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Rebalanced ITV delivers
continued growth
ITV plc Annual Report and Accounts
for the year ended 31 December 2016
Strategic Report
Overview
We are an integrated producer broadcaster,
creating, owning and distributing high-quality
content on multiple platforms.
Contents
Strategic Report
Provides a
comprehensive review
of ITV’s business
and strategy.
Overview
2016 Highlights
Investor Proposition
ITV at a Glance
Market Review
Strategy and Operations
Our Strategy and Business Model
Chairman’s Statement
Chief Executive’s Review
Strategic Priorities
Performance Dashboard
Performance and Financials
Alternative Performance Measures
Key Performance Indicators
Financial and Performance Review
Risks and Uncertainties
2
4
6
8
12
14
16
20
32
34
36
40
50
Governance
Presents a clear view
of ITV’s governance.
Chairman’s Governance Statement
Board of Directors
Management Board
Corporate Governance
Audit and Risk Committee Report
Remuneration Report
Annual Report on Remuneration
Remuneration Policy
Directors’ Report
Financial
Statements
ITV’s audited financial
statements for
the year ended
31 December 2016.
Financial Statements
Independent Auditor’s Report
Primary Statements
ITV plc Company Financial
Statements
Additional
information
Shareholder Information
Glossary
58
60
62
64
68
75
79
89
98
105
106
110
175
189
190
Key
Read more content within this report
Read more content online
Corporate website
We maintain a corporate website at
www.itvplc.com containing our financial
results and a wide range of information of
interest to institutional and private
investors.
ITV plc Annual Report and Accounts 2016
Series 16 of I’m a Celebrity...Get Me Out of Here!
launched in the UK with 12.7 million viewers
making it ITV’s most watched entertainment
programme in 2016. The series averaged 10.4
million viewers and had a 50% share for the
16-34s demographic.
Poldark is produced
by Mammoth Screen
(part of ITV Studios UK)
for the BBC and has
been recommissioned
for a third series to be
delivered in 2017.
maximising
We invest over £1 billion annually in our programming,
significantly more than our commercial competitors,
and have an unrivalled ability to deliver mass audiences
across all demographics for our advertisers.
See page 20 for more
growing
As an integrated producer broadcaster we create
value from world-class content that we develop,
own and distribute around the world.
See page 24 for more
building
As we grow our investment in content, we are
creating more windows to extend the reach of that
content and monetise it across more markets and
platforms, both free and pay.
See page 28 for more
Vera is a British based detective drama.
The sixth series was broadcast on ITV
in 2016 and was the most watched to
date, averaging 7.2 million across the
series. It has had huge international
success, selling to over 150 countries.
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.
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.
Front Cover
Victoria, produced by ITV Studios UK.
1
Strategic Report Strategic Report
Overview
2016 Highlights
ITV delivered another strong performance in 2016 as we continued to
strengthen, rebalance and grow the business.
Group external revenue1 £m
£3,064m
Non-NAR revenue2 £m
£1,855m
Adjusted EBITA3 £m
£885m
2
7
9
2
,
4
6
0
3
,
0
9
5
2
,
9
8
3
2
,
3%
YoY
0
4
1
2
,
6
9
1
2
,
4
6
0
2
,
9
7
8
1
,
09
10
11
12
13
14
15
16
+63%
Increase
on 2009
5
5
8
1
,
4
6
6
1
,
7
2
3
1
,
1
1
2
1
,
6
3
0
1
,
2
2
9
0
5
8
9
2
8
09
10
11
12
13
14
15
16
Adjusted EPS p
17.0p
Statutory EPS4 p
11.2p
.
0
7
1
.
5
6
1
.
8
3
1
.
2
1
1
3%
YoY
.
4
2
1
.
6
1
1
2
.
1
1
.
3
8
.
9
6
.
4
6
.
6
6
+844%
Increase
on 2009
3
2
.
09
10
11
12
13
14
15
16
.
1
9
9
7
.
.
4
6
8
1
.
09
10
11
12
13
14
15
16
Adjusted EBITA growth of
338%
since 2009
11%
YoY
+118%
Increase
on 2009
-10%
YoY
+387%
Increase
on 2009
5
6
8
5
8
8
0
3
7
0
2
6
2%
YoY
3
1
5
2
6
4
8
0
4
2
0
2
09
10
11
12
13
14
15
16
Dividend per share p (ordinary)
7.2p
2
7
.
.
0
0
1
0
6
.
.
7
4
5
3
.
6
2
.
6
1
.
09
10
11
12
13
14
15
16
+338%
Increase
on 2009
20%
YoY
+7.2p
Increase
on 2009
Proposed an increase of
20% in the
ordinary
dividend
Online, Pay
& Interactive
revenue up
23%
Unforgotten is a detective drama produced by
Mainstreet Pictures (part of ITV Studios UK) and
has been recommissioned for a second series
to be broadcast on ITV in 2017.
Good Morning Britain is broadcast on ITV five
mornings a week and reaches 5 million viewers
across this period. Its biggest audience was 1.2
million following the EU referendum result.
Alternative Performance Measures
We use both statutory and adjusted measures in our
Strategic Report, the latter of which, in management’s view
reflects the underlying performance of the business and
provides a more meaningful comparison of how the business
is managed and measured day-to-day. A full reconciliation
between our reported and adjusted results is provided in our
Alternative Performance Measures definitions on page 34.
Our KPIs are set out on pages 36 to 39.
1. The Strategic Report also refers to total revenue which
includes all ITV revenue, both internal and external .
2. Non-Net Advertising Revenue (Non-NAR) includes all
ITV revenue, both internal and external, except Net
Advertising Revenue (NAR).
3. EBITA before exceptional items has been adjusted
to reflect the inclusion of production tax credits
(‘adjusted EBITA’).
4. Statutory profit before tax is £553 million
(2015: £641 million).
2
ITV plc Annual Report and Accounts 2016
In 2016 we grew our share of
the UK television ad market to
47.4%
21.4%
share of viewing
for ITV Family,
up 1% since 2015
24%
over 1bn
increase in long-form video
requests in 2016 to
90%
increase
in total ITV Studios hours
produced since 2010
80 ITV
formats sold
in 2016
Britain’s Got Talent averaged 9.9 million
viewers across the series with two episodes
achieving over 12 million viewers. 50% of
the audience was the 16-34s demographic.
Marcella was one of the top ten new dramas
in 2016, launching with 8.0 million viewers.
It averaged 6.8 million viewers across the
series and has been recommissioned.
Coronation Street was the most watched soap
in 2016 averaging 7.6 million viewers across the
year. It reached over 60% of the viewing
population which is around 36 million.
The England vs Iceland Euros football match
in June 2016 was watched by 15.2 million
viewers and was the most watched sporting
event of 2016.
3
Strategic Report Strategic Report
Overview
Investor Proposition
ITV continues to make
significant progress in
growing and strengthening
the business creatively,
commercially and financially.
Pictured top to bottom:
ITV on-screen ident;
Multiscreening of a football
match broadcast on ITV.
A strong track record
for delivery
Since 2009 we have grown adjusted earnings per
share by 844%. Even in 2016 when NAR declined
by 3% we delivered revenue and adjusted EBITA
growth as a result of the significant progress we
have made in rebalancing the business. We are
reducing our dependence on UK advertising and
driving new revenue streams to build a more
global and diversified organisation
+844%
increase in adjusted
EPS since 2009
53%
of total revenue is from
sources other than spot
advertising
Pictured left to right: Joanna Lumley presented a three-part documentary
on Japan for ITV; ITV hosted the Six Nations Rugby Championships for the first
time in 2016. England vs Ireland was the most watched match on ITV with an
average of 6.6 million viewers.
4
ITV plc Annual Report and Accounts 2016
Strong market position
The Broadcast business remains robust. Our on-screen
and online viewing performance is strong and we
continue to deliver unrivalled audience scale and reach
for advertisers as well as more targeted demographics
on our digital channels and on the ITV Hub.
Online, Pay & Interactive is a material, fast-growing and
profitable part of the business and we are continuing to
build our digital business with the announced launch of our
Subscription Video on Demand (SVOD) service BritBox US
Our international content business is now a global player
of scale, creating, owning and managing rights and we
will continue to grow both organically and through
acquisitions in key creative markets
99%
of all commercial
audiences over 5 million
are on ITV
50%
of total Studios revenue
is from outside the UK
42%
growth in online
viewing on the ITV Hub
£1.8bn
returned to shareholders
since 2011 when the dividend
was restored
Pictured: The Tour de France has
been broadcast on ITV and ITV4
for nine years.
Highly cash generative
We are a highly cash generative business and
our disciplined approach to cash, costs and capital
has strengthened our balance sheet and allowed
us to continue to invest across the business
Investment opportunities
As we continue to deliver our strategy we see
good investment opportunities to grow the
business and enhance shareholder value whilst
maintaining capital discipline
Compelling shareholder returns
The Board is committed to a long-term sustainable
dividend policy. Ordinary dividends will grow broadly
in line with earnings, targeting dividend cover of
around 2x adjusted earnings per share over the
medium-term
5
Strategic Report
Strategic Report
Overview
ITV at a Glance
ITV, as an integrated producer broadcaster, creates, owns
and distributes high-quality content on multiple platforms.
ITV total revenue (inc. internal revenue)
Broadcast & Online £2,132m
ITV Studios £1,395m
ITV adjusted EBITA
Broadcast & Online £642m
ITV Studios £243m
We operate the largest commercial family of channels in the UK
and deliver our content through traditional television broadcasting
as well as on demand via the ITV Hub.
ITV broadcasts a wide variety of content on its family of free-to-air channels.
Our investment in programming is primarily funded by television advertising revenue.
ITV has the largest share of the UK television advertising market, and we estimate that
this share of broadcast (SOB) is 47.4% in 2016.
The family of channels attracted a total share of viewing (SOV) of 21.4% in 2016, the
largest audience of any UK commercial broadcaster.
Our main channel is the largest commercial channel in the UK, delivering 99% of
all commercial audiences over five million.
Our free-to-air digital channels provide more targeted demographics for advertisers
such as 16-34’s, ABC1 Men and Housewives with Children, and consist of ITV2 and ITV3,
the two largest digital channels in the UK, and ITV4, CITV and ITVBe.
We also have high definition versions of our digital channels available on pay
platforms along with ITV Encore, our pay only channel available exclusively on Sky.
In addition to linear broadcast, ITV delivers its content across multiple
platforms. This is either through our over-the-top (OTT) service the ITV
Hub, available on 27 platforms including ITV’s website (itv.com), pay
providers such as Virgin and Sky, or through direct content
deals with services such as Amazon, Apple iTunes and Netflix.
We are partnering with the BBC to launch a new SVOD service in the US
during 2017. The streaming service will allow subscribers to access the
best of British television.
Broadcast
& Online
47.4%
largest
share
of the UK TV
advertising market
21.4%
share of
viewing
for the ITV Family
in 2016
17m
registered users
of the ITV Hub
6
ITV plc Annual Report and Accounts 2016
Pictured left to right: Emmerdale was
the second biggest soap in 2016 with an
average SOV of 32%. It reached 60% of
the UK population, which is more than
35 million viewers; Assault course game
show Ninja Warrior UK produced by ITV
Studios UK returned for a second series in
2016, with a third recommission for 2017.
ITV Studios
We have built significant scale in key creative markets around the
world, creating and producing programmes and formats that return
and travel, namely drama, entertainment and factual entertainment.
ITV Studios creates and produces content in the UK and internationally, while our
distribution business, Global Entertainment, sells finished programmes and
formats worldwide.
ITV Studios UK
ITV Studios UK is the largest commercial producer in the UK. We produce programming
across a diverse range of genres such as drama, entertainment and factual for ITV’s
own channels, as well as for other UK broadcasters such as the BBC, Channel 4,
Channel 5 and Sky.
ITV America
ITV America is the largest unscripted independent producer of content in the US.
We have acquired a number of unscripted and reality producers and have grown
our presence in scripted content, using our strong cash flows to produce high-profile
dramas with the potential to travel and build international appeal.
ITV Studios Rest of World
ITV Studios also operates in the Netherlands (through Talpa Media), Germany, France,
Australia and the Nordics. Talpa produces and distributes entertainment formats while
the other bases produce content for local broadcasters in these regions. This content is
either created locally or are formats that have been created elsewhere by ITV, primarily
the UK and Talpa.
Global Entertainment
Global Entertainment, ITV’s distribution business, owns the rights to ITV programmes
and formats and acquires third-party content and distributes this to other broadcasters
and platforms internationally. Within this business we also finance productions both on
and off-ITV to acquire global distribution rights.
7,800
hours
of original content
produced and
delivered in 2016
60 labels
in 10 different
countries
supplying over
234 channels
80
formats sold
in 2016
7
Strategic Report Strategic Report
Overview
Market Review
The market environment in which we operate is dynamic and constantly
changing. Consolidation of media and telecoms companies and the increasing
influence of technology brings both challenges and opportunities.
Global Content
Key market trends
Global demand for content continues to
grow, with more channels, more platforms
and new entrants increasing spend on
high-quality programming. We estimate
that the global content market is growing
at around 5% per annum, with some genres
such as drama growing faster than others.
This growth can be attributed to a number
of factors, including: a larger international
pay television market; the consolidation of
pay providers with content companies and
distributors coupled with the convergence
in the television market, where telecom and
new media companies are competing with
traditional media companies for content and
viewers; online players such as Netflix and
Amazon investing heavily in new original
content and archive; and online advertising
driven platforms like YouTube and Facebook
creating a new market for short form and
digital content.
The US is by far the largest content market in
the world, dominating the global production
sector, with the UK the second largest
market. This represents a significant
opportunity for ITV Studios, which has
a strong presence in both regions.
Demand for drama, particularly US drama,
has increased significantly in the last few
years. Original scripted content becomes
brand defining for broadcasters and OTT
players in an increasingly competitive global
environment. US studios continue to
dominate the market for drama in the US and
internationally. However, the rise of Netflix
and Amazon, who are investing heavily in
creating high-quality original scripted
content, has significantly increased
competition in the market.
This increased competition for high-quality
content has driven up the cost of production.
Deficit financing has therefore become
increasingly important in financing
productions, where distributors are often
funding the difference between what the
content buyer is paying for the original
broadcast and the cost of production, which
is then covered by global sales, second-run
windows and sales to OTT providers. ITV as a
distributor as well as a producer is in a strong
position to deficit finance its own productions
and therefore produce high-quality content
and retain the rights to it.
Leveraging our network relationships and
international distribution network, we are
looking to expand our global scripted
business and develop a strong portfolio
of international and returning drama.
ITV America has developed several scripted
programmes over the last few years and
has a healthy pipeline of content in
development. Our 2016 scripted deliveries
included The Good Witch and Aquarius and
scripted deliveries for 2017 are expected to
include Sun Records, Somewhere Between,
a pilot of Snowpiercer and the third series
of The Good Witch.
Pictured: The Good Witch is a scripted format
produced by ITV America for the Hallmark
channel in the US and will go into its third
season in 2017.
8
ITV plc Annual Report and Accounts 2016
Pictured: Come Dine With Me continues
to sell well internationally with 13
format sales in 2016, four of which
were produced by ITV Studios.
The US is by far the largest content
market in the world, dominating
the global production sector, with
the UK the second largest market.
This represents a significant
opportunity for ITV Studios,
which has a strong presence
in both regions
Pictured: Behind-the-scenes on Victoria.
The eight-part series has been a huge
success for ITV Studios UK, selling
to around 190 countries. It has been
recommissioned for a second series.
9
Hell’s Kitchen
Hell’s Kitchen has been a huge international
success with 34 format sales worldwide over
the last ten years.
In the UK, there is stronger demand and
higher viewing figures for UK content over
imported series. We are a major producer of
scripted content and have further reinforced
this position through our acquisitions of
Mammoth Screen and Twofour Group in
2015. Our 2016 scripted deliveries in the
UK included Victoria, Cold Feet, Poldark
and Witness for the Prosecution. Scripted
deliveries expected in 2017 include Prime
Suspect 1973, Fearless, the second series of
Victoria and the second series of Cold Feet,
all of which have international appeal.
While not growing as quickly as scripted
content, demand for non-scripted content
remains strong as networks continue to
require lower cost, high volume popular
series. The UK remains the dominant
producer of unique non-scripted formats.
ITV significantly strengthened its capability
in this area with the acquisition of Talpa
Media in 2015. Along with the established
entertainment and factual entertainment
genres, scripted reality programming, where
we have focused our US acquisitions, has
grown quickly with formats such as Pawn
Stars, Real Housewives and Fixer Upper.
ITV is now a genuine global player in
non-scripted content, being a leading
unscripted independent producer in the US
and Europe as well as the largest commercial
production company in the UK. The large
independent production companies, such as
Endemol Shine Group and Fremantle Media,
continue to be ITV Studios’ main competitors
in non-scripted content.
Strategic Report Strategic Report
Overview
Market review continued
Broadcast & Online
Over recent years the number of ways to
watch TV has greatly increased with viewers
able to choose a variety of platforms, both
free and pay. Traditional linear television
viewing remains resilient despite significant
changes in the market and in the availability
and delivery of content. Viewing habits also
vary by demographic with younger viewers
watching more non-linear content than
older demographics.
In the UK linear television viewing remains the
most popular form of media entertainment
despite year-on-year fluctuations. UK average
television viewing in 2016 was 212 minutes per
day which is similar to 2015 (216 minutes)and
a similar level to ten years ago (Source: BARB).
Television viewing
SOV by broadcaster
ITV Family
BBC Family
Channel 4 Family
Five Family
Sky Family
Other
Source: BARB*
21.4%
31.9%
10.5%
6.2%
8.3%
21.7%
Non-linear viewing, while currently only a
small proportion of total viewing, is growing
fast, particularly via SVOD services such as
Netflix and Amazon, which have seen
exponential growth over the last few years.
We continue to invest in ITV’s online offering,
the ITV Hub, along with rolling out our SVOD
service, BritBox in the US to enable us to
compete in this market.
ITV competes for viewers with the BBC
and commercial broadcasters including
Channel 4, Sky and Channel 5. Over the last
few years, the number of available channels
has grown which has impacted the SOV of the
traditional broadcasters. SOV for the other
channels increased to 21.7% in 2016 from
21.1% in 2015. Despite an increase in the
number of channels, ITV and BBC1 continue
to be the only channels consistently able to
deliver mass audiences as well as targeted
demographics, and in 2016 ITV delivered 99%
of all commercial audiences over five million
viewers and 95% over three million. In 2016
the ITV family of channels increased their SOV
to 21.4% (2015: 21.2%), second only to the
BBC’s family of channels at 31.9% which lost
share during the year (2015: 32.7%) as a result
of BBC3 moving online.
* Viewing data is based on Weeks 1-52 for 2016 compared
to Weeks 2-53 for 2015.
Pictured top to bottom: Family watching VOD
via their television set; The ITV Hub logo.
10
ITV plc Annual Report and Accounts 2016
Pictured: This Morning continues
as one of the longest running
daytime programmes in the UK.
Its audience grew by 2% in 2016
reaching 5.2 million viewers
a week.
Pay television
The platform
mix in the UK
is roughly 50%
free-to-air
and 50% linear
pay TV
Non-linear viewing
Long-form content viewing
Live (including simulcast)
81%
Timeshifted (PVR)
up to 28 days
VOD: Broadcaster
catch-up
VOD: Other
12%
3%
4%
Advertising revenue
Television’s share of the
advertising market
Television
Press
Radio
Cinema
Outdoor
Internet
27.5%
15.6%
3.3%
1.3%
5.7%
46.6%
Source: 2015 Internal estimates
Source: Advertising Association January 2017
Free-to-air television in the UK is delivered
through services including Freeview, YouView
and Freesat, while linear pay television is
delivered through operators such as Sky,
BT, Virgin and Talk Talk. The platform mix
between free-to-air and traditional linear
pay television has remained constant for a
number of years at around 50:50. Linear pay
television revenues continue to grow but the
market dynamics are changing rapidly as
established pay television providers such as
Sky and Virgin face increasing competition
from relatively new entrants to the market
such as BT, Netflix and Amazon.
Increasingly homes are supplementing their
free television with other forms of paid
content including SVOD services such as
Netflix, or by purchasing additional channels
through ‘no-contract’ providers such as Now
TV or Talk Talk TV Store. Around 30% of homes
in the UK have an SVOD service and this is
weighted towards those homes that have
linear pay TV (Source: BARB). Including SVOD
pay services, the platform mix in the UK is
roughly 40% free-to-air and 60% paid viewing.
ITV participates in the pay television market,
earning revenue from various third parties,
including Sky and Virgin, through the licensing
of channels and content. ITV also has its pay
only television channel, ITV Encore, on the Sky
platform along with our other pay channels,
ITV2 HD, ITV3 HD and ITV4 HD.
ITV also recently announced the creation of a
joint venture with the BBC to launch BritBox,
a new SVOD service in the US. The service
offers a significant amount of content from
both broadcasters and gives ITV access to
the fast growing SVOD market in the US.
Non-linear viewing of long-form content
includes recorded, or timeshifted viewing
(up to 28 days) and catch-up of live television
(linear television – up to 7 days), and also
encompasses Video on Demand (VOD) and
OTT delivery of other long-form content such
as box sets and movies.
While non-linear viewing has grown fast it
still accounts for a small proportion of total
viewing time. In the UK we estimate 81% of
all viewing of legal long-form content is live
(including simulcast), with a further 12%
timeshifted via a Personal Video Recorder
(PVR) and watched within 28 days of the
original broadcast date. Of the estimated
7% of content viewed on demand, 3% is
catch-up viewing of broadcaster content via
the television set or to other devices such as
tablets and mobiles. The remaining 4% of
content is other VOD viewing, where viewing
of box sets via services such as Netflix is
replacing viewing of DVDs. This is growing
quickly driven by increased availability of
devices such as smartphones, tablets and
connected televisions.
There is currently no industry measure for
online viewing. BARB are in the process of
developing a joint-industry, audited measure
of viewing online television.
ITV generates revenues from advertising
through traditional broadcast, sponsorship
and online, and competes with commercial
broadcasters and other advertising media,
for its advertising revenues. In the UK,
television advertising (including VOD,
sponsorship and other television revenues)
continues to hold a significant share of the
overall advertising market with a share of
27.5% in 2016, (2015: 28.7%). Internet
advertising (search, classified and display)
has grown its share to 46.6% in 2016 (2015:
42.7%), making the UK one of the most
developed markets for online advertising.
This growth is at the expense of print
advertising, which declined to 15.6% in
2016 (2015: 18.2%).
The UK television advertising market
is extremely difficult to measure as all
broadcasters have different definitions.
We estimate ITV’s SOB (which is based on
pure linear television advertising excluding
VOD, sponsorship and self promotion) to be
47.4% in 2016 (including UTV), up from
44.7% in 2009. This increase is because
of ITV’s unique ability to deliver mass
audiences across multiple regions and
in key demographics.
Non-linear viewing, while currently
only a small proportion of total
viewing, is growing fast and we
continue to invest in ITV’s VOD
and SVOD services
11
Strategic Report Strategic Report
Strategy and Operations
Our Strategy and Business Model
We remain focused on our original vision for ITV as an owner, producer and
broadcaster of content. We are confident that our strategy to maximise our
value as an integrated producer broadcaster, creating, owning and distributing
content around the world, is the right long‑term path for ITV.
Our strategy
Our sources of competitive advantage
Our strategy is focused
on three key priorities:
The UK’s biggest marketing platform delivering unrivalled
commercial audiences
maximising
maximise audience
and revenue share from
free‑to‑air broadcast
and VOD business
See page 20 for more
growing
grow an international
content business
See page 24 for more
The scale of our channels and the significant investment we make in quality content
gives ITV unique scale and reach on our main channel and more targeted audiences
on our family of channels and the ITV Hub.
80%
Our channels reach around 80% of the television owning
population each week
World-class content
At the core of ITV is our focus on creativity and content, whether selling unique
content around the world or investing in third‑party content to broadcast across
multiple platforms. Internationally we have built production and distribution scale
in key global creative markets through organic growth and selective acquisitions.
£1bn
We invest over £1bn annually in content for our family of channels
Global distribution
ITV has built relationships globally, with major networks, platform owners and local
broadcasters, and owns the rights to a diverse portfolio of shows, particularly drama
and entertainment, for international distribution.
building
build a global pay and
distribution business
See page 28 for more
40,000+
Hours of television and film content
Our strategic assets
Our strategic assets underpin ITV’s competitive advantage
Creating and
owning the rights
to quality content
Our strong brand
Our talented,
creative people
12
ITV plc Annual Report and Accounts 2016
Pictured left to right: This Time Next Year is a
reality programme presented by Davina McCall
in the UK and produced by Twofour Group, part
of ITV Studios UK. The format has been sold to
six countries in 2016; Family Guy launched on
ITV2 in 2016. The Seth McFarlane collection
reached 25 million viewers on ITV2 during
2016, 59% of which were 16‑34s.
Our diversified revenue streams Creating value
By developing and managing the rights to content, ITV
is able to maximise the value of its programme brands
across a range of revenue streams, making ITV a more
balanced business and enabling it to drive value from
different revenue models.
Advertising
Our family of channels and the ITV Hub drive
significant advertising revenues from the mass
audiences and more targeted demographics it
delivers, which funds our investment in the
programme budget.
Commercial
partnerships
We work with advertisers and advertising agencies
to provide unique commercial partnerships and
sponsorship opportunities that extend beyond
pure spot advertising.
Pay &
interactive
Original
production
Distribution
revenues
We earn pay revenues primarily from licensing our
HD channels, our pay channel ITV Encore and our
online VOD services. In the first half of 2017 we
are launching a joint venture (JV) with the BBC,
BritBox US, a SVOD service offering the best of
British television.
We also monetise our consumer interaction with our
biggest shows through competitions and voting.
We produce original content commissions for
broadcasters and platform owners internationally
from our production bases in the UK, the US, the
Netherlands, Germany, France, Australia and
the Nordics.
We own the rights to a significant catalogue of
programmes and formats that we sell and license to
broadcasters and platform owners internationally.
The strong global demand for content provides a
significant opportunity for us.
11%
growth in total revenue derived from sources
other than traditional spot television advertising
For advertisers
Through delivering unique
scale and breadth of
demographics and new
innovative ways of engaging
with consumers around
quality programme brands
For audiences
Through a varied, high‑quality
programming schedule
For broadcasters and
platform owners
Through delivering quality
programming that they can
then monetise through their
own business models
For shareholders
Through a track record of
creating shareholder value
and delivering significant
shareholder returns
For our people
Investing in and developing our
creative, on‑screen, commercial
and operational talent
13
Strategic Report
Strategic Report
Strategy and Operations
Chairman’s Statement
To be able to announce record results, even after a year in which television
advertising saw a small decline, is eloquent testimony to the health of
ITV’s business.
We have a clear
strategy in place
which the
management team
remains very
focused on
delivering
This is my first annual report as Chair, and
it’s a pleasure to observe how different ITV is
compared to seven years ago or indeed since
I first joined the Board in 2013. To be able to
announce record results, even after a year in
which television advertising saw a small
decline, is eloquent testimony to the health
of ITV’s business. It reflects the fruits of the
continued rebalancing of the Company,
with revenues other than spot advertising
representing more than half of the total.
In the business of television, it of course all
starts with superb programmes and they
are made by a plethora of great talent:
performers, writers, directors, producers and
journalists. Both ITV’s main channel and our
family of channels improved their SOV in
2016, a huge achievement in a multi-channel,
multi-platform era. This underlines the value
of one of our greatest assets: the ability to
deliver the only commercial, genuinely mass
audience in the UK and one which also offers
the key demographics to advertisers.
Pivotal to our success is offering choice and
flexibility to our viewers, and within that the
ITV Hub which we launched just over a year
ago continues to be highly demanded as we
further develop and enhance its service.
Significantly we have recently announced the
beginning of our SVOD service, BritBox, jointly
with the BBC. BritBox will offer the best of
British content in the US and it is our intention
to roll out our SVOD services further into
other international markets under the
BritBox umbrella.
Key to rebalancing ITV has been the
significant growth of ITV Studios in the UK
and internationally. Worldwide demand for
quality content continues to grow – from
broadcasters, from traditional platforms
and from the new VOD services. ITV, as an
increasingly scaled international producer
and distributor of high-quality content, is
well placed to take advantage of that. We’ll
continue to seek opportunities to add scale
and value in the future, both organically and
through acquisitions, as we grow our global
content business and further diversify our
revenues away from our reliance on the UK
television advertising market.
Adam Crozier and Ian Griffiths lead a strong
management team, who took swift action
after last June’s referendum to deliver
additional cost savings to ensure ITV is
well placed to face the opportunities and
challenges that lie ahead. We have a clear
strategy which the team remains very
focused on delivering.
Our strong balance sheet and significant
cash flows will support this and enable
us to continue to invest in the business
as well as deliver sustainable returns
to our shareholders.
In 2014, the Board made a commitment to
grow the full year ordinary dividend by at
least 20% per annum to 2016 to achieve a
more normal dividend cover of between 2.0
and 2.5x adjusted earnings per share. In line
with this policy, and reflecting ITV’s good
performance in 2016, the Board is proposing
a final dividend of 4.8p which equates to a
full year dividend of 7.2p.
Sir Peter Bazalgette
Chairman
14
ITV plc Annual Report and Accounts 2016
Pictured: Loose Women has been
broadcast as part of the ITV daytime
schedule for 17 years. It grew its audience
by 8% in 2016 and reached 3.9 million
viewers a week.
Reflecting ITV’s strong cash generation and
the Board’s confidence in the business, the
Board is also proposing a special dividend of
5.0p per share, worth just over £200 million.
Dividend
Dividend per share p (ordinary)
7.2p
I am proud to be leading a focused Board
of non-executives to which I am pleased to
welcome a new member, Salman Amin, the
Chief Operating Officer of SC Johnson, who
brings extensive experience of advertising
and marketing and who works in one of our
key territories, the US.
On behalf of the Board, I’d like to take this
opportunity to thank all colleagues for the
creative and commercial achievements
of 2016 as we look forward to 2017
with enthusiasm.
2
7
.
.
0
0
1
0
6
.
.
7
4
5
3
.
6
2
.
6
1
.
09
10
11
12
13
14
15
16
20%
YoY
+7.2p
Increase
on 2009
5p Special dividend, worth just over
£200m
Sir Peter Bazalgette
Chairman
Pictured left to right: Fixer Upper is produced by
High Noon in the US and was the highest rated
programme on the network HGTV in 2016; The
Durrells was commissioned for ITV and was the
most watched new drama launch of 2016.
15
Strategic Report Strategic Report
Strategy and Operations
Chief Executive’s Review
In more uncertain markets, ITV has delivered a good performance
in 2016 as we continue to rebalance and strengthen the business
creatively, commercially and financially.
ITV delivered a good performance in
2016 as we continue to rebalance and
strengthen the business creatively,
commercially and financially. External
revenues grew 3% and adjusted earnings
per share (EPS) increased 3% despite a 3%
decline in net advertising revenues (NAR),
which was clearly impacted by the wider
political and economic uncertainty.
We measure performance through a range
of metrics, most particularly through our
alternative performance measures and KPI’s,
as well as our statutory results, all of which
are set out in more detail later in the report.
Our good performance in 2016 is a result of
ITV continuing to deliver on our strategy to
diversify the business and grow new revenue
streams, thereby reducing our reliance on UK
spot advertising and making ITV a stronger
and more resilient business. Total revenues
from sources other than traditional spot
advertising (non-NAR) were up 11% in the year
and 53% of total revenues came from sources
other than traditional spot advertising.
Our global production business, ITV
Studios, continues to grow in the UK and
internationally, delivering around 7,800 hours
of content in 2016. ITV is now a global player
of scale, with 50% of total revenues coming
from outside the UK. We have a strong
creative pipeline and continue to perform
well across the key genres that return
and travel.
Our Broadcast & Online business is robust.
We performed strongly on-screen with share
of viewing (SOV) up 3% on our main channel
and again delivered unrivalled audience reach
for advertisers. Online, Pay & Interactive
revenues grew significantly up 23% as we
continued to grow our audiences and
demand from advertisers online.
We remain committed to our original vision
of ITV as an owner and producer of world-
class content that travels. Our strategy of
maximising our value as an integrated
producer broadcaster, making our content
famous on multiple platforms, both free and
pay and distributing it globally, is clearly the
right one for ITV.
As we continue to execute our strategy we
remain focused on delivering against our
three strategic priorities:
maximising
maximise audience and revenue
share from free-to-air
broadcast and VOD business
See page 20 for more
growing
grow an international
content business
See page 24 for more
building
build a global pay and
distribution business
See page 28 for more
We will continue to strengthen the business
and grow new revenue streams both
organically and through acquisitions, and we
see further investment opportunities across
ITV. There will be an increasing emphasis on
building our digital assets throughout the
business as we seek opportunities to drive
further value from the content we own by
exploiting and managing it online.
Rebalanced ITV delivers continued
revenue and profit growth
In 2016 we grew external revenues by 3% to
£3,064 million (2015: £2,972 million) driven
by £191 million growth in non-NAR to £1,855
million (2015: £1,664 million) including the
benefit of acquisitions, while ITV Family NAR
was down 3%. With our continued focus on
cash and costs we delivered 2% growth in our
adjusted EBITA to £885 million (2015: £865
million), which corresponded to a 29% margin,
in line with 2015. Adjusted EPS grew 3% to
17.0p (2015: 16.5p). Reported profit before tax
declined by 14% to £553 million (2015: £641
million) and reported EPS declined 10% to
11.2p (2015: 12.4p) primarily due to higher
operational exceptional items and
amortisation of acquired intangibles which
is explained in more detail in the Financial
and Performance Review.
The continued
growth in revenue
and adjusted profit
despite a decline
in the advertising
market is clear
evidence that our
strategy is working
Adam Crozier
Chief Executive
16
ITV plc Annual Report and Accounts 2016
Pictured right: The 13th series of
Saturday Night Takeaway launched
with its biggest audience in over a
decade. The series averaged 7.7 million
viewers, with a quarter of the audience
being 16-34s.
Group external revenue growth £m
£3,064m
2
7
9
2
,
4
6
0
3
,
0
9
5
2
,
9
8
3
2
,
3%
YoY
0
4
1
2
,
6
9
1
2
,
4
6
0
2
,
9
7
8
1
,
09
10
11
12
13
14
15
16
Adjusted EPS p
17.0p
.
0
7
1
.
5
6
1
.
8
3
1
.
2
1
1
.
1
9
9
7
.
.
4
6
8
1
.
09
10
11
12
13
14
15
16
+63%
Increase
on 2009
3%
YoY
+844%
Increase
on 2009
We have a strong balance sheet and
the business continues to be highly cash
generative. Profit to cash conversion (as
reconciled in the Finance and Performance
Review) was 97% and we ended the year with
net debt of £637 million after acquisitions
of £97 million, dividend payments of £663
million and pension deficit contributions of
£80 million.
In 2014, the Board made a commitment to
grow the full year ordinary dividend by at
least 20% per annum to 2016 to achieve a
more normal dividend cover of between 2.0
and 2.5x adjusted earnings per share. In line
with this policy and reflecting ITV’s good
performance in 2016, the Board is proposing
a final dividend of 4.8p which equates to a full
year dividend of 7.2p. This is a dividend cover
of 2.4x and delivers on the commitment the
Board made three years ago.
Reflecting ITV’s strong cash generation and
the Board’s confidence in the business, the
Board is proposing a special dividend of 5.0p
per share, worth just over £200 million.
Looking ahead, the Board is committed to
a long term sustainable dividend policy. The
ordinary dividend will grow broadly in line
with earnings, targeting dividend cover of
around 2x adjusted earnings per share over
the medium-term.
Maximise audience and revenue share
from free-to-air business
The media environment in which we operate
is constantly changing but our Broadcast &
Online business remains strong and is
evolving to take advantage of the significant
opportunities for growth.
While the current economic uncertainty is
impacting the demand for advertising, the
traditional broadcast market is robust with
overall commercial viewing up in the year and
with television advertising continuing to be in
high demand. ITV has maintained its strong
position within this market with its unique
reach and scale. ITV’s SOV was up 3% on the
main channel, up 1% across the ITV family.
We delivered 99% of all audiences over five
million, which enabled ITV to again grow its
share of broadcast (SOB) which is our share
of television advertising spend to 47.4%.
We are also performing strongly online
through the ITV Hub, the digital home for
all our channels and services, which helps ITV
reach younger audiences. Online consumption
(viewing), which measures how long viewers
are spending online, was up 42% and long-
form video requests were up 24% driving a
33% increase in online revenue. We also
delivered significant growth in our pay
revenues as we increase the reach of
our broadcast content digitally.
In 2016, Broadcast & Online revenues were
down 1% at £2,132 million (2015: £2,146
million) with adjusted EBITA down 3% at £642
million (2015: £659 million) which reflects 3%
decline in highly geared NAR and 23% growth
in Online, Pay & Interactive.
Grow an international content business
Growing a scaled international content
business in the key genres that travel is central
to our strategy as an integrated producer
broadcaster. As ITV creates, owns and
manages more content, our channels
and digital services provide a platform
to showcase our programmes before
distributing them across multiple platforms
in the UK and internationally.
Global demand for high-quality content
from both broadcasters and platform owners
remains strong. Capitalising on this demand,
we continue to strengthen our position as the
UK’s largest commercial production company,
as well as creating an increasingly
international business with production bases
in America, the Netherlands, France, Germany,
the Nordics and Australia. Half of our revenues
are generated outside the UK and we have
become a top independent producer in the
US and Europe.
Overall, ITV Studios performed strongly,
although ITV America was impacted by the
phasing of deliveries. We continue to build
a large portfolio of successful series and
formats across the key genres that return
and travel internationally, namely drama,
entertainment and factual entertainment.
ITV delivered around 7,800 hours of content
in 2016 including many new and returning
scripted programmes, such as Victoria,
Poldark, Vera and The Good Witch selling to
over 100 countries. ITV also had 80 formats
sold internationally including The Voice, Hell’s
Kitchen and The Chase. We are also making a
number of selective investments in digital
content creation as we look to develop our
expertise in ‘digital first’ content.
ITV Studios delivered 13% growth in total
revenues to £1,395 million (2015: £1,237
million) and 18% growth in adjusted EBITA
to £243 million (2015: £206 million) driven
by acquisitions. Organic revenues (excluding
prior year acquisitions and foreign exchange
movements) were down 7% driven
predominantly by ITV America which was
impacted by the lumpy nature of programme
deliveries. However, we have a strong creative
pipeline of new and returning programmes
with 228 new commissions and 188
recommissions, which will help drive a return
to good organic revenue growth in 2017.
17
Strategic Report Strategic Report
Strategy and Operations
Chief Executive’s Review continued
Building a global pay and
distribution business
As a creator, owner and distributor of
high-value sought after programmes, ITV is
well positioned to exploit the opportunities
that arise from the changes in digital media
and consumer behaviour. With over 40,000
hours of content, ITV is continually exploring
and experimenting with new ways to
distribute our content to broadcasters and
platform owners, both free and pay, while
also seeking new opportunities to extend the
reach of our content directly to the consumer.
