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ITV delivers another year of strong growth
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Stock code: ITV
23043-04 10-12-2013 Proof 1
Online Annual Report
The Online Annual Report is available at
ar2013.itvplc.com.
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
●● Governance documents
●● Corporate Responsibility content
Strategic Report
The Strategic 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 key performance indicators to explain the progress we have made, a description of the principal risks and uncertainties facing the Company, and an indication of potential
future developments.
The Strategic Report is prepared in line with the relevant provisions of the Companies Act 2006 and the Company has had regard to the guidance issued by the Financial Reporting
Council in its Exposure Draft: Guidance on the Strategic Report. It is intended to provide shareholders with a better 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 potential future developments, and in other content, this report and accounts contains statements that
are based on knowledge and information available at the date of preparation of the Strategic Report, and what are believed to be reasonable judgements, and therefore cannot be
considered as indications of likelihood or certainty. 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.
23043-04 10-12-2013 Proof 1 i
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What’s inside
Strategic Report
Overview
Investor Proposition
2013 Highlights
ITV at a Glance
Business Model
Market Review
Chairman’s Statement
Strategy and Operations
Chief Executive’s Review
Performance Dashboard
Strategic Priority 1
Strategic Priority 2
Strategic Priority 3
Strategic Priority 4
Performance and Financials
Key Performance Indicators
Financial and Performance Review
Risks and Uncertainties
Governance
Board of Directors
Management Board
Directors’ Report and Responsibilities
Chairman’s Governance Statement
Corporate Governance
Audit Committee Report
Remuneration Report
Financial Statements
Independent Auditor’s Report
Introduction and Table of Contents
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Accounts
Section 1: Basis of Preparation
Section 2: Results for the Year
Section 3: Operating Assets and Liabilities
Section 4: Capital Structure and Financing Costs
Section 5: Other Notes
ITV plc Company Financial Statements
Notes to the ITV plc Company
Financial Statements
Financial Record
Shareholder Information
Glossary
Welcome
to our
Annual
Report 2013
Look out for these icons
within the report
Read more content within this report
Indicates Corporate Responsibility content
Read more content online
Cover picture:
Behind the scenes on
Ant and Dec’s Saturday
Night Takeaway
23043-04 10-12-2013 Proof 1Strategy and OperationsPerformance and FinancialsGovernanceFinancial Statementsar2013.itvplc.comStock code: ITV 02
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Overview
Investor Proposition
● We are four years into our strategic plan and ITV is now a demonstrably stronger and
more efficient business –operationally, financially and creatively
● Over the last four years we’ve grown our revenues and delivered double digit profit
growth every year, our adjusted earnings per share has increased sixfold and our cash
conversion has been consistently strong
● Creativity lies at the heart of our strategy and our investment in quality content is
driving revenue and profit growth across the business
● While we have made great progress and ITV is now a much more balanced business,
there is still a great deal to do
● We remain committed to our strategy to build an international content business and
as an integrated producer broadcaster we are building a unique position to exploit the
increasing global demand for proven content across a range of platforms
●
ITV Studios has grown strongly, both organically and through acquisitions, and going
forward growth will come increasingly from our international business as we become
a more global business
● Our Broadcast business is robust, with the best year-on-year on-screen performance
for ten years, and Online, Pay & Interactive continues to deliver double digit revenue
growth as we make our content available on more platforms
02-03 Investor Proposition and 2013 Highlights.indd 2
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ar2013.itvplc.com
Stock code: ITV
2013 Highlights
Group external revenues
£2,389m
(2012: £2,196m)
Non-NAR revenues*
£1,211m
(2012: £1,036m)
EBITA before exceptionals
£620m
(2012: £513m)
9%
YoY
2 7 % I n c
r e a s e o n 2 0 0 9
6
9
1
2
,
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4
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2
,
4
6
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,
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,
£m
2,500
2,250
2,000
1,750
1,500
17%
YoY
4 2 % I n c
r e a s e o n 2 0 0 9
6
3
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,
2
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£m
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1,000
1
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21%
YoY
2 0 7 % I n c
r e a s e o n 2 0 0 9
0
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4
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700
600
500
400
300
200
100
0
09
10 11
12
13
09
10 11
12
13
09
10 11
12
13
Adjusted profit before tax
£581m
(2012: £457m)
Profit before tax is £435m
(2012: £334m)
27%
YoY
4 3 8 % I n c
r e a s e o n 2 0 0 9
1
8
5
7
5
4
8
9
3
1
2
3
8
0
1
Adjusted EPS
11.2p
(2012: 9.1p)
EPS is 8.3p (2012: 6.6p)
Net cash/(debt)
£164m
(2012: £206m)
†Including distributions to shareholders, cash has
increased by around £1.1 billion between 2009 and 2013
£m
600
500
400
300
200
100
0
23%
YoY
5 2 2 % I n c
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150
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-150
-300
-450
-600
-750
09
10 11
12
13
09
10 11
12
13
09
10 11
12
13
Facts and Figures – 2013 vs 2012
4%
16%
16%
20%
Increase in ITV Family
share of viewing – best
year-on-year performance
in ten years
Increase in Online, Pay
& Interactive revenue
Growth in long form
video requests
Increase in ITV
Studios’ revenues
* Non-NAR revenues include all ITV revenues, both internal and external, except net advertising revenues.
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02-03 Investor Proposition and 2013 Highlights.indd 3
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Overview
ITV at a Glance
ITV is an integrated producer broadcaster, operating
the largest commercial family of channels in the UK. In
addition to traditional broadcasting on our channels,
we deliver our content on demand through numerous
platforms, both directly and via ITV Player. Through ITV
Studios we produce content for both our own channels
and third parties in the UK and increasingly overseas.
Our distribution business sells finished programmes and
formats worldwide.
Broadcast & Online
ITV broadcasts a wide variety of content on its family of
free to air (FTA) channels consisting of ITV, the largest
commercial television channel in the UK, and the digital
channels, ITV2, ITV3, ITV4 and CITV. In 2014 we will launch
ITVBe, our new FTA lifestyle and reality channel. The
family of channels attracted a total share of viewing of
23.1% in 2013, the largest audience of any UK commercial
broadcaster. Programming is primarily funded by
television advertising revenues. ITV has the largest share
of our estimate of the UK television advertising market at
45.4% in 2013.
In addition to linear broadcast, ITV delivers its content
across multiple platforms. This is either through ITV
Player, available on ITV’s website, itv.com, and platforms
such as Virgin and Sky, or through direct content deals
with services such as Lovefilm and Netflix. ITV’s content
is now available on 19 platforms and in 2014 we will
launch our new pay channel, ITV Encore, on Sky.
ITV Strategy
ITV Total Revenues
ITV EBITA
£857m
£1,896m
£133m
£487m
Broadcast & Online
ITV Studios
ITV Studios
ITV Studios is the Group’s international content
business. It is the largest production company in the
UK and produces programming for ITV’s own channels
and for other broadcasters such as the BBC, Channel 4
and Sky. ITV Studios also operates in five international
locations, the US, Australia, Germany, France and the
Nordics, producing content for local broadcasters in
these regions. This content is either locally created IP
or created elsewhere by ITV, mainly the UK. We have
made a number of acquisitions in the UK, US and the
Nordics as we look to build our international business.
Global Entertainment, ITV’s distribution business,
licenses ITV’s finished programmes and formats and
third party content internationally.
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. We have a clear and consistent strategy which is based on four
key strategic priorities as follows:
Create a lean, creatively
Maximise audience and revenue
1
organisation
Read more on Strategic Priority One on page 19
3
Drive new revenue streams by
exploiting our content across
multiple platforms, free and pay
Read more on Strategic Priority Three on page 27
2
Maximise audience and revenue
share from our existing free-to-
air broadcast business
4
Build a strong international
content business
Read more on Strategic Priority Two on page 23
Read more on Strategic Priority Four on page 31
04-05 ITV at a glance.indd 4
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Stock code: ITV
Business Model
How ITV generates value
As an integrated producer broadcaster, we have a unique opportunity to deliver value from our investment in quality
content. Our investment in our programme budget for our broadcast channels delivers unrivalled audiences that drive
our advertising revenues. Our channels also provide a shop window for our own content to make it famous before
selling it internationally.
By creating and owning content we can grow new revenue streams by exploiting that content across multiple
platforms, both free and pay. Investment in our creative pipeline and in selective acquisitions is building our
international content business as we sell our programmes and formats internationally as the demand for proven
content continues to grow.
programmes for its family of UK
channels – more than any other UK commercial broadcaster
Invest in
high quality content
• ITV invests roughly £1 billion p.a. commissioning
• ITV acquires this content from ITV Studios and third
• ITV Studios invests globally in a
party independent producers
creative pipeline of ideas and
makes selective acquisitions in
production companies with
attractive IP
Deliver
unrivalled
audiences
• Investment in a varied
and high quality programme
Create
and own
world-class
• ITV Studios is the largest
content
commercial producer in the
UK, producing over 3,500 hours of
content each year for ITV channels and
other UK broadcasters
• ITV Studios America, the largest
part of our international business, produces over
750 hours of content and is one of the top
five independent producers in America
• Our international production businesses
produce their own original formats
and versions of UK formats for local
broadcasters in these regions
Exploit global content
opportunities
• ITV’s international distribution
• It licenses ITV Studios finished
business is Global Entertainment
programmes, ITV formats and third
party content internationally to
broadcasters and platform
owners• ITV is the third largest European
• Growing this business with
distributor of television content
content ITV owns, creates or
funds is a key part of the
strategy
2 4
Integrated
producer
broadcaster
4
4
3
Drive new revenues
on different
platforms
available to view on ITV Player
advertising and sponsorship around this content
• ITV makes its broadcast content
• ITV generates revenues through selling online
• ITV licenses its channels and content
• ITV sells pay VOD direct to the consumer and
to pay operators and online VOD services. In 2014 we will
also launch our first pay only channel, ITV Encore, on Sky
monetises consumer interaction with its
biggest shows through competitions
and voting
schedule delivers unrivalled
commercial audiences in the UK
demanded by advertisers
over 5 million are on ITV
audiences it delivers which are so highly
• ITV is differentiated by the mass
• 99.9% of all commercial television audiences
• ITV delivers more targeted audiences on
• ITV2 and 3 are the largest digital
• In 2014 ITV will launch its new free-to-
ITV2, 3 and 4 and on ITV Player
channels in the UK
air lifestyle and reality channel ITVBe
2
Provide Britain’s biggest
marketing platform
• ITV provides advertisers with
unrivalled reach, unique
sponsorship opportunities and
2
3
commercial partnerships that
extend beyond the television set
• ITV’s sales team were awarded ‘Sales Team
of the Year’ in 2013 at the Media Week
Awards
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Overview
Market Review
The media environment in which ITV operates, both as
broadcaster and producer, continues to be dynamic. We
must ensure that we adapt as the market changes as
it presents great opportunities for ITV as an integrated
producer broadcaster.
Broadcast & Online
Over recent years the number of ways to watch TV has
greatly increased. Viewers are now able to choose between
a variety of traditional platforms, both free and pay. On
demand viewing allows people to watch content away from
traditional television with programmes delivered over the
top to devices including mobiles, tablets and connected
TVs. Linear viewing via the TV set is still dominant with on
demand a relatively small part of overall viewing, but it is
growing fast: we cannot be complacent and must ensure
that our online offering is strong to compete in this market.
Traditional television viewing
ITV competes for viewers with the BBC and other commercial
broadcasters, including the Channel 4, Channel 5 and Sky
families of channels. The process of digital switchover in the UK
completed in 2012, increasing the number of channels available
to all viewers from the traditional five terrestrial channels to a
choice of hundreds. The erosion of audience share experienced
by the terrestrial broadcasters during this transition has now
levelled. Relatively little has changed in terms of viewing
behaviour. In the last five years the public service broadcaster
(PSB) families have only lost 1.2 share points. BBC One and ITV
continue to be the only channels consistently able to deliver
peak audiences of more than five million, and the PSB families
receive around 72% share of viewing (SOV). ITV Family SOV in
2013 was 23.1%, second only to the BBC’s family of channels at
32.2%. SOV for the Channel 4, Channel 5 and Sky families was
significantly smaller at 11.0%, 6.0% and 8.0% respectively.
Total television viewing has been largely stable over the
past decade with average viewing of 232 minutes in 2013
compared to 224 minutes in 2003. Total viewing saw a
decline of 4% in 2013 due to the lack of a large one-off
sporting event and the good weather over the summer.
Viewing of commercial channels was only down 1% to 153
minutes per day.
Platforms
The platforms on which viewers watch television is
important to ITV as for linear viewing our SOV is higher in
free to air homes. The current platform mix is around 48%
free to air (Freeview and Freesat) and 52% Pay (including Sky,
Virgin and BT). We continue to support free platforms with
developments such as YouView, which is estimated to have
distributed over 900,000 boxes by the end of 2013.
ITV VOD viewing by platform
Via the television set
Tablet
PC
Mobile
Other
Source: ComScore, Sky, Virgin, BT Vision
4%
6%
18%
19%
53%
Video on demand and catch up
Video on demand (VOD) viewing of lawful long form content
is growing rapidly but remained around 3% of all viewing in
2013. Growth is being driven by viewing on mobiles, tablets
and the television set, while PC viewing is declining (Source:
Internal estimates, 3Reasons).
The number of homes with Personal Video Recorders (PVRs)
has increased to around 63%, with PVR catch up viewing of
around 12% (2012: 10%). The line between catch up and VOD
is becoming more blurred with the growth of connected
devices as viewers no longer need to record programmes.
ITV continues to improve the quality and distribution of ITV
Player to take advantage of this growing demand.
Advertising revenues
ITV generates revenues from advertising through traditional
broadcast and also increasingly online. ITV competes with
the commercial broadcasters and other advertising mediums,
such as the internet and print, for its advertising revenues.
Over the last five years TV has broadly maintained its share
of total advertising spend at around 28% whilst the internet,
which is growing rapidly, continues to take share from press.
ITV’s share of the television advertising net revenues (SOB)
was 45.4% in 2013, slightly behind 2012 (45.8%). However, it
is getting increasingly difficult to measure the market as all
broadcasters have differing definitions and therefore include
sources of revenue other than pure spot advertising.
Television’s share of the advertising market
Television
Press
Radio
Cinema
Outdoor
Internet
Source: Advertising Association, January 2014
40.6%
28.1%
21.0%
6.4
%
1.2%
2.7%
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Stock code: ITV
ITV Family Share of Broadcast (SOB)
.
2
5
4
.
3
5
4
.
8
5
4
.
4
5
4
.
7
4
4
%
46
44
42
40
09
10 11
12
13
Source: ITV actuals, ITV estimate for Total TV
Subscription and Pay revenue
ITV also earns revenues from pay TV, both directly from
the viewer and through licensing its channels and content.
The total UK pay TV market has been growing moderately
and was estimated to be £6.1 billion in 2012 (Source:
Screen Digest). Much of this goes to platform owners such
as Sky and Virgin as subscriptions from the viewer, with
the remainder being paid by platform owners to content
owners, such as ITV, and rights holders.
A big growth area in pay TV is now subscription VOD, where
viewers have unlimited access to content for a period of
time. 2012 was the first year that VOD subscription took off
in the UK, and the two main services, Netflix and Lovefilm
which offer ITV content, are growing fast.
ITV Studios and the Global content market
Over the last few years the proliferation of entertainment
platforms and the increasingly competitive nature of the
broadcasting industry has created strong demand for quality
proven content and formats that travel internationally.
This is because broadcasters and platform owners want
to increase the certainty of their audiences, either mass or
targeted, around which to sell their advertising. This provides
great opportunities for ITV as a leading content creator and
producer.
ITV Studios production regions
ITV Studios is the largest commercial production company
in the UK, and the third largest European producer after
Fremantle and Endemol, producing over 3,500 hours of
content per year for ITV and other broadcasters in the
UK. ITV Studios also produces programming for local
broadcasters in five international locations: the US (the
largest international base), Australia, Germany, France
and the Nordics. Global Entertainment, ITV’s distribution
business, sells finished programmes and formats around the
world and is one of the top three European distributors of
television content.
The global content market
The global content market is estimated to be worth around
$50 billion. Approximately 29% of this ($15 billion) is
accounted for by the US, 8% by the UK ($4 billion), and the
remaining 63% by the rest of the world.
Entertainment and factual entertainment formats such as
Come Dine With Me, Hell’s Kitchen and I’m A Celebrity Get
Me Out Of Here! are a significant part of global content sales.
We are also seeing a resurgence of drama and comedy, and
a rise in reality programming, for example Duck Dynasty and
Real Housewives.
The UK and US drive global creativity in TV formats and
finished tape sales. The UK is the world leader for the
volume of exported formats, ahead of other top exporters
the US, Holland and the Nordics, and second only to the US in
catalogue sales.
In the UK and internationally ITV competes with a large
number of independent producers, including ‘super-indies’
such as Fremantle and Endemol. The independent producers
are largely privately owned, and do not have the advantage
of being an integrated producer broadcaster.
The US is the largest creative market in the world and while
dominated by vertically integrated conglomerates, there is
a thriving independent market valued at about $3.5 billion
in which ITV competes. ITV Studios is now one of the five
largest independent producers in the US.
Global Content Market – $50 billion
8%
63%
29%
UK
US
Rest of the World
Source: Internal estimates
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Overview
Chairman’s Statement
Archie Norman
of viewing emerging, more catch up, more consumption on
connected and mobile devices and indeed new entrants
competing for share of the viewers’ time. Therefore we
must continue to adapt ITV to take advantage of these
opportunities.
We see great opportunities ahead as we build on the
creative capability of ITV internationally. However, these
will also pose challenges to the way we work internally and
externally. And as we extend our reach it remains vital to
sustain the health of our growing channel family in the UK
and especially of our flagship channel ITV.
Our ability to tackle these challenges with confidence is
reinforced by the transformation of our financial position
which has been the result of tight cash management,
debt restructuring and cost control: we now have a robust
balance sheet and strong cash flow generation. The Board
is very mindful of the need to balance the investment
requirements of the business to deliver future growth with
increasing shareholder returns. The Board has proposed a
35% increase in the ordinary dividend to 3.5p and a 4.0p
special dividend in line with last year.
ITV remains a regulated business and as the media
landscape changes we continue to see the need for the
relaxation of regulatory constraints as non-regulated
forms of competition grow. However, we are pleased that
our public service licences have now finally been renewed
providing a stable platform for another ten years.
“We are a talent driven, people
intensive business. Our
progress has been driven by
the leadership, creativity and
motivation of our people”
Dear Shareholder
ITV today is a much stronger business in almost every
respect than when the restructured Board and leadership
team were formed four years ago. When we set out our
transformation programme in 2010 the core objective was
to rebalance the business, to open up new growth paths, and
to ensure it is more resilient in a changing media landscape.
Whilst there is much further to go, this programme is well
under way with strong growth in all sources of non-net
advertising revenue.
After years of underperformance, our content business is
now delivering consistent growth under strong creative
leadership. Selected international acquisitions have
accelerated progress, particularly in the USA, to form the
basis for a global content network. Meanwhile, online, pay
and sponsorships have all shown strong and profitable
growth. This has been achieved against the backdrop of
difficult economic conditions and subdued consumer
markets.
As a result ITV today is in unrecognisably better health, with
strong leadership and a good talent base at all levels. This
does not of course mean we can afford to let the pace of
change diminish. While the traditional broadcast television
model remains robust, the market for ‘television-like’
content is changing faster than ever with new forms
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“The Board is very mindful
of the need to balance the
investment requirements
of the business to deliver
future growth with increasing
shareholder returns”
Our philosophy of management has been to combine very
strong commercial and management leadership with great
creative talent. This approach is also reflected at Board
level where we seek to retain a mix of deep commercial
and creative understanding around the Board table. I am
delighted therefore that Sir Peter Bazalgette has joined our
Board this year. Mike Clasper, who made a huge contribution
to the Board in good times and bad over the last eight years
has stood down with our thanks.
Finally, we are a talent driven, people intensive business.
Our progress has been driven by the leadership, creativity
and motivation of our people. And I want to thank all our
colleagues at ITV for their hard work, and our shareholders
for their continuing support.
Archie Norman
Chairman
Picture:
ITV Studios’ format Big Star’s Little Star averaged 4.2 million
viewers and will be returning for a second series in 2014.
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08-09 Chairmans statement.indd 9
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10
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Strategy and
Operations
Chief Executive’s Review
Chief Executive’s Review
Performance Dashboard
Strategic Priority 1
Strategic Priority 2
Strategic Priority 3
Strategic Priority 4
12
16
19
23
27
31
Broadchurch
Broadchurch was ITV’s most
watched new drama series since
Downton Abbey and its most watched
new weeknight drama series since
Doc Martin in 2004.
It averaged 9.4 million viewers with
the finale attracting 10.5 million
viewers and has won multiple
awards.
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ar2013.itvplc.com
Stock code: ITV
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12
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Strategy and Operations
Chief Executive’s Review
Adam Crozier
ITV delivers another year of
strong growth
2013 was another strong year for ITV, both operationally
and financially, as we continue to make progress with our
strategy of growing and rebalancing the business. External
revenues were up 9%, with non-NAR revenues up £175
million (17%), and for the fourth year in a row we delivered
double digit profit growth.
2013’s performance builds on the consistently strong
results we have delivered since we announced our strategy.
Since 2009 we have increased Group external revenues
by 27%, EBITA before exceptional items (EBITA) by 207%,
adjusted earnings per share (EPS) by 522% and improved
our cash position by over £750 million, even after returns to
shareholders and investment in the business.
Our Broadcast business remains in good shape. In 2013 we
had the best year-on-year viewing performance for ten years
with ITV Family SOV up 4%, and the television advertising
market returned to growth. Online, Pay & Interactive
revenues continue to grow strongly and are now a material
part of the business. ITV Studios, which again delivered
significant revenue growth, is becoming an increasingly
international business as it grows both organically and
through selective acquisitions.
Our vision remains to create world-class content, which
we can make famous on our channels, before exploiting its
value across multiple platforms, both free and pay, in the UK
and internationally. While there is still much to do and good
potential for growth, the progress we are making is clearly
evident in our results.
“2013’s performance builds on
the consistently strong results
we have delivered since we
announced our strategy”
Group external revenue growth
9%
YoY
2 7 % I n c
9
7
8
1
,
r e a s e o n 2 0 0 9
6
9
1
2
,
0
4
1
2
,
4
6
0
2
,
£m
2,500
9
8
3
2
,
2,000
1,500
1,000
09
10 11
12
13
Non-NAR revenue growth
17%
YoY
4 2 % I n c
r e a s e o n 2 0 0 9
6
3
0
1
,
2
2
9
0
5
8
9
2
8
£m
1,250
1,000
1
1
2
1
,
750
500
09
10 11
12
13
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13
ar2013.itvplc.com
Stock code: ITV
2013 operating and financial performance
ITV’s financial results reflect a good performance across the
business. ITV NAR grew 2% and, in line with our strategy, non-
NAR revenues grew £175 million or 17% to £1,211 million.
Good revenue growth, together with our tight cost control,
has led to 21% growth in EBITA before exceptional items
(EBITA) to £620 million, 27% growth in adjusted profit before
tax (PBT) to £581 million and 23% growth in adjusted EPS
to 11.2p. Group margins have improved by three percentage
points to 26% and we delivered £28 million of cost savings,
£8 million ahead of our original target.
Broadcast & Online revenues grew by 3% to £1,896 million
(2012: £1,834 million) and EBITA increased by 20% to £487
million (2012: £406 million). This was driven by 2% growth in
ITV Family NAR and 16% growth in Online, Pay & Interactive
as we have increased the quality and distribution of ITV
Player and further developed our pay opportunities.
On-screen we have had a very strong year with ITV share
of viewing (SOV) up 3% and ITV Family SOV up 4% as we
have continued to increase the quality and variety of the
schedule.
ITV Studios delivered 20% growth in total revenue to £857
million (2012: £712 million) and 24% growth in EBITA to
£133 million (2012: £107 million). This was driven by the
international studios business, with growth coming both
organically and from the acquisitions we have made in the
UK and internationally.
Our continued focus on cash and costs and our strong profit
to cash conversion, saw us grow our free cash flow by over
£100 million. We generated £433 million of free cash before
investment and shareholder returns to end the year with net
cash of £164 million. We have taken further steps to improve
the efficiency of the balance sheet with additional debt
buybacks and the redemption of the convertible bond.
The Board has proposed a final dividend of 2.4p (2012: 1.8p)
giving a full year dividend of 3.5p (2012: 2.6p) – an increase
of 35%. The Board is committed to a progressive dividend,
taking into account the outlook for the business, while
balancing the need to invest for growth and to maintain a
robust financial position.
In addition to the final dividend, the Board is proposing a
special dividend of 4.0p per share (£161 million). The cash
distribution reflects the Board’s confidence in the ongoing
growth and cash generation of the business. Going forward
we will continue to show capital discipline and balance the
need to invest for future growth with increasing returns to
shareholders.
Picture:
The second series of the award winning Paul O’Grady:
For The Love of Dogs averaged 5.7 million viewers.
EBITA before exceptionals
21%
YoY
2 0 7 % I n c
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£m
700
600
500
400
300
200
100
0
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14
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Strategy and Operations
Chief Executive’s Review continued
Our strategy and the changing
media environment
We are now four years into our five year Transformation
Plan which is based on our four key priorities. We remain
committed to this strategy as the progress we have made
over the last four years shows it is the right strategy for ITV.
The demand from viewers for quality content is strong not
just in the UK but globally. Linear viewing remains healthy
and we must ensure that our Broadcast business continues
to be strong, generating significant profits and cash.
However, we must not be complacent and we must adapt
to the challenges and opportunities of the dynamic media
environment in which we operate.
While on demand is still a relatively small part of total
viewing, we must make sure that our digital offerings are
high quality, competitive and widely available so we can keep
up with changing consumer behaviour and demands. We
continue to experiment with new free and pay offerings to
explore how viewers want to consume our content.
In such a rapidly evolving market, creating and owning high
quality content is more important than ever, so we will
continue to invest in a quality creative pipeline and exploit
our advantage as an integrated producer broadcaster.
2014 and beyond
The television advertising market continues to show signs
of improvement with ITV Family NAR expected to be up 5%
to 6% in the four months to the end of April. We expect
to outperform our estimate of the television advertising
market over the full year. Our good on-screen performance
in 2013, the strong 2014 schedule including the FIFA World
Cup in June and the advertising deals we have done to date,
puts us in a good position to achieve this.
Online, Pay & Interactive should deliver another year of good
revenue growth as we continue to exploit opportunities in
digital media and drive new revenue streams. Our new pay
channel, ITV Encore, which will launch on Sky in 2014, will
contribute towards this.
We anticipate good revenue growth in ITV Studios, primarily
driven by the recent acquisitions we have made in the UK
and internationally. Key to our success is creative content
and therefore we will continue to invest in the pipeline of
ideas and look at potential acquisitions and partnerships.
We remain committed to our strategy of rebalancing ITV
and expect all parts of the business to see further growth
in 2014. While a healthy broadcast business remains at the
core of ITV, going forward we expect growth to increasingly
come from Online, Pay & Interactive and from ITV Studios
internationally.
Adjusted EPS
Net cash/(debt)
23%
YoY
5 2 2 % I n c
r e a s e o n 2 0 0 9
.
2
1
1
.
1
9
9
7
.
4
6
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8
1
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09
10 11
12
13
p
12
8
6
4
0
r e a s e o n 2 0 0 9 *
5
4
6
0
2
£ 7 7 6 m I n c
)
8
8
1
(
)
2
1
6
(
4
6
1
£m
300
150
0
-150
-300
-450
-600
-750
09
10 11
12
13
* Including distributions to shareholders, cash has increased by
around £1.1 billion between 2009 and 2013.
10-15 Strategy and Chief Executives Review.indd 14
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15
15
ar2013.itvplc.com
ar2013.itvplc.com
Stock code: ITV
Stock code: ITV
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Picture:
Emmerdale averaged 7.3 million viewers in 2013 with
a 34% share, up 3% compared to 2012.
10-15 Strategy and Chief Executives Review.indd 15
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16
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Strategy and Operations
Performance Dashboard
1
2
Create a lean, creatively
Create a lean, creatively
dynamic and fit-for-purpose
dynamic and
organisation
organisation
Maximise audience and revenue
Maximise audience and revenue
share from our existing free-to-air
share from our existing free-to-air
broadcast business
broadcast business
Milestones achieved
Milestones achieved
●● Record employee engagement at 91%
●● Best ITV Family SOV year-on-year performance for
●● Rolled out ITV rebrand across all of ITV
ten years
●●
●●
●●
£28 million of cost savings – £118 million since 2009
Fourth year of double digit profit growth
Improved group margin by 3% points to 26%
●● Net cash of £164 million after increase in shareholder
returns
●● Cash conversion again over the 90% three year
rolling target
●●
●●
●●
●●
●●
Increased variety and quality of schedule
ITV2 and 3 largest digital channels
ITV NAR grew 2% as TV ad market returned to growth
Innovative sponsorship and brand extension
partnerships with advertisers
Sales team were awarded ‘Sales Team of the Year’ in
2013 at the Media Week Awards
●● Won six National Television Awards
Focus for 2014
Focus for 2014
●● Maintain high levels of employee engagement in ITV
●● Maintain strong on-screen viewing performance
●●
Further simplify our operating structures as we grow
in scale and geography
●●
●●
●●
£10 million cost savings target
●● Relentless focus on cash
Launch new free to air channel ITVBe
Expect to outperform our estimate of the TV ad
market
●● Drive further value from 30 second spot and related
●● Maintain a robust, efficient and flexible balance sheet
revenues
●●
Implement new ten year licence
KPIs
KPIs
●●
Employee Engagement
●●
●●
●●
ITV Family Share of Viewing (SOV)
ITV Family Share of Commercial Impacts (SOCI)
ITV Family Share of Broadcast (SOB)
KPIs across all
four priorities
●●
EBITA before exceptional items
●● Adjusted earnings per share
16-17 Performance Dashboard.indd 16
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17
ar2013.itvplc.com
Stock code: ITV
3
4
Drive new revenue streams by
Drive new revenue streams by
exploiting our content across
exploiting our content across
multiple platforms, free and pay
multiple platforms, free and pay
Build a strong international
Build a strong international
content business
content business
Milestones achieved
Milestones achieved
●●
●●
●●
●●
Further improved quality of ITV Player
ITV content available on 19 platforms
Long form video requests up 16%
11.7 million downloads of ITV Player app
●● Renegotiated deals with BT and Virgin and extended
●●
●●
●●
●●
20% growth in total revenue driven particularly by
international
24% growth in EBITA
ITV Studios’ share of ITV output increased to 59%
Investing in creative pipeline – 121 new commissions
Virgin deal to include ITV2, 3, 4 HD channels
●● Creating programmes that return and travel
●● Trialling direct to consumer pay opportunities
●● 3.5 million registered users of ITV Player
●●
Eight programmes that are produced in three or more
countries
●● Completed four acquisitions in UK and US
Focus for 2014
Focus for 2014
●● Continue to improve quality of ITV Player
●●
●●
●●
Increase distribution of ITV Player
Launch new pay channel, ITV Encore
Implement new deal with Sky which was renegotiated
at the start of 2014
●● Develop further innovative and targeted advertising
●●
●●
●●
●●
Invest in creative talent and pilots to maintain a
healthy pipeline
Focus on long running returnable series
Exploit programmes that travel
Further strengthen global production capabilities as
we become an increasingly international business
opportunities
●● Continue to look at potential acquisitions
●●
Launch advertising on catch up on Sky and Virgin
●●
Scale international distribution business
KPIs
KPIs
●● Total long form video requests
●● Number of new commissions for ITV Studios
●● Percentage of ITV output from ITV Studios
●●
‘Profit to cash’ conversion
●● Non-NAR revenues
Read more on our Financial KPI’s within the
KPI section on page 36
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16-17 Performance Dashboard.indd 17
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18
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Strategy and Operations
1
Create a lean,
creatively dynamic
and fit-for-purpose
organisation
18-21 Strategic Priority One.indd 18
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ar2013.itvplc.com
Stock code: ITV
Strategic Priority 1
Create a lean, creatively dynamic and fit-for-purpose
organisation
In 2013 we have again made significant progress in making
ITV lean, creatively dynamic and fit-for-purpose.
Record employee engagement
We continue to make ITV a better business both creatively
and commercially, through driving out complexity,
developing our people, driving cultural change throughout
the organisation, investing in our core systems and
technologies, and in our brand.
3%
YoY
%
100
90
80
70
60
1
9
8
8
5
8
5
7
5
6
09
10 11
12
13
As well as operating efficiently it is vital that we also operate
responsibly. Our behaviour impacts our employees, our
shareholders, our viewers, the wider community and the
environment. Our Corporate Responsibility strategy, which
is aligned to our four key priorities, aims to help grow our
business by strengthening stakeholder pride and loyalty in
ITV, as well as mitigating the risks to the business. Ensuring
the welfare and human rights of our employees is a key
consideration in our day-to-day activity, both in the UK and
internationally, and we use United Nations human rights
frameworks as guiding principles.
This report highlights issues which are material to our
business strategy. However, our commitment goes beyond
the business plan and regulatory requirements. As a
responsible industry leader we undertake a number of
initiatives that demonstrate our commitment to behaving
responsibly and to a sustainable future for our industry,
which can be found on our website.
www.itvplc.com/responsibility
Our people
Our people are key to the success of ITV. It is essential
that we develop and support them so that we can attract
and retain the best talent. We measure our employee
engagement annually and we are pleased to see it has
again improved to 91% (2012: 88%), which compares to
a benchmark for comparable company surveys of 77%.
Employee participation has also increased to 88% (2012:
80%), which compares to a benchmark of 69%.
We have continued to simplify the way we operate and to
increasingly work as One ITV. This makes it easier for people
to do their jobs and to help deliver value from our integrated
producer broadcaster model and to drive future growth.
However, there is still more we can do.
ITV at the heart of popular culture
At the start of 2013 we successfully rolled out the ITV
rebrand with the emphasis on putting ITV at the heart of
popular culture. This was one of the most extensive media
rebrands ever undertaken and was developed in-house
by ITV Creative. We rolled out a new identity for our five
channels, our entire online estate, and our production and
distribution businesses in the UK and internationally, all on
the same day. The rebrand has significantly improved ITV’s
brand health as measured by YouGov and has helped make
ITV the ‘most loved’ commercial network in 2013.
Relentless focus on cash and costs
In 2013 we delivered £28 million of cost savings, £8 million
ahead of the original target. These savings are largely not
employee related. Since 2009 we have taken £118 million
of costs out of the business. These savings have funded
our investment in our creative and commercial capabilities,
specifically in our creative pipeline, in technology and online.
“As well as operating
efficiently it is vital that we
also operate responsibly”
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20
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Strategy and Operations
Strategic Priority 1
Strategic Priority
18-21 Strategic Priority One.indd 20
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ar2013.itvplc.com
Stock code: ITV
Strategic Priority 1
Our focus on costs and cash has enabled us to significantly
strengthen and improve the efficiency of our balance
sheet. Our cash generation remains strong with free cash
flow up over £100 million year-on-year. Profit to cash
conversion was 97% and we have ended the year with net
cash of £164 million even after significant investment in
acquisitions, property and returns to shareholders. We have
also continued to improve the efficiency of the balance
sheet with £211 million of debt buybacks (nominal) and the
redemption of the convertible bond, both of which deliver
significant interest cost savings for 2014 and beyond.
The steps we have taken on the balance sheet along with
another period of double digit profit growth has led the
Board to propose a final dividend of 2.4p (2012: 1.8p) giving
a full year dividend of 3.5p (2012: 2.6p) – an increase of 35%.
The Board is committed to a progressive dividend, taking
into account the outlook for the business, while balancing
the need to invest for growth and to maintain a robust
financial position.
In addition to the final dividend, the Board is proposing a
special dividend of 4.0p per share (£161 million). The cash
distribution reflects the Board’s confidence in the ongoing
growth and cash generation of the business. Going forward
we will continue to show capital discipline and balance the
need to invest for future growth with increasing returns to
shareholders.
Corporate Responsibility
People and diversity
Ensuring our culture, environment and
processes are inclusive is essential to
helping us attract diversity amongst the
skills, experience and make-up of our
workforce. As an example of our leadership
and commitment ITV currently chairs the
Creative Diversity Network, whose remit is to
take joint industry responsibility for action on
diversity.
Environmental matters and social, community
and human rights issues: More details can be
found on our Corporate Responsibility website,
while the greenhouse gas disclosures are
included in the Directors’ Report.
Read more on page 62.
More information on our responsibility agenda can be located
at www.itvplc.com/responsibility
Cumulative cost efficiency savings
Cumulative
Total
£118m
£m
120
100
80
60
40
20
0
8
2
0
3
0
2
0
4
10 11
12
13
2014 and beyond
We have made great strides in creating a better business and
we will continue to make further improvements across the
organisation in 2014.
