and
external, except net advertising revenues (NAR).
Number of new commissions for ITV Studios
A key indicator of the creative renewal pipeline is the
number of new commissions won. This figure includes
programmes shown both on ITV and on other broadcasters,
and both in the UK and internationally.
2012
45.8%
Absolute Change
0.5%
2011
45.3%
In 2012, we outperformed the television advertising
market again, increasing SOB to 45.8%. This was due to
strong performances by the sales team and key shows
continuing to deliver the big audiences and brands that are
most demanded by advertisers. C4 lost share in 2012.
2012
458m
% Change
22%
2011
376m
Long form video requests were up 22% to 458 million
as we have improved the quality of the ITV Player and
increased the distribution of our content. ITV content is
now available on 15 platforms. Growth in long form video
requests has been driven by mobile viewing.
2012
£1,036m
% Change
12%
2011
£922m
We now have over £1 billion non-NAR revenues. These
have grown by over £100 million in 2012 as we continue to
rebalance the business. Non-NAR growth has been driven
by Studios revenues – particularly UK and International
Productions – and Online, Pay and Interactive revenues.
2012
103
Absolute Change
(8)
2011
111
In 2012 we again delivered over 100 new commissions. The total
number is down year on year, but the number of recommissions
has increased as we focus on formats that return.
Percentage of ITV* output from ITV Studios
This represents the proportion of the total spend on
original commissions on ITV transmitted in the year,
delivered by ITV Studios. In order to build a strong
international content business, ITV Studios needs to
increase its supply of programmes to ITV, where we aim to
make them famous and then sell them around the world.
* Excludes ITV2, 3 and 4.
2012
58%
Absolute Change
3%
2011
55%
The percentage of ITV output from ITV Studios has
increased again in the year to 58%. This has benefited
from the inclusion of ITV Breakfast, now that Daybreak and
Lorraine are produced by ITV Studios. Excluding the impact
of ITV Breakfast, it was up at 56%.
35
22018-04 11/12/2012 Proof TwoFinancial Statementsar2012.itvplc.comStock code: ITVOverviewResponsibilityGovernancePerformance & FinancialsStrategy & OperationsDirectors’ Report Financial and Performance Review
Ian Griffiths
In 2012 we have delivered revenue growth in all
parts of the business, and another year of double
digit profit growth.
Net Advertising Revenue (‘NAR’)
Total non-NAR revenue
Total revenue
Internal supply
Total external revenue
EBITA before exceptional items
Adjusted earnings per share
Dividend per share
Special dividend
Net Cash as at 31 December
2012
£m
1,510
1,036
2,546
(350)
2,196
520
9.2p
2.6p
4.0p
206
2011
£m
1,510
922
2,432
(292)
2,140
462
7.9p
1.6p
–
45
Change
£m
Change
%
–
114
114
(58)
56
58
1.3p
1.0p
–
161
–
12
5
(20)
3
13
16
63
–
358
Adjusted earnings per share represent the adjusted profit for the year attributable to equity shareholders; adjusted profit is
defined as profit for the year attributable to equity shareholders, before exceptional items, impairment and amortisation of
intangible assets acquired through business combinations, financing cost adjustments and prior year and other tax adjustments.
Historically, the financial performance of
ITV has been largely dependent on the
advertising market. Whilst still incredibly
important, these results demonstrate
that ITV can deliver strong profit growth
even in a flat advertising market.
Overall, we delivered external revenue
growth of 3% and total revenue growth
of 5%. This was driven by non-NAR
revenues, which were up £114 million
(12%) as we continued to deliver on our
strategy of growing and rebalancing the
business. For the first time over £1 billion
of our total revenue is non-NAR.
Studios revenues were up £100 million
(16%) and Online, Pay and Interactive
grew £21 million (26%). This good
revenue growth, in particular
from higher margin Online, Pay
and Interactive, together with our
continued focus on costs enabled us
to report a 13% increase in EBITA and
16% growth in adjusted EPS.
We delivered £30 million of cost
savings in 2012, £10 million ahead of
the initial forecast. We are doing this
by challenging our cost base line by
line. These cost savings have funded
the £25 million of investment we
made across the business in Online,
technology, the rebrand and in
creatives and the creative pipeline, in
line with our four strategic priorities.
The focus on costs will remain in
2013 and we will once again expect
savings to fund our investments in key
initiatives aligned to the strategy.
Managing our working capital
continues to be a focus and even with
increased capex we have delivered
profit to cash conversion of 95%. This
has led to a further improvement in our
net cash, finishing the year in a positive
net cash position of £206 million.
Interest costs continue to reduce as we
improve the efficiency of our balance
sheet with the bond buybacks in June
2012.
Non-NAR revenue
£1,036m
(2011: £922m)
1
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36
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVPerformance & Financials
The Board has proposed a final dividend
of 1.8p (2011: 1.2p) giving a full year
dividend of 2.6p (2011: 1.6p). The Board
is committed to a progressive dividend,
taking into account the outlook for the
business, while balancing the need to
invest and to maintain a robust financial
position against the backdrop of an
uncertain economic environment.
In addition to the final dividend, the
Board is proposing a special dividend
of 4p per share (£156 million). Over
the last three years we have made
significant progress in transforming the
Group – commercially, creatively and
financially. While only part way through
the Transformation Plan, ITV is now
becoming a better business, delivering
good revenue and profit growth and
generating significant levels of cash
which can be reinvested to drive growth
and deliver shareholder returns.
Broadcast & Online
Net Advertising Revenue (‘NAR’)
SDN external revenues
Online, Pay & Interactive
Other commercial income
Broadcast & Online non-NAR revenue
Total Broadcast & Online revenue
Total schedule costs
Other costs
Total Broadcast & Online EBITA before
exceptional items
This cash distribution reflects the
significant progress made and our need
to retain a conservative and flexible
balance sheet while continuing to invest
to deliver the Transformation Plan.
Going forward we will balance capital
discipline with the need to invest for
future growth and maintain flexibility.
The remainder of the Financial
and Performance review focuses
on the adjusted results, which in
management’s view shows our business
performance in a more meaningful and
consistent manner and reflects how
the business is managed and measured
on a daily basis. A reconciliation to
the statutory results is set out in the
earnings per share section.
2012
£m
1,510
62
102
160
324
1,834
(996)
(425)
2011
£m
1,510
59
81
170
310
1,820
(1,004)
(437)
413
379
Change
%
–
5
26
(6)
5
1
1
3
9
Total Broadcast & Online revenues
grew £14 million (1%) to £1,834 million
(2011: £1,820 million) even in a television
advertising market that we estimate
was down 1%. This growth was driven by
non-NAR revenues, particularly Online,
Pay and Interactive.
ITV Family NAR was flat, again
outperforming the TV advertising
market. While the television advertising
market remains broadly flat, as it has
done over the last few years, there
continues to be volatility on a month
by month basis and between sectors
and we remain cautious of short-term
monthly market commentary.
In 2012 the categories that saw growth
included finance, telecommunications
and entertainment – specifically
price comparison websites, online
entertainment and broadband – sectors
which are driven by technology and
increasing online usage by consumers.
Retail – in particular electrical,
supermarkets and the high street –
cosmetic & toiletries, cars, airlines and
household stores have all seen declines.
EBITA before
exceptional items
£520m
(2011: £462m)
£m
540
520
500
480
460
440
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£1,834m
(2011: £1,820m)
£m
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1,820
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1,800
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2
1
0
2
r
e
b
m
e
c
e
D
Category analysis
2
4
%
20 %
4%
4 %
%
4
5 %
%
5
10%
10
%
8
%
%
8
Retail
Entertainment
& Leisure
Finance
Food
Cosmetics
& Toiletries
Telecommunications
Cars & Car Dealers
Publishing &
Broadcasting
Airlines, Travel & Holidays
Household Stores
Other
Category data based on total ITV Sold.
37
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Financial and Performance Review continued
Moving Annual Total of NAR Revenues
Our cost
management and
our growth in
non-NAR revenues
has enabled us to
deliver a 9% increase
in Broadcast &
Online EBITA with
advertising flat.
20%
15%
10%
5%
-0%
-5%
-10%
-15%
Euros
Olympics
Mar 2012
June 2012
Sept 2012
Dec 2012
Other commercial income, which
includes sponsorship, minority
revenues and media sales, are
marginally down year on year.
Margins have continued to improve
as we manage the cost base tightly.
Schedule costs are broadly flat year
on year and other costs are down 3%.
We continue to challenge our costs
across the business and during the year
reorganised the Online division. In 2013
we expect to deliver further efficiencies
in our News operations.
Our tight cost management and our
growth in non-NAR revenues has
enabled us to deliver a 9% increase in
Broadcast & Online EBITA.
Monthly YOY
12 months YOY
SDN external revenues grew by 5%
in line with contractual increases as
there were no new contracts in 2012.
However, we have created a twelfth
video stream which went live in
January 2013.
Online, Pay and Interactive revenues
grew strongly, up £21 million (26%).
Within this, Online revenues have
grown at around 40% as we have
continued to drive increases in long
form video requests through improving
the quality of itv.com, widening
distribution and enhancing its offering
with the launch of the News and Sports
sites.
Pay revenues have grown significantly
with the archive deals with Netflix,
Lovefilm and Sky which launched
towards the start of 2012 and the catch
up deal with Sky which launched in
the Autumn. These build on the deals
already in place with Sky for HD versions
of the digital channels and catch up and
archive deals with BT and Virgin.
38
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i
t
n
e
m
n
a
t
r
e
t
n
E
l
a
b
o
G
l
Studios Revenue
£712m
(2011: £612m)
£m
740
700
660
620
580
3
6
s
n
o
i
t
c
u
d
o
r
P
K
U
2
1
6
1
1
0
2
r
e
b
m
e
c
e
D
0
3
s
n
o
i
t
c
u
d
o
r
P
l
a
n
o
i
t
a
n
r
e
t
n
I
ITV Studios
UK Productions
International Productions
Global Entertainment
Total Revenue
Total Studios costs
Total EBITA before exceptional items
Sales from ITV Studios to Broadcast & Online
External Revenue
Total Revenue
In 2012 ITV Studios again delivered
strong organic growth across all parts
of the business. Total revenue grew
£100 million to £712 million (2011: £612
million) and EBITA was £107 million.
This reflects the investments made in
creative talent over the last couple of
years.
UK Production revenues grew 18% with
growth on and off ITV. While there
was good underlying growth, internal
sales now include £33 million from the
inclusion of ITV Breakfast. This reflects
the fact that Daybreak and Lorraine are
now produced by ITV Studios.
On ITV, the delivery of programmes
such as Titanic, Mrs Biggs, Surprise
Surprise, Vera and The Chase drove the
number of new and returning drama
and entertainment commissions. The
number of original hours delivered has
continued to grow, up 23%. Off ITV, UK
revenues have grown with the delivery
of new programmes, for example
Shetland for BBC and Special Ops Cops
for C5.
International revenues grew very
strongly in 2012, up 21% to £171 million
(2011: £141 million). All our production
bases delivered growth but it was
particularly significant in the US driven
by Hell’s Kitchen, The Bill Cunningham
Show, Jeremy Kyle and America Now.
Australia and France also grew strongly.
2012
£m
408
171
133
712
(605)
107
350
362
712
2011
£m
345
141
126
612
(529)
83
292
320
612
Change
%
18
21
6
16
14
29
20
13
16
The number of hours of original content
delivered increased 47% with shows
such as Come Date with Me in Australia,
and Four Weddings in France.
Global Entertainment revenues grew
£7 million (6%) to £133 million (2011:
£126 million), driven by international
television sales of dramas such as
Titanic and Prime Suspect, which
more than offset the decline in DVD
sales. The strong growth in UK and
International Production is feeding
into revenue for Global Entertainment,
by improving the quality of the
programme catalogue.
The majority of costs in the Studios
business vary with the levels of
production and therefore have
increased in line with activity. We
continue to run all our productions as
efficiently as possible and maintain
a tight focus on overhead costs to
improve margins even after the
investment in creatives we have made.
This tight focus on costs, the change in
programme mix and the increase in the
level of recommissioned programmes
has helped increase EBITA to reach over
£100 million this year.
In the second half of 2012, ITV made a
number of acquisitions aligned to our
strategy to strengthen our international
Studios business and build upon the
good organic growth already achieved.
2
1
7
2
1
0
2
r
e
b
m
e
c
e
D
39
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Financial and Performance Review continued
These acquisitions were made against
strict strategic and financial criteria
including ownership of intellectual
property, return on capital employed
and discounted cash flow.
We bought 100% of Mediacircus AS in
Norway for £2 million upfront cash and
Tarinatalo in Finland for £1 million
upfront cash to extend ITV’s presence
in the Nordic region. In August we
bought So Television for £10 million to
help build our entertainment capability
in the UK. In December 2012 we
acquired 61.5% of Gurney Productions,
a US factual entertainment company
for $40 million (£25 million), to build
on our strength and complement
ITV’s existing position as a producer
for major television networks. There
are put and call options in place over
the remaining 38.5% from years 3 to 5
following the acquisition. As part of
the consideration for all these
acquisitions, we have agreed to
future payments on top of the
initial consideration based upon the
performance of the businesses over
a number of years to align incentives
and lock in creative talent.
The total maximum consideration
is £96 million (undiscounted) for all
these acquisitions which is dependent
on the future growth performance
of the business. This includes the
initial consideration and all deferred
consideration and earnouts. Given the
timing of these acquisitions, they have
not had a significant impact on the
2012 results.
Acquisitions
Company
Gurney Productions
So TV
Mediacircus
Tarinatalo
Total
Geography
US
UK
Norway
Finland
Genre
Initial
consideration
(£m)
Total maximum
consideration
(undiscounted)
(£m)
Factual Entertainment
Comedy and Entertainment
Factual and Entertainment
Factual Entertainment
25
10
2
1
38
69
17
4
6
96
Expected
Payment
Date
2016-18
2016
2016
2016
Net financing costs
In 2012 adjusted financing costs were
£6 million lower than the previous
year as a result of the full year impact
of the bonds bought back in 2011 and
the impact of the bonds bought back
in June 2012. These savings have more
than offset the contractual step up
in the rate on our 2019 bilateral loan.
Cash-related net financing income
has decreased by £5 million due to a
reduction in gross cash balance as a
result of the bond buybacks.
Net financing costs are £24 million
higher primarily due to movements in
swap valuations. In 2011 ITV recorded a
£16 million increase in the value of its
swaps primarily reflecting the impact
of lower implied interest rates on the
floating rate portion of the swaps. In
September 2011 ITV swapped these to
fixed rate swaps thereby moving to a
100% fixed rate position and locking in
a net gain on its swaps portfolio which
accrued during 2011 and previous
years. During 2012 these gains partially
unwound as cash was realised from the
swaps and hence their value reduced by
£11 million as a result.
The losses on buybacks relate to the
exceptional loss on the £275 million
bond buyback completed in 2012. In
2011 similar losses were incurred on the
buyback of certain bonds.
Financing costs directly attributable to loans and 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
Losses on buybacks
Other net financing costs
Net financing costs
40
2012
£m
(38)
3
(35)
(9)
(44)
(11)
(9)
(36)
1
(99)
2011
£m
(45)
8
(37)
(13)
(50)
16
(5)
(39)
3
(75)
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVPerformance & Financials
Tax
The effective rate of tax applied to adjusted profits is lower than the statutory rate. This is a result of the consistent
application of our policy to adjust the tax charge for losses utilised in the year to more closely reflect the cash tax paid in the
year. The effective tax rate of 23% in 2012 is lower than the standard tax rate of 24.5% due to adjustments made for prior
periods and the recognition of overseas deferred tax credits (2011: due to settlement of outstanding matters in our overseas
business). The total reported tax charge is £80 million (2011: £79 million).
Profit before tax as reported
Exceptional items (net)
Amortisation and impairment of intangible assets*
Adjustments to net financing costs
Adjusted profit before tax
Tax charge as reported
Net charge for exceptional items
Charge in respect of amortisation and impairment of intangible assets*
Charge in respect of adjustments to net financing costs
Other tax adjustments
Adjusted tax charge
Effective tax rate on adjusted profits
*
In respect of intangible assets arising from business combinations.
Cash tax paid of £62 million (2011: £68 million) arises as a result of making
payments for taxable profits, partially offset by the use of losses and tax
treatment of allowable pension contributions.
2012
£m
348
12
49
55
464
2012
£m
(80)
(2)
(12)
(13)
2
(105)
23%
2011
£m
327
(1)
47
25
398
2011
£m
(79)
–
(12)
(7)
7
(91)
23%
Dividend and shareholder returns
The Board has proposed a final dividend of 1.8p (2011: 1.2p) giving a full year dividend
of 2.6p (2011: 1.6p). The Board is committed to a progressive dividend, taking into
account the outlook for the business, while balancing the need to invest and to
maintain a robust financial position against the backdrop of an uncertain economic
environment.
Dividend
2.6p
(2011: 1.6p)
11
0.4
1.2
In addition to the final dividend, the Board is proposing a special dividend of 4p per
share (£156 million).
12
0.8
1.8
0
1.0
2.0
3.0p
Interim Dividend
Final Dividend
41
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Earnings per share
Adjusted earnings per share is 9.2p (2011: 7.9p). Basic earnings per share is 6.9p (2011:
6.4p). The main differences between reported and adjusted earnings per share are
exceptional items, the losses incurred in net financing costs from the bond buybacks,
adjustment for the amortisation of intangible assets acquired through business
combinations and the tax effects of these.
Reconciliation between reported and adjusted earnings
Reported
£m
Adjustments
£m
–
7
49
55
–
6
(1)
116
(25)
91
–
91
520
(7)
(60)
(99)
(1)
(6)
1
348
(80)
268
(1)
267
3,888
6.9p
Adjusted
£m
520
–
(11)
(44)
(1)
–
–
464
(105)
359
(1)
358
3,888
9.2p
Exceptional items are restructuring
costs and acquisition related expenses,
including professional fees and
contingent consideration, in relation to
the strategic acquisitions we made in
the Studios business. The tax and net
financing costs sections of this review
show the adjustments to these balances.
EBITA before exceptional items
Operating exceptional items
Amortisation and impairment of intangible
assets
Net financing costs
Share of losses of JVs and Associates
Loss on sale and impairment of non-current
assets (exceptional)
Gain on sale and impairment of subsidiaries
and investments (exceptional)
Profit before tax
Tax
Profit after tax
Non-controlling interest
Earnings
Number of shares (million)
Earnings per share (pence)
The adjustments shown above 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 day to day basis.
Amortisation and impairment of
intangible assets acquired through
business combinations is not included
within adjusted earnings. Amortisation
of software licences and development
is included as management considers
these assets to be core to supporting the
operations of the business.
Adjusted Earnings
per Share
9.2p
(2011: 7.9p)
11
12
7.9p
9.2p
0
2.5
5.0
7.5
10.0p
Basic Earnings
per Share
6.9p
(2011: 6.4p)
11
12
6.4p
6.9p
0
2.0
4.0
6.0
8.0p
42
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVPerformance & Financials Cash flow, working capital management and positive net cash
Cash flow and working capital management
EBITA before exceptional items (‘profit’)
Decrease in programme rights and other inventory
and distribution rights
Decrease in receivables
Decrease in payables
Working capital movement
Depreciation
Share-based compensation
Cash flow generated from operations
before exceptional items
Acquisition of property, plant and equipment
and intangible assets
Adjusted cash flow
2012
£m
520
29
17
(45)
1
27
9
557
(61)
496
2011
£m
462
–
52
(34)
18
26
11
517
(43)
474
Net cash tracker
£206m
(2011: £45m)
December 2011
45
Adjusted cash
from operations
Net interest
paid
Bond buy backs
Tax
Pension funding
Dividends
Acquisitions
Other
496
33
36
62
72
78
38
16
‘Profit to cash’ ratio
*
Before exceptional items
Over the last three years tight cash and
working capital management has been
a real focus for ITV.
In 2012 we generated £496 million
of cash from £520 million of EBITA
before exceptional items, even after a
significant increase in capex.
The ‘profit to cash’ ratio of 95% was
again ahead of the KPI target of
90% on a three-year rolling basis
for the third year in a row. This
performance was primarily through
further improvements in inventory
management and a decrease in our
receivables balance. This is due to
changes in the timing of broadcast
infrastructure payments and revised
agreements with non-consolidated
licensees resulting in a reduction in
receivables. This was partly offset by a
decrease in payables from reduction in
programme and sports rights creditors
at the year end.
Cash spend on acquisition of property,
plant and equipment and intangible
95%
103%
December 2012
206
£m
0
150
300
450
600
assets was higher this year due to the
investment in technology, particularly
the desktop refresh, and moving the
Manchester site to MediaCityUK. It was
not as high as originally planned as we
negotiated some of the cash costs into
2013. As a result of moving these cash
payments into 2013, Capex is likely to be
at a similar level to 2012.
Free cash flow
Adjusted cash flow
Net cash interest paid
Cash tax
Pension funding
Free cash flow
2012
£m
496
(33)
(62)
(72)
329
2011
£m
474
(37)
(68)
(48)
321
Except where disclosed management views the acquisition
of operating property, plant and equipment and intangibles
as necessary ongoing investment in the business.
Free cash flow before dividends
remains strong despite the step up in
pension funding contributions.
The free cash flow reflects our
underlying cash generation and gives
us flexibility to invest in the business.
43
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Positive net cash and adjusted
net debt
We ended this year in a positive net
cash position of £206 million (2011: £45
million), as a result of our strong free
cash flow generation.
There is no IFRS definition of net debt
and our net cash figures represent
our measure of this metric, which is
consistent with previous years; this can
be seen in section 4.1 of the Financial
Statements.
We have our own definition of adjusted
net debt, along similar lines to the
rating agencies. It is an important
measure of the health of the business
as it captures our net cash position
but also other significant cash
commitments we have to settle at
some point in the future.
Our adjusted net debt is as follows:
Adjusted net debt
Net cash
Contingent
consideration on
acquisitions
Pension deficit
Operating leases
Adjusted net debt
2012
£m
206
(58)
(551)
(518)
(921)
2011
£m
45
–
(390)
(569)
(914)
The ratio of adjusted net debt to
adjusted EBITDA is 1.7x.
As can be seen from the table adjusted
net debt includes the maximum total
contingent consideration in relation
to the acquisitions we have made
in the year (undiscounted), IAS 19
pension deficit and operating lease
commitments (undiscounted) for
transponder and property. Of the
property lease commitments, £82
million is in relation to the London
Television Studios which no longer exist
following our acquisition of the building
in January 2013 for £56 million.
Liquidity risk and funding
We have further strengthened and
improved the efficiency of our balance
sheet in 2012. We have delivered
strong cash generation, we have put in
place a revolving credit facility and we
have bought back more bonds.
We continue to look at opportunities to
improve the efficiency of the balance
sheet while maintaining flexibility to
invest in the Transformation Plan.
Given the significant progress we have
already made, it is becoming harder.
For ITV efficiency is measured by the
difference in the returns we receive
for our cash on deposit and the cost
of interest on gross debt outstanding.
Currently we are net cash positive but
have adjusted financing costs of £44
million. We have attempted to address
this with £937 million of bond buybacks
and early loan repayments since
October 2009 but further step changes
are becoming harder to achieve.
Debt structure
In June we bought back £275 million
nominal of bonds comprising €138
million of the 2014 bonds, £75 million
of the 2015 bonds and £89 million
of the 2017 bonds. The bonds were
repurchased at prices above par,
resulting in an exceptional interest
charge of £36 million, but will improve
adjusted financing costs going forward.
In 2013 we expect adjusted financing
costs to be around £35 million.
Gross debt repayable is £496 million
at 31 December 2012, having reduced
primarily as a result of the bond
repurchases.
In July 2012 we improved our financial
flexibility following the bond tender
through obtaining a committed
£250 million Revolving Credit Facility,
provided by a handful of long-term
44
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVPerformance & Financials Debt Maturity Profile
1
6
1
5
3
1
8
7
£m
200
150
100
2
6
50
0
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
5
1
4
1
0
2
3
1
0
2
Debt Instruments
Bilateral
Convertible
Eurobond
Other
10%
12%
27%
51%
relationship banks, which remains
undrawn. The facility has a three-year
maturity but is, subject to agreement
by the banks, extendible by a further
two years.
Amount repayable
€50 million Eurobond*
£78 million Eurobond
£135 million Convertible bond
£161 million Eurobond
£200 million Bank loan†
Finance leases
Total repayable
The facility contains leverage and
interest cover covenants as is normal
for a facility of this nature.
Financing
Our debt is financed using instruments
with a range of maturities. Borrowings
at 31 December 2012 (net of currency
hedges and secured gilts) are repayable
as follows:
Maturity
June 2014
Oct 2015
Nov 2016
Jan 2017
Mar 2019
Various
£m
15
78
135
161
62
45
496
* Net of Cross Currency Swaps.
† Net of £138 million (nominal) Gilts secured against the loan.
There are no financial covenants on any of the debt instruments above.
Ratings
In 2012 our credit ratings continued
to improve. In March Fitch, Standard
& Poor’s (‘S&P’) and Moody’s Investors
Service (‘Moody’s’) upgraded our
long-term credit ratings from BB / Ba2
(Stable Outlook) to BB+ / Ba1 (Stable
Outlook). In August Moody’s changed
the outlook on ITV’s ratings to positive
and in October S&P also changed the
outlook to positive.
Despite improvements in the credit
ratings from all three agencies, we
remain sub-investment grade and
would require a notch upgrade from
each agency in order to restore
investment grade.
The factors that are taken into account
in assessing our credit rating include
our degree of operational gearing,
exposure to the economic cycle, and
business and geographical diversity.
Executing the Transformation Plan
should see us continue to strengthen
our position against all of these
metrics.
Becoming investment grade would
reduce the coupon we paid on the 2017
bond by around £2 million and may
positively impact our ability to raise
capital in the future.
45
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Financial and Performance Review continued
IAS 19 Pension deficit
£551m
(2011: £390m)
7
0
2
1
5
5
2
7
6
2
i
g
n
d
n
u
f
t
i
c
fi
e
D
s
t
e
s
s
a
n
i
e
g
n
a
h
C
i
d
a
p
s
n
o
i
s
n
e
p
s
s
e
l
2
1
0
2
r
e
b
m
e
c
e
D
s
e
i
t
i
l
i
b
a
i
l
n
i
e
g
n
a
h
C
£m
600
500
400
300
200
100
0
0
9
3
1
1
0
2
r
e
b
m
e
c
e
D
46
Actuarial valuations
Full actuarial valuations are carried
out every three years with the latest
complete actuarial valuations of all
three sections of the main defined
benefit scheme carried out as at
1 January 2011 and, on the bases
adopted by the Trustee, the combined
funding deficits amounted to
£587 million, of which:
• Section A deficit was £531 million or
20% of the liabilities in that section;
• Section B deficit was £17 million or
13% of the liabilities in that section;
• Section C deficit was £39 million or
11% of the liabilities in that section.
Deficit funding contributions
The Group has agreed with the Trustee
that the level of contributions to the
Section A of the ITV Pension Scheme
will be a combination of fixed and
performance related payments.
The fixed payments will be as follows:
2013 – 2014
£35 million per annum plus an
additional £5 million if there are no
initiatives in the previous year which
materially reduce the deficit. This has
not changed from the previous funding
plan.
2015 – 2019
£48 million per annum in 2015
increasing by £0.5 million per annum to
£50 million per annum in 2019.
2020 – 2025
£50 million per annum, but may be
reduced by the impact of additional
profit-related contributions (set out
below).
Pensions
IAS 19 – the accounting deficit
The aggregate IAS 19 deficit on
our defined benefit schemes at
31 December 2012 was £551 million
(31 December 2011: £390 million). The
most significant reason for the increase
was the continued fall in corporate
bond yields (discount rate) which
are used to value the liabilities. This
has added £240 million to liabilities,
although this was partly offset by a
reduction in the rate of market implied
inflation.
The IAS 19 deficit is sensitive to
changes in assumptions, for example a
0.5% fall in the discount rate increases
liabilities by £290 million. Over the last
three years the decline in the discount
rate has added £681 million to the
deficit, partially offset by a decrease in
the rate of market implied inflation.
The value of the assets of the ITV
Pension Scheme (‘the Scheme’)
increased during the year. This gain
has been reduced by the impact of the
adjustment in relation to the longevity
swap, which is reflected as an actuarial
loss on the assets.
Pensions continue to be paid from the
Scheme based on actual requirements.
Revised IAS 19 Accounting Standard
Effective from 1 January 2013, IAS 19 has
been revised and this has two impacts.
Firstly on the service cost, as the revised
standard requires the inclusion of the
Trustee’s administration fees of £4.5
million and this will be reflected in our
operating costs. Secondly it impacts
the expected pension charge reflected
in financing costs which is forecast
to increase from £16 million in 2012
to approximately £21 million as the
expected rate of return applied to
assets has been brought in line with the
discount rate applied to liabilities. As is
our current policy, this will not impact
adjusted financing costs, as we adjust
this out to focus on cash costs.
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Post balance sheet events
On 25 January 2013, we acquired
the freehold of London Television
Centre for £56 million, the Company’s
headquarters and studios in London. If
there is any substantial redevelopment
of the site in the next ten years,
additional payments up to a maximum
of £6.5 million could be made to the
sellers. Prior to the purchase, we were
locked into a 56 year lease with no
breaks. The purchase gives us flexibility
in our property strategy as we continue
to transform and rebalance the
Company.