Global Entertainment, the distribution arm
of ITV Studios, delivered 14% revenue growth
to £179 million (2015: £157 million) as we
continue to drive value from the investment
we have made in creating and owning the
rights to quality content with international
appeal. We are building a strong and balanced
portfolio of scripted and unscripted
programmes and formats in the key genres
that travel internationally and we are using
our strong cash flows not only to create and
fund new content but also to acquire
third-party rights.
We have recently announced the creation of
a joint venture with the BBC to create BritBox
US, an ad-free subscription service offering
the very best content from both broadcasters.
BritBox US will launch in the first half of 2017
and will feature recent series and classics.
BritBox gives ITV access to the fast growing
Subscription Video on Demand (SVOD)
market in the US. In time we will look to
roll it out further internationally.
We are also increasingly distributing
near-to-broadcast or first broadcast rights
to over-the-top (OTT) platforms across
territories and currently have around 200
programme supply agreements with Netflix,
Amazon and Hulu.
Outlook for 2017 and beyond
While the economic outlook remains
uncertain, ITV is now a much more balanced
and resilient business and we expect to see
good growth in non-NAR in 2017 with our
Online, Pay & Interactive and ITV Studios
businesses performing well. ITV Family NAR
is expected to be down 6% in the four months
to the end of April, impacted by the ongoing
economic uncertainty, however over the full
year we expect to outperform our estimate
of the television advertising market.
We continue our tight control on costs to
ensure we are operating as efficiently as
possible and maximising investment in our
high-quality programming. We are on track to
deliver £25 million of overhead cost savings in
2017, and due to the absence of any major
5 Gold Rings is a new entertainment
programme produced by Talpa Media. The
format is selling well internationally and will
be broadcast on ITV in 2017.
sporting event, the network programme
budget (NPB) will be £25 million lower in 2017
whilst maintaining the strength and depth of
our schedule.
We remain committed to our strategy
of rebalancing and strengthening ITV and
building a global content business of scale
and we see clear opportunities to invest for
further growth across the business both
organically and through acquisitions. We will
continue to invest behind our core Broadcast
& Online business, further developing the
ITV Hub, and the launch of Britbox US will be a
significant step forward in growing our digital
distribution assets. We will increase our
investment in ITV Studios, particularly our US
scripted business, to strengthen further and
grow our creative capabilities.
Our robust balance sheet and strong
underlying cash flows allows us to do
so while at the same time delivering
sustainable returns to our shareholders.
Pictured: Behind-the-scenes on
returning drama Cold Feet, produced
by ITV Studios UK.
18
ITV plc Annual Report and Accounts 2016
Pictured left to right: The Jeremy Kyle Show is a daily
talk show and has been on ITV for over ten years, it
reaches 5.5 million viewers a week; Coronation Street
is in its 57th year on ITV and is Britain’s longest running
soap driving huge audiences weekly.
Our responsibility
Building a responsible business that benefits all stakeholders
The success of our strategy depends not just on our operational
efficiency, but also on the way we interact with our stakeholders,
the environment and the wider community. ITV’s social purpose is
to grow our business in a responsible way, using the reach of our
channels to create change for good. As well as complying with our
legislative and regulatory requirements we recognise that our
actions can have an impact and our reach can positively influence
society. We therefore work to identify issues that are material to
ITV and matter to our stakeholders.
Our responsibility priorities
Our responsibility strategy focuses on three priorities: people,
planet and partnerships. Each of our priorities highlights the risks
and opportunities that are most relevant to us, and we have made
four commitments under each, that incorporate our main assets
and business operations.
Priority
People
Planet
Partnerships
Leveraging
our reach
Leveraging
our people
Responsible business
day-to-day
How we work
with others
Inclusive programming
To ensure our programmes
portray the diversity of
modern society by the people
on-screen and the editorial
content.
Inclusive workforce
To ensure our workforce
reflects the diverse make-up
of modern society.
Inclusive culture
To build awareness and
capacity and create a culture
that attracts, develops and
retains the best talent
possible and enables
everyone to be their best.
Inclusive access to
programmes and services
To work with our supply chain
to encourage inclusivity
standards and to make sure
our services are accessible.
Greener programming
To ensure our programmes
communicate responsible
environmental messaging
through the editorial content,
directly or indirectly.
Empowering charities
and causes
To use our mass audience
reach and influence to raise
awareness or donations for
national and international
causes.
Greener workforce
To build the awareness and
capacity of our workforce to
have a positive impact on the
environment.
Greener footprint
To minimise our direct
environmental footprint
of energy, water and waste
in our operations.
Greener partners
To work with our value chain
to encourage
environmentally responsible
standards and behaviours.
Empowering our workforce
To empower our workforce to
give back, through time and
skills, to support local
communities and causes.
Empowering our viewers
To use our programmes at
the heart of popular culture
to raise awareness of pressing
social topics and inspire
change.
Empowering communities
To inspire and engage our
local communities to make
a positive difference.
People
Reflecting the diversity of modern society is the right thing to do,
it helps give our programmes mass appeal by attracting the largest
possible audiences which is essential to our success as an integrated
producer broadcaster. We strive to ensure diversity in our on-screen
programming and in our workforce, ensuring that we’re relevant
and accessible to all.
Planet
We have a responsibility to understand and minimise our own
impact on the environment and an opportunity to influence
positively our industry and audiences. Through our reach and value
chain, we have the chance to create long-term change by bringing
environmental awareness and sustainable behaviour into the heart
of popular culture. See page 101 for our greenhouse gas disclosures.
Gender split
Board of Directors
6
75%
Senior management1
83
56.8%
All employees2
48.1%
3,141
2
25%
63
43.2%
51.9%
3,390
Partnerships
We believe partnerships mean collaborating with others to make
a positive contribution to society. Through a combination of our
on-air appeals and campaigns, along with local community
engagement, we’re committed to inspiring, engaging and
empowering our stakeholders to make a difference.
Further information
We aim for continuous improvement in our Responsibility strategy,
actions and performance. More information on our responsibility
initiatives can be found online.
itvresponsibility.com
1. An employee who is a director of a subsidiary of the Company or who has responsibility for
planning, directing or controlling the activities of the entity or a strategically significant part of it.
2. Employee gender split is based on total headcount at 31 December 2016.
19
Strategic Report
Strategic Report
Strategy and Operations
Pictured: Cold Feet returned to ITV
after a 13 year hiatus and was the most
watched drama on ITV in 2016 with an
average of 8.2 million viewers across
the series.
20
ITV plc Annual Report and Accounts 2016
Strategic
Priority 1:
Maximise audience and revenue
share from free-to-air broadcast
and VOD business
The media environment in which we operate is
constantly changing and our Broadcast business remains
strong, adaptable and ready to take advantage of the
opportunities that arise. ITV, through its commercial
channels, offers unique scale and breadth reaching
around 80% of the television owning population every
week. At the same time, the ITV Hub, the digital home
for all our channels and services, is growing rapidly
helped by the significant growth in audience appetite
for Video on Demand (VOD).
See page 22 for more
21
Strategic Report Strategic Report
Strategy and Operations
Strategic Priority 1 continued
As a result there continues to be significant
demand for advertising on our family of
broadcast channels and on the ITV Hub,
which generates substantial profit and cash
to reinvest across ITV. Additionally, as an
integrated producer broadcaster, our
channels provide an important platform to
showcase ITV Studios content, providing it
with a proven track record before exploiting
it internationally.
Remaining responsive to a changing
media environment
Traditional linear television viewing remains
resilient despite significant changes in the
market and in the availability and delivery
of content. On average viewers watch 212
minutes of television a day, which is a similar
level to 216 minutes in 2015. The majority of
television viewing is live at an estimated 81%
as television continues to have the power to
bring audiences together. VOD is growing
rapidly although it still only accounts for 7%
of total viewing. Meanwhile, PVR viewing, at
12%, has remained relatively constant over
the last few years.
Three key attributes lie at the heart of
ITV’s successful Broadcast proposition:
its first class distribution and reach across
broadcast and OTT platforms; owning the
rights to high-quality, must have content,
for all key audiences; and providing
advertisers with creative access to the
biggest and most effective marketing
platform in the UK.
Strong viewing and online performance
ITV performed strongly on-screen in 2016
with main channel SOV up 3% and ITV family
SOV up 1% with programmes supplied by both
ITV Studios and independent producers. We
aired seven out of the top ten new dramas;
the most watched soap in Coronation Street;
the most watched sporting event in England
vs. Iceland, during the 2016 European Football
Championships and the most watched
current affairs programme with our coverage
of the EU Referendum Debate. On-screen
successes included a range of new dramas,
such as Victoria, The Durrells, Marcella and
the return of Cold Feet. Our sporting schedule
has performed strongly, particularly the Six
Nations Rugby Championships and the
European Football Championships, as has our
daytime schedule including Good Morning
Britain, This Morning and Loose Women. We
also continue to drive significant audiences
with Coronation Street and Emmerdale,
which are the two largest soaps, and with
our returning brands such as Vera, Endeavour,
Britain’s Got Talent, I’m a Celebrity… Get Me
Out Of Here!, Saturday Night Take Away,
The Chase and Tipping Point.
23m+
mobile
downloads
Hub
one year on
Delivered
1bn+
video requests
in 2016
17m
registered
users
over 50%
of the UK’s 16-24
year olds are
registered
users
22
Available on
27platforms
Onine
viewing up
42%
in 2016
We continue to target key demographics
through our digital channels and the ITV Hub
and have seen a very significant increase in
our younger audiences, with 16-34 SOV up
25% on ITV2 helped by the successful launch
of American Dad and Family Guy as well as
the return of Love Island.
ITV3 and ITV4 have not performed as well
as we had hoped. ITV3 was impacted by the
launch of new free digital drama channels
and the allocation of some of our
programming exclusively to ITV Encore,
and ITV4 was affected by the loss of the
Europa League and the Champions League.
Improving their performance is a focus
for 2017.
Looking ahead we believe that around
£1 billion is the appropriate programme
budget for ITV’s family of channels to ensure
we continue to deliver standout content that
drives the scale and breadth of the audiences
that advertisers demand.
The programme budget will be £25 million
lower in 2017 than 2016 at around £1,025
million due to the absence of a major sports
tournament. We have a strong slate across
key genres including new programmes The
Halcyon, Good Karma Hospital, Prime Suspect
1973, Lethal Weapon, Little Big Shots, The
Voice, The Voice Kids, Dance Dance Dance,
5 Gold Rings, The Nightly Show and horse
racing, and returning programmes including
Victoria, Cold Feet, Broadchurch, Unforgotten,
Safe House, I’m A Celebrity… Get Me Out Of
Here!, Britain’s Got Talent, Saturday Night
Takeaway, The Chase and the Six Nations
Rugby Championships.
The ITV Hub one year on
ITV’s online business has grown rapidly
over the last few years and is contributing
meaningful revenue to the Group, growing the
overall ITV audience and advertising revenues.
The ITV Hub, which was launched last year,
was a major step forward in the quality,
innovation and ease of use of ITV’s online
services. It is now available on 27 platforms,
the app has been downloaded over 23 million
times and it has 17 million registered users.
It drives very significant volumes of viewers
both for simulcast viewing and catch up and
is growing faster than the BBC iPlayer.
Long-form video requests continue to grow
strongly up 24% with over 1 billion requests
made in 2016. Online viewing consumption,
which measures how long viewers are
spending online, increased 42%.
ITV plc Annual Report and Accounts 2016
Pictured left to right: Celebrity Juice is a celebrity
comedy programme in its 16th series on ITV2;
When Ant & Dec Met the Prince was watched by
7.7 million viewers and had a 28% SOV.
The ITV Hub also helps ITV reach valuable
younger audiences. Over 50% of the UK’s
16-24 year old population are registered
users of the ITV Hub as younger audiences
increasingly use it for simulcast viewing as
well as catch up. Programmes such as ITV2’s
very successful Love Island, delivered record
VOD viewing via the ITV Hub.
The ITV Hub is more than a catch up TV
service. In 2016, it featured previews and
premieres, such as Marcella and The Secret,
as well as original commissions around the
European Football Championships. Looking to
2017, there will be more short and long-form
original content, including The V Room, The
Voice’s switchover show as well as content
from AwesomenessTV, the global youth
brand we have formed a partnership with
for exclusive UK television and VOD rights.
We will also be using the insight we gain
from our 17 million registered users to
develop more targeted advertising on the
ITV Hub and to increasingly drive viewing
through personalisation.
ITV’s strong advertising proposition
driven by our unique offering
While political and economic uncertainty has
led to more cautious behaviour by advertisers,
ITV’s unique ability to deliver mass audiences,
as well as more targeted demographics
across the family of channels and the ITV Hub,
has enabled us to again increase our SOB to
47.4%. In 2016 ITV delivered 99% of all
commercial audiences over five million and
95% of all audiences over three million. SOV
provides an overall measure of viewing
performance, but because advertisers are
buying scale and breadth of audience, SOV
is not necessarily a direct indicator of
advertising performance.
ITV Commercial Audiences
9
9
0
0
1
6
9
3
9
9
5 9
9
8
3 9
9
9
9
5
9
2016
95%
99%
12
13
14
15
16
Over 3 million
Over 5 million
Television remains the most efficient and
effective advertising medium for advertisers
to achieve mass simultaneous reach and,
as viewing and advertising becomes more
fragmented, the scale of advertising that
television, and particularly ITV, delivers
becomes increasingly valuable. The cost
of advertising is similar to 2004 levels and,
compared to many other advertising media,
it remains good value, especially given the
reach and scale it delivers.
Maximising the value of our airtime and
our brands
ITV is also focused on maximising the value
of its airtime and driving new revenue
streams through sponsorship, interactivity
and branded content. ITV utilises the core
assets of its strong brand and reputation,
unique commercial relationships and quality
production capability to deliver a wide variety
of marketing solutions. We have developed
many innovative sponsorship and licensing
deals including: Aunt Bessies for I’m A
Celebrity… Get Me Out Of Here!; Domino’s
Pizza for The Voice and William Hill for ITV
Racing. We have also produced branded
content solutions with our new service
ITV AdVentures for a number of customers,
including Suzuki in Saturday Night Takeaway,
Matalan and I Am TeamGB.
Developing ITV’s digital broadcast assets
Live television continues to demonstrate
a growing relevance as viewers increasingly
connect through social media. To drive
viewing and enhance engagement with our
content, we are further developing our social
media assets across our international
portfolio of programmes. We have 147
YouTube branded channels delivering over
14 billion views, 32 million Facebook
followers, 22 million Twitter followers and
28 programme apps including Love Island,
Dance, Dance, Dance, I’m A Celebrity… Get Me
Out Of Here!, horse racing and The Voice. Our
digital engagement has grown significantly
and in 2016 we received around 100 million
votes across our entertainment shows
primarily via our programme apps.
2017 and beyond
We remain committed to our integrated
producer broadcast model, and key to that
is maintaining the strength and scale of our
Broadcast & Online business. We have started
the year well with main channel SOV up 4%
and ITV family SOV up 3% for the first six
weeks of 2017.
As the viewing and advertising landscape
continues to fragment, the scale of our linear
audiences become increasingly valuable and
we will also continue to drive significant and
growing value from our digital assets, most
significantly the ITV Hub.
We expect ITV NAR to be down 6% over
the first four months of 2017, impacted
by the current economic uncertainty,
although over the full year we expect to
again outperform our estimate of the
television advertising market.
23
Strategic Report Strategic Report
Strategy and Operations
Pictured: The Voice from Talpa Media, is one of the
biggest selling entertainment formats in the world.
It is broadcast in more than 180 countries with the
format produced locally in 63 countires.
24
ITV plc Annual Report and Accounts 2016
Strategic
Priority 2:
Grow an international
content business
Growing a scaled international content business is also
central to our strategy as an integrated producer
broadcaster. As ITV creates and owns more content,
our channels provide a platform to showcase our
programmes before distributing them across multiple
platforms in the UK and internationally.
See page 26 for more
25
Strategic Report Strategic Report
Strategy and Operations
Strategic Priority 2 continued
Growing global demand for content
The strong global demand for content
from broadcasters and platform owners
provides a significant opportunity for ITV
Studios. We estimate that the global content
market is growing at about 5% per annum,
with some genres such as drama growing
more rapidly than others. To capitalise on this,
our strategy remains to develop, own and
manage content rights in genres that return
and travel internationally – namely drama,
entertainment and factual entertainment.
As well as strong demand from broadcasters,
we are seeing significant demand from a
variety of OTT platforms who want library
and close-to-broadcast content rights as
well as ‘digital first’ content.
Studios revenue growth £m
£1,395m
5
9
3
,
1
7
3
2
1
,
3
3
9
7
5
8
7
9
5
4
5
5
2
1
6
2
1
7
09
10
11
12
13
14
15
16
Studios adjusted EBITA growth £m
£243m
3
4
2
6
0
2
2
6
1
3
3
1
7
0
1
1
9
1
8
3
8
09
10
11
12
13
14
15
16
13%
YoY
+134%
Increase
on 2009
18%
YoY
+167%
Increase
on 2009
26
Fast growing, international producer
of scale
Since 2010 we have almost doubled the
number of hours of content we produce.
In 2016 we produced around 7,800 hours
of content, through our 60 labels, supplying
over 234 channels in 10 countries. ITV is
becoming an increasingly scaled and
international business: we are the number
one commercial producer in the UK and a
leading producer in Europe and the US, with
50% of total Studios revenues coming from
outside the UK.
In 2016 ITV Studios total revenues grew 13%
to £1,395 million (2015: £1,237 million) and
adjusted EBITA increased 18% to £243 million
(2015: £206 million), driven by the acquisitions
we have made.
ITV Studios has three production divisions
– ITV Studios UK, ITV America and ITV Rest
of World (RoW) and across these businesses,
ITV agreed 228 new commissions and 188
recommissions in 2016.
The US and UK are the dominant creative
markets, with the US the largest exporter of
scripted content and the UK the world leader
for exported formats. Over the last few years
we have built scale in these key markets,
organically and through acquisitions, and we
now have a significant portfolio of successful
series and formats that travel.
ITV Studios UK performed strongly with
overall revenues up 14% at £626 million
(2015: £547 million) and with good growth
in sales to ITV and to other UK Broadcasters.
Our off-ITV revenues have grown by 20% as
we have continued to strengthen and grow
the business. Our deliveries to other UK
broadcasters included Poldark, NW and
Witness for the Prosecution for the BBC,
The Jump and Come Dine with Me for
Channel 4, Hotel Inspector for Channel 5
and Agatha Raisin for Sky.
Overall, we have seen 13% growth in revenues
to ITV with programmes such as Victoria, Cold
Feet, Tutankhamun, Saturday Night Take
Away, The Chase, The Next Great Magician
and I’m A Celebrity… Get Me Out Of Here! all
delivered in 2016. We have again grown ITV
Studios UK’s share of original content
commissions on ITV main channel to 63%.
ITV America’s revenue was down year-on-year
by 27% to £235 million (2015: £320 million),
predominantly as a result of three shows we
had in 2015 which have not returned in 2016.
They are Hell’s Kitchen, which has been
commissioned for two series in 2017 and
Texas Rising and Best Time Ever, which are
not returning. We delivered the second series
of two US dramas, The Good Witch and
Aquarius. We have also benefited from the
delivery of a high volume of programmes
from our stable portfolio of unscripted series,
including Pawn Stars, American Restoration,
Alone, Rich Kids of Beverly Hills and First 48
and new commissions, including American
Grit, Killing Fields and Millionaire Matchmaker.
Across ITV RoW, we have seen very significant
growth with revenues up 67% to £355 million
(2015: £213 million) driven by Talpa Media.
Our production bases in Australia, Germany,
France, the Netherlands and the Nordics
produce original content as well as local
versions of ITV Studios formats. We now
produce 14 different formats in three or
more of our production territories, for
example; Come Dine With Me, The Chase,
The Voice from Talpa Media and Love Island.
Talpa Media is performing well and continues
to develop many new formats including
Dance, Dance, Dance, CannonBall and 5 Gold
Rings which are all selling well. It has also had
the benefit of a four-year licensing
agreement for The Voice of China.
Across ITV RoW, we have delivered a number
of new and returning commissions including
The Voice in the UK and USA, The Chase in
Australia, I’m A Celebrity… Get Me Out Of
Here! in Australia and Germany, Come Dine
With Me in Denmark, Sweden and Germany
and The Price of Beauty in Denmark and
Sweden. In Norway ITV has delivered its first
drama, Aber Bergen, with the second series
already commissioned. In Australia, ITV has
had a particularly successful year with a new
management team in place and now
produces for all the major television channels.
Investing in content with
international appeal
To continue growing internationally we must
keep expanding our portfolio of successful
series and formats that return and can be
distributed globally. We have a strong mix of
programmes across genres and also across
their content life cycle, which balances our
risk and financial exposure. Since 2010 our
total hours produced has increased by 90%,
our drama hours have increased by 370%,
entertainment hours by 109% and factual
hours by 189%.
ITV plc Annual Report and Accounts 2016
Pictured left to right: Poldark has been sold to
around 90 countries; The Chase is an internationally
popular gameshow. It is the biggest daytime
programme in the UK and is produced by
ITV Studios in five countries with 31 format
sales since it launched in 2009.
Demand for drama is growing strongly, as
standout, original content becomes brand
defining for both broadcasters and OTT
players. To capitalise on this, we are looking
to expand our global scripted business and
develop a strong portfolio of international
and returning drama, particularly in the US.
We are strengthening our development and
creative capabilities internally and have
invested in a number of producer
development relationships – we now have
around 20 projects in development in the US
with broadcast networks, cable networks and
OTT platforms.
Recent successes include a number of US
drama commissions which will deliver in 2017
– a ten part drama Somewhere Between, for
ABC, Sun Records for TNT and a pilot for ABC,
Snowpiercer, through Tomorrow Studios.
With the acquisition of Talpa Media we have
significantly strengthened our capability in
entertainment and formats. Across our
businesses we have grown a solid portfolio
of high volume and high margin formats that
travel internationally and which we produce
in many of our production bases. These
include The Voice, The Voice Kids, Pawn Stars,
Come Dine with Me, I’m A Celebrity… Get Me
Out Of Here!, Hell’s Kitchen, Keeping the
Nation Alive, The Chase, 5 Gold Rings, This
Time Next Year, Big Star’s Little Star and
Love Island.
Investing in our digital
content capabilities
Through building our digital assets and
content we are increasingly able to engage
with younger audiences.
While demand from traditional broadcasters
continues to be strong we are also seeing an
increasing demand from OTT platforms for
original long-form content, secondary rights
and short form digital content.
We are distributing more content to OTT
players through Global Entertainment as well
as co-producing and jointly commissioning a
number of programmes with OTT platforms.
We currently have over 200 programme
supply agreements in place with the major
OTT platforms, including co-producing
Robozuna, an original kids cartoon for Netflix
and Harlots, which we are co-producing for
Hulu in the US and ITV Encore in the UK.
To further expand our digital assets we are
increasing our exposure to new types of
content, particularly youth focused
programming, and new types of distribution.
In 2016 we made an investment with Sky in
Ginx TV, an eSports channel for the UK and
international markets. We also agreed a
partnership with global youth content
company AwesomenessTV and made
minority investments in two ‘digital first’
youth content studios in the US, New Form
and RocketJump, all of which helps to
improve ITV Studios content capability as well
as provide new programming for the ITV Hub.
This is as well as our existing investments
in US digital content companies Believe
Entertainment Group and Indigenous Media.
2017 and beyond
We have a strong international pipeline
of new and returning programmes and
brands. Our UK and US pipeline of scripted
programmes has never been stronger and we
have a very good slate of new entertainment
shows coming through this year. This gives us
confidence that in 2017 we will deliver good
organic revenue growth and we have already
secured over £150 million more revenue than
at this point last year. However, with increased
investment, particularly in US scripted and the
reversal of the one-off benefit of the The
Voice of China in 2016, ITV Studios profits in
2017 are likely to be broadly in line with 2016.
ITV is now a global business and going
forward we aim to use our scale to grow
our market share and expand the number
of networks and OTT players we work with,
particularly in the US. We will further
strengthen our creative capability, both
organically and through partnerships and
acquisitions, as we continue to reduce our
reliance on the UK market.
Key new and
returning scripted
programmes
Key new and
returning
entertainment
programmes
27
Strategic Report Strategic Report
Strategy and Operations
Pictured: Love Island is a reality programme produced by
ITV Studios UK. It had huge success on-screen and online,
averaging 1.3 million viewers on ITV2 across the series
and around 1 million requests on the ITV Hub per episode.
64% of the linear audience were 16-34s. Internationally,
Love Island has been broadcast in 15 countries with the
format being produced by ITV Studios in three countries.
28
ITV plc Annual Report and Accounts 2016
Strategic
Priority 3:
Build a global pay and
distribution business
The environment in which we operate is constantly
evolving and we are seeing significant changes in
digital media and consumer behaviour.
ITV, as a creator, owner and distributor of sought
after content, is well positioned to take advantage
of the opportunities that arise from these changes as
we seek to further monetise our content.
ITV continues to explore and trial new ways, both free
and pay, to distribute content to broadcasters and
platform owners as well as directly to consumers.
See page 30 for more
29
Strategic Report Strategic Report
Strategy and Operations
Strategic Priority 3 continued
Building our pay offering in the UK
and internationally
As we look to build our pay offerings we
are developing a range of SVOD services
to target direct to consumer pay revenues.
We have recently announced the creation
of a joint venture with the BBC, through BBC
Worldwide, to create BritBox US, an ad-free
SVOD service offering unrivalled content from
both broadcasters. ITV already has a strong
advertising VOD proposition in the ITV Hub
but the launch of BritBox gives us access to
the fast growing SVOD market in the US.
BritBox US, which is a direct to consumer
service, will launch in the first half of 2017
with the most comprehensive SVOD
collection of British content available in the
US. The service will feature drama premieres
never seen before in the US, a selection of
soaps and series that will be available
24 hours after their UK broadcast, and a
collection of British classics. ITV and BBC
each have a 40.5% voting share, while US
cable network AMC has a 19% non-voting
minority interest.
Over the last few years we have also
established a number of smaller pay
propositions. We now own a controlling
stake in Cirkus, a best of British SVOD service
in Sweden, Norway, Finland and Iceland which
will shortly launch in Germany on Amazon.
Cirkus has developed a second SVOD service,
Curio, due to launch in Norway in 2017, which
is focused on high-quality documentaries.
We have also set up ITV Essentials, an online
service for expats available in 13 countries
and ITV Choice, a general entertainment
channel for emerging markets available
in 100 countries.
We are continuing to develop ITV Hub+, our
ad-free subscription version of ITV Hub. In
2017 we will roll out ITV Hub+ onto more
platforms and we have already added new
functionality, such as download on iOS
devices for off-line viewing.
Looking ahead it is our intention to roll out our
best of British SVOD services internationally
through BritBox and our other SVOD services,
taking advantage of the significant global
demand for UK content and changing
viewing habits.
Further developing our pay revenues
ITV’s pay revenues again grew strongly as we
continue to earn revenue from pay television
through licensing our channels and content
across multiple platforms.
ESSENTIALS
30
In the UK our pay business includes deals with
Sky and Virgin for our HD digital channels and
catch-up VOD, ITV Encore for Sky and a deal
to make ITV’s content available through Sky’s
connected platforms. We also agreed a new
deal with Vodafone to carry ITV’s free-to-air
(FTA) channels and VOD for their customers,
as well as with TV Player to carry ITV’s
FTA channels.
Expanding our global distribution network
Global Entertainment, the distribution arm
within ITV Studios, delivered revenue growth
of 14% to £179 million in 2016 (2015: £157
million) as we continue to drive value from
the investment we have made in creating
and owning rights to quality content with
international appeal. Excluding the benefit
of foreign exchange, Global Entertainment
grew 6% to £166 million.
Global Entertainment revenue growth £m
£179m
9
7
1
7
5
1
4
4
1
6
2
1
3
2
1
6
2
1
3
3
1
5
3
1
09
10
11
12
13
14
15
16
14%
YoY
+42%
Increase
on 2009
ITV’s distribution business has over 40,000
hours of television and film content that we
distribute globally to over 3,500 broadcasters
and platforms. In 2016 we continued to
enhance our distribution network, benefiting
from ITV Studios’ continued growth,
increased rights ownership both within ITV
Studios and with third parties and strong
network relationships, selling to around 190
countries around the world. Through our
ongoing investment in ITV Studios, we are
building an extensive and balanced portfolio
of scripted and unscripted programmes in
the key genres of drama, entertainment
and factual entertainment. We are using our
strong cash flows not only to fund and create
new content from ITV Studios, but also to
invest in third-party producers and their
content from all over the world, such as
Harlots and Schitt’s Creek.
ITV plc Annual Report and Accounts 2016
Pictured left to right: Big Star’s Little Star is a
primetime entertainment programme on ITV.
The format is selling well internationally with six
format sales in 2016; Endeavour is a detective
based drama produced by Mammoth Screen,
it has been sold to 180 countries internationally.
Retransmission fees
We are continuing to drive the debate around
the implementation of retransmission fees
in the UK to ensure that we are fairly
compensated for our investment in content
for the main channel when it is carried on pay
TV platforms. We see the publication of the
Digital Economy Bill proposing the repeal of
Section 73 as an important step forward in
achieving retransmission fees.
to package and sell our content to take
advantage of demand for quality content in
the UK and internationally from consumers,
broadcasters and platform owners.
A particular focus for 2017 will be the
launch of BritBox US and in time we will
look to further roll out our SVOD services
internationally as we continue to explore even
more ways to drive value from our content.
2017 and beyond
As we continue to rebalance ITV and
diversify our revenue streams, we are
further developing our pay and distribution
business to drive more value from our
investment in content and reflecting the
changes in the way people are consuming
content. We are exploring new ways
Our scripted programmes such as Victoria,
Poldark, Endeavour, Vera and The Good Witch,
are all selling to over 150 countries. Our
entertainment and factual entertainment
programmes also continue to sell well,
including titles such as Come Dine With Me,
The Voice, The Voice Kids, The Chase, Hell’s
Kitchen, Autopsy and River Monsters.
In 2016 we sold 80 different formats around
the world, 24 of which were produced by
ourselves or other producers in three or
more countries.
We are increasingly doing multi-year and
multi territory deals with OTT platforms
including Netflix, Amazon, Hulu and a range
of smaller platforms. As well as library deals,
we are distributing close-to-broadcast or first
broadcast rights to these OTT platforms
across territories. We currently have over 200
content supply agreements in place, including
Thunderbirds Are Go! series one and two for
Amazon in the UK, US, Germany and India, as
well as The Good Witch, Mr Selfridge and
Poldark for Netflix.
We are also co-producing and jointly
commissioning a number of programmes
with OTT platforms, including Robozuna
for Netflix and Harlots for Hulu.
Pictured right: Thunderbirds Are Go! has been
sold to over 100 countries which includes a
pan-territory deal with Amazon.
31
Strategic Report Strategic Report
Strategy and Operations
Performance Dashboard
Demonstrating continued progress against our strategic priorities.
Key
Performance
Indicators
across all
three
priorities
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.
• Adjusted EBITA
• Adjusted EPS
• Profit to cash conversion
• Non-NAR revenue
• Employee engagement
Strategic priority
2016 performance
Focus for 2017
Key Performance Indicators
• Share of broadcast up to 47.4% in 2016
•
•
ITV main channel up 3% and ITV Family SOV up 1%
ITV delivered 99% of commercial audiences over five million and 95% of audiences
over three million
• Delivered most watched soap, factual programme and sporting event
• Aired seven of the top ten new dramas
•
• Long-form video requests up 24% and online viewing up 42% on the ITV Hub
• Over 23 million downloads of ITV Hub app and 17 million registered users, including over 50%
ITV2 and ITV3 largest digital channels in the UK
of 16 to 24 year olds
• Significant digital engagement with around 100 million votes across our big entertainment
shows primarily via our programme apps
ITV Studios’ share of ITV main channel output increased to 63%
•
ITV Studios again delivered good growth with total revenue up 13% including acquisitions
• Produced and delivered around 7,800 hours of original content, almost double since 2010
•
• 20% growth in Off-ITV production revenue in the UK
• Continued investment in creative pipeline with 228 new commissions and 188 recommissions
• 50% of ITV Studios total revenue generated outside the UK
• A top indie producer in Europe and the US
• Co-producing and jointly commissioning a number of programmes with OTT platforms
• Selective investments in ‘digital first’ content businesses including New Form, RocketJump
and Ginx
• Announced new joint venture with the BBC, BritBox, our SVOD service in the US
• Cirkus expanded to Germany on Amazon
•
ITV Essentials and ITV Choice SVOD platforms continue to deliver our content to expats
and emerging markets
• Development of the ITV Hub+, ITV’s ad-free subscription version of the ITV Hub
• A leading European distributor of content with over 40,000 hours of content
• Strong drama content including Victoria, Poldark, Endeavour and The Good Witch all selling
to over 100 countries
• 80 different formats sold around the world, including 24 formats made in three or more
countries, 14 of which are produced by ITV Studios in three or more countries
• Multi territory and multi year content deals with OTT platforms, with over 200 programme
supply agreements in place
1
Maximise audience
and revenue share from
free-to-air broadcast
and VOD business
2
Grow an international
content business
3
Build a global pay and
distribution business
32
• Continue to strengthen on-screen viewing in key demographics
ITV Family SOV
• Further invest in our content, channels and brands to maintain our unique scale
ITV Family SOCI
• Grow our share of total television and VOD advertising
ITV Family share of broadcast
• Continue to maximise the value of our programme brands through sponsorship,
• Percentage of commercial audiences
interactivity and brand extensions
over three million and over five million
• Further invest in the quality and distribution of the ITV Hub to drive valuable
• Total long-form video requests
•
•
•
online audiences
• Develop new and more targeted advertising opportunities
• Enhance engagement with our shows online with social media
and programme apps
• Further expand our digital assets and capabilities to increase our exposure
to youth focused content and distribution
See page 20 for more on
Strategic Priority 1
• Build further scale internationally
• Number of new commissions for ITV Studios
• Continue to develop intellectual property in key creative markets to exploit
• Percentage of ITV output from ITV Studios
growing worldwide demand
• Build a pipeline of programmes across key genres, particularly scripted
• Develop more 16 to 24 focused content
• Attract and retain key creative talent
• Continue to look at acquisitions, investments and talent deals
• Launch of BritBox in the US
• Total long-form video requests
• Focus on the further roll out of BritBox internationally
• Number of new commissions for ITV Studios
• Launch Curio SVOD service in Norway
• Further enhance the capabilities and distribution of ITV Hub+
• Continue to trial direct to consumer pay opportunities
• Further grow our international distribution network with high-quality content
• Maximise the use of our strong cash flows to finance the production of
high-profile dramas that return and travel internationally
•
Invest in developing third-party distribution deals
• Secure retransmission fees in the medium term
See page 24 for more on
Strategic Priority 2
See page 28 for more on
Strategic Priority 3
ITV plc Annual Report and Accounts 2016
Pictured left to right: 24 Hours in A&E is a medical
documentary produced by The Garden, part of
ITV Studios UK, for Channel 4 and is in its eleventh series;
Grantchester is a returning drama for ITV averaging
7.1 million viewers across series two in 2016.
1
2
3
Strategic priority
2016 performance
Focus for 2017
Key Performance Indicators
• Delivered most watched soap, factual programme and sporting event
interactivity and brand extensions
• Continue to strengthen on-screen viewing in key demographics
• Further invest in our content, channels and brands to maintain our unique scale
• Grow our share of total television and VOD advertising
• Continue to maximise the value of our programme brands through sponsorship,
ITV Family SOV
ITV Family SOCI
ITV Family share of broadcast
•
•
•
• Percentage of commercial audiences
over three million and over five million
• Further invest in the quality and distribution of the ITV Hub to drive valuable
• Total long-form video requests
online audiences
• Develop new and more targeted advertising opportunities
• Enhance engagement with our shows online with social media
and programme apps
• Further expand our digital assets and capabilities to increase our exposure
to youth focused content and distribution
See page 20 for more on
Strategic Priority 1
Maximise audience
and revenue share from
free-to-air broadcast
and VOD business
• Share of broadcast up to 47.4% in 2016
ITV main channel up 3% and ITV Family SOV up 1%
•
•
over three million
ITV delivered 99% of commercial audiences over five million and 95% of audiences
• Aired seven of the top ten new dramas
•
ITV2 and ITV3 largest digital channels in the UK
• Long-form video requests up 24% and online viewing up 42% on the ITV Hub
• Over 23 million downloads of ITV Hub app and 17 million registered users, including over 50%
of 16 to 24 year olds
• Significant digital engagement with around 100 million votes across our big entertainment
shows primarily via our programme apps
•
ITV Studios again delivered good growth with total revenue up 13% including acquisitions
• Produced and delivered around 7,800 hours of original content, almost double since 2010
• Build further scale internationally
• Continue to develop intellectual property in key creative markets to exploit
• Number of new commissions for ITV Studios
• Percentage of ITV output from ITV Studios
Grow an international
content business
•
ITV Studios’ share of ITV main channel output increased to 63%
• 20% growth in Off-ITV production revenue in the UK
• Continued investment in creative pipeline with 228 new commissions and 188 recommissions
• 50% of ITV Studios total revenue generated outside the UK
• A top indie producer in Europe and the US
• Co-producing and jointly commissioning a number of programmes with OTT platforms
• Selective investments in ‘digital first’ content businesses including New Form, RocketJump
and Ginx
growing worldwide demand
• Build a pipeline of programmes across key genres, particularly scripted
• Develop more 16 to 24 focused content
• Attract and retain key creative talent
• Continue to look at acquisitions, investments and talent deals
Build a global pay and
distribution business
• Announced new joint venture with the BBC, BritBox, our SVOD service in the US
• Cirkus expanded to Germany on Amazon
•
ITV Essentials and ITV Choice SVOD platforms continue to deliver our content to expats
and emerging markets
• Development of the ITV Hub+, ITV’s ad-free subscription version of the ITV Hub
• A leading European distributor of content with over 40,000 hours of content
• Strong drama content including Victoria, Poldark, Endeavour and The Good Witch all selling
to over 100 countries
• 80 different formats sold around the world, including 24 formats made in three or more
countries, 14 of which are produced by ITV Studios in three or more countries
• Multi territory and multi year content deals with OTT platforms, with over 200 programme
supply agreements in place
• Launch of BritBox in the US
• Focus on the further roll out of BritBox internationally
• Launch Curio SVOD service in Norway
• Further enhance the capabilities and distribution of ITV Hub+
• Continue to trial direct to consumer pay opportunities
• Further grow our international distribution network with high-quality content
• Maximise the use of our strong cash flows to finance the production of
high-profile dramas that return and travel internationally
Invest in developing third-party distribution deals
•
• Secure retransmission fees in the medium term
See page 24 for more on
Strategic Priority 2
• Total long-form video requests
• Number of new commissions for ITV Studios
See page 28 for more on
Strategic Priority 3
33
Strategic Report
Strategic Report
Performance and Financials
Alternative Performance Measures
The Strategic Report includes both statutory and adjusted measures,the latter of
which, in management’s view, reflects the underlying performance of the business
and provides a more meaningful comparison of how the business is managed and
measured on a day-to-day basis.
Our APMs and KPIs are aligned to our strategy and together are used to measure the performance of our business and form the basis of the
performance measures for remuneration.
Adjusted results exclude
certain items because if
included, these items could
distort the understanding of
our performance for the year
and the comparability
between periods.