We will maintain our focus on costs but, given the savings
we have made to date, further significant savings are getting
harder to achieve. For 2014 we have identified a further £10
million of non-network programme budget cost savings.
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. The balance sheet we now
have gives us the flexibility to invest where appropriate to
drive future growth and improve shareholder returns.
Gender split
Directors
7 males
1 female
Senior Managers*
13 males
5 females
Employees†
2,264 males
2,388 females
87.5%
12.5%
72.2%
27.8%
48.7%
51.3%
Male
Female
* Of the five female senior managers, four were directors of
consolidated Group companies
† Employee gender split based on total headcount
at the end of 2013
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22
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Strategy and Operations
2
Maximise audience
and revenue share
from our existing
free-to-air broadcast
business
Picture:
The final series of Poirot aired in
2013 with the final episode of the ITV
Studios’ drama watched by an average
of 6.4 million viewers. Poirot has now
been sold to over 150 countries.
22-25 Strategic Priority Two.indd 22
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Stock code: ITV
Strategic Priority 2
Maximise audience and revenue share from our existing
free-to-air broadcast business
A strong broadcast business is central to our strategy. As
a business it generates significant profits and cash and its
content can be repackaged to drive new revenues. As an
integrated producer broadcaster, our family of broadcast
channels provides a platform on which to make ITV Studios
content famous before exploiting it internationally.
ITV Family NAR grown by 2%
In 2013, ITV Family NAR grew by 2% based on pure spot
advertising. This is slightly behind our estimate of the
television advertising market, up 3%. However, it is
getting increasingly difficult to measure the market as all
broadcasters have differing definitions and therefore include
sources of revenue other than pure spot advertising.
Since 2009 we have grown our Share of Broadcast (SOB)
from 44.7% to 45.4% in 2013. We have achieved this through
the quality of our schedule and the unrivalled reach that
ITV offers. ITV is the UK’s strongest marketing platform,
delivering the mass audiences which are so much in
demand from advertisers. In 2013 ITV delivered 99.9% of all
commercial audiences over five million viewers and 100% of
audiences over six million.
Our digital channels, ITV2, 3 and 4, provide more targeted
demographics, which together with ITV main channel,
ensures that we deliver both mass and targeted reach.
Our broadcast performance has helped to drive 3% growth
in Broadcast & Online revenues to £1,896 million.
Strong on-screen performance
The improved quality and variety of the schedule has driven a
consistently strong on-screen performance throughout 2013.
ITV Family SOV was up 4% over the full year – the best year-
on-year performance for over ten years. ITV main channel
SOV was up 3%, ITV main channel SOCI was up 1% and ITV
Family SOCI was flat. ITV digital channels performed broadly
in line with last year.
ITV had many on-screen successes in the year with both new
and returning programmes. Based on the series average, ITV
broadcast the highest rating drama with Downton Abbey,
the highest rating new drama launch with Broadchurch and
highest rating entertainment programme with I’m A Celebrity
Get Me Out of Here! Other notable successes include Lewis,
Poirot, Mr Selfridge, Doc Martin, Ant & Dec’s Saturday Night
Takeaway, The Chase, Tipping Point, Paul O’Grady: For the
Love of Dogs, and Her Majesty’s Prison: Aylesbury. Our sports
programming again delivered good audiences, in particular
the Champions’ League and England international friendlies.
The strong on-screen performance is not just due to the
success of these new and returning series. Much of our
core schedule, in particular Coronation Street, Emmerdale
and our News programmes, have all performed strongly in
2013. Coronation Street was the highest rating soap, and
for the first time Emmerdale had a higher average share of
viewers than Eastenders over the year. Both our national and
ITV Family Share of Viewing (SOV)
ITV Family Share of Commercial Impacts (SOCI)
4%
YoY
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Strategy and Operations
Strategic Priority 2
regional news programmes have grown their audience share
as we remain committed to providing high quality, impartial
news.
The improved quality of ITV channels has again been
recognised publicly in 2013 with ITV winning Channel of the
Year at the Edinburgh Television Festival and ITV2 winning
digital channel of the year at the Broadcast Digital Awards.
ITV also won six National Television Awards including most
popular serial drama for Coronation Street and most popular
entertainment programme for I’m a Celebrity Get Me Out Of
Here!
ITV2 and ITV3 remain the two largest digital channels in the
UK and our digital channels again aired successful new and
returning programmes, including Tricked, The Big Reunion,
Duck Dynasty, Plebs, Celebrity Juice, The Only Way is Essex,
The Tour de France and The French Open.
Our viewing performance is clearly healthy but there remain
areas we would like to improve. While overall the digital
channels performed well, ITV4’s performance was slightly
disappointing and the early daytime schedule on ITV has
not performed as well as we had hoped. We will continue
to rejuvenate some of our programmes and trial new ideas
across our channels. We aim to increase our success rate in
launching new programmes through research, viewer panels
and pilots.
Our advertising is sold based upon the on-screen
performance in the previous year and therefore our strong
viewing performance in 2013 puts us in good stead for 2014.
Picture:
Birds of a Feather returned
in 2014 and became the
most watched comedy on
ITV since records began
with 9.5 million viewers.
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Stock code: ITV
During 2013 we experienced a number of transmission
outages on our channels. High quality transmission is an
absolute priority for ITV and we have a number of projects
ongoing to ensure our transmission and distribution
technologies are fit-for-purpose.
Renewal of licence
In February 2014, ITV’s Public Service Broadcasting licences
were renewed for a full ten years which gives us the certainty
we require to continue to invest for the long term in our
broadcast business and high quality content.
Maximising the value of our airtime
We compete with broadcasters and other media for our
share of television advertising and advertising revenues in
general. We aim to maximise the value of our 30 second
spot and drive related revenue streams through sponsorship,
interactivity and brand extensions. For example, the
successful sponsorship campaigns and off-air endorsements
including Morrisons with Ant & Dec’s Saturday Night
Takeaway, Tesco Finest with Downton Abbey, and Boots and
This Morning. Following the successful broadcast of The
Big Reunion on ITV2 in 2013 we also launched the live Big
Reunion Tour and recommissioned the programme.
Traditional broadcast model remains robust
While the media environment is developing rapidly, the
traditional television broadcast model remains structurally
robust. On demand viewing is growing fast, but it remains
around 3% of total viewing and people continue to watch
around four hours of television a day.
We must ensure that even though our Broadcast business
is strong we continue to make our digital offerings more
widely available and competitive.
2014 and ahead
As we look into 2014 and beyond we must continue to
focus on delivering a strong on-screen performance by
offering a rich and varied schedule, including our new free
to air lifestyle and reality channel ITVBe. There will be both
challenges and opportunities. From the second half of 2015
we will no longer hold the live rights for the Champions’
League but this will potentially open up parts of the schedule
which will give us an opportunity to invest more in ITV
Studios content.
The television advertising market continues to show signs
of improvement with ITV Family NAR expected to be up 5%
to 6% in the four months to the end of April. Over the full
year we expect to outperform our estimate of the television
advertising market. Our on-screen performance in 2013 and
our strong schedule for 2014, including the FIFA World Cup
and the advertising deals we have done, puts us in a good
position to achieve this.
Corporate Responsibility
Using the power of our reach to inspire,
engage and empower people to make a
positive difference in our society.
ITV together with its much loved channels,
popular programmes, celebrities and viewers
have helped raise millions for charitable causes
in 2013.
Social action has also been at the heart of many of
our Corporate Responsibility campaigns in the form
of volunteering and community action – often in
collaboration with charities and other UK-wide social
action organisations.
Responsible programming and complying with
Ofcom’s Broadcasting Code is absolutely key for ITV.
Read more on Heading on page ••
More information on our responsibility agenda can be located at
www.itvplc.com/responsibility
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Strategy and Operations
3
Drive new revenue
streams by exploiting
our content across
multiple platforms,
free and pay
Picture:
Reality show The Only Way Is Essex was one
of the top five most watched programmes
on ITV Player in 2013. The show’s new home
will be on ITVBe.
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Stock code: ITV
Strategic Priority 3
Drive new revenue streams by exploiting our content across
multiple platforms, free and pay
Online, Pay & Interactive Revenues
16%
YoY
1 3 6 % I n c
r e a s e o n 2 0 0 9
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09
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£m
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Pay services
As consumer viewing behaviour evolves, we continue to
explore, experiment and develop our pay services – both
direct-to-consumer and to broadcasters and platform
owners. We have trialled pay opportunities on the ITV Player
with episode premieres of programmes such as Scott &
Bailey for ITV and Plebs for ITV2, and have offered box sets
to download to rent. We have also launched an ad free
subscription model on iOS – the first broadcaster to do so.
During the year we renegotiated a number of our current
deals with platform owners and also agreed a number of
new deals to make our content available on more platforms.
Online, Pay & Interactive are fast growing new revenue
streams which we are driving from distributing our content
across a range of platforms, both free and pay. This is
either by selling advertising around our content online or
pay revenues through licensing our content to third party
platform owners or, to a lesser extent, through transactions
directly with the consumer through ITV Player.
In 2013 we have continued to increase the quality and
the availability of ITV Player and further developed our
pay services. This, combined with the continued growing
demand for watching our content via non-traditional
channels as well as linear channels, has seen us again deliver
strong growth, with revenues up 16% to £118 million.
Online advertising
Over the last few years we have invested to improve
the quality of our online offering and ITV Player is now
fit to compete with the best in the digital market. In
2013 we continued to enhance our online offering with
improvements to the ITV Sports and ITV News sites.
We have also been working to increase the distribution of
ITV content digitally so that it is available when and how
people want to watch it. Our content is now available on 19
platforms.
The rapid increase in video on demand (VOD) is adding to
a huge demand for quality content, both free and pay, and
as an integrated producer broadcaster we are in a unique
position to create value from this. Mobile and tablet viewing
is driving VOD and there have now been over 11.7 million
downloads of the ITV Player app since it was launched.
The increased quality and distribution of the ITV Player has
led to continued good growth in long form video requests,
which were up 16% in 2013. Advertiser demand continues to
be strong for ITV’s VOD and we must manage our advertising
load to meet that demand while maintaining a good user
experience.
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Picture:
Britain’s Got Talent achieved an
average audience of 10.9 million
viewers and was one of the top ten
most watched programmes on ITV
Player in 2013.
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Stock code: ITV
Strategic Priority 3
We renewed our deals with BT and Lovefilm and we have
renegotiated our Virgin deal to include HD versions of ITV2,
3 and 4 and to enable us to deliver adverts in our catch up
content in the future. We have agreed deals with Amazon
for transactional VOD, simulcast channels with Everything
Everywhere and a catch up service on Virgin Atlantic. We
have also launched ITV Essentials, an international catch up
service for our Soaps.
In January 2014 we announced that we will be launching
our first pay channel, ITV Encore, on Sky. As part of the
wider deal with Sky, ITV content will also be made available
through Sky’s range of connected platforms including Sky
Go, Now TV and Sky Store.
Interactivity
We are further deepening our relationship with our viewers
and ITV Player now has 3.5 million registered users. We
are increasing our interaction and consumer engagement
through competitions, voting, second screens and through
social media to drive more value from our brands for ITV and
for our advertisers.
Long Form Video Requests
16%
YoY
2 8 5 % I n c
r e a s e o n 2 0 0 9
6
9
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200
100
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2014 and beyond
We expect to again deliver double digit revenue growth in
Online, Pay & Interactive in 2014. Our online revenues will
grow through the increased distribution of ITV Player and
through increased consumer demand. In 2014 we will start
to deliver stitched advertising in our catch up services on
Sky and Virgin. We continue to develop our pay services and
during 2014 we will launch ITV Encore.
Corporate Responsibility
Building trust online
We strive to continue to build trust and
confidence in our digital platforms, applying
the same standards online as we do on air.
We listen to the issues that matter to our
viewers, in particular safeguarding children,
protection of personal data and accessibility
to our programmes.
More information on our responsibility agenda can be located at
www.itvplc.com/responsibility
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Strategy and Operations
4
Build a strong
international
content business
Picture:
Mr Selfridge has now been sold to over
150 countries. The programme returned
for a second series in early 2014.
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Stock code: ITV
£m
1000
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600
400
200
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Total ITV Studios Revenue
20%
YoY
4 4 % I n c
r e a s e o n 2 0 0 9
7
5
8
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9
5
4
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On ITV we have delivered new commissions including
Lucan, Big Star’s Little Star and Tricked. As we focus on
programmes that return and travel, our recommissions are
very important. We are building a track record for producing
programmes that return, including Mr Selfridge, Ant & Dec’s
Saturday Night Takeaway and Surprise Surprise, which all
have international appeal.
Off ITV our new commissions include Pressure Pad for the
BBC and Kingfishers for Discovery while our recommissions
include Graham Norton, Shetland and University Challenge
for the BBC, and 24 Hours in A&E, Friday Night Dinner and
Come Dine with Me for Channel 4.
Strategic Priority 4
Build a strong international content business
A strong international content business lies at the heart of
our strategy to create and own more of our own content,
make it famous in the UK on our channels and distribute it
across multiple platforms in the UK and internationally. As an
integrated producer broadcaster we are in a unique position
to do this.
The high demand globally for quality content from
broadcasters and platform owners provides a significant
opportunity for us. We are building real momentum as we
continue to invest in a strong and healthy creative pipeline
in the key creative markets and specifically in genres that
return and travel – drama, entertainment and factual
entertainment, good examples of which are Mr Selfridge,
Come Dine With Me and The Chase.
In 2013 we delivered a 20% increase in total ITV Studios
revenue with good performances across the business –
particularly driven by international production – and 24%
growth in EBITA. We delivered good organic growth and are
building on this with the acquisitions we have made both
in the UK and internationally. Our portfolio of acquisitions
are performing in line with our expectations and we will
continue to look at further acquisitions which fit with our
strict strategic and financial criteria.
The strong performance in 2013 builds upon the significant
progress we have made over the last few years. While there
is still a great deal to do, ITV is now an international studios
business – we are the number one commercial producer in
the UK, a top five independent producer in the US and the
third largest European distributor of television content.
UK Production
In the UK we have increased our production revenues by 12%.
Growth has come in particular from drama, entertainment
and factual, with original hours commissioned in these
genres up 55%, 16% and 49% respectively, including the
benefit of our acquisitions. Growth also came both on and
off ITV. We have again increased ITV Studios’ share of ITV
output, which increased to 59%, up from 50% in 2009.
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32
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Strategy and Operations
Strategic Priority 4
International Production
Our international production business continues to grow
very strongly, with revenues up 56%, driven by the US.
Our US businesses have secured a number of new
commissions such as The Chase, which was originally
commissioned in the UK, and many recommissions of
programmes which demonstrate their longevity and their
international appeal. These included Hell’s Kitchen which
broadcast its 11th series in 2013, Kitchen Nightmares which
broadcast its 5th series, Cake Boss which broadcast its 6th
series and is developing spin-off shows, and Duck Dynasty
which has broken cable viewing records in the US and is
now also on ITV4. A number of these shows have already
been recommissioned which will be reflected in the 2014/5
results.
Our other international production bases in Australia,
Germany, France and the Nordics also produce their own
original formats and versions of UK formats. Their original
formats include Der Letzte Bulle in Germany, Mad As Hell in
Australia and Night Patrol in Norway. UK formats produced
locally include I’m a Celebrity Get Me Out Of Here! and The
Audience in Germany, Four Weddings in France and Hell’s
Kitchen in the Nordics. They have also secured a number of
new commissions for 2014 including UK formats, such as
Hell’s Kitchen in Germany.
Global Entertainment
The growth in the UK and international production
businesses is starting to feed our international distribution
arm, whose revenues were up 2% to £135 million.
Global Entertainment’s successes in the year include Mr
Selfridge, Poirot, Marple, Lewis and Hell’s Kitchen US, which
have all now been sold to over 150 countries. We also
continue to sell formats successfully, for example Come
Dine with Me, Four Weddings and The Chase, and we now
have eight programmes sold in three or more countries. As
well as distributing ITV’s own content we are adding to our
catalogue through the distribution of third party content,
such as Rectify for AMC and River Monsters for Icon Films.
We are seeing strong growth in sales to digital platforms
which is more than offsetting the decline in DVD sales.
We have delivered revenue growth in the period, but it
takes time for the creative pipeline to flow through and the
market for third party rights remains very competitive.
Pictures:
Left: Duck Dynasty was the most watched non-fiction
series in US cable TV history.
Right: The Chase has now been sold in six countries
including the UK and the US.
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Stock code: ITV
Acquisitions
Our acquisitions focus to date is on the two key markets
which have a track record for creating and owning
intellectual property, namely the UK and US. We are looking
for companies that have a good creative pipeline and
produce in genres that have the potential to travel.
In the UK we are seeking to enhance our skills in key genres.
In 2013 we acquired UK producers The Garden and Big Talk to
increase our capability in creating factual entertainment and
comedy formats that travel and in delivering commissions
for other broadcasters.
In the US we continued to build strength and scale with the
most recent acquisitions of High Noon and Thinkfactory who
produce reality, entertainment and drama programmes,
such as Cake Boss and R&B Divas. These complement our
existing business, including Gurney Productions which we
acquired at the end of 2012.
2014 and beyond
In 2014 we again anticipate good growth, primarily driven by
the acquisitions we have made in the UK and internationally.
As ever ITV’s revenue growth will not be a straight line
because of the phasing of the delivery schedule required by
our network and cable customers. A challenge for the UK
business is that ITV main channel will be spending less on
original commissions given the World Cup cost in the first
half of 2014.
We will continue to invest in our creative pipeline to develop
programmes that return and travel and we will also look
at potential acquisitions in the key creative markets. Our
international production business will remain a key focus
as the demand for quality content globally continues to
grow and will increasingly be the main driver for ITV Studios
growth.
On 19 February 2014 we acquired a 51% controlling interest
in DiGa Vision, a US independent producer of reality and
scripted programming. There is a put and call option to buy
the remainder of the company over three to six years.
Corporate Responsibility
Responsible programming
Through our programming we aim to tackle
and portray social and community issues
that are relevant to our audience, in an
appropriate manner. As an international
content producer we understand the
influence and impact our content can have
on society.
Beyond our regulatory requirements we
strive to produce content that is relevant for
a global market and authentically portrays its
audience.
More information on our responsibility agenda can be located at
www.itvplc.com/responsibility
Read more on Heading on page ••
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34
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Performance
and Financials
A review of Operational
and Financial performance
in 2013
Key Performance Indicators
Financial and Performance Review
Risks and Uncertainties
36
41
52
Downton Abbey
Series four of Downton Abbey
launched with 12 million viewers, the
drama’s biggest ever launch episode.
The series averaged 11.9 million
viewers with a 40% share, making it
the most watched drama series on
any channel in 2013.
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Stock code: ITV
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Performance and Financials
Key Performance Indicators
We have defined our Key
Performance Indicators (KPIs)
to align our performance and
accountability to our strategy.
These KPIs will be the key measures
of success and cover all four
strategic priorities.
EBITA before exceptional
items
Adjusted earnings per share
0
2
6
3
1
5
2
6
4
8
0
4
2
0
2
£m
700
600
500
400
300
200
100
0
.
2
1
1
p
12
10
8
6
4
2
0
.
1
9
9
7
.
4
6
.
8
1
.
09
10 11
12
13
09
10 11
12
13
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.
Adjusted earnings per share
represents the adjusted profit
for the year attributable to
equity shareholders. Adjusted
profit is defined as profit for
the year attributable to equity
shareholders before exceptional
items, impairment of intangible
assets, amortisation of intangible
assets acquired through business
combinations, net financing
cost adjustments 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.
Related Priority 1 2 3 4
Related Priority 1 2 3 4
Performance
Performance
In 2013 this has increased by
£107 million or 21%. This is as
a result of the 9% growth in
external revenues, driven by
significant growth in non-NAR
and 2% increase in NAR, and
our continued focus on costs
delivering £28 million of savings
in 2013. Since 2009 EBITA has
increased by over 200%.
The Group margin has improved
year on year, up three percentage
points to 26%.
Adjusted earnings per share
has increased by 2.1p, a 23%
increase year-on-year to 11.2p.
This reflects the improvement
in revenue and profit and the
reduction in adjusted financing
costs as we improve the
efficiency of the balance sheet.
Since 2009 adjusted earnings
per share has increased by over
500%.
34-40 Performance and KPI.indd 36
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37
ar2013.itvplc.com
Stock code: ITV
‘Profit to cash’ conversion
Employee engagement
ITV Family Share of Viewing
(SOV)
1
7
1
7
2
1
3
0
1
7
9
7
9
%
180
160
140
120
100
80
60
Rolling 3 year
target at 90%
1
9
8
8
5
8
5
7
5
6
%
100
80
60
40
.
1
3
2
.
9
2
2
.
1
3
2
.
1
3
2
.
3
2
2
%
25
20
15
10
5
0
09
10 11
12
13
09
10 11
12
13
09
10 11
12
13
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 strategy.
Employee engagement measures
pride in the work we do, pride in
working for ITV and also what we
say about our programmes and
services.
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.
‘Profit to cash’ conversion
represents the proportion of
EBITA converted into a measure
of adjusted cash flow (defined as
cash generated from operations
before exceptional items less
cash related to the acquisition
of operating 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.
Related Priority 1 2 3 4
Related Priority 1
Performance
Performance
Related Priority 2
Performance
Profit to cash conversion is again
over 90% which is our rolling
three year target. This is despite
significant capital expenditure.
This demonstrates our continued
focus on working capital
management which has helped
drive a significant improvement
in our cash position.
Employee engagement has again
improved year on year to 91%
which indicates employees’ pride
in ITV and their commitment to
supporting change across the
business. Company participation
was also high at 88%.
These measures are well above
benchmark as well as having
improved year-on-year.
ITV Family SOV had its strongest
year-on-year performance for
ten years, up 4%, as we further
improved the quality and breadth
of the schedule.
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34-40 Performance and KPI.indd 37
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38
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Performance and Financials
ITV Family Share of
Commercial Impacts (SOCI)
ITV Family Share of Broadcast
(SOB)
Total long form video
requests
.
0
0
4
.
8
9
3
.
5
9
33
8
3
.
.
3
8
3
%
40
38
36
34
32
30
.
8
5
4
.
4
5
4
.
2
5
4
.
3
5
4
.
7
4
4
%
46
45
44
43
42
41
40
7
7
5
6
9
4
6
0
4
m
600
500
400
300
200
100
0
3
7
2
0
5
1
09
10 11
12
13
09
10 11
12
13
09
10 11
12
13
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.
Related Priority 2
Performance
ITV Family SOCI was flat year-on-
year. ITV main channel was up
1%, however, offsetting this was
the performance of ITV4, which
did not perform as well as we had
hoped.
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.
It is getting increasingly difficult
to measure the total television
advertising market as all
broadcasters have differing
definitions and therefore include
sources of revenue other than
pure spot advertising.
Related Priority 2
Performance
ITV SOB was slightly down year
on year. In 2014 we expect to
outperform our estimate of the
television advertising market
over the full year. Our on-screen
performance in 2013, the strong
schedule for 2014 including
the FIFA World Cup, and the
advertising deals we have done,
puts us in a good position to
achieve this.
Our strategy looks to drive new
revenue streams by exploiting
our content across multiple
platforms.
Long form video requests is a
measure of the total number
of our videos viewed across all
platforms (such as itv.com, Virgin,
Sky and mobile devices) and
therefore provides a key measure
of how much of our content is
being viewed online.
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.
Related Priority 3
Performance
Long form video requests were
up 16% at 577 million. We
have improved the quality of
ITV Player and increased the
distribution of our content onto
more platforms. ITV content is
now available on 19 platforms.
Growth in long form video
requests has been driven by
mobile and tablet viewing.
34-40 Performance and KPI.indd 38
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39
ar2013.itvplc.com
Stock code: ITV
Non-NAR revenues
Number of new commissions
for ITV Studios
Percentage of ITV* output
from ITV Studios
1
1
2
1
,
£m
1,300
1,200
1,100
1,000
900
800
700
6
3
0
1
,
2
2
9
0
5
8
9
2
8
1
2
1
1
1
1
3
0
1
09
10 11
12
13
11
12
13
130
120
110
100
90
80
70
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.
Growing non-NAR revenues is
key to the strategy 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).
Key drivers of non-NAR revenue
are the growth in Online, Pay
& Interactive and Studios,
particularly international.
9
5
8
5
5
5
3
5
0
5
%
60
55
50
45
40
09
10 11
12
13
This represents the proportion
of the total spend on original
commissions on ITV transmitted
in the year, delivered by ITV
Studios. A key part of building
a strong international content
business, is to increase ITV
Studios’ supply of programmes
to ITV, where we aim to make
them famous and then sell them
around the world.
* Excludes ITV2, 3 and 4.
Related Priority 2 3
4
Related Priority 4
Performance
Performance
Non-NAR revenues have grown
by 17% in 2013 as we continue
to rebalance the business.
Non-NAR growth is driven by
Studios revenues – particularly
international – and Online, Pay &
Interactive.
The number of new commissions
has increased in 2013 as we
continue to invest in our creative
pipeline both organically and
through acquisitions.
Related Priority 4
Performance
The percentage of ITV output
from ITV Studios has increased
again this year to 59%. The
improvement has been driven
by an increase in Drama
commissions.
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34-40 Performance and KPI.indd 39
23043-04 10-12-2013 Proof 1
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40
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Performance and Financials
Picture:
Cake Boss season six recently premiered
on TLC in the US. The show is made by
High Noon which ITV acquired in 2013.
34-40 Performance and KPI.indd 40
23043-04 10-12-2013 Proof 1
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41
ar2013.itvplc.com
Stock code: ITV
Financial and Performance Review
Ian Griffiths
Delivering revenue growth in
all parts of the business
We have again delivered a strong set of results with good
revenue growth and double digit profit growth. There was
growth from all parts of the business, our acquisitions are
making a material contribution and the relentless focus on
costs and cash is evident in our healthy financial position.
We ended the year with £164 million of net cash even after
significant investment across the business and increased
returns to shareholders.
Twelve months to
31 December
Net Advertising Revenue
(‘NAR’)
Total non-NAR revenue
Total revenue
Internal supply
Total external supply
EBITA before exceptional
items
Group EBITA Margin
Adjusted earnings per
share
Adjusted diluted earnings
per share
Dividend per share
Special dividend
Net cash as at
31 December
2012
(restated)
£m
2013
£m
Change
£m
Change
%
1,542
1,211
2,753
(364)
2,389
1,510
1,036
2,546
(350)
2,196
32
175
207
(14)
193
2
17
8
(4)
9
620
26%
513
23%
107
21
11.2p
9.1p
2.1p
10.8p
3.5p
4.0p
8.7p
2.6p
4.0p
2.1p
0.9p
–
164
206
(42)
23
24
35
–
The profit before tax (PBT) and earnings per share (EPS) from
the Consolidated Income Statement are as follows:
Twelve months to
31 December
Profit before tax
Earnings per share (EPS)
Diluted earnings per share
2012
(restated)
£m
334
6.6p
6.4p
2013
£m
435
8.3p
8.1p
Change
£m
Change
%
101
1.7p
1.7p
30
26
27
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41-51 Financial and Performance Review.indd 41
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42
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Performance and Financials
Financial and Performance Review continued
External revenues were up 9%. Total non-NAR revenues grew
£175 million (17%) and ITV Family NAR was up 2%.
Non-NAR revenue tracker
£m
1,250
1,200
1,150
1,100
1,050
1,000
1
1
2
1
,
3
1
c
e
D
4
1
6
1
7
9
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R
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This revenue growth, combined with our tight cost
management and our higher margin new revenue streams,
saw us deliver 21% growth in EBITA to £620 million and 23%
growth in adjusted EPS to 11.2p. Group margins improved by
three percentage points to 26%.
EBITA before exceptional items tracker
2
3
R
A
N
3
1
5
2
1
c
e
D
8
2
5
1
0
1
4
2
3
1
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*
R
A
N
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*including Online, Pay & Interactive
£m
660
620
580
540
500
0
2
6
3
1
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We again maintained our focus on cash and costs. We
delivered £28 million of cost savings, £8 million ahead of our
original target and our tight working capital management
has delivered a strong profit to cash ratio at 97%, again
above our 90% rolling three year target. We have continued
to take steps to improve the efficiency of the balance sheet
having bought back £211 million of gross debt and exercised
our right to redeem the convertible bond. Together, these
actions have reduced our level of total debt to £354 million
and further reduced our financing costs.
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 reported
results is set out in the earnings per share section that
follows.
Adjusted profit before tax and adjusted EPS remove the
effect of exceptional items which include acquisition
related costs (professional fees, primarily due diligence,
and performance based employment linked contingent
payments), impairment of intangible assets, amortisation of
intangible assets acquired through business combinations,
net financing cost adjustments and other tax adjustments.
Following revisions to IAS 19, we are required to restate our
prior period results which have resulted in the following:
2012 as
originally
reported
2012
(restated)
Income
statement
impact
Net Financing Costs
Broadcast & Online EBITA
Group EBITA
Tax Charge
PBT
PAT (excl. NCI)
Adjusted PBT
Adjusted Tax Charge
Adjusted PAT (excl NCI)
EPS
Diluted EPS
Adjusted EPS
Diluted Adjusted EPS
(99)
413
520
(80)
348
267
464
(105)
358
6.9
6.7
9.2
8.9
(106)
406
513
(77)
334
256
457
(104)
352
6.6
6.4
9.1
8.7
(7)
(7)
(7)
3
(14)
(11)
(7)
1
(6)
(0.3)
(0.3)
(0.1)
(0.2)
41-51 Financial and Performance Review.indd 42
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43
ar2013.itvplc.com
Stock code: ITV
Broadcast & Online
Twelve months to
31 December
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
Broadcast & Online EBITA
margin
2012
(restated)
£m
2013
£m
Change
£m
Change
%
1,542
71
118
165
1,510
62
102
160
354
324
1,896
1,834
(983)
(426)
(996)
(432)
32
9
16
5
30
62
13
6
2
15
16
3
9
3
1
1
487
406
81
20
26%
22%
Broadcast & Online delivered a strong performance.
Revenues were up £62 million (3%) and with tight control
of costs and growth in new higher margin revenues, we
delivered an £81 million (20%) increase in EBITA.
Revenue growth was driven by a 16% increase in Online, Pay
& Interactive revenues and 2% growth in ITV Family NAR
as the television advertising market returned to growth.
The television advertising market again showed significant
fluctuations across the year, often driven by the timing of
sporting events or programmes delivering large audiences.
ITV Family NAR was down 3% in the first half of the year as
there were tough comparatives in Q2 caused by the absence
of a big sporting event but this recovered over the second
half which was up 8%. In 2014 with the FIFA World Cup in Q2
we expect again to see significant variations by quarter.
There also continues to be volatility by sector. In 2013 we
continued to see strong demand from advertising sectors
driven by technology and highly competitive industries.
Good growth was seen in entertainment & leisure,
telecommunications, cars, publishing & broadcasting,
airlines & holidays and household stores. While retail as a
whole did not show significant growth as the high street
subsector remained weak, supermarkets did spend more.
Finance declined year-on-year driven by banks and building
societies. Food was weak due to the margin pressure being
experienced within the sector.
Category analysis
Retail
Entertainment
& Leisure
Finance
Food
Cosmetics &
Toiletries
Telecommunications
Cars & Car Dealers
Publishing &
Broadcasting
Airlines, Travel
& Holidays
Household Stores
Other
19%
23%
10%
10%
4%
4 %
5 %
5 %
%
%6
7
8%
Over the full year, ITV NAR based on pure spot advertising
was up 2% which is slightly behind our estimate of
the television advertising market up 3%. However, it is
getting increasingly difficult to measure the market as all
broadcasters have differing definitions and therefore include
sources of revenue other than pure spot advertising.
In 2014 we expect to outperform the television advertising
market. Our on-screen performance in 2013, the strong
schedule for 2014 including the FIFA World Cup, and the
advertising deals we have done, puts us in a good position to
achieve this.
SDN revenues increased 15% benefiting from the launch of
the 12th and 13th video streams in the year. No similar one-
off benefit is expected in 2014.
Online, Pay & Interactive revenues grew strongly, up 16%
to £118 million. Within this, online advertising revenues
increased as long form video requests grew 16%, which has
been helped by our continued improvement in the quality
and distribution and the enhanced offerings of itv.com and
ITV Player. Our pay revenues have also grown as we have
renegotiated deals with Virgin, BT and Lovefilm. These pay
revenues are mainly from platform owners paying us for our
channels. Our content is now available on 19 platforms. Our
interactive revenues, which include competitions and voting,
have been broadly flat year-on-year but we continue to drive
engagement and interaction with our content.
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41-51 Financial and Performance Review.indd 43
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Performance and Financials
Financial and Performance Review continued
Other commercial income includes sponsorship, minority
revenues, media sales and other income. In total these
are up 3%, with growth coming from sponsorship and
brand extensions as we have broadened our commercial
relationship with our advertisers, for example with Morrisons
sponsoring Ant & Dec’s Saturday Night Takeaway which
included a full brand endorsement of Morrisons and Ant &
Dec TV adverts.
In 2013 we again delivered strong revenue growth, up 20%.
All parts of the business performed well, with significant
growth coming from International Productions both
organically and through the acquisitions we have made.
Through this strong revenue growth, our continued focus
on costs and changes in our revenue mix, we delivered 24%
growth in EBITA.
Broadcast & Online revenue tracker
6
1
9
1
1
6
9
8
1
,
6
-
2
3
4
3
8
1
,
Dec 12
NAR
SDN
Online,
Pay &
Interactive
Sponsorship
& Brand
Extensions
Other
Non-NAR
Dec 13
£m
1,900
1,850
1,800
Schedule costs were down as a result of the savings we
have secured on our FA Cup and Champions League rights
and lower overall sports costs as there has been no large
one-off sporting event. This has enabled us to invest in more
hours of drama and entertainment, including programmes
from ITV Studios. Other costs were flat as we manage our
overheads tightly which has mitigated inflationary pressures
and funded our investment in the business.
Organic revenue growth was 7% and acquisitions delivered
just under £100 million of revenue growth and £15 million of
EBITA in line with our expectations.
UK Productions grew on and off ITV, with total revenue up
12%. This has been driven by drama, entertainment and
factual with programmes such as Mr Selfridge, Lewis, Vera,
Ant & Dec’s Saturday Night Takeaway and The Chase for ITV
as the demand for high quality content has grown. Off ITV
we have produced Graham Norton and Shetland for the BBC,
24 Hours in A&E for Channel 4 and Four Weddings for Sky
Living.
International Productions grew very strongly, up 56%. This
was driven particularly by America for a number of reasons.
Firstly they delivered good organic growth with additional
volumes of programmes such as Hell’s Kitchen. Secondly
2013 was the first full year of owning Gurney Productions,
who produce the hugely popular show Duck Dynasty. Finally
our other acquisitions also performed well with programmes
such as Cake Boss produced by High Noon. We also had a
good year in Germany and France with I’m A Celebrity Get
Me Out Of Here! and Come Dine With Me in Germany and
Four Weddings in France.
ITV Studios
Twelve months to
31 December
UK Productions
International Productions
Global Entertainment
Total Studios revenue
Total Studios costs
Total Studios EBITA
before exceptional items
Studios EBITA margin
Sales from ITV Studios to
Broadcasting & Online
External revenue
Total Studios revenue
2013
£m
456
266
135
857
(724)
133
16%
364
493
857
2012
£m
408
171
133
712
(605)
107
15%
350
362
712
Change
£m
Change
%
ITV Studios total revenue tracker
48
95
2
145
(119)
12
56
2
20
(20)
26
24
14
131
145
4
36
20
0
7
2
7
5
8
5
2
7
2
1
2
2
1
7
Dec 12 Organic
UK
Produc-
tions
UK
Acquisi-
tions
Organic
Int’l
Produc-
tions
Int’l
Acquisi-
tions
Global
Entertain-
ment
Dec 13
£m
900
850
800
750
700
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Stock code: ITV
The strong growth in our UK and international production
businesses is starting to feed our global distribution
business, with programmes such as Mr Selfridge, Poirot,
Marple, Lewis and Hell’s Kitchen US selling to over 150
countries. In addition, eight of our formats have been sold
in three or more countries this year, including I’m a Celebrity
Get Me Out Of Here!, Dancing on Ice, Coach Trip and The
Audience. However, this is a process that does take time. We
are seeing strong growth in sales to digital platforms which
is more than offsetting the decline in DVD sales.
The majority of costs incurred in ITV Studios vary directly
with levels of activity. However, we continue to maintain our
focus on costs and to drive efficiencies in the production
process.
Acquisitions
In 2012 and 2013 we acquired a number of content
businesses in the UK, the US and the Nordics. These have
been made against strict strategic and financial criteria.
Financially we look at ownership of intellectual property,
return on capital employed and discounted cash flow.