Ian Griffiths
Group Finance Director
The performance related contributions
will be calculated as follows:
2012 – 2020
If the Group’s reported EBITA pre-
exceptional items exceed £300
million, the Group will increase the
fixed contributions in the following
year by an amount representing 10%
of EBITA pre-exceptional items over
the threshold level. This is subject to
an annual cap which averages to £70
million per annum over the period
2015-2020.
If the additional profit-related
contributions are paid at the expected
rate then the £50 million per annum
fixed contributions scheduled to be
paid between 2021 and 2025 (inclusive)
may not be required.
In addition to the agreed deficit
funding contributions, the SDN
partnership established in 2010
provides an annual distribution of
£11 million to this section of the
Scheme for 12 years from 2011.
Following completion of actuarial
valuations of Sections B and C as at
1 January 2011 the Group has agreed
with the Trustee to make deficit
funding contributions of £5.5 million
per annum in order to eliminate the
deficits in these sections by 31 March
2021.
In 2013 we expect to make total
deficit funding contributions of £79
million, which is £7m higher than 2012
reflecting the increase in EBITA year on
year.
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Risk management process
ITV’s risk management approach is
dynamic and continues to be reviewed
and developed.
Our approach covers risks at all levels
of the organisation and examines
business risks on both a top down
and bottom up basis. The approach
considers risks in 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 – embedded
into everyday activity within the
organisation.
The Board regularly reviews the
risk management framework, its
content and its operations. The
Board is responsible for establishing
a robust and appropriate process,
including regularly reviewing the risks
themselves. The Audit Committee
keeps the effectiveness of the risk
management process under review.
The Board continues to review the
appropriate risk appetite for certain
risk types to ensure ITV is carrying an
acceptable level of risk.
The Management Board has overall
responsibility for the content and
operation of the risk management
framework and performs regular reviews
of both strategic and HILL risks. Each
strategic risk has been mapped to
one of the four key strategic priorities
and, where possible, assigned key risk
indicators. Where appropriate, the key
risk indicators are aligned to our key
HILL
risks
Strategic
risks
Process level risks
The strategic risks are mapped
to the strategic priorities 1
2 3 4
performance indicators. All strategic
risks are owned by a member of the
Management Board.
In 2012 all the HILL and strategic risks
were reassessed and refined to further
improve our risk management. Process
level risks are subject to ongoing review
by internal audit.
ITV’s risk monitoring and mitigation
process is embedded in the running
and review of the business. Risks
are primarily controlled through the
risk management process in place.
Mitigating actions have also been
identified for each of the risks.
High Impact, Low Likelihood risks
Risk Theme
Financial
Risk
ITV loses its credit status or lines of funding with existing lenders or there is a collapse of a major bank
impacting financial arrangements/availability of credit.
Financial
There is a major collapse in investment values leading to a material impact on the pension deficit.
Operational
A significant event removes key management from the business on a long-term or permanent basis.
Reputation
An event with public interest that causes significant reputational and brand damage.
Reputation
There is a major health and safety incident that results in a significant loss of human life.
Reputation
A major incident results in ITV being unable to continue with scheduled broadcasting for a sustained period.
Reputation
There is a significant or unexpected change in regulation or legislation.
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11
Create a lean, creatively
dynamic and fit-for-purpose
dynamic and fit-for-purpose
organisation
organisation
22
Maximise audience and
revenue share from our 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
Strategic risks
The key strategic risks are those that impact the successful execution of the strategy and as a result require regular
Management Board monitoring. All of the strategic risks identified have been mapped to the four strategic priorities of the
Transformation Plan and have been grouped by key risk themes.
Risk Theme
The Market
The Market
The Market
People
People
People
Risk
Strategic Priorities
There is a major decline in advertising revenues and ITV does not build
sufficient non-NAR revenue streams thereby significantly impacting ITV’s
overall financial performance.
The television market moves significantly towards pay television as a preferred
model, negatively impacting ITV’s free-to-air revenues.
A faster than expected shift to Video on Demand, catch up or other new
technologies causes a sustained loss of advertising revenue.
ITV lacks adequate management capability and creative talent.
ITV employees are not sufficiently engaged in the business to deliver the
strategy.
The extensive degree of change that the business will undergo will overload a
small number of key people.
Organisation/Structure/
Processes
The business continues to work in silos, resulting in sub-optimal decisions being
made which impacts execution of the strategy.
Organisation/Structure/
Processes
A significant and high profile incident (e.g. a transmission incident/major
regulatory breach) causes significant reputation damage to ITV.
Organisation/Structure/
Processes
There is a significant loss of programme rights or ITV fails to identify and obtain
the optimal rights packages.
Organisation/Structure/
Processes
Organisation/ Structure/
Processes
ITV fails to create and own a sufficient number of hit programmes/formats.
ITV fails to invest in, develop or operate effectively international businesses.
Organisation/Structure/
Processes
ITV loses a significant volume of personal or sensitive data due to an internal
breach.
Technology
Technology
Technology
Technology
Late delivery of new technology platforms, and heavy reliance placed on legacy
technologies, negatively impacts ITV’s ability to achieve its strategic aims.
Current technological environment and business processes are not sufficient to
support the growth in Online, Pay and Interactive services.
ITV fails to ensure appropriate business continuity planning and resilience
within its core systems, processes, platforms and technology infrastructure.
There is a sustained cyber/viral attack causing prolonged system denial or
major reputational damage.
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Vera
Photo by ITV / Rex Features
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Responsibility
.
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– Setting performance targets
where feasible and ensuring
transparency on results;
– Supporting new and diverse
talent and improving access to
the industry; and
– Recognising and rewarding
employees’ individual
contributions and impact on the
community and environment.
For information demonstrating the
impact of our Corporate Responsibility
in the year, the drivers of these
priorities, and specific aims and
measures around the strategy, please
visit our Corporate Responsibility website:
www.itvplc.com/responsibility
Performance summary
We recognise the importance of
understanding and evaluating the
impact our Company’s operations have
on its people, customers, suppliers,
the community and the environment.
Below is a brief summary of some of
our policies, performance indicators,
achievements and impact in 2012.
For further details please see the
Corporate Responsibility website.
People and diversity
Retaining and attracting talent is
key to the success of ITV and as such
it is both a risk and a priority. It is
therefore imperative that we provide
rewards and opportunities for work
and development as well as protection
from harm and discrimination. By
making our people feel proud of ITV,
they are ultimately more engaged and
committed to working for us.
Our Corporate Responsibility
strategy aims to grow our business
by strengthening stakeholder pride
and loyalty in ITV, whilst continuing
to broadcast and operate responsibly.
Our visibility and reach comes with
significant responsibility and our
actions impact the lives of millions
of viewers and users of our services,
therefore it is imperative that we
operate responsibly as a company.
At a minimum we aim to comply with
our regulators, fulfil our legal obligations
and our own policies and procedures.
However, as well as mitigating risks
to the business we are also looking
for opportunities to benefit our wider
community and contribute to the
sustainability of the industry for ITV and
others. We have an internal Corporate
Responsibility governance structure
and company wide policies to provide a
strategic and consistent approach to our
responsibilities. Specific performance
targets and indicators are used alongside
external benchmarking tools to review
progress.
Priorities
Our approach to Corporate
Responsibility is to utilise our position
in the heart of our communities to
drive our key priorities:
Responsible reach:
•
Utilising ITV’s unique position as a
regional and national broadcaster
and the reputation of well-known
programmes as a vehicle to raise
awareness and change consumer
behaviour, through national
campaigns and regional stories.
Operating responsibly:
• Being seen as a responsible industry
leader by demonstrating the link
between responsibility and a
sustainable future. In particular:
– Utilising external benchmark
tools to improve ITV’s position
and working cross-industry to
share best practice;
Our Access Services team, SignPost, have delivered
an award winning website – SignedStories.com,
making books accessible to deaf and hearing
children.
In 2013’s Workplace Equality Index we remain in the
top 100 index and feature as the only Broadcaster.
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Stock code: ITV
Health and safety
The Health and Safety (H&S) of
employees, contractors and visitors
at ITV is always a high priority. The
significant loss of human life as the
result of a major H&S incident has
been identified as a specific risk to
the organisation. The H&S team
continue to use a management
system that meets the specific
risk profile of the business which is
supported by a comprehensive training
programme and communicated across
the business.
Health and safety – performance
indicators
Lost time accidents
reported under
RIDDOR*
Major accidents (as
defined by RIDDOR)
Fatal accidents
2012
2011
5
3
0
8
2
0
* As of 6 April 2012, RIDDOR’s over-three-day injury
reporting requirement changed to over-seven-day
reporting our figures reflect this change.
For more detail on ITV’s training and
new talent programmes, diversity and
equal opportunities activities, health
and safety management system and
implementation visit the Corporate
Responsibility website.
Two Tick Disability symbol awarded for the sixth
year running — demonstrating our commitment
around Disability in recruitment and people.
This year we were awarded a ‘Big Tick’ by Business
in the Community for our Work Inspiration
programme for young people.
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We continue to measure and listen
to our people through our employee
survey and employee engagement has
increased again in 2012 to 88% from
85% in 2011.
Diversity in skills, experience and in the
make-up of our workforce is essential
to produce creative content and quality
programmes that appeal to as wide an
audience as possible. It is in our interest
to invest in programme making outside
London and to ensure we proactively
seek to build an inclusive workforce
that reflects our potential viewership.
Our diversity policy reflects the
Equality Act 2010 and aims for equality
around gender, Marital and Civil
Partnership, race, religion and belief,
disability, age, sexual orientation and
gender reassignment. ITV is recognised
as a positive employer, holding the
‘Two-Tick’ disability symbol and
maintaining its status as the only
broadcaster in Stonewall’s Top 100
Workplace Equality Index.
Workplace profile (%)
2012
2011
Ethnic minority
employees
Employees with a
disability
Employees aged
over 50
Lesbian, gay
and bisexual
employees
10.8
2.4
16
9.7
9.1
2.9
15
4.9
Percentages based on those who declared relevant
information (approximately 75% of workforce).
Pictured:
We invest significantly in opportunities and
development of new talent. 62% of ITV’s
apprentices who completed their training in 2012
gained employment with us
ITV Annual Report 2013 - Front.indd 53
22018-04 11/12/2012 Proof Two
53
06/03/2013 08:48:33
Operating Responsibly continued
Customers
Our key customers are our viewers
– across various platforms, – our
advertisers and other broadcasters
who buy our content.
We seek to maximise audience and
revenue share from our free-to-air
business, as laid out in Priority 2 of the
Transformation Plan. To manage the
risk and grow our revenue it is essential
that we understand our viewers,
meet their expectations and deliver
maximum value both to them and the
advertisers.
All UK programmes comply with the
Ofcom Broadcasting Code in relation to
their content and scheduling.
In 2012 Ofcom found 6 breaches of
the code compared to 12 in 2011. All
breaches are responded to and where
breaches reveal shortcomings in our
editorial or compliance processes we
will ensure changes are implemented.
We continue to use a formal approach
to gathering feedback through a
Vision Panel and regional audience
panels. We also have a structured
viewer feedback process. All queries are
escalated to the person accountable
and responded to.
We continue to deliver access services
across our family of broadcast channels
beyond the targets set by Ofcom
for subtitling, signing and audio
description. For more information
on our services, targets and how ITV
has maximised its in-house facility
SignPost to provide award-winning
community services, visit the Corporate
Responsibility website.
suppliers, in particular those with
whom we work regularly, such as
suppliers of outsourced services and
key suppliers of programming and
broadcasting programme rights.
Managing supplier relationships is
a key part of our business strategy
and is the responsibility of both the
commissioning and commercial teams
and our central procurement team.
Access services for ITV
(% of programmes)
Subtitling
Audio description
Signing
2012
90%
10%
5%
2011
98%
19%
6%
Suppliers
We conduct business with a large
variety of suppliers and endeavour
to do business on terms that are
considered fair and reasonable. To
ensure we trade responsibly, we
draw up contracts with suppliers,
which incorporate industry-standard
environmental and H&S standards.
It is in the Company’s best interest
to ensure we have transparent and
effective relationships with
We have 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, SES Astra
and BT. Other key suppliers include:
Mace Group, Gerald Eve LLP, Accenture
and Ericsson.
Key suppliers of programming and
broadcasting programme rights include
ITN, who provide ITV’s national news
programmes, Fremantle who produce
Britain’s Got Talent and The X Factor
for ITV, the Football Association, NBC
Universal Studios and Arena Television.
Pictured:
Text Santa
Text Santa is also a true example of ‘One ITV’ where
ITV Broadcast, ITV Studios and colleagues come
together to build awareness for certain charities and
inspire social action within our community.
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Charitable giving
As a broadcaster and producer of
some of the nation’s most popular
programmes, we recognise the power
of our brand, our mass audience appeal
and our ability to champion issues on a
national level.
During 2012, our activities have ranged
from charitable giving to donations for
specific programmes and campaigns.
In all, ITV has contributed £1.7 million in
cash (2011: £1.5 million) and £3.3 million
in kind (2011: £3.4 million).
In 2012, we have used our ability to
engage viewers to help to create
visibility, loyalty and profile for a
selected number of charities who we
work in partnership with. This helped to
raise over £10.5 million for independent
charities, through our call to action
campaigns such as Text Santa, which
we launched in 2011 , and Soccer Aid.
Text Santa is also a true example of ‘One
ITV’ where ITV Broadcast, ITV Studios
and colleagues come together to build
Environmental performance indicators 1
awareness for certain charities and
inspire social action within our local
communities.
More information on activity within
the community, charitable giving,
donations raised and the organisations
which we support can be found
on our Corporate Responsibility
website.
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 may be occasions when an
activity may fall within the broader
definition of ‘political expenditure’
contained within the Companies Act
2006. Shareholder authority for such
expenditure was given at the 2011
Annual General Meeting. However,
during 2012 the Group made no
payments falling within this definition
(2011: nil).
Environment
Our offices and productions have a direct
impact on the environment through
energy consumption, water use and
waste production. We are also indirectly
responsible for the environmental
impacts of commissioned programmes,
and of the suppliers that provide us with
goods and services.
In compliance with the Government’s
Carbon Reduction Commitment Energy
Efficiency Scheme we are committed
to reducing our environmental
footprint. Year on year our
environmental performance indicators
have improved, except for our C02
emissions from business travel which
has increased as we have become a
more international business.
Our aim is to responsibly work towards
a more sustainable future, reducing cost
and building our brand reputation in
this area. Our Environmental policy and
plans on how we are working to achieve
our aim can be found on the Corporate
Responsibility website.
Total CO2 emissions from business travel
(tonnes)
Total CO2 emissions (tonnes) 2
Total waste (tonnes)
Total waste recycled
Total water use (m3)
2012
2011
2010
2009
7,884
36,748
1,256
72%
60,502
4,921
43,051
1,724
85%
81,891
5,774
44,427
1,807
60%
87,017
6,831
46,383
2,195
65%
86,656
1
2
UK only, assistance with data completion by Utilyx Ltd (independent energy consultants).
Calculated in accordance with the WRI/WBCSD Greenhouse Gas Protocol methodology.
Visit the Corporate
Responsibility website @
www.itvplc.com/
responsibility
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Dancing On Ice
Photo by ITV/Rex Features
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Governance
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1
2
3
4
Archie Norman
Chairman
Adam Crozier
Chief Executive
Ian Griffiths
Group Finance Director
Mike Clasper CBE
Senior Independent Director
Appointment to the Board
1 January 2010
Appointment to the Board
26 April 2010
Appointment to the Board
9 September 2008
Appointment to the Board
3 January 2006
Age 58
Age 49
Age 46
Age 59
Committee membership
General Purpose
Committee membership
General Purpose
Committee membership
Audit, Nomination, Remuneration
Key areas of prior experience
Business turnaround and change
management
Key areas of prior experience
Corporate finance and financial
restructuring
Key areas of prior experience
Business services, logistics and risk
management
External appointments
• Non-executive director of G4S
External appointments
None
plc (2013)
Previous experience
• Non-executive director of
Debenhams plc (2006–2012)
• 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)
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)
External appointments
• Chairman of Which? Ltd (2008)
• Governor of RSC (2011)
Previous experience
• Chairman of HM Revenue &
Customs (2008–2012)
• 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 of BAA plc (2001–
2003)
• President of Global Home Care,
Procter & Gamble (1999–2001)
• Chairman of the West London
Consortium (2006–2011)
Committee membership
Nomination (Chairman),
Remuneration
Key areas of prior experience
Business turnaround, consumer
marketing, international business
and corporate finance
External appointments
• Director of Target Ltd (2011)
• Adviser to Wesfarmers Limited
(2009)
• Director of Coles Group (2007)
• Founder, Aurigo Management
Partners LLP (2006)
• Senior Adviser to Lazard (2003)
• Governor, National Institute of
Economic and Social Research
(1997)
Previous experience
• Chairman, HSS Hire Services
Group (2007 - 2012)
• Chairman, Energis
(2002–2005)
• Shadow Secretary of State for
Department of Environment,
Transport and the Regions
(2000–2001), Shadow Minister
for Europe (1999–2000),
Chief Executive and Deputy
Chairman of the Conservative
Party (1998–1999), Member
of Parliament (1997–2005
Founder, Policy Exchange
(2001)
• Chief Executive (1991–1996)
and Chairman (1996–2000),
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)
•
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6
7
8
Roger Faxon
Non-executive Director
Andy Haste
Non-executive Director
Appointment to the Board
31 October 2012
Appointment to the Board
11 August 2008
Age 64
Age 51
Committee membership
Audit, Nomination, Remuneration
(Chairman)
Key areas of prior experience
International and emerging
markets, change management,
restructuring and business
turnaround
External appointments
• Senior Independent Deputy
Chairman, Council of Lloyd’s
(2012)
Previous experience
• Group Chief Executive of RSA
Insurance Group plc (2003–
2011)
• 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)
•
Committee membership
Nomination
Key areas of prior experience
Broad commercial, digital
and media rights experience,
development of business strategy
and finance
External appointments
• Director of EMI Global Group
(2011)
• Director of The John Hopkins
University
• Director of the Songwriters
Hall of Fame
Previous experience
• Chief Executive Officer of EMI
Group Limited (2010–2012)
• Chairman and CEO of EMI
Music Publishing (2007–2010)
• Director of EMI Group Plc
(2002–2008)
• 1994 to 2007 various roles
at EMI including Senior VP,
Business Development and
Strategy; President of EMI
Music Publishing
• Prior to 1994 held finance,
operations and general
management positions with
Sotheby’s, Lucas Films, Tri-
Star and Columbia Pictures.
Overseas appointments
at Music Choice (Digital
Cable Radio) (chairman of
Remuneration Committee),
the American Society of
Composers and Authors and
Lancit Media Entertainment
Ltd in the US, Chairman of VIVA
Television in Germany and a
director of Channel V Networks
in Asia
Dame Lucy Neville-
Rolfe DBE, CMG
Non-executive Director
Appointment to the Board
3 September 2010
Age 60
Committee membership
Nomination
Key areas of prior experience
International retail,
communications, legal and
regulatory issues
External appointments
• Member, PwC Advisory Board
(2013)
John Ormerod
Non-executive Director
Appointment to the Board
18 January 2008
Age 64
Committee membership
Audit (Chairman), Nomination,
Remuneration
Key areas of prior experience
Financial experience, developing
strategy and growth
External appointments
• Non-executive Chairman of
Tribal Group plc (2010, director
from 2009)
• President, Euro Commerce,
• Non-executive director and
Brussels (2012)
• Member of the Coalition
Government’s Efficiency and
Reform Board (2010)
• Member of China-Britain
•
Business Council (2007), UK-
India Business Council (2008)
Member of UK Trade and
Investment Strategic Advisory
Group (2011)
• Governor, London Business
School
Previous experience
• Non-executive director, The
Carbon Trust (2008-2013)
• Executive Director, Corporate
and Legal Affairs, Tesco plc
(2006–2013)
• Deputy Chair, British Retail
Consortium (1998–2012)
• Chairman, Dobbies Garden
Centres (2007–2011)
• Group Director of Corporate
Affairs (1997–2006) and
Company Secretary (2004–
2006), Tesco plc
• Director of Deregulation
Unit, BIS and Cabinet Office
(1995–1997)
• Member of Prime Minister’s
Policy Unit (1992–1994)
• Ministry of Agriculture,
Fisheries and Food (1973–1992)
chairman of audit committee
of Gemalto NV (2006) and
Computacenter plc (2006)
Previous experience
• Senior independent director
and chairman of audit
committee at Misys plc
(2005–2012)
• Trustee of the Design Museum
(2006–2012)
• Non-executive director and
chairman of Merlin Claims
Services Holdings Limited
(2007–2010)
• Non-executive director of
Negative Equity Protection
Holdings Limited (2007–2009),
Millen Group Limited (2007–
2009) and BMS Associates
Limited (2004–2008)
• Member of audit and retail risk
control committees and HBOS
plc (2005–2008)
• 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
59
22018-04 11/12/2012 Proof TwoFinancial Statementsar2012.itvplc.comStock code: ITVOverviewPerformance & FinancialsResponsibilityGovernanceStrategy & OperationsDirectors’ Report Management Board
1
2
3
1 Paul Dale
Chief Technology Officer
2 Andy Doyle
Group HR Director
Appointed
January 2011
Age 43
Previous experience
Paul joined ITV in 2011 having spent two years
in Malaysia as Chief Technology Officer of
Astro, Asia’s leading PayTV operator and cross
media company. Prior to Astro Paul was Future
Media and Technology Controller for BBC
Vision and has held several roles during his 9
years at BSkyB including Technology Director
and Development and Operations Director.
Appointed
January 2009
Age 45
Previous experience
Andy became Group HR Director in 2009,
having joined ITV as HR Operations Director
in 2007. Prior to joining ITV, Andy was HR
Director of Morrison plc and held a series of
HR and general management roles
in organisations experiencing significant
change, including UNITE Group and Tricon
Restaurants International.
3 Mary Fagan
Group Communications and
Corporate Affairs Director
Appointed
January 2011
Age 55
Previous experience
Mary joined ITV from the Royal Mail Group,
where she was Corporate and Government
Affairs Director from December 2003. A senior
City and Business journalist with more than 20
years’ experience, Mary’s previous roles included
Deputy City Editor of the Sunday Telegraph,
Industrial Correspondent for the Independent
and City Reporter at the Evening Standard.
4
5
4 Peter Fincham
Director of Television, Channels and Online
5 Andrew Garard
Group Legal Director and Company Secretary
Appointed
May 2008
Age 56
Previous experience
Peter joined ITV from the BBC where he was
Controller of BBC One. He began his career
in broadcasting at independent production
company, Talkback Productions, where he
became Managing Director in 1986. In 2001
Talkback Productions was sold to Fremantle
Media and in 2003 Peter became Chief
Executive of the newly merged company
TalkbackThames.
Appointed
November 2007
Age 46
Previous experience
Andrew joined ITV as Group Legal Director
in 2007 and took on the additional role of
Company Secretary in 2009. Previously Andrew
was a Partner in the corporate department of
LeBoeuf Lamb’s London office. Prior to joining
LeBoeuf Lamb, Andrew was Group General
Counsel and Company Secretary at Cable &
Wireless PLC where he was a member of the
Group Executive responsible for Global Legal.
Prior to that he was Global Head of Legal and
Deputy General Counsel of Reuters Group Plc in
the UK, and before that, General Counsel Asia.
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7
8
6 Fru Hazlitt
Managing Director, Commercial,
Online and Interactive
Appointed
August 2010
Age 49
Previous experience
Prior to joining ITV, Fru was Chief Executive
of GCap Media Plc until it was sold to Global
Radio in 2008. Her previous positions include
Chief Executive of Virgin Radio, Managing
Director of Yahoo UK and European Commercial
Director of Yahoo Europe.
7 Kevin Lygo
Managing Director, ITV Studios
Appointed
August 2010
Age 57
Previous experience
Before joining ITV Kevin spent much of his
career at Channel 4 most recently as Director
of Television and Content which included
responsibility for Channel 4 Group’s portfolio of
channels. Kevin’s previous roles include Director
of Programmes at Channel 5 as well as a number
of positions at the BBC, including Head of
Independent Commissioning for Entertainment.
8 Simon Pitts
Director of Strategy and Transformation
Appointed
January 2011
Age 37
Previous experience
Simon joined ITV in 2000 and has held roles in
ITV’s Public Affairs, Regulatory and New Media
departments before joining the Strategy Team
in 2007. He was promoted into his current role
in January 2011, the main focus of which is to
manage ITV’s five year Transformation Plan
and run SDN, ITV’s digital multiplex business.
Prior to ITV, Simon worked in the European
Parliament in Brussels where he specialised in
media issues.
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22018-04 11/12/2012 Proof TwoFinancial Statementsar2012.itvplc.comStock code: ITVOverviewPerformance & FinancialsResponsibilityGovernanceStrategy & OperationsDirectors’ Report Chairman’s Governance Statement
Dear Shareholder,
The Board of ITV believes that corporate governance is
important in ensuring its effectiveness. It has an established
framework of policies and processes that are regularly
reviewed against developments in the legislative, regulatory
and governance landscape.
This governance report comprises the following sections:
• How the Board works
• Effectiveness
• Accountability
• Relations with shareholders
• Audit Committee Report
• Remuneration Report
The role of the Board
The Board’s main role is to work with the executive team,
providing support and advice to complement and enhance
the work undertaken. The Board consistently challenges
processes, plans and actions in order to promote continuous
and sustained improvement across the business.
The UK Corporate Governance Code
As a listed company, ITV is required to report on how it has
complied with the principles of governance set out in The UK
Corporate Governance Code 2010 (the Code).
I am pleased to report that ITV has complied with the
provisions of the Code throughout the year ended
31 December 2012.
Archie Norman
Chairman
27 February 2013
The Board believes that
Corporate Governance is
important in ensuring its
effectiveness.
Corporate Website
We maintain a corporate website at www.itvplc.com
containing a wide range of information for institutional and
private investors including:
• Latest news and press releases
• Annual reports and investor presentations
• Governance documents
Further information for shareholders is set out on pages
157 to 159.
62
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How the Board works
Our role
The Board as a whole is collectively responsible for delivering
the long-term success of the Company by:
• providing entrepreneurial leadership within a framework
of prudent and effective controls which enable risk to be
assessed and managed;
• supporting the executive team to formulate and execute
the Company’s long-term objectives and strategy,
ensuring that the necessary financial and other resources
are in place for the Company to meet its objectives, and
reviewing management performance; and
• setting the Company’s values and standards and ensuring
that its obligations to its shareholders and others are
understood and met.
• Board members and Management Board members
• Chairman and non-executive Directors (the Chief
Executive is sometimes invited to attend)
• Senior Independent Director and non-executive Directors
(without the Chairman present)
What we have done in 2012
Some of the things the Board has focused on during 2012
include:
UK and international content strategy
Pay strategy
Further review of news strategy
Rebrand
Succession planning
Governance and board performance
There is a schedule of specific matters reserved to the Board
for decision which is available on our website at www.itvplc.
com/about/governance.
Plans for 2013
Some of the things the Board is planning for 2013 include:
Broadcast strategy
Risk appetite, profile and mitigation
Five year plan review
Board Composition
Executive
25%
Non-executive
75%
Read more on Diversity
Pages 52, 53 and 67.
Our meetings
The number of meetings held during the year and
attendance of Directors is set out in the table on page
65. The Board agrees an annual schedule of matters it
wishes to consider at each of its meetings and those of its
committees. The schedule ensures that all relevant matters
for the Board are considered and receive appropriate
attention. Meetings are normally held at one of the London
sites and at least once a year they are held at one of the
regional or international offices. In 2012 the Board met
colleagues in Manchester where they were able to see the
developments at Media City.
Board meetings are structured around the following areas:
• Operational and functional updates
• Financial updates
• Strategy and risk
• Progress against Transformation Plan priorities
• Other reporting and items for approval
• Feedback from committees
Senior executives and other colleagues are regularly invited
to attend meetings for specific items. In addition to formal
Board and Committee meetings, meetings take place
between:
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Our Governance structure
Board
Chairman, two Executive Directors, five non-executive Directors
Management Board
Senior executives of Group functions
and divisional businesses
General Purpose
Committee
Executive Directors
Divisional Boards
Studios Board and Broadcast Board
Executive Directors and senior
executives of divisional businesses
Disclosure Committee
Executive Directors and other
senior management
Remuneration Committee
Chairman and three non-executive
Directors
Audit Committee
Three non-executive Directors
Nomination Committee
Chairman and non-executive
Directors
The diagram above shows ITV’s governance structure.
Details of membership of the Management Board can be
found on pages 60 and 61.
The Board has approved a formal framework for the
approval of expenditure within the Company around this
governance framework.
Who is on our Board and how we work as a team
Composition and appointments
Details of Board membership during 2012 is set out in the
table on page 65.
In October 2012 the Board appointed Roger Faxon as a
non-executive Director. Roger was selected from a number
of potential candidates. The Board felt that Roger’s wealth
of experience in the adaptation of media and rights
management business to the digital world would be an
asset to the Board and assist with the execution of the
Transformation Plan. Executive search firm, JCA Group, were
engaged to assist with the rigorous selection process. JCA
Group have no other connection with ITV.
Mike Clasper completed seven years as a non-executive
Director in January 2013 and has been asked by the Board to
continue in this position for a further twelve month period.
Archie Norman has served as Chairman of ITV for three years
and the Board has agreed that he should serve a further
three year term as Chairman.
As recommended by the Code, there will be resolutions to
re-elect each of the Directors at the AGM in May 2013.
Non-executive Directors are expected to commit at least
18 to 20 days per annum to the Company and the Board is
satisfied that each of the non-executive Directors commits
sufficient time to the business of the Company. An outline
of the terms of engagement for the non-executive Directors
can be found on our website at www.itvplc.com/about/
governance.