Key adjustments for Adjusted EBITA, profit before tax and EPS
Adjusted EBITA is calculated by adding back exceptional items and high end production tax credits to
EBITA. Further adjustments, which include amortisation of intangible assets acquired through business
combinations and net financing costs, are made to remove their effect from adjusted profit before tax
and EPS. The tax effect of all these adjustments is reflected to calculate an adjusted tax charge. These
adjustments are detailed below.
Production
tax credits
The ability to access tax credits, which are rebates based on production spend, is
fundamental to our Studios business when assessing the viability of investment in
green-lighting decisions, especially with regards to high-end drama. ITV reports tax
credits generated in the US and other countries (e.g. Ireland, Hungary, Canada and
South Africa) within cost of sales, whereas in the UK tax credits for high-end drama
must be classified as a corporation tax item. However, in our view all tax credits relate
directly to the production of programmes. Therefore to align treatment, regardless
of production location, and to reflect the way the business is managed and measured
on a day-to-day basis, these are recognised in adjusted EBITA.
Exceptional
items
This includes acquisition related costs (further detail below), reorganisation and
restructuring costs, non-recurring legal costs, gains or losses on disposal of non-core
assets and impairment of intangible assets. 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. They are typically gains or losses
arising from events that are not considered part of the core operations of the
business or are considered to be one-off in nature. We also adjust for the tax
effect of these items. Note 2.2 includes further detail on exceptional items.
Acquisition related costs
We structure our acquisitions with earnouts or put and call options, to allow part of the
consideration to be based on the future performance of the business as well as lock in
creative talent. Where consideration paid or contingent consideration payable in the
future is employment linked, it is treated as an expense (under accounting rules) and
therefore on a statutory basis is part of our reported results. However, we exclude all
consideration of this type from adjusted profit after tax and adjusted EPS as, in our
view, these items are part of the capital transaction. Page 44 of the Financial and
Performance Review explains this further.
Restructuring and reorganisation costs
These arise from Group-wide initiatives to reduce the ongoing cost base and improve
efficiency in the business. They are non-recurring costs and because of their size and
nature, are excluded from our adjusted measures.
Amortisation
and
impairment
of intangible
assets
Amortisation and impairment of intangible assets acquired through business
combinations is not included within adjusted earnings. As these costs are acquisition-
related, and in line with our treatment of other acquisition-related costs, we consider
them to be capital in nature and they do not reflect the underlying trading performance
of the Group. Amortisation of software licences and development is included within
our adjusted results as management consider these assets to be core to supporting
the operations of the business.
Net financing
costs
Net financing costs are adjusted to reflect the underlying cash cost of interest for the
business providing a more meaningful comparison of how the business is managed and
funded on a day-to-day basis. The adjustments made remove the impact of mark-to-
market on swaps and foreign exchange, imputed pension interest and other financial
gains and losses, which do not reflect the relevant interest cash cost to the business.
A full reconciliation between our adjusted and statutory results is provided on the
following page.
34
ITV plc Annual Report and Accounts 2016
Reconciliation between statutory and adjusted results
Twelve months to
31 December – on a continuing basis
EBITA1
Exceptional items (operating)2
Amortisation and impairment of intangible assets3
Operating profit
Net financing costs4
Gain on sale of non-current assets and subsidiaries
(non-operating exceptional items)
Profit before tax
Tax5
Profit after tax
Non-controlling interests
Loss from discontinuing operations (net of tax)
Earnings
Shares (million), weighted average
EPS (p)
2016
Statutory
£m
857
(164)
(89)
604
(51)
–
553
(100)
453
(4)
(1)
448
4,010
11.2p
2016
Adjustments
£m
28
164
77
269
25
–
294
(60)
234
–
1
235
–
2016
Adjusted
£m
885
–
(12)
873
(26)
–
847
(160)
687
(4)
–
683
4,010
17.0p
2015
Statutory
£m
842
(109)
(67)
666
(31)
6
641
(139)
502
(7)
–
495
4,006
12 .4p
2015
Adjustments
£m
23
109
58
190
18
(6)
202
(38)
164
–
–
164
–
2015
Adjusted
£m
865
–
(9)
856
(13)
–
843
(177)
666
(7)
–
659
4,006
16.5p
1. £28 million adjustment relates to production tax credits which we consider to be a contribution to production costs and working capital in nature rather than a corporate tax item.
2. Exceptional items largely relate to acquisition costs, primarily employment linked consideration, as well as restructuring costs and pension curtailment cost.
3. £77 million adjustment relates to amortisation on acquisition related intangible assets. We include only amortisation on purchased intangibles such as software within adjusted PBT.
4. £25 million adjustment is primarily for non-cash interest cost. This provides a more meaningful comparison of how the business is managed and funded on a day-to-day basis.
5. Tax adjustments are the tax effects of the adjustments made to reconcile PBT and adjusted PBT.
Other alternative Performance Measures
Total revenue
As an integrated producer broadcaster, we look at the total revenue
generated in the business which includes internal revenue, which is the
sale of ITV Studios programmes to Broadcast & Online. Our broadcast
channels are a significant customer for ITV Studios and selling
programmes to Broadcast & Online is an important part of our
strategy as it ensures we own all the rights.
A reconciliation between external revenue and total revenue is
provided below.
Twelve months to 31 December
External revenue (Reported)
Internal supply
Total revenue (Adjusted)
2016
£m
3,064
463
3,527
2015
£m
2,972
411
3,383
Adjusted net debt
Net debt (as defined in Note 4.1) is adjusted for all our financial
commitments. This better reflects how credit rating agencies look at
our balance sheet. A reconciliation between net debt and adjusted net
debt is provided below.
Twelve months to 31 December
Net debt
Expected contingent payments on
acquisitions
Net pension deficit
Operating leases
Adjusted net debt
Adjusted net debt to adjusted EBITDA
Reported net debt to adjusted EBITDA
2016
£m
(637)
(328)
(328)
(344)
(1,637)
1.8x
0.7x
2015
£m
(319)
(303)
(176)
(346)
(1,144)
1.3x
0.4x
Net pension deficit
This is our defined benefit pension deficit under IAS 19 adjusted for other pension assets, mainly gilts, over which the pension scheme
holds a charge, held by the Group as security for future unfunded pension payments of four former Granada executives.
A full reconciliation is included within Note 3.7.
Profit to cash conversion
This is our measure of cash generation used for working capital management. It is calculated as adjusted cash flow as a proportion of
adjusted EBITA. Profit to cash conversion is based on adjusted measures to reflect the cash generation of our underlying business after
operating capex, excluding the effect of exceptional items, non-cash expenses such as depreciation and share based payments.
35
Strategic Report Strategic Report
Performance and Financials
Key Performance Indicators
We have defined our KPIs to align our performance
and accountability to our strategy.
These KPIs are the key
measures of success and
cover all three strategic
priorities. Our KPIs have
not changed over the year.
F
i
n
a
n
c
i
a
l
Adjusted
EBITA
Definition
This is the key profitability measure used across the whole business.
Earnings before interest, tax and amortisation (EBITA) is before exceptional
items and has been adjusted to include the benefit of production tax credits.
It reflects our performance in a consistent manner and in line with how the
business is managed and measured on a day-to-day basis.
Performance
In 2016 adjusted EBITA increased by £20 million or 2% as a
result of a 3% increase in total external revenue and our continued focus on costs.
Revenue growth was primarily a result of a 23% increase in high margin Online, Pay &
Interactive revenues and a 13% increase in ITV Studios revenue driven by acquisitions,
the UK business and Global Entertainment. This was partially offset by a decline in
5
6
8
5
8
8
0
3
7
0
2
6
3
1
5
2
6
4
8
0
4
Adjusted
EPS
Profit
to cash
conversion
Non-NAR
revenue
Definition
Adjusted EPS 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 tax adjustments
relating to these items. 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.
Definition
Profit to cash conversion represents the proportion of adjusted 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).
This primarily reflects the effectiveness of our working capital management
and capital expenditure control. Our aim is to keep profit to cash conversion
as high as possible.
Definition
Non-NAR reflects all ITV revenue, both internal and external, except NAR
(spot advertising revenues). Online, Pay, Interactive, Sponsorship, SDN and
ITV Studios revenues are all included within Non-NAR, with the key drivers of
growth being Online, Pay and ITV Studios.
Growing non-NAR is key to the strategy as we aim to rebalance the business
away from our reliance on television advertising revenue.
N
o
n
-
F
i
n
a
n
c
i
a
l
Employee
engagement
Definition
Continuing to develop a creative, commercial and global organisation
requires high-quality employees who are engaged in the work that they do,
and are committed to the strategy.
Performance
was 80%.
Employee engagement was once again high at 90% which is above the benchmark
score for companies of a similar size and nature to ours of 83%. The participation rate
5
7
5
6
8
8
5
8
1
9
0
9
9
8
0
9
Employee engagement measures pride in the work we do, pride in working
for ITV and also what we say about our programmes and services.
Group EBITA margin remained flat at 29%.
NAR of 3%.
Performance
Adjusted EPS increased by 3% from 16.5p to 17.0p. This is higher than the
corresponding increase in adjusted EBITA of 2% as a result of a lower adjusted
effective tax rate in the year of 19% (2015: 21%).
Profit to cash has increased in the year to 97% and reflects our continued tight
management of working capital balances and our disciplined approach to cash and
Performance
costs.
Performance
Non-NAR revenue increased by 11% in 2016 as we continue to rebalance the business
away from a reliance on NAR. We delivered strong growth in ITV Studios revenues and
in Online and Pay revenues. Non-NAR revenues were 53% of total revenue which has
increased significantly since 2009 when it was 40%.
09
10
11
12
13
14
15
16
2016
£885m
5
.
6
1
0
.
7
1
8
.
3
1
2
.
1
1
1
.
9
9
.
7
4
.
6
09
10
11
12
13
14
15
16
2016
17.0p
2
0
2
8
.
1
1
7
1
7
2
1
3
0
1
7
9
7
9
1
9
1
9
7
9
09
10
11
12
13
14
15
16
2016
97%
5
5
8
,
1
4
6
6
,
1
7
2
3
,
1
1
1
2
,
1
6
3
0
,
1
2
2
9
0
5
8
9
2
8
09
10
11
12
13
14
15
16
2016
£1,855m
09
10
11
12
13
14
15
16
2016
90%
Our strategic priorities
Maximise audience
and revenue share from
free-to-air broadcast and
VOD business
Grow an international
content business
Build a global pay and
distribution business
36
Adjusted
EBITA
F
i
n
a
n
c
i
a
l
Definition
This is the key profitability measure used across the whole business.
Earnings before interest, tax and amortisation (EBITA) is before exceptional
items and has been adjusted to include the benefit of production tax credits.
It 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
EPS
Definition
Adjusted EPS 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 tax adjustments
relating to these items. It reflects the business performance of the Group in
a consistent manner and in line with how the business is managed and
measured on a day-to-day basis.
Profit
to cash
conversion
Profit to cash conversion represents the proportion of adjusted 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
Definition
assets).
This primarily reflects the effectiveness of our working capital management
and capital expenditure control. Our aim is to keep profit to cash conversion
as high as possible.
Non-NAR
revenue
Definition
Non-NAR reflects all ITV revenue, both internal and external, except NAR
(spot advertising revenues). Online, Pay, Interactive, Sponsorship, SDN and
ITV Studios revenues are all included within Non-NAR, with the key drivers of
growth being Online, Pay and ITV Studios.
Growing non-NAR is key to the strategy as we aim to rebalance the business
away from our reliance on television advertising revenue.
N
o
n
-
F
i
n
a
n
c
i
a
l
Employee engagement measures pride in the work we do, pride in working
for ITV and also what we say about our programmes and services.
ITV plc Annual Report and Accounts 2016
Our strategic priorities
Maximising
Growing
Building
Performance
In 2016 adjusted EBITA increased by £20 million or 2% as a
result of a 3% increase in total external revenue and our continued focus on costs.
Revenue growth was primarily a result of a 23% increase in high margin Online, Pay &
Interactive revenues and a 13% increase in ITV Studios revenue driven by acquisitions,
the UK business and Global Entertainment. This was partially offset by a decline in
NAR of 3%.
Group EBITA margin remained flat at 29%.
5
6
8
5
8
8
0
3
7
0
2
6
3
1
5
2
6
4
8
0
4
2
0
2
09
10
11
12
13
14
15
16
2016
£885m
Performance
Adjusted EPS increased by 3% from 16.5p to 17.0p. This is higher than the
corresponding increase in adjusted EBITA of 2% as a result of a lower adjusted
effective tax rate in the year of 19% (2015: 21%).
Performance
Profit to cash has increased in the year to 97% and reflects our continued tight
management of working capital balances and our disciplined approach to cash and
costs.
Performance
Non-NAR revenue increased by 11% in 2016 as we continue to rebalance the business
away from a reliance on NAR. We delivered strong growth in ITV Studios revenues and
in Online and Pay revenues. Non-NAR revenues were 53% of total revenue which has
increased significantly since 2009 when it was 40%.
.
5
6
1
.
0
7
1
.
8
3
1
.
2
1
1
.
1
9
9
7
.
.
4
6
8
1
.
09
10
11
12
13
14
15
16
2016
17.0p
1
7
1
7
2
1
3
0
1
7
9
7
9
1
9
1
9
7
9
09
10
11
12
13
14
15
16
2016
97%
5
5
8
1
,
4
6
6
1
,
7
2
3
1
,
1
1
2
1
,
6
3
0
1
,
2
2
9
0
5
8
9
2
8
09
10
11
12
13
14
15
16
2016
£1,855m
Employee
engagement
Definition
Continuing to develop a creative, commercial and global organisation
requires high-quality employees who are engaged in the work that they do,
and are committed to the strategy.
Performance
Employee engagement was once again high at 90% which is above the benchmark
score for companies of a similar size and nature to ours of 83%. The participation rate
was 80%.
5
7
5
6
8
8
5
8
1
9
0
9
9
8
0
9
09
10
11
12
13
14
15
16
2016
90%
37
Strategic Report
Strategic Report
Performance and Financials
Key Performance Indicators continued
S
t
r
a
t
e
g
y
ITV Family
Share of
viewing
Definition
To help deliver Strategic Priority 1 through maintaining a strong and healthy Broadcast & Online
business, ITV Family SOV is a key indicator of this. ITV Family SOV is 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 at least to maintain the ITV Family SOV.
ITV Family Share of
commercial impacts
Definition
Part of delivering Strategic Priority 1 and maintaining our position as a leading commercial
broadcaster is to have a strong ITV Family share of commercial impacts (SOCI). 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. SOCI provides an overall measure of viewing performance, however because
advertisers are buying scale and breadth of audience, SOCI is not necessarily a direct indicator of
advertising performance.
ITV Family Share
of broadcast
Definition
ITV’s share of UK television spot advertising revenue is known as its share of broadcast.
To maximise revenue from our free-to-air business, which is a key component of Strategic
Priority 1, we aim to continue to maximise our share of broadcast and to outperform the UK
television advertising market.
It is increasingly difficult to measure the total television advertising market as all broadcasters
have different definitions and include other sources of revenue, such as sponsorship and VOD in
their estimates of television advertising. Our SOB has always been based on our estimate of the
pure spot advertising market, excluding sponsorship, VOD and for 2016 going forward, we also
exclude all broadcaster’s self promotion revenues on their own channels because this year has
seen a significant increase which further distorts the external spot market.
Total long-form
video requests
Definition
A key part of our strategy is to maximise audience share from our free-to-air broadcast and
increasingly from our VOD business.
Long-form video requests is a measure of the total number of our videos requested across all
platforms on which the ITV Hub is available 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.
Number of new
commissions for
ITV Studios
Definition
To deliver Strategic Priority 2 tracking the performance of the creative renewal pipeline and the
number of new commissions won is a key indicator. This figure includes programmes shown both
on ITV and on other broadcasters, and both in the UK and internationally.
Performance
There was strong growth in the number of new commissions for ITV Studios in 2016,
up 37% to 228. 102 of these new commissions have come from the UK business, with
the remaining 126 coming from our international businesses.
We continue to invest in our creative pipeline building on our existing portfolio of
programmes and formats. We are particularly focused on the genres that can return
1
2
1
1
1
1
3
0
1
and travel, namely drama, entertainment and factual entertainment.
Percentage of
ITV* output from
ITV Studios
Definition
As an integrated producer broadcaster, part of our strategy is to use our broadcast channels as a
platform for ITV Studios content where we aim to make them famous and then sell them around
the world.
The proportion of the total spend on original commissions on ITV transmitted in the year, delivered
by ITV Studios demonstrates this and our aim is to increase ITV Studios’ supply of programmes to
ITV to allow us to deliver against all three of our Strategic Priorities.
Performance
The percentage of ITV output from ITV Studios increased to 63% in 2016 driven
by new dramas in the year. Many of these ITV Studios programmes broadcast in
2016 have now been distributed around the world including Victoria, Cold Feet,
Thunderbirds Are Go!, The Chase and I’m A Celebrity… Get Me Out Of Here!
*
ITV main channel only.
38
Performance
ITV Family SOV grew 1% in 2016 to 21.4%. Within this, the ITV main channel saw
an increase of 3% benefiting from the Six Nations Rugby Championships and the
European Football Championships along with strong performances in Drama,
Entertainment and Daytime. The digital channels were down 4% in the year mainly
across ITV3 and ITV4. ITV2 viewing amongst 16-34s continues to grow, up 25% in the
year and it remains the most popular digital channel in the UK based on SOV.
1
.
3
2
9
.
2
2
1
.
3
2
1
.
3
2
3
.
2
2
0
.
2
2
2
.
1
2
4
.
1
2
ITV also continues to deliver mass audiences and in 2016 delivered 99% of all
commercial audiences over five million and 95% over three million.
09
10
11
12
13
14
15
16
2016
21.4%
Performance
ITV Family SOCI declined by 1%, with the main channel up 3%. The digital channels SOCI
was down 6% and was impacted by the launch of a number of new free-to-air digital
channels at the end of 2015 and first half of 2016. In addition, ITV2 is now more
targeted towards younger viewers with SOCI amongst 16-34s up 24% in the year.
0
.
0
4
8
.
9
3
5
.
9
3
3
.
8
3
3
.
8
3
2
.
6
3
9
.
4
3
4
.
4
3
Performance
In 2016 we gained market share again, increasing our share of broadcast to 47.4%
which includes UTV and excludes self promotion by all broadcasters. 2015 share of
broadcast excluding self promotion, would have been 46.8% rather than 46.1%.
We have again gained share as a result of our unique ability to deliver mass audiences
across the key demographics to our advertisers and more targeted demographics on
our digital channels, as well as the benefit of UTV.
Performance
Long-form video requests were up 24% in 2016 to 1,025 million views supported by our
continued investment and focus on the ITV Hub, mobile apps and simulcast offering.
Online consumption, which is the measure of how long viewers are spending online, is
an important indicator of online performance and this increased by 42% in 2016.
09
10
11
12
13
14
15
16
2016
34.4%
7
.
4
4
2
.
5
4
3
.
5
4
8
.
5
4
4
.
5
4
9
.
5
4
1
.
6
4
4
.
7
4
09
10
11
12
13
14
15
16
2016
47.4%
5
2
0
,
1
8
2
8
6
2
7
7
7
5
6
9
4
6
0
4
3
7
2
0
5
1
09
10
11
12
13
14
15
16
2016
1,025m
8
2
2
6
6
1
9
4
1
11
12
13
14
15
16
8
5
9
5
0
6
0
6
3
6
5
5
3
5
0
5
09
10
11
12
13
14
15
16
2016
228
2016
63%
ITV Family Share of
commercial impacts
Definition
Part of delivering Strategic Priority 1 and maintaining our position as a leading commercial
broadcaster is to have a strong ITV Family share of commercial impacts (SOCI). 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. SOCI provides an overall measure of viewing performance, however because
advertisers are buying scale and breadth of audience, SOCI is not necessarily a direct indicator of
advertising performance.
ITV Family Share
of broadcast
Definition
ITV’s share of UK television spot advertising revenue is known as its share of broadcast.
To maximise revenue from our free-to-air business, which is a key component of Strategic
Priority 1, we aim to continue to maximise our share of broadcast and to outperform the UK
television advertising market.
It is increasingly difficult to measure the total television advertising market as all broadcasters
have different definitions and include other sources of revenue, such as sponsorship and VOD in
their estimates of television advertising. Our SOB has always been based on our estimate of the
pure spot advertising market, excluding sponsorship, VOD and for 2016 going forward, we also
exclude all broadcaster’s self promotion revenues on their own channels because this year has
seen a significant increase which further distorts the external spot market.
Total long-form
video requests
Definition
increasingly from our VOD business.
A key part of our strategy is to maximise audience share from our free-to-air broadcast and
Long-form video requests is a measure of the total number of our videos requested across all
platforms on which the ITV Hub is available 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.
S
t
r
a
t
e
g
y
ITV Family
Share of
viewing
Definition
To help deliver Strategic Priority 1 through maintaining a strong and healthy Broadcast & Online
business, ITV Family SOV is a key indicator of this. ITV Family SOV is 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 at least to maintain the ITV Family SOV.
Performance
ITV Family SOV grew 1% in 2016 to 21.4%. Within this, the ITV main channel saw
an increase of 3% benefiting from the Six Nations Rugby Championships and the
European Football Championships along with strong performances in Drama,
Entertainment and Daytime. The digital channels were down 4% in the year mainly
across ITV3 and ITV4. ITV2 viewing amongst 16-34s continues to grow, up 25% in the
year and it remains the most popular digital channel in the UK based on SOV.
ITV plc Annual Report and Accounts 2016
Our strategic priorities
Maximising
Growing
Building
.
1
3
2
.
9
2
2
.
1
3
2
.
1
3
2
.
3
2
2
.
0
2
2
.
2
1
2
.
4
1
2
ITV also continues to deliver mass audiences and in 2016 delivered 99% of all
commercial audiences over five million and 95% over three million.
09
10
11
12
13
14
15
16
2016
21.4%
Performance
ITV Family SOCI declined by 1%, with the main channel up 3%. The digital channels SOCI
was down 6% and was impacted by the launch of a number of new free-to-air digital
channels at the end of 2015 and first half of 2016. In addition, ITV2 is now more
targeted towards younger viewers with SOCI amongst 16-34s up 24% in the year.
.
0
0
4
.
8
9
3
.
5
9
3
.
3
8
3
.
3
8
3
.
2
6
3
.
9
4
3
.
4
4
3
Performance
In 2016 we gained market share again, increasing our share of broadcast to 47.4%
which includes UTV and excludes self promotion by all broadcasters. 2015 share of
broadcast excluding self promotion, would have been 46.8% rather than 46.1%.
We have again gained share as a result of our unique ability to deliver mass audiences
across the key demographics to our advertisers and more targeted demographics on
our digital channels, as well as the benefit of UTV.
Performance
Long-form video requests were up 24% in 2016 to 1,025 million views supported by our
continued investment and focus on the ITV Hub, mobile apps and simulcast offering.
Online consumption, which is the measure of how long viewers are spending online, is
an important indicator of online performance and this increased by 42% in 2016.
Number of new
commissions for
ITV Studios
Definition
To deliver Strategic Priority 2 tracking the performance of the creative renewal pipeline and the
number of new commissions won is a key indicator. This figure includes programmes shown both
on ITV and on other broadcasters, and both in the UK and internationally.
Performance
There was strong growth in the number of new commissions for ITV Studios in 2016,
up 37% to 228. 102 of these new commissions have come from the UK business, with
the remaining 126 coming from our international businesses.
09
10
11
12
13
14
15
16
2016
34.4%
.
7
4
4
.
2
5
4
.
3
5
4
.
8
5
4
.
4
5
4
.
9
5
4
.
1
6
4
.
4
7
4
09
10
11
12
13
14
15
16
2016
47.4%
5
2
0
1
,
8
2
8
6
2
7
7
7
5
6
9
4
6
0
4
3
7
2
0
5
1
09
10
11
12
13
14
15
16
2016
1,025m
8
2
2
6
6
1
9
4
1
Percentage of
ITV* output from
ITV Studios
Definition
the world.
As an integrated producer broadcaster, part of our strategy is to use our broadcast channels as a
platform for ITV Studios content where we aim to make them famous and then sell them around
The proportion of the total spend on original commissions on ITV transmitted in the year, delivered
by ITV Studios demonstrates this and our aim is to increase ITV Studios’ supply of programmes to
ITV to allow us to deliver against all three of our Strategic Priorities.
*
ITV main channel only.
Performance
The percentage of ITV output from ITV Studios increased to 63% in 2016 driven
by new dramas in the year. Many of these ITV Studios programmes broadcast in
2016 have now been distributed around the world including Victoria, Cold Feet,
Thunderbirds Are Go!, The Chase and I’m A Celebrity… Get Me Out Of Here!
11
12
13
14
15
16
8
5
9
5
0
6
0
6
3
6
5
5
3
5
0
5
09
10
11
12
13
14
15
16
We continue to invest in our creative pipeline building on our existing portfolio of
programmes and formats. We are particularly focused on the genres that can return
and travel, namely drama, entertainment and factual entertainment.
1
2
1
1
1
1
3
0
1
2016
228
2016
63%
39
Strategic Report
Strategic Report
Performance and Financials
Financial and Performance Review
The benefit of rebalancing the business is evident in these results with
growth in non-NAR revenue delivering a good performance and making
ITV a more resilient business.
We continue to be highly
cash generative which,
together with our ongoing
focus on costs, places us in
a strong position to continue
to invest in opportunities
to grow the business and
deliver sustainable returns
to shareholders
Ian Griffiths
Group Finance Director
40
The strategy we set out a number of years ago was to rebalance
the business and reduce our reliance on spot advertising. This
strategy is the right strategy for ITV and the progress we have
made is clearly evident in our performance for 2016, delivering
3% external revenue growth and 3% increase in adjusted EPS, in
a year where spot advertising revenue declined 3%. We continue
to be highly cash generative which, together with our ongoing
focus on costs, places us in a strong position to continue to
invest in opportunities to grow the business and deliver
returns to shareholders.
Twelve months to 31 December – on a
continuing basis
NAR
Total non-NAR
Total revenue
Internal supply
Group external revenue
2016
£m
1,672
1,855
3,527
(463)
3,064
2015
£m
1,719
1,664
3,383
(411)
2,972
Change
£m
(47)
191
144
52
92
Change
%
(3)
11
4
13
3
Adjusted EBITA
Group adjusted EBITA margin
885
29%
865
29%
20
2
Adjusted EPS
Adjusted diluted EPS
Dividend per share
Special dividend
Net debt as at 31 December
17.0p
17.0p
7.2p
5p
(637)
16.5p
16.3p
6.0p
10p
(319)
0.5p
0.7p
1.2p
–
(318)
3
4
20
–
–
The statutory profit before tax and EPS from the Consolidated
Income Statement is below. A full reconciliation between our
statutory and reported results is included in the Alternative
Performance Measures section.
Twelve months to 31 December
Profit before tax
EPS
Diluted EPS
2016
£m
553
11.2p
11.1p
2015
£m
641
12.4p
12.3p
Change
£m
(88)
(1.2)p
(1.2)p
Change
%
(14)
(10)
(10)
Total ITV revenue increased 4% to £3,527 million (2015: £3,383 million),
with external revenue up 3% at £3,064 million (2015: £2,972 million).
NAR declined by 3% to £1,672 million (2015: £1,719 million) offset by
a 11% growth in non-NAR revenue to £1,855 million (2015: £1,664
million). Non-NAR now accounts for 53% (2015: 49%) of total revenue.
Growth in high margin Online, Pay & Interactive revenue combined with
the growth in ITV Studios and our continued focus on costs, delivered a
2% increase in adjusted EBITA to £885 million (2015: £865 million) with
the adjusted EBITA margin maintained at 29%. Adjusted EPS grew 3%
to 17.0p (2015: 16.5p) while statutory EPS declined by 10% to 11.2p
(2015: 12.4p). Statutory EPS declined due to higher exceptional costs,
principally employment linked consideration for our acquisitions
(primarily Talpa Media) which is included within reported earnings.
In addition there were higher restructuring costs associated with
our 2017 cost savings and higher amortisation of acquired intangible
assets as a result of owning Talpa Media for a full 12 months. These
adjustments are explained over the following pages.
ITV plc Annual Report and Accounts 2016
Broadcast & Online revenue tracker
£m
2,175
43
3
24
(13)
2,132
2,125
2,146
2,075
2,025
1,975
(71)
2015
NAR
ex UTV
UTV NAR
SDN
Online,
Pay &
Interactive
Other
Non-NAR
2016
Against a backdrop of uncertainty created by the EU referendum,
ITV Family NAR decreased by 3% to £1,672 million (including UTV)
(2015: 1,719 million). This decline was less than the decline in our
estimate of the television advertising market which excludes
broadcaster’s self-promotion, sponsorship and VOD revenue, and
therefore we again took market share to increase our SOB to 47.4%.
Despite the overall fall in NAR we have seen a number of categories
hold or increase spend year-on-year, such as Entertainment & Leisure,
with increased bookmakers spend around the European Football
Championship, Cars, Cosmetics and Toiletries, and Publishing and
Broadcasting. Digital brands continue to spend on television to build
brand awareness. Retail, Finance and Food have seen declines with
supermarkets and traditional banking decreasing spend across the
year. Excluding supermarkets, Retail was up 4% year-on-year.
2016 advertising category analysis
Retail 20%
Entertainment & Leisure 10%
Finance 9%
Food 8%
Cosmetics & Toiletries 7%
Cars & Car Dealers 6%
Publishing & Broadcasting 6%
Airlines, Travel & Holidays 5%
Telecommunications 4%
Household Stores 4%
Other 21%
We remain focused on balance sheet efficiency and working capital
management. Our profit to cash ratio remained strong at 97% and
we ended the period with net debt of £637 million (31 December 2015:
net debt of £319 million) after the acquisition of UTV, the ordinary and
special dividend payments and pension deficit contributions.
Increasing net debt is in line with our objective of gradually increasing
our balance sheet leverage over time whilst maintaining the financial
flexibility to continue to invest in the business.
Cost management remains a key priority and we are on track to
deliver the previously announced £25 million reduction in overheads in
2017 across the business. This together with our strong balance sheet,
our clear strategy and a more balanced business gives us the flexibility
to meet the opportunities and challenges ahead.
Adjusted EBITA tracker
£m
900
865
24
(5)
(71)
850
800
750
700
12
25
885
35
2015
NAR
UTV NAR
Network
Schedule
ITV Studios FX Impact 2016
Online,
Pay &
Interactive
and Other
Broadcast
Broadcast & Online
Twelve months to 31 December – on a
continuing basis
NAR
Online, Pay & Interactive
revenue
SDN external revenue
Other commercial income
Broadcast & Online
non‑NAR revenue
Total Broadcast & Online
revenue
Total schedule costs
Other costs
Total Broadcast & Online
adjusted EBITA
Adjusted EBITA margin
2016
£m
1,672
2015
£m
1,719
Change
£m
(47)
Change
%
(3)
231
67
162
188
64
175
460
427
2,132
(1,050)
(440)
2,146
(1,045)
(442)
642
30%
659
31%
43
3
(13)
33
(14)
(5)
2
(17)
23
5
(7)
8
(1)
–
–
(3)
Broadcast & Online revenue declined by 1% to £2,132 million (2015:
£2,146 million) with the decrease in NAR largely offset by strong
growth in Online, Pay & Interactive.
41
Strategic Report
Strategic Report
Performance and Financials
Financial and Performance Review continued
As expected, the phasing of NAR was different in 2016 reflecting the
timing of major sporting events and a backdrop of uncertainty driven
by the EU referendum. The first and second quarter were both flat
with strong comparatives in Q1 2015, with a weaker April and May
being offset by a strong June as a result of the Euro Football
Championships. The third quarter was down 4% impacted by the
Rugby World Cup comparatives in 2015 with the fourth quarter down
6% as increased political and economic uncertainty caused advertisers
to behave more cautiously.
£1,025 million which includes the previously announced £25m
reduction as there is no major sporting event. We expect the
programme budget to be weighted to the first half of 2017 driven by
the timing of spend on entertainment and drama programmes and
will be broadly flat year-on-year for the first half.
Other costs in Broadcast were flat year-on-year as we continue to
maintain a tight control on costs across the business.
Looking to 2017 we expect the first four months to the end of April to
be down around 6% and as ever the phasing of NAR will be different
across the year. Over the full year we again expect to outperform the
television advertising market.
Overall Broadcast & Online adjusted EBITA was down 3% at £642
million (2015: £659 million) with the strong growth in Online, Pay &
Interactive more than offset by the decline in the advertising market.
This has led to a 1% reduction in the adjusted EBITA margin to 30%
(2015: 31%).
On-screen we performed strongly with ITV Family SOV up 1% and
a 3% increase in ITV main channel SOV. Going forward we remain
focused on our viewing performance and continuing to deliver both
mass audiences and key demographics which are highly demanded
by advertisers.
Online, Pay & Interactive revenue continued to show strong growth,
up 23% to £231 million (2015: £188 million) reflecting further growth in
both our online advertising and pay businesses. Audience demand for
VOD remains strong as does the demand for online advertising, which
supported by our strong on-screen proposition, helped drive a 24%
increase in long-form video requests and a 42% increase in
consumption on our OTT service the ITV Hub. Interactive revenue
was broadly flat, with daytime competitions and entertainment
programmes performing well.
ITV Studios
Twelve months to 31 December
Studios UK
ITV America
Studios RoW
Global Entertainment
Total Studios revenue
Total Studios costs
Total Studios adjusted
EBITA*
Studios adjusted EBITA margin
2016
£m
626
235
355
179
1,395
(1,152)
2015
£m
547
320
213
157
1,237
(1,031)
243
17%
206
17%
Change
£m
79
(85)
142
22
158
(121)
Change
%
14
(27)
67
14
13
(12)
37
18
* Includes the benefit of production tax credits.
As we continue to build our digital business we will be launching our
SVOD service BritBox in the US in the first half of 2017. The service is
a joint venture with the BBC to provide the Best of British content to
subscribers. BritBox US is expected to break even within a couple of
years. ITV’s share of total joint venture losses/profits will be
recognised within results from JVs and Associates.
Twelve months to 31 December
Sales from ITV Studios
to Broadcast & Online
External revenue
Total Studios revenue
2016
£m
2015
£m
Change
£m
Change
%
463
932
1,395
411
826
1,237
52
106
158
13
13
13
SDN external revenue, which is generated from licence sales for DTT
Multiplex A, increased 5% to £67 million (2015: £64 million). This was
driven by the full year impact of the 15th stream which was launched
in August 2015 and the 16th stream launched in May 2016.
Other commercial income includes revenue from programme
sponsorship, media sales, which relates to commission earned by ITV
on sales of airtime for the non-consolidated licensees (UTV until
acquisition and STV), as well as revenue from these licensees for ITV
content. Other commercial income was down year-on-year at £162
million (2015: £175 million) as a result of a reduction in airtime sales
commission and revenue from UTV following ITV’s acquisition of the
business in February 2016.
ITV Studios total revenue grew strongly up 13% to £1,395 million (2015:
£1,237 million) driven by Studios UK, Global Entertainment and our
acquisitions, as we continue to build scale in creative content markets
and strengthen our international portfolio of programmes that return
and travel. Total organic revenue, which excludes our current and prior
year acquisitions, was down 3%, and excluding foreign exchange
movements as well, it was down 7%. This was primarily due to ITV
America being impacted by two large shows not returning and the
timing of one of our key shows. Good performances by the UK and
Global Entertainment helped offset some of this organic decline. Our
results include a full 12 months of our prior year acquisitions, Twofour
Group, Mammoth Screen and Talpa Media all of which have delivered
key programmes during the year.
Schedule costs were broadly flat year-on-year at £1,050 million (2015:
£1,045 million) with higher spend on drama offset by lower spend on
sports rights with the absence of the Champions League. Looking into
2017 we expect our total annual programming budget to be around
It is in the nature of our business that not all programmes will return
for another series and the timing of programme deliveries will vary.
However, since 2010 ITV Studios has shown good organic growth
(excluding all currency and all acquisitions) at 4% compound annual
growth rate.
42
ITV plc Annual Report and Accounts 2016
Reflecting our growth and increasing scale in key production markets
in Europe and the US, 50% of ITV Studios total revenue in 2016 was
generated outside the UK. As our Studios business grows
internationally, foreign currency movements have an increasing
impact on our results. On a constant currency basis, which assumes
exchange rates remained consistent with 2015, ITV Studios revenue
for 2016 would have been £75 million lower and adjusted EBITA would
have been £12 million lower as a result of a stronger US dollar and euro
during the year.
Total Studios UK revenue was up 14% to £626 million (2015: £547
million) with 13% growth in internal revenue and 20% increase in
external revenue driven by organic growth of 6% and the acquisition
of Twofour Group and Mammoth Screen in 2015. Programming sales
to ITV Broadcast benefited from new drama deliveries including
Victoria, Cold Feet and Tutankhamun along with returning
entertainment programmes Saturday Night Takeaway, Love Island
and I’m A Celebrity… Get Me Out Here! Off-ITV revenue grew strongly
with successful deliveries including The Jump, The Job Interview and
Raised by Wolves all for Channel 4, Poldark, Moorside and Witness for
the Prosecution for BBC and Agatha Raisin for Sky.
ITV America’s total revenue declined 27% to £235 million (2015: £320
million) with organic revenue, excluding acquisitions and foreign
exchange, down 35%. This decline was predominantly driven by three
shows – Texas Rising and Best Time Ever not returning and the phasing
of Hell’s Kitchen which did not deliver in 2016 but will return for two
series in 2017. Our acquisitions continue to deliver new and returning
programmes, including Alone, Killing Fields, Pawn Stars and Fixer
Upper. Other successful non-scripted deliveries within ITV America
during the year included American Grit, Tiny House Nation and The
Real Housewives of New Jersey. Our returning scripted dramas, The
Good Witch and Aquarius also aired during 2016 with The Good Witch
already recommissioned for a third series in 2017. Aquarius has not
been recommissioned for 2017, but we are confident we can replace it
with our upcoming slate of new programmes, including three dramas;
Sun Records, Somewhere Between and a pilot of Snowpiercer, as we
build our US scripted business.
Studios RoW total revenue was up 67% to £355 million (2015: £213
million), with organic revenue down 1%. We benefited from 12 months
of Talpa Media, which was acquired on 30 April 2015 and has
significantly strengthened our position as a leading international
producer and distributor. Talpa Media performed strongly in 2016 and
also benefited from a four-year licensing agreement for The Voice of
China. We also saw good growth in Australia and Denmark from
producing UK formats. 2016 deliveries included I’m A Celebrity… Get
Me Out Of Here! and The Chase in Australia and Germany and The
Voice Kids and Come Dine With Me in Denmark. We have a strong
pipeline of new and returning formats, many of which have been
produced by our acquisitions Talpa Media and Twofour Group, which
we will be producing in a number of our key production territories
including; The Voice, This Time Next Year, Love Island, 5 Gold Rings
and Big Star’s Little Star.
Global Entertainment revenue increased 14% in the period to £179
million (2015: £157 million), with revenue excluding foreign exchange
up 6% as we continued to grow our portfolio of programmes and
formats to distribute internationally. Revenue growth was supported
by our strong programme slate including Victoria, Poldark, Mr
Selfridge, Coronation Street, Thunderbirds Are Go!, Aquarius, Hell’s
Kitchen and The Chase. We have 10 programmes sold to over 100
countries and 80 different formats we sell internationally. We have
also increased distribution of our content to OTT providers including
Amazon, Netflix and Hulu both in the UK and internationally.