Strategically we look at the talent, creative pipeline and type
of content to ensure it has the potential to return and travel.
We have structured the deals, with earnouts or put and
call options, to base a significant part of the consideration,
which is capped, on future performance and therefore align
incentives and lock in creative talent. To date our portfolio of
acquisitions is performing in line with our expectations.
In 2012 we acquired Gurney Productions in the US, So TV in
the UK, Mediacircus in Norway and Tarinatalo in Finland.
In April 2013 we acquired 100% of the UK independent
producer The Garden to enhance our capability in creating
factual entertainment formats that travel and to increase
our strength in delivering commissions off ITV. We made an
upfront payment of £18 million with a further capped cash
payment contingent on The Garden’s future performance.
In July 2013 we acquired 100% of Big Talk Productions and
associated companies (Big Talk) to strengthen our comedy
and light entertainment capability. We paid an initial cash
consideration of £13 million and there are further capped
cash payments contingent on Big Talk’s future performance.
In May 2013 in the US we acquired 60% of High Noon
Entertainment for an upfront cash consideration of $26
million (£16 million) and in June we acquired 65% of
Thinkfactory Media for an upfront cash consideration of $30
million (£19 million), to further build our strength and scale.
There are put and call arrangements in place to buy the
remaining minority stakes.
The total initial payment for 2012 and 2013 acquisitions
is £108 million with a further expected £97 million
(undiscounted) payable which is based upon our current
view of their performance over the payment period. The
total maximum consideration of £293 million (undiscounted
contingent consideration of £185 million and initial
consideration of £108 million) for all these acquisitions is
payable only if the businesses deliver 20–30% compound
average annual growth rate in earnings.
On 19 February 2014 we acquired a 51% controlling interest
in DiGa Vision, the US independent producer of reality and
scripted programming. There is a put and call option to buy
the remainder of the company over three to six years.
Geography Genre
UK
US
US
UK
Factual Entertainment
Reality, Entertainment
Reality, Entertainment & Scripted
Comedy & Scripted
Company
2013
The Garden
High Noon
Thinkfactory
Big Talk
Total for 2013
Total for 2012
Total
* Undiscounted and including the initial cash consideration. All payments are performance related.
Initial
consideration
(£m)
18
16
19
13
66
42
108
Total expected
consideration*
(£m)
35
34
31
30
130
75
205
Total maximum
consideration*
(£m)
Expected
payment
period
2018
2015–2021
2017–2019
2015–2018
46
61
61
30
198
95
293
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Performance and Financials
Financial and Performance Review continued
Net financing costs
Net adjusted financing costs of £25 million were £19 million
lower than last year as a result of the full year benefit of the
debt bought back in 2012 and part year benefit of the debt
buyback and the redemption of the convertible bond in
2013.
The £61 million of losses on buybacks relate to the
exceptional loss on the £211 million (nominal) of debt we
bought back in the year. The partial repayment of the 2019
bilateral loan in March of £138 million (nominal) resulted in
an exceptional loss of £38 million and will save £48 million of
future interest costs.
The £73 million convertible bond buyback, together
with the early redemption of the remaining balance
for equity, resulted in an exceptional loss of £23
million and will save £16 million of future interest
costs as well avoiding the dilution of our shareholders.
In 2012 losses were incurred on the buyback of certain
bonds.
In January 2014 we bought back the remaining tranche of
the 2019 bilateral loan for £95 million.
Twelve months to 31 December
Financing costs directly attributable to
loans and bonds
Cash-related net financing (costs)/
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 financial costs
Net financing costs
2013
£m
(18)
(2)
(20)
(5)
(25)
(9)
(20)
(61)
–
(115)
2012
(restated)
£m
(38)
3
(35)
(9)
(44)
(11)
(16)(
(36)
1
(106)
Tax
The effective tax rate on adjusted profit before tax of £581
million is 23% which is comparable to the standard tax rate
of 23.25% (2012: the effective tax rate on adjusted profits
of 23% was lower than the standard rate of 24.5% due to
the adjustments made for prior periods and the recognition
of overseas deferred tax credits). The total tax charge is
£105 million (2012: £77 million).
Cash tax paid of £67 million (2012: £62 million) arises as a
result of making payments for taxable profits partially offset
by the use of losses and the tax treatment of allowable
pension contributions. The majority of cash tax is paid in
the UK.
Twelve months to 31 December
Profit before tax
Exceptional items (net)
Amortisation and impairment of
intangible assets*
Adjustments to net financing costs
Adjusted profit before tax
2013
£m
435
2
54
90
581
* In respect of intangible assets arising from business combinations.
Twelve months to 31 December
Tax charge
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
2013
£m
(105)
(1)
(12)
(21)
3
(136)
23%
* In respect of intangible assets arising from business combinations.
2012
(restated)
£m
334
12
49
62
457
2012
(restated)
£m
(77)
(2)
(12)
(15)
2
(104)
23%
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Stock code: ITV
Dividend
The Board has proposed a final dividend of 2.4p (2012: 1.8p)
giving a full year dividend of 3.5p (2012: 2.6p) – an increase
of 35% on 2012. The Board is committed to a progressive
dividend, taking into account the outlook for the business,
while balancing the need to invest for growth and to
maintain a robust financial position.
In addition to the final dividend, the Board is proposing a
special dividend of 4.0p per share or £161 million (2012: 4p
per share special dividend). The cash distribution reflects
the Board’s confidence in the ongoing growth and cash
generation of the business. Going forward we will continue
to show capital discipline and balance the need to invest for
future growth with increasing returns to shareholders.
Dividend chart
35%
YoY
12
13
0.8
1.8
1.1
2.4
0
0.5
1.0
1.5
2.0
2.5p
Interim Dividend
Final Dividend
Earnings per share
Adjusted earnings per share is 11.2p (2012: 9.1p). Earnings per
share is 8.3p (2012: 6.6p).
Adjusted Earnings per Share
23%
YoY
12
13
9.1
0
2
4
6
11.2
8
10 12p
The main differences between reported and adjusted
earnings per share are exceptional items which include
acquisition related costs (professional fees, primarily due
diligence, and performance based employment linked
contingent payments), impairment of intangible assets,
amortisation of intangible assets acquired through business
combinations, net financing cost adjustments and other tax
adjustments.
Earnings per Share
26%
YoY
12
13
6.6
8.3
0
2
4
6
8
10p
The adjustments shown below 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.
Twelve months to 31 December 2013
EBITA before exceptional
items
Exceptional items (operating)
Amortisation and impairment
of intangible assets
Net financing costs
Share of losses of JVs and
Associates
Gain on sale and impairment of
subsidiaries and investments
(non-operating exceptional
items)
Profit before tax
Tax
Profit after tax
Non-controlling interests
Earnings
Shares (million), weighted
average
Earnings per share (pence)
Reported
£m
Adjustments
£m
Adjusted
£m
620
(8)
(66)
(115)
(2)
6
435
(105)
330
(4)
326
3,929
8.3p
8
54
90
–
(6)
146
(31)
620
–
(12)
(25)
(2)
–
581
(136)
445
(4)
441
3,929
11.2p
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Performance and Financials
Financial and Performance Review continued
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 day-to-day operation of
the business.
Operating exceptional items are mainly acquisition related
expenses, including professional fees, primarily due diligence,
and performance based employment linked contingent
payments. There are no restructuring costs in 2013.
Non-operating exceptional items largely relate to the profit
on disposal of STV shares in the year resulting in a gain of
£6 million.
Cash flow, working capital and free cash flow
Cash flow and working capital management
Twelve months to 31 December
EBITA before exceptional items
(‘profit’)
(Increase)/decrease in programme
rights and other inventory distribution
rights
(Increase)/decrease in receivables
Increase/(decrease) in payables
Working capital movement
Depreciation
Share-based compensation and
pension service costs
Cash flow generated from operations
before exceptional items
Acquisition of property, plant and
equipment and intangible assets
Adjusted cash flow
‘Profit to cash’ ratio
2013
£m
620
(42)
(15)
42
(15)
24
20
649
(45)
604
97%
2012
(restated)
£m
513
29
17
(45)
1
27
16
557
(61)
496
97%*
* Previously reported profit to cash ratio for 2012 was 95%. This has increased to 97%
because of the restatement of EBITA.
Our focus on cash remains a priority and we generated
£604 million of cash from £620 million of EBITA before
exceptional items. This performance is largely due to the
continued management of working capital balances. Our
profit to cash ratio of 97% has been maintained at a strong
level and continues to be ahead of our KPI target of 90% on
a three year rolling basis.
This calculation includes £45 million of capital expenditure,
which largely relates to the new state-of-the-art Coronation
Street set. However, it excludes the acquisition of the
Company’s London headquarters for £58 million as
management considers it to be a material one-off capital
expenditure and not a day-to-day operational investment.
Free cash flow
Twelve months to 31 December
Adjusted cash flow
Net interest paid
Cash tax
Pension funding
Free cash flow
2013
£m
604
(24)
(67)
(80)
433
2012
(restated)
£m
496
(33)
(62)
(72)
329
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 reflects our underlying cash generation and
our strong free cash flow generation gives us flexibility to
invest in the business and reward our shareholders. This is a
key strength of ITV today.
Free cash flow before dividends, acquisitions and debt
repayments remains very strong and is up over £100 million
(32%) year-on-year, in line with the growth in profits.
Net cash, liquidity risk and funding
Net cash at the year end was £164 million, compared to net
debt of £52 million at 30 June 2013 and £206 million net
cash at the end of 2012.
Net cash tracker
3
3
4
5
7
-
6
0
2
Dec 12
Free
cash
flow
1
7
2
-
8
5
-
Dividends Purchase
of HQ
Net impact
of debt
buybacks and
redemption of
convertible
£m
700
600
500
400
300
200
100
4
6
1
6
5
-
4
1
-
1
-
Acquisition,
net of cash
acquired
Purchase
of shares
for EBT
Other
Dec 13
One of the key strengths of our business is our strong cash
generation but it is weighted to the second half of the year
as we make a number of significant payments both regular
and one-off in the first half of 2013, including acquisitions,
dividends, the pension deficit funding contribution, debt
buybacks and the purchase of our London headquarters. In
spite of this investment and shareholder returns we ended
the year with similar cash position to 2012.
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Stock code: ITV
Adjusted net debt
Twelve months to 31 December
Net cash
Expected contingent payments on
acquisitions
Pension deficit (IAS 19R)
Operating leases
Adjusted net debt
Adjusted net debt to EBITDA
2013
£m
164
(97)
(445)
(414)
(792)
1.2
2012
£m
206
(36)
(551)
(518)
(899)
1.7
Debt structure and liquidity
We continued to strengthen our balance sheet and
maintain access to liquidity with our strong underlying cash
generation, the £125 million invoice discounting facility
and our £250 million Revolving Credit Facility (RCF). In June
2013 we extended the maturity of the RCF by a further year
to July 2016. The facility remains undrawn and, subject to
agreement by the banks, is extendable by a further year.
The facility contains leverage and interest cover financial
covenants as is normal for a facility of this nature.
Net debt/net cash is one measure of the strength of our
financial position. However, we believe it is appropriate to
look at all our financial commitments and have developed
an adjusted net debt measure, similar to how credit rating
agencies could look at our balance sheet. The ratio of adjusted
net debt to EBITDA before exceptional items is 1.2. This level
of indebtedness is slightly lower than previous years and
reflects the improved profitability and strong cash generation
of the business as well as reduced lease commitments and a
lower pension deficit as measured by IAS 19.
As can be seen from the table, adjusted net debt includes
the undiscounted estimate of the contingent payments
in relation to all the acquisitions we have made in 2012
and 2013, the pension deficit on an IAS 19 basis, and our
operating lease commitments (undiscounted) which are
mainly for broadcast transmission contracts and property.
Lease commitments have reduced year on year as a result of
the acquisition of our London headquarters.
We have bought back over £1.1 billion of debt (including the
£73 million of convertible we bought back) since October
2009 and we now have a much more efficient balance sheet.
After the year end we bought back the remaining £62 million
(nominal) of the March 2019 bank loan (see post balance
sheet events). Given what we have bought back over the last
few years we do not expect to be able to make any further
material changes in the efficiency of our balance sheet.
The debt buybacks in the year were as follows:
●● In March 2013 we repaid £138 million (nominal) of the
£200 million covenant free bilateral loan with a maturity
of March 2019. This was satisfied by £30 million of cash
and by gilts secured against the loan and resulted in an
exceptional charge of £38 million. This repayment will
save £48 million in future interest costs.
●● During the year we repurchased £73 million (nominal)
of the £135 million convertible bond with a maturity
date of November 2016 for a cash cost of £169 million.
In September we exercised our right to redeem the
outstanding principal amount of the convertible bond.
This redemption and conversion process was completed
on 21 October and resulted in 95 million new shares
being issued. Settling the convertible has resulted in £16
million of interest cost savings over the remaining period
of the bond. Partly buying back the debt has avoided
the full dilution which would have occurred if the entire
convertible had been redeemed. Settling the convertible
has also resulted in an exceptional charge of £23 million
shown in financing costs and in a net £74 million loss
attributable to equity, which has been reflected directly in
retained earnings.
The actions we have taken will improve our adjusted
financing costs going forward. In 2014 we expect adjusted
financing costs to be about £10–£12 million, a saving of
around £15 million after the repurchase of the remaining
2019 loan.
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Performance and Financials
Financial and Performance Review continued
Financing
We are financed using debt instruments with a range of
maturities. Following the buyback of the 2019 loan in
January 2014, the remaining debt, other than the finance
leases, is publicly traded Eurobond debt. Borrowings at
31 December 2013 (net of currency hedges) are repayable as
follows:
Amount repayable
€50 million Eurobond*
£78 million Eurobond
£161 million Eurobond
£62 million Bank loan†
Finance leases
Total debt repayable on maturity
* Net of cross currency swaps.
† Bought back in full in January 2014
Maturity
June 2014
Oct 2015
Jan 2017
Mar 2019
Various
£m
15
78
161
62
38
354
Debt maturity profile at 31 December 2013*
1
6
1
8
7
5
1
£m
200
150
100
50
2
6
0
14
15
16 17
18
19†
* Excludes finance leases.
† Bought back in full in January 2014..
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. Continuing to execute our strategy
will strengthen our position against all these metrics.
Pensions
IAS 19
The aggregate IAS 19 deficit of the defined benefit schemes
at 31 December 2013 was £445 million (31 December 2012:
£551 million). This was partly as a result of the £80 million
annual deficit funding contribution. Total liabilities have also
reduced as a result of an increase in the implied discount
rate used to value liabilities. This was largely offset by an
increase in the rate of market-implied inflation. A review of
the mortality assumption produced a further increase in the
liabilities, reflecting an increased allowance for longer life
expectancy.
In 2011 the Group entered into a longevity swap to protect
against further increases in life expectancy. Changes in
accounting standards mean that the assumptions used to
value this swap are now based on market fair values, rather
than best estimates. These changes have resulted in a
significant actuarial gain in 2013 with the book value of the
swap decreasing from a £118 million liability in 2012 to a £23
million liability in 2013.
Pensions continue to be paid from the Scheme based on
actual requirements.
IAS 19 Pension deficit tracker
1
5
5
6
3
1
There are no financial covenants on any of our debt
instruments, other than the RCF which remains undrawn.
0
8
2
3
1
5
6
5
4
4
5
9
£m
600
500
400
300
200
Dec 12
Deficit
funding
Change in
liabilities:
increase
in inflation
Change in
liabilities:
increase
in bond
yeilds
Dec 13
Change in
liabilities:
increase in
mortality
Change in
assets:
Longevity
swap
The recent debt buyback of the 2019 loan removes the last
of the high coupon debt taken out in 2008/9.
Ratings
Our credit ratings have improved during 2013 with all three
ratings agencies upgrading their long-term credit ratings.
In March and April respectively, Standard & Poor’s and Fitch
upgraded our long-term credit rating to investment grade
BBB- (Stable outlook). In August Moody’s Investors Service
also upgraded their long-term credit rating to investment
grade Baa3 (Stable outlook).
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Stock code: ITV
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.
For Sections B and C of the Scheme the Group has
agreed with the Trustee that it will make deficit funding
contributions of £5.5 million per annum in order to eliminate
the deficits in these sections by 31 March 2021.
In 2014 we expect to make a total deficit funding
contribution of £89 million, which is £9 million higher than
2013 reflecting the increase in EBITA year-on-year.
Post balance sheet events
On 16 January 2014 we agreed to repay the remaining £62
million of the 2019 bilateral loan. This repayment will save
around £44 million in adjusted financing costs over the
remainder of the loan – around £8 million on an annualised
basis, and will lead to an exceptional loss of £30 million
for 2014. The repayment was satisfied by a one-off cash
payment of £95 million.
Ian Griffiths
Finance Director
Actuarial valuations
Full actuarial valuations are carried out every three years
with the latest completed 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.
The Trustee of the Scheme will undertake actuarial
valuations as at 1 January 2014 with the outcome expected
by 2015.
Deficit funding contributions
Following completion of actuarial valuations as at 1 January
2011 the Group has agreed with the Trustee that the level of
contributions to the main section 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.
The performance related contributions will be calculated as
follows:
2012 – 2020
If the Group’s reported EBITA pre exceptional items exceeds
£300 million, the Group will increase the fixed contributions
by an amount representing 10% of EBITA pre exceptional
items over the threshold level, 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) should not be required.
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52
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Performance and Financials
Risks and Uncertainties
ITV has a formal risk management process which is
embedded within the business to support the identification
and effective management of risks across the business. It
is regularly reviewed and adapted as the Company, industry
and macro environment evolves.
Our approach, which is consistent with previous years, covers
risks at all levels of the organisation and 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.
HILL
risks
Strategic
risks
Process level risks
Risk management framework and risk appetite
The Board is responsible for establishing a robust and
appropriate risk management framework and risk
management process for ITV. The Board, supported by the
Audit Committee, regularly reviews the risk management
framework, its content and its operations. This includes
reviewing the risks themselves and the mitigating actions.
The Board also reviews risk appetite to ensure ITV is carrying
an acceptable level of risk. During the year it conducted an
exercise to assess the current risk appetite of the business
and the actual risk the business takes with respect to
the following categories: financial, market, operational,
compliance and regulation, creative investment and
organisational. This is considered to be the first step towards
using risk appetite as a decision making tool and further
work will be undertaken in 2014 to enhance this process.
The Board also continues to monitor closely ITV’s specific
financial risks, including foreign exchange, borrowing levels,
interest rates and pension risks.
The Audit Committee keeps the overall effectiveness of
the risk management framework and the risk management
process under review.
Risk management process
The Management Board has responsibility for the content
and operation of the risk management framework and
performs regular reviews of all risks. In 2013 all the HILL
and Strategic risks were reassessed and further refined to
improve our risk management. As well as management
review, process level risks are also subject to an ongoing
review by internal audit.
Mitigating actions have been identified for all the HILL and
Strategic risks. Each strategic risk has been mapped to at
least 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 performance
indicators (KPIs) on page 36 or a subset of these KPIs. All HILL
and strategic risks are owned by at least one member of the
Management Board.
Risk monitoring process
ITV’s risk monitoring process is embedded in the running
and review of the business. Risks are primarily controlled
through the risk management process. In addition to the risk
specific mitigating actions outlined below, risks are regularly
discussed and considered through day-to-day operations
and through a number of divisional Board and review
processes.
Internal Audit Plan
The internal audit plan is driven from ITV’s risk management
framework. As outlined above management has completed
a number of activities with respect to HILL risks, Strategic
risks and Process level risks. Internal audit reviews the
auditable elements of these risks and this informs the areas
and topics that internal audit focuses on.
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53
ar2013.itvplc.com
Stock code: ITV
High Impact, Low Likelihood Risks (HILL)
HILL Risks
Risk Theme
Mitigating Factors
Financial
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
scheme deficit.
Operational
Reputation
Reputation
A significant event removes a number
of the key management team from
the business on a long-term or
permanent basis.
An event with public interest that
causes significant reputational and
brand damage.
●● The business is cash generative and in a net cash position.
Working capital management remains a key focus and
ITV’s profit to cash conversion rate remains above ITV’s
90% rolling three year target.
●● ITV has a £250 million revolving funding facility with a
number of banks which remains unused.
●● The low gross debt levels that ITV now has would enable
the Company to obtain debt from the marketplace if
needed.
●● There is regular communication between ITV and the
pension trustees.
●● The pension scheme’s assets are invested in a diversified
portfolio, with a significant amount of the fund held in
bonds.
●● ITV has worked with the pension trustees to limit the
potential deficit by entering into deals to limit exposure,
for example, a longevity swap.
●● There is a business resilience plan in place which includes
succession plans or nominated replacements for all key
positions within the Company.
●● There is a Company-wide Code of Conduct in place which
employees should follow.
There is a major health and safety
incident that results in a significant
loss of human life.
●● ITV has a central Health & Safety team and Health & Safety
policies and procedures are in place, with appropriate
training for employees where required.
●● Regular inspections are undertaken at all sites, which are
run alongside a programme of Health & Safety audits.
Reputation
A major incident results in ITV being
unable to continue with scheduled
broadcasting for a sustained period.
●● A risk register of broadcast operations including third
parties is in place and reviewed on a regular basis.
●● An end-to-end review of the broadcast cycle is regularly
undertaken.
●● An incident management process has been agreed and
disaster recovery plans are in place.
Reputation
There is a significant or unexpected
change in regulation or legislation.
●● ITV regularly communicates with legislative groups,
legal panels and Ofcom to monitor potential policy and
regulatory developments.
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54
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Performance and Financials
1
Create a lean, creatively
dynamic and fit-for-purpose
organisation
2
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. They require regular monitoring by the
Management Board and are frequently discussed at management and divisional boards.
All of the strategic risks identified have been mapped to the four strategic priorities of the Strategy and have been grouped
by key risk themes.
Strategic Risks
Mitigating Factors
Strategic Priorities
The Market
There is a major decline in
advertising revenues and ITV
does not build sufficient non-
NAR revenue streams to offset
the financial impact of this
decline.
The Market
The television market moves
significantly towards pay
television as a preferred
model, negatively impacting
ITV’s free-to-air revenues.
The Market
A faster than expected shift
to Video on Demand (VOD) or
other new technologies causes
a sustained loss of advertising
revenue.
People
ITV fails to attract, develop and
retain key creative, commercial
and management talent with
the skills required for the
changing business.
Organisation, Structure and
Processes
ITV fails to evolve its
organisational structure
and culture to ensure that
it is capable of delivering
continued growth from the
new businesses or revenue
streams.
Organisation, Structure and
Processes
A significant high profile
incident or series of events
such as transmission incidents
or a major regulatory breach
causes significant reputational
damage.
●● Growing non-advertising revenues, in areas such as ITV
Studios and Online, Pay & Interactive, remains a key part of
the strategy.
2 3 4
●● ITV continues to focus on cash and costs, ensuring the
Company has an adequate financial liquidity and balance
sheet flexibility.
●● ITV continues to support free platforms, including
YouView, to keep free-to-air strong.
2 3
●● ITV looks at and evaluates the opportunities for expanding
its existing pay services and other pay offerings.
●● ITV explores other platforms to understand viewing habits
and what people are prepared to pay for.
●● The business continues to develop ITV Player VOD
services, maximise the distribution of ITV Player and grow
its VOD advertising business.
●● ITV monitors the market for new technology and where
appropriate explores how ITV can participate.
2 3 4
●● ITV invests in training and development for all key
colleagues in the business.
1 2 3 4
●● Strategic focus on working across the business to embed
and strengthen the culture of ‘One ITV’ way of working.
●● Succession plans are in place for all key positions within
the Company.
●● ITV constantly reassesses the business to create a fit-for-
purpose organisation.
1 2 3 4
●● ITV continues to embed and strengthen the culture of
‘One ITV’ way of working.
●● ITV has ongoing projects to ensure transmission and
distribution technologies are fit-for-purpose.
1
●● There are disaster recovery and incident management
plans in place in high risk areas of the business to help
deliver a rapid and flexible response.
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2 3 4
2 3 4
3 4
1 2 3 4
1 2 3 4
Strategic Risks
Mitigating Factors
Strategic Priorities
55
ar2013.itvplc.com
Stock code: ITV
Organisation, Structure and
Processes
There is significant loss of
programme or sports rights or
ITV fails to identify and obtain
the optimal rights packages.
●● ITV is focused on both protecting and exploiting existing
rights and ensuring that future rights generated accrue
to ITV.
●● ITV has a detailed model to evaluate the value of third
party rights to ensure it only buys rights that make
economic sense.
Organisation, Structure and
Processes
ITV fails to create and own
a sufficient number of hit
programmes/formats.
●● ITV maximises opportunities for ITV Studios to create
successful shows by investing in the creative pipeline
and focusing on programmes and genres that can return
and travel internationally, i.e. drama, entertainment and
factual entertainment.
Organisation, Structure and
Processes
ITV fails to properly resource,
creatively and operationally,
the growth businesses,
in particular online and
international content.
Organisation, Structure &
Processes
ITV loses a significant volume
of personal or sensitive data.
Technology
ITV remains heavily reliant
on legacy systems, which
could potentially restrict the
ability to grow the business.
These systems and processes
may not be appropriate for
non-advertising revenues or
international growth.
Technology
ITV fails to ensure appropriate
business continuity planning
and resilience within its core
systems, processes, platforms
and technology infrastructure.
Technology
There is a sustained cyber/
viral attack causing prolonged
system denial or major
reputational damage, for
example the ability to
broadcast our channels or the
availability of ITV Player.
●● ITV is focused on hiring and retaining the right key creative
talent.
●● Talent management plans have been developed and
reviewed to ensure adequate succession planning
across ITV.
●● ITV continues to embed and strengthen the culture of
‘One ITV’ way of working.
●● Lessons from recent investments are captured through
post acquisition reviews.
●● A management board sponsored Information Security
Steering Group is in place to ensure the appropriate
management of information security.
●● Mandatory online training modules, awareness campaigns
and simplified information security policies for employees.
●● Monitoring of information sharing outside of ITV.
●● System requirements are kept under review with business
growth and system modernisation projects implemented
as appropriate.
●● A replacement plan is in place for the legacy systems
which remains under constant review and development
to ensure technology systems meet the needs of the
business.
●● Disaster recovery plans are in place with tests conducted
annually on business critical systems.
1 2 3
●● Internal Audit review the disaster recovery plans and the
test results as appropriate.
●● We continue to improve our ability to monitor, detect
and respond to cyber threats internally and through
partnerships with specialist security organisations.
1
●● Mandatory online training modules, awareness campaigns
and simplified information security policies for employees.
●● There are disaster recovery and incident management
plans in place for high risk areas of the business to help
deliver a rapid and flexible response.
●● A management board sponsored Information Security
Steering Group is in place to ensure the appropriate
management of information security.
The Strategic Report as set out on pages 2 to 55 was approved by the Board on 26 February 2014 and signed on its behalf by:
Adam Crozier
Chief Executive
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56
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Governance
Board of Directors
Management Board
Directors’ Report and Responsibilities
Chairman’s Governance Statement
Corporate Governance
Audit Committee Report
Remuneration Report
58
60
62
67
68
75
82
24 Hours in A&E
24 Hours in A&E is made by
The Garden, part of ITV Studios, for
Channel 4. The fourth series aired in
2013 with the fifth series airing in
early 2014.
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Stock code: ITV
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58
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Governance
Board of Directors
Archie Norman
Chairman
Adam Crozier
Chief Executive
Ian Griffiths
Group Finance Director
Sir Peter Bazalgette
Non-executive 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
1 June 2013
Age 59
Age 50
Age 47
Age 60
Committee membership
Nomination (Chairman),
Remuneration
Key areas of prior experience
Business turnaround, consumer
marketing, international business
and corporate finance
External appointments
• Chairman, Lazard London (2014)
• Chairman, Hobbycraft Group Ltd
(2013)
• Director of Target Ltd (2012)
• Adviser to Wesfarmers Limited
(2009)
• Director of Coles Group (2007)
• Governor, National Institute of
Economic and Social Research
(1997)
Previous experience
• Founder, Aurigo Management
Partners LLP (2006–2013)
• Senior Adviser to Lazard
(2003–2013)
• 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)
•
Committee membership
General Purpose
Committee membership
General Purpose
Committee membership
Nomination
Key areas of prior experience
Business turnaround and change
management
Key areas of prior experience
Corporate finance and financial
restructuring
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)
Key areas of prior experience
Media consultant, digital media
investor and former television
producer
External appointments
• Chairman, Arts Council of
England (2013)
• Non-executive director of
Nutopia (2011)
• Non-executive director of
Mirriad Ltd (previously Chairman
2012–2013)
• President of the Royal Television
Society (2010)
• Senior non-executive director,
Chairman of Remuneration
Committee and member of Audit
Committee, YouGov plc (2005)
Previous experience
• Non-executive director of DCMS
(2011–2013)
• Non-executive director of Base79
Ltd (2008–2013) and adviser up
to 2008
• Trustee of DebateMate
(2009–2013)
• Chairman of ENO (2012)
• Non-executive director of
Critical Information Group plc
(2009–2012)
• Adviser to Sony Music division
(2009–2012) and Chairman
of UK production business at
Sony Pictures Television Inc
(2009–2012)
• Deputy Chairman and Director
of National Film and Television
School (2002–2009)
• Chairman of Endemol UK Ltd
•
(2002–2008) and adviser until
2008
Joined Endemol in 1998,
became Chief Creative Officer
of Endemol Group BV and
Endemol Entertainment UK Ltd
(2005–2007)
• Non-executive director of
Channel Four Television Corp
(2001–2004)
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Stock code: ITV
Roger Faxon
Non-executive Director
Appointment to the Board
31 October 2012
Andy Haste
Senior Independent Director
Appointment to the Board
11 August 2008
Age 65
Age 52
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
John Ormerod
Non-executive Director
Appointment to the Board
18 January 2008
Age 65
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)
• Non-executive director and
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
Baroness Lucy Neville-
Rolfe DBE, CMG
Non-executive Director
Appointment to the Board
3 September 2010
Age 61
Committee membership
Nomination, Audit
Key areas of prior experience
International retail, communications,
legal and regulatory issues
External appointments
• Member of Supervisory Board,
Metro AG (2013)
• Non-executive director, 2 Sisters
Food Group (2013)
• Director, Hermes Equity
Ownership Services Limited
(2013)
• Member UK India Business
Advisory Council (2013)
• Member PWC Advisory Board
(2013)
• President, Euro Commerce,
Brussels (2012)
• Member of UK Trade and
Investment Strategic Advisory
Group (2011)
• Governor, London Business
School (2011)
• Member of the Coalition
Government’s Efficiency and
Reform Board (2010)
Previous experience
• Non-executive director, The
Carbon Trust (2008–2013)
• Member of China-Britain
Business Council (2007–2013)
• Executive Director, Corporate
and Legal Affairs, Tesco plc
(2006–2013)
• Corporate Leaders Group on
Climate Change (2006–2012)
• 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)
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60
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Governance
Management Board
Mary Fagan
Group Communications and
Corporate Affairs Director
Peter Fincham
Director of Television, Channels and
Online
Andrew Garard
Group Legal Director and Company
Secretary
Fru Hazlitt
Managing Director, Commercial,
Online and Interactive
Appointed
January 2011
Age 56
Appointed
May 2008
Age 57
Appointed
November 2007
Age 47
Appointed
August 2010
Age 50
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.
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.
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.
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.
Kevin Lygo
Managing Director, ITV Studios
Simon Pitts
Director of Strategy and Technology
Appointed
August 2010
Age 56
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.
Appointed
January 2011
Age 38
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 to the ITV Management
Board in the role of Director of
Strategy and Transformation in
January 2011, and more recently to
Director of Strategy and Technology
to combine the leadership of
ITV’s Technology Group with the
implementation of the Company’s
overall strategic plan. Prior to ITV,
Simon worked in the European
Parliament in Brussels where he
specialised in media issues.
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Stock code: ITV
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Picture:
DCI Banks returned in 2014 for its 3rd
series with an average audience of 7.6m
for the first episode.
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62
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Governance
Directors’ Report
The Directors present their report together with the audited
consolidated and parent company financial statements for
the year ended 31 December 2013. The comparative period
is for the year ended 31 December 2012.
Share capital
Issued: At the date of this report there were 4,025,409,194
ordinary shares of 10 pence each in issue, all of which are
fully paid up and quoted on the London Stock Exchange.
Directors
A table showing Directors who served in the year can be
found on page 70. Biographies for Directors currently in
office can be found on pages 58 and 59. In accordance with
the UK Governance Code (the Code), each Director will retire
and submit himself or herself for election or re-election at
the AGM on 14 May 2014.
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 or
by writing to the Company Secretary.
On 1 June 2013 Sir Peter Bazalgette was appointed as a Non-
executive Director, and will seek election as a Director of the
Company at the AGM on 14 May 2014. On 31 December 2013
Mike Clasper stepped down from the Board. Andy Haste was
appointed Senior Independent Director in his place.
Post balance sheet events
Details of post balance sheet events can be found on
page 173.
Dividends
The Board has proposed a final dividend for the year ended
31 December 2013. Details of this and other dividends paid
for the year are as follows:
Interim dividend
FInal dividend
Total Ordinary
Special dividend
Total Payments
2013
1.1p
2.4p
3.5p
4.0p
7.5p
2012
0.8p
1.8p
2.6p
4.0p
6.0p
The final dividend and special dividend for 2013 will be paid on 30 May 2014 to
shareholders on the register on 2 May 2014. The ex dividend date is 30 April 2014.
www.itvplc.com/about/governance
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 391.2 million of the Company’s ordinary
shares. The authority remains valid until the AGM in 2014 or
15 August 2014, 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 2013 are set out on page 166. During the
year shares have been released from the trust in respect of
share schemes for employees.
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Stock code: ITV
Substantial shareholdings
As at 31 December 2013 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.
Employees
Employment of disabled persons
The Company continues to meet its legal obligations as
outlined in the Equality Act 2010 by actively encouraging
applicants with disabilities whilst ensuring we retain the best
talent within our workforce.
Sky Holdings Ltd2
Majedie Asset Management Limited
Blackrock, Inc.
Brandes Investment Partners, L.P.
AXA S.A.
At 31 December 2013
Shares1
291,684,730
195,687,610
195,504,921
194,304,930
196,862,678
%
7.50%
5.01%
5.00%
4.99%
4.93%
1. The number of shares is based on announcements made by each relevant shareholder
using the Company’s issued share capital at that date.
2. Subsidiary of British Sky Broadcasting Group plc.
3. Following the year end there have been no further notifications received.
A profile of shareholdings is set out on page 175.
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.
Financial instruments
Note 4.5 to the accounts gives details of the Group’s financial
risk management policies and related exposures.
Political donations
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 might fall within
the broader definition of ‘political expenditure’ contained
within the Companies Act 2006. Shareholder authority
for such expenditure was given at the 2013 AGM. However,
during 2013 the Group made no payments falling within this
definition (2012: nil).
This is reflected in an award of the annual Department for
Work and Pensions Two Ticks Disability Symbol status.
Our policies and procedures fully support our disabled
colleagues. With a robust reasonable adjustment policy, an
HR Disability manager, disability specific online resources
and on-site diversity experts, we have taken active measures
to ensure employees are fully supported.
The Company is committed to the development and growth
of all its employees. Our learning and development portfolio
is inclusive and accessible to employees. Alternative formats
are available to all employees, which include large print, use
of British sign language interpreters and Braille.
The Company’s commitment around the disability agenda
extends beyond our legal obligations. For a comprehensive
outline of our activity visit our Corporate Responsibility
website.
www.itvplc.com/responsibility
Employee involvement
Attracting and retaining talent is critical to ITV’s success.
It is therefore in our interest to ensure that we provide the
appropriate rewards and opportunities for development so
that people feel engaged with the Company.
In 2013 ITV carried out an engagement campaign consisting
of a series of roadshows during which the Management
Board visited ITV locations. This gave employees an
opportunity to feed back their thoughts and concerns
about the business. Engagement was reinforced through
forums such as the intranet, regular hard copy newsletters
and briefings between management and its teams. These
channels enabled employees to understand the financial
and economic factors affecting the Company’s performance,
how their role contributed towards the execution of the
strategy and how they could benefit from company success
through involvement in employee share schemes and
information on their rights and benefits.
We have continued to measure and listen to employees
through employee surveys and employee engagement has
increased again in 2013 to 91% (2012: 88%) with 93% of
respondents proud to work for ITV.
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reappointed and the DC Investment Platform provider was
replaced.
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 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 determines the point at which the new duties
affect their organisation (the ‘staging date’). ITV had a
staging date of 1 March 2013 however, in line with permitted
legislation ITV postponed auto-enrolment until 29 May 2013
when eligible employees were enrolled into the ITV Auto-
enrolment Pension Plan.
Pension Scheme indemnities: Qualifying pension scheme
indemnity provisions, as defined in section 235 of the
Companies Act 2006, were in force for the financial year
ended 31 December 2013 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.