Skills and experience
Biographical details, including prior experience, for each of
the Directors are set out on pages 58 and 59.
There are job descriptions in place for each of the Chairman,
the Chief Executive, and the Senior Independent Director
which have been agreed by the Board.
64
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVGovernance The Board is still of the view that the non-executive Directors are independent in both character and judgement. They
constructively challenge and help develop proposals on strategy, scrutinise the performance of management in meeting
agreed goals and objectives and monitor the reporting of performance.
The Board works well together bringing strong, independent, balanced judgement, knowledge, and experience to the
Board’s deliberations. Each non-executive Director has appropriate skills and experience that their views carry significant
weight in the Board’s decision making.
Board and Committee membership and attendance at meetings in 2012
Scheduled meetings shown in black and ad hoc meetings shown in orange.
Mike Clasper
Adam Crozier
Roger Faxon
Ian Griffiths
Andy Haste
Lucy Neville-Rolfe
Archie Norman
John Ormerod
Status
Independent SID
Executive
Independent
Executive
Independent
Independent
Independent Chairman
Independent
Board
Nomination
Committee
Remuneration
Committee
Audit
Committee
Date of
appointment
to the Board
3 January 2006
26 April 2010
31 October 2012
9 September 2008
11 August 2008
3 September 2010
1 January 2010
18 January 2008
9
1
1
9
9
1
1 0
1
9
1
9
9 0
1
9
1
9
1
1
–
1
–
1
1
1
1
2
2
–
2
–
2
2
2
1
4 3
4 3
–
–
–
–
–
–
4 3
–
–
4
1
4 3
4 4
4 4
– –
– –
– –
4 4
– –
– –
4 4
Notes:
1
Roger Faxon joined the Board on 31 October 2012. 8 of the 9 scheduled Board meetings were held prior to his appointment.
Board Committees
The Board has delegated certain responsibilities to its
committees. 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/about/
governance.
Audit Committee: see the Audit Committee Report on
page 70.
Remuneration Committee: see the Remuneration Report
on page 75.
Nomination Committee: the Committee is composed of
the non-executive Directors.
The role of the Nomination Committee is to:
• review the structure, size, and composition of the Board,
including skills, knowledge and experience;
•
identify and nominate for board approval candidates to
fill Board vacancies;
• consider succession planning for Directors and other
senior executives; and
• consider and review any conflicts of interest that may be
reported by the Directors.
In addition to considering matters under its terms of
reference, the Committee considered candidates for a
non-executive Director appointment. The Committee also
reviewed a detailed succession planning framework and
undertook an annual review of conflicts of interest.
Full details of attendance at Committee meetings can be
found in the table above.
General Purpose Committee: the Committee is composed
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.
Disclosure Committee: the Committee is composed of
members of the senior management team. 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.
65
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Effectiveness
Evaluation
The Board has established a process for the annual
evaluation of the performance of the Board, its committees,
and individual Directors. 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.
How the evaluation process works
The evaluation of Directors focuses on processes, roles and
responsibilities, culture, balance of skills and experience,
diversity and how the Board works together. In particular,
the evaluation focuses on how effective the Directors
are in assisting the executive team in achievement of the
Transformation Plan.
In 2012 the Board engaged YSC, a global firm of business
psychologists, to conduct a detailed board development
review. YSC conducted a series of interviews with Directors
and senior Executives, reviewed key Board papers and
attended several Board and Committee meetings, both
formal and informal. A detailed report was considered at
the Board meeting in January 2013 and further work will be
undertaken over the next few months to build on this work
and create a Board development plan.
Succession planning and diversity
Board tenure
All Directors are required by the Company’s Articles of
Association to be elected by shareholders at the first AGM
following their appointment by the Board. Subsequently, all
Directors are subject to re-election by shareholders at least
every three years. However, as recommended by the Code,
all Directors will be submitted for re-election at the AGM in
2013.
66
The chart below shows the current balance of the Board.
Board Tenure
0–2 years
12.5%
2–4 years
37.5%
4–7 years
50%
Succession planning
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 but most importantly 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.
When planning succession within the Company
consideration is given to emergency cover together with
medium and long-term succession. There is particular
emphasis on growing the internal leadership pipeline
through the launch of the following key programmes:
• Executive Development Programme for next generation
potential board successors giving them an opportunity to
develop their management potential and gain a greater
understanding of the business
• Developing Future Leaders Programme for delegates
selected from across the business identified as a result
of the performance review process. Content includes
understanding what it means to be a leader at ITV, how
to manage performance effectively, coaching skills and
change management
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVGovernance • Graduate Programme launched in September 2012
• Apprentice Programme launched in November 2012
A comprehensive portfolio of development courses and
workshops for all colleagues which address common
development needs is in place.
Diversity
The Board is proud of the diversity within ITV as a whole.
Diversity within the organisation is integral to achieving our
business aims. Reflecting the demographics of our customers
assists in understanding their needs and ensuring that our
brand, services and products have relevance and a wide appeal.
The Company’s aim is to reflect UK demographics both
representationally within the organisation and on-screen.
Year-on-year progress has been achieved in working towards
this target. Key activity in 2012 included:
• Awareness training for line managers, supervisors and
programme makers
• Sustaining programme portrayal monitoring across 80%
of our programmes
• Positive action writers scheme to attract and retain
The Board recognises that diversity in board composition
is important in ensuring its effectiveness and considers
diversity to extend beyond gender alone to incorporate
executive and other experience. When considering
new appointments it is the Board’s policy to give equal
consideration to these factors.
Induction and continuing professional development
The Company has a policy and programme for induction
and continuing professional development of Directors. 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
minority talent
• are advised of their legal and other duties and obligations
• Workshops across the country to support future
generations of diverse talent from BAME (Black, Asian,
Minority Ethnics) and individuals with disabilities
The Company is a member of a number of national and
sector specific equality and diversity organisations. In
addition, a number of joint industry-wide activities have
been undertaken including a senior diversity mentoring
programme and Equality Act workshop for independent
programme suppliers. The Company is recognised as a
positive employer and holds the ‘two-tick’ disability symbol.
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.
The key stages of the induction programme are:
Stage one
Matters covered
Provision of documents
Duties of a Director, board
procedures, board and strategy
papers and corporate governance
The table below sets out diversity data for ITV including the
ITV Senior Leadership Team (SLT) which comprises the top
140 executives.
Stage two
Meeting with CEO and Group
Finance Director
Matters covered
Business overview, current trading
and key commercial issues
Average age
Average service (years)
Male
Female
BAME
Declared Disability
SLT
2012
Other
2012
45
9.3
62%
38%
37
7.5
48%
52%
9.71% 10.80%
2.42%
1.36%
SLT
2011
44
8.0
64%
36%
8%
1%
Other
2011
37
7.8
51%
49%
9%
2%
Meetings with non-executive
Directors
Open discussion forums
Meetings with Management
Board members and other
senior executives
Stage three
Site visits
Commercial issues and projects
Matters covered
Understanding of the business
and operations
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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:
Risk management
Details of our High Impact Low Likelihood (HILL) and
strategic risks and our approach to risk management are set
out on pages 48 and 49.
• updates and papers which cover changes affecting the
Group and the market in which it operates;
• meetings with senior executives across the Group and 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.
As part of their professional development Executive
Directors may accept external appointments as non-
executive directors of other companies and retain any
related fees paid to them. Details of fees received by
Executive Directors during 2012 can be found in the
Remuneration Report on 84.
Conflicts of interest
The Board has delegated the authorisation of conflicts to
the Nomination Committee and has adopted a Conflicts of
Interest Policy.
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.
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/about/governance.
Accountability
The Board periodically reviews material internal controls
including financial, operational, and compliance controls and
risk management systems.
Internal Control
The Board has conducted a review of the effectiveness of
the Group’s systems of internal controls for the year ended
31 December 2012. 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 73.
Going Concern
The going concern statement is set out on page 102.
Relations with shareholders
The Board attaches a high priority to effective
communication with shareholders and has regular and
open dialogue with our institutional investors. The Board
believes that continued engagement with our shareholders
is beneficial to both ITV and its stakeholders as it helps
to build a greater understanding of investors’ views,
opinions and concerns. Adam Crozier, Ian Griffiths and
our investor relations team meet with many institutional
investors throughout the year to keep them updated on
the Company’s performance and the Transformation
Plan. These range from one-to-one meetings to group
presentations including the Full year and Interim results and
the AGM. Specifically, following the Full year and Interim
results one-to-one meetings are held with our largest
institutional investors.
The Chairman responds to shareholder queries and holds
meetings where appropriate.
The Company maintains a programme of engagement
with the investment community, including the results
presentations, briefings to brokers and other sales forces
and attendance at a number of investor conferences.
Presentations given to the investment community are
available to download from our website at www.itvplc.com/
investors.
We regularly seek feedback on the perception of the
Company amongst shareholders and the investor
community more broadly via our corporate brokers. Investor
comments are fed back to the Board and its committees
regularly.
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commission an investor audit. No audit was undertaken
in 2012.
Private shareholders represent more than 95% of our
shareholders holding 3.29% of our shares. We encourage
shareholders to register their email addresses to receive
information from us in a timely manner.
Annual General Meeting (AGM)
The AGM for 2013 will be held on 15 May 2013 (further
details can be found on page 90). The Notice of Meeting
sets out the resolutions being proposed. The Notice,
together with any related documents, is made available
to shareholders at www.itvplc.com/investors/annual-
general-meeting, or is mailed to them, if they have elected
to receive hard copies, at least 20 working days before the
meeting. Last year all resolutions were passed with votes
ranging from 90.03% to 100%.
The meeting is normally attended by approximately
200 shareholders. Shareholders are invited to meet the
Directors prior to and after the formal proceedings. At the
meeting the Chairman and Chief Executive will review the
Group’s current trading which is followed by a question and
answer session. Separate resolutions are proposed on each
substantially separate issue and all resolutions are taken on
a poll. The level of votes lodged on each resolution is made
available on a regulatory information service and on the
Company’s website at www.itvplc.com as soon as possible
after the meeting.
Shareholders who are not able to attend the meeting can
vote online in advance at www.itvplc.com or by completing
and returning a form of proxy.
Save in exceptional circumstances, all members of the Board
will attend the AGM.
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Dear Shareholder,
On the following pages we set out the Audit Committee’s
Report for 2012. The report comprises four sections:
• How the Committee works
• What we focused on in 2012
•
Internal controls
• Our auditors
Our principal aims have been to ensure the integrity of the
financial information provided to our stakeholders and
to assist the Board to monitor and evaluate the internal
control environment. Strong and effective risk management
and control procedures underpin our ability to execute our
Transformation Plan and implement our strategy.
In 2012, the Committee has sought to widen its focus to
include new and emerging risk areas such as mergers and
acquisitions and the implementation of new technologies,
which will underpin future performance.
There is considerable debate around the role of audit
committees which we welcome, follow with interest and in
which we participate where relevant. We continue to seek
to improve our report on the activity of this Committee
to give shareholders a clearer picture of the key issues we
consider and how we discharge our responsibilities. We are
open to feedback and dialogue with shareholders on audit
committee topics.
The FRC released its Guidance for Audit Committees in
September 2012 which is designed to provide guidance
to company boards in making suitable arrangements for
audit committees. We have reviewed this guidance and are
supportive of its aims to enhance disclosure and increase
investor confidence in the audit process and integrity of
company accounts.
70
Strong and effective risk
management and control
procedures underpin our ability to
execute our Transformation Plan
and implement our strategy.
Who is on the Committee
The Committee is composed entirely of non-executive
Directors. The current members are:
• John Ormerod (Chairman)
• Mike Clasper
• Andy Haste
Full details of attendance at Committee meetings can
be found in the table on page 65.
Consistent with these aims, in 2012 the Committee
conducted a tender for audit services. We compared the
quality and effectiveness of audit services offered and
examined the qualifications, independence and expertise
of the firms under consideration. The tender process
is described on page 72. Whilst we do not propose to
change firm, the tender has been a valuable exercise. It
has generated changes in the audit approach that reflect
the changes in our business linked more explicitly to the
Transformation Plan and changing media landscape. Those
changes include greater depth in international coverage
and increased use of technology and any early focus on new
revenue streams. These changes are all designed to support
a robust audit and provide clear relevant feedback to the
Committee.
John Ormerod
Chairman, Audit Committee
27 February 2013
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVGovernance What is our role?
The role of the Committee includes to:
• monitor the integrity of the published financial
information of the Company;
• review and report to the Board on the significant financial
reporting issues and judgements made in connection with
the preparation of the Company’s financial statements
(having regard to matters communicated by the auditor),
interim reports, preliminary announcements and related
formal 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;
• review the quality and effectiveness of the external audit
and the procedures and controls designed to ensure
auditor independence; and
• consider and make recommendations to the Board
in relation to the appointment, reappointment,
replacement, and remuneration of the Company’s
external auditor.
The Committees terms of reference can be accessed on the
Company’s website at www.itvplc.com/about/governance.
How the Committee works
The Committee members have a wide range of business
and financial experience between them which enables
the Committee to fulfil its terms of reference in a robust
and independent manner. The Committee considers that
John Ormerod has recent and relevant financial experience
for the purposes of the Code. Biographical details of the
members of the Committee, including their qualifications
and experience, are set out on pages 58 and 59.
Members of the Management Board and other senior
management regularly attend meetings at the invitation
of the Chairman of the Committee together with the Head
of Internal Audit (Deloitte) and the external auditor (KPMG).
The Committee as a whole meets privately with the internal
and external auditors prior to meetings on a regular basis.
In addition, throughout the year the Chairman of the
Committee meets informally and has open lines of
communication with the Group Finance Director, Head of
Internal Audit and the senior engagement team from the
external auditors. This group generally meets ahead of each
full Audit Committee meeting to prepare and identify key
areas for consideration by the Committee.
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 under its terms of reference. The agenda changes
to respond to key issues and plans in ITV and the results of
the Committee’s work are reported to the Board.
The Committee works principally from a risk based agenda
by reviewing presentations and reports from management,
internal audit and external audit. The Committee raises
questions and, where appropriate, challenges information in
these reports and communicates its views to the Board. The
Committee members also meet informally with members of
the management team.
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What we focused on in 2012
The Committee receives detailed reports on all key
judgements and continues to challenge auditor
independence and fees.
Some of the key issues we considered during the year include:
• Financial reporting: the Committee reviewed the
financial information published by the Company, including
the annual financial statements and interim financial
report. To assist its review the Committee received
reports from management and from the auditors on
compliance with accounting standards, key judgements in
preparation of the financial statements and compliance
of those statements with best practice and laid down
disclosure standards.
In considering reports on 2012 the Committee has
considered judgements applied in establishing provisions
for taxation and pension obligations and accounting for
multi-year broadcasting rights. Judgements associated
with impairment and the application of the going concern
basis were also considered. The significance of these
judgements has significantly diminished over recent years
as the Company’s operating and financial performance
has strengthened.
• Risk management: the Committee continued to
consider the process for managing risk within the
business. Risk management procedures introduced in
2011 were reviewed and the Committee noted that
these procedures are now increasingly embedded in the
management process. Further work to increase their
effectiveness will be undertaken in 2013 and will be
reviewed by the Committee.
• Technology governance: as part of the Transformation
Plan the Company has undertaken and continues
to undertake radical changes to its technology
infrastructure. The Committee has focused on reviewing
and advising on the governance structures for various
systems and processes.
• Audit tender: as KPMG had been the Company’s auditor
since 2004, the Committee felt that it was appropriate
and in keeping with good governance to conduct a
tender for audit services. In response to our statement
of intention in last years’ report three firms were short-
listed, each with strengths and capabilities relevant to
ITV. After careful and thorough evaluation of what each
firm had to offer, the Committee concluded that KPMG’s
approach and detailed knowledge of our business made
them the best firm to serve ITV. Although we do not
propose to change auditor, the tender was a valuable
process as it generated positive change in the audit
approach.
• Mergers and acquisitions process: the Committee
reviewed the mergers and acquisitions guidelines
including due diligence and approvals. The guidelines are
in place to ensure that opportunities are balanced with
appropriate consideration of risk and that transactions
are aligned with strategy. Recent material acquisition
opportunities have been considered against these
guidelines.
• Bribery and Fraud: the Committee monitored the
systems and controls in place for the prevention of
bribery and fraud.
• Whistleblowing: the Committee oversaw updates to
ITV’s whistleblowing policy and procedures.
The Committee also conducted its annual review of the
Group insurance programme and treasury policies.
Annual Review
An annual review of our performance was conducted as
part of the annual board evaluation process. In addition
to feedback from members of the Committee, input was
sought from the Group Finance Director, KPMG, Deloitte and
the Chairman of the Board.
Overall, the review concluded that the Committee is
responding appropriately to its terms of reference. The
Committee will continue to shift its focus to consider
controls in new and developing areas such as international
operations, the impact of newly acquired businesses, pay
television and programme profitability.
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Internal controls
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 formal forecasts, 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, approval levels
and delegated authorities.
• 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 of the
Company’s key risks can be found on pages 48 and 49.
• Reviewing and monitoring the effectiveness of
internal controls: controls are monitored by senior
management, internal audit and the Committee.
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.
Our auditors
Internal auditor
The Group’s internal audit activity is outsourced to Deloitte
who report directly to the Committee. The Committee keeps
under review the internal audit relationship with Deloitte
and the procedures to ensure appropriate independence of
the internal audit function is maintained. In particular, the
Committee has approved guidelines in relation to other
advisory and consultancy work that Deloitte may undertake
for the Company (further information is provided in the
Remuneration Report on page 76). An evaluation exercise is
undertaken annually to review performance.
During the year the Committee considered and approved
the internal audit plan and reviewed internal audit reports,
the actions taken to implement the recommendations
made in the reports and the status of progress against
previously agreed actions. The plan is developed on a risk
basis driven by overall assurance maps.
External auditor
Independence, objectivity and fees
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. 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;
• Control environment: financial controls, policies, and
• results in the auditor developing close personal
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.
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 policy is reviewed annually and is available in full on the
Company’s website at www.itvplc.com/about/governance.
Other than in exceptional circumstances management and
the Committee do not expect non-audit fees to be in excess
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Audit Committee Report continued
of fees for audit and audit related services and generally
less. The non-audit fees for 2012 were half that of the audit
fees. 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
section 2 on page 109. The significant engagements relate
to VAT and corporate tax services, including tax restructuring
advice. Significant engagements require the prior approval
of the Chairman of the Audit Committee.
The senior audit partner serves no more than five years
continuously and the independent review partner serves
no more than seven years continuously. Other key partners
serve no longer than seven consecutive years. The
Committee monitors the tenure of partners and senior staff
as well as former employees working for the Company. The
appointment by the Company of former senior employees
of the external auditor would require approval of the
Committee.
Reappointment
During the year the Committee considered the 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 reappointment of KPMG Audit Plc
for a further year as the Company’s auditor be proposed to
shareholders at the AGM in May 2012. The resolution was
passed and KPMG Audit Plc was reappointed for a further
year.
Following the audit tender, the Committee has
recommended the reappointment of KPMG Audit Plc at the
AGM in May 2013.
Performance
The Committee performs a specific evaluation of the
performance of the external auditor annually, through
assessment of the results of questionnaires completed by
the executive Directors and relevant senior management
in addition to committee members’ own views of auditor
performance. The Committee also reviews and discusses
with the auditors the reports on KPMG and other major
firms issued by the Audit Inspection Unit.
Approval
The Audit Committee Report was approved by the Board on
27 February 2013 and signed on its behalf by John Ormerod.
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Dear Shareholder,
On the following pages we set out the Remuneration Report
for 2012.
In order to achieve the transformation of ITV into a lean,
creatively dynamic and fit-for-purpose organisation, it is
essential that Executive Directors, the Management Board
and other senior Executives (together the Senior Executive
Group) continue to work together as an effective team
focused on delivering medium-term shareholder value.
As you will see from the annual report the Transformation
Plan is working and continues to drive those changes
needed to deliver sustainable growth in shareholder value
over the medium term.
We believe that the current incentive arrangements
continue to support the Transformation Plan by placing an
emphasis on the delivery of strategic change, co-operative
endeavour and three to five-year outcomes aligned to
shareholder value.
The Committee would encourage shareholders to note the
following:
• we have again implemented only modest salary increases
in line with those given to the wider organisation;
• 2012 has been another successful year for ITV and this
has been considered when reviewing performance and
determining remuneration. A significant proportion of the
Senior Executive Group’s remuneration is dependent on
the achievement of stretching performance conditions;
• benefits awarded to the Senior Executive Group are
delivered within the same framework as for other ITV
colleagues;
• the compulsory deferral period for part of the annual
bonus continues to be three years and the Senior
Executive Group is encouraged to hold long-term
We believe that the current
incentive arrangements
continue to support the
Transformation Plan.
Who is on the Committee
The Committee is composed entirely of Non-executive
Directors. The current members are:
• Andy Haste (Chairman)
• Mike Clasper
• Archie Norman
• John Ormerod
Full details of attendance at Committee meetings can
be found in the table on page 65.
personal investment in ITV to create alignment with the
shareholder experience;
• the Committee has spent some time establishing a
reward policy for critical talent to ensure creative renewal
and that we can continue to attract and retain the best
people;
• the Committee has been actively involved in the BIS
consultation process on executive remuneration
and supports the principles outlined by BIS. We have
considered the requirements which will be effective
for the 2013 report and have included some of the new
requirements early in this report where appropriate; and
• we will be asking shareholders to support the technical
renewal of our share plans at the AGM in May as they are
coming to the end of their ten year life.
Andy Haste
Chairman, Remuneration Committee
27 February 2013
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Contents
The report is presented in five sections:
What we did in 2012
During 2012 our work was broadly in four areas:
• How the Committee works
• Remuneration policy
• Delivering remuneration policy
• Non-executive Directors
• Detailed audited disclosures
How the Committee works
Who advises the Committee
The Committee obtains advice from various sources in order
to ensure it makes informed decisions. The Committee’s
main advisers are set out below. Adam Crozier, Chief
Executive, is invited to attend committee meetings as
appropriate. No individual is involved in decisions relating to
their own remuneration.
Adviser
Area of advice
Andy Doyle,
Group HR Director
Deloitte LLP*
Main internal adviser, provides updates
on remuneration, employee relations
and human resource issues.
Independent advisers on remuneration
policy and the external remuneration
environment.
*
Deloitte are signatories to the Code of Conduct in relation to Executive Remuneration
Consulting in the UK. 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
support under separate engagement terms.
What is our role?
The role of the Committee is primarily to:
Setting targets
• the business and personal performance targets for 2012
annual bonuses aligned with the business plan for the
year and the Transformation Plan;
• the performance targets that would apply to the
Performance Share Plan (PSP) awards made in 2012; and
• a preliminary review of 2013 executive compensation and
bonus targets.
Reviewing outcomes
• the annual bonus outcomes and deferred annual bonus
awards for 2011 and indicative 2012 outcomes ahead of
final approval in 2013; and
• approval of the performance payout of the ITV
Turnaround Plan, and the 2009 awards under the ITV
Performance Share Plan.
Reward framework
• base salaries for the Senior Executive Group with effect
from 1 January 2012 using the same process as applied to
the wider employee group;
• remuneration packages for new appointments to the
Senior Executive Group;
• development of a reward policy for critical talent to
ensure that ITV can continue to recruit in an increasingly
competitive market to support the Transformation Plan
whilst controlling costs;
• the framework of incentive awards for overseas
executives;
• review the ongoing appropriateness, relevance and
• the compensation framework for the wider employee group;
effectiveness of the Group remuneration policy including
in relation to retention and development;
and
• reviewing the performance management framework and
• approve the remuneration policy and strategy for the
pay practices across the Group.
Senior Executive Group;
• approve the design of the Company’s annual bonus
arrangements and long-term incentive plans (LTIPs),
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.
Governance
• the BIS proposals on executive pay and how these would
be integrated into future remuneration strategy;
• the Remuneration Report for 2011, prior to its approval
by the Board, and approval by shareholders at the Annual
General Meeting in May 2012; and
• the process for the renewal of share scheme rules and
related shareholder consultation.
The Committee initiates dialogue with shareholders where
developments or changes are proposed and welcomes
feedback at other times.
The Committee reports regularly to the Board on its work.
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The Committee’s performance was reviewed as part of the
Board evaluation process explained on page 66.
Remuneration policy
The Company 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 developed a remuneration
policy for the Company which balances these factors, while
taking into account prevailing best practice and investor
expectations.
A significant proportion of the remuneration package is tied
to the achievement of stretching performance conditions
which align remuneration with our strategy to create
shareholder value and deliver the Transformation Plan.
The remuneration package is focused on rewarding
sustained long-term performance and aligning executives
with the shareholder experience.
Key features of remuneration policy
Individuals should be rewarded for success and performance
measured over clear timescales. Executives are encouraged
to take action in line with the Transformation Plan, using
good business management principles and appropriate risk
management.
When developing remuneration policy, the Committee
obtains advice from the key advisers outlined on page 76.
All colleagues participate in a bonus scheme and all UK
colleagues are invited to join the SAYE scheme.
When determining remuneration for the Senior Executive
Group and all employees of ITV, the Committee also
considers any relevant governance and social issues.
Key features of the remuneration policy are set out in the
table below.
FIXED
ELEMENTS
Base Salary
Purpose and
link to strategy
Reflect the
individual’s skills
and experience.
Reflect intended
role and
responsibilities.
Pension
Provide a
framework to save
for retirement.
Reward sustained
contribution.
Benefits
Provide financial
protection for
employees and
their families.
Operation
Set competitively with reference to the market median
recognising the need for an appropriate premium to attract
and retain superior talent.
Periodic reviews of market positioning.
Reviewed in the context of the wider employee pay review.
Paid monthly in cash.
Reviewed annually in January taking account of personal
and Company-wide performance.
Performance Metrics
Any increase based on
individual performance,
change in role and Company
pay award.
Changes to
policy in
the year
Directors’
salaries
increased
by 2.5% in
January 2012
in line with
the average
increase given
across the
Company.
Provide market competitive package.
None
None
All new colleagues, including members of the Senior
Executive Group, are offered membership of a defined
contribution scheme which is benchmarked periodically.
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.
Provide market competitive benefits including car
allowance, private medical insurance and other insurance
benefits.
None
None
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VARIABLE
ELEMENTS
Purpose and
link to strategy
Operation
Maximum awards set broadly in line with
FTSE 100 market practice.
All colleagues participate in a bonus,
though levels vary according to role and
seniority.
Paid in March each year following the year
end, once the results have been audited.
Awards may be subject to forfeiture in
certain circumstances.
Annual
Bonus
Scheme
(Bonus) and
Deferred
Share Award
Plan (DSA)
Incentivise
executives and
colleagues to
achieve key
outcomes on an
annual basis.
Focus on key
financial metrics
and Transformation
Plan objectives.
Deferred element
encourages long-
term shareholding
and alignment
with shareholder
experience.
Changes to
policy in
the year
None
Opportunity
Performance Metrics
Target Bonus
opportunities
are generally
60% of the
maximum
award.
Performance targets
are based on corporate
objectives closely linked to
the strategic priorities and
individual contribution to the
Transformation Plan.
For the Senior Executive
Group the Bonus is paid:
• One-third in cash.
• One-third is compulsorily
deferred into shares
under the DSA, which are
released after three years.
• Up to one-third can be
voluntarily deferred into
shares under the DSA
and released after three
years. This is matched by
an additional award under
the PSP on a 1:1 basis
subject to performance
conditions, with the
balance in cash.
Performance is measured
against corporate targets
closely linked to the
Company’s financial and
strategic priorities as follows:
• 50% cumulative adjusted
EPS
• 25% Family SOV
• 25% non-NAR growth
A Gateway condition must be
achieved before any portion
of the award vests.
None
Awards made annually.
Awards may be subject to forfeiture in
certain circumstances.
Aggregate
PSP awards,
combining
core and
matching
elements, do
not exceed
150% of base
salary.
Performance
Share
Plan (PSP)
Incentivise key
individuals over
the longer term
aligned to strategy
and creation of
shareholder value.
Retain key
individuals.
Recruitment
Awards
To attract the best
candidate for the
job.
n/a
None
None
To ensure that the best candidate is
compensated for any loss of incentives
earned but not paid by a previous employer
due to the individual taking up a role
with ITV.
Each situation is considered on merit, but
awards do not exceed those that would
have been paid by a previous employer.
Termination
payments
To ensure no
reward received for
failure.
The Company retains the right to terminate
employment by making payment in lieu of
notice.
n/a
n/a
None
Steps are taken to prevent rewards for
failure and termination payments to
Directors will only reflect contractual
obligations.
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The balance between the fixed and variable elements
of the total remuneration package is dependent on the
performance outcomes achieved. The charts below show
the remuneration outcome for each of the Executive
Directors for below threshold, target and maximum
performance levels. There is no bonus or LTI payment for
below threshold performance.
2013
Following completion of the 2013 salary review, the Company
agreed a salary increase of 2.75% for all colleagues earning
£60,000 and below, with any increase for those earning above
£60,000 being linked to their performance rating for 2012.
The Executive Directors both received a salary increase of
2.75% from 1 January 2013 in line with the average increase
given across the Group.