Reflecting the strong revenue growth in ITV Studios, adjusted EBITA
increased 18% to £243 million (2015: £206 million). The adjusted EBITA
margin remains unchanged at 17%. In 2016 we invested £160 million in
scripted content, which is a similar level to 2015. We finance our
larger-scale scripted projects through our strong underlying cashflows.
The production cost is partly funded by the initial sale of the series to a
broadcaster, while the deficit (the difference between the cost and
what the broadcaster pays), is recovered through distribution revenue
from selling the finished product globally to other broadcasters and
platforms. We balance our financial exposure through building a
portfolio of programmes, with successful international dramas
offsetting the risk that we will not recover the full deficit on
every show.
Overall, ITV Studios continued to deliver many creative successes
in the year. The ongoing investment we are making in our creative
pipeline will build upon our existing strong portfolio of programmes
and formats and help manage the fluctuations we experience
because of the phasing of deliveries. 2017 will see the delivery of many
new and returning entertainment and drama programmes and as a
result we expect to return to good organic revenue growth over the
full year, although the first half will be impacted the timing of
deliveries. ITV Studios currently has over £150 million more revenue
secured for 2017 than it did this time last year. Adjusted EBITA will be
broadly flat year-on-year due to our ongoing investment in scripted
content and the reversal of the one-off benefit of The Voice of China
in 2016.
ITV Studios total revenue tracker
£m
1,400
1,300
1,200
1,100
1,000
9,00
800
50
108
9
75
1,395
29
1,237
(113)
2015
Organic
UK
Productions
UK
Acquisitions
ITV
America
Inter-
national,
mainly
acquisitions
Global
Entertain-
ment
FX Impact
2016
43
Strategic Report
Strategic Report
Performance and Financials
Financial and Performance Review continued
Acquisitions – 2012 to 2016 (undiscounted)
Company
Geography
Genre
Initial
consideration
(£m)
Additional
consideration
paid in 2016
(£m)
Expected
future
payments*
(£m)
Total
expected
consideration**
(£m)
Expected
payment
period
Total
maximum
consideration**
(£m)
2016
UTV
Total for 2016
Total for 2012-2015
Total
UK & Ireland Broadcast TV
Content
100
100
760
860
–
–
3
3
–
–
328
328
100
100
1,091
1,191
2016-2021
100
100
1,805
1,905
*
Undiscounted and adjusted for foreign exchange. All future payments are performance related. Of £328 million expected future payments, £158 million has been recorded
on the balance sheet to date.
** Undiscounted and adjusted for foreign exchange, including the initial cash consideration and excluding working capital adjustments.
Acquisitions
On 29 February 2016 the Group acquired a 100% controlling interest
in UTV Limited, which owns the television assets of the former UTV
Media PLC, for £100 million. This further strengthens ITV’s free-to-air
business and, as we have integrated it into ITV it enables us to run a
more efficient network. On 30 November 2016, ITV completed the
€10 million sale of UTV Ireland to Virgin Media Limited.
We continue to look at potential acquisitions and partnerships as we
further build scale in our international content business. Since 2012
we have acquired a number of content businesses in the UK, US and
creative locations across Europe, developing a strong portfolio of
programmes that return and travel. As we have grown in size and
expanded our network relationships and distribution capability, this
has helped to strengthen our creative talent and build our reputation
as a leading European producer and distributor and leading unscripted
independent production company in the US.
We have strict criteria for evaluating potential acquisitions. Financially,
we assess ownership of intellectual property, earnings growth and
valuation based on return on capital employed and discounted cash
flow. Strategically, we ensure an acquisition target has a strong
creative track record and pipeline in content genres that return and
travel, namely drama, entertainment and factual entertainment, as
well as succession planning for key individuals in the business.
We generally structure our deals with earnouts or with put and
call options in place for the remainder of the equity, capping the
maximum consideration payable. By basing a significant part of
the consideration on future performance in this way, not only can
we lock in creative talent and ensure our incentives are aligned, but
we also reduce our risk by only paying for the actual, not expected,
performance delivered over time. We believe this is the right way
to structure our deals as we should not pay upfront for future
performance and should incentivise and reward delivery by the
business over time.
The majority of earnouts or put and call options are dependent on
the seller remaining within the business, the most significant of which
is for Talpa Media whereby the total maximum consideration, including
the initial payment, is up to €1.1 billion which is contingent on Talpa
Media continuing to deliver significant profit growth to 2022 as well
as John de Mol’s continued commitment to the business during
this time. Under the deal structure, because all future payments
and €150 million of the initial consideration are directly related to
John de Mol remaining with the business, these payments are treated
as employment costs and therefore on a statutory basis are part of
our reported results. However, we exclude them from adjusted profits
and adjusted EPS as an exceptional item, as in our view for the reasons
set out above, these items are part of capital consideration reflecting
how we structure our transactions. This is consistent with our
treatment of all costs of this type.
The table above sets out the initial consideration payable on our
acquisitions, our expected future payments based on our current view
of performance and the total maximum consideration payable which
is only payable if exceptional compound earnings growth is delivered.
We closely monitor the forecast performance of each acquisition and
where there has been a change in expectations, we adjust our view of
potential future commitments.
Total expected consideration for all our acquisitions has increased
by £128 million since 31 December 2015, primarily as a result of our
acquisition of UTV Limited and future payments denominated in
foreign currency. As at 31 December 2016 the amount recorded on the
balance sheet was £158 million of our total expected future payments.
In 2017, around £120 million will be payable on our acquisitions,
primarily relating to Talpa Media of which €100 million is due, subject
to audit, in March 2017.
Foreign Exchange Sensitivity
As our Studios business grows internationally, the performance of
the business becomes increasingly sensitive to movements in foreign
exchange rates, primarily with respect to the US dollar and euro.
The following table highlights ITV’s sensitivity to translation resulting
from a 10% appreciation/depreciation in sterling against the US dollar
and euro, assuming all other variables are held constant. An
appreciation in Sterling has a negative effect on revenue and adjusted
EBITA, a depreciation has a positive effect.
Currency
US Dollar
Euro
Revenue (£m)
±50-60
±25-30
Adjusted
EBITA (£m)
±8-10
±3-4
44
ITV plc Annual Report and Accounts 2016
Net financing costs
Exceptional items
Twelve months to 31 December
Financing costs directly attributable
to loans and bonds
Cash-related net financing costs
Amortisation of bonds
Adjusted financing costs
Mark-to-market on swaps and
foreign exchange
Imputed pension interest
Unrealised foreign exchange and other
net financial losses
Net financing costs
2016
£m
(22)
(3)
(1)
(26)
(3)
(5)
(17)
(51)
2015
£m
(10)
(3)
–
(13)
(4)
(10)
(4)
(31)
Adjusted financing costs increased to £26 million (2015: £13 million)
primarily due to 12 months of the seven year €600 million Eurobond
issued in September 2015 and new facility fees.
Net financing costs were £20 million higher in 2016 at £51 million
(2015: £31 million) primarily due to £17 million increase in the expected
future payments on our acquisition portfolio. These relate to those
deals structured with a put and call option for the remainder of the
equity which are not dependent on the seller remaining within the
business. The imputed pension charge decreased as a result of lower
interest rates.
Profit before tax
Adjusted profit before tax, after amortisation and impairment of
intangibles and financing costs, was broadly flat at £847 million (2015:
£843 million). Statutory profit before tax decreased by 14% at £553
million (2015: £641 million), primarily a result of the exceptional items
described below, an increase in net financial losses within net financing
costs and a full 12 months amortisation of the intangible assets
acquired in the purchase of Talpa Media, particularly The Voice.
Twelve months to 31 December
Operating exceptional items:
Acquisition related expenses
Reorganisation and restructuring costs
Pension curtailment
Other
Non-operating exceptional items
Total exceptional items (net)
2016
£m
(131)
(14)
(19)
‑
(164)
‑
(164)
2015
£m
(88)
(13)
-
(8)
(109)
6
(103)
Total exceptional items in the year were £164 million (2015: £103
million). Operating exceptional items principally relate to acquisition
related expenses which are mainly performance based employment
linked consideration, primarily £99 million for Talpa Media which
has delivered in line with its first earnout hurdle and will receive
€100 million, subject to audit, in March 2017. Reorganisation and
restructuring costs includes £14 million of restructuring and
redundancy costs across the business in relation to our £25 million
overhead cost savings for 2017. The pension curtailment is as a result
of the closure of the defined benefit pension sections of the ITV
Pension Scheme to future benefit accrual.
Tax
Adjusted tax charge
The total adjusted tax charge for 2016 was £160 million (2015: £177
million), corresponding to an effective tax rate on adjusted PBT of 19%
(2015: 21%) which is broadly in line with the standard UK corporation
tax rate of 20% (2015: 20.25%). We expect this effective tax rate to
be sustainable in the medium term. The adjustments made to
reconcile the tax charge with the adjusted tax charge are the tax
effects of the adjustments made to reconcile PBT and adjusted PBT,
as discussed earlier.
Profit before tax (PBT)
Twelve months to 31 December – on a continuing basis
Profit before tax
Production tax credits
Exceptional items (net)
Amortisation and impairment of
intangible assets*
Adjustments to net financing costs
Adjusted profit before tax
2016
£m
553
28
164
77
25
847
Twelve months to 31 December
Tax charge
Production tax credits
Charge for exceptional items
Charge in respect of amortisation of
intangible assets*
Charge in respect of adjustments to net
financing costs
Adjusted tax charge
Effective tax rate on adjusted profits
2015
£m
641
23
103
58
18
843
2016
£m
(100)
(28)
(15)
(11)
(6)
(160)
19%
2015
£m
(139)
(23)
(8)
(4)
(3)
(177)
21%
* In respect of intangible assets arising from business combinations.
* In respect of intangible assets arising from business combinations. Also reflects the cash
tax benefit of tax deductions for US goodwill.
45
Strategic Report
Strategic Report
Performance and Financials
Financial and Performance Review continued
Cash tax
Cash tax paid in the year was £90 million (2015: £117 million), the
majority of which was paid in the UK. The cash tax figure is net of
production tax credits received in the year. The cash tax payable is
lower year-on-year because of the timing of the receipts of tax credits.
A reconciliation between the tax charge for the year and the cash tax
paid in the year is shown below.
Twelve months to 31 December
Tax charge
Temporary differences recognised
through deferred tax
Prior year adjustments to current tax
Current tax, current year
Phasing of tax payments – UK
Phasing of tax payments – overseas
Production tax credits – timing
of receipt
Cash tax impact of allowable UK
pension payments
Cash tax paid
2016
£m
(100)
(13)
(10)
(123)
5
5
7
16
(90)
2015
£m
(139)
29
(9)
(119)
(1)
(1)
(14)
18
(117)
Tax strategy
ITV is a responsible business, and we take a responsible attitude to tax,
recognising that it affects all of our stakeholders. In order to allow
those stakeholders to understand our approach to tax, we have
published our Global Tax Strategy which is available on our
corporate website.
www.itvplc.com
We have four key strategic tax objectives:
1.
2.
Engage with tax authorities in an open and transparent way in
order to minimise uncertainty
Pro-actively partner with the business to provide clear, timely,
relevant and business focused advice across all aspects of tax
3. Take an appropriate and balanced approach when considering
how to structure tax sensitive transactions
4. Manage ITV’s tax risk by operating effective tax governance
and understanding our tax control framework with a view to
continuously adjusting our approach to be compliant with our
tax obligations
Our tax strategy is aligned with that of the business and its
commercial activities, and establishes a clear Group-wide approach
based on openness and transparency in all aspects of tax reporting
and compliance, wherever the Company and its subsidiaries operate.
Within our overall governance structure, the governance of tax and
tax risk is given a high priority by the Board and Audit and Risk
Committee, including through the operation of the Tax & Treasury
Committee. The ITV Global Tax Strategy as published on the ITV plc
website is compliant with the UK tax strategy publication requirement
set out in Part 2 Schedule 19 Finance Act 2016.
EPS – adjusted and statutory
Overall, adjusted profit after tax was up 3% at £687 million (2015:
£666 million). After non-controlling interests of £4 million (2015: £7
million), adjusted basic earnings per share was 17.0p (2015: 16.5p), up
3% which is higher than the growth in adjusted EBITA of 2% due to a
decrease in our adjusted effective tax rate in the year to 19% (2015:
21%). The weighted average number of shares was broadly in line at
4,010 million (2015: 4,006 million). Diluted adjusted EPS in 2016 was
17.0p (2015: 16.3p) reflecting a weighted average diluted number of
shares of 4,029 (2015: 4,035).
Adjusted EPS p
.
1
9
9
7
.
.
4
6
8
1
.
.
5
6
1
.
0
7
1
.
8
3
1
.
2
1
1
09
10
11
12
13
14
15
16
3%
YoY
2016
17.0p
Statutory EPS declined by 10% to 11.2p (2015: 12.4p) primarily as
a result of higher employment linked consideration (largely Talpa
Media), which is included within reported EPS but as in prior years,
is excluded from adjusted EPS as in our view these costs are part of
capital consideration. In addition there were higher restructuring costs
associated with our 2017 cost savings and higher amortisation of
acquired intangibles assets from a full 12 months of Talpa Media.
A full reconciliation between statutory and adjusted EPS is included
within the Alternative Performance Measures section.
Statutory EPS p
.
4
2
1
.
6
1
1
2
.
1
1
.
3
8
.
9
6
.
4
6
.
6
6
3
2
.
09
10
11
12
13
14
15
16
-10%
YoY
2016
11.2p
Dividend per share
In 2014, the Board made a commitment to grow the full year ordinary
dividend by at least 20% per annum to 2016 to achieve a more normal
dividend cover of between 2.0 and 2.5x adjusted earnings per share.
In line with this policy and reflecting ITV’s good performance in 2016,
the Board is proposing a final dividend of 4.8p which equates to a full
year dividend of 7.2p, which gives a cover of 2.4x. We have delivered
average annual growth of 27% in the ordinary dividend over the last
three years.
46
ITV plc Annual Report and Accounts 2016
Reflecting ITV’s strong cash generation and the Board’s confidence in
the business, the Board is proposing a special dividend of 5p per share
worth just over £200 million, bringing the total special dividends since
2012 to almost £1.2 billion.
Looking ahead the Board is committed to a long-term sustainable
dividend policy. Ordinary dividends will grow broadly in line with
earnings, targeting dividend cover of around 2x adjusted earnings
per share over the medium term. ITV has £1.7 billion of distributable
reserves at 31st December 2016 available immediately to support
the dividend policy.
Dividend per share p (ordinary)
2
7
.
0
6
.
.
7
4
5
3
.
6
2
.
6
1
.
09
10
11
12
13
14
15
16
20%
YoY
2016
7.2p
Free cash flow
Twelve months to 31 December
Adjusted cash flow
Net interest paid
Adjusted cash tax
Pension funding
Free cash flow
2016
£m
862
(20)
(126)
(80)
636
2015
£m
788
(9)
(127)
(90)
562
Note: Adjusted cash tax of £126 million is total cash tax paid of £90 million excluding receipt
of production tax credits, which are included within adjusted cashflow from operations, as
these production tax credits relate directly to the production of programmes.
After payments for interest, cash tax and pension funding, our free
cash flow remained strong in the period, up 13% to £636 million
(2015: £562 million).
Overall, after dividends (ordinary and special), acquisition related costs,
debt repayments and strategic investments, particularly into ‘digital
first’ businesses, we ended the year with net debt of £637 million,
compared to net debt of £796 million at 30 June 2016 and net debt of
£319 million at 31 December 2015. Our cash generation was weighted
towards the second half of 2016 due to the payment of the special
dividend and the acquisition of UTV, both of which were paid in the
first half of 2016.
Cash generation
Profit to cash conversion
Twelve months to 31 December
Adjusted EBITA
Working capital movement
Depreciation
Share-based compensation and
pension service costs
Acquisition of property, plant and
equipment and intangible assets
Adjusted cash flow
Profit to cash ratio
Net debt tracker
636
2015
£m
865
(72)
27
£m
800
600
400
200
0
17
(200)
(319)
(400)
(600)
(800)
(49)
788
91%
2016
£m
885
(20)
31
10
(44)
862
97%
(663)
(97)
(69)
(41)
(27)
(20)
(37)
(637)
Dec 15
Net debt
Free
Cash
flow
Divid-
ends
Acquisiti-
ons, net
of cash
acquired
Foreign
exchange
retrans-
lation
of debt
Strategic
Investm-
ents
Except-
ional
items
Purchase
of shares
for EBT
Other
Dec 16
Net Debt
Note: Except where disclosed, management views the acquisition of operating property,
plant and equipment and intangibles as necessary ongoing investment in the business.
ITV continues to be highly cash generative reflecting our ongoing
tight management of working capital balances and our disciplined
approach to cash and costs. This is particularly important when there
is wider political and economic uncertainty and places us in a good
position to continue to invest across the business and deliver
sustainable returns to our shareholders.
In the year we generated £862 million (2015: £788 million) of
operational cash from £885 million (2015: £865 million) of adjusted
EBITA, which equates to a strong profit to cash ratio of 97%
(2015: 91%).
To facilitate our working capital management, we have agreed a
£100 million non-recourse receivables purchase agreement (free of
financial covenants) which gives us the flexibility to access additional
liquidity when required. At the 31st December, £35 million of
receivables were sold under the purchase agreement.
47
Strategic Report
Strategic Report
Performance and Financials
Financial and Performance Review continued
Funding and liquidity
Debt structure and liquidity
Our balance sheet strength, together with our strong free cash flow,
enables us to continue to invest in opportunities to grow the business
and make returns to our shareholders. To preserve our financial
flexibility we have put a number of new facilities in place. We have
increased our Revolving Credit Facility (RCF) from £525 million to £630
million and extended it for a further five years to 2021 (with the option
to extend to 2023). We have also increased our bilateral financing
facility from £175 million to £300 million, which is free of financial
covenants. This, along with our two bilateral loans which total £250
million and mature in 2017 (but may be extended until 2018 at ITV’s
option), provides us with sufficient liquidity to meet the requirements
of the business in the medium to long-term. The RCF and bilaterals
have the usual financial covenants for these type of financing which
are detailed in note 4. Of the total £1,180 million facilities in place,
£250 million was drawn down at 31 December 2016.
Our policy is to maintain at least £250 million of available liquidity at
any point.
Leverage
Our objective is to run an efficient balance sheet. We believe
maintaining leverage below 1.5x reported net debt to adjusted EBITDA
will optimise our cost of capital. At 31 December 2016, reported net
debt to adjusted EBITDA was 0.7x (2015: 0.4x). Our priority is to invest
to drive organic growth and make acquisitions in line with our strategic
priorities as we find the right opportunities to do so. We will balance
this investment with attractive returns to shareholders where we
have surplus capital.
We also look at an adjusted measure of net debt, taking into
consideration all of our other debt-like commitments including
the expected, undiscounted contingent payments on acquisitions,
the pension deficit under IAS 19 net of gilts held as security against a
proportion of those liabilities and the undiscounted operating lease
commitments which mainly relate to broadcast transmission
contracts and property. This adjusted leverage measure better
reflects how the credit rating agencies look at our balance sheet.
At 31 December 2016 adjusted net debt was £1,637 million (31
December 2015: £1,144 million) and adjusted net debt to adjusted
EBITDA was 1.8x (31 December 2015: 1.3x).
Financing
We are financed using debt instruments and facilities with a range of
maturities. In December 2016 we issued a new €500 million Eurobond
at a coupon of 2.00% which was swapped into sterling using a number
of cross currency interest rate swaps. The net sterling interest rate
payable on these swaps is c. 3.5%. The net sterling proceeds from the
bond of £425 million were primarily used to refinance existing debt,
including the £161 million bond that matured in January 2017, and will
be used to pay the first tranche of the Talpa Media earnout due in 2017.
Net debt
At 31 December
Gross cash
Gross debt
Net debt
48
2016
£m
561
(1,198)
(637)
2015
£m
294
(613)
(319)
Borrowings at 31 December 2016 were repayable as follows:
Amount repayable
£161 million Eurobond
£100 million Bilateral Loan
€600 million Eurobond
€500 million Eurobond*
Finance leases
Total debt repayable on maturity**
£m
Maturity
Jan 2017
161
100 Jun 2017/2018
Sep 2022
508
Dec 2023
425
Various
4
1,198
Net of £2 million cross currency swaps.
*
** In addition to above we have a £150 million bilateral loan which was drawn down at 31
December but was offset by deposit on account.
At 31st December, the £630 million RCF was undrawn.
Ratings
We are rated investment grade by two ratings agencies: BBB- (positive
outlook) by Standard and Poor’s and Baa3 (stable outlook) by Moody’s
Investor Services. The factors that are taken into account in assessing
our credit rating include our degree of operational gearing, exposure
to the economic cycle, as well as business and geographical diversity.
Continuing to execute our strategy will strengthen our position
against all these metrics.
Foreign exchange
As ITV continues to grow internationally, we are increasingly exposed
to foreign exchange on our overseas operations. We do not hedge our
exposure to revenues and profits generated overseas, as this is seen
as an inherent risk. We may elect to hedge our overseas net assets,
where material. To date we have hedged a significant portion of the
euro net assets arising from the Talpa Media acquisition.
ITV is also exposed to foreign exchange risk on transactions we
undertake in a foreign currency. Our policy is to hedge a portion of
any transaction that is either a firm commitment for up to five years
forward or a highly probable forecast for up to 18 months, depending
on the level of certainty we have on the final size of the transaction.
Finally, ITV is exposed to foreign exchange risk on the retranslation
of foreign currency loans and deposits. Our policy is to hedge such
exposures where there is an expectation that any changes in the value
of these items will result in a realised cash movement over the short
to medium term.
The foreign exchange and interest rate hedging strategy is discussed
and approved by the ITV plc Board and implemented by our internal
Tax and Treasury Committee who oversee governance and approval
of Tax and Treasury related policies and procedures within the business.
Pensions
The net pension deficit for the defined benefit schemes at
31 December 2016 was £328 million (31 December 2015: £176 million
excluding UTV pension scheme). The increase reflects a rise in pension
liabilities following a significant decrease in corporate bond yields
along with an increase in market expectations of long-term inflation.
The overall increase in liabilities has more than offset the deficit
funding contribution and increase in asset values. The net pension
ITV plc Annual Report and Accounts 2016
deficit includes £39 million of gilts which are held by the Group
as security for future unfunded pension payments of four former
Granada executives. A full reconciliation is included within Note 3.7.
The total deficit funding contribution for 2016 was £80 million, a £10
million reduction on 2015. This contribution is expected to remain at
£80 million in 2017. Further details are included within Note 3.7.
Following the acquisition of UTV Limited in February 2016, the assets
and liabilities of the UTV defined benefit pension scheme (which is in a
surplus of £1 million) are included within the Group net pension deficit
at 31 December 2016.
Subsequent events
Eurobond repayment: On 5 January 2017 ITV repaid the £161 million
Eurobond as it matured.
Actuarial valuation
The last actuarial valuation was undertaken in 2014. On the basis
adopted by the Trustee, the combined deficits as at 1 January 2014
amounted to £540 million.
The Trustee is in the process of undertaking a full actuarial valuation
of all sections of the Scheme as at 1 January 2017 which we expect to
agree in late 2017 or early 2018.
Net pension deficit tracker
Gurney Productions LLC: On 6 February 2017, the Group exercised
the call option to acquire the remaining 38.5% interest of Gurney
Productions LLC.
London Property Strategy: On 21 February 2017, ITV announced that
following an extensive review of its London property requirements,
it intends to seek planning permission to redevelop its South Bank
site and build a new London home. The teams currently located in
the South Bank site will be relocated to various sites during the
redevelopment period. As a result of the review, ITV is also proposing
to close The London Studios (TLS) business and use studio capacity
in the external market to meet our future business needs.
£m
400
300
200
100
0
(100)
(200)
(300)
(400)
39
416
Acquisitions: On 28 February 2017, we announced the acquisition of
65.05% of Tetra Media Studios SAS, the French production business.
Ian Griffiths
Group Finance Director
80
(176)
(604)
(328)
(61)
(19)
(3)
Dec 15
Deficit
funding
Gilts
Invest-
ment
returns
Change
in bond
yields
Change in
inflation
assump-
tion
Curtail-
ment
costs
UTV
& Other
Dec 16
Closure to future accrual
In December 2016, following a member consultation, the Group
decided to close the defined benefit sections of the ITV Scheme to
future benefit accrual with effect from 28 February 2017. The benefits
of these members will become subject to statutory increases from
the date of closure until retirement, rather than the capped
pensionable salary that previously applied. This change has resulted in
a one-off £19 million non-cash curtailment charge which is included
within exceptionals.
Deficit funding contributions
The Group continues to make deficit funding contributions in line
with the most recent valuation in order to eliminate the deficits in
each section.
49
Strategic Report
Strategic Report
Performance and Financials
Risks and Uncertainties
As a producer and broadcaster ITV’s business carries a number of
risks which we manage through our risk management framework.
Risk appetite
The Board is responsible for setting the level
of risk the Company is willing to take in line
with our strategy. There are clear approvals
frameworks in place and we continue to
develop our approach to ensure that the
business understands the Board’s risk
appetite and ensure they understand
tolerance levels and track the key risk
indicators to help manage each risk.
Three lines of defence
We continue to enhance our three lines of
defence model and develop our approach to
managing risks. The business divisions own
their risks and the shared service functions
support them in managing the risks. Internal
Audit provide assurance as to the
effectiveness of the internal control and risk
management systems. In areas which face
day to day operational risk, we are continuing
to develop our three lines of defence model
and to move our approach to risk away from
a rules and process driven system to a cultural
people driven solution which we believe
encourages a focus on prevention rather than
reaction to failure. A new Leading Risk training
programme is now in place for ITV Studios
production management which will continue
to be developed and introduced to other
areas of the business.
Risk culture
Throughout the year we have continued to
focus on and strengthen our risk culture. The
Operational Risk Steering Group considers
ethical behaviours, governance and
compliance with our Code of Conduct. We
aim to have an open communication culture
where information is shared and issues are
escalated as appropriate.
Assurance
Internal Audit provide objective assurance as
to the effectiveness of the Group’s systems
of internal control and risk management,
reporting to the Management Board,
Divisional boards and the Audit and
Risk Committee.
The internal audit plan is driven from ITV’s
risk management framework. Internal Audit
review the auditable elements of the HILL,
Strategic and operational risks and this review
informs the areas and topics that Internal
Audit focus on.
hree lin e s o
e: T
c
n
a
r
u
s
s
A
d
n
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e n c e – b usiness division
s, s
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f
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Management
and Divisional
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a
r
e
d
s
e
r
v
i
c
e
The Board
n
o
i
t
a
r
e
p
O
Operational
Risk Steering
Group
Audit
and Risk
Committee
f
u
n
c
t
i
o
n
s
,
I
n
t
e
r
n
a
l A
u
dit
This risk management framework sets out
our processes for identifying, reviewing
and managing our risks and is regularly
assessed and adapted as the Company,
industry and macro environment evolves.
Our continuing success is dependent on
how well we understand and manage
our risks.
Our approach, which is consistent with
previous years, covers risks at all levels of
the organisation:
• Principal risks:
– 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
• Operational or process level risks
– embedded into everyday activity within
the organisation
Risks are primarily controlled through the risk
management process. The Board has carried
out a robust assessment of the Principal risks
facing the Company and details of these are
set on out on the following pages. Mitigating
actions have been identified for all of the
Principal risks. Each Strategic risk has been
mapped to at least one of the three 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 pages 36 to 39. All Principal risks
are owned by at least one member of the
Management Board.
In line with our Risk Management Framework,
the Management and Divisional Boards have
reviewed ITV’s Principal risks and
uncertainties. While these potential risks are
predominately unchanged, the Board feels
the potential risk of a sustained cyber/viral
attack should be viewed as a HILL risk rather
than a Strategic risk. The Board believes that
this better reflects the nature of this risk
because media companies in particular have
faced increased frequency and sophistication
of cyber-attacks.
50
ITV plc Annual Report and Accounts 2016
Risk management framework
Our ongoing process for risk identification, review and management is set out below.
Board
Identifies and evaluates Principal risks and uncertainties
• Sets strategic objectives
•
• Sets our strategy on risk and establishes tolerance levels and risk appetite
• Ensures a robust and appropriate risk management framework is in place
• Continually monitors the risk management and internal control systems
Management and Divisional
Boards
Operational Risk
Steering Group
Audit and
Risk Committee
The Operational Risk Steering Group has
responsibility for:
The Audit and Risk Committee has
responsibility for:
• considering and setting actions for pan
ITV risks and for ongoing monitoring of
those actions.
• overseeing and advising the Board on
strategic risk exposures and future
mitigation strategy.
• reviewing incident reports and other
• reviewing internal controls and their
statistics.
effectiveness.
• reviewing policies and processes to
ensure they remain fit for purpose.
identifying and reporting emerging risks.
identifying and resolving issues.
•
•
Risk areas in scope of the group and sub
committees that deal with specific risk
areas are set out in the governance
framework on page 72.
The Chairman of the Audit and Risk
Committee attends meetings of the
Operational Risk Steering Group
periodically.
• reviewing the effectiveness of the
risk management framework.
• conducting in depth reviews of high
risk business areas or processes.
• reviewing internal audit actions
and management responsiveness
to the findings.
Details of risk reviews undertaken during
the year are set out in the Audit and Risk
Committee report on page 68.
With support from the Divisional
Boards the Management Board has
responsibility for:
• the development and operation of the
risk management framework and for
the operation of our systems of internal
control. This includes:
– risk identification and assessment and
establishing controls and procedures
to monitor and mitigate risks.
– assessment and review of financial
controls, policies and procedures to
ensure risks are identified and the
processes and procedures are in
accordance with and aligned to
the strategy.
– reviewing and monitoring the
effectiveness of internal controls and
putting in place remedial plans where
controls are weak or there are
opportunities for improvement.
Serious control weakness (if any) is
reported to the Board and action
taken as appropriate.
• routinely reviewing and challenging
risks and mitigations.
Operation and Assurance – three lines of defence
1 Business divisions
2 Shared service functions
3 Internal audit
• The business divisions own the
• Support the business divisions in
• Provide assurance as to the effectiveness
management of their risks and are
responsible for:
managing risks.
of the internal control and risk
management systems.
– identifying and reporting local risks.
– maintaining risk registers and business
continuity plans where appropriate.
– reviewing and implementing
mitigating actions
51
Strategic Report Strategic Report
Performance and Financials
Risks and Uncertainties continued
High Impact, Low Likelihood Risks (HILL)
Potential Risk
Key Drivers
Mitigating Factors and Risk Direction
i
F
n
a
n
c
i
a
l
ITV loses its credit status
or lines of funding with
existing lenders or there
is an event that impacts
financial arrangements/
availability of credit.
There is a major collapse
in investment values or
a material change in
liabilities leading to an
impact on the pension
scheme deficit.
• There is a repeat of the
• The business is cash generative and working capital
•
•
management remains a key focus.
ITV has a balance sheet policy to maintain adjusted net
debt below 1.5x adjusted EBITDA and have available
liquidity headroom of at least £250 million.
ITV has a £630 million Revolving Credit Facility with a
number of core relationship banks and £250 million of
financial covenant free facilities.
• The relatively low levels of ITV debt and our two
investment grade ratings mean ITV continues to have
good access to both bank and bond financing.
• 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 a series of asset backed
arrangements. Further, it has taken some mortality risk
out of the scheme with a longevity swap and hedged a
portion of inflation and interest rate variability.
2008/09 financial crisis as a
result of a major bank collapse,
or there is a similar financial
outcome as a result of an
unexpected world event.
• As a result of macroeconomic
changes there can be material
movements in the Group’s
defined benefit pension
scheme.
• For example if the Bank of
England announces further
Quantitative Easing this may
change gilt yields and corporate
bonds rates, increasing the
scheme’s liabilities.
• Or if there is an unexpected
world event that impacts
property values and/or
impacts share prices.
A significant event removes
a number of the key
management team from
the business on a long-term
or permanent basis.
•
In the ordinary course of
business activities there will be
times when the Management
Board are in one location or
travel together as a group.
O
p
e
r
a
t
i
o
n
a
l
• 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 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 Hub or ITV loses a
significant volume of
personal or sensitive data.
• With increasingly sophisticated
technology, the risk of a cyber/
viral attack has increased
across the world.
• We are higher risk as a result
of operating in a public
environment.
• We continue to improve our ability to monitor, detect
and respond to cyber threats internally and through
partnerships with specialist security organisations.
• Mandatory online training modules, awareness
campaigns and simplified information security policies
have been implemented 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. These are kept
under review by the Audit and Risk Committee.
52
ITV plc Annual Report and Accounts 2016
Our strategic priorities
Risk direction (after mitigation)
Maximising
Growing
Building
Increased risk
Risk stayed the same
Reduced risk
High Impact, Low Likelihood Risks (HILL)
Potential Risk
Key Drivers
Mitigating Factors and Risk Direction
An event with public
interest that causes
significant reputational
and brand damage.
• Through the Broadcasting
and Studios businesses, the
Company operates in a public
environment.
•
ITV has a crisis management policy and process in
place and is increasing emphasis on its development
and application.
R
e
p
u
t
a
t
i
o
n
There is a major health and
safety incident that results
in a significant loss of
human life.
• As the Company expands this
may result in an increase in
production hours, and the
Company could produce certain
types of programming which
have higher inherent risks.
•
ITV has a central health and safety team and health
and safety policies and procedures are in place, with
appropriate training for employees where required.
As we continue to expand internationally these will
be kept under review.
• Regular inspections are undertaken at all sites alongside
a programme of appropriate health and safety audits.
A major incident results in
ITV being unable to continue
with scheduled broadcasting
for a sustained period.
•
ITV’s broadcast technology
chain is complex and risk can
materialise within ITV or with
third parties responsible for
servicing the broadcast
supply chain.
• A risk register of broadcast operations, including key
outsourced functions, is in place and reviewed on a
regular basis.
• Major incident scenario testing takes place bi-annually.
• An incident management process has been agreed and
full disaster recovery plans are in place.
There is a significant
or unexpected change in
regulation or legislation.
•
ITV could be affected if there is
a change in UK media or
intellectual property regulation
or legislation; for example if
there is a change in advertising
restrictions in key categories.
• Highlighted below are key risks
as a result of European Union
membership referendum.
•
ITV regularly communicates with appropriate groups
and its legal panel and Ofcom to monitor potential
policy, legal and regulatory developments.
Impact of exiting the European Union
As a result of UK European Union membership referendum, any
macro uncertainty may have a knock on impact to the overall
health of the UK television advertising market.
Further there could be wider changes in regulation or legislation
within the markets in which we operate. While the potential
changes and the impact of any such changes will remain unknown
for a while, ITV could, for example, be affected by changes to:
• EU broadcasting legislation and/or rules around EU market
access, for example potential barriers against UK companies
selling programming to, or investing in, EU companies;
indirect taxation, direct taxation or transfer pricing regulation;
restrictions to free movement of our staff.
•
•
In addition, given the reciprocal nature of worldwide trade deals,
there could also be knock on changes to UK legislation affecting
broadcasting and intellectual property laws. For example, there
may be pressure to weaken obligations to purchase original
content made in the UK or to broaden exceptions from intellectual
property protection.
The likelihood or extent of any impact is currently unknown but
going forward we will closely monitor and evaluate any potential
areas of risk.
53
Strategic Report
Strategic Report
Performance and Financials
Risks and Uncertainties continued
Strategic risks
Potential Risk
Key Drivers
Mitigating Factors and Risk Direction
T
h
e
M
a
r
k
e
t
There is a major decline in
advertising revenues and
ITV does not build
sufficient non-NAR revenue
streams to mitigate the
financial impact of this
decline.
• The current economic
environment is uncertain
which may impact demand for
advertising. However ITV has
made significant progress in
rebalancing the business and
53% of our total revenue
comes from sources other
than TV spot advertising.
• Growing non-NAR in areas such as ITV Studios and
Online, Pay & Interactive, remains a key part of the
strategy.
ITV continues to focus on cash and costs, ensuring the
Company has adequate financial liquidity and balance
sheet flexibility to continue to invest.
•
The television market
moves significantly
towards pay television as a
preferred model,
negatively impacting ITV’s
free-to-air revenue.
• The current platform mix
between free-to-air and linear
pay television is around 50%
each and has remained at this
level over recent years.
•
•
•
ITV continues to support free platforms, including
YouView, to keep free-to-air strong.
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.
A faster than expected
shift to VOD or other new
technologies, such as
internet enabled TVs or
online only services, causes
a sustained loss of
advertising revenue.
• The way people are consuming
• The business continues to develop the ITV Hub VOD
television is changing and
viewers are spending more
time watching online. However
it remains a small percentage
of total viewing at around 7%
(2015 internal estimates).
services, maximise the distribution of the ITV Hub and
grow its VOD advertising business.
ITV monitors the market for new technology and where
appropriate explores how ITV can participate.
ITV continues to invest around £1 billion in its
programme budget.
•
•
ITV fails to evolve its
organisational structure
and culture to ensure that
it is capable of delivering
continued growth from
new businesses or revenue
streams and fails to attract,
develop and retain key
creative, commercial and
management talent with
the skills required for the
ongoing business.
• Employing the best creative,
commercial and management
talent is key to our success.
• Failing to create the right
culture to attract and retain
this talent increases this risk.
• Employee engagement is
critical and we continue to
monitor it through our
employee survey. This once
again showed very high
engagement at 90%, up on
the previous year (2015: 89%).
•
ITV constantly reassesses the business to create a
fit-for-purpose organisation.
• Strategic focus on working across the business to embed
and strengthen the culture of ‘One ITV’ way of working.
ITV invests in training and development for all key
colleagues in the business.
•
• Succession plans are in place for all key positions within
the Company.
O
r
g
a
n
i
s
a
t
i
o
n
,
S
t
r
u
c
t
u
r
e
a
n
d
P
r
o
c
e
s
s
e
s
54
ITV plc Annual Report and Accounts 2016
Our strategic priorities
Risk direction (after mitigation)
Maximising
Growing
Building
Increased risk
Risk stayed the same
Reduced risk
Strategic risks
Potential Risk
Key Drivers
Mitigating Factors and Risk Direction
O
r
g
a
n
i
s
a
t
i
o
n
,
S
t
r
u
c
t
u
r
e
a
n
d
P
r
o
c
e
s
s
e
s
There is significant loss of
programme rights or ITV
fails to identify and obtain
the optimal rights
packages.
ITV fails to create and own
a sufficient number of hit
programmes/formats
across its international
portfolio of content
companies.
• There is increased competition
for high-quality programme
rights as broadcasters and
platform owners demand
brand defining content.
• As an integrated producer
broadcaster, ITV produces a
significant proportion of the
broadcast schedule itself. In
2016 this increased to 63% of
the main channel’s original
commissions.
ITV maintains good
relationships with independent
producers to ensure it has
opportunities to acquire quality
content.
•
• Our ability to create and own
hit programmes depends on
the quality of our content
business.
ITV is the largest commercial
producer in the UK and a
leading independent non-
scripted producer in the US
and Europe.
•
•
•
•
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.