For further information please see page 50 and note 3.7.
64
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Governance
Directors’ Report continued
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 defined benefit (DB) sections are closed to
new members but are still open to future accrual.
ITV Pension Scheme Limited is a corporate trustee and
manages the DB and DC assets of the Scheme, which
are held under trust separately from those of the Group.
Members of the trustee board are formally appointed as
directors of ITV Pension Scheme Limited. There are nine
directors including the chairman – five appointed by the
Company and four nominated by the members.
A member nomination selection process took place during
June 2013 and on 1 July 2013, one trustee was reappointed
and two new trustees were appointed. There is currently a
vacancy for a company appointed director.
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. It is the
responsibility of the trustee to have in place appropriate
training for its directors and effective committee structures.
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.
The trustee directors receive regular training throughout the
year and also have the support of the various professional
advisers. The chairman and the pensions executive identify
training opportunities. Training is delivered both by
attendance at external courses and with targeted training
to support specific agenda items at the start of each trustee
board meeting. Where appropriate, longer training sessions
are organised. Comprehensive records are kept of all training
completed by each trustee director and training is discussed
as part of the trustee evaluations conducted on an annual
basis.
The trustee board completes regular assessments of its
advisers and has prepared a Service Charter that outlines
the terms of the appointment and clarity on the services
provided. The aim of the document is to support the ongoing
monitoring of the adviser or services provider and will be
introduced as they are reviewed and appointed. During
2013 The Scheme Actuary and Investment Consultant were
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Stock code: ITV
Health and safety
The Health and Safety (H&S) of our employees, contractors
and visitors 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
2013
2012
2
0
0
5
3
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.
The statistics are for UK permanent and fixed-term employees.
For more detail on the Company’s health and safety
management system and implementation visit our
Corporate Responsibility website.
www.itvplc.com/responsibility
Greenhouse Gas emissions
The Company is required to report annually on the quantity
of carbon dioxide emissions in tonnes emitted as a result
of activities for which it is responsible, our Greenhouse Gas
emissions.
All new regulatory data for the financial year ended
31 December 2013 is disclosed below for direct and indirect
emissions. Data on other emissions where available and
more information on our energy use, environmental impacts,
and how we aim to make a positive difference can be found
on our Corporate Responsibility website.
www.itvplc.com/responsibility
Our total Greenhouse Gas emissions
Indicator
Total gross CO2e emissions
Scope 1: Direct emissions
Scope 2: Indirect emissions
Total Revenue
Emissions per unit/£m turnover
Source: Utilyx analysis of ITV data.
2013
43,485 (tCO2e)
17,117 (tCO2e)
26,368 (tCO2e)
£2,753m
15.8 (tCO2e)
The latest conversion factors specified in Defra and DECC’s 2013 guidance were used as
methodology. 44% of our data consumption is based on estimate. This is where we are
the occupier of a property but do not pay the energy bills directly. Estimates are calculated
from observed ITV consumption intensity and published benchmarks where relevant.
Risk management
Details of our High Impact Low Likelihood (HILL) and
Strategic risks and our approach to risk management are set
out on pages 52 to 55.
Going concern
The going concern statement is set out on page 115.
Auditor
KPMG has instigated an orderly wind-down of KPMG Audit
Plc as a result of an internal reorganisation and requested
that going forward the audit is instead undertaken by KPMG
LLP (an intermediate parent of KPMG Audit Plc). KPMG Audit
Plc will not therefore be seeking reappointment as auditor
of the Company and in accordance with the Companies Act
2006, a resolution proposing the appointment of KPMG LLP
as our auditor will be put to the 2014 AGM.
Annual General Meeting
The AGM will be held on Wednesday, 14 May 2014 at
11.00 am at the Queen Elizabeth II Conference Centre, Broad
Sanctuary, Westminster, London, SW1P 3EE. The Notice of
the AGM contains an explanation of special business to be
considered at the meeting.
A copy of the Notice will be available on our website.
www.itvplc.com/investors/annual-general-meeting
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66
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Governance
Directors’ Report continued
Directors’ Responsibilities
The Directors consider that the Annual Report and accounts,
taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders
to assess the Company’s and the Group’s performance,
business model and strategy.
Each of the Directors, whose names and functions are
listed on pages 58 and 59, confirm that, to the best of their
knowledge:
●● the Group accounts, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true
and fair view of the assets, liabilities, financial position
and profit of the Group; and
●● the Directors’ Report includes a fair review of the
development and performance of the business and the
position of the Group, together with a description of the
principal risks and uncertainties that it faces.
In accordance with Section 418 of the Companies Act
2006, the Directors 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.
The Board has conducted a review of the effectiveness of
the Group’s systems of internal controls for the year ended
31 December 2013. In the opinion of the Board, the Company
has complied with the internal control requirements of
the UK Corporate Governance 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 79.
By order of the Board
Andrew Garard
Company Secretary
26 February 2014
ITV plc
Registered number 4967001
The Directors are responsible for preparing the Annual Report and
the Group and parent company financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Group and parent
company financial statements for each financial year. Under that
law they are required to prepare the Group financial statements
in accordance with IFRSs as adopted by the EU and applicable
law and have elected to prepare the parent company financial
statements in accordance with UK Accounting Standards.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and parent company
and of their profit or loss for that period. In preparing each of the
Group and parent company financial statements, the Directors are
required to:
●● select suitable accounting policies and then apply them
consistently;
●● make judgements and estimates that are reasonable and
prudent;
●● for the Group financial statements, state whether they have
been prepared in accordance with IFRSs as adopted by the EU;
●● for the parent company financial statements, state whether
applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in
the parent company financial statements; and
●● prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
parent company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
company’s transactions and disclose with reasonable accuracy
at any time the financial position of the parent company and
enable them to ensure that its financial statements comply with
the Companies Act 2006. They have general responsibility for
taking such steps as are reasonably open to them to safeguard
the assets of the Group and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, 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.
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Stock code: ITV
Chairman’s Governance Statement
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 and exercises a degree of
rigorous enquiry and intellectual debate. This serves to
promote continuous and sustained improvement across the
business.
The Board consisted of a majority of independent Non-
executive Directors throughout the year. Further details of
our Board composition and appointments are set out in the
Governance Report.
In addition to scheduled formal Board and Committee
meetings, there are meetings for cross interaction among
the members of the Board, Management Board, Senior
Independent Director, Non-executive Directors and myself.
These meetings provide a sense of value added from the
engagement of the Board members in all their interaction
with the Company, formal or otherwise. In 2013, the Board
continued its programme of visiting different areas of
the business. This year the Board members took a trip to
Stockholm where they met with colleagues to discuss
our continuing growth in the Nordic region. The Company
has a policy and programme for induction and continuing
professional development for Directors. On appointment
each Director takes part in a comprehensive induction
programme. To enhance performance and effectiveness, the
Board has established a process for the annual development
of the Board, its committees and individual Directors.
We remain committed to sharing our business vision with
our shareholders by maintaining regular open dialogue
and effective communication. We believe that continued
engagement with our shareholders is highly beneficial to
all parties as it helps to build a greater understanding of our
investors’ views, opinions and concerns.
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 (the Code).
I am pleased to report that ITV has complied with the
provisions of the Code throughout the year ended
31 December 2013.
Archie Norman
Chairman
26 February 2014
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“The Board believes that
Corporate Governance is
important in ensuring its
effectiveness”
Dear Shareholder,
The Board believes that a high standard of corporate
governance is a key contributor to the long-term success of
the Company.
The Board remains committed to ensuring that a
combination of good leadership and the highest standards
of corporate governance is maintained through a
combination of a robust internal framework of systems and
controls underpinned by the right values and culture. This
framework of policies and processes is regularly reviewed
against developments in the legislative, regulatory and
governance landscape.
This governance report comprises the following sections:
●● How the Board works
●● Effectiveness
●● Relations with shareholders
●● Audit Committee Report
●● Remuneration Report
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68
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Governance
Corporate Governance
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.
There is a schedule of specific matters reserved to the Board
for decision which is available on our website.
What have we focused
on during 2013?
– UK and international content strategy
– Broadcast strategy
– Risk appetite, profile and mitigation
– Five year strategy review
– Succession planning
– Governance and board performance
www.itvplc.com/about/governance
Our plans for 2014?
– Next iteration of the five year strategy
– Pension investment strategy
– Property strategy
– Risk appetite, profile and mitigation
– Succession planning
– Governance and Board performance
Our meetings
The number of meetings held during the year and
attendance of Directors is set out in the table on page
70. 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 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. Board meetings are structured around
the following areas:
●● Operational and functional updates
●● Financial updates
●● Strategy and risk
●● Progress against strategy
●● 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:
●● Board members and Management Board members
●● Chairman and Non-executive Directors
●● Senior Independent Director and Non-executive Directors
(without the Chairman present)
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Stock code: ITV
Remuneration Committee
Chairman and two
Non-executive Directors
Audit Committee
Three Non-executive Directors
Nomination Committee
Chairman and Non-executive
Directors
Our Governance structure
Board
Chairman, two Executive Directors, and five non-executive Directors
Management Board
Senior executives of Group
functions and divisional
businesses
General Purpose
Committee
Executive Directors
Divisional Boards
Executive Directors and
senior executives of divisional
businesses
Disclosure Committee
Executive Directors and other
Senior Managers
Details of Board membership during 2013 is set out on page 70.
The diagram above shows ITV’s governance structure.
The Board has approved a formal framework for the
approval of expenditure within the Company around this
governance structure.
Who is on our Board and how we work as a team
Composition and appointments
In June 2013 the Board appointed Sir Peter Bazalgette as a
Non-executive Director. Peter was selected from a number
of potential candidates. The Board felt that Peter’s wealth
of experience in media consultancy, digital media and as
a former television producer would be an asset to the
Board assisting with the execution of the business strategy.
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 was asked by the Board to
continue in this position for a further twelve month period.
He stepped down from the Board on 31 December 2013.
Andy Haste was appointed as Senior Independent Director in
his place.
As recommended by the Code, there will be resolutions to
elect or re-elect each of the Directors at the AGM in
May 2014.
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.
www.itvplc.com/about/governance
Skills and experience
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.
Biographical details for the Directors are set out on pages
58 and 59.
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Governance
Corporate Governance continued
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 2013
Scheduled meetings shown in black and ad hoc meetings shown in orange.
Status
Notes
Peter Bazalgette
Mike Clasper
Adam Crozier
Roger Faxon
Ian Griffiths
Andy Haste
Lucy Neville-Rolfe
Archie Norman
John Ormerod
Independent
Independent SID
Executive
Independent
Executive
Independent
Independent
Independent Chairman
Independent
1
3
2, 3
Date of
appointment
to the Board
1 June 2013
3 January 2006
26 April 2010
31 October 2012
9 September 2008
11 August 2008
3 September 2010
1 January 2010
18 January 2008
Board
Nomination
Committee
Remuneration
Committee
Audit
Committee
11
7
11
11
11
11
11
11
11
11
1
1
1
1
1
1
1
1
1
1
2
1
2
–
1
–
2
1
2
2
1
–
1
–
1
–
1
1
1
1
5
–
5
–
–
–
5
–
5
5
1
–
1
–
–
–
1
–
1
1
5
–
5
–
–
–
5
4
–
5
2
–
1
–
–
–
1
2
–
2
1. Peter Bazalgette joined the Board on 1 June 2013. Four of the 11 scheduled Board meetings were held prior to his appointment.
2. Lucy Neville-Rolfe was appointed to the Audit Committee on 1 May 2013 and so did not attend the meeting held prior to this.
3. Non-attendance at Nomination Committee was due to Board meeting overrun and unavoidable other commitments.
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.
www.itvplc.com/about/governance
Audit Committee
See the Audit Committee Report on page 75
Remuneration Committee
See the Remuneration Report on page 82
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.
The Company also has the following Committees:
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
the Executive Directors and other 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.
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Stock code: ITV
Effectiveness
Evaluation
The Board has established an ongoing evaluation and
development process. The process focuses on roles and
responsibilities, culture, balance of skills and experience,
diversity and how the Board works together. In particular, it
focuses on how effective the Directors are in assisting the
executive team in achievement of the strategy.
At the end of 2012 the Board embarked on a comprehensive
Board Development Programme facilitated by Gurnek
Bain of YSC, a global firm of business psychologists. This
included a rigorous assessment of performance, agreement
on the Board’s aspirations for itself and identification of
steps required to achieve its objectives. Over the past 12
months each board member has had access to feedback
and advice from YSC to help develop their own performance
and the Board has held a number of collective discussions
to review and agree on progress. At the end of the process
further feedback was given and a programme for future
development was agreed. It is ITV policy to ensure that
all board members have continued access to coaching,
feedback and support, and a further healthcheck review will
be undertaken on the anniversary of the completion of the
programme in 2014.
YSC have also been involved in supporting the review of
the board make up and composition. They have no other
connection with the Company.
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 annual re-election by shareholders
as recommended by the Code.
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.
●● Graduate Programme.
●● Apprentice Programme.
A comprehensive portfolio of development courses and
workshops for all colleagues which address common
development needs is in place.
0–2 years
25%
2–4 years
37.5%
4–7 years
37.5%
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Governance
Corporate Governance continued
Diversity
It is the Board’s policy to retain a strong but relatively
small board bringing a balance of in depth commercial
and creative experience. Although given the size of the
Board specific formulaic targets are not appropriate it is
our intention to increase the gender and ethnic diversity of
board membership as opportunities arise.
Diversity within the organisation is integral to achieving
our business aims. Reflecting the demographics of our
customers and understanding their needs ensures that our
brand, services and products are accessible, inclusive and
have wide appeal.
The Company’s aim is to represent our society both within
the organisation and on-screen. Year-on-year progress has
been achieved in working towards this target. Key activity in
2013 included:
Induction
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
●● Diversity awareness training for line managers,
●● are advised of their legal and other duties and obligations
supervisors and programme makers.
as a director of a listed company.
●● Sustaining programme portrayal monitoring across 75%
of our programmes.
●● Workshops across the country to support future
generations of diverse talent from Black, Asian, Minority
Ethnics and individuals with disabilities.
●● Developing and maintaining partnerships with external
organisations to support and recognise diverse talent. For
example, partnering with the inaugural Asia Media Awards
and working with government to deliver the first ever
Disability Confident conference to FTSE 100 companies.
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
Provision of documents
Matters covered
Duties of a Director, board
procedures, board and
strategy papers and corporate
governance
Stage two
Meeting with Chief Executive
and Group Finance Director
Matters covered
Business overview, current
trading and key commercial
issues
Meetings with Non-executive
Directors
Open discussion forums
Meetings with Management
Board members and other
senior executives
Commercial issues and
projects
Stage three
Site visits
Matters covered
Understanding of the business
and operations
Additional specific induction programmes are in place when
Non-executive Directors join committees.
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Stock code: ITV
Continuing professional development
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:
●● 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.
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.
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. For further information on board
development see the Evaluation section on page 71.
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.
www.itvplc.com/about/governance
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.
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.
The Company considers annually whether it is appropriate to
commission an investor audit. No audit was undertaken
in 2013.
Private shareholders represent more than 95% of our
shareholders holding 3.36% of our shares. We encourage
shareholders to register their email addresses to receive
information from us in a timely manner.
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Governance
Corporate Governance continued
Annual General Meeting (AGM)
The AGM will be held on 14 May 2014 (further details can
be found on page 65). The Notice of Meeting sets out the
resolutions being proposed. The Notice, together with any
related documents, is made available to shareholders on or
website 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 93% to 100%.
www.itvplc.com/investors/annual-general-meeting
In 2013 the meeting was attended by 131 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 as soon as possible after the meeting.
www.itvplc.com/investors/annual-general-meeting
Shareholders who are not able to attend the meeting can
vote online in advance via our website 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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Stock code: ITV
Audit Committee Report
In this report . . .
The purpose of this report is to highlight areas that the Committee has reviewed during the year, reporting back to
shareholders the significant financial reporting issues and judgements made in connection with the preparation of the
Company’s financial statements. The report also notes any areas or specific topics, such as risk, that the Committee
has reviewed. Also highlighted is how the Committee has assisted the Board in reviewing the Company’s internal
control environment, and what the Committee has done to review the effectiveness of both internal and external
auditors. This year the report addresses the changes in the UK Corporate Governance Code by describing in more
detail what the Committee does, and what processes and controls are in place to help ensure that the annual report
presents a fair, balanced and understandable view of the business.
of a strong control environment across ITV and to ensure
the integrity of the financial information provided to our
shareholders. We do this in the context of a business with
ambitious plans and a growing international footprint.
We seek not just to respond to changes but to support
and challenge management to develop controls as they
anticipate future opportunities and risks.
As requested by the Board, the Committee has considered
the processes and controls in place to help ensure that the
annual report presents a fair, balanced and understandable
view of the business. As a result of this work the Committee
concluded that the processes and controls were appropriate
and was able to provide positive assurance to the Board.
In reporting to you, we have sought to respond to
shareholders’ changing requirements and expectations
of audit committees. This is no doubt the start of
improved communication between audit committees and
shareholders and we welcome feedback.
John Ormerod
Chairman, Audit Committee
26 February 2014
Who is on the Committee
The Committee is composed entirely of Non-executive
Directors. The current members are:
●● John Ormerod (Chairman)
●● Andy Haste
●● Lucy Neville-Rolfe (appointed 1 May 2013)
Mike Clasper stepped down from the Board and as a member of the
Committee on 31 December 2013.
Full details of attendance at committee meetings can be
found in the table on page 70
“We seek not just to respond
to changes but to support
and challenge management
to develop controls as
they anticipate future
opportunities and risk.”
Dear Shareholder,
On the following pages we set out the Audit Committee’s
Report for 2013. The report comprises four sections:
●● How the Committee works
●● What we focused on in 2013
●● Internal controls
●● Our auditors
Strong and effective risk management and control
procedures underpin our ability to execute and implement
our strategy. The principal aims of the Committee are to
support the maintenance and continuing development
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Governance
Audit Committee Report continued
How the Committee works
The Committee members have between them a wide range
of business and financial experience 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
qualification and experience, are set out on pages 58 and 59
The Chief Executive, Group Finance Director and internal and
external auditors attended meetings during the course of
the year at the invitation of the Chairman of the Committee.
Members of the Management Board and other senior
management have attended certain meetings by invitation.
The Committee as a whole has regular private sessions
with both internal and external auditors and also, when
appropriate, with the Group Finance Director.
In addition, throughout the year the Chairman of the
Committee has individual sessions with other Committee
members and 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 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, themes or
areas of risk that the Committee has identified, together
with standing items that the Committee is required to
consider regularly under its terms of reference. Reports
are provided by management, internal audit, and external
audit, addressing the key risks and reporting matters faced
by the Group. Following each meeting the Committee
communicates its main discussion points and findings to the
Board.
In addition to formal meetings, from time to time,
Committee members have informal briefings on topics
relevant to the Committee’s work from members of the
operational and financial management teams and external
auditor.
In reviewing the various topics on its agenda the Committee
members receive input from management, internal
audit and external audit as appropriate. Committee
members draw upon this and their own experience to
provide a constructive challenge to the judgements made
by management and consider alternative scenarios or
accounting treatments in reaching their conclusions.
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 published
financial information of the Company (having
regard to matters communicated by the auditor);
●● review the consistency of, ongoing appropriateness
of, and changes to, accounting policies, consider the
methods used to account for significant or unusual
transactions;
●● review the effectiveness of the internal control and
risk management processes;
●● review the Group’s whistleblowing process for
employees;
●● review and approve the internal audit plan;
●● monitor and review the effectiveness and
independence of the internal audit function;
●● monitor and review the effectiveness of
management in addressing internal and external
audit actions;
●● review the quality and effectiveness of the external
audit and the procedures and controls designed to
ensure auditor independence;
●● consider and make recommendations to the Board
in relation to the appointment, reappointment,
replacement, and remuneration of the Company’s
external auditor; and
●● where requested by the Board, provide advice on
whether the annual report and accounts, taken as
a whole, is fair, balanced and understandable and
provides the information necessary for shareholders
to assess the Company’s performance, business
model and strategy.
The Committees terms of reference can be accessed
on our website.
www.itvplc.com/about/governance
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What we focused on in 2013
In planning its own agenda, and reviewing the audit plan
of the internal and external auditor, the Committee takes
account of significant issues and risks, both operational
and financial, likely to impact on the Company’s financial
statements. The Committee also addresses specific queries
referred to it by the Board or Remuneration Committee. In
2013, the Remuneration Committee asked the Committee
to report by exception on significant unusual or non-
recurring transactions which came to its attention and the
effect of which the Remuneration Committee may wish to
consider in connection with its assessment of remuneration.
An annual review of the performance of the Committee
was conducted for the year. In addition to feedback from
members of the Committee, input was sought from the
Group Finance Director, KPMG, internal audit and the
Chairman of the Board. Overall, the review concluded that
the Committee is responding appropriately to its terms of
reference and will continue to develop its role.
Below is a summary of some of the more significant risks
and issues discussed in the year by the Committee.
During 2013 there were no topics where there was
significant disagreement between management, our
external auditor and the Committee or unresolved issues
which needed to be referred to the Board.
Technology Risk
As the Group has progressed through the strategy, the
technology infrastructure supporting the business has
evolved to support the rebalancing of the business
opportunities from new revenue streams and the production
business. Legacy systems supporting the existing business
remain in place, while emerging technology has been
adopted to support new opportunities. It is therefore
important to have in place an effective technology
governance framework that seeks to address the risks posed
by the Group’s technology environment. The governance
framework, which is reviewed by the Committee, seeks
to identify and manage key risks and provide oversight
and methodologies around governing change and major
projects.
In 2012 reviews by internal and external audit highlighted
a number of opportunities to improve the governance of
our core systems. The Committee and management agreed
a set of actions and a workplan to address these, most
of which were completed by the end of 2013. Work will
continue to finalise remaining actions which will be kept
under review by the Committee and internal and external
audit.
The Group has a technology governance and assurance team
who ensure a coordinated approach is in place to mitigate
the risks faced in technology. In 2013 two key high risk areas
were reviewed by the Committee:
●● As part of a wider end-to-end review of the broadcast
transmission infrastructure (including interaction
with third party outsource providers), the incident
management and governance processes were
revisited, and a number of changes were agreed for
implementation.
●● There has been significant media coverage of the recent
increase in attacks on corporate infrastructure. Examples
of such issues include the loss of customer data due to
hacking and the disruption of corporate social media
feeds. In response to these cyber security threats,
the Committee discussed management’s assurance
plans around information security and technology
infrastructure.
Financial Reporting
As part of the Committee’s review of the interim and year-
end financial statements, the following were discussed:
Complex discrete transactions in the year
The Group completed certain transactions during the period
which were outside the normal course of business. The
Committee carefully reviewed these one-off transactions
to ensure that the judgements applied by management
were reasonable and any complex accounting guidance
followed correctly. The topics discussed in the year
covered acquisitions, debt settlements and large property
acquisitions.
Acquisition accounting (see note 3.4 for details of
acquisitions): following the acquisition of four businesses
during the year, the Committee debated the accounting
for the key areas of judgement: the determination of
whether ITV has control of the entity and should therefore
consolidate its accounts in the Group’s accounts, the
presentation of performance-related contingent payments
or earn-out costs in the income statement, and determining
the fair values of the net assets acquired:
●● Control: this was particularly relevant for acquisitions that
were structured so that the Group acquired a majority
equity interest in a company, but less than 100%. The
Committee debated ITV’s majority representation,
control of budgets and decision-making power on the
new boards and concluded that the Group does control
each of the businesses acquired.
●● Performance-related consideration and earnouts: the
Group’s acquisitions include an amount which is payable
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Governance
Audit Committee Report continued
based on future performance of the business. Structuring
the acquisition this way helps manage risks in terms
of initial capital outlay and creates a joint incentive
between ITV and the previous owners to grow the
business. This is a feature that is common for acquisitions
in the creative industry. Where the payment is also
linked to employment, IFRS requires it to be accrued
as a remuneration operating cost over the period to
payment. The Committee debated the presentation of
the transaction and concluded that these costs are linked
to a capital transaction and their size and nature warrants
them being excluded from underlying earnings (adjusted
profit). Once acquired and the earnout period has been
completed, operational salary and bonuses payable to the
sellers are treated as part of operating costs.
●● Intangibles: the Committee reviewed the results of
the exercise to allocate the purchase price between
intangible assets and goodwill and agreed with
management’s allocation.
Debt settlements: as part of management’s continued
efforts to improve the balance sheet and remove remaining
expensive debt, the Group repurchased significant debt
in the year. Accounting for these repurchases, though
complex, required little judgement. However, due to the
significant loss of £61 million the Committee sought
to ensure the accounting standards had been applied
correctly. The Committee considered the source of the
inputs management used in calculating the amount of loss
to be recognised and concluded that the accounting was
appropriate.
Acquisition of the London Television Centre: the Group
acquired its headquarters in January. The Committee
discussed the analysis undertaken by management to
allocate the purchase price between the value of the land
and building, which is required by the new accounting
standard on fair value measurements. Real estate
consultants were engaged to provide an estimate of the
land value. The Committee considered the results of the
exercise and agreed with management’s allocation
(see note 3.2).
Recurring transactions in the year
There are a number of areas where the Group transacts
as part of its business as usual. However, these areas may
require the application of judgement by management or
have underlying complexity that should be considered on an
ongoing basis by the Committee. Consequently, the topics
noted below are regularly reviewed by the Committee:
Revenue: every year the Committee considers
management’s assessment of the Group’s internal controls
framework, which includes control over revenue. The Group’s
processes and controls around existing revenue streams,
such as NAR and Studios revenues, have remained consistent
and effective during the year.
As new revenue streams emerge – which has been seen in
areas such as the Online, Pay & Interactive business – the
Committee reviews policies adopted by management
to recognise revenue and considers the related controls.
The policies and controls adopted in 2013 are consistent
with prior years and are considered appropriate by the
Committee. No changes have occurred during the year.
Deal debt: deal debt is where management provides for
over/under delivery of advertising value to agencies. The
Committee reviews management’s approach and method of
determining the provision required and ensures consistency
is applied in estimating inputs. The Committee is satisfied
that the provision has been calculated on a consistent basis
with prior years.
Royalty accruals: the Group is required to make royalty
payments for content broadcast and distributed. Such
payments are in accordance with individual contracts,
and the large variety of terms results in a complex and
manual process. As part of the agreed 2013 plan, internal
audit reviewed the controls around the royalty accrual
process without significant finding. As with previous years,
the Committee considered the estimated accrual to be
reasonable.
Pension accounting: the Group’s defined benefit pension
scheme is a significant liability on the Group’s balance sheet
(see note 3.7) and the value of the scheme will fluctuate
due to changes in underlying assumptions. The main
assumptions which drive these fluctuations include the
forecast bond yield rates and the forecast inflation rate. A
particular feature affecting 2013 has been the valuation of
a longevity swap. A recent change to IFRS has required the
swap to be recorded at fair value on a different basis from
the best estimate of value on which the swap was previously
recorded. The Committee considered both the process
management undertook to finalise the assumptions, and
how these assumptions benchmark against the market. In
particular, because of the size of the valuation adjustment to
the longevity swap of £95 million, the Committee confirmed
the changes in IFRS had been appropriately applied with
our auditors and the sources of information on which the
recorded valuation was based. The Committee concluded
that that the process was robust and the resulting
calculation appropriately balanced.
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Tax: the Group recognises certain provisions and accruals
in respect of tax. The Committee debates the nature and
key risks which give rise to corporate tax, payroll and VAT
issues, and discusses the activities management undertake
to resolve the matters that give rise to such provisions.
Where support from our tax advisers is received, the results
and views of their work are also reviewed. The Committee
concluded that the provisions at the year-end were
appropriate (see note 2.3).
Risk Management
The Committee continued to consider the process for
managing risk within the business.
Every year the Board and senior management review and
challenge the Group’s High Impact Low Likelihood (HILL)
risks, and the strategic risks. Each risk is assigned an owner
and has a series of mitigating actions identified. An updated
list of risks is included within the Strategic Report on pages
53 to 55.
For each HILL risk the Committee reviewed the Group’s
current level of exposure and considered the appropriateness
of the mitigating actions being taken by management.
The Committee also considered management’s response to
each strategic risk, including the level of assurance provided
around the risk and how the risk is tracked using key risk
indicators. With regard to process risks the Committee
reviewed how effective management was in addressing the
findings of internal and external audit, as well as the method
by which management accepted process risks.
The Committee was comfortable with the processes in place
for risk management, that the internal audit plan for 2014
was aligned to the highlighted risks and with those process
risks that have been accepted.
Read more on risk management in the Risks and Uncertainties
section on page 52
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, along with an update of the
Group’s performance against strategic KPIs and cash.
Actual results are compared to budget and forecasts, and
key trends and variances are 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.
●● Control environment: financial controls, policies, and
procedures are considered as part of the Group’s ongoing
risk assessment process. These controls are reviewed
to ensure risks are identified and the processes and
procedures are in accordance with and aligned to the
strategy. The internal audit team provides objective
assurance as to the effectiveness of the Group’s systems
of internal control and risk management, reporting to
both the Management Board and the Committee.
●● Reviewing and monitoring the effectiveness of
internal controls: controls are monitored by senior
management, internal audit and the Committee.
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.
●● Data analytics: during the year the Group implemented a
suite of automated analytics tests that enables the Group
to continuously highlight exceptions from the norm
over its transactional financial data. Going forward, this
will make the control environment stronger and more
efficient.
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Governance
Audit Committee Report continued
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, which adheres to the underlying principle
that they cannot implement controls that they audit.
During the year Deloitte provided the Group with advice
on remuneration policy and the external remuneration
environment. Other services included tax and corporate
finance advice.
The effectiveness of internal audit is assessed over the year
using a number of measures which include (but are not
limited to):
●● an evaluation of each audit assignment completed using
feedback from the part of the business that has been
audited; and
●● a high level annual review that is completed by obtaining
feedback from senior management in each division.
At the start of the year the Committee considered and
approved the internal audit plan, which included audits
across the Group as well as assurance over live projects.
During the year the Committee reviewed findings from
these internal audit reports, the actions taken to implement
the recommendations made in the reports and the status of
progress against previously agreed actions. All internal audit
reports are available to the Committee as required.
External auditor
Auditor engagement
Throughout the year the Committee receives reports from
the auditors on their plans and the progress and results of
their work.
The Committee considers carefully the scope of planned
work and the assessment of risk and materiality on which it
is based. In particular the Committee reviews the audit fee
arrangements to ensure that there is an appropriate balance
between the scope of work and the cost of assurance. The
Committee’s aim is to support a robust and effective audit
and strong reporting lines to the Committee.
In 2012 the Committee conducted a tender process for
external audit services, the main outcome of which was the
reappointment of KPMG, and a plan for the development of
the external audit approach over a two to three year period.
The principal planned changes agreed were that:
●● the scope of the external audit will consider
developments in certain areas of the business earlier than
otherwise might have been considered necessary on a
traditional assessment of financial materiality, such as
certain online revenues and controls over and at smaller
overseas acquisitions ; and
●● the data analytics implemented by management as part
of the internal control initiatives will allow for all year
round routine audit tests through exception reporting,
making the control environment both stronger and more
efficient. Further, the embedded technology will support
internal and external audit’s systems evaluation and
testing.
The Committee continues to monitor the implementation of
these changes.
Auditor effectiveness
Audit quality is reviewed throughout the year with the focus
on: strong audit governance; the firm’s methodology and
its effective application to ITV; robustness of challenges and
findings on areas which require management judgement;
and the quality of the senior members of the audit team.
In particular, the effectiveness of the audit is assessed over
the year using a number of measures including (but not
limited to):
●● reviewing the quality and scope of planning of the audit
and its responsiveness to changes in our business;
●● implementation of planned improvements identified in
the audit tender process;
●● monitoring the independence and transparency of the
audit;
●● reviewing the Financial Reporting Council’s Audit Quality
Review (AQR) reports for KPMG and other audit firms; and
●● seeking feedback from KPMG on any external or internal
quality review of our audit.
At the conclusion of each year’s audit the Committee
performs a specific evaluation of the performance of
the external auditor. This is supported by the results of
questionnaires completed by the Executive Directors and
relevant senior management, both finance and non-finance,
covering areas such as quality of audit team, business
understanding, audit approach and management. Where
appropriate, actions are agreed against the points raised
and subsequently monitored for progress. There were no
significant findings from the evaluation this year and the
Committee considers the external audit to have been robust
and effective.
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The significant non-audit engagements related to VAT and
corporate tax services, including tax advice. Significant
engagements require the prior approval of the Chairman 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 2013. The resolution was
passed and KPMG Audit Plc was reappointed for a further
year.
KPMG has instigated an orderly wind-down of KPMG Audit
Plc as a result of an internal reorganisation and requested
that going forward the audit is instead undertaken by KPMG
LLP (an intermediate parent of KPMG Audit Plc). KPMG Audit
Plc will not therefore be seeking re-appointment as auditor
of the Company and in accordance with the Companies Act
2006, a resolution proposing the appointment of KPMG LLP
as our auditor will be put to the 2014 AGM.
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Independence, objectivity and fees
The Committee seeks to ensure the objectivity and
independence of our auditors through:
●● focus on the assignment and rotation of key personnel;
●● the adequacy of audit resource; and
●● policies in relation to non-audit work.
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 for 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.
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;
●● results in the auditor developing close personal
relationships with ITV employees;
●● results in the auditor functioning as a manager or
employee of ITV; or
●● puts the auditor in the role of advocate for ITV.
The policy is reviewed annually and is available in full on our
website.
www.itvplc.com/about/governance
Other than in exceptional circumstances management and
the Committee do not expect non-audit fees to be in excess
of fees for audit and audit related services. The non-audit
fees for 2013 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. No changes have been made to
the policy during the year.
Details of the related audit and other services are set out in note
2.1 on page 123
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Governance
Remuneration Report
In this report . . .
The purpose of this report is to set out for shareholders the principles and policy we apply to remuneration for our
Executive Directors and to update you on how we have applied these for the financial year ended 31 December 2013.
The report also aims to demonstrate how our remuneration policy is aligned to our strategy, supports the retention of
the Executive Directors and rewards them for outperformance.
This report is subject for the first time to amended legislation on remuneration and we will be asking our shareholders
at the 2014 AGM to approve our:
●● Remuneration policy as set out on pages 85 to 92. This will be a binding vote.
●● Annual Report on Remuneration as set out on pages 93 to 101. This will be an advisory vote.
We would encourage our shareholders to provide us with feedback if they feel we could provide more clarity in our
reporting.
Dear Shareholder,
On the following pages we set out the Remuneration Report
for 2013. Our report looks quite different this year as we are
required for the first time to comply with new UK regulations
on the disclosure of directors’ remuneration.
Remuneration review
During 2013 we undertook an extensive review of our
approach to remunerating Executive Directors. As a result
of this review we will be asking our shareholders to support
three resolutions on executive remuneration matters at our
AGM in May 2014:
●● We will be seeking shareholder approval for a new Long
Term Incentive Plan (new LTIP).
●● We will be asking our shareholders to formally approve
our remuneration policy for the first time.
●● We will be holding an advisory vote on our Annual Report
on Remuneration.
We have consulted extensively with our major shareholders
on these proposals and where appropriate their comments
have been reflected.
Objectives for the remuneration review
The principal objective of the review was to ensure that the
remuneration framework remains aligned with the strategy
of the business as ITV moves into the next phase.
The current remuneration arrangements were put in place
for 2011 when the Board set out to build a top calibre, highly
motivated team to lead the renewal of ITV and have strongly
supported the strategy over this time. Performance has
been outstanding and delivered real value to shareholders
over the period to 31 December 2013, including:
“Rewarding the Executive
Directors for continuing
to deliver strong business
performance and shareholder
value is key to ITV’s continued
success.”
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the levels of pension provision provided to Executive
Directors in comparable organisations.
●● Provide market competitive levels of remuneration
comparative to performance – We are proposing to
increase long-term incentive opportunities to levels that
reflect the current size and challenge of the Executive
Director roles, the level of performance delivered and the
current size of the Company.
●● Performance targets set at stretching levels to reflect
business outlook – Performance target ranges will
continue to be set at levels that reward strong business
performance. The level of vesting for threshold
performance has been reduced, reflecting the increased
award levels. When considering performance outcomes
the Committee will look beyond formulaic results to
ensure the outcomes align with the overall business
performance.
The Committee has been thoughtful about the combined
value of all of the proposed changes, as well as the individual
elements. In summary, the overall remuneration packages
are intended to support the retention of the Executive
Directors in the business and to reward them for continuing
to deliver strong business performance and shareholder
value.
The increase in total remuneration for the Chief Executive
from 2012 to 2013 results from the vesting of his joining
award in 2013, together with the first vesting under a PSP
award since he joined ITV. The level of vesting of both
awards reflects the outstanding performance to date and a
significant increase in share price.