£4,000,000
£3,000,000
£2,000,000
£1,000,000
£0
24%
44%
32%
m
u
m
x
a
M
i
13%
40%
47%
t
e
g
r
a
T
100%
w
o
e
B
l
l
d
o
h
s
e
r
h
T
Ian Griffiths
24%
47%
8
29%
m
u
m
x
a
M
i
13%
43%
100%
44%
w
o
e
B
l
l
d
o
h
s
e
r
h
T
t
e
g
r
a
T
Adam Crozier
Fixed pay
Annual bonus
LTIs
Delivering remuneration policy
When setting the policy for Directors’ remuneration,
the Committee has regard to the pay and employment
conditions elsewhere within the Group. In particular, the
Committee is kept informed on a regular basis on:
• Salary increases for the wider organisation
• Company-wide benefit provision
• Overall spend on annual bonus
• Participation levels and outcomes in the annual bonus plan
Base salary
2012
Adam Crozier
Ian Griffiths
Base salary
from
1 January 2012
£818,206
£448,694
Increase at
1 January 2012
2.5%
2.5%
With effect from 1 January 2012 the Executive Directors
both received a salary increase of 2.5% in line with the
average increase given across the Group.
Pension benefits
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.
No Directors were members of money purchase or defined
contribution schemes operated by the Group.
Adam Crozier and Ian Griffiths received cash payments of
9% and 15% of base salary respectively in lieu of pension
contributions. These payments are included in the
emoluments table on page 86.
Incentives
The incentive framework used in 2012 will continue to be
used in 2013. It is based on the following principles:
• simple overall architecture;
• shareholder aligned incentives: reduced reliance on short-
term cash remuneration; 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.
Executives are required to defer a significant proportion of
any annual bonus into shares in order to achieve maximum
award opportunities under long-term incentive awards.
Short-term incentives
Annual incentives are provided for the Senior Executive
Group through the ITV Annual Bonus Scheme (Bonus) and
the Deferred Share Award Plan (DSA). The performance
conditions that apply are set on an individual basis and are
closely linked to the Company’s corporate, financial and
strategic priorities.
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Maximum Bonus opportunities
% of base salary
Adam Crozier
Ian Griffiths
Cash
60%
55%
Compulsory
Deferral
Optional
Deferral
Total
60%
55%
60% 180% of salary
55% 165% of salary
For 2013 the maximum Bonus opportunities will remain
unchanged for Adam Crozier and Ian Griffiths at 180% and
165% of base salary respectively.
2012 Bonus
Performance targets for the Senior Executive Group in 2012
were set to ensure they support both the Transformation
Plan and delivery of key operational outcomes. The
Committee ensured that the maximum bonus opportunity
could only be achieved for significant outperformance of
all corporate, financial and individual bonus outcomes, with
target performance achieving a 60% payout of maximum
bonus opportunity.
Corporate and financial targets
The majority of the bonus opportunity (60%) was based
upon the achievement of corporate and financial targets,
weighted to the area of the business for which the Executive
has primary responsibility. Across the Senior Executive Group
these targets include:
Transformation Priority
Target
ITV plc EBITA
Divisional EBITA
Profit to Cash Conversion
Family SOV
Online targets
Revenue targets
Content creation targets
Delivery of agreed cost savings targets
ITV’s financial performance in 2012 has been strong, as
outlined in the Performance & Financials Section. In light
of performance during the year, the following payment
levels against some of the corporate financial targets for the
Executive Directors have been approved:
80
Target
ITV plc EBITA* (before
exceptional items)
Profit to Cash Conversion
Cost savings
Achieved
2012
Bonus
Payout
2012
Achieved
2011
112.6% 100% 103.9%
117.3% 100%
121%
120.8% 100% 118.3%
Bonus
Payout
2011
75.6%
100%
100%
*
The Committee has ensured that management do not benefit from or are penalised by
significant changes in the UK advertising market by applying a ratchet to ITV plc EBITA.
Individual targets
The remainder of the bonus opportunity (40%) was based
upon the contribution that the executive makes toward the
overall Transformation Plan through the delivery of specific
targets. In setting these personal targets consideration is
given to the progress required to deliver the next milestones
of the Transformation Plan and alignment across the Senior
Executive Group.
2013 Bonus
The Committee has used a consistent approach to set
2013 performance targets and measures which continue to
support both the delivery of the Transformation Plan and
key operational outcomes. Target performance will result in
a payout of 60% of the maximum Bonus opportunity.
The maximum Bonus opportunity can only be achieved for
significant outperformance of all corporate, financial and
individual targets.
For Adam Crozier and Ian Griffiths 60% of the Bonus
opportunity will be based upon the achievement of
corporate and financial targets. The remaining 40% will be
based upon the personal contribution they make towards
the overall Transformation Plan.
Long term incentives
The Performance Share Plan (PSP) continues to be used as
the only long-term incentive plan.
Key features of the PSP, including the maximum
opportunities and performance measures, are set out in the
tables on pages 82 and 83.
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVGovernance In order to ensure that Executives are only rewarded if value
is delivered to shareholders, awards under the PSP are
subject to an initial cumulative adjusted EPS performance
gateway. If this gateway is achieved, performance will then
be assessed by reference to conditions detailed in the
table on pages 82 and 83, set in line with our key strategic
objectives.
These conditions 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.
Family SOV and non-NAR are both measures of performance
that are important to our business as further explained in
the Performance & Financials section.
The performance tests under successive PSP awards
have been increased in line with the progress under the
Transformation Plan, as shown in the graph below:
2013
2012
2011
2010
17
18
19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34
Cumulative adjusted EPS
(pence)
Details of outstanding awards are set out on page 87.
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Award Level
(plan maximum)
Co-investment
requirements
Performance period
Performance
conditions
Remuneration Report continued
Clawback
There are clawback provisions built into the rules of the
Bonus, DSA and PSP, which allow for the forfeiture and non-
payment of incentive awards that are still to be earned, still
to vest or have been deferred, if an Executive’s employment
is terminated.
Shareholding guidelines
Under the remuneration policy, Executives are required
to build up a substantial amount of remuneration that
has been deferred or remains subject to performance
conditions.
Performance graph
The graph below shows the TSR performance of the
Company against the FTSE 100 and FTSE 250 index over
the five-year period to 31 December 2012. Both indices have
been shown as the Company has been a constituent of both
over the previous five years.
ITV FTSE 100 FTSE 250
1/1/2008
1/1/2009
1/1/2010
1/1/2011
1/1/2012
1/1/2013
Vesting
2010
150%
None
3 years
75% TSR
• Measured equally against two distinct
comparator groups drawn from the FTSE
250 and a specific international industry peer
group.
25% STRATEGIC
• Measured in equal proportions against two
targets.
Strategic target
Cumulative
adjusted EPS
Family SOV
Threshold
Maximum
18p
20p
Maintain at
2009 levels
+2%
EPS cumulative years 2010 to 2012
75% TSR
25% Strategic
25%
75%
75% TSR
• Median and below – nil
• Upper quartile – 100%
• Vesting on a straight-line basis in between.
25% STRATEGIC
• Threshold performance – EPS: 30%, SOV: 50%
• Maximum performance – 100%
• Vesting on a proportionate basis (SOV) and a
straight-line basis (EPS) between threshold and
maximum.
Exercise period
As 2011 to 2013
Leavers
As 2011 to 2013
Change of control
As 2011 to 2013
140
120
100
80
60
40
20
0
82
2011
2012
2013
150% (90% Core Award and 60% Matching Award)
An award of up to 60% of base salary may be made as a
match on voluntarily deferred bonus.
3 years
A Gateway condition of minimum cumulative adjusted EPS over three years must be reached before any portion of the
award vests.
• 50% of an award vests based on cumulative adjusted EPS over three years
• 25% of an award vests based on Family SOV growth (2011 and 2012 platform adjusted. 2013 no longer platform
adjusted due to digital switchover)
• 25% of an award vests based on non-NAR growth
Strategic target
Gateway
Cumulative
adjusted EPS
Family SOV
Annual Non-NAR
growth
Threshold
Maximum
Threshold
Maximum
Threshold
Maximum
21p
21p
Maintain at
2010 levels
24p
+2%
26.15p
26.15p
Maintain at
2011 levels
28.76p
+2%
5%
10%
5%
10%
30.4p
30.4p
23%
5%
33.4p
+2%
10%
EPS cumulative years 2011 to 2013
EPS cumulative years 2012 to 2014
EPS cumulative years 2013 to 2015
50% EPS
25% SOV
25% non-NAR
25%
25%
50%
50% cumulative adjusted EPS
• Threshold performance – 30%
• Maximum performance – 100%
• Vesting on a straight-line basis in between.
25% Family SOV
• Threshold performance – 50%
• Maximum performance – 100%
25% non-NAR
• Threshold performance – 30%
• Maximum performance – 100%
• Vesting on a proportionate basis between threshold and maximum.
• Vesting on a straight-line basis between threshold and maximum.
Once vested, awards can be exercised for 12 months; any portion of the award that does not vest or is not exercised will
Standard good leaver provisions apply (broadly relating to compassionate circumstances) and include prorating for
service. If a participant ceases to be employed for any other reason, the award will lapse unless determined otherwise.
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
lapse.
since grant.
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVGovernance Summary of PSP awards
Award Level
(plan maximum)
Co-investment
requirements
Performance period
Performance
conditions
2010
150%
None
3 years
75% TSR
• Measured equally against two distinct
comparator groups drawn from the FTSE
250 and a specific international industry peer
• Measured in equal proportions against two
group.
25% STRATEGIC
targets.
Strategic target
Cumulative
adjusted EPS
Family SOV
EPS cumulative years 2010 to 2012
Threshold
Maximum
18p
20p
Maintain at
2009 levels
+2%
75% TSR
25% Strategic
25%
75%
75% TSR
• Median and below – nil
• Upper quartile – 100%
• Vesting on a straight-line basis in between.
25% STRATEGIC
• Threshold performance – EPS: 30%, SOV: 50%
• Maximum performance – 100%
• Vesting on a proportionate basis (SOV) and a
straight-line basis (EPS) between threshold and
maximum.
Vesting
Exercise period
As 2011 to 2013
Leavers
As 2011 to 2013
Change of control
As 2011 to 2013
2011
2012
150% (90% Core Award and 60% Matching Award)
2013
An award of up to 60% of base salary may be made as a
match on voluntarily deferred bonus.
3 years
A Gateway condition of minimum cumulative adjusted EPS over three years must be reached before any portion of the
award vests.
• 50% of an award vests based on cumulative adjusted EPS over three years
• 25% of an award vests based on Family SOV growth (2011 and 2012 platform adjusted. 2013 no longer platform
adjusted due to digital switchover)
• 25% of an award vests based on non-NAR growth
Strategic target
Gateway
Cumulative
adjusted EPS
Family SOV
Annual Non-NAR
growth
Threshold
Maximum
Threshold
Maximum
Threshold
Maximum
21p
21p
Maintain at
2010 levels
24p
+2%
26.15p
26.15p
Maintain at
2011 levels
28.76p
+2%
5%
10%
5%
10%
30.4p
30.4p
23%
5%
33.4p
+2%
10%
EPS cumulative years 2011 to 2013
EPS cumulative years 2012 to 2014
EPS cumulative years 2013 to 2015
50% EPS
25% SOV
25% non-NAR
25%
25%
50%
50% cumulative adjusted EPS
• Threshold performance – 30%
• Maximum performance – 100%
• Vesting on a straight-line basis in between.
25% Family SOV
• Threshold performance – 50%
• Maximum performance – 100%
• Vesting on a proportionate basis between threshold and maximum.
25% non-NAR
• Threshold performance – 30%
• Maximum performance – 100%
• Vesting on a straight-line basis between threshold and maximum.
Once vested, awards can be exercised for 12 months; any portion of the award that does not vest or is not exercised will
lapse.
Standard good leaver provisions apply (broadly relating to compassionate circumstances) and include prorating for
service. If a participant ceases to be employed for any other reason, the award will lapse unless determined otherwise.
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.
83
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Renewal of share plans
The PSP and SAYE schemes are approaching the end of their ten year life. A proposal to renew the schemes will be submitted
to the AGM in May 2013. No substantive changes to the rules are proposed.
Alignment with shareholders
The Committee continues to recognise the importance of Executive Directors becoming shareholders so as to align their
interests with other shareholders. Shareholding guidelines are in place, which encourage Executive Directors to build up a
holding of ITV plc shares, 50% of the requirement within three years of appointment and the remainder within five years as
follows:
Adam Crozier
Ian Griffiths
Percentage of
base salary
Percentage held
at 1 January 2013
200%
150%
62%
299%
Other members of the Management Board are required to hold between 50% and 100% of their salary in line with their
individual annual bonus opportunity.
Details of the Executive Directors’ current personal shareholdings are shown on page 88.
Service contracts
Executive Directors have service contracts that provide for 12 months’ notice on either side. There are no special provisions
that apply in the event of a change of control.
Adam Crozier
Ian Griffiths
Date of appointment
26 April 2010
9 Sept 2008
Nature of
contract
Rolling
Rolling
Notice period
from Company
12 Months
12 Months
Notice period
from Director
12 Months
12 Months
Compensation
provisions for early
termination
None
None
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 (resigned from 1 September 2012)
Adam Crozier became a non-executive director of G4S plc with effect from 1 January 2013.
2012
£000
35
84
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Each Non-executive Director has a contract of service with the Company, further details of which can be found in the
Governance section on page 64. Fees paid to the Non-executive Directors are determined by the Chairman and Executive
Directors based on market information, and in accordance with the restrictions contained within the Company’s Articles of
Association.
The fees are reviewed annually. There is no fee for membership of the Nomination Committee. It has been agreed that from
1 January 2013 the basic fee will increase by 2.75% to £60,559 and fees for membership of the Audit and Remuneration
Committee will also increase by 2.75% to £5,137. The annual fees payable in 2012 were as follows:
Non-executive Directors’ fees
Board member
Additional fees for:
Senior Independent Director
Audit Committee Chairman
Audit Committee member
Remuneration Committee Chairman
Remuneration Committee member
£
58,938
25,000
20,000
5,000
15,000
5,000
Note:
Details of committee membership can be found in the Governance section on page 58 and 59.
Share acquisition policy
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 88.
Chairman’s fee and share award
The Chairman was appointed in 2010 for a three-year-term on a fee of £300,000 per annum with an award of shares valued
at £600,000 (1.2 million shares) at that time. These awards released in three tranches of 400,000 shares over the three-year
term of his initial appointment. The first tranche was released on 23 May 2011, the second tranche on 31 December 2011 and
the third tranche on 31 December 2012.
The Chairman was reappointed for a further three-year term with effect from 1 January 2013 and continues to receive an
annual fee of broadly the same value (£500,000 per annum) of which £200,000 per annum (40%) will be invested under the
share acquisition policy set out above. He receives no further payment for membership of committees.
85
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Detailed audited disclosures
The following tables provide details of each of the Directors’ emoluments, pension contributions, 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 1 January 2012 to 31 December 2012 were as follows:
Emoluments
Gains on exercise of share options
Gains on release of restricted share awards
2012
£000
3,422
444
421
4,287
2011
£000
2,964
–
943
3,907
All share related gains are valued pre-tax on date of exercise by or release to participant.
Notes:
1
2 Details of gains on exercise of share options and release of restricted share awards can be found on page 87.
3
Further information is contained in the table below.
Directors’ emoluments
The Directors’ emoluments for the year ended 31 December 2012 are set out in the table below.
Name of Director
Adam Crozier
Ian Griffiths
Mike Clasper
Roger Faxon3
Andy Haste
Lucy Neville-Rolfe
Archie Norman
John Ormerod
Total emoluments
Status
Executive
Executive
Non-executive
Non-executive
Non-executive
Non-executive
Non-executive
Non-executive
Base salary/
fees
£000
Benefits in
kind1
£000
Pensions
contribution2
£000
818
449
94
10
79
59
300
84
1,893
19
14
–
–
–
–
–
–
33
74
69
–
–
–
–
–
–
143
Short-term
incentives
(cash)4
£000
Total
for the
year ended
31 December
2012
£000
Total
for the
year ended
31 December
2011
£000
897
456
–
–
–
–
–
–
1,353
1,808
988
94
10
79
59
300
84
3,422
1,524
828
93
–
78
58
300
83
2,964
Notes:
1
2
3
4
This disclosure includes the cost of private medical insurance and car related benefits.
Pension contributions represent cash payments in lieu of pension.
Fees paid from appointment on 31 October 2012 to 31 December 2012.
Short-term incentives: Executive Directors will receive a bonus for 2012 as detailed in the table below, the cash element of which is shown in the table above.
Adam Crozier
Ian Griffiths
Percentage
of maximum
bonus
opportunity
earned
91.33%
92.30%
Total value
of 2012
Bonus
£000
1,345
683
Value paid in cash
(shown in the
emoluments table
above)
£000
897
455
Value
compulsorily
deferred into
shares under
the DSA
£000
448
228
Value
voluntarily
deferred into
shares under
the DSA
£000
–
–
The percentage of maximum bonus opportunity earned for Adam Crozier was 95.56% on corporate and financial targets and 85% on individual targets and for Ian Griffiths was 97.5% on
corporate and financial targets and 84.5% on individual targets.
86
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVGovernance Directors’ interests in share awards
Information given in the table below is for the period from 1 January 2012 to 31 December 2012.
At
1 January
2012
Awarded
in year
Vested
in year
Lapsed
in year
Share price
used for
award
(pence)
At
31 Dec
2012
Exercise
price
(pence)
Date of
release/
exercise
in 2012
Share price
at date of
release
(pence)
Market value
at date of
release
(pre-tax)
Vesting date/
Exercise period
Award date
Adam Crozier
Deferred Share Award Plan
28 March 2012 Compulsory
Deferral1
28 March 2012 Voluntary
Deferral1
8 March 2011 Compulsory
477,112
238,557
Deferral2
276,314
8 March 2011 Voluntary
Deferral2
276,314
Nil-cost Option Award
26 April 20103
Performance Share Award
4,115,044
1 March 2012 Core Award
28 March 2012 Matching
Award
899,347
238,557
8 March 2011 Core Award
8 March 2011
Matching
Award
786,196
276,314
Ian Griffiths
Deferred Share Award Plan
28 March 2012 Compulsory
Deferral1
234,406
117,204
493,192
117,204
203,478
203,478
431,140
203,478
933,820
28 March 2012 Voluntary
Deferral1
8 March 2011
8 March 2011
Compulsory
Deferral2
Voluntary
Deferral2
Performance Share Award
1 March 2012 Core Award
28 March 2012 Matching
Award
8 March 2011 Core Award
8 March 2011
Matching
Award
26 March 20104
1 June 20094,5
Turnaround Plan6
2 October 2008
Archie Norman
Restricted Share Award
17 March 20107
477,112
88.60
238,557
88.60
276,314
91.38
276,314
91.38
Nil
Nil
Nil
Nil
4,115,044
56.5
Nil
899,347
81.88
238,557
88.60
786,196
91.38
276,314
91.38
234,406
88.60
117,204
88.60
203,478
91.38
203,478
91.38
493,192
81.88
117,204
88.60
431,140
91.38
203,478
91.38
933,820
56.89
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
March 2015
March 2015
March 2014
March 2014
April 2013–
April 2014
March 2015–
March 2016
March 2015–
March 2016
March 2014–
March 2015
March 2014–
March 2015
March 2015
March 2015
March 2014
March 2014
March 2014–
March 2015
March 2014–
March2015
March 2014–
March 2015
March 2014–
March 2015
March 2013–
March 2014
June 2012–
June 2013
1,188,812
1,188,812
1,188,812
35.75
3,017,752
502,959 2,514,793
42.25
Nil 1 March
88.21
443,676
Dec 2011–
Dec 2012
400,000
400,000
50.17
Nil
31 Dec
105.22 420,893
Dec 2012
87
22018-04 11/12/2012 Proof TwoFinancial Statementsar2012.itvplc.comStock code: ITVOverviewPerformance & FinancialsResponsibilityGovernanceStrategy & OperationsDirectors’ Report Directors’ interest in shares
The figures set out below represent shareholdings in the
ordinary share capital of ITV plc beneficially owned by
Directors and their family interests.
There were no changes in Directors’ interests in shares
between the end of the financial year and 27 February 2013.
Director
Mike Clasper
Adam Crozier
Roger Faxon
Ian Griffiths
Andy Haste
Lucy Neville-Rolfe
Archie Norman
John Ormerod
31 December
2012
31 December
2011
100,363
298,258
0
881,852
78,058
22,154
1,163,167
122,788
85,918
291,139
0
640,960
65,487
14,161
971,584
109,960
Share price information
The market price of ITV plc ordinary shares at 31 December
2012 was 105.2 pence and the range during the year was
107.2 pence (on 24 December 2012) and 69.45 pence (on
5 January 2012).
Shareholder voting
At the AGM in 2012 the votes received on the proposal to
agree the Remuneration Report were as follows:
For
Against
Abstentions
Number of
shares
Percentage of
the total vote
2,438,591,932
17,615,476
49,961,994
99.28%
0.72%
–
Approval
The Remuneration Report was approved by the Board on
27 February 2013 and signed on its behalf by Andy Haste.
Remuneration Report continued
Notes:
1
An award over restricted shares for 2011 performance.
An award over restricted shares for 2010 performance.
2
3 An award over nil-cost options subject to the same provisions and performance
4
5
6
conditions attaching to the awards made under the PSP in March 2010.
The portion of this 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.
This award vested in full on 1 June 2012. Ian Griffiths has until 31 May 2013 to exercise
the award and the award was unexercised at the date of this report.
The Turnaround Plan (the Plan) was introduced in 2007. No awards were made under
the Plan after 2008. An award in the form of nil-cost options was made to a number
of key senior Executives with a maximum value of 550% of the individual’s salary.
Participants were required to acquire and retain a number of shares with a value up
to 100% of annual base salary for the duration of the performance period to
31 December 2011. 75% of the awards were subject to performance over a five-year
period. Up to 50% of the award subject to TSR (25% of the total award) was subject
to performance over the three-year period to 31 December 2009 but this condition
was not met, and 25% of the total award lapsed. The balance of 75% of the award
was tested when the 2011 final year results were published against the performance
conditions listed below. 12.5% of the total award subject to SOCI vested and was
exercised by Ian Griffiths as shown above. The remainder of the award lapsed.
– TSR: the balance of the award subject to TSR performance measured against
a comparator group selected from the FTSE 100 (excluding certain industry sectors
that are less relevant as a benchmark of performance). 25% of this portion of the
award would have vested for median performance and straight-line vesting would
have occurred up to full vesting for upper quartile performance. The comparator
companies were: 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.
– Strategic performance targets: There were four strategic targets, each having an
equal weighting. For achieving threshold performance, 25% of the award relating
to each target would have vested, with full vesting for achieving the maximum
target. In between these points, award vested on a straight-line basis. SOCI (ITV
Family) threshold 36.6% and maximum 38.5%; Revenue Growth – threshold 2%
and maximum 5% per annum; Adjusted EPS – threshold 8p and maximum 12p;
Share price threshold £1.35 and maximum £2.25 measured as an average over any
28-day period within the final three years of the Plan.
All vested awards under this Plan have been exercised and the Plan terminated on
31 December 2012.
7 One-off award made on joining ITV. The award released in three tranches of 400,000
shares over the initial three-year appointment term. Whilst held under award the
shares could not be sold or transferred.
The total market value of gains on share awards released or exercised during the year
was £864,569 as shown in the Aggregate Directors’ remuneration table on page 86.
8
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Other Governance and Statutory Disclosures
Substantial shareholdings
As at 31 December 2012 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).
At 31 December 2012
%
Shares
Sky Holdings Ltd1
Blackrock, Inc.
Brandes Investment Partners, L.P.
AXA S.A
Legal and General Investment
Management Ltd
Majedie Asset Management Limited
291,684,730
195,504,921
194,304,930
170,580,317
153,692,144
195,687,610
7.46
5.00
4.97
4.36
3.93
5.00
Notes:
1
2
Subsidiary of British Sky Broadcasting Group plc.
A profile of shareholdings is set out on page 157.
Following the year end, a notification was received from AXA
S.A that their interest had risen to 5.06%.
Share capital
Issued: At the date of this report there were 3,912,303,883
ordinary shares of 10 pence each in issue, all of which are
fully paid up and quoted on the London Stock Exchange.
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. Unless
expressly specified to the contrary, the Articles may only be
amended by special resolution of the shareholders. A copy
of the Articles can be obtained from the Company’s website
at www.itvplc.com/about/governance 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.
Purchase of own shares: The Directors have the authority
to purchase up to 389.2 million of the Company’s ordinary
shares. The authority remains valid until the 2013 Annual
General Meeting, or 9 August 2013 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 2012 are set out on page 149. During the
year shares have been released from the trust in respect of
share schemes for employees.
Change of control
No person holds securities in the Company carrying special
rights with regard to control of the Company.
All of the Company’s share schemes contain provisions
relating to a change of control. Outstanding awards and
options would normally vest and become exercisable on
a change of control, subject to the satisfaction of any
performance conditions. Certain of the Group’s bonds/
borrowing facilities have change of control clauses whereby
the issuer can require ITV to repay/redeem bonds in the
event of a change of control. The Company is not aware of
any other significant agreements to which it is party that
take effect, alter or terminate upon a change of control of
the Company.
Creditor payment policy
The Company’s policy, in relation to all its suppliers, is to
settle the terms of payment when agreeing the terms of
the transaction, ensure awareness of the terms and to abide
by those terms provided that it is satisfied that the supplier
has provided the goods or services in accordance with the
agreed terms and conditions. The Company does not follow
any code or standard payment practice. The number of days’
purchases outstanding for payment by the Company as at
31 December 2012 was nil days (2011: nil).
Pensions
The Group operates a pension scheme which provides
retirement and death benefits for employees of ITV. The ITV
Pension Scheme (the Scheme) comprises three sections:
A, B and C. Section A includes the defined contribution
(DC) section of the Scheme. The DC section is open to new
members. The majority of defined benefit (DB) sections
were closed to new members in 2002 (with the last section
closing on 1 August 2007) but are still open to future accrual.
ITV Pension Scheme Limited (the Trustee) manages the DB
and DC assets of the Scheme, which are held under trust
separately from those of the Group. It is the responsibility
of the Trustee to have in place appropriate training for its
directors, governance and effective committees.
89
22018-04 11/12/2012 Proof TwoFinancial Statementsar2012.itvplc.comStock code: ITVOverviewPerformance & FinancialsResponsibilityGovernanceStrategy & OperationsDirectors’ Report Other Governance and Statutory Disclosures continued
The Trustee has four Committees: Investment, Audit and
Operations, DC and Corporate Affairs. The Corporate Affairs
Committee is convened as and when appropriate for dealing
with any corporate activities that may arise.
organisation (the ‘staging date’). For ITV, the staging date is
1 March 2013 and the Company has undertaken a project in
order to meet the requirements with effect from that date.
The Trustee comprises nine directors – the Trustee
Chairman, together with four directors appointed by the
Company and four directors nominated by the members.
With effect from 31 December 2012 and after some 20
years in the role, Graham Parrott stepped down as Trustee
Chairman and was replaced by Max Graesser. During 2012,
one of the member nominated directors resigned and will
be replaced by a new director on completion of a selection
process.
The Trustee board and each Committee have a business
plan, which is reviewed and updated on an annual basis,
together with the associated budget. The Trustee board also
has a risk register, a conflicts of interest policy and a register
of interests policy, all of which are reviewed at least annually.
Trustee evaluations take place each year and are currently
being further developed as part of a continuing Trustee
board effectiveness review. The Trustee directors receive
regular training throughout the year; a minimum of two
days’ training is expected to be undertaken. Training
requirements are identified by reference to any skills gaps
and specific committee roles and training is delivered both
by attendance at external courses and with targeted training
to support specific agenda items. During early 2012, those
Trustee directors who had not completed the Pension
Regulator’s toolkit received training on the Regulator’s
Trustee Knowledge and Understanding scope guidance to
assist with completion of the toolkit.
All advisers and suppliers are appointed through a rigorous
tender process and are monitored through regular informal
review meetings. There is a timetable for completing
a formal review of advisers. The legal advisers, DC
administrators and annuity brokers were formally reviewed
in 2012. The legal advisers and DC administrators were
reappointed; an new annuity broker was appointed.
To encourage greater pension savings, the Government has
introduced auto enrolment. This requires employers to enrol
eligible employees into a pension scheme automatically.
The requirement to comply with the auto enrolment
regulations is being phased in with effect from 1 October
2012, with larger employers required to comply first and with
medium-sized and smaller employers following at a later
period. The size of an employer’s largest PAYE scheme will
determine the point at which the new duties affect their
90
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 2012 and remain in force for the benefit
of each of the Directors of ITV Pension Scheme Limited, a
subsidiary of ITV plc. These indemnity provisions cover, to the
extent permitted by law, certain losses or liabilities incurred
as a director or officer of ITV Pension Scheme Limited.
Audit
The Directors who held office at the date of approval of
the Directors’ Report confirm that, so far as they are each
aware, there is no relevant audit information of which the
Company’s auditor is unaware; and each Director has taken
all steps that they ought to have taken as a Director in order
to make themselves aware of any relevant audit information
and to establish that the Company’s auditor is aware of that
information.
As recommended by the Audit Committee, a resolution
for the reappointment of KPMG Audit Plc as auditor to
the Company will be proposed at the 2013 Annual General
Meeting.
Annual General Meeting
The Annual General Meeting will be held on Wednesday,
15 May 2013 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
27 February 2013
ITV plc
The London Television Centre
Upper Ground
London
SE1 9LT
Registered number 4967001
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVGovernance Statement of Directors’ Responsibilities in Respect of
the Annual Report and 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.
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 58 and 59, 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
27 February 2013
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.