ITV invests in creating and owning quality content
through ITV Studios.
•
•
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, as evidenced by our increased
investment in scripted content.
ITV is focused on hiring and retaining the right key
creative talent.
ITV fails to properly
resource, financially,
creatively and
operationally, the new
growth businesses, in
particular online
and international content.
• Our strategy is clear and we
remain focused on delivering
against our three strategic
priorities in the areas where
we can deliver most growth
as we continue to rebalance
the business.
• 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.
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 revenue or
international growth.
• Our system requirements
change as we continue to
rebalance the business, grow
new revenue streams and
become increasingly
international.
• System requirements are kept under review with
business growth and system modernisation projects
implemented as appropriate.
• A modernisation 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.
• Cyber risk mitigations in relation to all of our systems are
set out on page 52.
• This is kept under review by the Audit and Risk
Committee.
55
Strategic Report
Strategic Report
Performance and Financials
Risks and Uncertainties continued
Our strategic priorities
Risk direction (after mitigation)
Maximising
Growing
Building
Increased risk
Risk stayed the same
Reduced risk
Strategic risks
Potential Risk
Key Drivers
Mitigating Factors and Risk Direction
T
e
c
h
n
o
l
o
g
y
A significant high-profile
incident or series of events
e.g. a system failure, a
technology issue, or a
major regulatory breach
that causes significant
reputational and/or
commercial damage.
• As a broadcaster ITV has
significant prominence and
therefore is exposed to the risk
of a high-profile incident.
ITV fails to ensure
appropriate business
continuity planning and
resilience within its core
systems, processes,
platforms and technology
infrastructure.
• The key to business continuity
is having an appropriate risk
management framework and
the right plans and procedures
in place. This is taken very
seriously at ITV and the
adequacy and robustness of our
plans are reviewed and tested.
•
ITV has ongoing modernisation projects to ensure
transmission and distribution technologies are fit-for-
purpose.
• 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.
ITV proactively manages its broadcast chain partners and
suppliers to ensure the risk of incidents and regulatory
breach is minimised.
•
• Disaster recovery plans are in place with tests conducted
periodically on business critical systems.
56
ITV plc Annual Report and Accounts 2016
Viability Statement
Annually the Board assesses ITV’s prospects and risks at its June
strategy day. Amongst other topics, the Board reviews the five
year financial plan which is based on our Strategic Priorities.
When considering the longer term viability of ITV, the Board has
reviewed each of ITV’s Principal risks and uncertainties and, taking
into account current operational and financial performance, has in
particular analysed the impact of:
However, in its assessment of viability the Board reviewed the
planning horizon and is of the view that a three-year period to
31 December 2019 continues to be most appropriate. The factors
the Board considered in adopting this timeframe are as follows:
• Visibility over ITV’s broadcast advertising business is relatively
short term, as advertising remains cyclical and closely linked to
UK economic growth;
• The commissioning process and life cycle of programming gives
ITV Studios division more medium-term outlook. However, while
non-returning brands are replaced with new commissions, over
time there is less visibility as programmes can experience
changes in viewer demand or come to a natural expiration;
• Technology in the media industry continues to change the
demand for content and also how it is consumed;
• Pension funding, which is one of ITV’s key funding obligations,
is also agreed triennially with the Trustees of the pension scheme;
and
•
ITV’s business model does not necessitate investment in
large capital projects that would require a longer-term
planning horizon.
• Broadcast & Online experiencing a significant and sharp
downturn, similar to the 2008/09 financial crisis, with regards to
advertising revenues, but in this case with no immediate recovery.
This scenario is cautious as recessions in the advertising market
have historically not exceeded a two-year period and have
recovered following the downturn;
• A number of key programme brands within ITV Studios
are not recommissioned. While the scheduling decisions of
commissioners are made in advance, a number of key shows
could come to an end at the same time; and
• A significant change in ITV’s pension funding obligations,
following the triennial valuation in 2017 resulting in doubling
the deficit funding payments.
The review involved flexing the underlying strategic forecast for the
above impacts, both individually and concurrently and no specific
mitigations were assumed. The underlying strategic forecast
assumed: business as usual capital spending, the ongoing availability
of the financing facilities (as ITV remains within the covenants,
current bank facilities have more than three years maturity
remaining and all bond repayments due in this period have been
refinanced); and that the Group maintains the stated dividend policy.
Based on the results of this review, the Board has a reasonable
expectation that ITV will be able to continue in operation and
meet its liabilities as they fall due over the three-year period ending
31 December 2019. The assessment has been made with reference
to ITV’s strategy and the current position and prospects.
The Strategic Report was approved by
the Board and signed on its behalf by:
Adam Crozier
Chief Executive
57
Strategic Report Governance
Chairman’s Governance Statement
Chairman’s Governance Statement
Dear shareholder,
I was delighted to be appointed your Chairman in May 2016 and I am
particularly pleased that governance at ITV is strong as this is essential
to protect shareholders’ interests and ensure that we can build and
sustain the long-term success of the Company.
The Board continues to work closely with the executive team
and offers support and robust challenge conducted in a spirit of
openness, trust and transparency. The Board is a relatively small but
has talented, high-performing and experienced members who are
close to the business.
Over the past few years we have undertaken a continuous evaluation
process carefully considering the Board’s composition so that there
is a balanced and diverse combination of creative, commercial and
financial talent and experience enabling the Board to add the right
value as the business strategy is executed. Across ITV, we work to
ensure that the diversity of modern society is reflected at all levels
of the business including on the Board so that we have an appropriate
balance of skills and experience. Further details about diversity are set
out on page 66 and page 99 and further information about the
evaluation process is set out on page 66.
I am very pleased that in January this year the Board was unanimous
in its decision to appoint Salman Amin as a Non-executive Director.
Salman has considerable expertise and knowledge in marketing,
advertising and media planning having worked for S C Johnson,
PepsiCo and Procter & Gamble and as such will broaden the
Board’s perspective of the wider international market. He is
currently undertaking a comprehensive induction programme.
It is our policy to appoint Non-executive Directors for a three-year
period and then consider reappointment on an annual basis following a
robust performance evaluation. At the AGM in May 2017 John Ormerod
will reach the ninth anniversary of his appointment. The Board has
deliberated carefully and has decided to ask John to continue as
Chairman of the Audit and Risk Committee for an additional year
to enable us to ensure an appropriate successor is in place who has
sufficient time as a member of the Committee before he steps down.
We are proud of our culture
and that our colleagues enjoy
working at and are proud to
work for ITV and are fully
engaged with the business
In the Governance section
This section of the Annual Report contains a statement from your
Chairman and information about the Directors and Management
Board. It explains our governance structure and corporate
governance compliance and includes reports from the Audit and
Risk and Remuneration Committees and the Directors’ Report.
Sir Peter Bazalgette
Chairman
58
Andy Haste will be stepping down as Chairman and a member of the
Remuneration Committee following the AGM in May. He will remain
a Non-executive Director and Senior Independent Director. We are
pleased that Mary Harris has agreed to become Chair of the
Remuneration Committee, having served on the Committee since
May 2016. As a consequence Mary will be looking to reduce some
of her existing commitments over the coming months.
We carefully review Directors’ other commitments to ensure
that they have sufficient time to dedicate to our business. Details
of appointment dates and length of tenure for each director can
be found on page 65. 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 UK Corporate Governance Code (the Code).
ITV is a diverse business and to ensure appropriate governance it is
important that we have the right culture with the right people and
attitudes that encourages integrity and transparency. ITV is a talent
business and ensuring that we employ great people and allow them
creative freedom in the context of tight financial discipline is crucial
to our success.
There are various ways that we as a Board consider and gauge the
culture of the business. We undertake a number of site visits and have
regular formal and informal meetings and discussions with senior
executives and other colleagues across the business. Since becoming
Chairman I have visited the majority of the regional news rooms, our
production centres in Salford and Leeds and our businesses in New
York and Paris. In addition, I hold regular round table discussions with
colleagues and engage regularly with Senior Executives. This continues
regularly as part of our annual board and committee programme. This
helps the Board understand the cultural strengths and any weaknesses
in the business that may need to be addressed with management.
The Audit and Risk Committee also keep compliance with internal
control processes under review to help assess behavioural culture
across the business.
We are proud of our culture and that our colleagues enjoy working
at and are proud to work for ITV and are fully engaged with the
business. This is borne out through rigorous, regular surveys designed
to gauge employee morale and attitudes. In addition, we have a robust
process that enables colleagues to speak up if they have any concerns.
We know that colleagues trust this process and are not concerned
about using it.
The Board meets regularly for scheduled Board and Committee
meetings and has a number of informal meetings to consider specific
issues. Each year we hold a two-day off-site strategy meeting where
we consider recent and upcoming changes in our business
environment, the risks and impacts of such changes on our business
and how we might meet these challenges. A brief summary of the
matters considered by the Board during the year and our focus for
2017 is set out on page 65.
ITV plc Annual Report and Accounts 2016
Our shareholders are important to us and we remain committed to
maintaining regular open dialogue and effective communication with
you. We believe that continued engagement is highly beneficial to all
parties as it helps to build a greater understanding of our investors’
views, opinions and concerns.
As a listed company, ITV is required to report on how it has complied
with the principles of governance set out in the Code. The Board
considers that during 2016 the Company has complied fully with the
provisions of the Code. Further information on corporate governance
and a schedule setting out how we comply with the Code can be found
on our website.
www.itvplc.com/investors/governance
A copy of the Code is available on the FRC website.
www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance
Sir Peter Bazalgette
Chairman
1 March 2017
59
Governance Governance
Board of Directors
Board of Directors
Committee membership
G General purpose
A Audit and Risk
N Nomination
R Remuneration
Full biographies can be found on our website:
www.itvplc.com/about/board-of-directors
Sir Peter Bazalgette, Chairman
Appointed: June 2013 (Chairman from May 2016)
Key areas of prior experience: Media consultant, digital media investor and former television producer.
Current external appointments: Member of Advisory Board for YouGov plc and Bartle Bogle Hegarty.
Previous experience: President of the Royal Television Society; Chairman of the Arts Council of England;
Non-executive Director of Nutopia; Non-executive Director and Chairman of the Remuneration Committee
and member of the Audit Committee of YouGov plc; Non-executive Director of Mirriad Ltd, DCMS, Rightster,
Critical Information Group plc and Channel Four Television Corp; Trustee of DebateMate; Chairman of the
ENO and Endemol UK; Deputy Chairman and Director of the National Film and Television School; Adviser to
Sony Music’s television division; Chairman of the UK production business of Sony Pictures Television Inc.;
Chief Creative Officer at Endemol Group BV and Endemol Entertainment UK Limited.
Adam Crozier, Chief Executive
Appointed: April 2010
Key areas of prior experience: Business turnaround and change management, advertising.
Current external appointments: Non-executive Director of Whitbread PLC from April 2017.
Previous experience: Non-executive Director of G4S plc, Debenhams plc and Camelot Group plc;
Chief Executive of the Royal Mail Group; Chief Executive of the Football Association; Joint Chief
Executive of Saatchi & Saatchi Advertising.
Ian Griffiths, Group Finance Director
Appointed: September 2008
Key areas of prior experience: Corporate finance and financial restructuring.
Current external appointments: Non-executive Director of DS Smith Plc.
Previous experience: Group Finance Director and other senior finance roles within Emap plc;
Manager in audit and corporate finance at Ernst & Young.
Salman Amin, Non-executive Director
Appointed: January 2017
Key areas of prior experience: General management, marketing, advertising and media planning.
Current external appointments: Chief Operating Officer, Global Commercial Division,
S C Johnson and Son Inc.
Previous experience: Chief Operating Officer, North America, SC Johnson and Son Inc; various positions
at Pepsico including: Chief Operating Officer, Purchase; President, PepsiCo UK and Ireland; other marketing
and various positions within brand management, personal care, paper products and food in the US, Saudi
Arabia, Germany and Switzerland at Procter & Gamble.
N
R
G
G
N
60
N
N
A
R
N
A
R
N
A
N
A
R
ITV plc Annual Report and Accounts 2016
Roger Faxon, Non-executive Director
Appointed: October 2012
Key areas of prior experience: Broad commercial, digital and media rights experience, development of
business strategy and finance.
Current external appointments: Chairman of Mirriad Advertising Ltd; Non-executive Director of Pandora
Media Inc; Director of The John Hopkins University.
Previous experience: Director of EMI Group Global Limited and EMI Group plc; Chief Executive Officer of
EMI Group Limited; Chairman and CEO of EMI Music Publishing; Director of the Songwriters Hall of Fame;
other appointments at the American Society of Composers and Authors and Lancit Media Entertainment
Ltd in the US; Chairman of VIVA Television in Germany and Channel V Networks in Asia.
Mary Harris, Non-executive Director
Appointed: July 2014
Key areas of prior experience: Business management consulting, sales and marketing, mergers and
acquisitions, media, television and interactive media investments and digital rights management.
Current external appointments: Non-executive Director of Reckitt Benckiser Group PLC; Non-executive
Director and Chairman of the Remuneration Committee for J.Sainsbury plc; Member of the supervisory
board of Unibail Rodamco SE.
Previous experience: Member of the supervisory board of TNT Express NV, TNT NV, Scotch and Soda NV
and Irdeto BV; Partner at McKinsey & Company, Amsterdam; various positions worldwide with McKinsey &
Company, Maxwell Entertainment Group, Pepsi Cola Beverages and Goldman Sachs & Co.
Andy Haste, Senior Independent Director, Chairman of the Remuneration Committee
Appointed: August 2008
Key areas of prior experience: International and emerging markets, change management,
restructuring and business turnaround.
Current external appointments: Chairman of Wonga Group Limited; Senior Independent Deputy
Chairman of the Council of Lloyd’s.
Previous experience: Group Chief Executive of RSA Insurance Group plc; Chief Executive of AXA Sun
Life plc; Director of AXA UK plc (life and pensions); President and Chief Executive Officer of GE Capital
Global Consumer Finance UK, Western Europe and Eastern Europe; President of the US Consumer Credit
Business and Senior Vice President and Head of the US Consumer Loan Products Division of National
Westminster Bank.
Anna Manz, Non-executive Director
Appointed: February 2016
Key areas of prior experience: Strategy and finance and financial planning.
Current external appointments: Group Finance Director at Johnson Matthey plc; Governor
at Haberdashers’ Aske’s School Elstree.
Previous experience: Various appointments at Diageo plc including; Group Strategy Director, Regional
Finance Director Asia Pacific, Group Treasurer, Finance Director Global Marketing, Sales and Innovation;
other finance roles at Quest International, Unilever and ICI.
John Ormerod, Non-executive Director, Chairman of the Audit and Risk Committee
Appointed: January 2008
Key areas of prior experience: Finance, developing strategy and growth.
Current external appointments: Non-executive Director of Constellium NV; Non-executive Director
and Chairman of the Audit Committee of Gemalto NV.
Previous experience: Non-executive Chairman of First Names Group Limited, Tribal Group plc, Merlin
Claims Service Holdings Limited; Senior Independent Director of Misys plc; Trustee of The Design Museum
and The Roundhouse Trust; Non-executive Director and Chairman of Audit Committee of Computacenter
plc; Non-executive Director, Negative Equity Protection Holdings Limited, Millen Group Limited and BMS
Associated Limited; Member of Audit and Retail Risk Control Committees of HBOS plc; Chairman Wallbrook
Group; Chairman of the Audit Committee for Transport for London; Practice Senior Partner at Deloitte &
Touche; Regional Managing Partner at Arthur Andersen.
61
Governance Governance
Management Board
Management Board
Full biographies can be found on our website:
www.itvplc.com/about/board-of-directors
Julian Bellamy, Managing Director, ITV Studios
Appointment to the Board: February 2016
Previous experience: Julian joined ITV in 2014 as Managing Director of the Studios business in the UK
and was promoted to Managing Director of ITV Studios in February 2016. Julian’s previous roles included
Creative Director and Head of Commissioning at Discovery Networks International, Head of Programming
at Channel 4 and prior to that he ran BBC3 and E4. He also spent time as Channel 4’s Head of Factual
Entertainment and was a commissioning editor of Channel 4 News and Current Affairs.
Mary Fagan, Group Communications and Corporate Affairs Director
Appointment to the Board: January 2011
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.
Andrew Garard, Group Legal Director and Company Secretary
Appointment to the Board: November 2007
Previous experience: Andrew joined ITV as Group Legal Director in 2007 and took on the additional role
of Company Secretary in 2009. He is also on the board of ITN, and responsible for rights management, the
ITV archive and Corporate Responsibility. Previously Andrew was a Partner in the corporate department of
LeBoeuf Lamb’s London office. Prior to this, 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, Director of Television
Appointment to the Board: August 2010
Previous experience: Kevin joined ITV as Managing Director, ITV Studios in 2010 and became Director
of Television in February 2016. Kevin’s previous roles included Director of Television and Content at
Channel 4, Director of Programmes at Channel 5 and a number of positions at the BBC, including
Head of Independent Commissioning for Entertainment.
62
ITV plc Annual Report and Accounts 2016
David Osborn, Group HR Director
Appointment to the Board: October 2014
Previous experience: David joined ITV as the HR Director for ITV Studios in May 2011, and was appointed
to the Management Board in October 2014 as Group HR Director, responsible for delivering the Group’s
People Strategy. David gained previous experience in both the UK and internationally whilst working in
a variety of businesses including EMI Music, Vodafone, Visa Europe and Marks & Spencer.
Simon Pitts, Managing Director, Online, Pay TV, Interactive and Technology
Appointment to the Board: January 2011
Previous experience: Simon joined ITV in 2000 and has held a range of roles across corporate strategy,
general management, digital media, policy and regulation, and public affairs. He took on his most recent
role in December 2014 with a remit to grow ITV’s Online, Pay TV and Interactive businesses alongside
continued leadership of the Technology team. He also has responsibility for SDN, sits on the boards of ITN
and YouView and is a Trustee of the Royal Television Society. Before ITV Simon worked in the European
Parliament in Brussels where he specialised in media issues.
Kelly Williams Managing Director, Commercial
Appointment to the Board: December 2014
Previous experience: Kelly joined ITV in August 2011 as Group Commercial Director and joined the
Management Board as Managing Director, Commercial in December 2014. He is also Chairman of Thinkbox,
sits on the BARB Strategy board and is Vice Chairman of the Advertising Association. Before joining ITV,
Kelly was the Sales Director at Channel 5 and prior to that held various positions at UKTV, Sky and
Thames Television.
63
Governance Governance
Corporate Governance
Corporate Governance
Our Governance structure
Board
Audit and Risk Committee
See the Audit and Risk Committee report
on page 68.
Remuneration Committee
See the Remuneration Report on page 75.
Disclosure Committee
Executive Directors and other
senior managers
Meets to ensure compliance with the
continuing obligations under the Disclosure
and Transparency Rules.
General Purpose Committee
Executive Directors
Meets as required to conduct business within
clearly defined limits set by the Board.
Nomination Committee
Chairman and Non-executive Directors
Meets to review the structure, size, and
composition of the Board, including skills,
knowledge and experience. Identifies and
nominates for Board approval candidates
to fill Board vacancies, and considers
succession planning for Directors and other
Senior Executives. Considers and reviews
any conflicts of interest that may be
reported by the Directors.
Tax and Treasury Committee
Group Finance Director and
other senior managers
Meets to consider and approve tax and
treasury related matters in respect of
corporate transactions or other activities.
Monitors compliance with tax and treasury
related policies and procedures.
Matters reserved for the Board and Committee terms of reference are available on our website: www.itvplc.com/investors/governance
Management Board
Meets to consider and approve strategy and operational plans, monitors operating and financial performance,
and assesses and manages risk.
ITV Studios Board
Executive Directors
and Senior Executives
of divisional business.
ITV Broadcast Board
Executive Directors and
Senior Executives of
divisional business.
Meets to consider and
approve operational matters,
and assesses and manages
risk in relation to the
Studios business.
Meets to consider and
approve operational matters,
and assesses and manages
risk in relation to the
Broadcast business.
Business Resilience
Response Team
Acts as tactical response
team in the event of an
incident, supporting the
Management Board in
dealing with a crisis. Develops
business area response plans,
testing programmes and
incident reporting.
Operational Risk
Steering Group
Manages and considers
a number of existing and
emerging operational risks
and ensures that the business
addresses them appropriately
including in relation to:
Health & Safety, Child
Protection, Business Resilience,
Data Protection, Insider Dealing,
Whistleblowing, Anti-Bribery
& Corruption, Information
Security, Fraud, Technology
and Cyber risk.
Programme Compliance
Advisory Group
Manages and considers issues
and risks in relation to the
programme compliance
framework, the interactive
business and regulation.
Corporate Responsibility
Board
Manages the direction and
delivery of ITV’s Responsibility
Strategy including in relation
to: diversity and inclusion,
environment, communities
and social causes. See page 19.
64
ITV plc Annual Report and Accounts 2016
Board and Committee meetings
The number of meetings held during the year and attendance of Directors is set out in the table below. 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 or one of the regional or international offices. Board
meetings are structured around the following areas:
• Operational and functional updates
• Financial updates
• Strategy and progress against Strategic Priorities
• Risk management framework, key risk areas and risk appetite
• Other reporting and items for approval
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)
Our focus during 2016 and some of our plans for 2017 are set out below:
2016
2017
European Union Referendum issues
International expansion of ITV Studios
Broadcast strategy and changes to commissioning
International roll-out of SVOD strategy
Development of creative talent pipeline
Review of the North American market
Digital platform markets and strategy
Viewing trends, including younger viewers
International content strategy
Online, Pay and SVOD strategy
Impact of exiting the European Union
London property strategy
Board and Committee membership and attendance
Board and Committee membership and attendance at scheduled meetings in 2016 is set out below.
Status
Notes
Date of
appointment
to the Board
Tenure at
31 December
2016 Y/M
Contract
renewal date
Sir Peter Bazalgette
Independent
Chairman
Adam Crozier
Executive
1
2
1 June 2013
26 April 2010
3/7
6/8
1 June 2019
n/a
Roger Faxon
Independent
31 October 2012
4/2 31 October 2017
Executive
2 9 September 2008
28 July 2014
8/4
2/5
n/a
28 July 2017
Ian Griffiths
Mary Harris
Andy Haste
Anna Manz
Archie Norman
Independent
Independent
SID
Independent
Independent
Chairman
3
5
4
11 August 2008
8/5
11 August 2017
1 February 2016
0/11
1 February 2019
5 January 2010
n/a
n/a
John Ormerod
Independent
18 January 2008
8/11
18 January 2017
1. Sir Peter Bazalgette was appointed as Chairman with effect from 12 May 2016.
2. Executive Directors have rolling service contracts that provide for 12 months’ notice on either side.
3. Mary Harris was appointed to the Remuneration Committee with effect from 12 May 2016 and two of the scheduled meetings were held prior to her appointment.
4. Archie Norman stepped down as Chairman and from the Board on 12 May 2016.
5. Anna Manz was appointed to the Board with effect from 1 February 2016 and one of the scheduled Board meetings was held prior to her appointment. She was also appointed to the
Audit Committee with effect from 1 May 2016 and one of the scheduled meetings was held prior to her appointment.
6. During 2016 there was full attendance of Directors and Committee members at Board and Committee meetings.
Board
Nomination
Committee
Remuneration
Committee
Audit
Committee
10
10
10
10
10
10
10
9
3
10
1
1
–
1
–
1
1
1
1
1
6
6
–
–
–
4
6
–
2
6
6
–
–
–
–
6
6
5
1
6
65
Governance
Governance
Corporate Governance
Corporate Governance continued
Terms of engagement for the Non-executive
Directors are available on our website.
Executive Directors, other relevant senior
executives and external advisers.
www.itvplc.com/investors/governance
During the year the appointments of John
Ormerod, Andy Haste and Roger Faxon were
extended for a further 12 months.
During the year the Board used executive
search firm Zygos to assist with the search
process for a Non-executive Director with
experience in the advertising industry and
with an understanding of the future dynamics
in the advertising sales and broader digital
arenas. Following a rigorous search process
Salman Amin was appointed as a Non-
executive Director with effect from
9 January 2017.
Board effectiveness
Experience and independence
Biographical details for the Directors are set
out on pages 60 and 61 with more detailed
biographies available on our website.
www.itvplc.com/about/board-of-directors
The Board is 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 its
deliberations. Each Non-executive Director
has appropriate skills and experience so that
their views carry significant weight in the
decision making.
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. These are available on
our website.
www.itvplc.com/investors/governance
Evaluation
Internal
The work of the Board Committees is
reviewed annually with the support of Group
Secretariat. The evaluation takes the form of
interviews with Board and Committee
members eliciting feedback on a wide range
of topics. In addition input is sought from the
66
Output is reported to the relevant Chairman
and a report of actions is submitted to the
Committees and actioned as appropriate.
External
During 2016 the Board continued its
ongoing effectiveness review facilitated
by the external firm YSC. The review was
aimed at evaluating progress and identifying
how the Board can best add value as our
strategy develops. The evaluation comprised
the following:
Individual interviews
•
• Observation of Board sessions
• Discussions with Senior Executives
•
• Access to key Board papers
Interview with the Company Secretary
In interviews the Board members were
asked to give their views on the challenges
facing ITV and what this means for the Board.
They were also asked to comment on the
strengths and weaknesses of the Board in
relation to these needs. Board members
who had participated in the earlier review
were also asked to reflect upon any changes
since then.
A report detailing analysis and
recommendations was compiled which
was discussed with the Board as a whole
and feedback was provided to individual
Board members together with additional
development sessions.
It was noted that despite ITV’s recent
success there was a need to ensure that the
factors underpinning this success continued
to work productively. The Board needs to be
sensitive to creating conditions for keeping
and attracting talented senior executives to
ensure stability and continuity. In view of the
dynamic nature of the external environment
and the impact of technological change on
the industry the Board needs to maintain
perspective on opportunities and challenges
whilst developing a clear view of its risk
appetite and the extent to which success in
the next phase will require the exploration
of new paths and a greater appetite for risk.
Overall the Board was perceived to be
extremely strong and composed of seasoned
and experienced individuals who operate in a
professional and disciplined manner. The
culture of the Board was felt to be open and
positive but also challenging. Board members
feel they have a great connection with the
business and are used effectively outside
of Board meetings.
The Board is perceived to handle regulation
and governance in an effective and efficient
manner as well as creating time for the
discussion of broader strategic and
cultural matters.
Board tenure
The current board tenure is shown in the
diagram below.
0–2 years
2–5 years
5–9 years
Succession planning and diversity
Succession planning
The Board has agreed a succession planning
framework which it regularly reviews 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
• Non-executive Directors have the
appropriate level of independence, from
the executive and each other
This year both John Ormerod and Andy Haste
will have served more than six years on the
Board. The Board continues to believe that
they bring a wealth of knowledge and
experience to their deliberations and provide
a valuable contribution within their roles. At
the AGM in May 2017 John Ormerod will reach
the ninth anniversary of his appointment.
The Board has deliberated carefully and has
decided to ask him to continue as Chairman
of the Audit and Risk Committee for an
additional year to enable us to ensure an
appropriate successor is in place and has
sufficient time as a member of the
Committee before he steps down.
Diversity
It is our policy to retain a strong but relatively
small board bringing a balance of in-depth
commercial and creative experience.
The Company has an Equal Opportunities
policy which is followed throughout the
organisation – further information is set out
on page 99. It continues to be the Board’s
intention to increase the diverse make-up
and representation of its members as
opportunities arise, but given the size of
the Board specific formulaic targets are
not appropriate.
Induction, training and development
The Company has a policy and programme
for induction and continuing professional
development of Directors. On appointment,
each Director takes part in a comprehensive
induction programme.
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 advisors
• Regular updates on changes to the legal
and governance requirements of the
Group and in relation to their own
position as Directors
• Presentations given at Board and
Committee meetings on business
matters and technical update
sessions from external advisors
where appropriate
Key stages of the induction programme are:
Stage 1
Provision of documents
Duties of a Director, Board procedures,
Board and strategy papers and corporate
governance.
Stage 2
Meetings with Chief Executive and
Group Finance Director
Business overview, strategy, current
trading and key commercial issues
Stage 3
Visits to UK and international locations
and meetings with colleagues at all
levels of the business as appropriate.
During 2016 the Directors visited a number
of different sites. Sir Peter Bazalgette and
Roger Faxon visited the ITV Studios office
in the US, and Sir Peter Bazalgette visited a
number of news rooms across the UK and
the ITV Studios office in Paris.
As part of the YSC board effectiveness
process individual development is considered
and plans put in place. Executive Directors
may accept external appointments as Non-
executive Directors of other companies and
retain any related fees paid to them. Details
of positions held and fees received by
Executive Directors in 2016 can be found
on page 87.
Relations with shareholders
The Board attaches a high priority to effective
communication with shareholders and has
regular and open dialogue with investors. The
Board believes that continued engagement
with 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 the Director of Investor
Relations meet with many institutional
investors throughout the year to keep them
updated on the Company’s performance
against our strategy. These range from
one-to-one meetings to group presentations
including the Full Year and Interim results
and the AGM. Specifically, following the Full
Year and Interim results one-to-one meetings
are held with our largest institutional
investors. The Board is kept up to date with
regular feedback as part of the wider
reporting programme.
The Chairman and Senior Independent
Director also respond to shareholder queries
and hold meetings where appropriate.
The Company maintains a programme
of engagement with the investment
community, including 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
ITV plc Annual Report and Accounts 2016
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 and the Investor Relations team
provides the Board with monthly updates
which include details on stock market
movements, shareholder register, analyst
forecasts and selected news on the
media sector.
Private shareholders represent more than
93% of our shareholders holding 3% of our
shares. We encourage shareholders to
register their email addresses to receive
information from us in a timely manner.
The AGM will be held on Wednesday,
10 May 2017 (further details can be found
on page 189 ).
At the AGM 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. Voting
can be done online or using a form of proxy.
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. In 2016 the
meeting was attended by 125 shareholders.
Details of voting at the 2016 meeting
is available on our website.
www.itvplc.com/investors/shareholder-
information/agm
67
Governance
Governance
Audit and Risk Committee Report
Audit and Risk Committee Report
Dear shareholder,
On the following pages we set out the Audit
and Risk Committee’s report for 2016 which
provides an overview of the areas considered
by the Committee during the year.
During the year the Board reviewed and
refreshed its thinking on the Company’s
approach to risk management. The Board
decided that it would be useful for the
Committee to provide greater input on the
risk management process. As a result, the
Board has expanded the remit of the
Committee to include risk and changed its
terms of reference accordingly.
The Committee received detailed updates
from a number of executives who own key
business risks which enabled us to understand
how risks which could impact our strategic
objectives are being managed and mitigated
within the business.
During the year the FRC’s Audit Quality
Review team reviewed our external auditor’s
(KPMG) audit of our 2015 financial
statements. We have discussed the report
with KPMG and the Audit Quality Review
team. The review identified three areas for
improvement in the audit which KPMG will
make in future years. Overall we found the
results of the review reassuring with no issues
identified which we considered cast doubt on
the fundamental quality of our audit or which
raised issues about our financial reporting.
We were delighted that Anna Manz joined
the Committee on 1 May 2016. Anna takes
our membership to four independent
Non-executive Directors. She brings broad
financial and commercial experience from
her executive roles. The skills and experience
of the members of the Committee remain
strong and we have had a productive and
effective year.
In line with our Auditor Independence policy
we have changed our external audit partner.
Whilst there is no requirement to do so we
have as a matter of good governance also
had a change in lead partner for our
outsourced internal audit function.
Further information on corporate governance
and a schedule setting out how we comply
with the Code can be found on our website
www.itvplc.com. We seek to respond to
shareholders’ expectation of audit committee
reporting and welcome feedback from them.
Looking ahead, with a change in audit
partners, we have an opportunity to review
our overall assurance and risk management
processes. In addition, as our strategy evolves
and the business diversifies we will continue
to develop our approach to new revenue
streams and our international operations.
John Ormerod
Chairman, Audit and Risk Committee
1 March 2017
ITV continues to develop its control
environment in response to the
increasingly international nature
of its business
In the Audit and Risk Committee section
The purpose of this report is to highlight
areas that the Committee has reviewed
during the year. We report to shareholders
on the significant financial reporting issues
and judgements made in connection with
the preparation of the Company’s financial
statements. Also highlighted is how the
Committee has assisted the Board in
reviewing the Company’s internal control
and risk environment. We explain what
the Committee has done to review
the effectiveness of our internal and
external auditors.
John Ormerod
Chairman,
Audit and Risk Committee
68
ITV plc Annual Report and Accounts 2016
Who is on the Committee
The Committee is composed entirely
of Non-executive Directors.
The current members are:
• John Ormerod (Chairman)
• Mary Harris
• Andy Haste
• Anna Manz (appointed 1 May 2016)
The Committee members have between them a wide range of
business and financial experience. The Committee considers that
John Ormerod and Anna Manz have recent and relevant financial
experience for the purposes of the Code. Anna Manz is Group
Finance Director of Johnson Matthey and brings executive finance
skills to the Committee deliberations.
Full details of attendance at Committee meetings can be found on
the table on page 65.
The main role of the Committee is to:
• monitor the integrity of published
financial information and review
significant financial reporting issues
and judgements;
• provide advice to the Board on whether
the Annual Report and Accounts are fair,
balanced and understandable and the
appropriateness of the going concern
statement and the longer term viability
statement;
• assist the Board to establish and articulate
overall risk appetite and oversee and
Our role
advise the Board on strategic risk exposures
and mitigations;
remuneration performance objectives;
and
• review the quality and effectiveness of
the external audit and the procedures
and controls designed to ensure auditor
independence.
Following each meeting the Committee
communicates its main discussion points
and findings to the Board.
• review the risk identification and assessment
processes and undertake deep dives of high
risk business areas or processes;
• review the effectiveness of the internal
control and risk management processes;
• monitor and review the effectiveness and
independence of the internal audit function;
• provide advice to the Remuneration
Committee on financial reporting matters
and related judgements and risk
management as they affect executive
Meetings
February
May
July
September
November
• Year-end financial
reporting issues
and judgements
• Fair, balanced and
understandable reviews
• Viability Statement
verification
• KPMG audit
conclusions and findings
• Audit opinion
• Half-year financial
reporting issues
and judgements
• External Audit strategy
• Internal Audit
independence
and evaluation
• Half-year report
• KPMG review
conclusions
and findings
• Emerging and business
specific risk reviews
• Year-end planning
• Distributable reserves
planning
• KPMG interim controls
review findings
• Review effectiveness
of internal audit and
following years plan
In addition to Committee members the Chief Executive, Group Finance Director, Group Financial Controller, Group Legal Director, Head of
Internal Audit, Director of Treasury, Director of Tax and the external audit partner regularly attend meetings. The Committee members meet
regularly with the external auditor and internal audit without executives present.
Annual review
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
Chief Executive, Group Finance Director, Group Financial
Controller, external auditors, 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. Priorities for this year
will include appointing a successor to John Ormerod,
developing our risk management processes and
streamlining some of our administration procedures to
free up time to cover a wider agenda.
The Committee’s terms of reference can be accessed on
our website.
www.itvplc.com/investors/governance
69
Governance
Governance
Audit and Risk Committee Report
Audit and Risk Committee Report continued
Our focus in 2016
In planning its own agenda, and reviewing the audit plans 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.
During 2016 there were no topics where there was significant disagreement between management, our external auditor and the Committee,
or unresolved issues that needed to be referred to the Board. Set out in the tables below is information on the key matters considered during
the year.
Regular reviews and recurring transactions
The following table summarises the regular reviews and activities undertaken by the Committee. Some of these areas may require the
application of judgement by management or have underlying complexity.
• Auditor engagement and fees
• Auditor independence and objectivity
• Auditor Independence policy
(including non audit fees)
• Audit plans
• Auditor performance and effectiveness
• Key areas of judgement
External
audit
Financial
disclosure
and
judgements
• Financial results announcements
• Annual Report and Accounts
• Accounting judgements and estimates
• Developments in financial reporting
• Fair, balanced and understandable
• Viability Statement (page 57)
• Significant failings and weaknesses
• Going concern
• Goodwill impairment
(note 3.3, page 140)
• Tax (note 2.3, page 126)
• Deal debt (see below)
• Pension accounting (note 3.7, page 148)
• Deficit financing (see below)
• Revenue recognition (IFRS15)
• Appropriateness of Alternative
Performance Measures (page 34)
•
Internal Audit independence and
effectiveness
Internal Audit plan 2017
•
• Effectiveness of internal controls
• Post acquisition reviews
(Talpa Media B.V.)
Insurance programme
• Whistleblowing process
• Material litigation
•
• Fraud controls
• Anti-bribery controls
• Treasury policy and reports
• Tax and Treasury, and Disclosure
Committee review
Risk
• Principal risks and uncertainties
and risk mitigations
• Effectiveness of the
risk management process
• Cyber security (page 52)
• Technology modernisation (page 56)
• Health and Safety risk management
(page 53)
Further information on our risk
management framework can be
found on pages 50 to 57.
Internal
control
70
ITV plc Annual Report and Accounts 2016
Most of the topics mentioned above are relevant to all businesses. However, matters specific to ITV include:
• Deal debt: this is where management reviews the over and under delivery of advertising value to agencies. The Committee reviews
management’s approach and method of determining the provisions required for under delivery.
• Deficit financing: as part of our strategy to expand our content portfolio, significant investment in high end drama is made.
The Committee reviews the accounting implications, including revenue recognition and recoverability of the amounts invested.
In both cases the Committee agreed with management’s approach and their conclusions.
Complex discrete transactions
The Group completed certain transactions during the period that were in line with strategy but could have been considered outside the
normal course of business. The Committee carefully reviewed these transactions to ensure that the judgements applied by management
were reasonable and any complex accounting guidance followed correctly.
Area of focus
Financial reporting and judgement
Action taken by Committee
Outcome
Revenue
recognition
Talpa: contract for
‘The Voice of China’.
Talpa signed a four year deal to
license ‘The Voice of China’ in
January 2016.
Whilst ITV has done similar
multi-year deals for Intellectual
Property (IP) and content, this
was by far the most material,
and therefore the accounting
treatment was examined
in detail.
See also note 2.1, page 120.
The Committee considered
management’s report on the
accounting and agreed with the
assessment that revenue was
recognised appropriately, in
accordance with IFRS and ITV
accounting policies.
KPMG also presented their view
on the matter to the Committee,
noting consistent conclusions on
the appropriate revenue
recognition for this contract.
The Committee assessed whether
the revenue recognition criteria
had been met.
The following points were noted:
• The format IP was delivered, and
is fully available for exploitation,
and
• No material performance
obligations are expected of
Talpa in future years.
As a result of the above key points,
together with the fulfilment of all
other revenue recognition criteria,
management considered it most
appropriate for the format revenue
for all four years (the life of the
contract) to be recognised in full
in 2016.
71
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Audit and Risk Committee Report
Audit and Risk Committee Report continued
Other matters
In addition to financial reporting matters the following topics were reviewed:
Area of focus
Issue
Action taken by Committee
Outcome
Cyber security
Cyber security is an increasing risk
as our business develops new
revenue streams and direct to
consumer propositions.
The Committee undertook a
review of the cyber security risks
and strategy and changes to
reflect the ever changing
cyber threat.
Completed and planned mitigations
were reviewed and assessed. The
Committee was content with progress
and will continue to monitor and review
this area.