Further details are provided in our remuneration policy.
The Committee initiates dialogue with major shareholders
where developments or changes are proposed and
welcomes feedback at other times.
We look forward to receiving your support for all three
resolutions at our forthcoming AGM.
Andy Haste
Chairman, Remuneration Committee
26 February 2014
●● Share price growth of 177% (around 40% per annum).
●● £5.1 billion of additional value to shareholders.
●● Significant outperformance of the FTSE 250 and
FTSE 100.
The Committee wants to ensure that the remuneration
framework continues to incentivise and reward strong
business performance and shareholder value during the next
phase of the strategy, and acts as a retention tool to retain
the key management team that has delivered outstanding
performance to date.
Summary of the key changes
The adjustments to remuneration strategy include the
following elements:
●● Simple to understand – We heard that going forward
shareholders wanted us to adopt a simpler approach
to remuneration. We have therefore removed the link
between the voluntary deferral of annual bonuses and
long-term incentive award levels.
●● Performance measures aligned to the next phase of
our business strategy – Our new LTIP will ensure that
the continued delivery of our strategy is rewarded.
We have amended the performance tests to reflect
strategic challenges and align them more closely with the
continuing evolution into a more balanced business.
●● Increased shareholding guidelines – We have increased
the minimum shareholding requirements for our
Executive Directors. The combination of executive
shareholding requirements, deferred annual bonuses
and share-based long-term incentives will strongly align
executive incentives with shareholder value.
●● Longer holding periods – Reflecting the preference of the
Committee and our shareholders, we are also introducing
an additional two year holding period for awards under
the new LTIP. This will be phased in over the next two
award cycles.
●● Adjusted salaries to reflect the size and complexity of
the Executive Director roles – Our remuneration policy
for Executive Directors has been, and will continue to
be, that salary increases will generally follow those
of the wider employee population. This approach has
been adopted since their appointment. During that
time the shape and size of the business has changed
significantly and performance has been strong. We have
therefore increased base salaries to reflect increased
responsibilities, performance, marketability and the
challenges ahead. Following these increases it is our
intention to return to normal policy in 2015. We have
also increased pension allowances in the year to reflect
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Governance
Remuneration Report continued
Who is on the Committee
The Committee is comprised entirely of Non-executive
Directors. The current members are:
●● Andy Haste (Chairman)
●● Archie Norman
●● John Ormerod
Mike Clasper stepped down from the Board and as member of the Committee on
31 December 2013.
Full details of attendance at committee meetings can be
found in the table on page 70
How the Committee works
What is our role?
The role of the Committee is primarily to:
●● review the ongoing appropriateness, relevance and
effectiveness of the Group remuneration policy including
in relation to retention and development;
●● approve the remuneration policy and strategy for the
Executive Directors, Management Board and other senior
executives (together the Senior Executive Group);
●● approve the design of the Company’s annual bonus
arrangements and long-term incentive plans, including
the performance targets that apply for the Senior
Executive Group; and
●● determine the award levels for the Senior Executive
Group based on performance against annual bonus
targets and long-term incentive conditions.
Principles considered when setting remuneration
The Company operates in the particularly competitive media
market. We aim to balance the need to attract and retain
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 the prevailing best practice and a fair
outcome for investors.
A significant proportion of the remuneration package is tied
to the achievement of stretching performance conditions
which align remuneration with our strategy to deliver
strong business performance and create shareholder value.
Individuals should be rewarded for success and performance
measured over clear timescales. The remuneration package
is focused on rewarding sustained long-term performance
and aligning executives with the shareholder experience.
What we did in 2013?
In addition to the remuneration review described in the
Chairman’s letter, during 2013 our work was broadly in four
areas:
Setting targets
●● setting the business and personal performance targets
for 2013 annual bonuses aligned with the business plan
for the year;
●● setting the performance targets that would apply to the
ITV Performance Share Plan (PSP) awards made in 2013;
and
●● carrying out a preliminary review of annual bonus targets
for 2014.
Reviewing outcomes
●● reviewing the annual bonus outcomes and award levels
for 2012 and indicative 2013 outcomes ahead of final
approval in 2014; and
●● approving the performance outcomes of the 2010 awards
under the PSP, including the awards made on recruitment
to Adam Crozier.
Reward framework
●● agreeing the base salaries for the Senior Executive Group
with effect from 1 January 2013 using the same process
as applied to the wider employee population;
●● reviewing the pension allowances provided to Executive
Directors;
●● agreeing the remuneration packages for new
appointments to the Senior Executive Group and the
arrangements for any leavers from this group; and
●● agreeing a new remuneration framework and new LTIP as
set out in the Chairman’s letter.
Governance
●● considering the final BIS regulations on executive pay and
how these will be integrated into the future remuneration
strategy; and
●● agreeing the Remuneration Report for 2012, prior to its
approval by the Board, and approval by shareholders at
the AGM in May 2013.
The Committee reports regularly to the Board on its work.
An annual review of the performance of the Committee
was conducted. Feedback was also sought from the Chief
Executive, Group HR Director and Deloitte. Overall the review
concluded that the Committee is responding appropriately
to its terms of reference and will continue to develop its role.
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Remuneration policy
The table below summarises the main elements of the remuneration packages for the Executive Directors and will be
effective from the date approved by shareholders and will apply until shareholders next consider and vote on the policy.
Fixed Elements
Base Salary
Purpose and
link to strategy
Reflects the individual’s
skills, responsibilities and
experience.
Supports the recruitment
and retention of Executive
Directors of the calibre
required to deliver the
business strategy within
the competitive media
market.
Provision for
an income in
retirement
To provide competitive
post-retirement benefits
or cash allowance as a
framework to save for
retirement.
Supports the recruitment
and retention of Executive
Directors of the calibre
required to deliver the
business strategy within
the competitive media
market.
Benefits
Ensures the overall
package is competitive
and provides financial
protection for employees
and their families.
Operation
Maximum potential payment
Performance Metrics
None, although
overall individual
and business
performance is
considered when
setting and reviewing
salaries.
There is no maximum salary
increase. However, ordinarily salary
increases will be in line with the
average increase awarded to other
employees in the Company.
Increases may be made above this
level to take account of individual
circumstances, which may include:
●● Increase in size or scope of the
role or responsibility.
●● Increase to reflect the
individual’s development and
performance in role.
The maximum contributions or
cash allowances for the Executive
Directors are 25% of base salary.
None
None
Set at a level which the Committee
considers to be appropriately
positioned taking into account
typical market levels for
comparable roles, individual
circumstances and the overall cost
to the business.
Reviewed annually and paid
monthly in cash.
Consideration is typically
given to a range of factors
when determining salary
levels, including:
●● Personal and Company-
wide performance.
●● Typical pay levels in
relevant markets for
each executive whilst
recognising the need for
an appropriate premium
to attract and retain
superior talent, balanced
against the need to
provide a cost-effective
overall remuneration
package.
●● The wider employee pay
review.
Executives can choose
to participate in the ITV
defined contribution
scheme, receive a cash
allowance or receive
payments into a personal
pension or a combination
thereof.
Contributions are set as a
percentage of base salary.
Post-retirement benefits
do not form part of
the base salary for the
purposes of determining
incentives.
The Company provides
a range of market
competitive benefits
including travel related
benefits, private medical
insurance and other
insurance benefits.
Additional benefits may
also be provided in certain
circumstances, if required
for business need. For
example (but not limited
to), relocation expenses,
housing allowance and
education support.
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Governance
Remuneration Report continued
Variable
Elements
Purpose and
link to strategy
Operation
Maximum potential payment
Performance Metrics
Annual Bonus
Scheme
(Bonus) and
Deferred
Share Award
Plan (DSA)
Incentivises executives
and colleagues to achieve
key strategic outcomes on
an annual basis.
Focus on key financial
metrics and objectives
to deliver the business
strategy.
The element compulsorily
deferred into shares
rewards delivery of
sustained long-term
performance, provides
alignment with the
shareholder experience
and supports the
retention of executives.
The maximum bonus opportunity
for any Executive Director will not
exceed 200% of salary.
The current bonus opportunities
are 180% of salary for Adam
Crozier and 165% of salary for Ian
Griffiths.
Increases above the current
opportunities, up to the
maximum limit, may be made
to take account of individual
circumstances, which may include:
●● Increase in size or scope of the
role or responsibility.
●● Increase to reflect the
individual’s development and
performance in their role.
Performance
measures and
targets are set by
the Committee
each year based on
corporate objectives
closely linked to the
strategic priorities
and individual
contributions.
The majority of the
bonus opportunity
will be based on
the corporate and
financial measures.
The remainder of the
bonus will be based
on performance
against individual
objectives.
Up to 20% of
the maximum
opportunity will be
received for threshold
performance.
Measures and targets
are set annually based
on business plans at the
start of the financial
year and pay-out levels
are determined by the
Committee following
the year end based on
performance against
objectives.
Paid once the results have
been audited. Annual bonus
calculations that are based
on the financial results for
the year are audited by
Internal Audit and reviewed
by the Audit Committee
before consideration by the
Committee.
The Committee has the
discretion to amend the
bonus pay-out should any
formulaic assessment of
performance not reflect
a balanced view of overall
business performance for
the year.
Two-thirds of the bonus is
delivered in cash and one-
third is deferred into shares
under the DSA for a period
of three years.
During the deferral period
share awards may be
reduced or cancelled in
certain circumstances.
Further detail is provided
on page 88.
Dividends are paid to
participants on the
deferred shares during the
deferral period.
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Operation
Maximum potential payment
Performance Metrics
Awards are made under
the LTIP rules, which
shareholders have been
asked to approve at the
2014 AGM.
Awards are made annually
with vesting dependent
on business performance
during the performance
period. The performance
period will be three years,
other than in exceptional
circumstances.
The Committee has
discretion to amend the
final vesting level should
any formulaic assessment
of performance not reflect
a balanced view of the
business performance
during the performance
period.
Awards will be required to
be held for an additional
period of two years after
the end of the performance
period. This is called the
holding period and will be
phased in during 2014 and
2015.
Dividends are earned on
deferred shares during the
holding period.
During the holding period
awards may be reduced
or cancelled in certain
circumstances. Further
detail is provided on page
88.
Executive Directors are
entitled to participate in
the plan on the same basis
as other employees.
Our current operational policy is
to make awards of 225% of salary
each year.
Under the new LTIP rules, the
maximum annual award that may
be granted in any financial year is
350% of salary.
The Committee would consult
with shareholders if it was
considering increasing awards
above the current operational
policy.
Performance is
measured against
corporate targets
closely linked to
the Company’s
financial and strategic
priorities.
Performance metrics
are:
●● Adjusted EPS
●● Non-NAR and its
components
●● Viewing
performance
For details on 2014
targets see page 99.
LTIP awards will vest
based on financial
performance.
A gateway condition
must be achieved
before any portion of
the award vests.
Each performance
metric will operate
independently.
The performance
range will be
determined for
each metric. The
proportion of each
element of the
award that will
vest for threshold
performance against
a metric will be 20%.
Participation limits are as per the
rules of the plan and in accordance
with HMRC limits.
None
Variable
Elements
New LTIP
Purpose and
link to strategy
Incentivises executives to
deliver performance which
is aligned to the business
strategy over the longer
term and the creation of
shareholder value.
Acts as a retention tool
to retain the executives
required to deliver the
business strategy.
SAYE
Provides all employees,
including Executive
Directors the opportunity
to voluntarily invest in
Company shares.
Should the Company choose to implement a tax efficient all-employee share participation plan (for example a SIP) the
Executive Directors would be eligible to participate in accordance with any shareholder approved plan rules and HMRC limits.
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Governance
Remuneration Report continued
Legacy plans
The Committee may make any remuneration payments and payments for loss of office (including exercising any discretions
available to it in connection with such payments) notwithstanding that they are not in line with the policy set out above. This
would apply where the terms of the payment were agreed before the policy came into effect or at a time when the relevant
individual was not a director of the Company and the payment was not in consideration for the individual becoming a director
of the Company.
Subject to the approval by shareholders of the new LTIP, there is no current intention for further awards to be made to
Executive Directors under the PSP, details of which are set out below:
Purpose and link to strategy
Incentivises executives to deliver
performance that is aligned to
the business strategy over the
longer term and the creation of
shareholder value.
Acts as a retention tool to retain
the executives required to
deliver the business strategy.
Operation
Awards are made under the PSP
rules which shareholders have
previously approved.
The Committee has the
discretion to amend the
final vesting level should
any formulaic assessment of
performance not reflect overall
business performance.
Maximum potential payment
Under the plan rules, the
maximum annual award that
may be granted in any financial
year is 150% of salary.
Performance Metrics
Performance is measured
against corporate targets
closely linked to the Company’s
financial and strategic priorities.
A gateway condition must be
achieved before any portion of
the award vests.
Malus and clawback
Malus is the possible reduction of deferred awards and clawback is the possible recovery of awards that have already
been made to executives. Deferred awards under the DSA and awards under the new LTIP or PSP, including awards held
during any additional holding period, may be reduced or cancelled at the Committee’s discretion in such cases as material
misstatement of results, gross misconduct or fraud.
Performance measures and target setting
The annual bonus is assessed against both financial and individual targets determined by the Committee. This enables the
Committee to reward both annual financial performance delivered for shareholders, and performance against specific
financial, operational or strategic objectives set for each director, which are closely linked to the strategic priorities of the
business.
The Committee sets targets for the long-term incentive plans taking into account external forecasts, internal budgets and
business priorities. Targets are set to be appropriately stretching in this context with maximum performance being set at a
level which is considered to be the delivery of exceptional performance.
When considering performance outcomes the Committee will look beyond formulaic results to ensure the outcomes align
with the overall business performance.
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Stock code: ITV
Non-executive Directors
The table below summarises the main elements of remuneration for Non-executive Directors:
Component
Chairman fees
Non-executive fees
Benefits
Approach of the Company
The Committee determines the fees of the Chairman and sets the fees at a level that is considered to be
appropriate, taking into account the size and complexity of the business and the expected time commitment
and contribution of the role.
The fee is a fixed annual fee of which 25% (40% for the current Chairman) after statutory deductions, is used
to acquire shares in the Company. The shares are purchased quarterly and held by a nominee until retirement
from the Board.
The Board determines the fees of the Non-executive Directors and sets the fees at a level that is considered
to be appropriate, taking into account the size and complexity of the business and the expected time
commitment and contribution of the role.
Fees are structured as a basic fee with additional fees payable for membership and/or chairmanship of a
committee or other additional responsibilities.
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 held by a nominee on their behalf until
they retire from the Board.
Additional benefits may also be provided in certain circumstances, if required for business purposes.
Application of remuneration policy
The chart below provides an indication of the level of remuneration that would be received by each Executive Director under
the following three assumed performance scenarios:
Below threshold performance
On-target performance
Maximum performance
Fixed elements of remuneration only – base salary, benefits and pension
Assumes 60% pay-out under the annual bonus
Assumes 20% pay-out under the LTIP (aligned with threshold performance)
Assumes 100% pay-out under the annual bonus
Assumes 100% pay-out under the LTIP
Adam Crozier
Below
Threshold
Target
Maximum
Ian Griffiths
Below
Threshold
Target
Maximum
£1,145,000
100%
45%
24%
39%
16%
£2,522,000
34%
£701,500
100%
47%
36%
17%
£1,493,500
00%
25%
32%
£2,846,500
43% 00%
£4,790,000
42%
Fixed pay
Annual bonus
LTIs
Notes:
1. The scenarios do not include any share price growth assumptions or take into account any dividends that may be paid.
2. Fixed pay is the salary as at 1 January 2014, pension is per the remuneration policy, and the value for benefits is equivalent to that included in the remuneration table on page 93.
3. Annual bonus is based on 180% of salary for Adam Crozier and 165% of salary for Ian Griffiths.
4. LTI amount is based on 225% of salary for both Executive Directors.
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Governance
Remuneration Report continued
Recruitment remuneration
When agreeing the components of a remuneration package for a new Executive Director, the Committee will apply the
principles detailed below.
The package will be competitive to attract and retain the best candidate for the job.
Where possible, the Committee will always seek to align the remuneration package with the remuneration policy outlined
above. However, where appropriate, elements of the package may be outside of this policy to meet the circumstances of the
individual upon recruitment. The Committee will ensure that the arrangements are in the best interests of both ITV and its
shareholders and remain subject to the overall variable pay limits set out below.
Ongoing remuneration
In determining an appropriate remuneration structure and levels, the Committee will take into
account all relevant factors to ensure they are able to recruit the best candidate for the job and that
the arrangements are in the best interests of both ITV and its shareholders. The Committee will
typically seek to align the ongoing remuneration package with the ongoing remuneration policy
outlined in the table on pages 85 to 87.
The maximum level of variable remuneration which may be granted to a new director upon
appointment (excluding any buy-out awards for forfeited remuneration) will not be greater than
550% of salary (the sum of the maximum bonus and maximum new LTIP opportunities).
Buy-out awards for forfeited
remuneration
The Committee may make awards to ‘buy out’ a candidate’s remuneration arrangements that are
forfeited as a result of leaving their previous employer.
In doing so, the Committee will take account of relevant factors including any performance
conditions attaching to forfeited awards, the likelihood of the awards vesting and the form and
timing of the awards. The Committee will typically seek to make buy-out awards on a comparable
basis to those that have been forfeited.
In exceptional circumstances, the Committee may grant a buy-out award under a structure not
included in the policy but that is consistent with the principles set out above.
The Committee will take all relevant factors into account (including the candidate’s location, the calibre of the individual,
external influences, internal relativities and the overall business context) when determining the new remuneration package
and seek to ensure that no more is paid than necessary.
In the Remuneration Report following the appointment, the Committee will fully explain to shareholders the remuneration
package for the appointed individual and the rationale for such arrangements and will display such information on the ITV
plc website and announce via a regulatory information service as soon as practicable following the appointment.
Service contracts and loss of office
Executive Directors
Executive Directors have rolling 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.
A payment in lieu of notice, including base salary, contractual benefits and contractual provision for an income in retirement
may be made if:
●● the Company terminates the employment of the executive with immediate effect, or without due notice; or
●● termination is agreed by mutual consent.
The Company may also make a payment in respect of outplacement costs, legal fees and the cost of any settlement
agreement where appropriate.
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Stock code: ITV
With the exception of termination for cause or resignation, Executive Directors will be eligible for a bonus award prorated
to reflect the proportion of the financial year for which they were employed and subject to performance achieved, provided
they have a minimum of three months’ service in the bonus year.
The treatment of shares awarded under the DSA, new LTIP and PSP on termination, are set out below.
Resignation/misconduct Change of control
Awards lapse.
Awards release in full at
effective date of change.
Note 2
DSA
Good leaver
Injury, ill health,
disability or transfer of
undertakings. Awards
release in full at the
leaving date.
For other good leaver
reasons awards release
at the end of the deferral
period.
Mutual agreement
Committee has the right
to exercise its discretion
as to the extent to which
awards, if any, may
release, for example
where someone is asked
to leave because of a
change in circumstances
outside of their control.
New LTIP During performance period:
Awards lapse.
Committee has the right
to exercise its discretion
to apply good leaver
treatment, for example
where someone is asked
to leave because of a
change in circumstances
outside of their control.
Outstanding awards
would normally vest
and become exercisable
subject to satisfaction of
performance conditions
and capped based on the
time in the performance
period since grant,
subject to the discretion
of the Committee.
Injury, ill health or
disability, redundancy,
retirement or transfer of
undertaking.
Awards are prorated for
time served and subject
to achievement of the
performance conditions
during the performance
period.
Awards become
exercisable at end of
holding period.
During additional holding period:
Awards become
exercisable at end of
holding period.
Awards become
exercisable at end of
holding period.
For resignation, awards
become exercisable at
end of holding period.
Awards become
exercisable at effective
date of change.
PSP
Injury, ill health or
disability, redundancy,
retirement or transfer of
undertaking.
Awards are prorated for
time served during the
performance period
and become exercisable
at normal vesting date
subject to achievement
of the performance
conditions.
Committee has the right
to exercise its discretion
to apply good leaver
treatment, for example
where someone is asked
to leave because of a
change in circumstances
outside of their control.
In the case of misconduct
awards will lapse.
Awards lapse.
Outstanding awards
would normally vest
and become exercisable
subject to satisfaction of
performance conditions
and capped based on the
time in the performance
period since grant.
Notes:
1. If a participant dies all awards vest in full with no regard to performance conditions.
2. DSA awards made to Executive Directors in March 2011, 2012, 2013 and 2014, prior to the adoption of the remuneration policy set out here release in full on resignation.
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Governance
Remuneration Report continued
Non-executive Directors
Each Non-executive Director, including the Chairman, has a contract of service with the Company. Non-executive Directors
will serve for an initial term of three years, subject to election and annual re-election by shareholders, unless otherwise
terminated earlier by and at the discretion of either party upon one month’s written notice (12 month’s for the current
Chairman).
The Directors’ service contracts and letters of appointment are available for inspection at the Company’s registered office.
External appointments
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.
Adam Crozier is currently a non-executive director of G4S plc.
Employment conditions elsewhere in the Company
When setting the policy for directors’ remuneration, the Committee considers the pay and employment conditions of
employees elsewhere in the Company.
The Company does not consult directly with employees in respect of determining the Directors’ remuneration policy.
However, the Committee does receive general feedback from employees via the HR function as part of the output from the
employee engagement survey and receives a report on employment practices elsewhere in the Company.
Shareholder views
The Committee maintains regular and transparent communication with shareholders. We believe that it is important to
regularly meet with our key shareholders to understand their views on our remuneration arrangements and what they would
like to see going forward. We welcome feedback from shareholders at any time during the year.
Where we are proposing to make any significant changes to the remuneration framework we seek major shareholders’ views
and take these into account when determining any changes to the remuneration policy.
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Stock code: ITV
Annual Report on Remuneration
The sections of the Annual Report on Remuneration that have been audited by KPMG Audit Plc are page 93 to page 96 (up
to and including payments to past directors or for loss of office) and page 100 (from Interests in Shares as at 31 December
2013) to page 101.
Total remuneration
Executive Directors
The table below sets out in a single figure the total remuneration for both Executive Directors for the financial year.
Salary
Taxable benefits
2013
£000
841
461
1,302
2012
£000
818
449
1,267
2013
£000
2012
£000
20
14
34
19
14
33
Bonus (cash
and shares)
2013
£000
2012
£000
1,403 1,345
683
2,116 2,028
713
PSP awards
Joining award
Pension
Total
2013
£000
2,042
2,130
4,172
2012
£000
0
771
771
2013
£000
3,950
0
3,950
2012
£000
658
0
658
2013
£000
109
81
190
2012
£000
74
69
143
2013
£000
2012
£000
8,365 2,914
3,399 1,986
11,764 4,900
Adam Crozier
Ian Griffiths
The increase in total remuneration for the Chief Executive from 2012 to 2013 results from the vesting of his joining award in
2013, together with the first vesting under a PSP award since he joined ITV. The level of vesting of both awards reflects the
outstanding performance to date and a significant increase in share price.
Further information in relation to each of the elements of remuneration set out in the table above are detailed below.
Salary
Executive Directors’ base salaries were increased by 2.75% with effect from 1 January 2013 in line with the average increase
given across the Company.
Taxable benefits
The benefits provided to the Executive Directors include the cost of private medical insurance and car related benefits.
Bonus (cash and shares)
The bonus paid in respect of the financial year includes amounts that will be compulsorily deferred into shares for a three
year period as set out below.
Adam Crozier
Ian Griffiths
% of maximum
bonus
opportunity
earned
Value deferred
into shares
under the DSA
£000
92.75%
93.79%
468
238
Value paid
in cash
£000
935
475
Total value
of 2013
Bonus
£000
1,403
713
Annual incentives are provided to Executive Directors through the bonus with one-third of any award deferred into shares
under the DSA. The performance conditions that apply to the bonus are set on an individual basis and are closely linked to
the Company’s corporate, financial and strategic priorities.
The Committee set 2013 performance targets and measures which continue to support both the delivery of the strategy
and key operational outcomes.
The majority of the bonus (60%) was based upon the achievement of corporate and financial targets.
The remainder of the bonus (40%) was based upon the contribution the executive makes to the overall strategy through
the delivery of specific targets. The personal targets include a combination of specific financial metrics and key strategic
deliverables.
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 the maximum
bonus opportunity.
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Governance
Remuneration Report continued
The table below provides a summary of the performance measures, the level of performance achieved against the targets
and the resulting level of payout. The Board believes that the annual bonus performance targets are commercially sensitive
information and will remain so until two years after the end of the financial year. The targets will be disclosed once they are
no longer commercially sensitive. The targets remain commercially sensitive whilst they are used in the business planning
processes for subsequent years.
Performance achieved
Payout level
Performance measure
Weighting
Adam Crozier
Ian Griffiths
Adam Crozier
Ian Griffiths
Strategic Target
ITV plc EBITA (before exceptional items)
Profit to cash conversion
Cost savings
Rebalancing of revenues
Balance sheet performance
Individual targets
40%
6.67%
6.67%
6.67%
6.67%
40%
104.31%
107.78%
111.6%
100%
–
88%
104.31%
107.78%
111.6%
–
100%
90.6%
93.87%
93.87%
100%
100%
100%
–
88%
100%
100%
–
100%
90.6%
1 2 3 4
1 2 3 4
1
1
4
1 2 3 4
Details of overall payout levels are set out in the table on page 93.
PSP and joining awards
The new regulations require us to show awards in the remuneration table above according to the year in which the
performance period for each performance condition came to an end.
As a result, where an award has more than one performance condition, it may be split across two years within the
remuneration table.
2013 value: 75% of awards made in 2010 were subject to TSR over a three-year period ending in 2013. 100% of the awards
made in 2011 were subject to performance conditions measured to 31 December 2013. The 2013 values for these awards are
set out below. For details of the total award and share price at the award dates see the table on page 101.
Awards that vested and released in 2013
Awards that vested in 2013 and release in 2014
Number
of shares
vesting
Value at
award date
£000
Value at
vesting date
£000
Change in
share price
Value at
award date
£000
Value at
31/12/13
(194p)
£000
Change in
share price
Total
£000
Adam Crozier
April 2010 Award
March 2011 Award
Ian Griffiths
March 2010 Award
March 2011 Award
3,086,283
1,052,416
1,743,750
–
3,950,442
–
700,366
631,619
398,438
–
910,476
–
126.5%
–
128.5%
–
–
961,908
–
2,041,687
–
112.25%
5,992,130
–
574,530
–
1,219,463
–
112.5%
2,129,939
Details of the TSR performance achieved for the 2010 awards are below.
Performance measure
Weighting
Targets
TSR measured against selected
FTSE 250 companies 1
37.5%
TSR measured against a specific
international industry peer
group 2
Total
37.5%
75%
Median and below – nil vesting
Upper quartile – 100% vesting
Vesting on a straight line in between
Median and below – nil vesting
Upper quartile – 100% vesting
Vesting on a straight line in between
Performance
achieved
Payout
level
Upper quartile
100%
Upper quartile
100%
100%
1. The constituents of the FTSE 250 index (excluding companies from the basic materials, financial services, oil and gas and industrial sectors.
2. An industry 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.
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Details of the performance achieved for the 2011 awards are below. A gateway condition of minimum cumulative adjusted
EPS had to be met before any portion of the award could vest.
Performance measure
Weighting
Targets
Cumulative adjusted EPS
50%
Family SOV
25%
Annual Non-NAR growth
25%
21p = 30% vesting
24p = 100% vesting
Vesting on a straight line basis between
Maintain 2010 level = 50% vesting
+2% on 2010 level = 100% vesting
Vesting on a proportionate basis between
5% growth = 30% vesting
10% growth = 100% vesting
Vesting on a straight line basis between
Performance
achieved
28.3p
Payout
level
100%
+0.41%
above 2010 level
96.22%
13.49%
100%
Total
100%
99.05%
2012 value: 25% of awards made in 2010 were subject to financial measures (split equally between Family SOV and
cumulative adjusted EPS) measured to 31 December 2012. 75% of the award made in 2009 to Ian Griffiths was subject to
TSR measured to 1 June 2012. The value of these elements on vesting is included in the remuneration table.
Pension
Pension contributions represent a cash allowance in lieu of pension. The cash payments were reviewed during 2013 to
ensure they were market competitive and were increased to 25% of base salary for both Executive Directors with effect
from 1 October 2013 (previously 9% for Adam Crozier and 15% for Ian Griffiths).
Non-executive Directors
The table below sets out in a single figure the total remuneration for Non-executive Directors for the financial year.
Peter Bazalgette
Mike Clasper
Roger Faxon
Andy Haste
Lucy Neville-Rolfe
Archie Norman
John Ormerod
Notes
1
2
3
Fees
Taxable Benefits
Total
2013
£000
35
96
61
81
64
500
86
923
2012
£000
0
94
10
79
59
300
84
626
2013
£000
2012
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2013
£000
35
96
61
81
64
500
86
923
2012
£000
–
94
10
79
59
300
84
626
1. Fees paid from appointment on 1 June 2013.
2. Lucy Neville-Rolfe joined the Audit Committee on 1 May 2013.
3. The Chairman was appointed in 2010 for a three-year term on a fee of £300,000 per annum and on joining received an award of 1,200,000 shares, which at the time was valued at
£600,000. The 2012 figures do not include an amount in relation to these shares. Under the new legislation the value would have been shown in 2010.
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for the year ended 31 December 2013
Governance
Remuneration Report continued
PSP awards made during the year
PSP awards were made in March 2013 to both Executive Directors. Awards were made in the form of nil-cost options, subject
to performance over the period to 31 December 2015 as follows:
Adam Crozier
Ian Griffiths
Award Date
01.03.13
01.03.13
% Salary
awarded
Number of
options1
Performance
period ends
90
90
624,647
342,549
31.12.15
31.12.15
Vesting date
28.03.16
28.03.16
1. The number of options is calculated using the average share price over a three day period prior to award date which was 129.5p.
The awards are subject to performance measures and targets as set out below. In addition a minimum gateway cumulative
adjusted EPS target must be reached before any portion of the award can vest.
Performance measure
Cumulative adjusted EPS
Family SOV
Annual Non-NAR growth
Weightings
50%
25%
25%
Targets
30.4p = 30% vesting
33.4p = 100% vesting
Vesting on a straight line basis between
23% = 50% vesting
+2% = 100% vesting
Vesting on a proportionate basis between
5% growth = 30% vesting
10% growth = 100% vesting
Vesting on a straight line basis between
Payments to past Directors or for loss of office
No payments were made during the year.
Consideration of Directors’ remuneration
The following Directors were members of the Committee when matters relating to the Directors’ remuneration for the year
were considered:
●● Andy Haste (Chairman)
●● Mike Clasper (stepped down from the Board and as a member of the Committee on 31 December 2013)
●● Archie Norman
●● John Ormerod
The Committee obtains advice from various sources in order to ensure it makes informed decisions. The Chief Executive
and Group Finance Director are invited to attend committee meetings as appropriate. No individual is involved in decisions
relating to their own remuneration.
The Group HR Director is the main internal adviser and provides updates on remuneration, employee relations and human
resource issues.
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Deloitte LLP have been appointed by the Committee after consultation with the Board as an independent adviser on
remuneration policy and the external remuneration environment. During the year they provided advice on benchmarking,
shareholder consultation and new long-term incentive arrangements. Total fees for the advice provided to the Committee
during the year amounted to £131,000.
Deloitte are a founding member of the Remuneration Consultants Group and 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, corporate finance and pensions matters, and acted on a consultancy basis to provide internal audit support under
separate engagement terms.
The Committee has formally reviewed the work undertaken by Deloitte for the Committee and elsewhere in the Company
and is satisfied that the advice they have received has been objective and independent.
Shareholder voting
At the AGM held on 15 May 2013, votes cast by proxy and at the meeting in respect of the Directors’ remuneration were as
follows:
Resolution
Approval of Remuneration Report
Approval of PSP
Votes For
%
Votes Against
%
Total votes cast
2,705,212,305
2,699,058,785
98.16
97.69
50,644,260
63,763,062
1.84
2.31
2,755,856,565
2,762,821,847
Votes
Withheld
11,233,377
4,267,522
Historic performance
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 2013. Both indices have been shown as the Company has been a constituent of both over the last
five years.
ITV FTSE 100 FTSE 250
600
500
400
300
200
100
0
)
9
0
0
2
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J
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1
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S
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g
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e
e
r
h
t
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1/1/2009
1/1/2010
1/1/2011
1/1/2012
1/1/2013
1/1/2014
Source: Datastream
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Governance
Remuneration Report continued
Chief Executive remuneration
The table below provides a summary of the total remuneration for the Chief Executive over the last five years including
details of the annual bonus payout and PSP vesting levels in each year.
2013
2012
2011
2010
Adam Crozier
Adam Crozier
Adam Crozier
Adam Crozier (for the 8 month period served)
John Cresswell (for the 4 month period served)
2009 Michael Grade
Total remuneration
£000
Bonus
% of maximum
PSP vesting
% of maximum
8,365
2,915
2,158
1,350
661
2,583
93
91
88
95
83
94
87
12
–
–
–
–
The table below provides details of the percentage change in the base salary, benefits and bonus of the Chief Executive
between 31 December 2012 and 31 December 2013 compared to the average percentage change for other employees.
Chief Executive
All employees
Notes
1
2,3
% change in
base salary
2.75
5.94
% change in
benefits
% change in
bonus payment
1.5
(3)
1.55
20.18
1. Benefits include the cost of medical insurance and car related benefits. The level of benefits remains the same as for 2012. The percentage decrease is due to a fall in the cost of medical
insurance. The percentage increase for the Chief Executive is due to a minor increase in the cost of car related benefits.
2. As the majority of employees are based in the UK, overseas employees have not been included.
3. The percentage change in benefits is the average change for all employees (excluding the Chief Executive) with any of the same benefits as the Chief Executive.
Spend on pay
The table below shows pay for all employees compared to other key financial indicators.
Employee pay
Ordinary dividend
Special dividend
Employee headcount
Notes
1
2
2013
£m
173
115
157
3,845
2012
£m
166
78
–
3,731
% Change
4
47
100
3
1. Employee pay is the total UK permanent and fixed-term employee base salary bill .
2. Employee headcount is the total UK permanent and fixed-term full-time equivalent headcount.
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Remuneration policy for 2014
The following provides details of how the remuneration policy will be implemented in 2014.
Salary
Executive Directors base salaries were increased with effect from 1 January 2014 as follows.
Adam Crozier
Ian Griffiths
1 January 2014
£000
900
550
1 January 2013
£000
841
461
% Change
7.0
19.3
Our remuneration policy for Executive Directors has been, and will continue to be, that salary increases will generally follow
those of the wider employee population. This approach has been adopted since their appointment. During that time the
shape and size of the business has changed significantly and performance has been strong. We have therefore increased
base salaries to reflect increased responsibilities, performance, marketability and the challenges ahead. Following these
increases it is our intention to return to normal policy in 2015.
Taxable benefits, pension and bonus
These will be paid in line with the remuneration policy.
New LTIP awards
Awards will be made in line with the remuneration policy under the new LTIP. The proposed performance measures and
targets for awards to be made in 2014 are detailed below. In order to ensure that Executive Directors are only rewarded if
value is delivered to shareholders, awards will be subject to an initial cumulative adjusted EPS performance gateway equal to
that required for threshold performance. If this gateway is achieved, performance will then be assessed by reference to the
conditions detailed below.
Performance measure
Cumulative adjusted EPS
Family SOV
Non-NAR
International Production revenue
Online, Pay & Interactive revenue
Weightings
50%
20%
10%
10%
10%
Threshold
37.1 p
23.05%
5% growth pa
5% growth pa
5% growth pa
Maximum
42.3 p
23.51%
10% growth pa
15% growth pa
18% growth pa
Threshold vesting for all targets is 20%. Vesting between threshold and maximum (100%) is on a straight line basis.
When assessing performance against the Family SOV target the Committee will also have regard to the health of the main ITV channel.
The target range for awards to be made in future years will be reviewed and set in the context of the operating environment at that time.
Chairman and Non-executive Director Fees
Non-executive Director fees were increased with effect from 1 January 2014 as set out below.
Chairman (all inclusive fee)
Board Fee
Additional fees for:
Senior Independent Director
Audit Committee Chairman
Audit Committee Member
Remuneration Committee Chairman
Remuneration Committee Member
1. Increased to reflect the time commitment required for this role.
Notes
1
1 January 2014
£000
500,000
62,224
25,000
20,000
5,137
20,000
5,137
1 January 2013
£000
500,000
60,559
25,000
20,000
5,137
15,000
5,137
% change
–
2.75
–
–
–
33.33
–
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Governance
Remuneration Report continued
Directors’ share interests
Shareholding guidelines
The Committee continues to recognise the importance of Executive Directors being 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 based on a percentage of base salary. 50% of the requirement must be obtained within three years
of appointment and the remainder within five years as follows.