91
22018-04 11/12/2012 Proof TwoFinancial Statementsar2012.itvplc.comStock code: ITVOverviewPerformance & FinancialsResponsibilityGovernanceStrategy & OperationsDirectors’ Report Pictured:
The Chase
Photo by Matt Frost/ITV/Rex Features
22018-04 11/12/2012 Proof Twoar2012.itvplc.comStock code: ITV Financial Statements
22018-04 11/12/2012 Proof Twoar2012.itvplc.comStock code: ITV Independent Auditor’s Report to the Members of ITV plc
We have audited the Group and Parent Company financial
statements of ITV plc for the year ended 31 December 2012
set out on pages 96 to 156.
• 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.
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 auditor’s
report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s
members, as a body, for our audit work, for this report, or for
the opinions we have formed.
Respective responsibilities of Directors and
auditor
As explained more fully in the Statement of Directors’
Responsibilities set out on page 91, 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, and express an opinion on, 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/auditscopeukprivate.
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 2012 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;
94
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
• the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with
the Companies Act 2006; and
• the information given in the Directors’ Report for the
financial year for which the financial statements are
prepared is consistent with the financial statements.
Matters on which we are required to report by
exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
• adequate accounting records have not been kept by the
Parent Company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the Parent Company financial statements and the part of
the Directors’ Remuneration Report to be audited are not
in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by
law are not made; or
• we have not received all the information and explanations
we require for our audit.
Under the Listing Rules we are required to review:
• the Directors’ statement, set out on page 102, in relation
to going concern;
• the part of the Corporate Governance Statement relating
to the Company’s compliance with the nine provisions
of the UK Corporate Governance Code specified for our
review; and
• certain elements of the report to shareholders by the
Board on Directors’ remuneration.
Mark Summerfield (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square
London, E14 5GL
27 February 2013
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVFinancial Statements Introduction and Table of Contents
In this section . . .
The financial statements have been presented in a style which attempts to make them less complex and more
relevant to shareholders. We have grouped notes in sections under five headings: ‘Basis of Preparation’, ‘Results for the
Year’, ‘Operating Assets and Liabilities’, ‘Capital Structure and Financing Costs’ and ‘Other Notes’. Each section sets out
the accounting policies applied in producing these notes together with any key judgements and estimates used. The
purpose of this format is to provide readers with a clearer understanding of what drives financial performance of the
Group. Text in boxes provides commentary on each section in plain English.
Keeping it simple . . .
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
Exceptional items
Taxation
Earnings per share
Working capital
Property, plant and equipment
Intangible assets
Acquisitions
Assets held for sale and disposals
Provisions
Pensions
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
2.3
2.4
Section 3 – Operating Assets and Liabilities
3.1
3.2
3.3
3.4
3.5
3.6
3.7
Section 4 – Capital Structure and Financing Costs
Net cash/(debt)
4.1
Borrowings and held to maturity investments
4.2
Derivative financial instruments
4.3
Net financing costs
4.4
Financial risk factors
4.5
Fair value hierarchy
4.6
4.7
Equity
Section 5 – Other Notes
Related party transactions
5.1
Contingent liabilities
5.2
5.3
Subsequent events
ITV plc Company Financial Statements
Shareholder information
Financial Record
Page
96
97
98
99
101
102
107
107
110
110
113
115
115
118
120
125
127
128
129
136
136
138
140
142
143
145
146
150
150
151
151
152
157
160
95
22018-04 11/12/2012 Proof TwoDirectors’ ReportStrategy & OperationsPerformance & FinancialsResponsibilityGovernancear2012.itvplc.comStock code: ITVFinancial StatementsOverview 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 and impairment of intangible assets
Operating profit
Financing income
Financing costs
Net financing costs
Share of losses of joint ventures and associated undertakings
Loss on sale and impairment of non-current assets (exceptional items)
Gain 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
2.4
2.4
2012
£m
2,196
(1,743)
453
2011
£m
2,140
(1,736)
404
520
(7)
(60)
453
151
(250)
(99)
(1)
(6)
1
348
(80)
268
267
1
268
6.9p
6.7p
462
1
(59)
404
196
(271)
(75)
(2)
(3)
3
327
(79)
248
247
1
248
6.4p
6.2p
96
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVFinancial Statements Consolidated Statement of Comprehensive Income
For the year ended 31 December
Profit for the year
Other comprehensive income:
Exchange differences on translation of foreign operations
Revaluation of available for sale financial assets
Actuarial losses on defined benefit pension schemes
Income tax credit on other comprehensive income
Other comprehensive cost for the year, net of income tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the Company
Non-controlling interests
Total comprehensive income for the year
2012
£m
268
(1)
(1)
(227)
53
(176)
92
91
1
92
2011
£m
248
–
3
(124)
30
(91)
157
156
1
157
97
22018-04 11/12/2012 Proof TwoDirectors’ ReportStrategy & OperationsPerformance & FinancialsResponsibilityGovernancear2012.itvplc.comStock code: ITVFinancial StatementsOverview 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
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
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 earnings/(losses)
Total equity attributable to equity shareholders of the parent company
Non-controlling interests
Total equity
Ian Griffiths
Group Finance Director
98
Note
3.2
3.3
4.1
4.3
3.1.1
2.3
3.1.2
3.1.4
3.1.4
4.1
3.5
4.2
4.3
3.1.5
3.1.6
3.6
4.2
4.3
3.7
3.6
4.7.1
4.7.1
4.7.2
2012
£m
156
932
6
3
145
99
17
93
1,451
250
365
14
379
690
1,319
25
1,344
(7)
(1)
(614)
(30)
(644)
(29)
(25)
(706)
2011
£m
167
934
3
2
147
110
11
65
1,439
285
370
26
396
801
1,482
–
1,482
(9)
(1)
(639)
(45)
(684)
(36)
(24)
(754)
638
728
(632)
(48)
(551)
(14)
(12)
(1,257)
832
391
122
283
13
7
1
817
15
832
(912)
(44)
(390)
(3)
(9)
(1,358)
809
389
120
300
14
8
(25)
806
3
809
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVFinancial Statements Consolidated Statement of Changes in Equity
Attributable to equity shareholders of the parent company
Items that may be
reclassified to profit
or loss
Share
premium
£m
Merger
and other
reserves
£m
Translation
reserve
£m
Available
for sale
reserve
£m
Retained
(losses)/
profits
£m
120
300
14
(25)
Total
£m
806
Note
Share
capital
£m
389
Balance at 1 January 2012
Total comprehensive income for the year
Profit
Other comprehensive income/(cost)
Revaluation of available for sale financial
assets
Exchange differences on translation of
foreign operations
Actuarial losses on defined benefit
pension schemes
Income tax on other comprehensive income
Total other comprehensive cost
Total comprehensive income 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
Issue of new shares
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
Changes in non–controlling interests(a)
Balance at 31 December 2012
–
–
–
–
–
–
–
–
–
–
–
2
2
–
–
–
–
–
–
–
–
–
–
–
2
2
–
–
–
–
–
–
–
–
(5)
–
–
–
(5)
3.7
2.3
4.1
4.7.7
4.7.7
4.7.1
–
2
–
391
–
2
–
122
–
(5)
(12)
283
3.4
4.7
–
–
(1)
–
–
(1)
(1)
–
–
–
–
–
–
–
–
–
13
(a) Movements reported in merger and other reserves include a put option for the acquisition of non–controlling interests.
8
–
(1)
–
–
–
(1)
(1)
–
–
–
–
–
–
–
–
–
7
Non–
controlling
interests
£m
3
1
–
–
–
–
–
1
(1)
–
–
–
–
Total
equity
£m
809
268
(1)
(1)
(227)
53
(176)
92
(79)
–
9
(3)
4
267
267
–
–
(227)
53
(174)
93
(78)
5
9
(3)
–
(1)
(1)
(227)
53
(176)
91
(78)
–
9
(3)
4
(67)
(68)
(1)
(69)
–
(67)
–
1
–
(68)
(12)
817
–
(1)
12
15
–
(69)
–
832
99
22018-04 11/12/2012 Proof TwoDirectors’ ReportStrategy & OperationsPerformance & FinancialsResponsibilityGovernancear2012.itvplc.comStock code: ITVFinancial StatementsOverview
Consolidated Statement of Changes in Equity
Attributable to equity shareholders of the parent company
Items that may be
reclassified to profit
or loss
Share
premium
£m
Merger
and other
reserves
£m
Translation
reserve
£m
Available
for sale
reserve
£m
120
304
14
Note
Share
capital
£m
389
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4)
–
–
(4)
–
–
–
–
–
–
–
–
–
–
–
3.7
2.3
4.1
4.7.7
4.7.7
–
–
389
–
–
120
–
(4)
300
4.7
–
–
14
Retained
losses
£m
(171)
Total
£m
661
247
247
–
3
(124)
30
(94)
153
(124)
30
(91)
156
(16)
4
11
(6)
(7)
(16)
–
11
(6)
(11)
–
(7)
(25)
–
(11)
806
Non-
controlling
interests
£m
2
1
–
–
–
–
1
–
–
–
–
–
–
–
3
Total
equity
£m
663
248
3
(124)
30
(91)
157
(16)
–
11
(6)
(11)
–
(11)
809
5
–
3
–
–
3
3
–
–
–
–
–
–
–
8
Balance at 1 January 2011
Total comprehensive income for the year
Profit
Other comprehensive income/(cost)
Revaluation of available for sale financial
assets
Actuarial losses on defined benefit
pension schemes
Income tax on other comprehensive income
Total other comprehensive income/(cost)
Total comprehensive income 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
Total changes in ownership interests in
subsidiaries
Total transactions with owners
Balance at 31 December 2011
100
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVFinancial Statements Consolidated Statement of Cash Flows
For the year ended 31 December
Cash flows from operating activities
Profit before tax
Gain on sale and impairment of subsidiaries and investments
(exceptional items)
Loss on sale and impairment of non–current assets (exceptional items)
Share of 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
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 (loss)/ income
Increase/(decrease) in payables and provisions
Cash outflow from exceptional items
Cash generated from operations
Defined benefit pension deficit funding
Interest received
Interest paid on bank and other loans
Interest paid on finance leases
Net taxation paid
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 (outflow)/inflow from investing activities
Cash flows from financing activities
Bank and other loans – amounts repaid
Capital element of finance lease payments
Dividend paid to minority interest
Issue of share capital
Purchase of own shares via employees’ benefit trust
Equity dividends paid
Net cash outflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Effects of exchange rate changes and fair value movements
Cash and cash equivalents at 31 December
Note
2.2
2.2
2.1
4.4
2.2
3.2
3.3
4.7.7
3.1.7
2.2
3.4
4.1
4.1
£m
327
(3)
3
2
75
(1)
26
59
11
–
52
(34)
18
1
(5)
(48)
48
(85)
(3)
(68)
(14)
2
(35)
(8)
(6)
2
2
(331)
(5)
–
–
(6)
(16)
£m
348
(1)
6
1
99
7
27
60
9
29
17
(45)
1
(7)
5
(72)
42
(72)
(3)
(62)
(38)
–
(50)
(11)
(9)
3
4
(309)
(8)
(1)
4
(3)
(78)
2012
£m
557
(2)
555
(167)
388
(101)
(395)
(108)
801
(3)
690
2011
£m
517
(4)
513
(156)
357
(57)
(358)
(58)
860
(1)
801
101
22018-04 11/12/2012 Proof TwoDirectors’ ReportStrategy & OperationsPerformance & FinancialsResponsibilityGovernancear2012.itvplc.comStock code: ITVFinancial StatementsOverview
Section 1: Basis of Preparation
In this section . . .
This section sets 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 2012 or later
years. We explain how these changes are expected to impact the financial position and 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. Where other bases are applied these
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 Group’s continued generation of significant
free cash flows through efficiencies in the balance sheet the
Group continued to improve its positive net cash position,
and has also continued to improve both its short-term and
medium-term liquidity position (see Section 4 for details on
capital structure and financing).
The Group continues to review forecasts of the television
advertising market to determine the impact on ITV’s liquidity
position and create further cash headroom. The Group’s
forecasts and projections, taking account of reasonably
possible changes in trading performance, show that the
Group will 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, but
not control or jointly control, the financial and operating
decisions of an entity. These investments are also accounted
for using the equity method.
A special purpose entity (SPE) is a legal entity which
the Group may establish to fulfil a specific trading
and investment purpose. Judgement is required when
determining if an SPE should be consolidated and involves
the evaluation of the substance of its relationships with
the Group and the SPE’s risks and rewards. 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 their 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.
102
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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 commitments 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 in assets/liabilities; and
‘Financial liabilities measured at amortised cost’ –
separately disclosed as borrowings and trade and other
payables.
Judgement is required when determining the appropriate
classification of the Group’s financial instruments. 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 commitments have a charge. The carrying value of
cash and cash equivalents is considered to approximate fair
value.
Foreign currencies
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.
103
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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.
Accounting judgements and estimates
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)
• Acquisition accounting (note 3.3 and note 3.4)
• Consolidation of special purpose entities (‘SPE’s) (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:
• Defined benefit pension schemes (note 3.7)
• Taxation (note 2.3)
• Provisions (note 3.6)
• Employee benefits (note 4.7)
• Business combinations (note 3.4)
•
•
Intangible assets (note 3.3)
Impairment of assets (note 3.2 and note 3.3)
• Programme rights and other inventory (note 3.1)
• Distribution rights (note 3.1)
• Trade receivables (note 3.1)
104
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The table below represents new or amended EU endorsed accounting standards relevant to the Group’s results that are
effective in 2012:
Accounting Standard
Requirement
Impact on financial statements
IAS 12 Income taxes
The Amendment introduces an exception to the current
measurement principles of deferred tax assets and
liabilities arising from investment property measured
using the fair value model in accordance with IAS
40 Investment Property. The exception also applies
to investment properties acquired in a business
combination accounted for in accordance with IFRS
3 Business Combinations provided the acquirer
subsequently measure these assets applying the fair
value model.
The Group does not consider the amendment to IAS 12
to be applicable to the financial statements for the year
ended on the basis that the Group does not own, nor has
acquired, investment properties during the period.
The Directors also considered the impact on the Group of other new and revised accounting standards, interpretations
or amendments on the Group that are currently endorsed but not yet effective. Except where noted below, none are
considered relevant to the Group’s results and are effective for periods beginning on or after 1 January 2014.
Accounting Standard
Requirement
Impact on financial statements
IAS 19 Revised –
Employee Benefits
IAS 1 Financial
Statement
Presentation
IFRS 7 Financial
Instruments:
Disclosures
The IASB has issued numerous amendments to IAS
19. These range from fundamental changes such as
removing the corridor mechanism and the concept of
expected return on plan assets to simple clarifications
and rewording.
The revised standard is effective for periods beginning
on or after 1 January 2013, with retrospective
application.
The amendments to IAS 1 change the grouping of items
presented in OCI. Items that could be reclassified to
the income statement at a future point in time would
be presented separately from items that will never be
reclassified. The amendment is effective for periods
beginning on or after 1 July 2012.
The Amendments require additional disclosures about
transfers of financial assets, e.g. securitisations, and
should enable users to understand the possible effects
of any risks that may remain with the transferor.
Also required is additional disclosures where a
disproportionate amount of transfer transactions take
place around the end of the reporting period.
The Group has reviewed the amendments to IAS 19 and
does not consider there to be any impact on the 2012
net assets.
The impact on the income statement for 2012 would be
an increase in finance costs of £7 million to £16 million,
which is adjusted for in calculating adjusted profit, and
an additional £7 million in operating costs to £15 million,
which will be included within EBITA. The finance costs for
2013 under the revised standard are expected to be £21
million, and operating costs will be £13 million.
The amendment affects presentation only and has
therefore no impact on the Group’s financial position or
performance.
The Group has reviewed their disclosure of financial
instruments to ensure they are in compliance with the
amendments to IFRS 7.
105
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Accounting Standard
Requirement
Impact on financial statements
Based on the preliminary analyses performed, IFRS 10 is
not expected to have any impact on the currently held
investments of the Group.
IFRS 10
IFRS 10 replaces a portion of IAS 27 Consolidated and
Separate Financial Statements that addresses the
accounting for consolidated financial statements. It
also includes the issues raised in SIC-12 Consolidation –
Special Purpose Entities.
IFRS 10 establishes a single control model that applies
to all entities including special purpose entities. The
changes introduced by IFRS 10 will require management
to exercise significant judgement to determine which
entities are controlled and therefore are required
to be consolidated by a parent, compared with the
requirements that were in IAS 27.
IFRS 11
IFRS 11 replaces IAS 31 Interests in Joint Ventures and
SIC-13 Jointly controlled entities – Non-monetary
contributions by Venturers.
Based on the preliminary analyses performed, IFRS 11 is
not expected to have any impact on the currently held
investments of the Group.
IFRS 11 removes the option to account for jointly
controlled entities (JCEs) using proportionate
consolidation. Instead, JCEs that meet the definition of
a joint venture must be accounted for using the equity
method.
IFRS 12 includes all of the disclosures that were
previously in IAS 27 related to consolidated financial
statements, as well as all of the disclosures that
were previously included in IAS 31 and IAS 28. These
disclosures relate to an entity’s interests in subsidiaries,
joint arrangements, associates and structured entities.
IFRS 13 establishes a single source of guidance under
IFRS for all fair value measurements. IFRS 13 does not
change when an entity is required to use fair value, but
rather provides guidance on how to measure fair value
under IFRS when fair value is required or permitted. The
standard is effective for periods beginning on or after 1
January 2013.
Although a number of new disclosures will be required,
there is no impact expected on the Group’s financial
position or performance.
The Group is currently assessing the impact that
this standard will have on the financial position and
performance, but based on preliminary analyses, no
material impact is expected.
IFRS 12
IFRS 13
106
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Section 2: Results for the Year
In this section . . .
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
Keeping it simple . . .
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 (EBITA) and before 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 comprises the sale
of products and services to third parties. Selecting the
appropriate timing and amount of revenue recognised
requires judgement. The key area of judgement in respect
of recognising revenue is the timing of recognition. 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. Revenue recognition
criteria for the Group’s key classes of revenue are recognised
on the following bases:
Class of revenue
Advertising
Sponsorship
Programme production
Programme rights
Participation revenues
(interactive & ‘red button’
services)
Digital revenue: Archive and
Video on Demand – one-off
and top-up content
Digital revenue: Catch-up
Recognition criteria
on transmission or display
on transmission of the sponsored
programme or series
on delivery of episode and
acceptance by the customer
when contracted and available for
exploitation
as the service is provided
on delivery of content (one-off)
or over the contract period in a
manner that reflects the flow of
content delivered (top-up)
on receipt of third party reports
showing revenue share calculation
(showing subscribers and hours
downloaded)
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 2012 and 31 December
2011 are therefore ‘Broadcast & Online’ and ‘ITV Studios’, the
results of which are outlined in the following tables:
Total segment revenue
Intersegment revenue
Revenue from external
customers
EBITA before exceptional
items
Share of losses of joint
ventures and associated
undertakings
Total segment revenue
Intersegment revenue
Revenue from external
customers
EBITA before exceptional
items
Share of losses of joint
ventures and associated
undertakings
Broadcast
& Online
2012
£m
1,834
–
1,834
413
ITV Studios
2012
£m
Consolidated
2012
£m
712
(350)
362
107
2,546
(350)
2,196
520
(1)
–
(1)
Broadcast
& Online
2011
£m
1,820
–
1,820
379
ITV Studios
2011
£m
Consolidated
2011
£m
612
(292)
320
83
2,432
(292)
2,140
462
(2)
–
(2)
Segmental information
Operating segments, which have not been aggregated, are
reported in a manner that is consistent with the internal
Intersegment revenue, which is carried out on arms’
length terms, is generated from the supply of ITV Studios
107
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programmes to Broadcast & Online for transmission primarily
on ITV. This revenue stream is a measure which forms part of
the Group’s strategic priority of building a strong international
content business and is included as a KPI.
In preparing the segment information, centrally managed
costs have been allocated between reportable segments
consistently on the basis of a methodology driven
principally by revenue and headcount of each segment.
This is consistent with the basis of reporting to the Board of
Directors.
Broadcast & Online
This segment is responsible for commissioning and
scheduling programmes on the ITV channels, marketing
and programme publicity and online rights exploitation.
Broadcast & Online derives its revenue primarily from the
sale of advertising airtime and sponsorship. Other sources
of revenue are from participation revenue, digital revenue,
online advertising and the digital terrestrial multiplex SDN.
ITV Studios
ITV Studios is an international productions business. It
comprises ITV Studios UK (a commercial programme
production business), international production centres
in the USA, Germany, Australia, Sweden, Norway, Finland
and France and ITV Studios Global Entertainment, the
distribution and exploitation business.
A significant portion of ITV Studios’ revenue is generated
when it creates ideas that are then produced and sold as
programming to the ‘Broadcast & Online’ segment, primarily
for ITV. This is shown in the intersegment revenue in the
segmental analysis.
ITV Studios Global Entertainment sells programming,
exploits merchandising and licensing worldwide, and is a
distributor of DVD entertainment primarily in the United
Kingdom, both for ITV Studios and third parties.
EBITA before exceptional items
The Directors assess the performance of the reportable
segments based on a measure of EBITA before exceptional
items. The Directors use 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 and funding of the Group.
108
A reconciliation from EBITA before exceptional items to
profit before tax is provided as follows:
EBITA before exceptional items
Operating exceptional items
Amortisation and impairment of
intangible assets
Net financing costs
Share of losses of joint ventures and
associated undertakings
Loss on sale and impairment of non-
current assets (exceptional items)
Gain on sale and impairment of
subsidiaries and investments
(exceptional items)
Profit before tax
2012
£m
520
(7)
(60)
(99)
(1)
(6)
1
348
2011
£m
462
1
(59)
(75)
(2)
(3)
3
327
Whilst becoming more international, the Group’s principal
operations are in the United Kingdom. Its revenue from
external customers in the United Kingdom is £1,895 million
(2011: £1,900 million), and total revenue from external
customers in other countries is £301 million (2011: £240
million).
There are three media buying agencies acting on behalf of
a number of customers that represent the Group’s major
customers. These agencies are the only customers which
individually represent over 10% of the Group’s revenues.
Revenues of approximately £486 million (2011: £480 million),
£239 million (2011: £221 million) and £233 million (2011: £239
million) were derived from these customers. These revenues
are attributable to the ‘Broadcast & Online’ segment.
Operating costs
Staff costs
Staff costs before exceptional items can be analysed as
follows:
Wages and salaries
Social security and other costs
Share-based compensation
(see note 4.7)
Pension costs
2012
£m
236
35
9
20
300
2011
£m
220
36
11
20
287
There are £5 million of staff costs within exceptional items
in 2012 (2011: nil) which principally relate to redundancy
payments as reorganisation in various parts of the business
have taken place to drive operational efficiency. Total staff
costs including exceptional items for the year ended 31
December 2012 are £305 million (2011: £287 million).
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVFinancial Statements The number of full-time equivalent employees (excluding
short-term contractors and freelancers), calculated on a
weighted average basis, during the year was:
Broadcast & Online
ITV Studios
2012
2,102
1,957
4,059
2011
2,271
1,687
3,958
The increase in full-time equivalent employees in ITV Studios
is primarily driven by the transfer of Breakfast staff from
Broadcast & Online to ITV Studios, as well as the increase in
staff resulting from the four acquisitions in the year.
Details of Directors’ emoluments, share options, pension
entitlements and long-term incentive scheme interests are
set out in the Remuneration Report.
Depreciation
Depreciation in the year was £27 million (2011: £26 million),
of which £15 million (2011: £15 million) relates to ‘Broadcast
& Online’ and £12 million (2011: £11 million) to ‘ITV Studios’.
Operating leases
The total future minimum lease payments under non-
cancellable operating leases fall due for payment as follows:
2012
Transponders
Property
Within 1 year
Later than 1 year and not
later than 5 years
Later than 5 years
29
137
220
386
12
29
91
132
2011 (restated)
Transponders
Property
Within 1 year
Later than 1 year and not
later than 5 years
Later than 5 years
12
153
275
440
10
31
88
129
Total
41
166
311
518
Total
22
184
363
569
The Group’s operating leases relate to transponder
assets and office and studio properties. The Group holds
transmission supply agreements that require the use of
specific transponder assets for a period of up to 12 years with
payments increasing over time, limited by specific RPI caps.
These supply agreements are classified as operating leases,
in accordance with the Group’s policy on leases detailed in
Section 3.2. The transponder operating lease disclosures in
2011 have been restated principally to remove the impact of
discounting from the minimum future payments.
Included in 2012 property commitments are future minimum
lease payments of £82 million contracted on the London
Television Centre, a property which the Group acquired
subsequent to year end in January 2013 (see note 5.3).
Property leases typically run for a period of between 3 and
15 years and may have an option to renew after that date.
Lease payments are generally subject to market review
every 5 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 £4 million (2011: £4 million).
The total operating lease expenditure recognised during the
year was £40 million (2011: £42 million) and total sublease
payments received was £2 million (2011: £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 and its associates during the year are set
out below:
2012
£m
2011
£m
For the audit of the Group’s annual
accounts
For the audit of subsidiaries of the
Group
Audit-related assurance services
Total Audit and Audit-Related
assurance services
Taxation compliance services
Taxation advisory services
Non-Audit Services
0.8
0.1
0.1
1.0
0.1
0.3
0.4
1.4
0.7
0.1
0.1
0.9
0.1
0.7
0.8
1.7
There were no fees payable in 2012 or 2011 to KPMG and
associates for the auditing of accounts of any associate of the
Group, internal audit services, 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.
Fees paid to KPMG for audit and other services to the
Company are not disclosed in its individual accounts as
the Group accounts are required to disclose such fees on a
consolidated basis.
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Section 2: Results for the Year continued
2.2 Exceptional Items
Keeping it simple . . .
Exceptional items are material and non-recurring items
excluded from management’s assessment of profit
because by their nature they could distort the Group’s
underlying quality of earnings. These are excluded to
reflect performance in a consistent manner and are in
line with how the business is managed and measured
on a day-to-day basis.
Accounting policies
Exceptional items as described above are disclosed on the
face of the income statement.
Subsequent revisions of estimates for items initially
recognised as exceptional provisions are recorded as
exceptional items in the year that the revision is made. Gains
or losses on disposal of non-core assets are also considered
exceptional due to their nature and impact on the Group’s
underlying quality of earnings.
Exceptional items
Operating and non-operating exceptional items are analysed
as follows:
(Charge)/credit
Ref.
Operating exceptional items:
2012
£m
2011
£m
Reorganisation and
restructuring costs
Onerous property provision
Acquisition related expenses
Total net operating exceptional
items
Non-operating exceptional
items:
Loss on sale and impairment
of non-current assets
Gain on sale and
impairment of subsidiaries
and investments
Total non-operating
exceptional items
Total exceptional items
before tax
A
B
C
D
(5)
–
(2)
(7)
(6)
1
(5)
(12)
–
1
–
1
(3)
3
–
1
A – Reorganisation and restructuring costs
There were £5 million of exceptional restructuring costs
in 2012 in relation to restructuring initiatives to drive cost
efficiency in line with the strategy (2011: no exceptional
reorganisation or restructuring costs).
B – Acquisition related expenses
Charges of £2 million principally relate to professional fees
(mainly financial and legal due diligence) incurred on the four
acquisitions completed during the period (see note 3.4), and
expenses in the period with respect to post-combination
remuneration costs accrued to former owners (2011: nil).
C – Loss on sale and impairment of non-current assets
In 2012 a £6 million (2011: £3 million) loss on sale and
impairment of non-current assets was incurred primarily as a
result of an impairment on the premises in Manchester of £5
million, arising from the decision to reclassify the properties
to assets held for sale (see note 3.5).
D – Gain on sale and impairment of subsidiaries and
investments
The £1 million credit relates to a £3 million gain on the sale
of Screenvision US (Technicolor Cinema Advertisers LLC),
offset by £2 million of impairment charges on investments
in Freesat (UK) Limited and NoHo Film and Television
Limited. In 2011 the £3 million gain principally related to the
sale of Screenvision Holdings (Europe) Limited.
2.3 Taxation
Keeping it simple . . .
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. The calculation of the Group’s total tax charge
involves a degree of estimation and judgement in respect
of certain items whose tax treatment cannot be finally
determined until a resolution has been reached by the
relevant tax authority.
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Current tax is the expected tax payable or receivable on the
taxable income or loss for the year and any adjustment in
respect of previous years. The current tax charge is based on
tax rates that are enacted or substantively enacted at the
year end.
The Group recognises liabilities for anticipated tax issues
based on estimates of the additional taxes that are likely
to become due, which require 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.
Taxation – Income statement
The total taxation charge in the income statement is
analysed as follows:
Current tax:
Current tax charge before
exceptional items
Current tax charge on exceptional
items
Adjustments for prior periods
Deferred tax:
Origination and reversal of
temporary differences
Adjustments for prior periods
Total taxation charge in the income
statement
2012
£m
2011
£m
(63)
(2)
(65)
10
(55)
(30)
5
(25)
(80)
(60)
–
(60)
19
(41)
(38)
–
(38)
(79)
In order to understand how, in the income statement, a
tax charge of £80 million (2011: £79 million) arises on a
profit before tax of £348 million (2011: £327 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 24.5% (2011: 26.5%)
Non-taxable income/non-deductible
expenses
Recognition of previously unrecognised
temporary differences
Adjustments for prior periods
Impact of changes in tax rate
Other
Total taxation charge in the income
statement
2012
£m
348
(85)
(4)
8
7
(3)
(3)
2011
£m
327
(87)
(7)
11
8
(3)
(1)
(80)
(79)
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.
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.
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Section 2: Results for the Year continued
A deferred tax credit of £8 million is recognised on overseas
temporary differences in the USA and Germany. The
deferred tax credit of £11 million in 2011 was on financing
losses linked to previous investments ( ‘loan relationship
deficits’) following the successful conclusion of an enquiry
with the tax authorities.