Technology
modernisation
Legacy business systems are being
modernised to reduce a number of
key business risks.
The Committee reviewed the
programme of work to modernise
legacy business systems.
Completed and planned mitigations
were reviewed and assessed. The
Committee was content with progress
and will continue to monitor and review
this area.
Health and
Safety
Following an internal audit of site
specific health and safety
management a number of
mitigating actions were
recommended and considered.
The Committee has kept the
mitigation actions under regular
review and is satisfied with the
progress to date.
In addition a general group wide
health and safety risk assessment
was requested and was considered
in January 2017.
In areas which face day-to-day
operational risk we are continuing
to develop our three lines of defence
model and to move our approach to
risk away from a rules and process
driven system to a cultural people
driven solution which encourages
and focuses on prevention rather
than reaction to failure.
The Committee will continue to
monitor and review this area.
Tax Strategy
In accordance with Finance Act
2016 the Company is required to
publish its Tax Strategy.
The Committee has reviewed
the strategy produced by
management and recommended
it for adoption to the Board.
ITV’s Tax Strategy was approved by
the board on 26 January 2017 and is
available to view on our website at
www.itvplc.com.
Bond Issue
The Company proposed issuing a
€500 million Eurobond for general
corporate purposes and financing
activities such as repayment of the
£161 million bond issue in January
2017, and earn out payments due
on acquisitions, primarily Talpa.
The Committee reviewed the
bond issue documents and related
disclosures. In addition they
discussed the related treasury
policy decisions such as foreign
exchange hedging.
The bond was successfully issued in
December 2016 and was hedged in
accordance with agreed policies.
Gurney Productions LLC, a subsidiary of the Group: Before the Group initiated legal proceedings against the sellers, who held a 38.5%
membership interest in Gurney Productions LLC, the Board considered advice received from US Counsel and the evidence supporting the
alleged breaches of contract and their fiduciary duties, as well as self-dealing and fraudulent concealment, and agreed with the conclusions
drawn and proposed actions suggested by management. In 2017 the Committee plans to consider whether any improvements in procedures
and controls might have identified and mitigated the issues sooner and how any lessons learned can be applied to other acquired companies.
Further information is in Note 5.3, page 172).
Risk management and Internal Controls
Risk management
The Committee continued to consider the process for managing risk within the business and assisted the Board in relation to compliance with
the Code and development of the risk appetite framework. During the year the Committee terms of reference were extended so that the
Committee could provide greater input on the Company’s approach to risk management. Further information on our risk management
process and details of our Principal risks and uncertainties is included in the Strategic Report on pages 50 to 56.
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 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.
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ITV plc Annual Report and Accounts 2016
As part of our internal control process the strategy is reviewed and approved by the Board. The Group performs a comprehensive annual
strategy review and a rolling 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.
Assurance
The Committee satisfies itself that internal controls are operating throughout the year principally based on a programme of internal audit
reviews, reviews of the effectiveness of internal controls including fraud and anti-bribery and through a suite of automated analytics which
monitor financial transactions in our systems. In addition to the internal audit programme, there are a number of exception reports that cover
transaction processing. For those subsidiaries not covered by exception reporting software, a monthly self assessment takes place which is
subject to independent internal review.
Our Auditors
Internal auditor
The Group’s internal audit activity is outsourced to Deloitte who report directly to the Committee. The Committee continues to believe that
outsourcing offers access to the wide range of skills and resources in the various geographies required and endorses its continuing use. 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. During the year there was a change to the lead partner to bring a fresh perspective and approach and
continue to bring robust challenge. The effectiveness of internal audit is assessed over the year using a number of measures that 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, that 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.
External auditor
The Group’s external auditor is KPMG. The table below summarises the process followed to manage the relationship and audit process.
Engagement
Audit tendering and rotation
Independence, objectivity
and fees
Reappointment
The Committee considers
carefully the scope of planned
work and the assessment of risk
and materiality on which it is
based. In particular, through
the Committee Chairman, the
Committee participates in
the negotiation of the audit fee
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.
The Committee agrees the terms
of engagement, audit and non
audit fees and reviews progress
and results throughout the year.
We undertook a competitive
tender in 2012 and applying
the BIS guidance on the EU Audit
rules the next mandatory
tender would be for the 2023
financial year.
The Committee continues to
monitor audit quality to ensure
a robust and effective audit.
During 2016 there was a rotation
of audit partner. Following a
robust selection process by
management and the
Committee, our new partner is
Paul Sawdon.
We comply with the provisions of
the Statutory Audit Services for
Large Companies Market
Investigation (Mandatory Use
of Competitive Tender and Audit
Processes and Audit Committee
Responsibilities) Order 2014.
The Committee seeks to ensure
the objectivity and independence
of our auditor through:
• focus on the assignment and
rotation of key personnel;
• the adequacy of audit
resource; and
• policies in relation to non
audit work.
During the year we updated our
Auditor Independence policy to
comply with EU legislation. A
copy of the policy is available on
our website at www.itvplc.com.
Fees paid to KPMG for 2016 are
set out in Note 2.1 on page 124.
Non-audit fees amounted to
34% of the audit fee. Significant
advice related to employment
tax in the UK.
During the year the Committee
considered the performance
and audit fees of our auditor,
and the level of non-audit work
undertaken, and recommended
to the Board that a resolution
for the reappointment of KPMG
for a further year as the
Company’s auditor be proposed
to shareholders at the AGM
in May 2016. The resolution
was passed and KPMG was
reappointed.
The Committee has
recommended the
reappointment of KPMG at
the AGM on 10 May 2017.
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Governance
Audit and Risk Committee Report
Audit and Risk Committee Report continued
External Audit effectiveness and quality
The Committee follows the review programme below to satisfy itself of external audit effectiveness and quality.
February
May
July
November
Independence and objectivity
• Audit scope and materiality
•
• Confirmation of work
performed and other
significant risks
• Re-appointment
• Audit Plan and Strategy
• Engagement
• Fees and Independence
• Audit Quality Review focus
• Auditor Independence policy
(reviewed every two years)
areas
• Audit fees – final
Audit quality is reviewed throughout the year and in 2016 the Committee used the Financial Reporting Council’s (FRC) Audit Quality Practice Aid
help structure its review of audit quality. When making its assessment of audit quality, the factors the Committee focused on included:
External audit quality reports
The audit strategy for the year addressed thematic concerns that the FRC had highlighted.
Auditor interaction with
management
Reviewing the auditor’s understanding of business progress against the strategy and emerging industry
themes, as well as the auditor’s discussion with management on key corporate transactions.
Auditors own view of
effectiveness
Enquired with regards to:
• their audit methodology and its effective application to ITV;
• their robustness of challenges and findings on areas which require management judgement;
• whether there had been an internal peer review of the ITV audit and what the findings were; and
• the experience of the senior members of the audit team.
Further in its assessment of audit quality the Committee took into account:
• the detailed audit strategy for the year, including the coverage of emerging risks;
• Group materiality and component materiality;
• how the auditor communicated any key accounting judgements and conclusions; and
• feedback from management of the performance of the auditor.
There were no significant findings from the evaluation this year and the Committee considers the external audit to have been robust
and effective.
The Committee also considered the FRC Audit Quality Review feedback from their review of our 2015 audit and agreed with KPMG the
changes in audit procedures they will make and how we will support their implementation.
74
Remuneration Report
ITV plc Annual Report and Accounts 2016
In this report
The purpose of this report is to set out for shareholders the
proposed revised policy relating to directors’ pay required to be
submitted to shareholders for approval at least every three years
and to update you on how we have applied the current policy for
the financial year ended 31 December 2016. 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 strong performance.
ITV continues
to make significant
progress in growing,
strengthening and
rebalancing the business
away from its reliance on
television advertising
Andy Haste
Chairman,
Remuneration Committee
Dear shareholder,
On the following pages we set out:
• the Annual Report on Remuneration (pages 75 to 88) which includes
this letter and will be subject to an advisory vote at our Annual
General Meeting (AGM) on 10 May 2017; and
• our revised Remuneration Policy (pages 89 to 97) which we will
be asking our shareholders to formally approve at the AGM.
2016 performance
As discussed in the Strategic Report, ITV continues to make significant
progress in growing, strengthening and rebalancing the business away
from its reliance on television advertising. We continue to believe that
this is the right strategy for the business. Adjusted EPS has grown by
844% since 2009 and although 2016 has seen a softening in the
advertising market as a result of the economic uncertainty we have
delivered revenue growth of 3% and adjusted EBITA of £885m (2015:
£865m). In addition, 53% of our total revenue now comes from sources
other than traditional spot advertising.
While uncertain external economic factors will clearly have an impact
on our business, we remain focused on our original vision and are
confident that our strategy, focused on three key Strategic Priorities,
remains appropriate for the long-term.
Performance measures for our Annual Bonus Awards and Long-Term
Incentive Plan (LTIP) are closely aligned to our KPIs (set out on pages
36 to 39) and Alternative Performance Measures (APMs). Our KPIs
have been defined to align our performance and accountability to our
strategy. The KPIs are the key measures of our success and cover all of
our Strategic Priorities. Details of our APMs and the reconciliation
between statutory and adjusted results is set out on pages 34 to 35.
Performance against KPIs which are aligned to our Bonus and LTIP is
set out below:
Adjusted EBITA
Profit to cash conversion
Adjusted EPS
Family SOV
Total non-NAR growth
2016
2015
£885m £865m
97%
17.0p
21.4%
11%
91%
16.5p
21.2%
25%
In addition, over the past few years we have included a cost-saving
target in our Annual Bonus Awards to ensure that management
focuses on streamlining the business.
2016 remuneration outcomes
While the Company has continued to perform well, particularly
in a challenging external environment, we did not achieve the
ambitious profit target set internally at the start of the year.
However, the targets for cost savings and profit to cash
conversion were achieved in full.
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Governance Governance
Remuneration Report
Remuneration Report continued
As reported last year the weighting of the personal performance
target was reduced from 40% to 25% of the bonus opportunity.
When considering the bonus payout levels for the Executive Directors
the Committee took account of the excellent delivery against targets
which included the cost saving target that was fully achieved, the
increase in Family SOV demonstrating the underlying health of the
brand and the strength of the main channel and strong growth in
non-NAR.
As a result, the Committee agreed the total bonus payout level
for both Executive Directors at 40%, 15% on financial and 25%
on personal performance opportunity which paid out in full. This
reflected the excellent delivery against the individual targets which
were set to balance the financial targets. The Committee was
conscious that this out-turn was higher than the out-turn for the
financial element, but felt it was appropriate given the overall results
and good performance in delivering cost savings, managing cash,
viewing performance and rebalancing the business. The Committee
concluded that the out-turn produced a result which was, overall, fair
and did not apply any discretion to adjust it. Further information and
details of the bonus targets for 2016 are set out on page 81.
During the year, awards made under the LTIP in 2014 reached the end
of their performance period and will vest at 80% with the Family SOV
element not vesting despite the improvement in 2016. In line with our
phased approach to the introduction of holding periods 50% of the
vested amount becomes exercisable in May 2017 and the remainder
in May 2018. Details are set out on page 82.
The Committee considers the total pay of the Executive Directors to
be a fair reflection of their overall contribution to the success of the
business. The Committee has not exercised any discretion during the
year or felt it appropriate to call on malus and claw-back provisions.
Remuneration Policy review
During 2016, we undertook a review of the Remuneration Policy for
the Executive Directors in preparation for the AGM in 2017 when the
existing policy will reach its third anniversary and require resubmission
to shareholders.
Objective of the review
The principal objective of the review was to ensure that the
remuneration framework remains aligned with the strategy of
the business and continues to incentivise the Executive Directors
to deliver exceptional performance for shareholders.
We believe that our existing remuneration framework remains fit for
purpose, is aligned with the strategy of the business and is linked to our
key KPIs. The Committee therefore does not consider it appropriate to
make significant changes to our policy at this stage as we are satisfied
that our remuneration framework promotes long-term alignment with
shareholders and does not encourage undue risk taking. We will keep
under review emerging best practice in the light of the Executive
Remuneration Working Group final report (which proposed replacing
traditional LTIPs with non-performance restricted stock awards) but
do not, currently, consider this appropriate.
Summary of key changes
The proposed adjustments to the remuneration framework for
Executive Directors include the following:
• Base salary and benefits cap – we are introducing a formal cap
on base salary and on the overall cost of benefits. These do not in
any way form an aspiration and we do not envisage any change
in practice as a consequence; they simply reflect the latest
regulatory guidance.
• Performance measures – we will continue to ensure that
performance measures are closely aligned with our strategy.
The measures continue to be appropriate but the nature of our
business continues to change which may require us to consider
the measures in future. To ensure we can retain the link to our
strategy as it evolves we have included more flexibility to change
performance measures for new awards. This is in line with existing
market practice.
Remuneration policy implementation in 2017
Details of how the Committee proposes to implement the policy,
if approved, in 2017 are set out on page 94. Bonus targets and
performance conditions for LTIP awards to be made in 2017 have
been set in line with the proposed Remuneration Policy and have
been aligned closely with our strategy.
The Executive Directors did not receive an increase to base salary
from 1 January 2017. This is in line with the approach taken for the
wider employee population.
Principles considered when setting remuneration
The media market in which ITV operates is particularly competitive.
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 Remuneration Policy
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, that
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.
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ITV plc Annual Report and Accounts 2016
When considering the out-turn for annual bonus awards
the Committee ensures that bonuses do not lead to adverse
environmental, social or governance issues or encourage bad
behaviour. ITV takes these issues seriously and further information can
be found on our Responsibility website at www.itvresponsibility.com
and in the Strategic and Governance reports.
Shareholder views
Details of voting on remuneration resolutions at the AGM in May 2016
are set out on page 84 for which we were pleased to receive strong
investor support. We will make available the results of the voting at
the AGM to be held in May 2017 shortly after the meeting.
We seek to respond to shareholders’ expectations of remuneration
reporting and would welcome feedback. Where we are proposing
to make any significant changes to the ongoing operation of the
Remuneration Policy we shall seek shareholders’ views and take
these into account.
After just over six years as Chairman of the Committee I will
be stepping down following the AGM in May 2017 and I am
very pleased that Mary Harris will succeed me as Chair. I will
remain as a Non-executive Director and Senior Independent
Director for the time being.
Andy Haste
Chairman, Remuneration Committee
1 March 2017
Throughout this report we make reference to Strategic Priorities.
For reference these are as detailed in the tables below.
For awards made in 2016 and 2017
Target
Maximise audience and revenue from free-to-air
and VOD business
Grow an international content business
Build a global pay and distribution business
Further information on each of the above is set out in the
Strategic Report on pages 21 to 33.
For awards made up to and including 2014
Target
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
Drive new revenue streams by exploiting our content
across multiple platforms, free and pay
Build a strong international content business
3
4
Further information on each of the above is set out in the 2016
Strategic Report available on our website.
www.itvplc.com/investors
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Remuneration Report continued
Who is on the Committee
The Committee is composed entirely of
Non-executive Directors. The current members are:
Full details of attendance at Committee meetings can be
found on page 65.
• Andy Haste (Chairman)
• Sir Peter Bazalgette
• Mary Harris
• John Ormerod
Our role
The main role of the Committee is to:
• review the ongoing appropriateness, relevance and effectiveness of the
Remuneration Policy including in relation to retention and development;
• propose to shareholders changes to the Remuneration Policy and approve
its implementation for the Executive Directors, Management Board and
other Senior Executives (together the Senior Executive Group) taking into
account arrangements for the wider employee group. Details on
employee remuneration can be found on page 123.
• 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.
Following each meeting the Committee communicates its main
discussion points and findings to the Board. Regular discussion topics
are set out below.
January
February
May
September
October
November
Meetings
• Market update
• Financial performance
• Reward framework
and current trends
update
• Consideration of
•
remuneration in the
wider employee group
• Bonus payout
• Bonus framework and
forecasts
Internal Audit process
review
targets
• Terms of reference
review
• Review of
remuneration
consultants
• Annual pay review
• Financial performance
• Bonus targets agreed
•
•
update
Indicative bonus
outcomes and payout
levels
Indicative LTIP
performance and
vesting levels
• Pay review outcomes
and changes to Senior
Executive Group
• Advisor independence
for current year
• LTIP awards and
targets agreed for
current year
• Remuneration report
review
• Compliance with the
Remuneration policy
• Compliance with
shareholding
guidelines
Internal Audit review
of outcomes
•
In addition to Committee members the Chief Executive, Group Finance Director, Group HR Director, Director for Pensions and Reward
and independent advisor FIT Remuneration Consultants regularly attend meetings.
Annual review
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 also sought from the Chief
Executive, Group Finance Director, Group HR Director and
FIT Remuneration Consultants, the independent advisor to
the Committee.
develop its role. Priorities for this year will include a smooth
transition of Committee Chairman and consideration of
wider membership.
The Committee’s terms of reference can be accessed on
our website.
Overall the review concluded that the Committee is responding
appropriately to its terms of reference and will continue to
www.itvplc.com/investors/governance
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Annual Report on Remuneration
ITV plc Annual Report and Accounts 2016
The sections of the Annual Report on Remuneration that have been audited by KPMG are pages 80 to 84, and page 86 (from and including
Directors’ Share Interests) to page 88.
Remuneration Policy in 2017
The following section provides details of how the Remuneration Policy will be implemented in 2017.
Executive Directors
Salary
There has been no change to Executive Directors’ base salaries with effect from 1 January 2017 and these remain as follows.
Adam Crozier
Ian Griffiths
1 January
2017
£000
941
575
1 January
2016
£000
941
575
% Change
0
0
Salary increases for Executive Directors followed those of the wider employee population. For 2017, an increase of 1.5% was paid to employees
earning less than £100,000 per annum.
Taxable benefits and pension
These will be provided in line with the Remuneration Policy and no changes are envisaged.
Bonus (cash and shares)
Awards made to Executive Directors through the bonus will be paid two-thirds in cash and one-third deferred into shares under the Deferred
Share Award Plan (DSA). The proposed performance measures and weightings for awards are detailed below and remain unchanged from 2016.
The Board considers the actual targets for 2017 to be commercially sensitive at this time and we envisage including equivalent disclosures to
those included in respect of the 2016 bonus in next year’s report.
Performance measure
Adjusted ITV plc EBITA (before exceptional items)
Profit to cash conversion
Cost savings
Individual targets
Strategic target
Maximum
60%
10%
5%
25%
Share awards
The proposed performance measures and targets for awards to be made in 2017 are detailed below.
Under the LTIP rules, the maximum annual award that can be granted in any financial year is 350% of salary. This is to allow the Committee
flexibility when recruiting Executives and to ensure the longevity of the plan. There is currently no intention to grant awards at this level.
Awards in 2017 will be made to the Executive Directors with a value of 225% of salary.
Threshold vesting for all targets is 20% with vesting between threshold and maximum (100%) on a straight-line basis. Family SOV has an
additional vesting threshold of 75% for performance of 21.36%. When assessing performance against this target, the Committee will also
have regard to the health of the main ITV channel. Each measure is also subject to an underpin that the cumulative EPS is at least 56.3 pence.
Performance measure
Cumulative adjusted EPS
Family SOV
Total non-NAR growth
International production revenue
Online, Pay & Interactive revenue
Strategic target
Weightings
Threshold
Maximum
50%
20%
10%
10%
10%
56.3p
20.2%
5% growth pa
5% growth pa
5% growth pa
64.2p
21.6%
10% growth pa
15% growth pa
18% growth pa
Shares that vest will be subject to a two-year holding period.
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Governance
Annual Report on Remuneration
Annual Report on Remuneration continued
Non-executive Directors
There was no increase to Non-executive Director fees from 1 January 2017 as set out below.
Chairman (all-inclusive fee)1
Board fee
Additional fees for:
Senior Independent Director
Audit and Risk Committee Chairman
Audit and Risk Committee member
Remuneration Committee Chairman
Remuneration Committee member
1 January
2017
£
450,000
65,054
25,000
20,000
5,371
20,000
5,371
1 January
2016
£
500,000
65,054
25,000
20,000
5,371
20,000
5,371
% change
0
0
0
0
0
0
0
1. Sir Peter Bazalgette was appointed Chairman on 12 May 2016. 2016 total is for the previous Chairman.
2. Details of Committee membership can be found in the Governance section on page 65.
Remuneration policy application in 2016
The following section provides details of how the current Remuneration Policy was implemented in 2016.
Executive Directors
The table below sets out in a single figure the total remuneration for both Executive Directors for the financial year.
Adam Crozier
Ian Griffiths
2016
£000
941
575
1,516
Salary
2015
£000
918
561
1,479
Taxable benefits
2016
£000
2015
£000
19
14
34
19
15
34
Bonus
(cash and shares)
2016
£000
677
380
1,056
2015
£000
1,586
879
2,465
Share awards
Pension
2016 2
£000
1,571
960
2,531
2015 1
£000
1,129
619
1,748
2016
£000
235
144
379
2015
£000
229
140
369
2016
£000
Total
2015
£000
3,881
3,443
2,214
2,073
5,516 6,095
1.
In the 2015 Annual Report and Accounts part of the amount shown was the indicative vesting value of the 2013 PSP awards that were subject to performance conditions measured to
31 December 2015. The figures shown in the table above represent the subsequent value received on the vesting date of 29 March 2016 using the share price on that day (240.98 pence),
a total decrease of £141,625.
2. The amount shown is the indicative value of the 2014 LTIP awards that were subject to performance conditions measured to 31 December 2016. The value was calculated using the
average share price for the final quarter of 2016 (178 pence). 50% of these shares are subject to a one year holding period.
3. The aggregate emoluments for all directors as required under Schedule 5 (SI 2008/410) is the total remuneration shown in the table above less share awards, plus the total emolument
figures for Non-executive Directors shown on page 83, £3,908k.
Further information in relation to each of the elements of remuneration for 2016 set out in the table above is detailed below. An explanation
for 2015 is set out in detail in our 2015 Annual Report and Accounts, which can be found on our website.
www.itvplc.com/investors
80
ITV plc Annual Report and Accounts 2016
Salary
Executive Directors’ base salaries were increased by 2.5% with effect from 1 January 2016 in line with those of the wider employee population.
Taxable benefits
The benefits provided to the Executive Directors include the cost of private medical insurance and car-related benefits.
Bonus (cash and shares)
Annual incentives are provided to Executive Directors through the bonus, with one-third of any award deferred into shares under the
Deferred Share Award Plan (DSA). The performance conditions that apply to the bonus are set on an individual basis and are linked to the
Company’s corporate, financial and strategic priorities. 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 Executive Director, which are
closely linked to the strategic priorities of the business. As stated in last year’s report, the weighting on personal performance was reduced
for 2016 from 40% to 25% of the total bonus opportunity. Payments and deferrals in respect of the financial year are set out below.
Adam Crozier
Ian Griffiths
% of maximum
bonus
opportunity
earned
Value deferred
into shares
under the DSA
Value paid
in cash
Total value
40%
40%
£225,828
£126,506
£451,656
£253,011
£677,484
£379,517
Percentage of maximum bonus opportunity earned for 2015 was 96% and 95% for Adam Crozier and Ian Griffiths respectively.
When considering performance outcomes, the Committee looks to ensure the outcomes align with overall business performance.
The majority of the bonus (75%) was based upon the achievement of corporate and financial targets, with payout determined in accordance
with pre-set target ranges subject only to the usual adjustments to exclude the impact of material in-year acquisitions and disposals, significant
unbudgeted initiatives and currency movements.
The remainder of the bonus (25%) was based upon the Committee’s assessment of the contribution each Executive Director has made to the
overall strategy through the delivery of specific targets. Both Executive Directors had a number of common objectives aligned to our Strategic
Priorities. The Strategic Report sets out more detail of the Company’s achievements in the year.
In a year which brought the EU referendum result, the subsequent market uncertainty and a 3% decline in NAR the Executive Directors
responded swiftly and robustly to the resulting business impact. They instigated prompt cost savings and provided strong leadership which has
resulted in a record adjusted profit for the Company. The Executive Directors delivered well on their original objectives and also on some new
ones developed in response to the changed market conditions:
• Adam Crozier oversaw a refreshed broadcasting strategy, resulting in SOV growth both for the Company’s main and family of channels.
There was once again strong growth in ITV’s Online, Pay and Interactive businesses. The Group’s global business was driven forward, with
vertical integration of value from the Talpa acquisition and the announcement of BritBox in the USA.
•
Ian Griffiths supported ITV Studios and ITV Broadcast to develop their international businesses and creative performance and secured
agreement to ITV’s London property strategy.
In the circumstances and noting that all of these targets were fully achieved along with full delivery of other personal measures, the Committee
agreed that a 100% pay out against personal measures was appropriate as explained in the Chairman’s letter on page 75. The Committee also
confirms that, where relevant, it also considered environmental, social and governance factors in considering the overall outcome.
81
Governance Governance
Annual Report on Remuneration
Annual Report on Remuneration continued
In order to reflect best practice, the Committee has provided disclosure of the corporate and financial targets used for 2016, together with
performance against those targets and the resulting level of payout as set out below.
Performance measure
Weighting
Threshold
Target
Performance required
Performance
achieved
Max
Payout level
Strategic
target
Adjusted ITV plc EBITA (before exceptional items)
Profit to cash conversion
Cost savings
60%
10%
5%
£906m
78.5%
£16.2m
£941m
83.5%
£18.2m
£971m
88.5%
£20.2m
£885m
97%
£28.9m
0%
100%
100%
Performance against the personal targets as noted above (25% weighting), resulted in payouts of 100% of the maximum against these targets for Adam Crozier and Ian Griffiths. Up to 20%
is payable for threshold and up to 60% for target performance.
Share awards
We are required to show share awards in the remuneration table on page 80 according to the year in which the performance period for each
performance condition came to an end. 100% of the awards made in 2014 under the LTIP were subject to performance conditions measured to
31 December 2016. The indicative value of these awards is set out below.
Adam Crozier
Ian Griffiths
Number of
shares awarded
Value at
award date
£
1,103,543
674,387
2,025,000
1,237,500
Number
of shares
vesting1
882,835
539,510
Value at
31 December
20162
£
1,571,448
960,327
Change in
share price since
award date
(3.0)%
(3.0)%
1. The vesting figures shown in the table above reflect 80% of the total award that met performance conditions on 31 December 2016. 50% will become exercisable on 30 May 2017,
and the remaining 50% will become exercisable after a one year holding period on 30 May 2018.
2. The share price used to value the shares at 31 December 2016 is the average share price for the final quarter of 2016 (178 pence). The share price used to calculate the number of shares
under award was 183.5 pence (the average of the share price on each of the 27, 28 and 29 May 2014).
When considering performance outcomes the Committee looks beyond formulaic results to ensure the outcomes align with overall business
performance. In the circumstances, the formulae were applied without adjustment.
Details of the performance achieved for the 2014 LTIP awards are below. A gateway condition of minimum cumulative adjusted EPS (37.1 pence)
was met before any portion of the award could vest.
Performance measure
Strategic target
Weighting
Targets
Cumulative adjusted EPS
Family SOV
1
2
50% 37.1p = 20% vesting
42.3p = 100% vesting
Vesting on a straight-line basis between
20% Maintain at 23.05 = 20% vesting
Performance
achieved
Payout level
47.1p
100%
23.51% (+2% growth) = 100% vesting
Vesting on a proportionate basis between
21.36%
0%
Total non-NAR growth
3 4
10% 5% growth pa = 20% vesting
10% growth pa = 100% vesting
Vesting on a straight-line basis between
15.27%
100%
4
3
10% 5% growth pa = 20% vesting
15% growth pa = 100% vesting
Vesting on a straight-line basis between
10% 5% growth pa = 20% vesting
18% growth pa = 100% vesting
Vesting on a straight-line basis between
31.52%
100%
25.13%
100%
International production
Revenue for 2016
Online, Pay &
Interactive Revenue
82
ITV plc Annual Report and Accounts 2016
Pension
The Executive Directors are not part of an ITV pension scheme but receive a cash allowance in lieu of pension with a value of 25% of base salary.
Payments were reviewed and increased in 2013 to ensure they were market competitive. The cash allowance does not form part of the base
salary for the purpose of determining incentives.
Non-executive Directors
The table below sets out in a single figure the total remuneration for Non-executive Directors for the financial year.
Sir Peter Bazalgette
Roger Faxon
Mary Harris
Andy Haste
Anna Manz
Archie Norman
John Ormerod
Notes
2016
£000
2
3
4
5
312
65
74
115
63
184
90
903
Fees
2015
£000
69
63
66
114
–
500
89
901
Taxable benefits 1
2016
£000
2015
£000
2016
£000
2
8
8
1
1
-
2
22
2
5
7
2
–
3
2
21
314
73
82
115
63
184
92
923
Total
2015
£000
71
68
73
116
–
503
91
922
1. The amounts disclosed in the table above relate to the reimbursement of taxable relevant travel and accommodation expenses for attending Board meetings and related business.
The value disclosed is inclusive of tax arising on the expense, which is settled by the Company.
2. Peter Bazalgette was appointed Chairman on 12 May 2016.
3. Mary Harris was appointed to the Remuneration Committee on 12 May 2016.
4. Anna Manz was appointed to the Board on 1 February 2016 and to the Audit and Risk Committee on 1 May 2016.
5. Archie Norman stepped down from the Board on 12 May 2016.
LTIP awards made in 2016
On 29 March 2016 awards were made under the LTIP to both Executive Directors in the form of nil-cost options, subject to performance over
the period to 31 December 2018.
Adam Crozier
Ian Griffiths
Award date
29 March 2016
29 March 2016
% salary
awarded
Number of
options
Value at
award date
Performance
period ends
Vesting date
Release date
225
225
£2,117,138 31 December 2018
878,481
536,850 £1,293,806 31 December 2018
29 March 2019
29 March 2021
29 March 2019
29 March 2021
The number of nil-cost options was calculated using the average share price over the three-day period prior to the award date (241 pence).
The LTIP was introduced in 2014 following a remuneration review and subsequent approval by shareholders at the 2014 AGM. The holding
periods were phased in over the first two annual awards made in 2014 and 2015, with 100% of the awards made in 2016 subject to a two-year
holding period. The shares that vest under the 2016 award will not release until March 2021.
The Committee sets targets for the LTIP taking into account external forecasts, internal budgets, business priorities, and risks and uncertainties.
Targets are set to be appropriately stretching in this context, with maximum performance set at a level which is considered to be the delivery of
exceptional performance. The awards made in 2016 are subject to performance measures and targets as set out below. Awards will be subject
to an initial cumulative adjusted EPS performance gateway equal to that required for threshold performance (54.6 pence) before any portion of
the award can vest.
Performance measure
Cumulative adjusted EPS
Family SOV
Total non-NAR growth
International production revenue
Online, Pay & Interactive revenue
Strategic target
Weighting
Threshold
Maximum
50%
20%
10%
10%
10%
54.6p
20.2%
5% growth pa
5% growth pa
5% growth pa
62.4p
21.6%
10% growth pa
15% growth pa
18% growth pa
83
Governance
Governance
Annual Report on Remuneration
Annual Report on Remuneration continued
Threshold vesting for all targets is 20% with vesting between threshold and maximum (100%) is on a straight-line basis. Family SOV has an
additional vesting threshold of 75% for performance of 21.2%. When assessing performance against this target, the Committee will also have
regard to the health of the main ITV channel.
Other Disclosures
Payments to past Directors or for loss of office
No payments were made during the year.
Committee membership and advisors
The Directors who were members of the Committee when matters relating to the Executive Directors’ remuneration for the year were
considered, are set out on page 65.
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 advisor and provides updates on remuneration, employee relations and human resource issues.
FIT Remuneration Consultants acted as the independent advisor on remuneration policy and the external remuneration environment during
2016 and provided advice on benchmarking, shareholder consultation and long-term incentive arrangements. Total fees for the advice provided
to the Committee during the year amounted to £103,154 (exclusive of VAT and expenses) which were charged on their normal terms.
The Committee has formally reviewed the work undertaken by FIT for the Committee and is satisfied that the advice they have received has
been objective and independent. FIT is a member of the Remuneration Consultants Group and abides by its Code of Conduct.
Shareholder voting
At the AGM held on 12 May 2016, votes cast by proxy and at the meeting in respect of the Executive Directors’ remuneration were as follows:
Resolution
Voting for
Voting against
Number of
shares
%
Number of
shares
%
Total votes cast Votes withheld
Annual Remuneration Report
3,002,101,203
96.15
120,053,675
3.85
3,122,154,878
51,538,304
The Remuneration Policy was approved at the AGM held on 14 May 2014 for a three-year period. Votes cast by proxy and at the meeting were as
follows:
Resolution
Remuneration Policy
Voting for
Voting against
Number of
shares
%
Number of
shares
%
Total votes cast
Votes withheld
2,272,594,109
96.04
93,825,641
3.96 2,366,419,750 366,266,825
84
ITV plc Annual Report and Accounts 2016
Historic performance
The graph below shows the TSR performance of the Company against the FTSE 100 index over the eight-year period to 31 December 2016.
ITV
FTSE 100
900
800
700
600
500
400
300
200
100
0
)
9
0
0
2
y
r
a
u
n
a
J
1
t
a
0
0
1
o
t
d
e
s
a
b
e
r
(
R
S
T
01/01/2009
01/01/2010
01/01/2011
01/01/2012
01/01/2013
01/01/2014
01/01/2015
01/01/2016
01/01/2017
Chief Executive remuneration
The table below provides a summary of the total remuneration received by the Chief Executive over the last eight years, including details of the
annual bonus payout and long-term incentive award vesting level in each year.
2016
2015
2014
2013
2012
2011
2010
2010
2009
Adam Crozier
Adam Crozier
Adam Crozier
Adam Crozier
Adam Crozier
Adam Crozier
Adam Crozier (for the eight month period served)
John Cresswell (for the four month period served)
Michael Grade
Total
remuneration
£000
Bonus % of
maximum
Long-term
incentive
award
vesting % of
maximum
3,443
3,881
4,842
8,399
2,915
2,158
1,350
661
2,583
40
96
94
93
91
88
95
83
94
80
75
75
87
12
–
–
–
–
The long-term incentive award vesting percentage relates to the proportion of the award that met performance conditions in the relevant
financial year. The 2015 numbers have been amended to reflect the actual value of the LTIP on vesting.
The table below provides details of the percentage change in the base salary, benefits and bonus of the Chief Executive between 31 December
2015 and 31 December 2016 compared to the average percentage change for other employees.
Chief Executive
All employees
Notes
1
2, 3
% change in
base salary
% change in
benefits
2.5%
5.1%
(1.66)
(3.61)
% change
in bonus
payment
(57.29)
(13.37)
1. Benefits include the cost of medical insurance and 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.
85
Governance
Governance
Annual Report on Remuneration
Annual Report on Remuneration continued
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
2016
£m
419
261
402
2015
£m
400
208
251
6,121
5,558
% Change
4.75
25.48
60.15
10.13
1. Employee pay is the total remuneration paid to all colleagues across ITV on a full-time equivalent basis. More detail is set out on page 123.
2. Employee headcount is the monthly average number of colleagues across ITV on a full-time equivalent basis. More detail is set out on page 123.
3. There were no share buy-backs during either year.
Directors’ share interests
Shareholding guidelines
The Committee continues to recognise the importance of 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 normally be obtained within three years of appointment and the remainder normally within five years.
Adam Crozier
Ian Griffiths
% of salary
required under
shareholding
guidelines
% of salary
held at
31 December
2016
400
200
446
473
The share price used to value the shares as at 30 December 2016 was 206 pence. The shares included in the calculation are shares held in the individual’s own name and the net of
tax shares held under the 2014 DSA which are not contingent on continued employment (awards made from 2015 are contingent on continued employment and will not form a part
of the requirement.
Where the value of shares required to be held increases as a result of a salary increase (or an increase in the relevant percentage), the Executive
Directors will have three years from such increase to achieve compliance. The Committee may change the guidelines so long as they are not,
overall, in the view of the Committee, less onerous.
Non-executive directors are currently required to use 25% of their annual fees, after statutory deductions, to acquire shares in the Company.
The shares are purchased quarterly and held until they retire from the Board. From 2017 it is proposed that this will change so that (unless they
are unable to retain their fees) they are all required to build and then maintain a holding of 100% of their base fee over the six years from the
date of appointment to the Board.
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 2016.
Sir Peter Bazalgette
Adam Crozier
Roger Faxon
Ian Griffiths
Mary Harris
Andy Haste
Anna Manz
John Ormerod
Anna Manz was appointed to the Board on 1 February 2016.
There were no changes in Directors’ interests in shares between the end of the financial year and 1 March 2017.
86
31 December
2016
31 December
2015
197,108
13,685
1,909,263
2,241,233
21,910
15,835
1,254,554
1,754,554
12,028
125,446
31,588
168,407
6,138
109,222
–
153,898
ITV plc Annual Report and Accounts 2016
Executive Directors’ non-executive directorships
With specific approval of the Board, Executive Directors may accept external appointments as non-executive directors of other companies
and retain any related fees paid to them.
During the year the Executive Directors retained fees for the directorships set out below.
Adam Crozier
Ian Griffiths
Adam Crozier stepped down from the board of G4S plc on 27 May 2016.
Company
G4S plc
DS Smith plc
2016
£000
25
55
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.
Date of appointment
Nature of contract
Notice period from
Company
Notice period from
Director
Compensation provisions
for early termination
Adam Crozier
Ian Griffiths
26 April 2010
9 September 2008
Rolling
Rolling
12 months
12 months
12 months
12 months
None
None
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 Director with immediate effect, or without notice; or
• termination is agreed by mutual consent.
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.
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 election and re-election by shareholders, unless otherwise terminated earlier by
and at the discretion of either party upon one month’s written notice (12 months for the current Chairman). After the initial three-year term
reappointment is on an annual basis.
All Non-executive Directors are subject to election or re-election at the AGM in 2017. Details of unexpired terms are set out in the table on
page 65.
The Directors’ service contracts and letters of appointment are available for inspection at the Company’s registered office.
87
Governance Governance
Annual Report on Remuneration
Annual Report on Remuneration continued
Outstanding interests under share schemes
The following tables provide details of Directors’ interests in outstanding share awards.
Adam Crozier
DSA
29 March 2016
27 March 2015
28 March 2014
28 March 2013
LTIP
29 March 2016
27 March 2015
30 May 2014
PSP
1 March 2013
Ian Griffiths
DSA
29 March 2016
27 March 2015
28 March 2014
28 March 2013
LTIP
29 March 2016
27 March 2015
30 May 2014
PSP
1 March 2013
Notes
3, 6
6
4
5
3, 6
6
4
5
At
1 January
2016
Awarded
in year
Vested
in year
Exercised
in year
Lapsed in
in year
At
31 December
2016
Share
price used
for award
(pence)
Share price
at date of
vesting
(pence)
Date of
release/exercise
in year
–
197,741
240,534
346,228
219,406
–
–
–
–
–
–
–
–
346,228 346,228
–
804,636
1,103,543
878,481
–
–
–
–
–
–
–
–
–
–
–
219,406
197,741
240,534
–
–
878,481
–
804,636
– 1,103,543
241.0
256.7
194.5
129.5
241.0
256.7
183.5
240.98
29 March 2016
624,647
– 468,485 468,485
156,162
–
121.1
240.98
29 March 2016
–
112,186
122,269
175,891
121,628
–
–
–
–
–
175,891
–
–
–
175,891
– 536,850
491,722
674,387
342,549
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
121,628
112,186
122,269
–
536,850
491,722
674,387
241.0
256.7
194.5
129.5
241.0
256.7
183.5
240.98
29 March 2016
256,912
256,912
85,637
–
121.1
240.98
29 March 2016
1. No awards are outstanding that have vested but have not been exercised.
2. There are no performance conditions attaching to the DSA.
3. DSA awards made in 2016 for 2015 performance are included in the remuneration table on page 80.
4. LTIP performance conditions were met in 2016 (80%). 50% will become exercisable on 30 May 2017, the remainder on 30 May 2018. The indicative value at 31 December 2016
is included in the remuneration table on page 80 and is described on page 82.