Adam Crozier
Ian Griffiths
% of salary required under
shareholding guidelines
% of salary held
at 31 December 2013
400
200
434
554
The guidelines were increased in 2014 from 200% of salary for Adam Crozier and 150% of salary for Ian Griffiths.
Other members of the Management Board are required to hold between 50-100% of their salary in line with their individual
bonus opportunity.
Interests 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 at 31 December 2013.
Peter Bazalgette
Mike Clasper2
Adam Crozier
Roger Faxon
Ian Griffiths
Andy Haste
Lucy Neville-Rolfe
Archie Norman
John Ormerod
26 February 20141
2,370
112,361
1,633,488
6,051
1,511,922
88,397
28,318
1,235,969
136,059
31 December 2013
1,249
110,758
1,633,488
4,953
1,511,922
87,085
27,258
1,221,432
134,627
31 December 2012
–
100,363
298,258
–
881,852
78,058
22,154
1,163,167
122,788
1. Shares were acquired for the Non-executive Directors on 2 January 2014 under a Trading Plan using 25% (40% for the Chairman) of their fees, after statutory deductions, for the quarter
to 31 December 2013 as part of the share acquisition policy set out in the remuneration policy on page 89.
2. Mike Clasper stepped down from the Board on 31 December 2013.
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Outstanding interests under share schemes
The following tables provide details of Directors’ interests in outstanding share awards.
At 1 January
2013
Awarded in
year
Vested in
year
Exercised in
year
Lapsed in
year
At
31 December
2013
Share
price used
for award
(pence)
Share price
at date of
vesting
(pence)
Date of
release/
exercise in
year
Award date
Notes
Adam Crozier
Deferred Share Award Plan
4
–
346,228
477,112
238,557
276,314
276,314
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
346,228
477,112
238,557
276,314
276,314
129.5
88.6
88.6
91.4
91.4
–
–
–
–
–
–
–
–
–
–
3
4,115,044
3,600,663 3,600,663
514,381
–
56.5
128.0 29 April 2013
A
A
B
A
B
28 March 2013
28 March 2012
28 March 2012
08 March 2011
08 March 2011
Joining Award
26 April 2010
Performance Share Plan
01 March 2013
01 March 2012
28 March 2012
08 March 2011
08 March 2011
Ian Griffiths
C
C
D
C
D
–
624,647
899,347
238,557
786,196
276,314
3
3
Deferred Share Award Plan
28 March 2013
28 March 2012
28 March 2012
08 March 2011
08 March 2011
A
A
B
A
B
Performance Share Plan
C
C
D
C
D
01 March 2013
01 March 2012
28 March 2012
08 March 2011
08 March 2011
26 March 2010
01 June 2009
4
–
175,891
234,406
117,204
203,478
203,478
–
342,549
493,192
117,204
431,140
203,478
933,820
1,188,812
3
3
3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
817,092
817,092
116,728
–
1,188,812
–
624,647
899,347
238,557
786,196
276,314
175,891
234,406
117,204
203,478
203,478
342,549
493,192
117,204
431,140
203,478
–
–
121.1
81.9
88.6
91.4
91.4
129.5
88.6
88.6
91.4
91.4
121.1
81.9
88.6
91.4
91.4
56.9
35.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
120.4 9 April 2013
120.4 9 April 2013
1. No awards are outstanding that have vested but not been exercised.
2. There are no performance conditions attaching to the DSA. Performance conditions that apply to the outstanding awards under the PSP are set out in the table below.
Strategic target
Weightings Threshold Vesting
Threshold Maximum
Threshold Maximum
Threshold Maximum
2011
2012
2013
Gateway
Cumulative
adjusted EPS
Family SOV
1
2
Annual Non-NAR
growth
3 4
50%
25%
25%
30%
50%
30%
21p
21p
Maintain at
2010 levels
(platform adjusted)
24p
+2%
26.15p
26.15p
Maintain at
2011 levels
(platform adjusted)
28.76p
+2%
30.4p
30.4p
33.4p
23%
+2%
5%
10%
5%
10%
5%
10%
Cumulative adjusted EPS years
2011 to 2013
Cumulative adjusted EPS years
2012 to 2014
Cumulative adjusted EPS years
2013 to 2015
Vesting between threshold and maximum (100%) on a
straight line basis (EPS, Non-NAR) and a proportionate basis (SOV).
3. A proportion of the performance conditions were met in the financial year and the value of that proportion is included in the total remuneration table on page 93 and described on
pages 94 and 95.
4. DSA awards made in 2013 for 2012 performance are included in the Bonus (cash and shares) column for 2012 in the remuneration table on page 93.
A – Compulsory deferral, B – Voluntary deferral, C – Core Award, D – Matching Award
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Financials
Independent Auditor’s Report
Introduction and Table of Contents
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
ITV plc Company Financial Statements
Notes to the ITV plc Company Financial
Statements
Financial Record
104
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109
110
111
112
114
115
169
170
174
Lucan
Two part ITV Studios drama Lucan
attracted an average audience of
4.7 million viewers and a 19% share.
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104
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Independent Auditor’s Report to the
Members of ITV plc Only
Opinions and conclusions arising from our audit
1 Our opinion on the financial statements is unmodified
We have audited the financial statements of ITV Plc for the year ended 31 December 2013 set out on pages 109 to 173. 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 2013
and of the Goup’s profit for the year then ended;
●● the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted
by the European Union;
●● the parent company financial statements have been properly prepared in accordance with UK Accounting Standards; and
●● 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.
2 Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements the risks of material misstatement that had the greatest effect on our
audit were as follows.
The Audit Committee’s consideration of these significant risks is set out in the Audit Committee Report on page 75.
The risk
Our response
Revenue recognition and contractual arrangements (see note 2.1)
The Group’s revenue consists primarily of advertising, programme
production and programme rights.
Net Advertising Revenue (‘NAR’) (£1,542 million)
The majority of ITV’s advertising revenue (‘NAR’) is subject to regulation
under Ofcom’s Contract Rights Renewal system (‘CRR’). CRR works by
ensuring that the annual share of TV advertising that will be placed
with ITV by each advertising agency can change in relation to the
viewing figures for commercial television that it delivers. The CRR
system, the pricing of the annual contractual arrangements with
advertising agencies and the details of each advertising campaign,
together with the related processes and controls, are complex and
involve estimation.
In particular, the pricing mechanism means it is possible for a difference
to arise between the price received by ITV for an advertising campaign
and the value it delivered, mainly as a result of the actual viewing
figures being different from the agreed level. Where the Group has
over-delivered viewers this is referred to as a ‘deal credit’, or a ‘deal
debt’ where delivery has fallen short. Rather than the price paid for that
campaign being adjusted, these differences are noted for each agency
and then taken account of when agreeing either future campaigns or
the annual contract. Only a net deal debt position with an agency is
recorded in ITV’s accounts, as a liability.
NAR is therefore considered a significant risk due to:
•
•
•
the quantum and complexity of contractual agreements with
advertising agencies;
the complexity of the systems and processes of control used to
record revenue; and
the level of estimation involved in determining the deal debt liability
at the period end.
Our audit procedures included:
•
•
testing of controls, assisted by our own IT specialists,
including those over: input of individual campaigns’ terms
and pricing, comparison of those terms and pricing data
against the related overarching contracts with advertising
agencies; linkage to transmission/viewer data; and
segregation of duties;
testing management’s review controls over: contract
approval; periodic deal reconciliations; and the deal debt
adjustment;
• analysis of revenue based on our industry knowledge and
external market data, following up variances; and
• challenging the year end deal debt adjustment based on
comparison with customers’ correspondence and agreed
terms of business.
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The risk
Our response
Other revenue streams (‘Non-NAR revenue’)
(£847 million of external revenue)
Non-NAR revenue includes revenue from: programme production, the
sale of programme rights, transmission supply arrangements and the
Online, Pay & Interactive division within the Broadcast segment.
Recognition of non-NAR revenue is primarily driven by the related
contracts. It is considered to be a risk as the contracts can be
complex and the terms are varied, with the result that accounting
for the revenue generated in any given period can require individual
consideration.
Our audit procedures included testing of controls over the
timing of revenue recognition, and the accounting for new
contractual arrangements. We considered the revenue policies
against the relevant accounting standards. For the larger
contracts entered into during the year, and for a statistical
sample of all contracts, we tested whether revenue had been
recognised in accordance with the contractual terms, given the
requirements of the relevant accounting standard.
Acquisition accounting (see notes 3.3 and 3.4)
During the year, ITV acquired four production companies for an
aggregate initial consideration of £66 million.
Accounting for acquisitions requires the Group to determine the fair
value of the consideration transferred, the non-controlling interests
(‘NCI’) and the assets acquired as part of the acquisition.
This requires the Group to make a number of judgements, which focus
on, but are not limited to: assessment of the earnout arrangements
entered into with selling shareholders (whether it is acquisition
consideration or post-acquisition remuneration), assessing options
granted to the Group over shares of the acquired business (whether the
Group has a liability for the option price) and determining the fair value
of the assets acquired.
In summary, acquisition accounting is considered to be a significant risk
due to the level of judgement required to be applied over numerous
assumptions in establishing the fair values of consideration transferred
and acquired assets.
Defined benefit pension schemes (£445 million, see note 3.7)
The valuation of the pensions liability requires significant judgement
and estimation to be applied across numerous assumptions.
Further, the application of IFRS 13 ‘Fair Value Measurement’ in 2013 has
led to a change in the valuation approach for the longevity swap, with
the value of the swap increasing by £95 million in 2013.
The key valuation assumptions are set out in note 3.7 in the ‘keeping
it simple’ section on page 148. When deciding on these assumptions
the Group takes independent actuarial advice relating to their
appropriateness.
The valuation is considered to be a significant risk as, given the
quantum of the net deficit, small changes in the assumptions can have
a material financial impact on the Group.
For each significant acquisition:
We critically assessed the treatment of earnout arrangements
and options against the relevant accounting standards.
We used our own valuation specialists to assist us in critically
assessing the appropriateness of the identified intangibles
against the criteria of the relevant accounting standards.
Our audit procedures also included testing the principles and
integrity of the asset valuation models used, comparison of the
input assumptions to externally and internally derived data as
well as our own assessments in relation to key inputs such as the
likelihood of shows being recommissioned; and the impact of
the loss of key talent on the forecasts.
Our audit procedures included an assessment of the
competency and objectivity of the actuarial specialists engaged
by the Group.
We compared the valuation methodology, in particular for the
longevity swap, with relevant accounting standards and market
practices.
We also challenged the key assumptions supporting the
retirement benefit obligation and swap valuations, with input
from our own actuarial specialists. This included a comparison
of the mortality, discount and inflation rates used against
externally derived data.
We obtained third party confirmation of the pension schemes
assets as at 31 December 2013.
We considered the appropriateness of the disclosures described
in note 3.7.
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106
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Independent Auditor’s Report to the
Members of ITV plc Only
The risk
Our response
Royalty accruals (£71 million, see note 3.1.5)
The Group pays royalties directly to artists/producers for all content
used. The contractual terms of these agreements are varied and
complex.
The related IT systems can only address part of the processing,
necessitating a significant manual element in calculating the year end
royalty accrual recorded by the Group. Overall the process is complex,
though core to the Group’s operations.
The volume and variety of contracts being interpreted and accounted
for combined with the manual nature of the process increases the risk
of error.
Among other procedures, we tested controls over the recording
of royalty costs and the approval of royalty payments.
We also re-performed a sample of the year end calculations,
agreeing key inputs to contracts and the underlying system
data.
In addition, we performed analytical procedures comparing
royalty costs as a percentage of the related income streams
to budgets and prior periods, taking account of any expected
changes.
3 Our application of materiality and an overview of the scope of our audit
Our materiality for the Group financial
statements as a whole has been determined
with reference to:
For 2013 our materiality for the Group
financial statements as a whole was set at:
Consequently, corrected and uncorrected
audit differences are explained to the Audit
Committee.
Group profit before tax.
£21m
We consider this to be one of the principal
considerations for members of the company
in assessing the financial performance of the
Group.
This represents 5% of Group profit before
tax.
We explain audit differences with a
quantitative impact of over £1 million, in
addition to other audit misstatements
below that threshold that we believe
warranted reporting on qualitative grounds.
The Group’s principal operations are in the United Kingdom and represent 89% of total Group revenue, 95% of Group profit before tax and
92% of Group total assets. Only the UK operations are scoped in for Group reporting purposes. The Group audit team performed the audit of
the UK operations as if they were a single aggregated set of financial information using the materiality levels set out above.
Although not in-scope for Group reporting purposes, in agreement with the audit committee and coterminus with the audit of the Group
and the UK operations, audits were performed in Australia and Germany to local materiality levels and specified audit procedures were also
performed on four entities in the US. Together these audits and specified audit procedures covered 99% of total Group revenue, 99% of
Group profit before taxation; and 99% of total Group assets.
4 Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion:
●● the part of the Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
●● the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are
prepared is consistent with the financial statements.
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Stock code: ITV
5 We have nothing to report in respect of the matters on which we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified
other information in the annual report that contains a material inconsistency with either that knowledge or the financial statements, a
material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
●● we have identified material inconsistencies between the knowledge we acquired during our audit and the Directors’ statement that
they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s performance, business model and strategy; or
●● the Audit Committee Report does not appropriately address matters communicated by us to the Audit Committee.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
●● adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received
from branches not visited by us; or
●● the parent company financial statements and the part of the Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
●● certain disclosures of Directors’ remuneration specified by law are not made; or
●● we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
●● the Directors’ statement, set out on page 115, in relation to going concern; and
●● the part of the Corporate Governance Statement on pages 67 to 74 relating to the Company’s compliance with the nine provisions of
the 2010 UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
Scope of report and responsibilities
As explained more fully in the Directors’ Responsibilities Statement set out on page 66, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial
statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This report is made solely to
the Company’s members as a body and is subject to important explanations and disclaimers regarding our responsibilities, published on
our website at www.kpmg.com/uk/auditscopeukco2013a, which are incorporated into this report as if set out in full and should be read to
provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions.
Mark Summerfield (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
26 February 2014
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108
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
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 the note disclosures into five sections: ‘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 the relevant notes, along with details of 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. The aim of the text in boxes is to provide commentary on each section, or note, in plain English.
Keeping it simple . . .
Notes to the financial statements provide 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
4.1
4.2
4.3
4.4
4.5
4.6
4.7
Section 5: Other Notes
Related party transactions
5.1
Contingent liabilities
5.2
Subsequent events
5.3
5.4
Subsidiaries exempt from audit
ITV plc Company Financial Statements
Notes to the ITV plc Company Financial Statements
Financial Record
Shareholder Information
Net cash
Borrowings and held to maturity investments
Derivative financial instruments
Net financing costs
Financial risk factors
Fair value hierarchy
Equity
Page
109
110
111
112
114
115
120
120
123
124
127
129
129
132
134
139
142
142
143
151
151
153
156
157
158
161
162
167
167
168
168
168
169
170
174
175
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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
109
ar2013.itvplc.com
Stock code: ITV
2013
£m
2,389
(1,843)
546
2012
(restated)
£m
2,196
(1,750)
446
620
(8)
(66)
546
10
(125)
(115)
(2)
–
6
435
(105)
330
326
4
330
8.3p
8.1p
513
(7)
(60)
446
20
(126)
(106)
(1)
(6)
1
334
(77)
257
256
1
257
6.6p
6.4p
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
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102-119 Independent Aud Rep-Financials-Section 1.indd 109
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110
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Consolidated Statement of
Comprehensive Income
For the year ended 31 December
Profit for the year
Other comprehensive income:
Items that are or may be reclassified to profit or loss
Revaluation of available for sale financial assets
Exchange differences on translation of foreign operations
Items that will never be reclassified to profit or loss
Remeasurement gains/(losses) on defined benefit pension schemes
Income tax (charge)/credit on items that will never be reclassified
Other comprehensive income/(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
2013
£m
330
(3)
(6)
48
(13)
26
356
352
4
356
2012
(restated)
£m
257
(1)
(1)
(213)
50
(165)
92
91
1
92
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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 and other receivables due after more than one year
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Assets held for sale
Current liabilities
Borrowings
Derivative financial instruments
Trade and other payables due within one year
Trade 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
Total equity attributable to equity shareholders of the parent company
Non-controlling interests
Total equity
Ian Griffiths
Group Finance Director
Note
3.2
3.3
4.1
4.3
3.1.1
2.3
3.1.2
3.1.4
3.1.4
4.3
4.1
3.5
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
2013
£m
259
954
4
–
–
41
10
52
1,320
322
388
14
402
32
518
1,274
–
1,274
(62)
(6)
(702)
(42)
(744)
(36)
(19)
(867)
407
(318)
(27)
(445)
(40)
(8)
(838)
889
403
174
248
7
4
22
858
31
889
2012
(restated)
£m
156
938
6
3
145
99
17
93
1,457
252
366
14
380
–
690
1,322
25
1,347
(7)
(1)
(622)
(31)
(653)
(29)
(25)
(715)
632
(632)
(48)
(551)
(14)
(12)
(1,257)
832
391
122
283
13
7
1
817
15
832
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112
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
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
122
283
13
Note
Share
capital
£m
391
Balance at 1 January 2013
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
Remeasurement gains on defined benefit
pension schemes
Income tax on other comprehensive income
Total other comprehensive income
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
Total transactions with owners
Changes in non-controlling interests(a)
Balance at 31 December 2013
–
–
–
–
–
–
–
–
10
–
–
2
12
12
–
403
–
–
–
–
–
–
–
–
52
–
–
–
52
52
–
174
–
–
–
–
–
–
–
–
(22)
–
–
–
(22)
(22)
(13)
248
3.7
2.3
4.1
4.7.7
4.7.7
4.7.1
3.4
4.7
–
–
(6)
–
–
(6)
(6)
–
–
–
–
–
–
–
–
7
Retained
earnings
£m
1
Non-
controlling
interests
£m
15
Total
£m
817
326
326
–
–
48
(13)
35
361
(3)
(6)
48
(13)
26
352
(271)
(70)
(271)
(30)
14
14
(13)
–
(340)
(340)
–
22
(13)
2
(298)
(298)
(13)
858
4
–
–
–
–
–
4
(1)
–
–
–
–
(1)
(1)
13
31
Total
equity
£m
832
330
(3)
(6)
48
(13)
26
356
(272)
(30)
14
(13)
2
(299)
(299)
–
889
7
–
(3)
–
–
–
(3)
(3)
–
–
–
–
–
–
–
–
4
(a) Movements reported in merger and other reserves include a put option for the acquisition of non-controlling interests.
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Stock code: ITV
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
300
14
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
Remeasurement 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
Total transactions with owners
Changes in non-controlling interests(a)
Balance at 31 December 2012
–
–
–
–
–
–
–
–
–
–
–
2
–
–
–
–
–
–
–
–
–
–
–
2
2
2
–
391
2
2
–
122
–
–
–
–
–
–
–
–
(5)
–
–
–
(5)
(5)
(12)
283
3.7
2.3
4.1
4.7.7
4.7.7
4.7.1
3.4
4.7
–
–
(1)
–
–
(1)
(1)
–
–
–
–
–
–
–
–
13
Retained
earnings
(restated)
£m
(25)
Total
£m
806
256
256
–
–
(1)
(1)
(213)
(213)
50
(163)
93
50
(165)
91
(78)
5
9
(3)
–
(67)
(67)
–
1
(78)
–
9
(3)
4
(68)
(68)
(12)
817
Non-
controlling
interests
£m
3
1
–
–
–
–
–
1
(1)
–
–
–
–
(1)
(1)
12
15
Total
equity
£m
809
257
(1)
(1)
(213)
50
(165)
92
(79)
–
9
(3)
4
(69)
(69)
–
832
8
–
(1)
–
–
–
(1)
(1)
–
–
–
–
–
–
–
–
7
(a) Movements reported in merger and other reserves include a put option for the acquisition of non-controlling interests.
The Consolidated Statement of Changes in Equity has been restated to reflect the impact of amendments to IAS 19R. See section 1 for details.
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
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 and pension service costs
Note
2.2
2.2
2.1
4.4
2.2
3.2
3.3
3.7/4.7.7
(Increase)/decrease in programme rights and other inventory,
and distribution rights
(Increase)/decrease in receivables
Increase/(decrease) in payables
Movement in working capital
Cash generated from operations before exceptional items
Cash flow relating to operating exceptional items:
Net operating loss
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
Redemption of gilts
Acquisition of subsidiary undertakings
Cash balances of subsidiaries acquired in period
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 and joint ventures
Proceeds from sale of available for sale investments
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Bank and other loans – amounts repaid
Capital element of finance lease payments
Issue of share capital
Equity dividends paid
Dividend paid to minority interest
Purchase of own shares via employees’ benefit trust
Net cash outflow from financing activities
Net decrease 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
3.1.7
2.2
4.1
3.4
3.4
4.1
4.1
£m
435
(6)
–
2
115
8
24
66
20
(42)
(15)
42
(15)
(5)
(6)
(80)
38
(60)
(2)
(67)
165
(66)
10
4
(101)
(2)
(4)
–
–
8
(365)
(8)
2
(271)
(1)
(13)
2013
£m
649
(11)
638
(171)
467
2012
(restated)
£m
557
(2)
555
(167)
388
£m
334
(1)
6
1
106
7
27
60
16
29
17
(45)
1
(7)
5
(72)
42
(72)
(3)
(62)
–
(38)
–
–
(50)
(11)
(9)
3
4
–
14
(101)
(309)
(8)
4
(78)
(1)
(3)
(656)
(175)
690
3
518
(395)
(108)
801
(3)
690
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Stock code: ITV
Notes to the Financial Statements
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, and whether they are effective in 2013
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.
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.
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 2012 consolidated income statement and consolidated
statement of comprehensive income have been restated for
the retrospective application of IAS 19 Revised (see note 3.7).
In addition, the consolidated statement of financial position
has been restated for fair value adjustments to the net
assets acquired with acquisitions in 2012 (see note 3.4).
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 the Group maintained its positive net cash
position while paying a special dividend. The Group has also
sought to gain further efficiencies in the balance sheet by
repurchasing further debt where it is economically beneficial
to do so (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. 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.
The Group also continues to focus on development of the
non-advertising business, and evaluates the impact of
further investment in acquisitions against the strategy and
cash headroom of the business.
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
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 1: Basis of Preparation continued
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 a 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.
their activities and receiving the majority of the residual or
ownership risks related to the SPEs or their assets.
SPEs are used in limited circumstances by the Group. The
only significant SPE is the pension funding partnership that
was established in 2010 between the Group and the Trustee
of the ITV Pension Scheme as a way of establishing payment
streams to the pension scheme. The partnership, which is a
Scottish Limited Partnership, is controlled and consolidated
by the Group.
Current/non-current distinction
Current assets include assets held primarily for trading
purposes, cash and cash equivalents, and assets expected
to be realised in, or intended for sale or use in, the course of
the Group’s operating cycle. All other assets are classified as
non-current assets.
Current liabilities include liabilities held primarily for trading
purposes, liabilities expected to be settled in the course of
the Group’s operating cycle and those liabilities due within
one year from the reporting date. All other liabilities are
classified as non-current liabilities.
Classification of financial instruments
The financial assets and liabilities of the Group are classified
into the following financial statement captions in the
statement of financial position in accordance with IAS 39
Financial Instruments:
●● ‘Loans and receivables’ – separately disclosed as cash and
cash equivalents (excluding gilts over which unfunded
pension 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 included in non-
current other payables (contingent consideration); and
●● ‘Financial liabilities measured at amortised cost’ –
separately disclosed as borrowings and trade and other
payables.
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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.
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)
●● Business combinations (note 3.3 and note 3.4)
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.
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, including the related
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.
longevity swap (note 3.7)
●● Taxation (note 2.3)
●● Provisions (note 3.6)
●● Business combinations (note 3.4)
●● Impairment of assets (note 3.2 and note 3.3)
●● Financial instruments (note 4.1)
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.
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 1: Basis of Preparation continued
New or amended EU endorsed accounting standards
The table below represents new or amended EU endorsed accounting standards relevant to the Group’s results that are
effective in 2013:
Accounting Standard
Requirement
Impact on financial statements
IAS 19 Revised –
Employee Benefits
The IASB issued numerous amendments to IAS 19,
ranging from the concept of expected return on
plan assets to simple clarifications and rewording of
disclosures.
IAS 1 Financial
Statement
Presentation
IFRS 13 Fair Value
Measurements
The most significant amendment is the requirement
to calculate net interest income or expense using the
discount rate used to measure the defined benefit
obligation, whereas the previous standard required a
separate expected return on assets to be used.
The amendment also clarifies that administrative
costs should be recognised within operating costs,
which differs from previous practice of including it as a
deduction of assets.
The revised standard has been implemented in the
current year by the Group, with retrospective application.
The amendments to IAS 1 change the grouping of items
presented in other comprehensive income. 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.
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.
Longevity swap
IFRS 13 has resulted in a change in the method of valuing
a longevity swap (previously accounted for under IAS
19R). Under the new method the Group will be applying
market-based assumptions to the measurement process
(previously the best estimate was taken).
The impact on the income statement has been reflected
in the current year and has resulted in finance costs
of £20 million (which is adjusted for in calculating
adjusted profit), and operating costs of £13 million,
which is included within EBITA. The 2012 comparative
performance has been restated to reflect an increase
in finance costs of £7 million to £16 million, and an
additional £7 million in operating costs to £15 million.
The impact on 2012 statutory EPS is a decrease from
6.9p to 6.6p.
The above amendments have not had any impact on the
2013 and 2012 net asset position of the Group.
The statement of other comprehensive income has
been amended to reflect the update in presentation but
there is no impact on the Group’s financial position or
performance.
Longevity swap
The value of the longevity swap has increased from
a negative asset of £118 million in 2012 under the old
method to a negative asset of £23 million in 2013 under
the new method. Had the old valuation method applied
at 31 December 2013, the value of the longevity swap
would have been negative £140 million. The impact
of the new valuation method is an increase in the net
assets position of £117 million, with the remaining £22
million offsetting movement being changes in market
conditions over 2013. The movement has been reflected
within the net remeasurement gain presented in the
statement of other comprehensive income.
The change in value of the swap has had no impact
on the consolidated income statement of the Group.
Further details are in note 3.7.
There have been no other material impacts noted for
the Group.
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Stock code: ITV
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 32 Financial
Instruments
The amendments clarify the offsetting criteria, such as
when an entity has a legal right to offset and when gross
settlement is equivalent to net settlement.
Based on the preliminary analyses performed, the
amendments are not expected to have any impact on
the Group.
Based on the preliminary analyses performed, IFRS 10
is not expected to have any material 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 material impact on the
currently held investments of the Group.
IFRS 12
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.
Although a number of new disclosures will be required,
there is no material impact expected on the Group’s
financial position or performance.
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
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.
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.
This section therefore also shows each division’s contribution to total revenue and EBITA.
Following revisions to IAS 19, we have restated our prior period results and the details of those restatements are
included in note 3.7.
2.1 Profit before tax
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 some judgement. 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
Recognition criteria
Applicable
segment
Broadcast &
Online
Broadcast &
Online
Advertising
Sponsorship
Studios
Programme production
Studios
Programme rights
Broadcast &
Online
Studios
Participation revenues
(interactive & ‘red
button’ services)
Digital revenue: Archive
and Video on Demand
– one-off and top-up
content
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)
Broadcast &
Online
Digital revenue: Catch up an estimate is accrued in
the month and trued up
on receipt of third party
reports showing revenue
share calculation (showing
subscribers and hours
downloaded)
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Stock code: ITV
Broadcast & Online
This segment is responsible for commissioning and
scheduling programmes on the ITV channels, marketing and
programme publicity and online rights exploitation. Upon
transmission of these programmes, Broadcast & Online
generates revenue from the sale of audiences for advertising
airtime and sponsorship. Other sources of revenue are
from: participation revenue, digital revenue (including pay),
online advertising, digital terrestrial multiplex SDN, brand
extensions and licensing channels and content to pay
operators.
ITV Studios
ITV Studios is an international productions business. It
comprises ITV Studios UK, international production centres
in the USA, Germany, France, Australia, Sweden, Norway
and Finland and ITV Studios Global Entertainment, the
distribution and exploitation business.
A significant portion of ITV Studios’ UK 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 managed by the central treasury function, which manages
the cash position and funding of the Group.
Segmental information
Operating segments, which have not been aggregated, are
reported in a manner that is consistent with the internal
reporting provided to the Board of Directors, regarded as the
chief operating decision maker.
The Board of Directors considers the business primarily from
a product or activity perspective. The reportable segments
for the years ended 31 December 2013 and 31 December
2012 are therefore ‘Broadcast & Online’ and ‘ITV Studios’, the
results of which are outlined in the following tables:
Broadcast
& Online
2013
£m
1,896
–
1,896
487
ITV Studios
2013
£m
Consolidated
2013
£m
857
(364)
493
133
2,753
(364)
2,389
620
(2)
–
(2)
Broadcast
& Online
2012
(restated)
£m
1,834
–
1,834
406
ITV Studios
2012
£m
Consolidated
2012
(restated)
£m
712
(350)
362
107
2,546
(350)
2,196
513
(1)
–
(1)
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
Intersegment revenue, which is carried out on arm’s
length terms, is generated from the supply of ITV Studios
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.
In preparing the segment information, centrally managed
costs have been allocated between reportable segments on
a methodology driven principally by revenue and headcount
of each segment. This is consistent with the basis of
reporting to the Board of Directors.
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120-128 Section 2.indd 121
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 2: Results for the Year continued
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
2013
£m
620
(8)
(66)
(115)
(2)
–
6
435
2012
(restated)
£m
513
(7)
(60)
(106)
(1)
(6)
1
334
Whilst becoming more international, the Group’s principal
operations are in the United Kingdom. Its revenue from
external customers in the United Kingdom is £1,982 million
(2012: £1,895 million), and total revenue from external
customers in other countries is £407 million (2012:
£301 million).
There are three media buying agencies (2012: three) 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 £527 million
(2012: £486 million), £235 million (2012: £239 million)
and £210 million (2012: £233 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 4.7.7)
Pension costs
2013
£m
255
42
14
19
330
2012
£m
236
35
9
20
300
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
2013
2,049
2,208
4,257
2012
2,102
1,957
4,059
The increase in full-time equivalent employees in ITV Studios
is primarily driven by the four acquisitions completed in
2013 as well as an increase in production from the core UK
business. Broadcast & Online headcount reduction is driven
by the regional news operations due to changes in Ofcom
regulations combined with efficiency savings.
Details of Directors’ emoluments, share options, pension
entitlements and long-term incentive scheme interests are
set out in the Remuneration Report.
Read more on the Remuneration Report on page 82.
Depreciation
Depreciation in the year was £24 million (2012: £27 million),
of which £12 million (2012: £15 million) relates to ‘Broadcast
& Online’ and £12 million (2012: £12 million) to ‘ITV Studios’.
Operating leases
The total undiscounted future minimum lease payments
under non-cancellable operating leases fall due for payment
as follows:
2013
Transponders
Property
Within 1 year
Later than 1 year and not
later than 5 years
Later than 5 years
36
138
194
368
12
23
11
46
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
Total
48
161
205
414
Total
41
166
311
518
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 11 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
note 3.2.
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Stock code: ITV
Included in 2012 property commitments were future
minimum lease payments of £82 million contracted on
the London Television Centre, a property which the Group
acquired in January 2013 (see note 3.2).
Property leases typically run for a period of up to ten years
and may have an option to renew after that date (options
to renew are not included in the commitments table). Lease
payments are generally subject to market review every
five years to reflect market rentals, but because of the
uncertainty over the amount of any future changes, such
changes have not been reflected in the table above. None of
the leases include contingent rentals.
The total future minimum sublease payments expected to
be received under non-cancellable subleases at the year end
are £2 million (2012: £4 million).
The total operating lease expenditure recognised during the
year was £45 million (2012: £40 million) and total sublease
payments received were £2 million (2012: £2 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.
Read more on the Group’s policy regarding additional assignments
in the Audit Committee Report on page 80.
Fees paid to KPMG and its associates during the year are set
out below:
2013
£m
2012
£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
Other assurance services
Total Non-Audit Services
Total fees paid to KPMG
0.7
0.2
0.1
1.0
0.1
0.2
0.2
0.5
1.5
0.8
0.1
0.1
1.0
0.1
0.3
–
0.4
1.4
There were no fees payable in 2013 or 2012 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.
2.2 Exceptional Items
Keeping it simple . . .
Exceptional items are material and non-recurring
and are excluded from management’s assessment
of profit because by their nature they could distort
the Group’s underlying quality of earnings. They are
typically gains or losses arising from events that are
not considered part of the core operations of the
business (e.g. costs relating to capital transactions,
such as professional fees on acquisitions). These items
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:
2013
£m
2012
£m
Reorganisation and
restructuring costs
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
–
(8)
(8)
–
6
6
(2)
(5)
(2)
(7)
(6)
1
(5)
(12)
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120-128 Section 2.indd 123
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 2: Results for the Year continued
A – Reorganisation and restructuring costs
In 2012 £5 million of costs were incurred relating to
restructuring initiatives to drive cost efficiency in line with
the strategy.
B – Acquisition related expenses
Acquisition related expenses of £8 million include
professional fees (mainly financial and legal due diligence)
incurred on the acquisitions completed during the year
of £5 million (2012: £2 million; see also note 3.4), and
expenses in the period with respect to performance based,
employment linked contingent costs accrued to former
owners of £3 million (2012: nil).
C – Loss on sale and impairment of non-current assets
In 2012 a £6 million loss on sale and impairment of non-
current assets was incurred primarily as a result of an
impairment on previous premises of £5 million.
D – Gain on sale and impairment of subsidiaries and
investments
In 2013 the credit principally relates to the gain of £6 million
recognised on disposal of STV shares. In 2012, the £1 million
credit related 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.
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
before tax to the tax charge and the movements in
deferred tax assets and liabilities.
Following revisions to IAS 19, we have restated
our prior period results and the details of those
restatements are included in note 3.7.
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.
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.
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Stock code: ITV
A deferred tax asset of £10 million is recognised on overseas
temporary differences in the USA. The deferred tax asset of
£9 million in 2012 was on overseas temporary differences in
the USA and Germany.
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 2013, the
effective tax rate is comparable to the standard rate of
UK corporation tax. In the year ended 31 December 2012,
the effective tax rate was lower than the standard rate of
UK corporation tax primarily due to the reversal of over
provisions for prior periods and recognition of overseas
deferred tax assets. 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 charge totalling
£13 million (2012: credit of £50 million) has been recognised
representing deferred tax. An analysis of this is included in
the deferred tax movement table.
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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
2013
£m
(78)
(2)
(80)
3
(77)
(25)
(3)
(28)
(105)
2012
(restated)
£m
(63)
(2)
(65)
10
(55)
(27)
5
(22)
(77)
In order to understand how, in the income statement, a tax
charge of £105 million (2012: £77 million restated) arises
on a profit before tax of £435 million (2012: £334 million
restated), 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 23.25% (2012: 24.5%)
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
2013
£m
435
2012
(restated)
£m
334
(101)
(82)
1
–
–
(4)
(1)
(4)
8
7
(3)
(3)
(105)
(77)
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.
120-128 Section 2.indd 125
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 2: Results for the Year continued
Taxation – Statement of financial position
The table below outlines the deferred tax assets/(liabilities) that are recognised in the statement of financial position,
together with their movements in the year:
Property, plant and equipment
Intangible assets
Programme rights
Pension scheme deficits
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
Overseas
Other
At
1 January
2013
£m
Recognised in
the income
statement
£m
Recognised
in equity
£m
At
31 December
2013
£m
(6)
(34)
1
96
17
–
9
9
1
93
–
15
–
(27)
(16)
–
(1)
1
–
(28)
–
–
–
(13)
–
–
5
–
(5)
(13)
(6)
(19)
1
56
1
–
13
10
(4)
52
At
1 January
2012
£m
Recognised in
the income
statement
(restated)
£m
Recognised
in equity
(restated)
£m
At
31 December
2012
£m
1
(49)
1
71
32
(1)
8
–
2
65
(7)
15
–
(24)
(15)
1
–
9
(1)
(22)
–
–
–
49
–
–
1
–
–
50
(6)
(34)
1
96
17
–
9
9
1
93
At 31 December 2013, total deferred tax assets are
£81 million (2012: £133 million) and total deferred tax
liabilities are £29 million (2012: £40 million).
●● interest-bearing loans and borrowings and derivatives
temporary differences on hedging instruments;
●● share-based compensation temporary differences on
The deferred tax balance relates to:
share schemes;
●● property, plant and equipment temporary differences
arising on assets qualifying for capital allowances;
●● temporary differences on intangible assets arising on
business combinations;
●● programme rights temporary differences on
intercompany profits on stock;
●● pension scheme deficit temporary 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 temporary differences in receiving the benefit
of the Group’s tax losses;
●● overseas temporary differences on intangible assets and
net operating losses arising in the US and Germany; and
●● other temporary differences on miscellaneous items.