Adjustments for prior periods primarily arise where an
outcome is obtained on certain tax matters which differs
from expectations held when the related provision was
made. Where the outcome is more favourable than the
provision made, the difference is released, lowering
the current year tax charge. Where the outcome is less
favourable than our provision, an additional charge to
current year tax will occur.
The effective tax rate is the tax charge on the face of
the income statement expressed as a percentage of the
profit before tax. In the year ended 31 December 2012,
the effective tax rate is lower than the standard rate of UK
corporation tax primarily because of adjustments for prior
periods and recognition of overseas deferred tax assets. In
the year ended 31 December 2011, the effective tax rate
was lower than the standard rate of UK corporation tax
primarily due to the settlement of outstanding matters
in the overseas business. As explained in the Financial and
Performance Review, the Group uses an adjusted tax rate to
show the cash tax impact on its adjusted earnings.
Taxation – Other comprehensive income
Within other comprehensive income a tax credit totalling
£53 million (2011: credit of £30 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:
At
1 January
2012
£m
Recognised in
the income
statement
£m
Recognised
in equity
£m
At
31 December
2012
£m
1
(49)
1
71
32
(1)
8
–
2
65
(7)
15
–
(27)
(15)
1
–
9
(1)
(25)
–
–
–
52
–
–
1
–
–
53
(6)
(34)
1
96
17
–
9
9
1
93
At
1 January
2011
£m
Recognised in
the income
statement
£m
Recognised
in equity
£m
At
31 December
2011
£m
2
(65)
2
76
50
(1)
7
2
73
(1)
16
(1)
(35)
(18)
–
1
–
(38)
–
–
–
30
–
–
–
–
30
1
(49)
1
71
32
(1)
8
2
65
Property, plant and equipment
Intangible assets
Programme rights
Pension scheme deficits
UK tax losses
Interest-bearing loans and borrowings, and derivatives
Share-based compensation
Overseas
Other
Property, plant and equipment
Intangible assets
Programme rights
Pension scheme deficits
UK tax losses
Interest-bearing loans and borrowings, and derivatives
Share-based compensation
Other
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million (2011: £115 million) and total deferred tax liabilities
are £40 million (2011: £50 million).
assets in respect of overseas losses of £13 million (2011: £9
million) that time expire between 2017 and 2026 have not
been recognised.
The deferred tax balance relates to:
2.4 Earnings per share
• property, plant and equipment timing differences arising
on assets qualifying for capital allowances;
• timing differences on intangible assets arising on
business combinations;
• programme rights timing differences on intercompany
profits on stock;
• pension scheme deficit timing differences on the IAS
19 pension deficit, additional contributions resulting
from funding through the SDN pension partnership
(not recognised as contributions under IAS 19) and the
spreading of tax relief on one-off large pension funding
payments;
• UK tax loss timing differences in receiving the benefit of
the Group’s tax losses;
•
interest-bearing loans and borrowings and derivatives
timing differences on hedging instruments;
• share-based compensation timing differences on share
schemes;
• overseas timing differences on intangible assets and net
operating losses arising in the US and Germany; and
• other timing differences on miscellaneous items including
sale and leaseback arrangements and various provisions.
Due to the change in the statutory tax rate, deferred tax is
provided at 23% (2011: 25%), which is the rate that has been
substantively enacted to apply from 1 April 2013. The impact
of the change in the tax rate is £7 million (2011: £6 million),
of which £3 million was recognised in the deferred tax
charge and the remainder recognised in equity to reflect the
movements in the pension deficit taken to equity.
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 employer contributions of
£82 million to the Group’s defined benefit pension scheme.
The adjustment in equity to the deferred tax balance primarily
relates to the actuarial losses recognised in the period.
A deferred tax asset of £513 million (2011: £558 million)
in respect of capital losses of £2,230 million (2011: £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
Keeping it simple . . .
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 £267 million
(2011: £247 million) divided by 3,888 million (2011:
3,883 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:
Earnings per share 2012
Ref.
Basic
£m
Diluted
£m
Profit for the year attributable to
equity shareholders of ITV plc
Weighted average number of
ordinary shares in issue – million
Dilution due to share options
Dilution due to convertible bond
Total weighted average number of
ordinary shares in issue – million
Earnings per ordinary share
A
267
275
3,888
–
–
3,888
6.9p
3,888
43
192
4,123
6.7p
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Adjusted earnings per share 2012
Ref.
Adjusted
£m
Diluted
£m
Profit for the year attributable to
equity shareholders of ITV plc
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
Earnings per share 2011
Profit for the year attributable to
equity shareholders of ITV plc
Weighted average number of
ordinary shares in issue – million
Dilution due to share options
Dilution due to convertible bond
Total weighted average number of
ordinary shares in issue – million
Earnings per ordinary share
A
B
C
D
E
F
Ref.
A
267
10
277
37
42
2
358
275
10
285
37
42
2
366
3,888
4,123
9.2p
8.9p
Basic
£m
247
3,883
–
–
3,883
6.4p
Diluted
£m
255
3,883
36
192
4,111
6.2p
Adjusted earnings per share 2011
Ref.
Adjusted
£m
Diluted
£m
Profit for the year attributable to
equity shareholders of ITV plc
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
B
C
D
E
F
247
(1)
246
35
18
7
306
3,883
7.9p
255
(1)
254
35
18
7
314
4,111
7.6p
The rationale for determining the adjustments to profit is
provided in the Financial and Performance Review. Details of
the adjustments to earnings are below:
A. Diluted earnings per share are impacted by the £135
million 2016 convertible Eurobond issued in November
2009. Diluted profit for the year attributable to equity
shareholders of ITV plc includes an adjustment for
interest and accretion on the convertible Eurobond
which would not have been incurred if the bond had been
converted to equity in the period.
B. The exceptional items detailed in Section 2.2 are adjusted
to reflect profit for the year before exceptional items.
A tax credit of £2 million (2011: nil) is recognised on the
operating exceptional items of £7 million (2011: £1 million
credit). There is no tax credit recognised on the non-
operating exceptional items of £5 million.
C. Amortisation and impairment of acquired intangible
assets of £37 million (2011: £35 million) is calculated as
total amortisation and impairment of £60 million (2011:
£59 million), less amortisation of software licences
and development of £11 million (2011: £12 million). A
related tax credit of £12 million (2011: £12 million) is then
recognised on the net amount.
D. Adjustments to net financing costs of £42 million (2011:
£18 million) is calculated as the gross adjustment of £55
million (2011: £25 million), reduced by a tax credit of £13
million (2011: £7 million). Adjustments primarily relate
to mark-to-market movements on swaps and foreign
exchange, losses on buybacks and imputed pension
interest charges.
E. Other tax adjustments reflect the impact on the deferred
tax charge of the decrease in the statutory tax rate from
24.5% to 23%. In 2011, the adjustment of £7 million was
made to reflect the reversal of the credit arising from the
recognition of the deferred tax asset on certain losses,
which were partially offset by those losses utilised.
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.
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In this section . . .
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, acquisitions and disposals,
other payables due after more than one year, provisions and pensions.
3.1 Working capital
Keeping it simple . . .
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 ensures
that the Group can meet its trading and financing
obligations within its ordinary operating cycle.
Working capital is a driver of the ‘profit to cash’
conversion, a key performance indicator for the Group.
The Group’s target ‘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.
3.1.1 Distribution rights
Accounting policies
‘Distribution rights’ are programme rights the Group buys
from producers to derive future revenues principally through
licensing to broadcasters. These 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
either cumulative sales and programme genre, or based on
forecast future sales. Certain film rights are expensed over
a period of up to ten 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.
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
Charge for the year
At 31 December
Net book value
2012
£m
125
15
140
114
9
123
17
2011
£m
111
14
125
99
15
114
11
3.1.2 Programme rights and other inventory
Accounting policies
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.
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Programme rights and other inventory written down in the
year were £3 million (2011: £5 million). There have been no
reversals relating to inventory previously written down to
net realisable value (2011: £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
More than five years
2012
£m
439
474
47
960
2011
£m
396
599
85
1,080
3.1.4 Trade and other receivables
Accounting policies
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.
Programme costs and rights, including those acquired under
sale and leaseback arrangements, are generally expensed
to operating costs in full on first transmission. Film rights,
sports 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, judgement is required when
considering 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.
The programme rights and other inventory at the year end
are shown in the table below:
Acquired programming
Production
Commissions
Sports rights
Prepayments
Other
2012
£m
102
95
24
28
–
1
250
2011
£m
122
87
36
36
2
2
285
Production inventory comprises the costs incurred by ITV
Studios in producing a programme, where the programme
is part way through the production process and not yet
available for delivery to a broadcaster. Commissions
primarily comprise programmes purchased based on
editorial specification, over which the Group has some
control.
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Accounting policies
Trade payables are recognised at the value of the invoice
received from a supplier.
The carrying value of trade payables is considered to
approximate fair value.
Trade and other payables due within one year can be
analysed as follows:
Trade payables
Social security
Other payables
Accruals and deferred income
2012
£m
34
7
189
384
614
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
2012
£m
30
2011
£m
69
16
183
371
639
2011
£m
45
This primarily relates to film creditors for which payment is
due after more than one year.
3.1.7 Working capital management
Cash and working capital management continues to be a key
focus. During the year the cash inflow from working capital
was £1 million (2011: £18 million) derived as follows:
Decrease in programme rights and
other inventory and distribution rights
Decrease in receivables
Decrease in payables
Working capital inflow
2012
£m
29
17
(45)
1
2011
£m
–
52
(34)
18
The decrease in programme rights and other inventory is
largely driven by a reduction in acquired films and sports
rights.
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
2012
£m
264
43
58
365
14
379
2011
£m
271
22
77
370
26
396
£278 million (2011: £297 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
2012
£m
274
2
2
–
278
2011
£m
277
4
5
11
297
As at 31 December 2012, trade receivables of £7 million
(2011: £11 million) were provided against. Movements in the
Group’s provision for impairment of trade receivables can be
shown as follows:
At 1 January
Charged during the year
Receivables written off during the year
as uncollectable (utilisation of provision)
Unused amounts reversed
At 31 December
2012
£m
11
3
(4)
(3)
7
2011
£m
8
8
(1)
(4)
11
The £7 million provision for doubtful debts is aged as £4
million due in more than 90 days and £3 million due in up to
30 days from the reporting date.
The table below shows the Group’s net receivables relating
to non-consolidated licensees in the ‘Broadcast & Online’
segment, where the Group has both supplier and customer
relationships.
Trade receivables – current
Trade receivables – past due but not
impaired
Other receivables
Trade and other payables
2012
£m
6
1
–
(1)
6
2011
£m
9
12
5
(4)
22
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Determining whether a lease is a finance lease requires
judgement as to whether substantially all of the risks and
benefits of ownership have been transferred to the Group.
Estimates used by management in making this assessment
include the useful economic life of assets, the fair value
of the asset and the discount rate applied to the total
payments required under the lease. 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 fittings1
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
1
Equipment includes studio production and technology assets.
Impairment of assets
Property, plant and equipment that is subject to
depreciation is reviewed for impairment 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.
Agreements with non-consolidated licensees resulted in a
reduction in receivables. Changes to the timing of broadcast
infrastructure payments drove a reduction in prepayments
from the prior year.
The decrease in payables primarily relates to trade payables,
and results from reductions in programme and sports rights
creditors.
3.2 Property, plant and equipment
Keeping it simple . . .
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 equipment used in broadcast transmission,
programme production and 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 over time. 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 the 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. Certain service
contracts involve the use of specific assets (e.g. transmission
or studio equipment) and therefore contain an embedded
lease.
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22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVFinancial Statements Property, plant and equipment
Property, plant and equipment can be analysed as follows:
Freehold land
and buildings
Improvements to leasehold
land and buildings
Vehicles, equipment
and fittings
Cost
At 1 January 2011
Additions
Additions from acquisition
Disposals, retirements and reclassifications
At 31 December 2011
Additions
Reclassification to intangible assets
Reclassification to assets held for sale
Disposals and retirements
At 31 December 2012
Depreciation
At 1 January 2011
Charge for the year
Accumulated depreciation from acquisition
Disposals, retirements and reclassifications
At 31 December 2011
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 2012
Net book value
At 31 December 2012
At 31 December 2011
£m
52
–
–
(1)
51
–
–
(37)
–
14
8
2
–
(1)
9
1
5
(12)
–
3
11
42
Long
£m
Short
£m
Owned
£m
Finance leases
£m
52
5
–
2
59
18
–
(1)
–
76
12
2
–
1
15
2
–
(1)
–
16
60
44
20
–
–
(2)
18
–
–
–
(2)
16
16
1
–
(2)
15
1
–
–
(1)
15
1
3
225
39
5
(64)
205
33
(6)
(8)
(21)
203
168
18
5
(61)
130
20
–
(8)
(21)
121
82
75
15
–
–
(1)
14
2
–
–
–
16
9
3
–
(1)
11
3
–
–
–
14
2
3
Total
£m
364
44
5
(66)
347
53
(6)
(46)
(23)
325
213
26
5
(64)
180
27
5
(21)
(22)
169
156
167
Capital commitments
There are £10 million of capital commitments at
31 December 2012 (2011: £10 million) which primarily relate
to the development at MediaCity, including the new location
for Coronation Street, in Manchester.
Of total additions, £3 million relate to acquisitions made in
the year (2011: nil).
Included within the book values above is expenditure of
£38 million (2011: £27 million) on property, plant and
equipment that are in the course of construction.
Included within disposals and retirements are net
impairments of £nil (2011: £3 million) to net book value,
resulting from a review of tangible assets for obsolescence
in the period. The net impairment comprised £21 million of
cost and £21 million of accumulated depreciation (2011: £67
million and £64 million respectively) .
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3.3 Intangible assets
Keeping it simple . . .
The following section shows the non-physical assets
used by the Group to generate revenues and profits.
These assets include brands, customer contracts and
relationships, contractual arrangements, licences,
software development, film libraries and goodwill.
The cost of these assets is the amount that the
Group has paid or, where there has been a business
combination, the fair value of the specific intangible
assets that could be sold separately or which arise
from legal rights. In the case of goodwill, its cost is the
amount the Group has paid in acquiring a business over
and above the fair value of the individual assets and
liabilities acquired. The value of goodwill is ‘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, reduces over the number of years the Group
expects to use the asset, the useful economic life,
via an annual amortisation charge to the income
statement. 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 applied
and the specific judgements and estimates made by
the Directors in arriving at the net book value of these
assets.
120
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 goodwill has been
calculated using three different methods depending on the
date the relevant business was purchased.
Method 1: All business combinations that have occurred
since 1 January 2009 were accounted for using the
acquisition method. Under this method, goodwill is
measured as the fair value of the consideration transferred
(including the recognition of any non-controlling interests
of the business being bought), less the fair value of the
identifiable assets acquired and liabilities assumed,
all measured at the acquisition date. Any contingent
consideration to be transferred will be recognised at fair
value at the acquisition date. Contingent consideration
classified as an asset or liability that is a financial instrument
is measured at fair value with changes in fair value
recognised in the income statement. The determination
of fair value is based on discounted cash flows. The key
assumptions take into consideration the probability of
meeting each performance target and the discount rate.
Where less than 100% of a subsidiary is acquired, and call
and put options are granted over the remaining interest,
a non-controlling interest is recognised in equity. A call
option is recognised as a derivative financial instrument,
carried at fair value. The put option is recognised as a liability
within Other payables, carried at the present value of the
put option exercise price, and a corresponding charge is
included in Merger and Other Reserves. Any subsequent
remeasurement of the call option and the put option liability
is recognised within finance income or cost.
Subsequent adjustments to the fair value of net assets
acquired can only be made within 12 months of the
acquisition date, and only if fair values were determined
provisionally at an earlier reporting date. 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
incurred in connection with those business combinations,
such as legal fees, due diligence fees and other professional
fees, are expensed as incurred.
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVFinancial Statements Method 2: All business combinations that occurred between
1 January 2004 and 31 December 2008 were accounted
for using the purchase method in accordance with IFRS
3 ‘Business Combinations (2004)’. Goodwill on those
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 incurred in connection
with those business combinations, such as legal fees, due
diligence fees and other professional fees, were 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 accumulated 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 which 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 the Group has valued are brands,
licences, contractual arrangements, and customer contracts
and relationships.
Each class of intangible asset’s valuation method on initial
recognition, amortisation method and estimated useful life
is set out in the table below:
Class of intangible asset
Valuation method
Brands
Customer contracts
and relationships
Contractual
arrangements
Licences
Software licences and
development*
Film libraries
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.
Expected future cash flows from those contracts 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.
*
Internally generated software development costs in relation to itv.com are expensed as incurred.
Amortisation method
Estimated useful life
Straight-line
up to 11 years
Straight-line
Straight-line
up to 6 years for
customer contracts
5 to 10 years for
customer relationships
up to 10 years depending
on the contract terms
Straight-line
11 to 17 years depending
on term of licence
Straight-line
1 to 5 years
Sum of digits
20 years
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Determining the fair value of intangible assets arising
on acquisition requires judgement. The Directors make
estimates regarding the timing and amount of future cash
flows derived from exploiting the assets being acquired.
The Directors then estimate an appropriate discount rate
to apply to the forecast cash flows. 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. Judgements are also
made regarding whether and for how long licences will be
renewed; 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 assets or
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.
Determining whether the carrying amount of intangible
assets has any indication of impairment requires judgement.
Any impairment is recognised in the income statement.
An impairment test is performed by assessing the
recoverable amount of each asset, or for goodwill, the cash-
generating unit (or group of cash-generating units) related
to the goodwill. Assets are grouped at the lowest levels for
which there are separately identifiable cash flows (‘cash-
generating unit’ or ‘CGU’).
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 present value of the future cash flows expected to
arise from the asset.
Growth assumptions derived from the Transformation Plan
are not included in the estimated future cash flows used
as the Group applies cautious assumptions 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.
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Intangible assets can be analysed as follows:
Goodwill
£m
Brands
£m
Customer
contracts
and
relationships
£m
Contractual
arrangements
£m
Software
licences and
development
£m
Film libraries
and other
£m
Licences
£m
Cost
At 1 January 2011
Additions
Disposals
At 31 December 2011
Additions
Reclassification from tangible assets
At 31 December 2012
Amortisation and impairment
At 1 January 2011
Charge for the year
Disposals
At 31 December 2011
Charge for the year
Impairments
At 31 December 2012
Net book value
At 31 December 2012
At 31 December 2011
3,365
14
–
3,379
26
–
3,405
2,654
–
–
2,654
–
–
2,654
751
725
173
–
–
173
2
–
175
110
17
–
127
16
–
143
32
46
328
–
–
328
4
–
332
269
18
–
287
19
–
306
26
41
–
–
–
–
10
–
10
–
–
–
–
–
–
–
10
–
121
–
–
121
–
–
121
56
9
–
65
9
–
74
47
56
54
10
(2)
62
10
6
78
27
12
(2)
37
11
–
48
30
25
79
–
–
79
–
–
79
35
3
–
38
2
3
43
36
41
Total
£m
4,120
24
(2)
4,142
52
6
4,200
3,151
59
(2)
3,208
57
3
3,268
932
934
Goodwill, brands, customer contracts and contractual
arrangements have increased by £26 million, £2 million, £4
million and £10 million respectively in 2012 following the
acquisitions of four production companies, as detailed in
note 3.4 (2011: £14 million increase due to the acquisition of
Channel Television Holdings Limited, nil other intangibles).
Included within the book values above is expenditure of £6
million (2011: £10 million) on software that is in the course of
development.
During the year, computer software with a value of £6 million
was identified as being held within property, plant and
equipment and was subsequently reclassified to intangible
assets.
Goodwill impairment tests
The following CGUs represent the carrying amounts of
goodwill.
Broadcast & Online
SDN
ITV Studios
2012
£m
342
76
333
751
2011
£m
342
76
307
725
There has been no impairment charge for the year (2011: 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.
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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% (2011: 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.
SDN
Goodwill was recognised when the Group acquired SDN (the
licence operator for DTT Multiplex A) in 2005. It represented
the wider strategic benefits of the acquisition specific to the
Group, 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 on the SDN goodwill during the
course of 2012 (2011: nil).
The main assumptions on which the forecast cash flows
are based are income to be earned from medium-term
contracts, the market price of available multiplex video
streams in the period up to and beyond digital switchover
and the pre-tax market discount rate. 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.
A pre-tax market discount rate of 14.4% (2011: 12.7%) has
been used in discounting the projected cash flows.
The Directors believe that currently no reasonably possible
change in the income and availability assumptions would
reduce the headroom in this CGU to zero.
ITV Studios
The goodwill for ITV Studios 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 2012 (2011: nil).
The key assumptions on which the forecast cash flows were
based include revenue (including the ITV Studios share of
ITV output, growth in commissions and hours produced),
margin growth and the pre-tax market discount rate. 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.
The discount rate has been revised for each CGU to reflect
the latest market assumptions for the Risk-Free rate, the
Equity Risk Premium and the net cost of debt. There is
currently no reasonably possible change in discount rate that
would reduce the headroom in any CGU to zero.
Broadcast & Online
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 Broadcast & Online CGU
during the course of 2012 (2011: nil).
The main assumptions on which the forecast cash flow
projections for this CGU are based include: the share of the
television advertising market; share of commercial impacts;
programme and other costs; and the pre-tax market
discount rate.
The key assumption in assessing the recoverable amount
of Broadcast & Online goodwill is the size of the television
advertising market. In forming its assumptions about
the television 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. Industry consensus is flat for 2013 and 3.0% for
2014. The impairment test also assumed that ITV renews
its broadcasting licences before 2014. No impairment was
identified. Also as part of the review, cautious assumptions
of -5% were applied for both years to the industry consensus
for the purposes of the impairment test, again with no
impairment identified.
A pre-tax market discount rate of 12.3% (2011: 11.6%) has
been used in discounting the projected cash flows.
The Directors believe that currently no reasonably possible
change in these assumptions would reduce the headroom in
this CGU to zero.
124
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been used in discounting the projected cash flows.
The Directors believe that currently no reasonably possible
change in the income and availability assumptions would
reduce the headroom in this CGU to zero.
3.4 Acquisitions
Keeping it simple . . .
The following section outlines what the Group has
acquired in the year.
Acquisitions
During 2012 the Group completed four acquisitions of
which Gurney Productions LLC (‘Gurney’) was the most
significant. The following sections provide a summary of
each acquisition.
Gurney Productions
On 31 December 2012, the Group acquired 61.5% of the
membership interest in Gurney, a US productions company
specialising in factual entertainment. A non-controlling
interest was recognised over the remaining equity.
Consideration of £25 million ($40 million) was satisfied in
cash, and a call and put option granted over the remaining
38.5% equity. The Group’s call option is exercisable after
the finalisation of the 2015 accounts, with the vendor’s put
options exercisable following the close of the call period and
in 2018. The call option has been recognised at £nil since the
exercise price would result in the acquisition of the remaining
38.5% interest at fair value. The discounted put option liability
(‘options’) at the acquisition date was £12 million.
The maximum consideration which the Group could pay
for the remaining 38.5% equity interest is £44 million
($71 million; undiscounted). Final payment will be entirely
dependent on future performance of the business.
The addition of Gurney fits with the Group’s strategy of
building a strong international content business. It is the
Group’s view that the acquisition will strengthen and
complement ITV’s existing position as a producer for major
US television networks. The acquisition will form part of
the ITV Studios operating segment. Intangibles, being the
value placed on brands, customer contracts and contractual
arrangements, of £8 million were identified. Goodwill of £20
million represents the value placed on the opportunity to
expand the Group’s programme offering in the United States
and the assembled workforce of creative talent who will
develop that content. Goodwill is expected to be deductible
for tax purposes.
The Group will consolidate all of Gurney’s earnings and
will reassess the fair value of the liability to the sellers at
each reporting date, with changes in fair value reported
within financing costs on the income statement, adjusted
for in determining adjusted profit. The options give rise to
a further £3 million has been treated as post-combination
remuneration and will be accrued over the life of the
option and reported within exceptional items relating to
acquisitions in the income statement.
So Television
On 22 August 2012, the Group acquired 100% of the share
capital of So Television Limited (‘So TV’), an entertainment
and comedy productions company based in the UK. Initial
consideration of £10 million was paid. The Group also agreed to
further performance-based consideration of up to a maximum
of £7 million (undiscounted), which has been treated as
post-combination remuneration and will be accrued over the
earnout period and will be reported within exceptional items
relating to acquisitions in the income statement.
So TV is another acquisition that fits with the Group’s
strategy to create world class content for multiple
platforms, free and pay, both in the UK and internationally.
The acquisition will form part of the ITV Studios operating
segment. Intangibles, being the value placed on key
contractual arrangements, of £8 million were identified.
Goodwill of £3 million represents the value placed on
the opportunity to diversify and grow the content and
formats produced by the Group. The goodwill arising on the
acquisition is not expected to be deductible for tax purposes.
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Mediacircus and Tarinatalo
On 31 July and 8 October 2012, the Group acquired 100% of
the share capital of Norwegian company Mediacircus AS and
Finnish company Tarinatalo OY respectively.
In total, consideration of £3 million was paid in cash, and a
contingent consideration of £1 million will be payable based
on the future performance of the businesses. The maximum
undiscounted consideration, which is based on performance
of the business, is £3 million. An estimate based on projected
performance at the time of acquisition, along with the
initial consideration paid, was included in the acquisition
accounting and calculation of goodwill. Subsequent revisions
to the contingent consideration will be reported within
financing costs on the income statement, and adjusted for in
determining adjusted profit.
Further performance-based consideration of up to a
maximum of £4 million has been accounted for as post-
combination remuneration as it is considered to be linked to
employment conditions. Costs accrued in relation to this will
be included in exceptional items relating to acquisitions in
the income statement.
Both acquisitions will extend ITV Studios’ production
capacity in the Nordics. ITV Studios already has a presence
in Sweden and both companies will form part of the ITV
Studios operating segment. Intangibles, being the value
placed on key contractual arrangements, were identified.
The goodwill of £3 million arising from these acquisitions
represents the operational benefits to the Group from
expanding its operations in the Nordics, a key focus area for
ITV Studios. The goodwill arising on the acquisitions is not
expected to be deductible for tax purposes.
Acquisition costs largely comprise legal and financial
diligence fees. In 2012, £2 million of costs relating to the
acquisition were expensed as exceptional items relating to
acquisitions in the income statement (see note 2.2). Of these
costs, £1 million relates to the acquisition of Gurney.
Effect of acquisition
The acquisitions noted above had the following impact on
the Group assets and liabilities:
£m
Gurney
Other
2012
Total
2011
Total
Recognised values on acquisition
Consideration
transferred:
Initial consideration
(net of cash acquired)
Contingent consideration
Total consideration
Fair value of net assets
acquired (Note A):
Property, plant and
equipment
Intangible assets
Trade and other
receivables
Borrowings
Trade and other payables
Current tax liabilities
Fair value of net assets
Non-controlling interest
measured at fair value
Goodwill
Other information:
Present value of the
liability on options
Present value of the
expected remuneration
payment
Contributions to the
Group’s performance:
Revenue - acquisition to
date
Profit after tax -
acquisition to date
Revenue - January to
December
Profit after tax - January to
December
25
–
25
3
8
7
–
(1)
–
17
12
20
12
3
–
–
28
4
13
1
14
–
8
3
–
(3)
–
8
–
6
–
6
6
–
19
2
38
1
39
3
16
10
–
(4)
–
25
12
26
12
9
6
–
47
6
–
–
–
–
–
2
(14)
(1)
(1)
(14)
–
14
–
–
–
–
3
(2)
Note A: Provisional details of fair value of net assets acquired are set out in the table above.
The analysis is provisional and amendments may be made to these figures in the
12 months following the date of the acquisition.
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initial cash paid to the sellers and an estimate for any future
payments the Group may be liable to pay, based on future
performance of the business. This latter amount is classified
as contingent consideration.
The total expected remuneration payment reflects the present
value of the future amount the Group estimates it will have to
pay the sellers based on employment conditions set out in the
purchase agreement (separate to any employment contract).
This payment does not form part of the calculation of goodwill.
Acquisitions in 2011
On 22 November 2011, the Group acquired 100% of the
ordinary shares in Channel Television Holdings Limited,
holder of the Channel 3 licence in the Channel Islands,
as part of the simplification of the Group’s network
arrangements. Consideration of £1 satisfied in cash was paid
along with repayment of £14 million of loans to the vendor.
Goodwill arising on acquisition represents the operational
benefits to the Group from simplifying its network
arrangements.
On initial classification as held for sale, non-current assets
or components of a disposal group are remeasured 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 remeasurement 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.
3.5 Assets held for sale and disposals
Disposals
There were no significant disposals during 2012.
Keeping it simple . . .
The following section outlines what the Group is either
holding for sale 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.
On 25 March 2011 the Group disposed of its long leasehold
interest in property at Bedford for a total consideration of £2
million resulting in an immaterial gain on sale. This property
was included within assets held for sale in 2010 and 2011 up
to the point of sale.
Assets held for sale
The movement in assets held for sale since 1 January 2012 is
summarised in the table below:
At 1 January 2012
Disposal of properties held for sale
Property reclassified to held for sale
At 31 December 2012
2012
£m
–
–
25
25
During the year the Group began actively marketing certain
freehold properties in Manchester. The reclassification to held
for sale follows the Group’s decision to relocate to a new site
at Media City. Disposal of the properties is expected within
the next 12 months. The properties, and their related fittings,
were transferred from property, plant and equipment at fair
value of £25 million, resulting in an impairment of £5 million.