5. PSP performance conditions were met in 2015 (75%) and the value is included in the remuneration table on page 80.
6. The face value of awards granted in the financial year were £2,117,138 and £1,293,806 under the LTIP for Adam Crozier and Ian Griffiths respectively, and £528,768 and £293,122
under the DSA.
7. Performance conditions that apply to the outstanding awards under the LTIP are set out in the table below.
Strategic target
EPS Gateway
Cumulative adjusted EPS
Family SOV
Annual non-NAR growth
International production revenue growth
Online, Pay & Interactive revenue growth
2014 LTIP
2015 LTIP
2016 LTIP
Weighting
Threshold
vesting
Threshold Maximum
Threshold
Maximum
Threshold Maximum
1
1
2
3 4
4
3
50%
20%
10%
10%
10%
37.1p
20%
42.3p
37.1p
20% 23.05% 23.51%
10%
5%
20%
15%
5%
20%
15%
5%
20%
Cumulative adjusted
EPS years 2014 to 2016
45.7p
45.7p
22%
5%
5%
5%
52.2p
22.44%
10%
15%
18%
Cumulative adjusted
EPS years 2015 to 2017
54.6p
62.4p
21.6%
10%
15%
18%
54.6p
20.2%
5%
5%
5%
Cumulative adjusted
EPS years 2016 to 2018
Vesting between threshold and maximum (100%) is on a straight-line basis for all targets except SOV which vests at 75% with a
straight-line vesting from each threshold and maximum.
88
Remuneration Policy
ITV plc Annual Report and Accounts 2016
The tables below summarise the main elements of the remuneration package for Directors and will be effective from the date approved
by shareholders in 2017 and will apply until shareholders next consider and vote on the policy.
Executive Directors
Fixed elements
Purpose and link
to strategy
Operation
Maximum potential
payment
Performance metrics
Proposed changes
None, although
overall individual and
business performance
is considered when
setting and reviewing
salaries.
Introduce a formal cap
on salaries; this is a cap
and not an aspiration.
Base
salary
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.
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.
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.
No salary will exceed
£1.13 million (being 120%
of the CEO’s current
salary) as further
increased by RPI over
the life of the policy.
89
Governance Governance
Remuneration Policy
Remuneration Policy continued
Fixed elements
Purpose and link
to strategy
Operation
Maximum potential
payment
Performance metrics
Proposed changes
Provision
for an
income in
retirement
Benefits
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.
Ensures the overall
package is competitive
and provides financial
protection for
employees and their
families.
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.
None
No change.
The maximum
contributions or cash
allowances for the
Executive Directors are
25% of base salary.
None
Introduce a formal cap
on benefits; this is a cap
and not an aspiration.
Permit relevant
protection for
expatriate executives.
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.
The overall cost of
benefits will not exceed
£100,000 (£300,000 in
the case of a director
required to relocate
between countries)
in any year.
In addition, the
Company may
reimburse relocation
expenses and/ or
provide for tax
equalisation
arrangements.
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ITV plc Annual Report and Accounts 2016
Variable elements
Purpose and link
to strategy
Operation
Maximum potential
payment
Performance metrics
Proposed changes
No material changes.
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 and/or
strategic objectives.
Up to 20% of the
maximum opportunity
will be received for
threshold performance.
Bonus and
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.
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 and Risk
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.
Not more than
two-thirds of the bonus
is delivered in cash with
the balance deferred
into shares under the
DSA normally 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 96.
Dividends are paid to
participants on the
deferred shares during
the deferral period.
91
Governance Governance
Remuneration Policy
Remuneration Policy continued
Variable elements
Purpose and link
to strategy
Operation
Maximum potential
payment
Performance metrics
Proposed changes
LTIP
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.
Consistent with market
practice, greater
flexibility to set relevant
performance conditions
for new awards.
Our current operational
practice is to make
awards of 225% of
salary each year.
Under the LTIP rules, the
maximum annual award
that may be granted in
any financial year is
350% of salary.
The Committee may
set such performance
conditions on LTIP
awards as it considers
appropriate (whether
financial or
non-financial and
whether corporate,
divisional or individual).
The Committee has
sought to set measures
which are closely linked
to the Company’s
financial and strategic
priorities and will
continue to do so.
The proportion of
each element of the
award that will vest for
threshold performance
against a metric will be
not more than 20%.
Performance
periods may be over
such periods as the
Committee selects at
grant, which will not be
less (but may be longer)
than three years.
Awards are made under
the LTIP rules.
Awards are normally
made annually with
vesting dependent on
business performance
during the performance
period. The
performance period will
be not less than 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 two-year
holding period after the
end of the performance
period.
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 96.
SAYE
Provides all
employees, including
Executive Directors
the opportunity to
voluntarily invest in
Company shares.
Executive Directors are
entitled to participate
in the plan on the
same basis as other
employees.
Participation limits are
as per the rules of the
plan and in accordance
with HMRC limits.
None
No changes.
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 2016
Legacy arrangements
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 Remuneration 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.
Malus and claw-back
Malus and claw-back provisions may be operated at the discretion of the Committee in respect of any cash and deferred share elements of
the bonus and awards made under the LTIP. Under malus, unvested share awards (including any LTIP shares subject to a post vesting holding
period) can be reduced (down to zero if considered appropriate) or be made subject to additional conditions. Claw-back allows for repayment
of bonuses previously paid and/or shares previously received following vesting. Malus/claw-back can be operated up to four years following
the start of the relevant bonus year for bonuses, and up to six years from the relevant date of grant for LTIP awards. The circumstances in
which the operation of these provisions may be considered from time to time and currently include 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.
Non-executive Directors
The table below summarises the main elements of remuneration for Non-executive Directors:
Component
Approach of the Company
Maximum potential payment
Chairman fees
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 aggregate fees (together with any shares and/or
benefits including the reimbursement of travel and other
expenses – if subject to taxation – and an amount to meet
any tax arising on such expenses) of the Chairman and of
Non-Executive Directors will not exceed the limit from
time to time prescribed within the Company’s Articles
of Association (currently £1,500,000 p.a.).
Non-executive
fees
As above.
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 currently structured as a basic fee with additional
fees payable for membership and/or chairmanship of a
committee or other additional responsibilities but may
be restructured within the overall limits.
Benefits
Additional benefits may also be provided in certain
circumstances, if required for business purposes. This
includes the reimbursement of any travel expenses
(and associated tax on those expenses).
As above.
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Governance Governance
Remuneration Policy
Remuneration Policy continued
Application of the 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
100%
£1,194,891
On-target
Maximum
45%
24%
39%
16% £2,634,545
34%
42%
£5,005,739
Ian Griffiths
Below threshold
100%
£733,143
On-target
Maximum
47%
25%
36%
17%
£1,561,179
32%
43%
£2,975,741
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 2017, pension is 25% of salary, and the value of benefits is equivalent to that included in the remuneration table on page 80.
3. Annual bonus is based on 180% of salary for Adam Crozier and 165% of salary for Ian Griffiths.
4. LTIP amount is based on 225% of salary for both Executive Directors.
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ITV plc Annual Report and Accounts 2016
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 most suitable 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 most appropriate 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 on pages 89 to 97.
Buy-out awards
for forfeited
remuneration
Consistent with the DRR Regulations, the caps contained within the Remuneration Policy for fixed pay do not apply to new recruits
(whether internal or external), although the Committee does not currently envisage exceeding these caps in practice.
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).
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 the 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 but, particularly where the performance period is
substantially complete, may reflect such conditions in some other way such as through a significant discount to the face value
of awards forfeited. Exceptionally, where necessary, this may include
a guaranteed or non-prorated annual bonus in the year of joining.
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 (any may rely upon Listing Rule 9.4.2 in structuring
such a buy-out).
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 the 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.
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Governance Governance
Remuneration Policy
Remuneration Policy continued
Service contracts and loss of office
Executive Directors
Executive Directors have rolling service contracts that provide for 12 months notice on either side. For a new joiner, the contract may
commence with a notice period of up to two years reducing to the standard 12 months over time. 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 settling any potential claims where
appropriate.
With the exception of termination for cause or resignation (unless the Committee determines otherwise), 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 the performance achieved,
provided they have a minimum of three months service in that bonus year.
The treatment of shares awarded under the DSA and LTIP on termination are set out below.
Good leaver
Mutual agreement
Other circumstances
Change of control
DSA
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 unless the
Committee decides to release
the shares earlier.
The 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.
Awards lapse.
Awards release in full at
effective date of change.
LTIP
During the
performance
period
Injury, ill health or disability,
redundancy, retirement or
transfer of undertakings, or
otherwise at the discretion
of the Committee.
Awards are typically prorated
for time served and subject
to achievement of the
performance conditions during
the performance period.
Awards become exercisable at
the end of the holding period
unless the Committee decides
to release the shares earlier.
Awards lapse.
The 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.
LTIP
During the
additional
holding period
Awards become exercisable at
the end of the holding period
unless the Committee decides
to release the shares earlier.
Awards become exercisable at
the end of the holding period
unless the Committee decides
to release the shares earlier.
Awards become exercisable at
the effective date of change.
For resignation, awards
become exercisable at the end
of the holding period unless the
Committee decides to release
the shares earlier.
In the case of misconduct
awards will lapse.
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ITV plc Annual Report and Accounts 2016
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 months for the Chairman).
The director’s 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.
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 ongoing operation of this Remuneration Policy we shall seek major
shareholders’ views and take these into account.
97
Governance Governance
Directors’ Report
Directors’ Report
The Directors present their Annual Report and Accounts for the year ended 31 December 2016. The Directors’ Report required under
the Companies Act 2006 comprises this report and the entire Governance section including the Chairman’s Governance Statement.
Articles of Association
Unless expressly specified to the contrary, the Articles of Association may only be amended by special resolution of the shareholders.
The Articles are available on our website.
www.itvplc.com/investors/governance
Auditor
During the year the Audit and Risk Committee considered the performance and audit fees of the external auditor, and the level of non-audit
work undertaken. They recommended to the Board that a resolution for the reappointment of KPMG LLP for a further year as the Company’s
auditor be proposed to shareholders at the AGM in May 2017.
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 and proration for time
where appropriate.
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.
Directors
Appointments: A table showing Directors who served in the year can be found on page 65. Biographies for Directors currently in office can
be found on pages 60 and 61 and on our website.
www.itvplc.com/about/board-of-directors
Non-executive Directors are appointed for an initial three-year period and annually thereafter. In accordance with the UK Corporate Governance
Code, each Director will retire and submit himself or herself for election or re-election at the AGM on 10 May 2017.
Detail on compensation for loss of office can be found in the Remuneration Report on page 84.
Conflicts of interest: The Board has delegated the authorisation of conflicts to the Nomination Committee and has adopted a Conflicts
of Interest Policy. The Board has considered in detail the current external appointments of the Directors which may give rise to a situational
conflict and has authorised potential conflicts where appropriate. This authorisation can be reviewed at any time but will always be subject
to annual review. The Board is confident that these procedures operate effectively.
Contracts of significance: No Director had any interest in any contract with the Company or its subsidiary undertakings.
Powers: The powers of the Directors are set out in the Articles of Association. The Articles and a schedule of Matters Reserved for the Board
can be found on our website.
www.itvplc.com/investors/governance
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ITV plc Annual Report and Accounts 2016
Dividends
The Board has proposed a final dividend and a special dividend for the year ended 31 December 2016. Details of these and other dividends paid
for the year are as follows:
Interim dividend
Final dividend
Total ordinary dividend
Special dividend
Total dividend payment
2016
2.4p
4.8p
7.2p
5.0p
12.2p
2015
1.9p
4.1p
6.0p
10.0p
16.0p
The final dividend and special dividend for 2016 will be paid on 25 May 2017 to shareholders on the register on 28 April 2017. The ex-dividend
date is 27 April 2017.
Employees
Disability: The Company has been certified a ‘Disability Confident’ employer by the Department for Work and Pensions and gives full and
fair consideration to the employment of people with a disability or long-term health condition in accordance with the Equality Act 2010.
Our employment and recruitment policies are based on equal opportunities and non-discrimination. ITV is a member of ‘Diversity Jobs’,
which connects people to employers who place high importance on a diverse staff population. The Company provides tailored measures
to ensure colleagues are fully supported and that reasonable adjustments are made. We are committed to ensuring that all training, career
development and promotional opportunities are accessible and inclusive to all colleagues with a disability.
The Company's commitment around the disability agenda extends beyond our legal obligations and we partner with a variety of specialists
to drive best practice. Further information can be found on our Responsibility website.
www.itvresponsibility.com
Diversity: Our goal is to reflect modern society through our programmes, channels, workforce and services, ensuring we are relevant and
accessible to all. It's integral to our business aims to reflect, represent and appeal to the breadth of communities that characterise modern
society. The Company has four strategic commitments to diversity: inclusive programming, inclusive workforce, inclusive culture and inclusive
access to programmes and services. The Company has a number of policies to support this, for example the Code of Conduct, Equal
Opportunities Policy and Social Partnership framework for programme-makers. The Corporate Responsibility Board is responsible for
the implementation plans to deliver on these commitments and embed practices into the business.
Further information can be found on our Responsibility website.
www.itvresponsibility.com
Engagement: Attracting and retaining talent is critical to our success. It is therefore in our interest to ensure that we provide the appropriate
rewards and opportunities for development so that colleagues feel engaged with the Company.
In 2016 the Management Board led a series of roadshows across the business. This gave colleagues an opportunity to feed back their thoughts
and concerns about the business. Engagement was reinforced through forums such as the intranet, regular soft and hard-copy newsletters
and briefings between management and their teams. These channels enabled colleagues 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.
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Governance Governance
Directors’ Report
Directors’ Report continued
To further promote colleague engagement, the Company has a network of Ambassadors who are nominated and elected by their colleagues
to represent each part of the business. These Ambassadors share the views of colleagues with the business, enabling us to understand ways to
make ITV a better place to work. The Ambassadors also keep colleagues up to date with what is going on across the business.
We have continued to measure and listen to colleagues through employee surveys. This year, in line with best practice, we changed the way we
measured engagement globally by including additional questions in order to capture a more rounded picture. 90% of employees said they were
proud to work for ITV (2015: 89.33%), and the score for total engagement was 83%.
Remuneration: When the Company reviews pay it takes a number of factors into consideration, including the need to stay competitive.
Our focus on cash and costs remains incredibly important for the future health of our business. We need to balance our business and financial
commitments with our continuing investment in our programming and people.
The Company continues to be committed to ensuring colleagues earn at least the Living Wage or greater. Where appropriate we have agreed
additional increases. On 1st January 2017, all eligible colleagues received a pay increase of 1.5% (2016: 3.0%), with all those on a full-time
equivalent basic salary of £100,000 or above receiving no salary increase, including the Executive Directors.
In addition a bonus arrangement extends to all our colleagues, providing a comprehensive incentive framework which rewards everybody
when the Company is successful. The all-colleague bonus award for 2016 was paid at £1,300 (2015: paid in full at £1,500).
The Company also operates a successful and popular Save As You Earn scheme that encourages voluntary investment in Company shares and
a package of voluntary benefits, which provides valuable cost savings for both colleagues and the Company.
Information about remuneration for the Directors is included in the Remuneration Report on pages 75 to 88.
Succession planning: When planning succession within the Company consideration is given to emergency cover together with medium
and long-term succession and this is reviewed annually by the Nomination Committee. There is particular emphasis on growing the internal
leadership pipeline through the launch of the following key programmes:
Executive
Development
Programme
Developing
Future Leaders
Programme
Next generation potential Management Board successors, giving them an opportunity to develop their management potential
and gain a greater understanding of the business.
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.
A comprehensive portfolio of development courses and workshops is in place for all colleagues which address common development needs.
Greenhouse Gas emissions
The Company is required to report annually on the quantity of carbon dioxide equivalent emissions in tonnes emitted as a result of activities for
which it is responsible.
All data for the financial year ended 31 December 2016 is disclosed below for direct and indirect (electricity consumption) emissions. More
information on how we minimise our environmental impact can be found on our Responsibility website.
www.itvresponsibility.com
Indicator
Total gross CO2e emissions
Scope 1: Direct emissions
Scope 2: Indirect emissions
Total revenue
Emissions per unit/£m revenue
2016
2015
26,984 (tCO2e)
7,793 (tCO2e)
19,191 (tCO2e)
£3,527m
31,196 (tCO2e)
8,294 (tCO2e)
22,902 (tCO2e)
£3,383m
7.7 (tCO2e)
9.2 (tCO2e)
Source: Mitie Energy analysis of ITV data.
The emissions data covers our global operations. The latest conversion factors from the Department for Business, Energy & Industrial Strategy were used to calculate emissions in tonnes of
carbon dioxide equivalents. 34% of our data set is based on estimated data. Estimates are calculated from previous consumption trends and published benchmarks.
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ITV plc Annual Report and Accounts 2016
As 90% of our greenhouse gas emissions are generated within our UK operations we have concentrated our efforts this year in our oldest
buildings by starting to replace the ageing infrastructure with more efficient plant. In the last year we have seen a 12% reduction in energy
use at our main site in Leeds as the replacement programme has delivered benefits. We have been able to reduce energy use in our Birmingham
studio by almost 20% by replacing the air conditioning with a more efficient system and have reduced our gas consumption in London by 10%
by conducting a review of building operations and varying the operating hours of the heating plant. Further investment in 2017 should deliver
continued steady reductions.
Health and safety
The health and safety of our colleagues, contractors and those participating in our productions is always a high priority. The significant loss of
human life as the result of a major incident has been identified as a Principal risk to the organisation. The Company’s professional Health and
Safety team continue to develop and refine our management system to ensure it meets the specific risk profile of the business and embeds
the ownership of risk with business owners.
In 2016 we rolled out a Leading Risk programme with the leadership teams in ITV Studios UK, supported by a research project being undertaken
in collaboration with the London School of Economics to give us a greater understanding of risk taking beliefs and behaviours within our
production business.
We will build on this in 2017 across our International business and we and will continue to underpin our Health and Safety Management system
with three key principles:
• People are the solution.
• Safety is about positive outcomes.
Safety is a moral responsibility.
•
Performance indicators – UK
Lost time accidents reported under RIDDOR1
Specified injuries reported under RIDDOR2
Performance indicators – international
Staff
4
2
Non
Staff
1
2
2016
Total
5
4
Staff
5
1
Non
Staff
7
8
20153
Total
12
9
Serious injuries sustained at work by staff
or people directly involved in our activities1
2016
20153
0
0
0
0
0
1
0
–
3
1
0
0
0
0
0
0
0
0
Australia
France
Germany
Talpa
USA
Finland
Norway
Sweden Denmark
1. This indicates accidents that have led to people being unable to undertake their normal role for seven days or longer.
2. Specified injuries in this context means injuries such as broken bones (not fingers or toes), amputation, serious burns, loss of consciousness caused by a head injury or inpatient
hospitalisation. These are reported if they were caused by our work activity.
3. Reported data excludes Mammoth, TwoFour and Talpa as these were not integrated into the ITV Health and Safety Management system in the year ended 31 December 2015.
Due to differing local legislative reporting requirements figures for lost time accidents have not yet been integrated into the ITV Health and Safety Management System.
Insurance and indemnities
The Company maintains liability insurance for its Directors and officers that is renewed on an annual basis. The Company has also entered into
deeds of indemnity with its Directors and other Senior Executives. A copy of the indemnity can be found on our website.
www.itvplc.com/investors/governance
The Company operates a pension scheme that provides retirement and death benefits for colleagues. 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 2016 and remain in
force for the benefit of each of the directors of ITV Pension Scheme Limited. These indemnity provisions cover, to the extent permitted by
law, certain losses or liabilities incurred as a director of ITV Pension Scheme Limited.
101
Governance Governance
Directors’ Report
Directors’ Report continued
Listing rule 9.8.4 disclosures
There are no disclosures to be made other than that the trustee of the ITV Employees’ Benefit Trust (EBT) waived their rights to receive
dividends on shares held by them which do not relate to restricted shares held under the ITV DSA.
Political contributions
It is the Company’s policy not to make cash contributions to any political party. However, within the normal activities of the Company’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 2016 AGM. However,
during 2016 the Group made no payments falling within this definition (2015: nil).
Report and Accounts disclosures
Financial risk management: The Directors have carried out a robust assessment of the Principal risks facing the Company, including in
relation to its business model, future performance, solvency and liquidity. Details of our risks and associated mitigations together with details
of our approach to risk management are set out on pages 50 to 57.
Note 4.3 to the accounts on page 161 gives details of the Group’s financial risk management policies and related exposures. This is deemed to
form part of this report.
Future developments: Our strategy is set out in the Strategic Report.
Going concern: The going concern statement is set out on page 116. This note is deemed to form part of this report.
Subsequent events: Details of post balance sheet events are set out in the Strategic Report on page 49 and in Note 5.3 on page 172.
Research and Development: Relevant information is set out in the Strategic Report.
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.
Purchase of own shares: The Directors have the authority to purchase up to 402.5 million of the Company’s ordinary shares. The authority
remains valid until the AGM in 2017 or 10 August 2017, if earlier.
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 Guidance and Transparency Rules (DTRs), Persons Discharging Managerial
Responsibility 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 transfer of securities and/or voting rights.
Rights: The rights attaching to the Company’s ordinary shares are set out in the Articles of Association.
Share Schemes: Details of employee share schemes are set out in note 4.7. The Company’s EBT is funded by loans to acquire shares for the
potential benefit of employees. Details of shares held by the EBT at 31 December 2016 are set out on page 171. During the year shares have been
released from the EBT in respect of share schemes for employees. The trustee of the EBT has the power to exercise all voting rights in relation
to any investment (including ordinary shares) held within the EBT.
102
ITV plc Annual Report and Accounts 2016
Substantial shareholders
Information regarding interests in voting rights provided to the Company pursuant to the DTRs is published on a Regulatory Information Service
and on the Company’s website.
As at 1 March 2017, the information in the table below had been received, in accordance with DTR5, from holders of notifiable interests (voting
rights) in the Company’s issued share capital. It should be noted that these holdings may have changed since notified to the Company. However,
notification of any change is not required until the next applicable threshold is crossed.
% interest
in shares
Nature of
interest in shares
% interest
in financial
instruments
Nature of interest in financial instruments
Total number of shares
or interest in shares
Liberty Global Incorporated Limited
Ameriprise Financial, Inc. and its group
Blackrock Inc.
9.90
4.95
3.41
Direct
Indirect
Indirect
The Goldman Sachs Group, Inc.
0.07
Indirect
–
0.01
3.08
0.56
0.27
20.19
–
Equity swap
Securities lending
Contract For Difference
Stock Loan (physical)
Swap (cash) Contract
For Difference (cash)
Over The Counter option
(physical or cash)
398,515,510
201,233,569
284,240,487
826,553,051
The number of shares is based on announcements made by each relevant shareholder using the Company’s issued share capital at that date.
103
Governance Governance
Directors’ Report
Directors’ Report continued
The Directors are responsible for preparing the Annual Report and Accounts 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, including FRS 101 Reduced Disclosure Framework.
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;
• to make judgements and estimates that are reasonable and prudent;
• for the Group financial statements, to 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
• to 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.
By order of the Board
Ian Griffiths
Group Finance Director
1 March 2017
ITV plc
Registered number 4967001
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
position and performance, business model
and strategy.
Each of the Directors, whose names and
functions are listed on pages 60 and 61,
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 Strategic and Directors’ Reports include
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 2016. 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.
104
Financial Statements
ITV plc Annual Report and Accounts 2016
In this
section
The financial statements have been presented in a style that 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.
In this
section
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
Independent Auditor’s Report to the Members of ITV plc Only
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 Profit before tax
2.2 Exceptional items
2.3 Taxation
2.4 Earnings per share
2.5 Discontinued operation
Section 3: Operating Assets and Liabilities
3.1 Working capital
3.2 Property, plant and equipment
3.3 Intangible assets
3.4 Acquisitions
3.5 Investments
3.6 Provisions
3.7 Pensions
Section 4: Capital Structure and Financing Costs
4.1 Net debt
4.2 Borrowings and finance leases
4.3 Managing market risks: derivative financial instruments
4.4 Net financing costs
4.5 Fair value hierarchy
4.6 Equity
4.7 Share-based compensation
Section 5: Other Notes
5.1 Related party transactions
5.2 Contingent liabilities
5.3 Subsequent events
5.4 Subsidiaries except from audit
ITV plc Company Financial Statements
Notes to the ITV plc Company Financial Statements
106
110
110
111
112
113
115
116
120
120
125
126
129
131
132
132
136
138
143
146
147
148
157
157
159
161
165
166
168
169
171
171
172
172
174
175
177
105
Financial Statements
Financial Statements
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 2016 set out on pages 110 to 188. 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 2016
and of the group'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, including FRS 101
Reduced Disclosure Framework; 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, in decreasing order of audit significance,
that had the greatest effect on our audit, were as follows:
Our response
The risk
Net Advertising Revenue (‘NAR’) £1,672 million (2015: £1,719 million) Risk vs 2015: ◄ ►,
Refer to page 71 (Audit Committee report), page 120 (accounting policy) and pages 121 and 122 (financial disclosures)
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.
• Testing of controls, assisted by our own IT specialists, including those
over: segregation of duties, input of annual deal terms with agencies,
input of individual campaigns’ terms and pricing, comparison of
those terms and pricing data against the related contracts with
advertising agencies; linkage to transmission/viewer data; and the
system generated calculation of deal debt for each campaign;
• Analysing revenue based on our industry knowledge and external
Our procedures included:
market data, following up variances; and
• Challenging the year-end deal debt position based on comparison
with customers’ correspondence and agreed terms of business.
We also assessed the adequacy of the group's disclosures in respect
of the accounting policies on revenue recognition.
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. A net deal debt position with an
agency is recorded in ITV’s accounts, as a liability. Net deal credit
positions are not recognised.
NAR is therefore considered a significant risk due to:
• The number 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.
106
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 2016 set out on pages 110 to 188. 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 2016
and of the group's profit for the year then ended;
• the group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted
• the parent company financial statements have been properly prepared in accordance with UK Accounting Standards, including FRS 101
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the group
by the European Union;
Reduced Disclosure Framework; and
financial statements, Article 4 of the IAS Regulation.
2. Our assessment of risks of material misstatement
that had the greatest effect on our audit, were as follows:
In arriving at our audit opinion above on the financial statements the risks of material misstatement, in decreasing order of audit significance,
The risk
Our response
Net Advertising Revenue (‘NAR’) £1,672 million (2015: £1,719 million) Risk vs 2015: ◄ ►,
Refer to page 71 (Audit Committee report), page 120 (accounting policy) and pages 121 and 122 (financial disclosures)
The majority of ITV’s advertising revenue (‘NAR’) is subject to regulation
Our procedures included:
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
• Testing of controls, assisted by our own IT specialists, including those
over: segregation of duties, input of annual deal terms with agencies,
input of individual campaigns’ terms and pricing, comparison of
those terms and pricing data against the related contracts with
advertising agencies; linkage to transmission/viewer data; and the
system generated calculation of deal debt for each campaign;
• Analysing revenue based on our industry knowledge and external
market data, following up variances; and
difference to arise between the price received by ITV for an advertising
• Challenging the year-end deal debt position based on comparison
with customers’ correspondence and agreed terms of business.
We also assessed the adequacy of the group's disclosures in respect
of the accounting policies on revenue recognition.
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. A net deal debt position with an
agency is recorded in ITV’s accounts, as a liability. Net deal credit
positions are not recognised.
NAR is therefore considered a significant risk due to:
• The number and complexity of contractual agreements with
• The complexity of the systems and processes of control used to
• The level of estimation involved in determining the deal debt liability
advertising agencies;
record revenue; and,
at the period end.
ITV plc Annual Report and Accounts 2016
The risk
Other revenue streams (‘Non-NAR revenue’) £1,392 million (2015: £1,253 million) Risk vs 2015: ▼
Refer to page 71 (Audit Committee report), page120 (accounting policy) and pages 121 and 122 (financial disclosures)
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.
Our procedures included:
Our response
relevant accounting standards; and
• We considered the Group’s revenue recognition policies against the
Recognition of revenue is driven by the specific terms of the related
contracts and is considered to be a significant risk as the terms of
the contracts are varied and can be complex, with the result that
accounting for the revenue generated in any given period can require
individual consideration and judgement. Due to the contractual
nature of these revenue streams, the focus of our work is on the risks
associated with significant one-off contracts.
• For higher value revenue contracts entered into during the year,
we considered whether revenue had been recognised in accordance
with the contractual terms in the correct accounting period, given
the requirements of the relevant accounting standard.
We also assessed the adequacy of the group's disclosures in respect
of the accounting policy on revenue recognition.
Defined benefit pension scheme obligations £367 million (2015: £176 million) Risk vs 2015: ▲
Refer to page 70 (Audit Committee report), page 148 (accounting policy) and pages 148 to 156 (financial disclosures)
Significant estimates are made in determining the key assumptions
used in valuing the group's post-retirement defined benefit
obligations. When making these assumptions the Group takes
independent actuarial advice relating to their appropriateness.
Our procedures included:
Following an analysis of the membership data carried out for the
related longevity swap, the Group updated its mortality assumptions
in the year which had an impact on the obligations at the year-end.
The Group also closed the ITV Pensions Scheme for future benefit
accrual with effect from 28 February 2017.
The valuation of the defined benefit obligations is considered a significant
risk given the quantum of the pension deficits, the developments related
to the schemes in the year, and given that a small change in assumptions
can have a material financial impact on the Group.
• Challenging the key assumptions applied in determining the Group's
pension obligations, being the discount rate, inflation rate and
mortality/life expectancy, with the support of our own actuarial
specialists;
• This included a comparison of these key assumptions against
externally derived data; and
• Testing the methodology applied in determining the revised
mortality expectation by comparing the conclusions of the Group’s
analysis with our own analysis formed using externally derived data.
We also considered the adequacy of the group's disclosures in respect
of the sensitivity of the deficits to these assumptions.
We continue to perform procedures over acquisition accounting and royalty accruals. We have not assessed these as risks that had the greatest
effect on our audit for the reasons explained below and, therefore, they are not separately identified in our report this year:
Acquisition accounting is not separately identified in our report this year as the Group did not enter into any complex transactions in the year.
Royalty accruals are no longer considered a significant risk reflecting further improvement in controls in the year and the overall size of the
balance by comparison with the Group’s Net Asset position.
107
Financial Statements
Financial Statements
Independent Auditor’s Report to the
Members of ITV plc Only continued
3. Our application of materiality and an overview of the scope of our audit
Materiality for the group financial statements as a whole was set at £35 million (2015: £29 million), determined with reference to a benchmark
of group profit before tax normalised to exclude the one-off pre-paid employment linked remuneration charge and pension curtailment cost
disclosed in note 2.2, £623 million, of which materiality represents 5.5% (2015: 4.6% of group profit before tax).
We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding million £1.7 million (2015: £1.5 million),
in addition to other identified misstatements that warranted reporting on qualitative grounds.
Scoping and coverage
Revenue
Group audited
85%
Specified risk-based
audit procedures
Out of scope
5%
10%
Profit before tax
Group audited
Specified risk-based
audit procedures
Out of scope
88%
1%
11%
Total assets
Group audited
89%
Specified risk-based
audit procedures
Out of scope
1%
10%
The Group’s principal operations are in the United Kingdom. The Group audit team performed the audit of the core UK operations (comprising
Broadcast and Online, the UK Studios, Global Entertainment and the central functions) as if they were a single aggregated set of financial
information using materiality of £25 million (2015: £25 million). The group team performed procedures on the items excluded from normalised
group profit before tax. This year Talpa Media B.V, in the Netherlands, was also scoped in for Group audit purposes as a full scope audit. The work on
Talpa Media B.V. was performed by a component auditor as instructed by the Group, including the assessment of relevant risks and determination
of the information to be reported back. The Group audit team set the materiality of £5 million for this component.
The Group team visited the component in Netherlands, including to assess the audit risk and strategy, and held several telephone conference
meetings with the component audit team. At this visit and in these meetings, the findings reported to the Group team were discussed in more
detail, and any further work required by the Group team was then performed by the component auditor.
Although not in-scope for Group reporting purposes, in agreement with the Audit Committee, specified risk-based audit procedures were also
performed on two entities in the US by component auditors simultaneously with the audit of the in-scope operations. The Group audit team
set the materiality for specified audit procedures at £5 million for these US components. Together the above audit and these specified audit
procedures covered 90% (2015: 92%) of group revenue, 89% (2015: 94%) of group profit before taxation; and 90% (2015: 88%) 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 Directors’ 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.
Based solely on the work required to be undertaken in the course of the audit of the financial statements and from reading the Strategic
Report and the Directors’ Report:
• we have not identified material misstatements in those reports; and
• in our opinion, those reports have been prepared in accordance with the Companies Act 2006.
108
Independent Auditor’s Report to the
Members of ITV plc Only continued
3. Our application of materiality and an overview of the scope of our audit
Materiality for the group financial statements as a whole was set at £35 million (2015: £29 million), determined with reference to a benchmark
of group profit before tax normalised to exclude the one-off pre-paid employment linked remuneration charge and pension curtailment cost
disclosed in note 2.2, £623 million, of which materiality represents 5.5% (2015: 4.6% of group profit before tax).
We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding million £1.7 million (2015: £1.5 million),
in addition to other identified misstatements that warranted reporting on qualitative grounds.
Scoping and coverage
The Group’s principal operations are in the United Kingdom. The Group audit team performed the audit of the core UK operations (comprising
Broadcast and Online, the UK Studios, Global Entertainment and the central functions) as if they were a single aggregated set of financial
information using materiality of £25 million (2015: £25 million). The group team performed procedures on the items excluded from normalised
group profit before tax. This year Talpa Media B.V, in the Netherlands, was also scoped in for Group audit purposes as a full scope audit. The work on
Talpa Media B.V. was performed by a component auditor as instructed by the Group, including the assessment of relevant risks and determination
of the information to be reported back. The Group audit team set the materiality of £5 million for this component.
The Group team visited the component in Netherlands, including to assess the audit risk and strategy, and held several telephone conference
meetings with the component audit team. At this visit and in these meetings, the findings reported to the Group team were discussed in more
detail, and any further work required by the Group team was then performed by the component auditor.
Although not in-scope for Group reporting purposes, in agreement with the Audit Committee, specified risk-based audit procedures were also
performed on two entities in the US by component auditors simultaneously with the audit of the in-scope operations. The Group audit team
set the materiality for specified audit procedures at £5 million for these US components. Together the above audit and these specified audit
procedures covered 90% (2015: 92%) of group revenue, 89% (2015: 94%) of group profit before taxation; and 90% (2015: 88%) of total
group assets.
In our opinion:
4. Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
• the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared
is consistent with the financial statements.
Based solely on the work required to be undertaken in the course of the audit of the financial statements and from reading the Strategic
Report and the Directors’ Report:
• we have not identified material misstatements in those reports; and
• in our opinion, those reports have been prepared in accordance with the Companies Act 2006.
ITV plc Annual Report and Accounts 2016
5. We have nothing to report on the disclosures of principal risks
Based on the knowledge we acquired during our audit, we have nothing material to add or draw attention to in relation to:
• the Directors’ viability statement on page 57, concerning the principal risks, their management, and, based on that, the Directors’ assessment
and expectations of the group’s continuing in operation over the 3 years to 31 December 2019; or
• the disclosures in note 1 of the financial statements concerning the use of the going concern basis of accounting.
6. 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 position and 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 Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
• the Directors’ statements, set out on pages 104 and 57, in relation to going concern and longer-term viability; and
• the part of the Corporate Governance Statement on pages 64 to 67 relating to the company’s compliance with the eleven provisions of the
2014 UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
Scope and responsibilities
As explained more fully in the Directors’ Responsibilities Statement set out on page 104, 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/auditscopeukco2014a, 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.