Due to the change in the statutory tax rate, deferred tax is
provided at 20% (2012: 23%), which is the rate that has been
substantively enacted to apply on 2 July 2013. The impact
of the change in the tax rate is £6 million (2012: £7 million),
of which £4 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
£91 million to the Group’s defined benefit pension scheme.
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The adjustment in equity to the deferred tax balance primarily
relates to the actuarial gains recognised in the period.
The calculation of basic, diluted and adjusted EPS is set out
below:
Earnings per share 2013
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
Adjusted earnings per share 2013
326
331
3,929
–
–
3,929
8.3p
3,929
46
136
4,111
8.1p
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
A
B
C
D
E
F
Earnings per share 2012 (restated)
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
Ref.
A
326
1
327
42
69
3
441
331
1
332
42
69
3
446
3,929
4,111
11.2p
10.8p
Basic
£m
256
3,888
–
–
3,888
6.6p
Diluted
£m
264
3,888
43
192
4,123
6.4p
A deferred tax asset of £446 million (2012: £513 million)
in respect of capital losses of £2,230 million (2012:
£2,230 million) has not been recognised due to uncertainties
as to the amount and whether a capital gain will arise in the
appropriate form and relevant territory against which such
losses could be utilised. For the same reasons, deferred tax
assets in respect of overseas losses of £14 million (2012:
£13 million) that time expire between 2017 and 2026 have
not been recognised.
2.4 Earnings per share
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 £326 million
(2012: £256 million) divided by 3,929 million (2012:
3,888 million) being the weighted average number of
shares in issue during the year.
Diluted EPS reflects any commitments the Group has
to issue shares in the future. In 2013, this comprised
share options and the 2016 convertible bond. To
calculate the impact it is assumed that all share
options are exercised and that the 2016 convertible
bond is converted into shares in its entirety.
When calculating the impact of the convertible bond,
only ten months of dilution were suffered since the
bond was settled in October (see note 4.1 for details).
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 which include acquisition
related costs (professional fees, primarily due
diligence, and performance based, employment linked
contingent payments), impairment of intangible assets,
amortisation of intangible assets acquired through
business combinations, net financing cost adjustments
and prior period and other tax adjustments.
Following revisions to IAS 19, we have restated
our prior period results and the details of those
restatements are included in note 3.7.
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 2: Results for the Year continued
C. Amortisation and impairment of acquired intangible
assets of £42 million (2012: £37 million) is calculated as
total amortisation and impairment of £66 million (2012:
£60 million), less amortisation of software licences and
development of £12 million (2012: £11 million). A related tax
credit of £12 million (2012: £12 million) is then recognised on
the net amount.
D. Gross adjustments to net financing costs of £90 million
(2012: £62 million restated) relate to mark-to-market
movements on swaps and foreign exchange, losses on
buybacks and imputed pension interest charges. This is
reduced by a tax credit of £21 million (2012: £15 million
restated) to give a net adjustment of £69 million (2012:
£47 million restated).
E. Other tax adjustments primarily reflect the impact on
the deferred tax charge resulting from a decrease in the
statutory tax rate from 23% to 20% and to reflect the
reversal of credit in respect of losses (2012: the rate at which
we recognised deferred tax decreased from 25% to 23%).
F. Adjusted profit is defined as profit for the year before
exceptional items which include acquisition related costs
(professional fees, primarily due diligence, and performance
based, employment linked contingent payments),
impairment of intangible assets, amortisation of intangible
assets acquired through business combinations, net
financing costs adjustments and other tax adjustments.
Adjusted earnings per share 2012 (restated)
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
256
10
266
37
47
2
352
264
10
274
37
47
2
360
3,888
9.1p
4,123
8.7p
Read more on our rationale for determining the adjustments to profit in the
Financial and Performance Review on page 47.
Details of the adjustments to earnings are as follows:
A. The Group dilutes EPS for the impact of any convertible
instrument outstanding during the year. As detailed in note
4.1, in 2013 the Group partially settled the 2016 convertible
Eurobond for equity. Consequently, diluted profit for the
period attributable to equity shareholders of ITV plc includes
an adjustment for interest and accretion recognised in the
year on the convertible Eurobond which would not have
been incurred if the bond had been converted to equity at
the beginning of the period. There will equally be a dilutive
impact on the weighted average number of shares for the
period to settlement resulting in an additional 136 million
shares (2012: 192 million shares for the full year).
B. Both operating and non-operating exceptional items
(detailed in note 2.2) are adjusted to reflect profit for
the year before exceptional items. A net tax credit of £1
million (2012: £2 million credit) is recognised on the total
exceptional items charge of £2 million (2012: £12 million
charge).
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Stock code: ITV
Section 3: Operating Assets and Liabilities
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 note 2.3.
On the following pages there are notes covering working capital, non-current assets and liabilities, acquisitions and
disposals, 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 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
2013
£m
140
16
156
123
23
146
10
2012
£m
125
15
140
114
9
123
17
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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130
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 3: Operating Assets and Liabilities
continued
3.1.3 Programme commitments
These 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
2013
£m
444
431
3
878
2012
£m
439
474
47
960
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.
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
Other
2013
£m
110
109
46
57
–
322
2012
(restated)
£m
102
97
24
28
1
252
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.
Programme rights and other inventory written down in the
year were £1 million (2012: £3 million).
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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
Other receivables
Total trade and other receivables
2013
£m
295
40
53
388
11
3
402
2012
(restated)
£m
264
44
58
366
14
–
380
£306 million (2012: £278 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
2013
£m
296
8
2
306
2012
£m
274
2
2
278
The balance above is stated net of a provision of £7 million
(2012: £7 million) for impairment of trade receivables. Of
the provision total, £3 million relates to balances overdue by
more than 90 days (2012: £4 million) and £4 million relates
to current balances (2012: £3 million).
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
2013
£m
2012
£m
7
1
(1)
–
7
11
3
(4)
(3)
7
3.1.5 Trade and other payables due within one year
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
2013
£m
43
7
216
436
702
2012
(restated)
£m
34
7
193
388
622
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
2013
£m
42
2012
(restated)
£m
31
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 outflow from working capital
was £15 million (2012: inflow of £1 million) derived as follows:
(Increase)/decrease in programme
rights and other inventory and
distribution rights
(Increase)/decrease in receivables
Increase/(decrease) in payables
Working capital (outflow)/ inflow
2013
£m
(42)
(15)
42
(15)
2012
£m
29
17
(45)
1
The working capital outflow for the year excludes the impact
of balances acquired on the purchase of new subsidiaries
(see note 3.4).
The increase in programme rights and other inventory is
largely driven by an increase in commissions and sports
rights. The broadcast sports rights mainly represent
payment for the FIFA World Cup and Rugby World Cup.
The increase in receivables has been driven by higher
revenues, compared to December 2012, resulting in an
increase in trade receivables.
The increase in payables primarily relates to trade payables,
and an increase in the Group VAT liability.
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 3: Operating Assets and Liabilities
continued
3.2 Property, plant and equipment
Keeping it simple . . .
The following section shows the physical assets used
by the Group to operate the business, generating
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.
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
Depreciation policy
Freehold land
Freehold buildings
Leasehold improvements
Vehicles, equipment and fittings1
not depreciated
up to 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.
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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 2012
Additions
Reclassification to intangible assets
Reclassification to assets held for sale
Disposals and retirements
At 31 December 2012
Additions
Reclassification of acquired property
Reclassification from assets held for sale (note 3.5)
Disposals and retirements
At 31 December 2013
Depreciation
At 1 January 2012
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
Charge for the year
Reclassification of acquired property
Reclassification from assets held for sale (note 3.5)
Disposals and retirements
At 31 December 2013
Net book value
At 31 December 2013
At 31 December 2012
£m
51
–
–
(37)
–
14
58
32
33
–
137
9
1
5
(12)
–
3
1
7
12
–
23
114
11
Long
£m
Short
£m
Owned
£m
Finance leases
£m
59
18
–
(1)
–
76
24
(32)
1
–
69
15
2
–
(1)
–
16
1
(7)
1
–
11
58
60
18
–
–
–
(2)
16
1
–
–
–
17
15
1
–
–
(1)
15
–
–
–
–
15
2
1
205
33
(6)
(8)
(21)
203
23
–
8
(13)
221
130
20
–
(8)
(21)
121
22
–
8
(13)
138
83
82
14
2
–
–
–
16
–
–
–
–
16
11
3
–
–
–
14
–
–
–
–
14
2
2
Total
£m
347
53
(6)
(46)
(23)
325
106
–
42
(13)
460
180
27
5
(21)
(22)
169
24
–
21
(13)
201
259
156
There are no additions in 2013 relating to acquisitions made
in the year (2012: £2 million).
Included within property, plant and equipment are assets in
the course of construction of £66 million (2012: £38 million).
Included within this are construction costs in relation to the
new Coronation Street set, which was completed in early
2014.
During the year, the Group acquired the freehold and
leasehold at its headquarters, the London Television Centre,
for £56 million and stamp duty of £2 million.
Capital commitments
There are £3 million of capital commitments at
31 December 2013 (2012: £10 million) which primarily relate
to the development at MediaCity, including the new location
for Coronation Street, in Manchester.
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 3: Operating Assets and Liabilities
continued
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.
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 and recognised within Other
payables. 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.
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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:
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.
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.
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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136
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 3: Operating Assets and Liabilities
continued
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 strategy 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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Stock code: ITV
Intangible assets
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 2012
Additions (restated)
Reclassification from tangible assets
At 31 December 2012 (restated)
Additions
Foreign exchange
At 31 December 2013
Amortisation and impairment
At 1 January 2012
Charge for the year
Impairments
At 31 December 2012
Charge for the year
At 31 December 2013
Net book value
At 31 December 2013
At 31 December 2012 (restated)
3,379
32
–
3,411
58
(2)
3,467
2,654
–
–
2,654
–
2,654
813
757
173
2
–
175
4
–
179
127
16
–
143
16
159
20
32
328
4
–
332
20
–
352
287
19
–
306
20
326
26
26
–
10
–
10
–
–
10
–
–
–
–
2
2
8
10
121
–
–
121
–
–
121
65
9
–
74
9
83
38
47
62
10
6
78
–
–
78
37
11
–
48
12
60
18
30
79
–
–
79
2
–
81
38
2
3
43
7
50
31
36
Total
£m
4,142
58
6
4,206
84
(2)
4,288
3,208
57
3
3,268
66
3,334
954
938
All additions in the year are due to the acquisition of four
production companies, as detailed in note 3.4 (2012: £48
million due to acquisitions).
Goodwill impairment tests
The following CGUs represent the carrying amounts of
goodwill.
2012 goodwill additions have been restated to reflect fair
value adjustments of £6 million recognised upon finalisation
of the purchase price allocation exercise.
Following an annual review of the amortisation periods
and residual values of the intangible assets, the Group has
adjusted its estimated residual value for the film libraries,
resulting in an increased annual amortisation charge in the
period.
Broadcast & Online
SDN
ITV Studios
2013
£m
342
76
395
813
2012
(restated)
£m
342
76
339
757
There has been no impairment charge for the year (2012: 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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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 3: Operating Assets and Liabilities
continued
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
2% (2012: 1%–2.5%). The growth rate used is consistent with
the long-term average growth rates for the industry and is
appropriate because these are long-term businesses.
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.
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 2013 (2012: 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.
No impairment charge arose in the Broadcast & Online CGU
during the course of 2013 (2012: nil).
A pre-tax market discount rate of 13.1% (2012: 14.4%) has
been used in discounting the projected cash flows.
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. Current industry consensus for the advertising
market is 3.5% for 2014. The impairment test also assumed
that ITV renews its broadcasting licences, which occured in
February 2014. No impairment was identified. Also as part of
the review, a sensitivity of -5% was applied to 2014 for the
purposes of the impairment test, again with no impairment
identified.
A pre-tax market discount rate of 11.3% (2012: 12.3%) 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.
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. ITV Studios
goodwill also includes all of the goodwill arising from recent
acquisitions in 2013 and 2012.
No impairment charge arose in the ITV Studios CGU during
the course of 2013 (2012: nil).
The key assumptions on which the forecast cash flows were
based include revenue (including international revenue and
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.
A pre-tax market discount rate of 12.2% (2012: 12.9%) 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.
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Stock code: ITV
3.4 Acquisitions
Keeping it simple . . .
The following section outlines what the Group has
acquired in the year.
All of the deals are structured so that a large part of
the payment made to the sellers is determined based
on future performance (‘consideration’). Accounting
standards require some of this consideration to be
included in the purchase price used in determining
goodwill (‘contingent consideration’), while the rest
is required to be recognised as a liability or expense
outside of acquisition accounting (put option
liabilities and performance based, employment-linked
contingent payments known as ‘earnout’ payments).
Therefore, for each acquisition below, the distinction
between the types of consideration has been
explained in detail.
Read more on how each of these businesses plays an important role in
helping the Group execute its strategy in the Financial and Performance
Review on page 45.
Acquisitions
During 2013 the Group completed four acquisitions, all
of which have been included in the results of the Studios
operating segment. Each of these businesses fits with the
Group’s strategy to create world class content for multiple
platforms, free and pay, both in the UK and internationally.
The following sections provide a summary of each acquisition.
Acquisitions in the United Kingdom
The Garden Productions
On 22 April 2013, the Group acquired 100% of The Garden
Productions Limited (‘The Garden’), a company that
specialises in factual entertainment productions. Initial
consideration of £18 million was paid in cash. Contingent
consideration included a performance based payment
due in 2014 of a maximum of £8 million which is no longer
expected to be paid.
The Group also agreed to an earnout payment that will be
based on the business meeting certain performance targets.
The maximum payment is £28 million (undiscounted) and
the expected payment is being accrued over the earnout
period (five years), and will largely be reported within
exceptional items relating to acquisitions in the income
statement.
Intangibles, being the value placed on key contractual
arrangements, of £8 million were identified. Goodwill, which
represents the value placed on the opportunity to diversify
and grow the content and formats produced by the Group,
has been provisionally valued at £12 million. The goodwill
arising on the acquisition is not expected to be deductible
for tax purposes.
Big Talk Productions
On 26 July 2013, the Group acquired 100% of the share
capital of Big Talk Productions Limited and associated
companies (‘Big Talk’), a business that specialises in scripted
programmes. Initial consideration of £13 million was paid
in cash. Contingent consideration includes a performance
based payment due in 2015 of £1 million (maximum of £2
million undiscounted) and in 2018 of £2 million (maximum of
£4 million undiscounted).
The Group also agreed to an earnout payment that will be
based on the business meeting certain performance targets.
The maximum payment is £11 million (undiscounted) and the
expected payment is being accrued over the earnout period
(five years), and will largely be reported within exceptional
items relating to acquisitions in the income statement.
Intangibles, being the value placed on key contractual
arrangements, of £3 million were identified. Goodwill, which
represents the value placed on the opportunity to diversify
and grow the content and formats produced by the Group,
has been provisionally valued at £12 million. The goodwill
arising on the acquisition is not expected to be deductible
for tax purposes.
Acquisitions in the United States
On 10 May and 18 June 2013, the Group acquired 60% and 65%
of the membership interests in High Noon Entertainment (‘High
Noon’) and Thinkfactory Media (‘Thinkfactory’) respectively. The
Group consolidates all of the earnings of both businesses and
the vendors’ remaining interest will be recognised as a non-
controlling interest in equity.
High Noon specialises in reality and entertainment
programmes, while Thinkfactory has a mixture of reality,
entertainment and some scripted programming. It is the
Group’s view that the acquisitions will strengthen and
complement ITV’s existing position as a producer for major US
television networks.
Goodwill represents the value placed on the opportunity to
expand the Group’s programme offering in the United States
and exploiting that offering internationally. It also reflects the
value of the assembled workforce of creative talent who will
develop that content. It is expected to be deductible for US tax
purposes.
Further details of each US acquisition is summarised below.
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 3: Operating Assets and Liabilities
continued
High Noon Entertainment
Initial consideration of £16 million ($26 million) for 60% was
satisfied in cash and contingent consideration includes a
performance based payment due in 2015 of £2 million ($3
million undiscounted, maximum of $10 million).
A call and put option has been granted over the 40% non-
controlling interest. The call option is exercisable in the first
half of 2016 and then following the expiry of the vendors’
put option, which is exercisable in 2019.
The maximum additional consideration that the Group could
pay for the remaining 40% equity interest is £45 million
($74 million; undiscounted). Final payment will be entirely
dependent on future performance of the business, and
the maximum payout will only be achieved if the business
continues to deliver substantial growth over the next five
years.
Intangibles, being the value placed on brands, customer
contracts and contractual arrangements, of £7 million were
identified and goodwill was valued at £16 million.
Based on the Group’s projections at acquisition, the value
of the put option was valued at £8 million ($13 million,
discounted). The total was allocated, for accounting
purposes, between a put option liability and an earnout
accrual. Consequently, a put option liability of £6 million
($10 million) has been included in the Statement of Financial
Position. Any changes in the fair value of the put option
liability arising from a reassessment of projections will be
reported within financing costs on the income statement,
and excluded from adjusted profit. The remaining £2 million
($3 million) will be accrued over the put option vesting
period as an earnout payment and will be reported within
exceptional items relating to acquisitions in the income
statement.
At the year end, the value of the put option was estimated to
be £16 million ($28 million; undiscounted).
Thinkfactory Media
Initial consideration of £19 million ($30 million) for 65% was
satisfied in cash.
A call and put option has been granted over the 35% non-
controlling interest. The call option is exercisable in the first
half of 2017 and then following the expiry of the vendors’ put
option, which is exercisable in 2019.
The maximum additional consideration which the Group
could pay for the remaining 35% equity interest is £42 million
($70 million; undiscounted). Final payment will be entirely
dependent on future performance of the business, and
the maximum payout will only be achieved if the business
continues to deliver substantial growth over the next five years.
Intangibles, being the value placed on brands, customer
contracts and contractual arrangements, of £8 million were
identified and goodwill was valued at £18 million.
At acquisition the put option was valued at £9 million ($13
million, discounted). The total has been allocated between
a put option liability and an earnout accrual, resulting in a
£7 million ($10 million) put option liability included in the
Statement of Financial Position. Any subsequent changes in the
fair value of the put option liability arising from a reassessment
of projections will be reported within financing costs on the
income statement, and excluded from adjusted profit. The
remaining £2 million ($3 million) will be accrued over the put
option vesting period as an earnout payment and will be
reported within exceptional items relating to acquisitions in the
income statement.
At the year end, the value of the put option was estimated to
be £12 million ($20 million; undiscounted).
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Stock code: ITV
Effect of acquisition
The acquisitions noted above had the following impact on the Group assets and liabilities:
£m
Consideration transferred:
Initial consideration (net of cash acquired) (Note A)
Contingent consideration
Total consideration
Fair value of net assets acquired (Note B):
Property, plant and equipment
Intangible assets
Trade and other receivables
Trade and other payables
Fair value of net assets
Non-controlling interest measured at fair value (Note C)
Goodwill
Other information:
Present value at acquisition of the liability on options
Present value at acquisition of the earnout 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
Recognised values on acquisition
The
Garden
High
Noon
ThinkFactory
Big Talk
2013
Total
2012
Total
(Note D)
14
1
15
–
8
2
(7)
3
–
12
–
5
10
1
15
2
13
2
15
–
7
11
(13)
5
6
16
6
2
22
1
38
2
18
–
18
–
8
8
(9)
7
7
18
7
2
20
1
24
1
11
3
14
–
3
11
(12)
2
–
12
–
6
9
–
19
1
56
6
62
–
26
32
(41)
17
13
58
13
15
61
3
96
6
35
1
36
2
16
7
(9)
16
12
32
12
9
6
–
47
6
Note A: Cash of £4 million was acquired with The Garden, £3 million was acquired with High Noon, £1 million with Thinkfactory and £2 million with Big Talk.
Note B: Provisional details of fair value of net assets acquired in 2013 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.
Note C: Non-controlling interest arises where the Group acquires less than 100% of the equity interest in a business, but obtains control.
Note D: During 2013 a payment of £4 million was made to settle pre-acquisition cash of £6 million. Additional fair value adjustments of £6 million were recognised upon finalisation of the
purchase price allocation exercise and recognised in goodwill. The December 2012 balance sheet has been restated to reflect the fair value adjustments to goodwill.
Fair value of the consideration transferred comprises the
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 2012
During 2012 the Group completed four acquisitions which
have all been included in the ITV Studios operating segment.
The Group acquired a 61.5% controlling interest in Gurney
in December 2012. Total payments of £29 million ($46
million) were made, consisting of initial consideration of
£25 million ($40 million) and £4 million ($6 million) paid for
cash acquired. A call and put option was granted over the
non-controlling interest. The discounted put option liability
(‘options’) at the acquisition date was £12 million and the
maximum consideration which the Group could pay for the
remaining 38.5% equity interest is £42 million ($71 million;
undiscounted). Final payment will be entirely dependent on
future performance of the business.
Intangibles, being the value placed on brands, customer
contracts and contractual arrangements, of £8 million were
identified and goodwill of £26 million has been recognised.
The Group acquired 100% of the share capital of the
remaining three businesses for total consideration of £13
million. The maximum additional amount payable is £11
million (undiscounted), and is primarily being accounted for
as an earnout payment. Total goodwill of £6 million was
recognised on acquisition and represents the value placed
on the opportunity to diversify and grow the content and
formats produced by the Group.
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129-150 Section 3.indd 141
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142
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 3: Operating Assets and Liabilities
continued
Acquisition costs largely comprise legal and financial
diligence fees. Details of that, along with earnout costs
expensed in the period, are disclosed in exceptional items
note 2.2.
3.5 Assets held for sale and disposals
Keeping it simple . . .
The following section outlines what the Group is either
holding for sale or has disposed of in the year.
IFRS provides strict criteria that must be met for
an asset to be classified as held for sale. Where the
Group no longer considers an asset to meet any of the
criteria, it is reclassified.
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 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.
Assets held for sale
The movement in assets held for sale since 1 January 2013 is
summarised in the table below:
At 1 January 2013
Disposal of properties held for sale
Property reclassified to tangible fixed assets
At 31 December 2013
2013
£m
25
(4)
(21)
–
At the beginning of the year the Group was actively marketing
certain freehold properties in Manchester following the
Group’s decision to relocate to a new site at MediaCity. The
sale of one Manchester property was completed in 2013 for
consideration of £4 million, with an immaterial gain on sale.
The remaining properties are under a conditional offer, with
the sale not expected to complete until 2015. As a result, they
have been reclassified to tangible fixed assets.
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.
129-150 Section 3.indd 142
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Provisions
The movements in provisions during the year are as follows:
3.7 Pensions
Contract
provisions
£m
Restruc-
turing
provisions
£m
Property
provisions
£m
Other
provisions
£m
At 1 January 2013
Additions
Utilised
At 31 December 2013
10
–
(3)
7
4
1
(4)
1
8
–
(4)
4
15
–
–
15
Total
£m
37
1
(11)
27
Provisions of £19 million are classified as current liabilities
(2012: £25 million). Unwind of the discount is nil in 2013 and
2012.
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 administrative receivership, most of which
relate to pension arrangements. In 2011 the Determinations
Panel of The Pensions Regulator determined that Financial
Support Directions (‘FSDs’) should be issued against certain
companies within the Group in relation to the Boxclever
pension scheme. The Group immediately referred this
decision to the Upper Tribunal (thereby effectively appealing
it). 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 reference. The
reference process is ongoing and aside from procedural
issues there were no substantive case developments in
the period. The Directors have obtained leading counsel’s
opinion and extensive legal advice in connection with the
proceedings and continue to believe that the provision held
is appropriate.
Keeping it simple . . .
Historically, the Group has 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
present value and the fair value of scheme assets is then
deducted. The discount rate used is the yield at the valuation
date on high quality corporate bonds, 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, and inflation. 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.
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 3: Operating Assets and Liabilities
continued
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.
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 and to monitor
the schemes’ funding position. 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 2013.
Defined contribution schemes
Total contributions recognised as an expense in relation to
defined contribution schemes during 2013 were £8 million (2012:
£9 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 as at 1 January 2014,
and is expected to be agreed in 2015. The Group will monitor
funding levels annually.
The defined benefit pension deficit
The defined benefit pension deficit at 31 December 2013
was £445 million (2012: £551 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
2013
£m
2012
£m
(3,315)
(3,244)
2,870
2,693
(445)
(551)
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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
2014 for current service are expected to be in the region of
£10 million (2013: £11 million) assuming current contribution
rates continue as agreed with the Trustee. Based on the
agreements currently in force, the following deficit funding
payments are expected for forthcoming years.
In 2014 the Group expects to make deficit funding
contributions of £89 million (£80 million was paid in 2013)
comprised as follows:
●● deficit funding contribution to Section A of £40 million;
●● total annual deficit funding contributions to Sections B
and C of £5.5 million;
●● £32 million, being 10% of the Group’s EBITA before
exceptional items that exceeds the £300 million threshold;
●● £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.
Read more on the Scheme commitments in the Financial and Performance
review on page 51.
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 – the cost to the Group of benefits arising in the future which are attibutable to the members’
service in the current period. This is charged to operating costs in the income statement.
●● Past service cost – refers to the cost or credit as a result of changes in the benefits offered to members or a
reduction in the number of employees covered by the scheme. This is recognised through operating costs in the
income statement.
●● Settlement gains/(losses) – these occur when the Group 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 or losses can
arise from the transfer of member benefits into alternative pension arrangements, fully insuring benefits or on
business disposals.
●● Increase due to interest cost – future pension obligations are stated in present value, in that a discount factor is
used to state the current worth of a future cost. This interest cost 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) – in order to value the Group’s defined benefit obligation at the end of a period, it is
necessary to apply certain assumptions in relation to demographic and financial trends. Where there is a difference
between previous estimates and actual experience, or a change to assumptions, this will give rise to actuarial gains
or losses, which are recognised through other comprehensive income
●● Benefits paid – any benefits paid out by the schemes will lower the obligations of those schemes.
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 3: Operating Assets and Liabilities
continued
The movement in the present value of the Group’s defined
benefit obligation is analysed below:
The principal assumptions used in the schemes’ valuations at
the year end were:
Defined benefit obligation at
1 January
Current service cost
Interest cost
Net actuarial loss
Benefits paid
Defined benefit obligation at
31 December
2013
£m
3,244
8
133
70
(140)
2012
£m
3,036
7
140
200
(139)
3,315
3,244
The present value of the defined benefit obligation is
analysed between wholly unfunded and funded defined
benefit schemes in the table below:
Defined benefit obligation in respect of
funded schemes
Defined benefit obligation in respect of
wholly unfunded schemes
Total defined benefit obligation
2013
£m
2012
£m
3,271
3,203
44
3,315
41
3,244
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.
Discount rate for:
Past service liabilities
Future service liabilities
Inflation assumption for:
Past service liabilities
Future service liabilities
Rate of pensionable salary increases
Rate of increase in pension payment
(LPI 5% pension increases)
Rate of increase to deferred
pensions (CPI)
2013
2012
4.45%
4.60%
3.35%
3.40%
0.9%
3.25%
2.35%
4.2%
4.2%
2.9%
2.9%
0.9%
2.8%
2.2%
IAS 19 requires that the discount rate 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, using the yield curve as the basis of estimation
and differentiating between past service (the defined benefit
obligation) and future service (the current service cost).
Differentiating in this way represents a refinement in the
basis of estimation applied in prior periods, where previously
the discount rate was based on the term of the past service
liabilities and there was no differentiation between past
and future service. There is no impact of the refinement on
the defined benefit obligation as at 31 December 2013, as
this continues to be valued by reference to a single rate for
past service liabilities. The use of a different discount rate
and inflation rate for future service liabilities has no material
impact on the 2014 income statement charge.
The inflation assumption has been set by looking at the
difference between the yields on fixed and index-linked
Government bonds, also differentiating between past and
future service. The inflation assumption is used as a basis for
the remaining financial assumptions, except where inflation
caps have been implemented. Both the discount rate and
the inflation assumption have been selected by considering
yields taken from yield curves at terms, and weighted by
cash flows, consistent with the pension obligations. The
yield curves are constructed by our actuarial advisers
from the yields available on relevant AA rated corporate
bonds (for the discount rate) and fixed and index-linked
Government bonds (for the inflation assumption).
129-150 Section 3.indd 146
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In estimating the life expectancy of pension scheme members,
the Group has used the SAPS Normal year of birth tables with
CMI 2013 improvements, with a 1.25% p.a. long-term trend
and a minus one year age rating (i.e. tables are adjusted so
that a member is assumed to be one year younger than actual
age). At the 2012 year end, PA92 year of birth tables with
medium cohort improvements were used, with a 1% per annum
underpin and a one year age rating. Using these tables the
assumed life expectations on retirement are:
The sensitivities above consider the impact of the single
change shown, with the other assumptions assumed to
be unchanged. The inflation sensitivities allow for the
consequential impact on the relevant pension increase
assumptions. The sensitivity analyses have been determined
based on a method that extrapolates the impact on the
defined benefit obligation as a result of reasonable changes
in key assumptions occurring at the end of the reporting
period.
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.
Retiring today at age
Males
Females
Retiring in 20 years at age
Males
Females
2013
60
27.8
30.4
60
29.8
32.4
2013
65
23
25.5
65
24.8
27.4
2012
60
26.8
30.1
60
28.8
32.2
2012
65
21.9
25.1
65
23.7
27.0
The tables above reflect published mortality investigation
data in conjunction with the results of investigations into
the mortality experience of scheme members. The Group
estimates the average duration of its UK scheme’s liabilities
to be 15 years (2012: 15 years).
The sensitivities regarding the principal assumptions used to
measure the defined benefit obligation are set out below:
Assumption
Discount rate
Rate of inflation
(Retail Price Index)
Rate of inflation
(Consumer Price Index)
Change in assumption Impact on scheme deficit
Increase by 0.5% Decrease by £240 million
Decrease by 0.5% Increase by £270 million
Increase by 0.5% Increase by £80 million
Decrease by 0.5% Decrease by £60 million
Increase by 0.5% Increase by £40 million
Life expectations
Decrease by 0.5% Decrease by £30 million
Increase by £80 million
Increase by 1 year
The above sensitivity for life expectations excludes the
longevity swap. It is estimated that a £50 million benefit
would arise from a one year increase in the market based
assumption of mortality.
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 3: Operating Assets and Liabilities
continued
Total defined benefit scheme assets
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
predetermined 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. In prior periods,
the present value as at the year end was calculated using the same assumptions applied to the defined benefit
obligation. However, the introduction of IFRS 13 in the year means that the Group must now value the swap under
market-based assumptions, which represents a change from previous best estimates. This results in a nil valuation of
the swap at inception, subsequently adjusted for changes in the market life expectancy and market discount rates.
Pension scheme assets are measured at their fair value and can change due to the following:
●● The investment income on scheme assets is determined based on the discount rate at the beginning of the
year and calculated as the expected percentage return multiplied by the fair value of the scheme assets. This is
recognised through net financing costs in the income statement.
●● Remeasurement gains and losses arise from differences between the actual and expected final asset values and
are recognised through other comprehensive income.
●● A deduction from scheme assets is made for scheme administration expenses, which are recognised through
operating costs in the income statement.
●● Employer’s contributions and cash contributions by scheme participants are paid into the schemes to be managed
and invested.
●● Any benefits paid out by the schemes will reduce the value of the schemes’ assets.
●● Movements in the value of the longevity swap. The value of the longevity swap is sensitive to changes in the
discount rate or market life expectancy and movements are recognised as a remeasurement gain or loss in other
comprehensive income.
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The movement in the fair value of the defined benefit
scheme’s assets is analysed below:
Fair value of scheme assets at
1 January
Investment income on scheme assets
Return on assets
Employer contributions
Benefits paid
Administrative expenses paid
Fair value of scheme assets at
31 December
2013
£m
2,693
113
118
91
(140)
(5)
2012
(restated)
£m
2,646
124
(13)
82
(139)
(7)
2,870
2,693
At 31 December 2013 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
2013
£m
Market value
2012
£m
Equity-type assets
UK Quoted
Unquoted
Overseas Quoted
Unquoted
Government bonds
UK Fixed
Index-linked
Overseas Quoted
Unquoted
Corporate bonds
UK Quoted
Unquoted
Overseas Quoted
Unquoted
Other assets
Property
Infrastructure
Hedge funds/alternatives
Insurance policies
Cash and cash equivalents
Longevity swap fair value
Total scheme assets
172
–
575
1
410
980
20
1
115
–
268
7
49
65
165
38
144
–
488
–
437
934
25
–
121
–
284
5
49
48
150
37
27
(23)
2,870
89
(118)
2,693
The Trustee holds a longevity swap 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. The introduction of IFRS 13 as
discussed below has resulted in a change in the approach
and assumptions used to value the swap. As a result, the
negative value of the swap has reduced by £95 million, with
the associated gain being recognised as a remeasurement
gain on assets in other comprehensive income within equity.
The scheme is invested in a range of asset classes and uses
derivative financial contracts to improve the efficiency of
the portfolio and to help manage risks.
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 manages by hedging
broadly 60% of the overseas investments against currency
movements.
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 2014 to develop the
expected long-term rate of return on assets assumption for
the portfolio. The benchmark for the main section of the
scheme in 2014 is to hold broadly 47% liability-matching
and 53% return-seeking assets. 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.
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150
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 3: Operating Assets and Liabilities
continued
The actual return on the scheme’s assets for the year ended
31 December 2013 was an increase of £231 million (2012:
increase of £111 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.
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
Scheme administration expenses
Amount charged to net financing costs:
Net interest on defined benefit
scheme obligations
Total charged in the consolidated
income statement
2013
£m
(8)
(5)
(13)
2012
(restated)
£m
(7)
(7)
(14)
(20)
(16)
(33)
(30)
Amounts recognised through the consolidated statement
of comprehensive income
The amounts recognised through the consolidated
statement of comprehensive income/(cost) are:
Remeasurement gains and (losses):
Return on scheme assets excluding
interest income
Actuarial losses on liabilities arising
from change in:
– demographic assumptions
– financial assumptions
Total recognised in the consolidated
statement of comprehensive income
2013
£m
2012
(restated)
£m
118
(13)
(66)
(4)
(70)
48
–
(200)
(200)
(213)
The £70 million actuarial loss on the scheme’s liabilities was
principally due to the change to mortality assumptions. The
£118 million remeasurement gain on scheme assets
primarily results from the change in valuation method
applied to the longevity swap, as discussed below.
Changes to accounting standards
A revised version of IAS 19 ‘Employee benefits’ has been
in force from 1 January 2013 and changes a number of
disclosure requirements for post employment arrangements
and restricts the options previously available on how to
account for defined benefit pension plans. The Group
adopted the revised standard from this date and has applied
it restrospectively to the Group’s 2012 results.
The most notable change resulting from IAS 19 (Revised)
which impacts the Group is the requirement for the
expected returns on pension plan assets, previously
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 retrospective
application has resulted in an additional charge of
£14 million in the consolidated income statement for 2012,
of which £7 million has been charged to operating costs and
£7 million is a reduction in interest income on assets, within
net financing costs. The impact on basic and diluted EPS for
2012 was a reduction of 0.3p. This change has not impacted
the Group’s net assets.
IFRS 13 ‘Fair Value Measurements’ was introduced and came
into effect from 1 January 2013. The most significant impact
on the Group is the requirement to value the longevity
swap using IFRS 13 market-based assumptions, instead of
the previous requirement to apply assumptions consistent
with those used for the defined benefit obligation. Applying
IFRS 13 to the swap valuation results in a swap value of
nil at inception in August 2011, and a negative swap asset
of £23 million as at 31 December 2013. The £95 million
remeasurement gain arising in the period, primarily as
a result of this change in valuation method, has been
recognised as a return on scheme assets within other
comprehensive income, and reduced the Group’s defined
benefit pension obligation by the same amount.
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Stock code: ITV
Section 4: Capital Structure and Financing Costs
In this section . . .
This section outlines how the Group manages its capital structure and related financing costs, including its balance
sheet liquidity and access to capital markets.
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
and do so in the context of its ability to continue as a going concern, to execute the strategy and to deliver its business
plan. During the year the Group’s credit rating improved, and the Board continued to focus on improving the efficiency of
the balance sheet through the partial repurchase of the bilateral loan and the repurchase and redemption of the 2016
convertible bond.
In 2014 the Board will further review its policies on capital structure to support the strategy. 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.
4.1 Net cash
Keeping it simple . . .
Net cash is the Group’s key measure used to evaluate total cash resources net of the current outstanding debt. In
defining total outstanding debt the Directors consider it appropriate to include:
●● the currency impact of swaps held against those debt instruments;
●● equity components of debt instruments (principally the convertible bond which was settled in the year); and
●● the amortised cost adjustment which reflects the increase in coupon rates for specific bonds caused by the change
in ITV’s credit status to and from investment grade in between August 2008 and August 2013.