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3.6 Provisions
Keeping it simple . . .
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 required. The main estimates relate to the
cost of holding properties that are no longer in use by
the Group, the likelihood of settling legal claims 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. The
value of the provision is determined based on assumptions
and estimates in relation to the amount and timing of actual
cash flows which are dependent on future events.
Provisions
The movements in provisions during the year are as follows:
Contract
provisions
£m
Restruc-
turing
provisions
£m
Property
provisions
£m
Other
provisions
£m
At 1 January 2012
Addition
Utilised
At 31 December 2012
10
5
(5)
10
2
5
(3)
4
6
4
(2)
8
15
–
–
15
Total
£m
33
14
(10)
37
Provisions of £25 million are classified as current liabilities
(2011: £24 million). Unwind of the discount is nil in 2012 and
2011.
Contract provisions comprise onerous sports rights
commitments that are expected to be utilised over the
remaining contract period. Other contract provisions relate
to onerous commitments on transmission infrastructure.
Property provisions principally relate to onerous lease
contracts due to empty space created by the ongoing
review and rationalisation of the Group’s property portfolio.
Utilisation of the provision will be over the anticipated life of
the leases or earlier if exited.
Other provisions of £15 million primarily relate to potential
liabilities that may arise as a result of Boxclever having been
placed into administration, most of which relate to pension
arrangements. On 21 December 2011, the Determinations
Panel of The Pensions Regulator determined that Financial
Support Directions (‘FSD’) should be issued against certain
companies within the Group in relation to the Boxclever
pension scheme. The Group immediately lodged an appeal
against this decision with the Upper Tribunal. An FSD would
require the Company to put in place financial support for the
Boxclever scheme; however, it cannot be issued during the
period of the appeal. In Spring 2012, the Boxclever Trustees
joined the case as an interested party and submitted their
statement of case. The Group submitted a reply in October
2012. The appeal process is ongoing. While there is a wide
range of potential outcomes, the Directors obtained leading
counsel’s opinion and extensive legal advice and continue to
believe that the provision held is adequate.
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deducted. The discount rate used is the yield at the valuation
date on high quality corporate bonds, that exactly match the
timing of the expected benefit payments over future years.
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 schemes are measured
by discounting the best estimate of future cash flows to
be paid using the projected unit method. This method is an
accrued benefits valuation method that makes 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.
An unfunded scheme in relation to previous Directors is
accounted for under IAS 19. This is securitised by assets held
outside of the ITV Pension scheme in the form of gilts and
included within cash and cash equivalents.
3.7 Pensions
Keeping it simple . . .
The Group has previously offered its employees the
opportunity to participate in a number of defined benefit
schemes; these are now closed to new members. The ITV
Pension Scheme (the Scheme) consists of three sections,
A, B and C. Section A of the Scheme is considerably larger
than the other sections. The Group is required to disclose
the net of its defined benefit pension assets and liabilities
in the Statement of Financial Position. In the event of a
net liability the Directors are obliged to determine how
this deficit will be addressed.
The Group continues to offer employees defined
contribution pension schemes and where taken up
makes payments into this scheme on their behalf.
In this section we explain the accounting policies
governing the Group’s pension schemes, followed by
analysis of the deficit on the defined benefit pension
scheme and how this has been calculated. In addition,
we have placed text boxes to explain some of the
technical terms used in the disclosure.
Accounting policies
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 are 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
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The Group’s pension schemes
Keeping it simple . . .
Under 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 Group. It is the member’s responsibility to make investment decisions relating to their retirement
benefits.
In a defined benefit scheme, members receive cash payments at and in retirement, the value of which is dependent on
factors such as salary and length of service. The Group underwrites investment, mortality and inflation risks necessary to
meet these obligations. In the event of poor returns the Group needs to address this through a combination of increased
levels of contribution or by making adjustments to the schemes. 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 required to be
put aside to cover future 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. It is the responsibility of the Trustee to manage and invest the assets of the schemes. The Trustee is required to
act in the best interest of the members. The appointment of trustees is determined by the scheme’s documentation.
In the unfunded scheme the Group is responsible for meeting pension obligations as they fall due.
The following section outlines the key elements of the Group’s defined contribution and defined benefit schemes
during the year and as at 31 December 2012.
Defined contribution schemes
Total contributions recognised as an expense in relation to
defined contribution schemes during 2012 were £9 million (2011:
£8 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 latest triennial valuations
of sections A, B and C were undertaken as at 1 January
2011 by an independent actuary appointed by the Trustee of
the ITV Pension Scheme and agreed in 2012. The next triennial
valuation of sections A, B and C will be no later than as at
1 January 2014. The Group will monitor funding levels annually.
The defined benefit pension deficit
The defined benefit pension deficit at 31 December 2012
was £551 million (2011: £390 million).
The assets and liabilities of the schemes are recognised in
the Consolidated Statement of Financial Position and shown
within non-current liabilities. The totals 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
2012
£m
2011
£m
2010
£m
2009
£m
2008
£m
(3,244)
(3,036)
(2,746)
(2,687)
(2,339)
2,693
2,646
2,433
2,251
2,161
(551)
(390)
(313)
(436)
(178)
Addressing the deficit
The statutory funding objective is that a funded 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 Trustee 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 Trustee) and the expected future cash flows
of the schemes. Normal employer contributions in 2013
for current service are expected to be in the region of £9
million (2012: £10 million) assuming current contribution
rates continue as agreed with the Trustee. Based on the
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payments are expected for forthcoming years.
In 2013 the Group expects to make deficit funding
contributions of £79 million (£72 million was paid in 2012)
comprised as follows:
• £11 million of annual deficit contributions as a result of
the SDN pension partnership. Under the partnership
arrangements, the Group has committed to making a
payment to the main section of the Scheme of up to
£200 million in 2022, if and to the extent that it remains
in deficit at that time.
• deficit funding contribution to Section A of £40 million;
• total annual deficit funding contributions to Sections B
The Group estimates the average duration of its UK scheme’s
liabilities to be 15 years (2011: 15 years).
and C of £5.5 million;
• £22 million, being 10% of the Group’s EBITA before
exceptional items that exceeds the £300 million threshold;
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
Keeping it simple . . .
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’ service in
the current period. 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 remeasurement 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 schemes. 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
schemes whereas any benefits paid out by the schemes will lower the obligations of those schemes.
The movement in the present value of the Group’s defined
benefit obligation is analysed below:
2012
£m
2011
£m
The present value of the defined benefit obligation is
analysed between wholly unfunded and funded defined
benefit schemes in the table below:
2012
£m
2011
£m
Defined benefit obligation at
1 January
Current service cost
Interest cost
Net actuarial loss
Benefits paid
Defined benefit obligation at
31 December
3,036
7
140
200
(139)
2,746
7
145
268
(130)
Defined benefit obligation in respect of
funded schemes
Defined benefit obligation in respect of
wholly unfunded schemes
Total defined benefit obligation
3,203
2,997
41
3,244
39
3,036
3,244
3,036
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Retiring today at age
Males
Females
Retiring in 20 years at age
Males
Females
2012
60
26.8
30.1
60
28.8
32.2
2012
65
21.9
25.1
65
23.7
27.0
2011
60
26.7
30.0
60
28.7
32.1
2011
65
21.8
25.0
65
23.6
26.9
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:
Assumption
Change in assumption
Impact on scheme deficit
Discount rate
Rate of inflation
Life expectations
Increase by 0.5%
Decrease by 0.5%
Increase by 0.5%
Decrease by 0.5%
Increase by 1 year
Decrease by £250 million
Increase by £290 million
Increase by £170 million
Decrease by £100 million
Increase by £30 million
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 schemes’ liabilities and the schemes’ 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 schemes’
liabilities, but may also trigger an offsetting increase in the
market value of certain assets so there is no net effect on
the Group’s liability.
Keeping it simple . . .
Assumptions used to calculate the best estimate
of future cash flows to be paid out by the schemes
include: future salary levels, future pensionable salary
levels, the estimate of increases in pension payments,
the life expectancy 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
takes independent actuarial advice relating to the
appropriateness of the assumptions.
The principal assumptions used in the schemes’ 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)
2012
4.2%
2.9%
0.9%
2.8%
2.2%
2011
4.7%
3.0%
0.9%
2.9%
2.3%
IAS 19 requires that the discount rate used is determined by
reference to high quality fixed income investments in the UK
that match the estimated term of the pension obligations.
The basis of estimating the discount rate is by using the yields
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 inflation
caps have been implemented.
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:
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Keeping it simple . . .
The Pension scheme holds assets across a number of different classes, these being equities, bonds and other
investments. These assets are managed by the Trustee, although the Trustee is required to consult with the Group
on changes to their investment policy. Financial instruments are in place which provide protection against changes in
market factors (interest rates and inflation) which could act to increase the pension deficit.
In 2011 the scheme obtained protection against the effect of increases in the life expectation of the majority of
pensioner members by transacting a longevity swap. Under the swap, the trustees of the scheme agreed to make pre-
determined payments in return for payments to meet the specified pension obligations as they fall due, irrespective of
how long the members and their dependants live.
The difference in the present values of these two streams of payments is reflected in scheme assets and emerges as
an actuarial loss on the assets.
The life expectancy assumptions which the Group makes for its IAS 19 calculations are its best estimate of the
potential outcome. The pre-determined swap payments from the Trustee of the scheme are based on a cautious
estimate of life expectancy as they are being guaranteed. This means that the asset adjustment in respect of the
longevity swap increases when the discount rate decreases or when the inflation assumption increases and vice-versa.
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 schemes to be managed
and invested.
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The Trustee also holds 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 lower compared to the risk of default on corporate bond
investments, although some risk may remain. The expected
yield on bond investments with fixed interest rates can be
derived exactly from their market value.
The expected return for each asset class is weighted based
on the target asset allocation for 2013 to develop the
expected long-term rate of return on assets assumption
for the portfolio. The benchmark for 2013 is to hold broadly
47% equities and 53% bonds. The majority of the equities
held by the schemes are in international blue chip entities.
The aim is to hold a globally diversified portfolio of equities,
with a target of broadly 22% of equities being held in the UK
and 78% of equities held overseas. Within the bond portfolio
the aim is to hold 58% of the portfolio in government bonds
(gilts) and 42% of the portfolio in corporate bonds and other
fixed interest securities.
The expected rates of return on the scheme’s assets by
major category and target allocations are set out below:
Expected
long-term rate
of return
2013
% p.a.
Planned asset
allocation
2013
% of assets
Expected
long-term rate
of return
2012
% p.a.
Planned asset
allocation
2012
% of assets
Equity and
property
Bonds
6.9
2.8-3.9
47
53
7.0
2.8–4.5
47
53
The actual return on the scheme’s assets for the year ended
31 December 2012 was an increase of £104 million (2011:
£284 million).
The Trustee is responsible for deciding the investment
strategy for the scheme’s assets, although changes in
investment policies require consultation with the Group.
Varying returns from the different types of assets held by
the scheme have resulted in Trustee investment decisions
that have moved the asset allocation in the scheme’s
portfolio away from the target ratio of bonds and equities. A
rebalancing of the portfolio only occurs if equity type assets
exceed the target allocation by 3%, but is not necessary if
equity asset types fall below the target allocation.
The movement in the fair value of the defined benefit
scheme’s assets is analysed below:
Fair value of scheme assets at
1 January
Expected return on assets
Net actuarial (loss)/gain
Employer contributions
Benefits and expenses paid
Fair value of scheme assets at
31 December
2012
£m
2,646
131
(27)
82
(139)
2011
£m
2,433
140
144
59
(130)
2,693
2,646
At 31 December 2012 the scheme’s assets were invested in
a diversified portfolio that consisted primarily of equity and
debt securities. The fair value of the scheme’s assets are
shown below by major category:
Market value of assets –
equity-type assets
Market value of assets – bonds
Market value of assets – other
Longevity swap fair value
Total scheme assets
Market value
2012
£m
Market value
2011
£m
768
1,867
176
(118)
2,693
745
1,782
195
(76)
2,646
The Trustee entered a longevity swap in 2011 to remove
the risk of increases in pension liabilities that would arise
if a significant portion of the scheme’s defined benefit
pensioner population were to enjoy a longer life than
currently expected. The recognition of the swap results in a
reduction to the scheme’s assets due to its classification as a
negative plan asset.
Exposure through the different asset classes is obtained
through a combination of executing swaps and investing in
assets.
The Trustee has 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 Trustee manage by hedging
broadly 60% of the overseas investments against currency
movements.
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arose primarily from the update of membership data as part
of the 2011 triennial valuation process, for example, actual
mortality experienced in the period since the last valuation
compared to estimates.
Changes to the IAS19 accounting standard
Amendments to IAS 19 ‘Employee benefits’ changes a
number of disclosure requirements for post employment
arrangements and restricts the options currently available
on how to account for defined benefit pension plans. The
most significant change that will impact the Group is that
the amendment requires the expected returns on pension
plan assets, currently calculated based on management’s
estimate of expected returns, to be replaced by a credit
on pension plan assets calculated at the liability discount
rate. The revised version of IAS 19 applies from 1 January
2013, and has retrospective application. The Group will be
adopting the revised standard from this date. Had these
amendments been adopted for the year ended 31 December
2012, they would have resulted in an additional charge of £14
million in the consolidated income statement. The change
is not expected to impact the Group’s net assets. For further
details, see amendments to standards in Section 1.
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
Amount (charged)/credited to net
financing costs:
Expected return on pension
scheme assets
Interest cost
Total charged in the consolidated
income statement
2012
£m
(7)
131
(140)
(9)
(16)
2011
£m
(7)
140
(145)
(5)
(12)
Amounts recognised through the consolidated statement of
comprehensive income
The amounts recognised through the consolidated
statement of comprehensive income are:
Actuarial gains and (losses):
Arising on scheme assets
Arising on scheme liabilities
2012
£m
(27)
(200)
(227)
2011
£m
144
(268)
(124)
The £200 million actuarial loss on the scheme’s liabilities
was principally due to the fall in the discount rate partially
offset by the reduction in the rate of market implied
inflation.
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 £603 million (2011: £376 million loss). Included within
actuarial gains and losses are experience adjustments as
follows:
2012
£m
2011
£m
2010
£m
2009
£m
2008
£m
Experience adjustments
on scheme assets
Experience adjustments
on scheme liabilities
(27)
144
147
48
(438)
(1)
95
(3)
–
–
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Section 4: Capital Structure and Financing Costs
In this section . . .
This section outlines how the Group manages its capital and related financing costs.
The Directors 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 Directors consider the Group’s 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 Board’s focus during the year
was on improving the efficiency of the balance sheet through a bond tender, and improving the Group’s credit rating.
In 2013 the Board will further review its policies on capital structure to support the Transformation Plan, any potential
courses of action will take into account the Group’s liquidity needs, flexibility to invest in the business, pension deficit
initiatives and impact on credit ratings. The Board is mindful that equity capital cannot be easily flexed and in particular
raising new equity would normally be likely only 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.
4.1 Net cash/(debt)
Keeping it simple . . .
Net cash/(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 amortised cost adjustment which reflects the increase in coupon rates for specific bonds caused by the
downgrade of ITV’s credit status to sub-investment grade in August 2008.
Analysis of net cash
The table below analyses movements in the components of net cash during the year:
Cash
Cash equivalents
Total cash and cash equivalents
Held to maturity investments
Loans and loan notes due within one year
Finance leases due within one year
Loans and loan notes due after one year
Finance leases due after one year
Total debt
Currency component of swaps held against euro denominated bonds
Convertible bond equity component
Amortised cost adjustment
Net cash/(debt)
136
1 January
2012
£m
Net cash flow
and
acquisitions
£m
Currency and
non-cash
movements
£m
31 December
2012
£m
705
96
801
147
–
(9)
(868)
(44)
(921)
31
(27)
14
45
(103)
(8)
(111)
–
–
8
275
–
283
–
–
–
172
–
–
–
(2)
–
(6)
(1)
6
(1)
(6)
5
(7)
(11)
602
88
690
145
–
(7)
(594)
(38)
(639)
25
(22)
7
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Cash equivalents
Total cash and cash equivalents
Held to maturity investments
Loans and loan notes due within one year
Finance leases due within one year
Loans and loan notes due after one year
Finance leases due after one year
Total debt
Currency component of swaps held against euro denominated bonds
Convertible bond equity component
Amortised cost adjustment
Net cash/(debt)
1 January
2011
£m
Net cash flow
and
acquisitions
£m
Currency and
non-cash
movements
£m
31 December
2011
£m
761
99
860
148
(47)
(8)
(1,170)
(53)
(1,278)
98
(31)
15
(188)
(52)
(6)
(58)
–
47
8
308
–
363
(63)
–
–
242
(4)
3
(1)
(1)
–
(9)
(6)
9
(6)
(4)
4
(1)
(9)
705
96
801
147
–
(9)
(868)
(44)
(921)
31
(27)
14
45
Cash and cash equivalents
Included within cash equivalents is £43 million (2011: £48
million), the use of which is restricted to meeting finance
lease commitments under programme sale and leaseback
commitments, and gilts of £37 million (2011: £37 million)
over which the unfunded pension commitments have a
charge.
Held to maturity investments
In February 2009 a net £50 million was raised through a
£200 million covenant free loan with a maturity of March
2019, secured against the purchase of 4.5% March 2019
gilts with a nominal value of £138 million (for a cost of £150
million). The £200 million loan carries an interest cost of
13.55%. As at December 2012 this gilt has a carrying value of
£145 million (2011: £147 million).
Loans and loan notes due within one year
There were no repayments of loans and loan notes due
within one year (2011: the €54 million (£47 million) Eurobond
was repaid).
Loans and loan notes due after one year
In June 2012 €138 million of the June 2014 bonds, £75
million of the October 2015 bonds and £89 million of the
January 2017 bonds were repurchased (2011: all of the £110
million March 2013 bonds and £229 million of the 2015
bonds were repurchased).
Currency components of swaps held against euro
denominated bonds
As at 31 December 2012 the currency element of the cross
currency interest rate swaps is a £25 million asset (2011: £31
million asset) and this offsets the exchange rate movement
of the 2014 euro denominated bonds.
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 (from
November 2013), the components are treated as separate
instruments. The accounting policy for this compound
instrument is detailed in note 4.2 (i.e. partly debt and partly
equity).
The debt portion is £110 million (2011: £105 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 £22 million
(2011: £27 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 2014
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, resulting in a
balance of £7 million (2011: £14 million) at year end. As this
adjustment has no impact on the cash interest paid, the
interest charged to unwind the adjustment is excluded from
adjusted net financing costs as described in the Financial
and Performance Review.
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The liability component of a compound financial instrument
is recognised initially at the fair value of a similar liability
that does not have an equity conversion option. The equity
component is recognised initially at the difference between
the fair value of the compound financial instrument as a
whole and the fair value of the liability component. Any
directly attributable transaction costs are allocated to the
liability and equity components in proportion to their initial
carrying amounts.
Subsequent to initial recognition, the liability component
of a compound financial instrument is measured at
amortised cost using the effective interest method. The
equity component of a compound financial instrument
is not remeasured subsequent to initial recognition but
is transferred to retained earnings 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 1 year or less, or on
demand
Non-current
In more than 1 year but
not more than 2 years
In more than 2 years but
not more than 5 years
In more than 5 years
Total
Loans and
loan notes
£m
Finance leases
£m
–
39
355
200
594
594
7
23
15
–
38
45
2012
£m
7
62
370
200
632
639
4.2 Borrowings and held to maturity
investments
Keeping it simple . . .
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 financial instruments are complex in that they
have variable rates of interest that are driven by the
performance of an index, with fixed upper and lower
limits on the cost to the Group. Some instruments
require the Group to hold an investment of a lesser
value with a fixed interest rate 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 less
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. Borrowings are referred to in this section using their
redemption value when describing the terms and conditions.
The mechanism used to determine variable interest rates
on a loan is analysed when the loan is initially taken out to
determine if it is closely related to the loan. If the variable
rate mechanism is closely related to the loan it is not
valued separately but cash flow estimates are included in
the effective interest rate on the loan. This assessment
is not revisited unless the terms of the loan are changed
significantly.
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
the 2016 convertible note that can be converted to share
capital at the option of the holder at maturity or earlier,
at the option of the issuer subject to satisfying certain
conditions.
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In 1 year or less, or on
demand
Non-current
In more than 1 year but
not more than 2 years
In more than 2 years but
not more than 5 years
In more than 5 years
Total
Loans and
loan notes
£m
Finance leases
£m
–
–
407
461
868
868
9
8
34
2
44
53
2011
£m
9
8
441
463
912
921
Loans and loan notes repayable between one and two years
Loans repayable between one and two years as at 31
December 2012 include an unsecured €50 million Eurobond
(£15 million net of cross currency swaps) which has a coupon
of 10.0% maturing in June 2014.
Loans and loan notes repayable between two and five years
Loans repayable between two and five years as at
31 December 2012 include an unsecured £78 million
Eurobond which has a coupon of 5.375% maturing in
October 2015, an unsecured £135 million convertible
Eurobond which has a coupon of 4.0% maturing in
November 2016, and an unsecured £161 million Eurobond
which has a coupon of 7.375% maturing in January 2017.
Loans and loan notes repayable after five years
Loans repayable after five years include 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 in section 4.1. Interest on the loan is
13.55%. Interest on the loan is offset by 3.5% of income in
respect of the £138 million gilts. The lender has the option to
issue a further £150 million loan that would carry an interest
rate of 7.34%.
Fair value 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
Maturity
Mar 2019
Book value
Fair value
2012
£m
145
2011
£m
147
2012
£m
166
2011
£m
166
The fair value of held to maturity investments is based on quoted market bid prices at the year end.
Liabilities
€50 million Eurobond (previously €188 million Eurobond)
£78 million Eurobond (previously £154 million Eurobond)
£135 million Convertible bond
£161 million Eurobond (previously £250 million Eurobond)
£200 million loan
Maturity
June 2014
Oct 2015
Nov 2016
Jan 2017
Mar 2019
Book value
Fair value
2012
£m
39
78
110
167
200
594
2011
£m
149
153
105
261
200
868
2012
£m
48
84
223
178
309
842
2011
£m
171
150
167
253
290
1,030
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.
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. The increase is primarily due to the
increase in the Company’s share price.
Movements in book values of the 2014, 2015 and 2017
bonds are the result of buybacks in the period.
The fair value of the £200 million loan increased during the
year as a result of lower interest rates and lower credit costs.
The fair value of the £135 million convertible bond is based
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Finance leases
The following table analyses when finance lease liabilities are due for payment:
In 1 year or less
In more than 1 year but not more than 5 years
In more than 5 years
Minimum
lease
payments
£m
9
39
–
48
Interest
£m
2
1
–
3
2012
Principal
£m
Minimum lease
payments
£m
7
38
–
45
12
47
2
61
Interest
£m
3
5
–
8
2011
Principal
£m
9
42
2
53
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 2012 was £2 million (2011: £3 million).
4.3 Derivative financial instruments
Keeping it simple . . .
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
remeasured 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 and does
not engage in hedge accounting as defined under IFRS.
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.
Derivative financial instruments are initially recognised at
fair value and are subsequently remeasured at fair value with
the movement recorded in the income statement within
net financing costs. Derivatives with positive fair values 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.
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 movements in the year relating to
changes in fair value and interest are not separated.
Derivative financial instruments
The following table shows the fair value of derivative
financial instruments analysed by type of contract. Interest
rate swap fair values exclude accrued interest.
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£m
2012
Liabilities
£m
The swap assets matched against the 2017 Eurobond are as
follows:
Current
Interest rate swaps – fair value through
profit or loss
Non-current
Interest rate swaps – fair value through
profit or loss
Current
Interest rate swaps – fair value through
profit or loss
Non-current
Interest rate swaps – fair value through
profit or loss
–
99
99
(1)
(48)
(49)
Assets
£m
2011
Liabilities
£m
–
(1)
110
110
(44)
(45)
Interest rate swap assets
The swap assets in relation to the €50 million 2014
Eurobond (see section 4.2) are as follows:
• Cross currency and interest swaps with a fair value of
£29 million. The swaps receive a coupon of 10% and
€50 million at maturity (to match the bond coupon and
principal repayment due to bond holders) and pay 13.2%
on a notional amount of £15.2 million and pays £15.2
million at maturity.
The remaining £70 million of Interest rate swap assets relate
to a number of floating rate swaps matched against the
2015 and 2017 Eurobonds. The following swap assets are
matched against the 2015 Eurobond:
• £162.5 million swap with a fair value of £18 million (“Swap
Asset A”). This swap receives 5.375% (to match the bond
coupon) and pays six-month sterling LIBOR plus 0.3%.
• A portfolio of swaps totalling £162.5 million fair valued at
£15 million (“Swap Asset B”). These swaps receive 5.375%
(to match the bond coupon) and pay a weighted average
of three-month sterling LIBOR plus 1.45%.
• A further £120.5 million swap with a fair value at £4
million (“Swap Asset C”). This swap 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%.
• £125 million swap with a fair value of £24 million (“Swap
Asset D”). This swap 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%.
• A further £125 million swap with a fair value at £9 million
(“Swap Asset E”). This swap 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%.
Interest rate swap liabilities
Interest rate swap liabilities of £49 million as at 31 December
2012 relate to various fixed and floating rate swaps matched
against the 2015 and 2017 Eurobonds. The following swap
liabilities are matched against the 2015 Eurobond and
mature in October 2015:
• A further £162.5 million swap fair valued at £nil. The swap
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.
This swap matches against Swap Asset A.
• A portfolio of swaps totalling £162.5 million fair valued at
£5 million. The swaps pay 5.375% and receive a weighted
average of six-month sterling LIBOR plus 3.49% set in
arrears. This swap matches against Swap Asset A.
• £162.5 million swap fair valued at £17 million. The swap
receives three-month sterling LIBOR and pays 4.35%. The
bank has the right to cancel the swap. This swap matches
against Swap Asset B.
• £120.5 million swap fair valued at £3 million, under which
it receives six-month LIBOR plus 3.605% and pays 5.375%
set in arrears. This swap matches against Swap Asset C.
The following swap liabilities are matched against the 2017
Eurobond and mature in January 2017:
• £125 million swap valued at £18 million, under which it
receives three-month sterling LIBOR and pays 4.31%. The
bank has the right to cancel the swap. This swap matches
against Swap Asset D.
• £125 million swap valued at £6 million, under which it
receives six-month sterling LIBOR plus 5.257% set in
arrears and pays 7.375%. This swap matches against Swap
Asset E.
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Section 4: Capital Structure and Financing Costs continued
4.4 Net financing costs
Net financing costs
Net financing costs can be analysed as follows:
Keeping it simple . . .
This section details the interest income generated on
the Group’s financial assets and the interest expense
incurred on borrowings and other financial assets
and liabilities. In reporting ‘adjusted profit’, the Group
adjusts net financing costs to exclude mark-to-market
movements on swaps and foreign exchange, gains/
losses on bond buybacks, imputed pension interest
and other financing costs. Mark-to-market movements
reflect the value of these instruments at a point in
time; it is variable and assumes cash is received at that
date. The rationale for adjustments made to financing
costs is provided in the Financial and Performance
Review.
The presentation of net financing costs in this note
reflects the income and expenses according to the
classification of financial instruments, whereas the
focus in the Financial and Performance Review is to
present adjusted financing costs.
Financing income:
Interest income
Expected return on defined benefit
pension scheme assets
Change in fair value of instruments
classified at fair value through profit
or loss
Foreign exchange gain
Financing costs:
Change in fair value of instruments
classified at fair value through profit
or loss
Interest expense on financial
liabilities measured at amortised cost
Interest on defined benefit pension
scheme obligations
Losses on early settlement
Other interest expense
Net financing costs
2012
£m
16
131
–
4
151
(5)
(60)
(140)
(36)
(9)
(250)
(99)
2011
£m
22
140
30
4
196
–
(82)
(145)
(39)
(5)
(271)
(75)
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 and liabilities
to non-controlling interest, 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.
Losses relating to changes in fair value of instruments of £5
million (2011: gains of £30 million) relate principally to the
unwinding of the interest rate swaps assets as they near
maturity.
As detailed in the Financial and Performance Review, losses
on early settlement of £36 million (2011: £39 million) were
incurred as a result of the bond tender in June. Bonds
were repurchased at prices in excess of par value primarily
reflecting lower credit spreads and lower interest rates.
The loss is primarily due to the repayment on the 2014 €50
million Eurobond, where a repurchase of €138 million in
nominal debt resulted in a loss of £25 million.
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4.5 Financial risk factors
Keeping it simple . . .
The Group’s activities expose it to a variety of financial
risks: market risks (including currency risk, interest rate
risk and price risk), credit risk and liquidity risk. The
Group’s overall risk management programme focuses
on the unpredictability of financial markets and seeks
to minimise potential adverse effects on the Group’s
financial performance. The Group uses derivative
financial instruments within its policies described
below 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
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 seeks to match contractual
and forecast foreign currency costs and revenues. For
any material unmatched portion, the Group hedges using
forward foreign exchange contracts for up to two years. The
Group also utilises foreign exchange swaps to match foreign
currency cash flow timing differences.
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 €50 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 2012, 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 £6
million (2011: £3 million) higher/lower. Equity would have been
£13 million (2011: £8 million) higher/lower.
At 31 December 2012, 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 £6 million (2011:
£4 million) higher/lower. Equity would have been £2 million
(2011: £2 million) higher/lower.
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 was changed in 2011 to having
100% of its borrowings at fixed rates in order to lock in low
interest rates. This policy has been maintained throughout 2012.