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 4: Capital Structure and Financing Costs
continued
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
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
1 January
2013
£m
Net cash flow
and
acquisitions
£m
Currency and
non-cash
movements
£m
31 December
2013
£m
602
88
690
145
–
(7)
(594)
(38)
(639)
25
(22)
7
206
(164)
(8)
(172)
(145)
–
7
200
–
207
–
11
–
(99)
–
–
–
–
(41)
(21)
93
21
52
1
11
(7)
57
438
80
518
–
(41)
(21)
(301)
(17)
(380)
26
–
–
164
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
206
Cash and cash equivalents
Included within cash equivalents is £36 million (2012: £43
million), the use of which is restricted to meeting finance
lease commitments under programme sale and leaseback
commitments, and gilts of £36 million (2012: £37 million) over
which the unfunded pension commitments have a charge
(see note 3.7 for details).
Held to maturity investments
In March 2013 gilts with a nominal value of £138 million
secured against the £200 million bilateral loan were utilised
in part repayment of the loan (2012: the gilts had a carrying
value of £145 million).
Loans and loan notes due within one year
During the year the 2014 Eurobond was reclassified to
current borrowings.
Loans and loan notes due after one year
In March 2013 £138 million of the £200 million covenant free
loan with a maturity of March 2019 was repaid from cash
and with the held to maturity gilts secured against the loan.
All other terms, including the interest cost of 13.55%, remain
unchanged. The repayment resulted in an upfront loss of
£38 million, shown in net financing costs, and future interest
savings of £48 million (2012: £75 million of the October
2015 bonds and £89 million of the January 2017 bonds were
repurchased).
Currency components of swaps held against euro
denominated bonds
As at 31 December 2013 the currency element of the cross
currency interest rate swaps is a £26 million asset (2012:
£25 million asset) effectively reducing the net amount
repayable on the bond at maturity.
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Stock code: ITV
4.2 Borrowings and held to maturity
investments
Keeping it simple . . .
The Group borrows money from financial institutions
and debt investors in the form of bonds and other
financial instruments. The Group’s bonds generally
have fixed interest rates and are for a fixed term.
The interest payable and receivable on these
instruments is shown in the net financing costs note
in note 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 had one compound financial instrument, the
2016 convertible bond, that was redeemed in the year as
described in note 4.1.
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 contained an option for the
issuer to convert a portion of the debt into ITV’s equity (from
November 2013), the components were treated as separate
instruments. The accounting policy for this compound
instrument is detailed in note 4.2 (i.e. partly debt and partly
equity).
During 2013 the Group settled the entire convertible bond
through a combination of repurchase and redemption,
resulting in future interest cost savings of £16 million and
share dilution of 95 million shares:
●● the Group repurchased £73 million nominal for a cash
cost of £169 million, resulting in a loss of £13 million
recognised in net financing costs and a loss attributable
to the equity component of £83 million, which has been
reflected in retained earnings;
●● the remaining nominal of £62 million was redeemed in
exchange for 95 million new shares being issued. The
Group recognised a loss of £10 million in net financing
costs with respect to the redemption, and the residual
equity element of £9 million was released to retained
earnings.
The impact of the redemption on the Group’s equity is
detailed in note 4.7.
Amortised cost adjustment
The purpose of the amortised cost adjustment is to exclude
the impact of the coupon step-up on net debt. When ITV’s
Standard & Poor’s credit rating was lowered to BB+ in August
2008 a coupon step-up (an increased interest cost) in the
2014 and 2017 bonds was triggered. Consequently the debt
carrying values had to be revalued under IFRS, resulting in
a non-cash increase in net debt and associated loss in net
financing costs of £30 million as at 31 December 2008. Since
then the accounting treatment has been unwinding this
through an annual interest expense, which is excluded from
adjusted net financing costs.
In August 2013, the Group’s investment grade status was
fully restored, resulting in a reversing of the previous coupon
step up for the 2017 bond. This ‘step down’ triggered
another revaluation of the amortised cost of the debt
under IFRS, leading to a gain of £5 million which has been
recognised within interest expense on financial liabilities in
net financing costs, on a basis consistent with the unwind
described above.
At year end, the amortised cost adjustment remaining is nil
(2012: £7 million).
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151-166 Section 4.indd 153
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 4: Capital Structure and Financing Costs
continued
The liability component of a compound financial instrument
is recognised initially at the fair value of a normal bond
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 and excludes the favourable
impact of the cross-currency interest rate swaps:
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
41
78
161
62
301
342
21
7
10
–
17
38
2013
£m
62
85
171
62
318
380
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
Loans and loan notes repayable within one year
The Group has one loan repayable in 2014. The unsecured
£41 million (€50 million) Eurobond has a coupon of 10.0%
and matures in June. The Group expects to pay £15 million at
maturity, net of cross-currency interest rate swaps.
Loans and loan notes repayable between one
and two years
The unsecured £78 million Eurobond has a coupon of
5.375% and matures in October 2015.
Loans and loan notes repayable between two
and five years
The Group has one loan that is repayable between two
and five years as at 31 December 2013. The unsecured £161
million Eurobond matures in January 2017 and has a coupon
of 7.375%, which decreases to 6.125% from January 2014
following the coupon step down discussed in note 4.1.
Loans and loan notes repayable after five years
The £62 million (previously £200 million) covenant free
loan raised in February 2009 and partially repaid in 2013
(see note 4.1) matures in March 2019 and charges interest
of 13.55%. In January 2014 the remaining nominal was
repurchased. See note 5.3 for details.
151-166 Section 4.indd 154
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Stock code: ITV
Fair value versus book value
The tables below provide fair value information for the Group’s borrowings and held to maturity investments:
Assets
Held to maturity investments
Maturity
Mar 2019
Book value
Fair value
2013
£m
–
2012
£m
145
2013
£m
–
The fair value of held to maturity investments is based on quoted market bid prices at the year end.
Liabilities
€50 million Eurobond
£78 million Eurobond
£135 million Convertible bond
£161 million Eurobond
£62 million loan (previously £200 million loan)
Maturity
June 2014
Oct 2015
Nov 2016
Jan 2017
Mar 2019
Book value
Fair value
2013
£m
41
78
–
161
62
342
2012
£m
39
78
110
167
200
594
2013
£m
43
83
–
179
95
400
2012
£m
166
2012
£m
48
84
223
178
309
842
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. This calculation of fair value is consistent
with assets and liabilities valued under level 2 of the fair value hierarchy detailed in note 4.6.
Movements in book values of the 2016 and 2019 bonds are the result of redemption and buybacks in the period.
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
Interest
£m
Principal
£m
Minimum lease
payments
£m
Interest
£m
2013
22
18
–
40
1
1
–
2
21
17
–
38
9
39
–
48
2
1
–
3
2012
Principal
£m
7
38
–
45
Finance leases principally comprise programmes under sale and leaseback arrangements. The net book value of tangible
assets held under finance leases at 31 December 2013 was £1 million (2012: £2 million).
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 4: Capital Structure and Financing Costs
continued
4.3 Derivative financial instruments
Keeping it simple . . .
A derivative is a type of financial instrument typically used to manage risk. A derivative’s value changes over time in
response to underlying variables such as exchange rates or interest rates and is entered into for a fixed period. A hedge
is where a derivative is used to manage an underlying exposure.
The Group is exposed to changes in interest rates on its net borrowings and to changes in foreign exchange rates on its
foreign currency transactions and net assets. In accordance with Board approved policies, which are included in note
4.5, the Group uses derivatives to hedge these underlying exposures.
Derivative financial instruments are initially included in the balance sheet at their fair value, either as assets or
liabilities, and are subsequently remeasured at fair value or ‘marked to market’ at each reporting date. Movements in
instruments measured at fair value are recorded in the income statement in net financing costs.
An interest rate swap is an instrument to exchange a fixed rate of interest for a floating rate, or vice versa, or one
type of floating rate for another. A cross-currency interest rate swap exchanges a fixed or floating interest rate in one
currency for a floating or fixed interest rate in another currency.
Analysis of the derivatives used by the Group to hedge its exposure and the various methods used to calculate their
respective fair values are 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. Hedge
accounting as defined under IFRS has not been adopted by
the Group for the derivatives held.
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 forward foreign exchange contracts is
determined by using the difference between the contract
exchange rate and the quoted forward exchange rate at
the reporting date. The fair value of interest rate swaps
is the estimated amount that the Group would receive
or pay to terminate the swap at the reporting date,
taking into account current interest rates and the current
creditworthiness of swap counterparties.
Third party valuations are used to fair value the Group’s
derivatives. The valuation techniques use inputs such
as interest rate yield curves and currency prices/yields,
volatilities of underlying instruments and correlations
between inputs.
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.
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
Assets
£m
2013
Liabilities
£m
32
41
73
(6)
(27)
(33)
Assets
£m
2012
Liabilities
£m
–
99
99
(1)
(48)
(49)
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Stock code: ITV
When the Group’s 2014, 2015 and 2017 Eurobonds were
issued, the Group used a portfolio of interest rate swaps
and cross-currency interest rate swaps to convert a
portion of the fixed rate coupons into floating rates. The
Group subsequently layered on additional swaps to take
these floating rates back into fixed rates. Consequently,
the Group is now 100% fixed on its gross borrowings. The
return to fixed rate locked in an interest benefit for the
Group, since the fixed rate receivable on the original swap
portfolio is higher than the fixed rate payable on the swaps
subsequently layered on, resulting in a net mark-to-market
gain on the portfolio. On the 2014 €50m Eurobond, this also
locked in a foreign exchange benefit for the Group, whereby
the net effect of the related swap portfolio at maturity is to
receive €50 million (to settle the bond maturity) and to pay
£15 million.
Given the bond repurchases in recent periods, the remaining
principal outstanding on the 2015 and 2017 Eurobonds is
now less than the notional amounts on the related swaps.
However, the notional amounts on all of the swaps in the
portfolio match, so that there is no remaining floating
interest rate exposure and the Group remains 100% fixed
rate on its debt portfolio.
4.4 Net financing costs
Keeping it simple . . .
This section details the interest income generated on
the Group’s cash and other financial assets and the
interest expense incurred on borrowings and other
financial assets and liabilities. The presentation of
these net financing costs in this note reflects income
and expenses according to the classification of the
financial instruments.
In reporting ‘adjusted profit’, the Group adjusts
net financing costs to exclude mark-to-market
movements on interest rate and foreign exchange
derivatives, gains/losses on bond buybacks, imputed
pension interest, interest and fair value movements in
acquisition-related liabilities and other financing costs.
Read more on our rationale for adjustments made to financing costs in
the Financial and Performance Review on page 46.
Mark-to-market movements reflect the change in
value of our derivative instruments between the later
of inception or 1 January 2013, and 31 December 2013.
The value at year end is not necessarily the same as
the value at which they will be settled at maturity.
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 imputed interest on pension assets and liabilities.
Interest income and expense is recognised as it accrues in
profit or loss, using the effective interest method.
Net financing costs
Net financing costs can be analysed as follows:
Financing income:
Interest income
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
Net interest on defined benefit
pension scheme obligations
Losses on early settlement
Foreign exchange loss
Other interest expense
Net financing costs
2013
£m
7
3
–
10
–
(29)
(20)
(61)
(1)
(14)
(125)
(115)
2012
(restated)
£m
16
–
4
20
(5)
(60)
(16)
(36)
–
(9)
(126)
(106)
Gains relating to changes in fair value of instruments of
£3 million (2012: losses of £5 million) relate principally to the
unwinding of the interest rate swaps as they near maturity.
As detailed in note 4.1, losses on early settlement of £61
million (2012: £36 million) were incurred as a result of the
debt settlements during the year. The partial repurchase
of the £62 million 2019 bilateral loan resulted in a loss of
£38 million, while the repurchase and redemption of the
convertible bond resulted in a loss of £23 million.
Read more in the Financial and Performance Review on page 46.
Other interest expense includes the interest element of
the acquisition related contingent liabilities as detailed in
note 3.4.
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 4: Capital Structure and Financing Costs
continued
The Group has restated 2012 net interest on defined benefit
pension scheme obligations by £7 million in accordance
with revisions to IAS 19. Details of the impact on 2012 are
discussed in note 3.7.
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 as hedges to manage 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, i.e. the Group does not use
derivatives to speculate. 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
foreign currency commercial transactions are entered into
and the date they are settled; recognised monetary assets
and liabilities held in a non-functional currency; 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 using
either a natural hedge where one exists, or through forward
foreign exchange contracts taken out for up to two years.
The Group also utilises foreign exchange swaps to manage
foreign currency cash flow timing differences.
The Group ensures that its net exposure to foreign currency
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 bond have been fully hedged by cross
currency interest rate swaps.
The Group’s investments in overseas subsidiaries are not
hedged as those currency positions are considered to be long-
term in nature.
At 31 December 2013, 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
£8 million (2012: £6 million) higher/lower. Equity would have
been £17 million (2012: £13 million) higher/lower.
At 31 December 2013, 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 £7 million (2012:
£8million) higher/lower. Equity would have been £15 million
(2012: £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
and 2013. 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.
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 2013, if interest rates had increased/
decreased by 0.1%, post-tax profit for the year would have
been unchanged (2012: 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, held to maturity
investments and on in-the-money derivatives. 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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Stock code: ITV
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 investment guidelines with respect to
surplus cash that emphasises preservation of capital. The
guidelines set out procedures and limits on counterparty
risk and maturity profile of cash placed. 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 improved in 2013 with all three ratings
agencies upgrading their long-term credit ratings. In
March and April respectively, Standard & Poor’s and Fitch
upgraded the Group’s long-term credit rating to investment
grade BBB- (2012: BB+). In August Moody’s Investor Service
upgraded their long-term credit rating to Baa3 (2012: Ba1).
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 and to ensure
access to short-term appropriate facilities. 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 2013 the Group has available two undrawn
committed facilities worth a total of £375 million (2012:
£375 million). The first is a £125 million invoice discounting
facility, maturing in September 2015, which is secured on
advertising receivables and which has no financial covenants.
The second is a £250 million Revolving Credit Facility (‘RCF’)
which is provided by a small group of relationship banks and
which matures in July 2016, following an election made in
July 2013 to extend the maturity by one year. The RCF, which
is unsecured, can be extended by a further year subject to
agreement by the banks. The facility has leverage and interest
cover financial covenants normal for such a facility.
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160
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 4: Capital Structure and Financing Costs
continued
Keeping it simple . . .
The table below analyses the Group’s financial liabilities including derivatives into relevant maturity groupings based
on the period remaining until the contractual maturity date. The amounts disclosed in the table are the contractual
undiscounted cash flows (including interest), so will not always reconcile with the amounts disclosed on the statement
of financial position:
At 31 December 2013
Non-derivative financial liabilities
Borrowings
Trade and other payables
Other payables – non-current
Derivative financial instruments
Interest rate swaps
At 31 December 2012
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
(483)
(744)
(97)
55
(1,269)
Total
contractual
cash flows
£m
(909)
178
(623)
(22)
62
(1,314)
Less than
1 year
£m
Between
1 and 2 years
£m
Between
2 and 5 years
£m
Over
5 years
£m
(92)
(702)
-
37
(757)
(108)
(31)
(4)
9
(134)
(216)
(10)
(75)
9
(292)
(67)
(1)
(18)
–
(86)
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)
In 2012 held to maturity investments were included within the table above as the £138 million March 2019 gilts were used as
security against the £62 million 2019 loan (previously £200 million loan).
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Stock code: ITV
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 tables below set out the financial instruments included on the ITV statement of financial position at ‘fair value’.
Assets measured at fair value
Available for sale financial instruments
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
Contingent consideration
Assets measured at fair value
Available for sale financial instruments
STV shares (disposal detailed in note 2.2)
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
Contingent consideration
Fair value
31 December
2013
£m
Level 1
31 December
2013
£m
Level 2
31 December
2013
£m
Level 3
31 December
2013
£m
36
73
109
36
–
36
–
73
73
–
–
–
Fair Value
31 December
2013
£m
Level 1
31 December
2013
£m
Level 2
31 December
2013
£m
Level 3
31 December
2013
£m
(33)
(7)
(40)
–
–
–
(33)
–
(33)
–
(7)
(7)
Fair value
31 December
2012
£m
Level 1
31 December
2012
£m
Level 2
31 December
2012
£m
Level 3
31 December
2012
£m
3
37
99
139
3
37
–
40
–
–
99
99
–
–
–
–
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)
(1)
(50)
–
–
–
(49)
–
(49)
–
(1)
(1)
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 4: Capital Structure and Financing Costs
continued
Level 1
Fair values measured using quoted prices (unadjusted) in
active markets for identical assets or liabilities.
Level 2
Fair values measured using inputs, other than quoted prices
included within Level 1, that are observable for the asset or
liability either directly or indirectly.
Interest rate swaps and options are accounted for at their
fair value based upon termination prices. Forward foreign
exchange contracts are accounted for at the difference
between the contract exchange rate and the quoted
forward exchange rate at the reporting date.
Level 3
Fair values measured using inputs for the asset or liability
that are not based on observable market data.
Contingent consideration is the Group’s only financial
instrument classified as level 3 in the fair value hierarchy.
As noted in the accounting policy section of note 3.3, the
key assumptions taken into consideration when measuring
this acquisition related liability are the performance
expectations of the acquisition and a discount rate that
reflects the size and nature of the new business. There is no
reasonable change in discount rate or performance targets
that would give rise to a material change in the liability at
year end.
The acquisitions in the period gave rise to an additional
£6 million of contingent consideration (see note 3.4 for
details). The unwind of interest and fair value movement in
the liability was immaterial in the period (2012: nil), which is
recognised in other interest expense in net financing costs.
4.7 Equity
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 2013 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 earnings.
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.
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 market price at grant date or a Black–Scholes
model, as appropriate, taking into account the terms and
conditions of the individual scheme. For performance-based
schemes, the relevant Group performance measures are
projected to the end of the performance period in order to
determine the number of options expected to vest. Based
on this number, and the option fair values, 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
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Stock code: ITV
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.
4.7.5 Retained earnings
The retained earnings reserve comprises profit for the year
attributable to owners of the Company of £326 million
(2012: £256 million) and other items recognised directly
through equity as presented on the consolidated statement
of changes in equity.
4.7.1 Share capital and share premium
The Group’s share capital at 31 December 2013 of
£403 million (2012: £391 million) and share premium of
£174 million (2012: £122 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.
Read more on the Company’s financial position on page 169.
4.7.2 Merger and other reserves
Merger and other reserves at 31 December 2013 include the
following reserves:
Merger reserves arising on historic
mergers
Capital reserves
Capital redemption reserves
Revaluation reserves
Equity element of the 2016 convertible
bond
Put option liabilities arising on
acquisition of new subsidiaries
Total
2013
£m
119
112
36
6
–
(25)
248
2012
£m
119
112
36
6
22
(12)
283
The equity element of the 2016 convertible bond was
reduced to nil in the year following redemption of the bond,
as detailed in note 4.1.
The £13 million increase in liabilities on the options for the
acquisition of new subsidiaries relates to the non-controlling
interests of High Noon Entertainment and Thinkfactory
Media, as detailed in note 3.4.
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.
The Directors of ITV plc propose a final dividend of 2.4p per
share and a special dividend of 4.0p per share.
4.7.6 Non-controlling interests
In 2013 £4 million (2012: £1 million) of profit was attributable
to non-controlling interests.
4.7.7 Share-based compensation
A transaction will be classed as share-based compensation
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.
Read more on the Group’s share-based compensation schemes in the
Remuneration Report on page 82.
Exercises of share options granted to employees can be
satisfied by market purchase or issue of new shares. No new
shares may be issued to satisfy exercises under the terms of
the Deferred Share Award Plan. During the year all exercises
were satisfied 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 £14 million in
2013 (2012: £9 million).
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164
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 4: Capital Structure and Financing Costs
continued
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
2013
Weighted
average
exercise price
(pence)
11.06
–
126.97
7.69
5.97
51.51
14.52
–
Number
of options
(’000)
68,387
12,726
13,371
(4,900)
(21,385)
(523)
67,676
846
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
For those options exercised in the year, the average share price during 2013 was 150.44 pence (2012: 84.03 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)
–
31.09
67.38
73.58
102.59
–
131.44
Number
of options
(’000)
44,439
2,960
5,399
1,639
1,899
–
11,339
2013
Weighted
average
remaining
contractual
life
(years)
Weighted
average
exercise price
(pence)
1.88
1.29
2.11
1.31
3.16
–
3.20
–
35.00
65.76
73.69
–
–
–
2012
Weighted
average
remaining
contractual
life
(years)
1.97
1.68
2.87
2.27
–
–
–
Number
of options
(’000)
54,618
5,324
6,598
1,847
–
–
–
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Stock code: ITV
Share schemes
Further details of the ITV share plans and awards can be found in the Remuneration Report.
Read more on the Remuneration Report on page 82.
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.
Assumptions made relating to grants of share options during 2013 and 2012 are as follows:
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
ITV – three year
ITV – five year
Performance Share Plan
ITV – three year
ITV – three year
ITV – three year
ITV – three year
04 Apr 2012
04 Apr 2012
13 Sept 2012
13 Sept 2012
05 Apr 2013
05 Apr 2013
13 Sept 2013
13 Sept 2013
01 Mar 2012
10 Sept 2012
01 Mar 2013
28 Mar 2013
Share price
at grant
(pence)
Exercise price
(pence)
Expected
volatility
%
Expected life
(years)
Gross dividend
yield
%
Risk-free rate
%
Fair value
(pence)
85.25
85.25
86.70
86.70
121.00
121.00
183.40
183.40
88.00
88.70
123.40
129.40
68.81
68.81
66.60
66.60
102.59
102.59
131.44
131.44
–
–
–
–
43.00%
50.00%
38.00%
50.00%
36.00%
49.00%
34.00%
47.00%
*
*
*
*
3.25
5.25
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%
2.73%
2.73%
2.73%
2.73%
*
*
*
*
0.65%
1.18%
0.38%
0.81%
1.04%
1.80%
0.31%
0.72%
*
*
*
*
17.97
22.36
17.46
23.32
32.83
48.43
63.33
85.08
88.00
88.70
123.40
129.40
* Awards do not include market based performance conditions; therefore, 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.
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166
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 4: Capital Structure and Financing Costs
continued
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 2013 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 SAYE Scheme
Subscription for new issue shares
Shares purchased
Shares held at:
1 January 2013
31 December 2013
Number of shares
(released)/
purchased
14,849,415
(529,004)
(18,322,427)
(2,555,209)
19,500,000
8,834,678
21,777,453
Nominal value
£
1,484,942
2,177,745
The total number of shares held by the EBT at 31 December 2013 represents 0.54% (2012: 0.38%) of ITV’s issued share
capital. The market value of own shares held at 31 December 2013 is £42 million (2012: £16 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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ar2013.itvplc.com
Stock code: ITV
Section 5: Other Notes
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
2013
£m
10
11
27
57
2012
£m
11
9
24
52
The transactions with joint ventures primarily relate to sales
and purchases of digital multiplex services with Digital 3&4
Limited.
Purchases from associated undertakings primarily 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
2013
£m
2012
£m
–
4
2
–
1
6
2
2
Amounts paid to the Group’s retirement benefit plans are
set out in note 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
2013
£m
8
5
13
2012
£m
8
6
14
Principal joint ventures, associated undertakings and investments
The Company indirectly held at 31 December 2013 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 (ITN)
Limited
Mammoth Screen Limited
ISAN UK Limited
a Joint venture.
b Associated undertaking.
Interest in
ordinary
share capital
2013
%
Interest in
ordinary
share capital
2012
%
Note
a
a
a
a
b
b
b
50.0
50.0
14.3
50.0
40.0
25.0
25.0
50.0
50.0
14.3
50.0
40.0
25.0
25.0
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
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168
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Section 5: Other Notes continued
5.2 Contingent liabilities
5.4 Subsidiaries exempt from audit
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.
Keeping it simple . . .
Certain subsidiaries of the Group can take an
exemption from having an audit. Strict criteria must
be met for this exemption to be taken, and it must be
agreed to by the Directors of that subsidiary entity.
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.
Listed below are subsidiaries controlled and consolidated by
the Group, where the Directors have taken the exemption
from having an audit of its financial statements for the
year ended 31 December 2013. This exemption is taken in
accordance with Companies Act s479A.
5.3 Subsequent events
Keeping it simple . . .
Where the Group receives information in the period
between 31 December 2013 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 2013. 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 16 January 2014, the Group repurchased the remaining
2019 Bilateral loan, with a nominal value of £62 million, for
£95 million. Although this resulted in a loss of £30 million
recognised within net financing costs, the Group will receive
future cash interest savings of £44 million.
Company name
12 Yard (North) Productions Limited
Broad Street Films Limited
Campania Limited
Carbon Media Limited
Carlton Content Holdings Limited
Carlton Finance Limited
Carlton Food Network Limited
Carlton Programmes Development Limited
Carlton Screen Advertising (Holdings) Limited
Carltonco 103
Carltonco Forty Investments
Carltonco Ninety-Six
Cosgrove Hall Films Limited
David Young 12 Yard Productions Limited
DTV Limited
Granada Media Limited
Granada Screen (2005) Limited
Granada Television Overseas Limited
ITC Entertainment Holdings Limited
ITV (HC) Limited
ITV International Channels (Asia) Limited
ITV News Channel Limited
Juice Music UK Limited
Link Electronics Limited
Morning TV Limited
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ar2013.itvplc.com
Stock code: ITV
ITV plc Company Financial Statements
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
Derivative financial instruments
Other debtors
Cash at bank and in hand and short-term deposits
Creditors – amounts falling due within one year
Borrowings
Amounts owed to subsidiary undertakings
Accruals and deferred income
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
2012
£m
3,424
–
4
513
3,943
–
(4,285)
(8)
(1)
(4,294)
2013
£m
Note
iii
1,280
32
26
319
1,657
(41)
(1,342)
(22)
(5)
(1,410)
v
v
vi
vii
vii
vii
2013
£m
1,648
–
41
1,689
247
1,936
(301)
(27)
(328)
1,608
403
174
36
995
1,608
2012
£m
1,646
145
99
1,890
(351)
1,539
(594)
(48)
(642)
897
391
122
58
326
897
The accounts were approved by the Board of Directors on 26 February 2014 and were signed on its behalf by:
Ian Griffiths
Director
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170
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
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.
For financial assets and liabilities classified at fair value
through profit or loss the fair value change and interest
income/expense are not separated.
Compound financial instruments are instruments that are
classified as partly debt and partly equity due to the terms of
the instrument. The Company had one compound financial
instrument, the 2016 convertible bond, that was redeemed
in the year as described in note v.
The liability component of a compound financial instrument
is recognised initially at the difference between the fair
value of a normal bond 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 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 the
profit and loss account over the term of the instrument on
an effective interest basis.
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Stock code: ITV
Dividends
Dividends are recognised through equity on the earlier
of their approval by the Company’s shareholders or their
payment.
ii Employees
Two (2012: 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.
iii Investments in subsidiary undertakings
The principal subsidiary undertakings are listed in note xi.
The balance at 31 December 2013 was £1,648 million (2012:
£1,646 million).
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 in less than than one year
Loans repayable within one year as at 31 December 2013
comprise:
●● an unsecured £41 million (€50 million) Eurobond
(£15 million net of cross currency swaps) which has a
coupon of 10.0% maturing in June 2014
Loans repayable after more than one year
Loans repayable after more than one year as at 31 December
2013 include:
●● an unsecured £78 million Eurobond which has a coupon of
5.375% maturing in October 2015;
●● an unsecured £161 million Eurobond which has a coupon
of 7.375% maturing in January 2017; and
●● in March 2013 £138 million of the £200 million covenant
free loan with a maturity of March 2019 was repaid from
cash and with the held to maturity gilts secured against the
loan. All other terms, including the interest cost of 13.55%,
remain unchanged. The loss on repayment was £38 million,
which is shown in financing costs. The repurchase resulted
in future cash interest savings of £48 million. Subsequent
to year end, in January 2014, the remaining £62 million
nominal was repurchased. Details are included in note xii.
Convertible bond
In November 2009 the Company issued a £135 million
convertible Eurobond with a maturity date of November
2016 and a coupon of 4%. As the bond contained an option
for the issuer to convert a portion of the debt into ITV plc’s
equity (from November 2013), the components were treated
as separate instruments.
During 2013 the Company settled the entire convertible
bond through a combination of repurchase and redemption,
resulting in future interest cost savings of £16 million and
share dilution of 95 million shares:
●● the Company repurchased £73 million nominal for a
cash cost of £169 million, resulting in a loss of £13 million
recognised in net financing costs and a loss attributable
to the equity component of £83 million, which has
been reflected in the profit and loss account within
shareholders’ funds.
●● the remaining nominal of £62 million was redeemed in
exchange for 95 million new shares being issued. The
Company recognised a loss of £10 million in net financing
costs with respect to the redemption, and the residual
equity element of £9 million was released to the profit
and loss account within shareholders’ funds.
vi Called up share capital
Authorised
2012
£m
2013
£m
2013
£m
Allotted,
issued
and fully
paid
2012
£m
800
800
800
800
403
403
391
391
Ordinary shares of 10 pence
each
Authorised:
8,000,000,000
(2012: 8,000,000,000)
Allotted, issued and fully paid:
4,025,409,194
(2012: 3,912,026,854)
Total
The Company’s ordinary shares give shareholders equal
rights to vote, receive dividends and to the repayment of
capital. The Company issued 20 million new ordinary shares
during the period, for total consideration of £2 million. A
further 95 million new ordinary shares were issued as a
result of the conversion of £62 million of the £135 million
convertible Eurobond into equity, creating an additional
share premium of £52 million.
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172
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Notes to the ITV plc
Company Financial Statements continued
vii Reconciliation of movements in
shareholders’ funds
Share
capital
£m
Share
premium
£m
Other
reserves
£m
At 1 January 2012
Movement for year
At 31 December 2012
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 2013
389
2
391
–
–
–
10
2
403
120
2
122
–
–
–
52
–
174
63
(5)
58
–
–
–
(22)
–
36
Profit
and loss
account
£m
497
(171)
326
Total
£m
1,069
(172)
897
996
996
14
(271)
(70)
–
995
14
(271)
(30)
2
1,608
The profit after tax for the year dealt with in the accounts of
ITV plc is £996 million (2012: loss of £107 million).
The profit and loss account reserves of £995 million at
31 December 2013 are all distributable.
The Company received £1,117 million of dividends from
subsidiaries in 2013 (2012: £nil).
The Directors of the Company propose a final dividend of
2.4p 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 2013 of £51 million
(31 December 2012: £33 million). The Company has
guaranteed certain finance and operating lease obligations
of subsidiary undertakings.
There are contingent liabilities in respect of certain litigation
and guarantees, 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 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 2013
(2012: none).
x Related party transactions
Transactions with key management personnel
Key management consists of ITV plc Executive Directors.
Key management personnel compensation is as follows:
Short-term employee benefits
Share-based compensation
2013
£m
3
2
5
2012
£m
3
4
7
xi Principal subsidiary undertakings and
investments
Principal subsidiary undertakings
The principal subsidiary undertakings of the Company at
31 December 2013, 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
ITV Studios Australia Pty Limited (formerly Granada Media
Australia Pty Limited)3
12 Yard Productions (Investments) Limited
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
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Stock code: ITV
Name
Principal activity
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
Big Talk Productions Limited
High Noon Group LLC 1,7
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
Production of television programmes
Production of television programmes
The Garden Productions Limited
Thinkfactory Group, LLC 1,8
Production of television programmes
Production of television programmes
1 Incorporated and registered in the USA
2 Incorporated and registered in Germany
3 Incorporated and registered in Australia
4 80% owned
5 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.
6 61.5% owned
7 60% owned
8 65% owned
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 2013 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
a Joint venture
b Associated undertaking
Interest in
ordinary
share capital
2013
%
Interest in
ordinary
share capital
2012
%
Note
a
a
a
a
b
b
b
50.0
50.0
14.3
50.0
40.0
25.0
25.0
50.0
50.0
14.3
50.0
40.0
25.0
25.0
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
xii Post balance sheet events
On 16 January 2014, the Company repurchased the remaining 2019 Bilateral loan, with a nominal value of £62 million, for
£95 million. Although this resulted in a loss of £30 million recognised within the profit for the year, the Company will receive
future cash interest savings of £44 million.
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167-182 Section 5-Company Accounts-Glossary.indd 173
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174
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Financial Record
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
Exceptional items
Profit before interest and tax
Net financing costs
Profit before tax
Taxation (charge)/credit
Profit after tax
Non-controlling interests
Profit for the financial year
Basic earnings 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
2013
£m
2012
(restated)
£m
2011
£m
2010
£m
2009
£m
2,389
2,196
2,140
2,064
1,879
620
(66)
–
(2)
(2)
550
(115)
435
(105)
330
(4)
326
8.3p
11.2p
3.5p
4.0p
403
455
858
31
889
1,213
4
10
322
449
52
2,050
164
–
(1,298)
(27)
889
513
(57)
(3)
(1)
(12)
440
(106)
334
(77)
257
(1)
256
6.6p
9.1p
2.6p
4.0p
391
426
817
15
832
1,094
9
17
252
479
93
1,944
206
–
(1,281)
(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
167-182 Section 5-Company Accounts-Glossary.indd 174
23043-04 06-12-2013 Proof 1
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Shareholder Information
Shareholder profile
Information as at 31 December 2013
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
175
ar2013.itvplc.com
Stock code: ITV
Holders
Number
7
2,460
56,925
321
59,713
Holders
Number
9,740
8,148
15,423
9,808
7,515
5,101
1,726
1,285
188
336
131
196
45
56
15
59,713
%
Shares held
Millions
0.01
4.12
95.33
0.54
100.00
0
3,839
135
51
4,025
%
0.00
95.36
3.36
1.28
100.00
%
Shares held
%
16.31
13.65
25.83
16.43
12.59
346,447
1,222,098
4,978,168
7,172,614
10,818,644
15,762,847
8.54
12,301,121
2.89
26,009,203
2.15
13,614,940
0.31
86,967,481
0.56
93,895,771
0.22
457,459,506
0.33
0.08
319,355,231
0.09 1,152,494,459
0.03 1,823,010,664
100.00 4,025,409,194
0.01
0.03
0.12
0.18
0.27
0.39
0.31
0.65
0.34
2.16
2.33
11.37
7.93
28.63
45.29
100.00
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167-182 Section 5-Company Accounts-Glossary.indd 175
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176
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Shareholder Information continued
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 Asset Services, 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 9.00 a.m. to 5.30 p.m.
Alternatively you could email them at:
shareholderenquiries@capita.co.uk
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:
0871 664 0454
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 2699 from outside the UK. Lines are open Monday to
Friday 8.00 a.m. to 4.30 p.m.
www.capitadeal.com
ShareGift
ShareGift is a charity share donation scheme for
shareholders who may wish to dispose of a small quantity of
shares where the market value makes it uneconomic to sell
on a commission basis. The scheme is administered by the
Orr Mackintosh Foundation and further information can be
obtained by contacting them:
020 7930 3737
www.sharegift.org
Share price information
The current price of ITV plc ordinary shares is available on
the Company website
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
www.mpsonline.org.uk
mps@dma.org.uk
Registered office
The London Television Centre
Upper Ground
London
SE1 9LT
020 7157 3000
020 7157 3000
Company registration number 4967001
167-182 Section 5-Company Accounts-Glossary.indd 176
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177
ar2013.itvplc.com
Stock code: ITV
Company website
Investor and shareholder related information can be found
on the Company website at:
More detailed information can be found on the FCA website:
www.fca.org.uk
www.itvplc.com
www.fca.org.uk/consumers/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
14 May 2014
14 May 2014
30 July 2014
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 FCA
before getting involved by visiting:
www.fsa.gov.uk/register/home.do
●● Report the matter to the FCA either by calling their
Consumer Helpline 0800 111 6768 or by completing an
online form at:
www.fca.org.uk/scams
●● 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.
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178
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Financials
Glossary
Broadcasters’ Audience Research Board (BARB) –
organisation owned by broadcasters and advertisers
providing data on television viewing statistics in UK
households
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
Digital switchover – 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
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 requests – 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
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
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
Ofcom – the regulator established to govern UK
broadcasting as well as other areas of the media and
telephony industry
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
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 television platform combining Freeview
channels with catch up and on demand services.
167-182 Section 5-Company Accounts-Glossary.indd 178
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This Annual Report is printed by an FSC® (Forest Stewardship
Council), certified printer using vegetable based inks.
This report has been printed on Claro Silk, a white coated paper and
board using 100% EFC pulp.
23043-04 10-12-2013 Proof 1 I
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ITV plc
The London Television Centre
Upper Ground
London
SE1 9LT
www.itv.com
Investors:
www.itvplc.com
23043-04 10-12-2013 Proof 1