The Group utilises fixed and floating rate interest swaps and
options in order to achieve the desired policy mix. As illustrated
in note 4.3, these contracts match against underlying bonds or
other interest-bearing instruments and swaps.
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 2012, if interest rates had increased/
decreased by 0.1%, post-tax profit for the year would have
been unchanged (2011: unchanged).
Price risk
Price risk is the risk that the Group’s financial instruments
change in value due to movements in market prices. This
excludes movements in interest rate or foreign exchange. The
Group is not exposed to any material price risk.
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.
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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.
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 12 months require the approval of the Audit
Committee.
Borrowings
ITV’s credit ratings with Standard & Poor’s and Moody’s
Investor Service are BB+/Ba1 respectively have improved
significantly since 2009 but they are still ‘sub-investment
grade’ with both agencies. ITV’s credit ratings, the cost
of credit default swap hedging and the absolute level of
interest rates are key determinants in the cost of new
borrowings for ITV. The cost of existing borrowing remains
subject to the terms of the instrument.
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, supplemented with bank facilities (see below).
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 2012 the Group has available £375 million
(2011: £125 million) of undrawn committed facilities. The
Group has a £125 million facility which is provided by one bank
and which is secured on advertising receivables. This facility
has no financial covenants and matures in September 2015.
The Group also has a £250 million Revolving Credit Facility
which is provided by a handful of relationship banks and which
matures in July 2015. This facility, which is unsecured, can be
extended by up to a further two years subject to agreement
by the banks. The facility has leverage and interest cover
financial covenants normal for such a facility.
Keeping it simple . . .
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:
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Non-derivative financial liabilities
Borrowings
Held to maturity investments
Trade and other payables
Other payables – non-current
Derivative financial instruments
Interest rate swaps
At 31 December 2011
Non-derivative financial liabilities
Borrowings
Held to maturity investments
Trade and other payables
Other payables – non-current
Derivative financial instruments
Interest rate swaps
Total
contractual
cash flows
£m
(909)
178
(623)
(22)
62
(1,314)
Total
contractual
cash flows
£m
(1,371)
220
(684)
(3)
89
(1,749)
Less than
1 year
£m
Between
1 and 2 years
£m
Between
2 and 5 years
£m
Over
5 years
£m
(57)
6
(593)
–
7
(637)
(112)
6
(20)
–
37
(89)
(507)
19
(9)
(8)
18
(487)
(233)
147
(1)
(14)
–
(101)
Less than
1 year
£m
Between
1 and 2 years
£m
Between
2 and 5 years
£m
Over
5 years
£m
(79)
11
(639)
–
12
(695)
(85)
11
(28)
(2)
11
(93)
(668)
33
(16)
(1)
59
(593)
(539)
165
(1)
–
7
(368)
Held to maturity investments are included within the table above as 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.
4.6 Fair value hierarchy
Keeping it simple . . .
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’.
Fair value
31 December
2012
£m
Level 1
31 December
2012
£m
Level 2
31 December
2012
£m
Level 3
31 December
2012
£m
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
3
37
99
139
3
37
–
40
–
–
99
99
–
–
–
–
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Section 4: Capital Structure and Financing Costs continued
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
Liabilities measured at fair value
Financial liabilities at fair value through profit or loss
Interest rate swaps
Fair value
31 December
2012
£m
Level 1
31 December
2012
£m
Level 2
31 December
2012
£m
Level 3
31 December
2012
£m
(49)
(49)
–
–
(49)
(49)
–
–
Fair value
31 December
2011
£m
Level 1
31 December
2011
£m
Level 2
31 December
2011
£m
Level 3
31 December
2011
£m
2
37
110
149
2
37
–
39
–
–
110
110
–
–
–
–
Fair value
31 December
2011
£m
Level 1
31 December
2011
£m
Level 2
31 December
2011
£m
Level 3
31 December
2011
£m
(45)
(45)
–
–
(45)
(45)
–
–
Level 1
Fair values measured using quoted prices (unadjusted) in
active markets for identical assets or liabilities.
4.7 Equity
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.
Keeping it simple . . .
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 2012 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
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.
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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 2012 of £391
million (2011: £389 million) and share premium of £122
million (2011: £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 2012 include the
following reserves which have not moved from the prior
year:
• merger reserves arising on the Granada/Carlton merger
and previous mergers of £119 million;
• capital reserves of £112 million;
• capital redemption reserves of £36 million;
•
revaluation reserves of £6 million.
The balances on the following reserves moved in the year:
• £22 million (2011: £27 million) in respect of the equity
element of the 2016 convertible bond;
• £12 million debit (2011: £nil) in respect of the liability on
the options for the acquisition of Gurney.
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 earnings
The retained earnings reserve comprises profit for the year
attributable to owners of the Company of £267 million (2011:
£247 million) and other items recognised directly through
equity as presented on the consolidated statement of
changes in equity.
The Directors of ITV plc propose a final dividend of 1.8p per
share and a special dividend of 4.0p per share.
4.7.6 Non-controlling interests
In 2012 £1 million (2011: £1 million) of profit was attributable
to non-controlling interests.
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
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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 either by using shares purchased in the market and
held in the ITV Employees’ Benefit Trust or by issuing new shares.
Share-based compensation charges totalled £9 million in 2012 (2011: £11 million).
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
2012
Weighted
average
exercise price
(pence)
12.74
–
66.79
3.80
14.52
106.17
11.06
2.30
Number
of options
(’000)
81,479
19,184
6,218
(16,948)
(18,052)
(3,494)
68,387
6,407
2011
Weighted
average
exercise price
(pence)
22.32
–
73.58
60.25
27.02
75.86
12.74
19.13
Number
of options
(’000)
77,302
16,333
2,370
(3,069)
(3,951)
(7,506)
81,479
21,115
For those options exercised in the year, the average share price during 2012 was 84.03 pence (2011: 69.35 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
Weighted
average
exercise price
(pence)
–
35.00
65.76
73.69
–
–
–
Number
of options
(’000)
54,618
5,324
6,598
1,847
–
–
–
2012
Weighted
average
remaining
contractual
life
(years)
Weighted
average
exercise price
(pence)
1.97
1.68
2.87
2.27
–
–
–
–
31.50
58.46
74.67
106.25
–
143.27
2011
Weighted
average
remaining
contractual
life
(years)
1.90
1.86
1.05
3.00
0.53
–
0.03
Number
of options
(’000)
61,347
13,265
1,487
2,582
1,620
–
1,178
Share schemes
Further details of the ITV share plans and awards can be found in the Remuneration Report.
Awards made under the Granada Executive Share Option scheme have reached the end of their performance periods, and
have vested or lapsed accordingly. Details of the performance criteria that applied to these awards are set out in the notes
to previous financial statements, and in previous remuneration reports and have not been repeated in these financial
statements on the grounds of relevance. Although awards remain vested but unexercised under these schemes, they are not
considered material for the purposes of disclosure in this note.
The awards made under the ITV Performance Share Plan grants prior to 2011 include awards that 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. The ITV
SAYE scheme is an Inland Revenue Approved SAYE scheme.
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Scheme name
Date of grant
Save As You Earn
ITV – three year
ITV – five year
ITV – three year
ITV – five year
ITV – three year
ITV – five year
Performance Share Plan
ITV – three year
ITV – three year
ITV – three year
ITV – three year
07 Apr 11
07 Apr 11
04 Apr 12
04 Apr 12
13 Sept 12
13 Sept 12
08 Mar 11
11 Oct 11
01 Mar 12
10 Sept 12
Share price
at grant
(pence)
Exercise price
(pence)
Expected
volatility
%
Expected life
(years)
Gross dividend
yield
%
Risk-free rate
%
Fair value
(pence)
75.85
75.85
85.25
85.25
86.70
86.70
90.05
62.65
88.00
88.70
73.58
73.58
68.81
68.81
66.60
66.60
–
–
–
–
57.00%
47.00%
43.00%
50.00%
38.00%
50.00%
*
*
*
*
3.25
5.25
3.25
5.25
3.25
5.25
3.00
3.00
3.00
3.00
–
–
2.82%
2.82%
2.82%
2.82%
*
*
*
*
2.02%
2.81%
0.65%
1.18%
0.38%
0.81%
*
*
*
*
20.88
22.95
17.97
22.36
17.46
23.32
90.05
62.65
88.00
88.70
* Awards do not include market based performance conditions; therefore, Monte Carlo or Black–Scholes model not required to calculate fair value.
The expected volatility for awards made under the SAYE scheme 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 2012 and the purchases/(releases)
from the EBT made in the year to satisfy awards under the Group’s share schemes.
Scheme:
ITV Deferred Share Award Plan
ITV Performance Share Plan
ITV Turnaround Plan
Restricted Share Awards
Executive Share Option Scheme
ITV SAYE Scheme
Subscription for new issue shares
Shares purchased
Shares held at:
1 January 2012
31 December 2012
Number of shares
(released)/
purchased
7,354,694
(509,402)
(6,607,050)
(2,665,582)
(139,190)
(220,354)
(185,343)
15,098,585
2,723,057
14,849,415
Nominal value
£
735,469
1,484,942
The total number of shares held by the EBT at 31 December 2012 represents 0.38% (2011: 0.19%) of ITV’s issued share capital.
The market value of own shares held at 31 December 2012 is £16 million (2011: £5 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.
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5.1 Related party transactions
Keeping it simple . . .
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.
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
2012
£m
11
9
24
52
2011
£m
10
1
26
44
The transactions with joint ventures primarily relate to sales
and purchases 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 arm’s 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 associated
undertakings
2012
£m
2011
£m
1
6
2
2
–
7
1
1
Amounts paid to the Group’s retirement benefit plans are
set out in section 3.7.
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
Share-based compensation
2012
£m
8
6
14
2011
£m
6
6
12
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The Company indirectly held at 31 December 2012 the following holdings in significant joint ventures, associated
undertakings and investments:
Name
Freesat (UK) Limited
Digital 3&4 Limited
YouView TV Limited
Noho Film and Television Limited
Independent Television News Limited
Mammoth Screen Limited
ISAN UK Limited
STV Group plc1
1
Incorporated and registered in Scotland.
Interest in
ordinary
share capital
2012
%
Interest in
ordinary
share capital
2011
%
Note
a
a
a
a
b
b
b
c
50.00
50.00
50.00
14.30
50.00
40.00
25.00
25.00
6.79
50.00
14.30
–
40.00
25.00
25.00
6.79
Joint venture.
a
b Associated undertaking.
c Available for sale financial asset.
Principal activity
Provision of a standard and high definition
enabled digital satellite proposition
Operates the Channel 3 and 4 digital terrestrial
multiplex
Internet connected television platform
Television drama and film production company
Supply of news services to broadcasters
in the UK and elsewhere
Production of television programmes
Operates voluntary numbering system for the
identification of audiovisual works
Television broadcasting in central and north Scotland
5.2 Contingent liabilities
5.3 Subsequent events
Keeping it simple . . .
Keeping it simple . . .
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 are contingent liabilities in respect of certain litigation
and guarantees, broadcasting issues, and in respect of
warranties given in connection with certain disposals of
businesses. None of these items are expected to have a
material effect on the Group’s results or financial position.
Where the Group receives information in the period
between 31 December 2012 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 2012. 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.
On 25 January 2013, the Group acquired the freehold and
leasehold at the London Television Centre, the site which is
currently the headquarters for the Group. Total consideration
of £56 million was settled in cash. It is the Group’s intention
to capitalise the acquisition as part of non-current assets on
the Group’s balance sheet in 2013.
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Company Balance Sheet
As at 31 December
Fixed assets:
Investments in subsidiary undertakings
Held to maturity investments
Derivative financial instruments
Current assets:
Amounts owed by subsidiary undertakings
Other debtors
Cash at bank and in hand and short-term deposits
Creditors – amounts falling due within one year:
Amounts owed to subsidiary undertakings
Accruals and deferred income
Derivative financial instruments
Net current assets/(liabilities)
Total assets less current liabilities
Creditors – amounts falling due after more than one year:
Borrowings
Derivative financial instruments
Net assets
Capital and reserves:
Called up share capital
Share premium
Other reserves
Profit and loss account
Shareholders’ funds – equity
2011
£m
1,610
4
620
2,234
(2,143)
(13)
–
(2,156)
2012
£m
Note
iii
3,424
4
515
3,943
(4,285)
(8)
(1)
(4,294)
v
vi
vii
vii
vii
2012
£m
1,646
145
99
1,890
(351)
1,539
(594)
(48)
(642)
897
391
122
58
326
897
2011
£m
1,646
147
110
1,903
78
1,981
(868)
(44)
(912)
1,069
389
120
63
497
1,069
The accounts were approved by the Board of Directors on 27 February 2013 and were signed on its behalf by:
Ian Griffiths
Director
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22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVFinancial Statements 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.
The Company has taken advantage of the FRS 1 exemption
from the requirement to prepare and disclose a cash flow
statement.
Subsidiaries
Subsidiaries are entities that are directly or indirectly
controlled by the Company. Control exists where the
Company has the power to govern the financial and
operating policies of the entity so as to obtain benefits from
its activities. The investment in the Company’s subsidiaries
is recorded at cost, adjusted for the effect of UITF 41
when it was adopted in prior years. 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 positive fair
values are recorded as assets and negative fair values as
liabilities.
The fair value of foreign currency forward contracts is
determined by using the difference between the contract
exchange rate and the quoted forward exchange rate at
the balance sheet date. The fair value of interest rate swaps
is the estimated amount that the Company would receive
or pay to terminate the swap at the balance sheet date,
taking into account current interest rates and the current
creditworthiness of swap counterparties.
Third party valuations are used to fair value the Company’s
derivatives. The valuation techniques use inputs such
as interest rate yield curves and currency prices/yields,
volatilities of underlying instruments and correlations
between inputs.
Where a derivative financial instrument is designated as a
hedge of the variability in cash flows of a recognised asset
or liability, or a highly probable forecast transaction, the
effective part of any gain or loss on the derivative financial
instrument is recognised directly in equity. Any ineffective
portion of the hedge is recognised immediately in the profit
and loss account.
For financial assets and liabilities classified at fair value
through profit or loss the fair value change and interest
income/expense are not separated.
Dividends
Dividends are recognised through equity on the earlier
of their approval by the Company’s shareholders or their
payment.
ii Employees
Two (2011: two) Directors of ITV plc were employees of the
Company during the year, both of whom remain at the year
end. The costs relating to these Directors are disclosed in the
Remuneration Report.
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iii Investments in subsidiary undertakings
The principal subsidiary undertakings are listed in note xi.
There was no movement on the balance of £1,646 million
in 2012.
iv Amounts owed (to)/from subsidiary
undertakings
The Company operates an inter-group banking policy with
certain 100% owned UK subsidiaries. The policy involves
the daily closing cash position for participating subsidiaries
whether positive or negative, being cleared to £nil via daily
bank transfers to ITV plc. These daily transactions create a
corresponding intercompany creditor or debtor which can
result in significant movements in amounts owed to and
from subsidiary undertakings in the Company balance sheet.
v Borrowings
Loans repayable after more than one year
Loans repayable after more than one year as at 31 December
2012 include:
• an unsecured €50 million Eurobond (£15 million net
of cross currency swaps) which has a coupon of 10.0%
maturing in June 2014;
• an unsecured £78 million Eurobond which has a coupon of
5.375% maturing in October 2015;
• an unsecured £135 million convertible Eurobond which
has a coupon of 4.0% maturing in November 2016;
• an unsecured £161 million Eurobond which has a coupon
The Company’s ordinary shares give shareholders equal
rights to vote, receive dividends and to the repayment of
capital. The Company issued 22.9 million new ordinary
shares during the period, for total consideration of £4
million.
vii Reconciliation of movements in
shareholders’ funds
Share
capital
£m
Share
premium
£m
Other
reserves
£m
At 1 January 2011
Movement for year
At 31 December 2011
Retained profit for year
for equity shareholders
Share-based
compensation
External dividend paid
Equity portion of the
convertible bond
Issue of shares
At 31 December 2012
389
–
389
–
–
–
–
2
391
120
–
120
–
–
–
–
2
122
67
(4)
63
–
–
–
(5)
–
58
Profit
and loss
account
£m
32
465
497
Total
£m
608
461
1,069
(107)
(107)
9
(78)
9
(78)
5
–
326
–
4
897
The loss after tax for the year dealt with in the accounts of
ITV plc is £107 million (2011: profit of £466 million).
The profit and loss account reserves of £326 million at
31 December 2012 are all distributable.
of 7.375% maturing in January 2017; and
The Company received no dividends in 2012.
The Directors of the Company propose a final dividend of
1.8p per share and a special dividend of 4.0p per share.
viii Contingent liabilities
Under a group registration, the Company is jointly and
severally liable for VAT at 31 December 2012 of £33
million (31 December 2011: £35 million). The Company has
guaranteed certain finance and operating lease obligations
of subsidiary undertakings.
• a £200 million covenant free loan raised in February 2009
with a maturity of March 2019. Interest on the loan is at a
variable rate, likely to be 13.55%, depending in part on the
performance of an interest rate algorithm.
vi Called up share capital
Authorised
2011
£m
2012
£m
2012
£m
Allotted,
issued
and fully
paid
2011
£m
800
800
800
800
391
391
389
389
Ordinary shares of 10 pence
each
Authorised:
8,000,000,000
(2011: 8,000,000,000)
Allotted, issued and fully paid:
3,912,026,854
(2011: 3,889,129,751)
Total
154
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012ar2012.itvplc.comStock code: ITVFinancial Statements There are contingent liabilities in respect of certain litigation
and guarantees, broadcasting issues, and in respect of
warranties given in connection with certain disposals of
businesses. None of these items are expected to have a
material effect on the Group’s results or financial position.
x Related party transactions
Transactions with key management personnel
Key management consists of ITV plc Executive Directors.
Key management personnel compensation is as follows:
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.
ix Capital and other commitments
There are no capital commitments at 31 December 2012
(2011: none).
Short-term employee benefits
Share-based compensation
2012
£m
3
4
7
2011
£m
2
2
4
xi Principal subsidiary undertakings and
investments
Principal subsidiary undertakings
The principal subsidiary undertakings of the Company at
31 December 2012, all of which are wholly owned (directly or
indirectly) and incorporated and registered in England and
Wales except where stated, are:
Name
ITV Broadcasting Limited
ITV Network Limited
ITV2 Limited
ITV Digital Channels Limited
ITV Breakfast Limited
ITV Consumer Limited
SDN Limited
ITV Studios Limited
ITV Studios, Inc.1
ITV Studios Germany GmbH2 (formerly Granada
Produktion für Film und Fernsehen GmbH)
ITV Studios Australia Pty Limited (formerly Granada
Media Australia Pty Limited)3
12 Yard Productions (Investments) Limited
Imago TV Film und Fernsehproduktion GmbH2, 4
3sixtymedia Limited4
ITV Global Entertainment Limited
ITV Ventures Limited (formerly Granada Ventures Limited)
ITV Global Entertainment, Inc1
ITV Services Limited
Carlton Communications Limited
Granada Limited
ITV Scottish Limited Partnership5
ITV Breakfast Broadcasting Limited
Gurney Productions LLC 1,6
Principal activity
Broadcast of television programmes
Scheduling and commissioning television programmes
Operation of digital television channels
Operation of digital television channels
Production and broadcast of breakfast time television under
national Channel 3 licence
Development of platforms, broadband, transactional and mobile services
Operation of Freeview Multiplex A
Production of television programmes
Production of television programmes
Production of television programmes
Production of television programmes
Production of television programmes
Production of television programmes
Supplier of facilities for television productions
Rights ownership and distribution of television programmes and films
Production and distribution of video and DVD products
Distribution of television programmes
Provision of services for other companies within the Group
Holding company
Holding company
Holding company
Broadcast of television programmes
Production of television programmes
1
2
3
4
5
6
Incorporated and registered in the USA.
Incorporated and registered in Germany.
Incorporated and registered in Australia.
80% owned
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.
61.5% owned
155
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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 2012 the following interests in significant joint ventures, associated
undertakings and investments:
Name
Freesat (UK) Limited
Digital 3&4 Limited
YouView TV Limited
Noho Film and Television Limited
Independent Television News Limited
Mammoth Screen Limited
ISAN UK Limited
STV Group plc1
1
Incorporated and registered in Scotland.
Interest in
ordinary
share capital
2012
%
Interest in
ordinary
share capital
2011
%
Note
a
a
a
a
b
b
b
c
50.00
50.00
50.00
14.30
50.00
40.00
25.00
25.00
6.79
50.00
14.30
–
40.00
25.00
25.00
6.79
Joint venture.
a
b Associated undertaking.
c Available for sale financial asset.
Principal activity
Provision of a standard and high definition
enabled digital satellite proposition
Operates the Channel 3 and 4 digital terrestrial
multiplex
Internet connected television platform
Television drama and film production company
Supply of news services to broadcasters
in the UK and elsewhere
Production of television programmes
Operates voluntary numbering system for the
identification of audiovisual works
Television broadcasting in Scotland
156
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Shareholder profile
Type of holder:
Insurance companies
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 2012.
Holders
Number
8
2,239
60,253
352
9,804
8,552
16,563
10,455
8,056
5,443
1,786
1,307
172
301
118
197
34
48
16
%
Shares held
Millions
0.01
3.56
95.87
0.56
100.00
15.60
13.61
26.35
16.63
12.82
0
3,744
128
40
354,179
1,282,312
5,342,690
7,662,671
11,556,272
16,790,265
8.66
12,759,878
2.84
26,257,282
2.08
12,163,481
0.27
74,706,235
0.48
85,152,790
0.19
447,954,072
0.31
227,725,241
0.05
0.08
964,033,478
0.03 2,018,286,008
100.00
%
0
95.71
3.27
1.02
100.00
0.01
0.03
0.14
0.20
0.30
0.43
0.33
0.67
0.31
1.91
2.18
11.44
5.82
24.64
51.59
100.00
157
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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
the Company website at www.itvplc.com.
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
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.
They can be contacted by telephone on 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 a.m. to 5.30 p.m.
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; and
• 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.
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:
Telephone: 0871 664 0364 from the UK (calls cost 10 pence
per minute plus network charges) or 1 890 946 375 for
Ireland lo-call and +44(0) 203 367 2686 from outside the UK.
Lines are open Monday to Friday 8.00 a.m. to 4.30 p.m.
www.capitadeal.com
158
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Investor and shareholder related information can be found
on the Company website at:
More detailed information can be found on the FSA website:
www.fsa.gov.uk/fsaregister/use
www.itvplc.com
www.fsa.gov.uk/pages/register/use/protect_yourself
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 calendar
Annual General Meeting
Interim Management Statement
Half year results announcement
15 May 2013
May 2013
July 2013
Unauthorised brokers (Boiler Room Scams)
Shareholders are advised to be 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 their
Consumer Helpline 0845 606 1234 or by completing an
online form at:
www.fsa.gov.uk/pages/doing/regulated/law/alerts/form.shtml
•
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.
Details of any sharedealing facilities that the Company
endorses will only be included in Company mailings.
Keep in mind that it is very unlikely that an authorised firm
that you have no relationship with would contact you out
of the blue offering to buy or sell shares or offer other
investment opportunities.
159
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Results
Revenue
Earnings before interest, tax and amortisation (EBITA) before
exceptional items
Amortisation of intangible assets
Impairment of intangible assets
Share of 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 (charge)/credit
Profit/(loss) after tax
Non-controlling interests
Profit/(loss) for the financial year
Basic earnings/(loss) per share
Adjusted earnings per share
Dividend per share
Special 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 cash/(debt)
Deferred tax liability
Other liabilities
Provisions
160
2012
£m
2011
£m
2010
£m
2009
£m
2008
£m
2,196
2,140
2,064
1,879
2,029
520
(57)
(3)
(1)
–
(12)
447
(99)
348
(80)
268
(1)
267
6.9p
9.2p
2.6p
4.0p
391
426
817
15
832
1,088
9
17
250
478
93
1,935
206
–
(1,272)
(37)
832
462
(59)
–
(2)
–
1
402
(75)
327
(79)
248
(1)
247
6.4p
7.9p
1.6p
–
389
417
806
3
809
1,101
5
11
285
475
65
1,942
45
–
(1,145)
(33)
809
408
(63)
–
(3)
–
19
361
(75)
286
(16)
270
(1)
269
6.9p
6.4p
–
–
389
272
661
2
663
1,120
5
12
284
511
73
2,005
(188)
–
(1,105)
(49)
663
202
(59)
–
(7)
–
(20)
116
(91)
25
69
94
(3)
91
2.3p
1.8p
–
–
389
(44)
345
1
346
1,191
6
16
388
565
50
2,216
(612)
–
(1,182)
(76)
346
211
(66)
(2,695)
(15)
1
(108)
(2,672)
(60)
(2,732)
178
(2,554)
(2)
(2,556)
(65.9)p
1.8p
0.675p
–
389
137
526
8
534
1,360
71
13
516
528
–
2,488
(730)
(55)
(1,085)
(84)
534
22018-04 11/12/2012 Proof TwoITV plcAnnual Report and Accounts 2012Financial Statements Glossary
Analogue switch off – termination in 2012 of the analogue
terrestrial television signal in the regions in which it is still broadcast.
BBC1, BBC2, ITV, Channel 4 and Channel 5 were broadcast in
analogue
Non-NAR revenues – non-NAR revenues includes all ITV revenues,
both internal and external, except net advertising revenues (NAR).
This includes inter-segment revenues from the sale of ITV Studios
shows to the ITV Network
Broadcasters’ Audience Research Board (BARB) – organisation
owned by broadcasters and advertisers providing data on television
viewing statistics in UK households
Non-spot advertising revenues – advertising revenues received
for services other than traditional television commercials. Includes
sponsorship and product placement revenues
Catch up viewing – non-live viewing of recently broadcast television
programmes, either via a recording device (often called a PVR or
DTR) such as Sky+ or through a Video on Demand service such as ITV
Player, BBC iPlayer, 4oD or Demand 5
Channel 3 licences – the 15 regional licences and one national
licence awarded to transmit Channel 3 across the UK. All are owned
by ITV with the exception of three of the regional licences, two of
which are owned by STV and one by UTV
Contract Rights Renewal (CRR) – the remedy agreed by Carlton
and Granada in 2003 as a pre-condition of the merger, which
governs the way in which ITV airtime is sold by ITV to its advertising
customers
Free-to-Air (FTA) television – viewing of television through devices
not requiring monthly subscriptions such as the Freeview or Freesat
services
High Definition (HD) – channels or services broadcast in
substantially higher resolution than standard, providing improved
picture quality
Impact or Commercial Impact – one Commercial Impact is defined
as one viewer watching one 30-second television commercial
ITV Family – the ITV Family of channels which includes ITV, ITV2,
ITV3, ITV4, CITV, ITV Breakfast, CITV Breakfast and all associated +1
and HD equivalents. Viewing figures include the whole of the ITV
network. Revenue figures include only ITV plc operated regions
Long form video views – video views are a measure of the total
number of videos viewed across all platforms (such as itv.com, Virgin
and mobile devices). A long form video is a programme that has
been broadcast on television and is available to watch online and on
demand in its entirety
Media sales – commission earned by ITV plc on sales of airtime on
behalf of the non-consolidated licensees
Net Advertising Revenues (NAR) – the amount of money received
by a broadcaster as payment for television spot advertising net of
any commission paid to agencies
Network Programme Budget (NPB) – the budget spent on
programming broadcast on the ITV channel, excluding spend on
regional programming and ITV Breakfast
Non-consolidated licensees – the three regional channel 3 licences
which ITV does not own. These licences are owned by STV and UTV
and revenues received from these licences for ITV programming
content are referred to as minority revenues
Ofcom – the regulator established to govern UK broadcasting as
well as other areas of the media and telephony industry
Premium Rate Services (PRS) – revenue generated from votes and
competitions run on broadcast content
Product placement – the inclusion of, or reference to, a product or
service within a programme in return for payment or other valuable
consideration to the programme maker or broadcaster
SDN – multiplex operator owned by ITV which operates one of
the six digital terrestrial multiplex licences in the UK that make up
Freeview
Share of Broadcast (SOB) – ITV’s share of UK television advertising
revenues (NAR), a measure of market share
Share of Commercial Impacts (SOCI) – the term used to define the
share of total UK television commercial impacts which is delivered by
one channel or group of channels. This measure excludes viewing of
BBC channels as they do not generate commercial impacts. Unless
stated otherwise, SOCI figures cited throughout this report are based
on BARB data and are based on the universe of Adults (16+)
Share of Viewing (SOV) – the share of the total viewing audience
during a defined period gained by a programme or channel. This
measure includes viewing of BBC channels. Unless stated otherwise,
SOV figures cited throughout this report are based on BARB data
and are based on the universe of Individuals
Sub-demographics – subsets of individuals used for measuring
particular audience types. For example, men, women, 16 to 34 year
olds and housewives
Total Value exploitation – approach to commissioning and brand
exploitation adopted by ITV which intends to maximise the lifetime
revenues from our strongest brands
Video on Demand (VOD) – the ability to deliver video content to a
customer’s television set, computer or device when the customer
requests it
YouView – a joint venture (with the BBC, Channel 4, Channel 5,
British Telecom, TalkTalk, and Arqiva) to operate and promote a
hybrid TV platform combining Freeview channels with catch up and
on demand services.
This Annual Report is printed by an FSC® (Forest Stewardship
Council), certified printer using vegetable based inks.
This report has been printed on Novatech matt, a white coated
paper and board using 100% EFC pulp.
22018-04 11/12/2012 Proof Two I
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ITV plc
The London Television Centre
Upper Ground
London
SE1 9LT
www.itv.com
Investors:
www.itvplc.com
22018-04 11/12/2012 Proof Two