Paul Sawdon (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
1 March 2017
109
Financial Statements
Financial Statements
Consolidated Income Statement
For the year ended 31 December
Revenue
Operating costs
Operating profit
Presented as:
Earnings before interest, tax, amortisation (EBITA) before exceptional items
Operating exceptional items
Amortisation of intangible assets
Operating profit
Financing income
Financing costs
Net financing costs
Gain on sale of non-current assets (exceptional items)
Gain on sale of subsidiaries and investments (exceptional items)
Profit before tax
Taxation
Profit from continuing operations
Loss after tax for the period from discontinued operation
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
Earnings per share from continuing operations
Basic earnings per share
Diluted earnings per share
Note
2.1
2.1
2.2
3.3
4.4
4.4
4.4
2.2
2.2
2.3
2.5
4.6.6
2.4
2.4
2.4
2.4
2016
£m
3,064
(2,460)
604
2015
£m
2,972
(2,306)
666
857
(164)
(89)
604
2
(53)
(51)
–
–
553
(100)
453
(1)
452
448
4
452
11.2p
11.1p
11.2p
11.1p
842
(109)
(67)
666
6
(37)
(31)
5
1
641
(139)
502
–
502
495
7
502
12.4p
12.3p
12.4p
12.3p
110
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
ITV plc Annual Report and Accounts 2016
Earnings before interest, tax, amortisation (EBITA) before exceptional items
For the year ended 31 December
Revenue
Operating costs
Operating profit
Presented as:
Operating exceptional items
Amortisation of intangible assets
Operating profit
Financing income
Financing costs
Net financing costs
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
Basic earnings per share
Diluted earnings per share
Earnings per share from continuing operations
Gain on sale of non-current assets (exceptional items)
Gain on sale of subsidiaries and investments (exceptional items)
Profit from continuing operations
Loss after tax for the period from discontinued operation
Note
2.1
2.1
2.2
3.3
4.4
4.4
4.4
2.2
2.2
2.3
2.5
4.6.6
2.4
2.4
2.4
2.4
2016
£m
3,064
(2,460)
604
2015
£m
2,972
(2,306)
666
857
(164)
(89)
604
2
(53)
(51)
–
–
553
(100)
453
(1)
452
448
4
452
11.2p
11.1p
11.2p
11.1p
842
(109)
(67)
666
6
(37)
(31)
5
1
641
(139)
502
–
502
495
7
502
12.4p
12.3p
12.4p
12.3p
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
Net loss on cash flow hedges
Exchange gain on translation of foreign operations (net of hedging)
Items that will never be reclassified to profit or loss
Remeasurement (losses)/gains on defined benefit pension schemes
Income tax charge on items that will never be reclassified
Other comprehensive (cost)/income 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
Note
4.6.4
4.6.3
4.6.3
3.7
2.3
4.6.6
2016
£m
452
1
(2)
46
(248)
40
(163)
289
285
4
289
2015
£m
502
(1)
–
10
91
(19)
81
583
576
7
583
111
Financial Statements
Financial Statements
Consolidated Statement of Financial Position
As at 31 December
Non-current assets
Property, plant and equipment
Intangible assets
Investments in joint ventures, associates and equity investments
Derivative financial instruments
Distribution rights
Other pension asset
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
Current tax receivable
Derivative financial instruments
Cash and cash equivalents
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
Deferred tax liabilities
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
The accounts were approved by the Board of Directors on 1 March 2017 and were signed on its behalf by:
Ian Griffiths
Group Finance Director
112
Note
3.2
3.3
3.5
4.3
3.1.2
3.7
2.3
3.1.1
3.1.3
3.1.3
4.3
4.1
4.2
4.3
3.1.4
3.1.5
3.6
4.2
4.3
3.7
2.3
3.1.5
3.6
4.6.1
4.6.1
4.6.2
4.6.3
4.6.4
4.6.5
2016
£m
244
1,624
76
1
31
39
17
2,032
406
526
39
565
11
8
561
1,551
(165)
(3)
(960)
(57)
(1,017)
(76)
(19)
(1,280)
2015
£m
239
1,500
30
8
29
–
–
1,806
373
531
33
564
13
1
294
1,245
(11)
(5)
(786)
(48)
(834)
(69)
(28)
(947)
271
298
(1,035)
(9)
(367)
(70)
(63)
(4)
(1,548)
755
403
174
221
79
7
(162)
722
33
755
(602)
(6)
(176)
(79)
(89)
(5)
(957)
1,147
403
174
221
35
6
275
1,114
33
1,147
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
ITV plc Annual Report and Accounts 2016
Investments in joint ventures, associates and equity investments
As at 31 December
Non-current assets
Property, plant and equipment
Intangible assets
Derivative financial instruments
Distribution rights
Other pension asset
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
Current tax receivable
Derivative financial instruments
Cash and cash equivalents
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
Deferred tax liabilities
Other payables
Provisions
Net assets
Share capital
Share premium
Merger and other reserves
Translation reserve
Available for sale reserve
Retained earnings
Non-controlling interests
Total equity
Ian Griffiths
Group Finance Director
Attributable to equity shareholders of the parent company
Total equity attributable to equity shareholders of the parent company
The accounts were approved by the Board of Directors on 1 March 2017 and were signed on its behalf by:
Note
3.2
3.3
3.5
4.3
3.1.2
3.7
2.3
3.1.1
3.1.3
3.1.3
4.3
4.1
4.2
4.3
3.1.4
3.1.5
3.6
4.2
4.3
3.7
2.3
3.1.5
3.6
4.6.1
4.6.1
4.6.2
4.6.3
4.6.4
4.6.5
2,032
1,806
2016
£m
244
1,624
76
1
31
39
17
406
526
39
565
11
8
561
1,551
(165)
(3)
(960)
(57)
(1,017)
(76)
(19)
(1,280)
(1,035)
(9)
(367)
(70)
(63)
(4)
(1,548)
755
403
174
221
79
7
(162)
722
33
755
2015
£m
239
1,500
30
8
29
–
–
373
531
33
564
13
1
294
1,245
(11)
(5)
(786)
(48)
(834)
(69)
(28)
(947)
(602)
(6)
(176)
(79)
(89)
(5)
(957)
1,147
403
174
221
35
6
275
1,114
33
1,147
271
298
Balance at 1 January 2016
Total comprehensive income for
the year
Profit
Other comprehensive income/(cost)
Revaluation of available for sale
financial assets
Net loss on cash flow hedges
Exchange differences on translation of
foreign operations (net of hedging)
Remeasurement loss on defined benefit
pension schemes
Income tax charge 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
Movements due to share-based
compensation
Tax on items taken directly to equity
Purchase of own shares via employees’
benefit trust
Total contributions by and distributions
to owners
Total transactions with owners
Balance at 31 December 2016
Attributable to equity shareholders of the parent company
Note
Share
capital
£m
403
Share
premium
£m
Merger
and other
reserves
£m
Translation
reserve
£m
Available
for sale
reserve
£m
Retained
earnings
£m
174
221
35
6
275
Non-
controlling
interests
£m
33
Total
£m
1,114
Total
equity
£m
1,147
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
403
–
–
174
–
–
221
3.7
2.3
4.7
2.3
4.7
4.6
–
–
(2)
46
–
–
44
44
–
–
–
–
–
–
79
–
1
–
–
–
–
1
1
–
–
–
–
–
–
7
448
448
4
452
–
–
–
1
(2)
46
(248)
(248)
40
(208)
40
(163)
240
285
–
–
–
–
–
–
4
1
(2)
46
(248)
40
(163)
289
(663)
(663)
(4)
(667)
10
(4)
10
(4)
(20)
(20)
(677)
(677)
(162)
(677)
(677)
722
–
–
–
(4)
(4)
33
10
(4)
(20)
(681)
(681)
755
113
Financial Statements
Financial Statements
Consolidated Statement of Changes in Equity continued
Attributable to equity shareholders of the parent company
Note
Share
capital
£m
403
Share
premium
£m
Merger
and other
reserves
£m
Translation
reserve
£m
Available
for sale
reserve
£m
Retained
earnings
£m
Non-
controlling
interests
£m
Total
£m
Total
equity
£m
174
228
25
177
1,014
50
1,064
Balance at 1 January 2015
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 (net of hedging)
Remeasurement gains on defined
benefit pension schemes
Reclassification of revaluation reserve
on disposal of property, plant and
equipment
Income tax charge 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
Movements due to share-based
compensation
Tax on items taken directly to equity
Purchase of own shares via employees’
benefit trust
Total contributions by and distributions
to owners
Total transactions with owners
Changes in non-controlling interests(a)
Balance at 31 December 2015
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
403
–
–
–
174
–
–
–
–
(4)
–
(4)
(4)
–
–
–
–
–
–
(3)
221
–
–
10
–
–
–
10
10
–
–
–
–
–
–
–
35
3.7
2.3
4.7
2.3
4.7
3.4
4.6
7
–
(1)
–
–
–
–
(1)
495
495
–
–
91
4
(19)
76
(1)
10
91
–
(19)
81
(1)
571
576
7
–
–
–
–
–
–
7
502
(1)
10
91
–
(19)
81
583
–
–
–
–
–
–
–
6
(459)
(459)
(5)
(464)
14
5
14
5
(33)
(33)
(473)
(473)
–
275
(473)
(473)
(3)
1,114
–
–
–
(5)
(5)
(19)
33
14
5
(33)
(478)
(478)
(22)
1,147
(a) Movements reported in merger and other reserves include a put option for the acquisition of non-controlling interests.
114
Consolidated Statement of Changes in Equity continued
Consolidated Statement of Cash Flows
Attributable to equity shareholders of the parent company
Note
Share
capital
£m
403
Merger
Share
and other
Translation
premium
reserves
reserve
£m
174
£m
228
Available
for sale
reserve
£m
7
Retained
earnings
£m
177
Non-
controlling
interests
£m
50
Total
£m
1,014
Total
equity
£m
1,064
Balance at 1 January 2015
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 (net of hedging)
Remeasurement gains on defined
benefit pension schemes
Reclassification of revaluation reserve
on disposal of property, plant and
equipment
Income tax charge 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
Movements due to share-based
compensation
Tax on items taken directly to equity
Purchase of own shares via employees’
benefit trust
to owners
Total contributions by and distributions
Total transactions with owners
Changes in non-controlling interests(a)
Balance at 31 December 2015
3.7
2.3
4.7
2.3
4.7
3.4
4.6
£m
25
10
–
–
–
–
–
10
10
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4)
–
(4)
(4)
–
–
–
–
–
–
(3)
221
(a) Movements reported in merger and other reserves include a put option for the acquisition of non-controlling interests.
403
174
35
–
495
495
502
7
–
–
–
–
–
–
7
–
–
–
(1)
10
91
–
(19)
81
583
14
5
(33)
–
–
91
4
(19)
76
(1)
10
91
–
(19)
81
14
5
14
5
(33)
(33)
(1)
571
576
(1)
–
–
–
–
(1)
–
–
–
–
–
–
–
6
(459)
(459)
(5)
(464)
(473)
(473)
–
275
(473)
(473)
(3)
1,114
(5)
(5)
(19)
33
(478)
(478)
(22)
1,147
For the year ended 31 December
Note
£m
Cash flows from operating activities
Cash generated from operations before exceptional items:
Cash flow relating to operating exceptional items:
Operating exceptional items
Prepaid employment linked consideration
Increase in exceptional payables
Decrease in exceptional prepayments and other receivables
Cash outflow from exceptional items
Operating cash flow from discontinued operation
Cash generated from operations
Defined benefit pension deficit funding
Interest received
Interest paid on bank and other loans
Net taxation paid
Net cash inflow from operating activities
Cash flows from investing activities
Acquisition of subsidiary undertaking, net of cash acquired
Prepaid employment linked consideration
Net consideration paid
Proceeds from sale of property, plant and equipment
Acquisition of property, plant and equipment
Acquisition of intangible assets
Acquisition of investments
Loans granted to associates and joint ventures
Net proceeds from sale of assets held for sale
Proceeds from sale of subsidiaries, joint ventures and available for
sale investments
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Bank and other loans – amounts repaid
Bank and other loans – amounts raised
Capital element of finance lease payments
Equity dividends paid
Dividend paid to minority interest
Purchase of own shares via employees’ benefit trust
Net cash outflow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January
Reclassification of gilts to other pension assets
Effects of exchange rate changes and fair value movements
Cash and cash equivalents at 31 December
(164)
–
71
66
(80)
38
(58)
(90)
(97)
–
(97)
–
(29)
(15)
(41)
(2)
10
–
(655)
1,177
(6)
(663)
(4)
(20)
2.1
2.2
3.4
2.5
3.4
3.4
2.5
4.1
3.7
4.1
ITV plc Annual Report and Accounts 2016
2015
£m
827
(122)
–
705
(216)
489
2016
£m
870
(27)
(6)
837
(190)
647
£m
(109)
(109)
60
36
(90)
25
(34)
(117)
(406)
109
(297)
28
(33)
(16)
(14)
(2)
1
(174)
(333)
(447)
797
(7)
(459)
(5)
(33)
(171)
302
294
(39)
4
561
(154)
2
297
–
(5)
294
115
Financial Statements
Financial Statements
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 2016 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 the Group’s interests in associates and jointly controlled entities. The Company is domiciled in the
United Kingdom.
As required by European Union law (IAS Regulation EC 1606/2002) the Group’s financial statements 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 parent company financial statements have been prepared in accordance with Financial Reporting Standard 101
Reduced Disclosure Framework (FRS101).
Going concern
At 31 December 2016 the Group was in a net debt position. The Group’s strong balance sheet and continued generation
of significant free cash flows has enabled further investment as well as the payment of a special dividend. The Group
has also sought to gain further efficiencies in the balance sheet and maintain the flexibility to invest in the business by
issuing a new Eurobond (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 available funding.
The Group also continues to focus on development of the non-advertising business, and evaluates the impact of
further investment against the strategy and cash headroom of the business.
After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue
in operation for at least twelve months from the date of this report. Accordingly, the Group continues to adopt the going
concern basis in preparing its consolidated financial statements.
Subsidiaries, joint ventures, associates and available for sale investments
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 a joint arrangement 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.
Investments where the Group concludes it does not have significant influence are deemed ‘available for sale’. These
investments are held at fair value unless the investment is a start-up business, in which case it is valued at cost and
assessed for impairment.
116
Notes to the Financial Statements
Section 1: Basis of Preparation
ITV plc Annual Report and Accounts 2016
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 2016 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 the Group’s interests in associates and jointly controlled entities. The Company is domiciled in the
As required by European Union law (IAS Regulation EC 1606/2002) the Group’s financial statements have been
prepared in accordance with International Financial Reporting Standards as adopted by the EU (‘IFRS’), and approved
United Kingdom.
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 parent company financial statements have been prepared in accordance with Financial Reporting Standard 101
Reduced Disclosure Framework (FRS101).
Going concern
At 31 December 2016 the Group was in a net debt position. The Group’s strong balance sheet and continued generation
of significant free cash flows has enabled further investment as well as the payment of a special dividend. The Group
has also sought to gain further efficiencies in the balance sheet and maintain the flexibility to invest in the business by
issuing a new Eurobond (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 available funding.
The Group also continues to focus on development of the non-advertising business, and evaluates the impact of
further investment against the strategy and cash headroom of the business.
After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue
in operation for at least twelve months from the date of this report. Accordingly, the Group continues to adopt the going
concern basis in preparing its consolidated financial statements.
Subsidiaries, joint ventures, associates and available for sale investments
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 a joint arrangement 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.
Investments where the Group concludes it does not have significant influence are deemed ‘available for sale’. These
investments are held at fair value unless the investment is a start-up business, in which case it is valued at cost and
assessed for impairment.
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 and trade and other receivables;
• Available for sale financial assets – measured at fair value through other comprehensive income;
• 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.
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.
Where unconditional rights to set off financial instruments exist, the Group presents the relevant instruments
net in the statement of financial position.
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 and cash held to meet certain finance lease commitments. The carrying value of cash and
cash equivalents is considered to approximate fair value. Cash and cash equivalents that has a charge executed over it
is excluded from cash and cash equivalents.
Foreign currencies
The primary economic environment in which the Group operates is the UK and therefore the consolidated financial
statements are 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 the transaction date. 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 is recognised in the income statement.
Hedge accounting is implemented on certain foreign currency firm commitments, which allows for the effective
portion of any foreign exchange gains or losses to be recognised in other comprehensive income (note 4.3).
Where a forward currency contract is used to manage foreign exchange risk and hedge accounting is not applied,
any movement in currency is taken to the income statement.
Non-monetary assets and liabilities measured at historical cost are translated into pounds sterling at the exchange rate
on the date of the transaction.
The assets and liabilities of Group companies outside of the UK are translated into pounds sterling at the year end
exchange rate. The revenue 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 other comprehensive income.
117
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 1: Basis of Preparation continued
Exchange differences arising on the translation of the Group’s interests in joint ventures and associates are recognised
in the translation reserve within other comprehensive income.
On disposal of a foreign subsidiary, an interest in a joint venture or an associate, the related translation reserve
is released to the income statement as part of the gain or loss on disposal.
Accounting judgements and estimates
The preparation of financial statements requires management to exercise judgement in applying the Group’s
accounting policies. It also requires the use of estimates and assumptions that affect the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis, with revisions recognised in the period
in which the estimates are revised and in any future periods affected.
The areas involving a higher degree of judgement or complexity are set out below and in more detail in the related notes:
• Revenue recognition (note 2.1)
• Business combinations (note 3.3 and note 3.4)
In addition to the above, 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 (note 3.7)
• Taxation (note 2.3)
• Testing of goodwill impairment (note 3.3)
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 2016:
Accounting Standard
Requirement
IAS 38 Intangible
Assets and
IAS 16 Property, Plant
and Equipment
IAS 27 Separate
Financial Statements
IAS 11 Joint
Arrangements
IAS 1 Presentation of
financial statements
Annual Improvements
to IFRS 2012 – 2014
cycle
The amendments clarify acceptable methods of depreciation and amortisation introducing
a rebuttable presumption that the use of revenue-based amortisation or depreciation
methods is inappropriate. This presumption can be overcome when revenue and the
consumption of the economic benefits of the asset are highly correlated.
The amendments allow the use of the equity method in separate financial statements, and
apply to the accounting not only for associates and joint ventures, but also for subsidiaries.
The amendments require business combination accounting to be applied to acquisitions of
interests in a joint operation that constitutes a business.
Amendments to clarify various standards including IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations, IFRS 3 Business Combinations, IFRS 8 Operating Segments,
IFRS 13 Fair Value Measurement, IAS 16 Property, Plant and Equipment, IAS 24 Related Party
Disclosures and IAS 38 Intangible Assets.
Amendments to clarify various standards including IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations, IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee
Benefits and IAS 34 Interim Financial Reporting.
Based on the Directors’ analysis the amendments outlined above do not have a material impact on the Group’s
financial position or performance for the year ended 31 December 2016.
The Directors also considered the impact on the Group of other new and revised accounting standards, interpretations
or amendments that are currently endorsed but not yet effective. There are none that are effective for periods
beginning on or after 1 January 2016 that are expected to have a significant impact on the Group’s results.
118
Notes to the Financial Statements
Section 1: Basis of Preparation continued
ITV plc Annual Report and Accounts 2016
Exchange differences arising on the translation of the Group’s interests in joint ventures and associates are recognised
in the translation reserve within other comprehensive income.
On disposal of a foreign subsidiary, an interest in a joint venture or an associate, the related translation reserve
is released to the income statement as part of the gain or loss on disposal.
Accounting judgements and estimates
The preparation of financial statements requires management to exercise judgement in applying the Group’s
accounting policies. It also requires the use of estimates and assumptions that affect the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis, with revisions recognised in the period
in which the estimates are revised and in any future periods affected.
The areas involving a higher degree of judgement or complexity are set out below and in more detail in the related notes:
In addition to the above, 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:
• Revenue recognition (note 2.1)
• Business combinations (note 3.3 and note 3.4)
• Defined benefit pension (note 3.7)
• Taxation (note 2.3)
• Testing of goodwill impairment (note 3.3)
are effective in 2016:
Accounting Standard
Requirement
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
IAS 38 Intangible
The amendments clarify acceptable methods of depreciation and amortisation introducing
Assets and
a rebuttable presumption that the use of revenue-based amortisation or depreciation
IAS 16 Property, Plant
methods is inappropriate. This presumption can be overcome when revenue and the
consumption of the economic benefits of the asset are highly correlated.
Financial Statements
apply to the accounting not only for associates and joint ventures, but also for subsidiaries.
The amendments allow the use of the equity method in separate financial statements, and
The amendments require business combination accounting to be applied to acquisitions of
interests in a joint operation that constitutes a business.
and Equipment
IAS 27 Separate
IAS 11 Joint
Arrangements
IAS 1 Presentation of
Amendments to clarify various standards including IFRS 5 Non-current Assets Held for Sale
financial statements
and Discontinued Operations, IFRS 3 Business Combinations, IFRS 8 Operating Segments,
IFRS 13 Fair Value Measurement, IAS 16 Property, Plant and Equipment, IAS 24 Related Party
Disclosures and IAS 38 Intangible Assets.
Annual Improvements
Amendments to clarify various standards including IFRS 5 Non-current Assets Held for Sale
to IFRS 2012 – 2014
and Discontinued Operations, IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee
cycle
Benefits and IAS 34 Interim Financial Reporting.
Based on the Directors’ analysis the amendments outlined above do not have a material impact on the Group’s
financial position or performance for the year ended 31 December 2016.
The Directors also considered the impact on the Group of other new and revised accounting standards, interpretations
or amendments that are currently endorsed but not yet effective. There are none that are effective for periods
beginning on or after 1 January 2016 that are expected to have a significant impact on the Group’s results.
IFRS 15 Revenue from Contracts with Customers is effective 1 January 2018. IFRS 15 will require the Group to identify
distinct promises in contracts with customers that qualify as ‘performance obligations’. The price receivable from
customers must then be allocated between the performance obligations identified.
An initial assessment of impact on the Group’s performance has been performed on material revenue streams.
The impact is not expected to be material for Broadcasting revenues. Studios revenues are mainly comprised of
production and distribution revenue streams. No material impact is expected on the production revenues. Further
detailed analysis on licensing and merchandising revenues is ongoing to assess whether contracts include dynamic
(e.g. continued obligation to update content over the license period) or static performance obligations, which will aid
in determining whether revenue should be recognised over the license period or at a point in time. The impact on those
revenue streams is expected to be limited.
The Directors anticipate adopting IFRS 15 on 1 January 2018. When it is adopted, IFRS 15 can be applied either on a fully
retrospective basis, requiring the restatement of the comparative periods presented in the financial statements, or
with the cumulative retrospective impact of the standard applied as an adjustment to equity on the date of adoption.
When the latter is applied disclosure of the impact of IFRS 15 on each line item in the financial statements is required.
The Directors currently intend to apply the cumulative effect method.
IFRS 9 Financial Instruments is also effective 1 January 2018. Based on the initial assessment of the impact,
the Directors are currently not expecting the application to significantly impact the Group’s current accounting
or hedging activities.
IFRS 16 Leases is effective 1 January 2019 and has not been endorsed by the EU. IFRS 16 will change lease accounting
for lessees under operating leases. Such agreements will require recognition of an asset representing the right to use
the leased item and a liability for future lease payments. Lease costs (such as property rent) will be recognised in the form
of depreciation and interest, rather than operating cost. The detailed assessment of impact on the Group’s performance
is ongoing, the adoption is likely to have a material impact on the presentation of the Group’s assets and liabilities.
119
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 2: Results for the Year
In this
section
This section focuses on the results and performance of the Group. On the
following pages you will find disclosures explaining the Group’s results for
the year, segmental information, exceptional items, taxation and earnings
per share.
2.1 Profit
before tax
Keeping
it simple
This section analyses the Group’s profit before tax by reference to the activities
performed by the Group and an analysis of key operating costs.
Adjusted earnings before interest, tax, amortisation (EBITA) is 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.
Accounting policies
Revenue recognition
Revenue is stated exclusive of VAT and equivalent sales taxes, and comprises the sale of products and services
to third parties. Judgement is required when determining the appropriate timing and amount of revenue that can
be recognised, specifically around whether there is a firm contract and that the service has been provided, and if so,
whether there is a fixed or reasonably determinable price that is reasonably certain will be collected. Complexity in
advertising revenue recognition is driven by intricate automated and manual processes involved in measuring the value
delivered to the customer.
Revenue is recognised when the Group has transferred both the significant risks and rewards of ownership and control,
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:
Applicable segment
Class of revenue
Recognition criteria
Broadcast & Online
Studios
Advertising (NAR)
Video on Demand (VOD)
Sponsorship
Pay
Participation (Interactive &
Brand Extensions)
Programme production
Programme distribution rights
Format and licences
Digital: Archive
on transmission
as audience targets are met
across period of transmission of the sponsored
programme or series
over the term of the contract or for the expected
revenue per subscriber or download
as the service is provided or event occurs
on delivery of episode and acceptance by the
customer
when the contract is signed and content is available
for exploitation
at the point in time when the license is transferred
and the customer is able to use and benefit from
the licence; over the license period if continued
involvement of the Group is required
on delivery of content (one-off) or over the contract
period in a manner that reflects the flow of content
delivered (top-up)
120
Notes to the Financial Statements
Section 2: Results for the Year
In this
section
This section focuses on the results and performance of the Group. On the
following pages you will find disclosures explaining the Group’s results for
the year, segmental information, exceptional items, taxation and earnings
per share.
2.1 Profit
before tax
Keeping
it simple
This section analyses the Group’s profit before tax by reference to the activities
performed by the Group and an analysis of key operating costs.
Adjusted earnings before interest, tax, amortisation (EBITA) is 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.
Accounting policies
Revenue recognition
Revenue is stated exclusive of VAT and equivalent sales taxes, and comprises the sale of products and services
to third parties. Judgement is required when determining the appropriate timing and amount of revenue that can
be recognised, specifically around whether there is a firm contract and that the service has been provided, and if so,
whether there is a fixed or reasonably determinable price that is reasonably certain will be collected. Complexity in
advertising revenue recognition is driven by intricate automated and manual processes involved in measuring the value
delivered to the customer.
Revenue is recognised when the Group has transferred both the significant risks and rewards of ownership and control,
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:
Applicable segment
Class of revenue
Broadcast & Online
Advertising (NAR)
Recognition criteria
on transmission
Video on Demand (VOD)
as audience targets are met
Sponsorship
across period of transmission of the sponsored
Pay
programme or series
over the term of the contract or for the expected
revenue per subscriber or download
Participation (Interactive &
as the service is provided or event occurs
Studios
Brand Extensions)
Programme production
on delivery of episode and acceptance by the
Programme distribution rights
when the contract is signed and content is available
Format and licences
Digital: Archive
customer
for exploitation
at the point in time when the license is transferred
and the customer is able to use and benefit from
the licence; over the license period if continued
involvement of the Group is required
on delivery of content (one-off) or over the contract
period in a manner that reflects the flow of content
delivered (top-up)
ITV plc Annual Report and Accounts 2016
The results for the year aggregate these classes of revenue into four significant categories:
NAR
Broadcast & Online
Non-NAR
Broadcast & Online
ITV Studios: Productions
ITV Studios: Distribution
Total Non-NAR
Total revenue from continuing operations
2016
£m
2016
% of total
2015
£m
2015
% of total
1,672
47%
1,719
51%
460
1,089
306
1,855
3,527
53%
100%
427
1,045
192
1,664
3,383
49%
100%
Segmental information
Operating segments, which have not been aggregated, are determined in a manner that is consistent with how the business
is managed and reported to the Board of Directors. The Board is regarded as the chief operating decision maker.
The Board considers the business primarily from an operating activity perspective. The reportable segments for the
years ended 31 December 2016 and 31 December 2015 are therefore Broadcast & Online and ITV Studios, the results
of which are outlined in the following tables:
Total segment revenue
Intersegment revenue
Revenue from external customers including discontinued operations
Less: Discontinued operations (note 2.5)
Revenue from external customers
Adjusted EBITA including discontinued operations**
Less: Operating loss from discontinued operations (note 2.5)
Adjusted EBITA**
Total segment revenue
Intersegment revenue
Revenue from external customers including discontinued operations
Less: Discontinued operations
Revenue from external customers
Adjusted EBITA including discontinued operations**
Adjusted EBITA from discontinued operations**
Adjusted EBITA**
Broadcast
& Online
2016
£m
ITV Studios*
2016
£m
Consolidated
2016
£m
2,143
–
2,143
(11)
2,132
636
(6)
642
Broadcast
& Online
2015
£m
2,146
–
2,146
–
2,146
659
–
659
1,395
(463)
932
–
932
243
–
243
3,538
(463)
3,075
(11)
3,064
879
(6)
885
ITV Studios*
2015
£m
Consolidated
2015
£m
1,237
(411)
826
–
826
206
–
206
3,383
(411)
2,972
–
2,972
865
–
865
* Revenue of £320 million (2015: £389 million) was generated in the US during the year; the US represented £346 million
(2015: £314 million) of non-current assets at year end.
** Adjusted EBITA is before exceptional items and includes the benefit of production tax credits, it is shown after the elimination
of intersegment revenue and costs. This measure represents the continuing operations.
Intersegment revenue, which is earned on arm’s length terms, is generated from the supply of ITV Studios programmes
to Broadcast & Online for transmission primarily on the ITV Network. This revenue stream is a measure which forms
part of the Group’s strategic priority of building a strong international content business, as producing and retaining
rights to the shows broadcast on the ITV Network benefits the Group further from subsequent international content
and format sales.
In preparing the segment information, centrally managed costs have been allocated between reportable segments
on a methodology driven principally by revenue, headcount and building occupancy of each segment. This is consistent
with the basis of reporting to the Board of Directors.
121
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 2: Results for the Year continued
The Group’s principal operations are in the United Kingdom. Revenue from external customers in the United Kingdom
is £2,370 million (2015: £2,275 million), and revenue from external customers in other countries is £694 million
(2015: £697 million). The Financial and Performance Review provides further detail on ITV’s international revenues.
There is one media buying agency (2015: two) acting on behalf of a number of advertisers that represent the Group’s
major customers. This agency is the only customer which individually represents over 10% of the Group’s revenue.
Revenue of approximately £552 million (2015: £576 million) was derived from this customer. This revenue is attributable
to the Broadcast & Online segment.
Broadcast & Online
The Group operates the largest commercial family of channels in the UK and delivers content through multiple
platforms. In addition to linear television broadcast, the Group delivers its content on the ITV Hub, pay platforms,
and through direct content deals. Content commissioned and scheduled by this segment is funded primarily by television
advertising, where revenue is generated from the sale of audiences for advertising airtime and sponsorship.
Other sources of revenue are from: online advertising; HD digital channels on pay platforms (e.g. Sky and Virgin); SDN
revenue (which generates licence sales for DTT Multiplex A); and participation revenue (which includes interactive sales
from competitions) and the ITV Choice subscription service in other countries.
ITV Studios
ITV Studios is the Group’s international content business, creating and producing programmes and formats that return
and travel, namely drama, entertainment and factual entertainment.
ITV Studios UK is the largest commercial producer in the UK and produces programming for the Group’s own channels,
accounting for 63% of ITV main channel spend on commissioned programming. Programming is also sold to other UK
broadcasters such as the BBC, Channel 4 and Sky.
ITV America is the leading unscripted independent producer of content in the US and is growing its scripted presence
by increasing investment in high-profile dramas straight to series.
ITV Studios also operates in five other international locations being Australia, Germany, France, the Netherlands (primarily
Talpa) and the Nordics, where content is produced for local broadcasters. This content is either locally created IP or formats
that have been created elsewhere by ITV, primarily in the UK and the Netherlands.
Global Entertainment and Talpa Global, ITV’s distribution businesses, license ITV’s finished programmes and formats
and third-party content internationally. Within this business we also finance productions both on and off ITV to acquire
global distribution rights.
Adjusted EBITA
The Directors assess the performance of the reportable segments based on a measure of adjusted EBITA. The Directors
use this measurement basis as it excludes the effect of transactions that could distort the understanding of the Group’s
performance for the year and comparability between periods. See the Financial and Performance Review on pages 34
to 35 for the detailed explanation of the Group’s use of adjusted performance measures.
A reconciliation from adjusted EBITA to profit before tax is provided as follows:
Adjusted EBITA
Production tax credits
EBITA before exceptional items from continuing operations
Operating exceptional items
Amortisation of intangible assets
Net financing costs
Gain on sale of non-current assets (exceptional items)
Gain on sale of subsidiaries and investments (exceptional items)
Profit before tax from continuing operations
2016
£m
885
(28)
857
(164)
(89)
(51)
–
–
553
2015
£m
865
(23)
842
(109)
(67)
(31)
5
1
641
122
Notes to the Financial Statements
Section 2: Results for the Year continued
ITV plc Annual Report and Accounts 2016
The Group’s principal operations are in the United Kingdom. Revenue from external customers in the United Kingdom
is £2,370 million (2015: £2,275 million), and revenue from external customers in other countries is £694 million
(2015: £697 million). The Financial and Performance Review provides further detail on ITV’s international revenues.
There is one media buying agency (2015: two) acting on behalf of a number of advertisers that represent the Group’s
major customers. This agency is the only customer which individually represents over 10% of the Group’s revenue.
Revenue of approximately £552 million (2015: £576 million) was derived from this customer. This revenue is attributable
to the Broadcast & Online segment.
Broadcast & Online
The Group operates the largest commercial family of channels in the UK and delivers content through multiple
platforms. In addition to linear television broadcast, the Group delivers its content on the ITV Hub, pay platforms,
and through direct content deals. Content commissioned and scheduled by this segment is funded primarily by television
advertising, where revenue is generated from the sale of audiences for advertising airtime and sponsorship.
Other sources of revenue are from: online advertising; HD digital channels on pay platforms (e.g. Sky and Virgin); SDN
revenue (which generates licence sales for DTT Multiplex A); and participation revenue (which includes interactive sales
from competitions) and the ITV Choice subscription service in other countries.
ITV Studios
ITV Studios is the Group’s international content business, creating and producing programmes and formats that return
and travel, namely drama, entertainment and factual entertainment.
ITV Studios UK is the largest commercial producer in the UK and produces programming for the Group’s own channels,
accounting for 63% of ITV main channel spend on commissioned programming. Programming is also sold to other UK
broadcasters such as the BBC, Channel 4 and Sky.
ITV America is the leading unscripted independent producer of content in the US and is growing its scripted presence
by increasing investment in high-profile dramas straight to series.
ITV Studios also operates in five other international locations being Australia, Germany, France, the Netherlands (primarily
Talpa) and the Nordics, where content is produced for local broadcasters. This content is either locally created IP or formats
that have been created elsewhere by ITV, primarily in the UK and the Netherlands.
Global Entertainment and Talpa Global, ITV’s distribution businesses, license ITV’s finished programmes and formats
and third-party content internationally. Within this business we also finance productions both on and off ITV to acquire
global distribution rights.
Adjusted EBITA
The Directors assess the performance of the reportable segments based on a measure of adjusted EBITA. The Directors
use this measurement basis as it excludes the effect of transactions that could distort the understanding of the Group’s
performance for the year and comparability between periods. See the Financial and Performance Review on pages 34
to 35 for the detailed explanation of the Group’s use of adjusted performance measures.
A reconciliation from adjusted EBITA to profit before tax is provided as follows:
EBITA before exceptional items from continuing operations
Adjusted EBITA
Production tax credits
Operating exceptional items
Amortisation of intangible assets
Net financing costs
Gain on sale of non-current assets (exceptional items)
Gain on sale of subsidiaries and investments (exceptional items)
Profit before tax from continuing operations
2016
£m
885
(28)
857
(164)
(89)
(51)
–
–
553
2015
£m
865
(23)
842
(109)
(67)
(31)
5
1
641
Cash generated from operations
A reconciliation from profit before tax to cash generated from operations before exceptional items is as follows:
Cash flows from operating activities
Profit before tax
Gain on sale of subsidiaries and investments (exceptional items)
Gain on sale of non-current assets (exceptional items)
Net financing costs
Operating exceptional items
Depreciation of property, plant and equipment
Amortisation of intangible assets
Share-based compensation and pension service costs
(Increase)/decrease in programme rights and other inventory, and distribution rights
(Increase) in receivables
Increase/(decrease) in payables
Movement in working capital
Cash generated from operations before exceptional items
Operating costs
Staff costs
Staff costs before exceptional items can be analysed as follows:
Wages and salaries
Social security and other costs
Share-based compensation (see note 4.7)
Pension costs
Total staff costs
Less: staff costs allocated to productions
FTEE staff costs (non-production)
2016
£m
553
–
–
51
164
31
89
10
(35)
(56)
63
(28)
870
2016
£m
336
46
10
27
419
(147)
272
2015
£m
641
(1)
(5)
31
109
27
67
17
4
(21)
(42)
(59)
827
2015
£m
318
43
14
25
400
(137)
263
Exceptional staff costs are disclosed separately in note 2.2
The number of full-time equivalent employees (FTEE) (excluding short-term contractors and freelancers who are
predominantly allocated to the cost of productions), calculated on a weighted average basis, during the year was:
Broadcast & Online
ITV Studios
2016
2,087
4,034
6,121
2015
2,109
3,449
5,558
The increase in full-time equivalent employees in ITV Studios is primarily driven by the full year effect of acquisitions
completed in 2015.
Details of Directors’ emoluments, share options, pension entitlements and long-term incentive scheme interests are
set out in the Remuneration Report. Listed Directors’ gains on share options for 2016 are set out in the ITV plc entity
financial statements.
Depreciation
Depreciation in the year was £31 million (2015: £27 million), of which £13 million (2015: £14 million) relates to Broadcast
& Online and £18 million (2015: £13 million) to ITV Studios.
123
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 2: Results for the Year continued
Operating leases
The total undiscounted future minimum lease payments under non-cancellable operating leases are due for payment
as follows:
2016
Transponders
Property
Within one year
Later than one year and not later than five years
Later than five years
28
129
92
249
19
59
17
95
2015
Transponders
Property
Within one year
Later than one year and not later than five years
Later than five years
34
111
115
260
17
48
21
86
Total
47
188
109
344
Total
51
159
136
346
The Group’s operating leases relate to transponder assets, offices and studio properties. The Group holds transmission
supply agreements that require the use of transponder assets for a period of up to ten 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.
Property leases run for terms ranging from five to twenty years, depending on the expected operational use of the site. Leases
may include break clauses or options to renew (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 lease agreements
include contingent rentals.
The total future minimum sublease payments expected to be received under non-cancellable subleases at the year end
are £1 million (2015: £1 million).
The total operating lease expenditure recognised during the year was £47 million (2015: £51 million) and total sublease
payments received were £1 million (2015: £2 million).
Audit fees
The Group engages KPMG LLP (KPMG) on assignments additional to their statutory audit duties where their expertise
and experience with the Group are important and are in line with Group’s policy on auditor independence.
Fees paid to KPMG and its associates during the year are set out below:
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 advisory services
Other assurance services
Total non-audit Services
Total fees paid to KPMG
2016
£m
0.6
0.6
0.2
1.4
0.2
0.1
0.3
1.7
2015
£m
0.6
0.4
0.2
1.2
0.1
0.3
0.4
1.6
There were no fees payable in 2016 or 2015 to KPMG and associates for the auditing of accounts of any associate
or pension scheme 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.
124
Notes to the Financial Statements
Section 2: Results for the Year continued
ITV plc Annual Report and Accounts 2016
The total undiscounted future minimum lease payments under non-cancellable operating leases are due for payment
Operating leases
as follows:
2016
Within one year
Later than one year and not later than five years
Later than five years
2015
Within one year
Later than one year and not later than five years
Later than five years
Transponders
Property
28
129
92
249
34
111
115
260
19
59
17
95
17
48
21
86
Total
47
188
109
344
Total
51
159
136
346
Transponders
Property
The Group’s operating leases relate to transponder assets, offices and studio properties. The Group holds transmission
supply agreements that require the use of transponder assets for a period of up to ten 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.
Property leases run for terms ranging from five to twenty years, depending on the expected operational use of the site. Leases
may include break clauses or options to renew (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 lease agreements
The total future minimum sublease payments expected to be received under non-cancellable subleases at the year end
The total operating lease expenditure recognised during the year was £47 million (2015: £51 million) and total sublease
include contingent rentals.
are £1 million (2015: £1 million).
payments received were £1 million (2015: £2 million).
Audit fees
The Group engages KPMG LLP (KPMG) on assignments additional to their statutory audit duties where their expertise
and experience with the Group are important and are in line with Group’s policy on auditor independence.
Fees paid to KPMG and its associates during the year are set out below:
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 advisory services
Other assurance services
Total non-audit Services
Total fees paid to KPMG
2016
£m
0.6
0.6
0.2
1.4
0.2
0.1
0.3
1.7
2015
£m
0.6
0.4
0.2
1.2
0.1
0.3
0.4
1.6
There were no fees payable in 2016 or 2015 to KPMG and associates for the auditing of accounts of any associate
or pension scheme 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 excluded from management’s assessment of profit because
by their size or 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 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
Operating exceptional items:
Acquisition-related expenses
Reorganisation and restructuring costs
Pension curtailment cost
Legal related costs
Total net operating exceptional items
Non-operating exceptional items:
Gain on sale of non-current assets
Gain on sale and impairment of subsidiaries and investments
Total non-operating exceptional items
Total exceptional items before tax
Tax on exceptional items
Total exceptional items net of tax
Ref.
A
B
C
D
E
2016
£m
(131)
(14)
(19)
–
(164)
–
–
–
(164)
15
(149)
2015
£m
(88)
(13)
–
(8)
(109)
5
1
6
(103)
8
(95)
A – Acquisition-related expenses
Acquisition-related expenses of £131 million includes £110 million (2015: £78 million) relating to performance-based,
employment linked costs to former owners mainly in relation to Talpa Media. The remaining £21 million (2015: £10 million)
is primarily comprised of integration costs and professional fees (mainly financial and legal due diligence). See note 3.4 for
further details on acquisitions.
B – Reorganisation and restructuring costs
In 2016 £14 million (2015: £13 million) of costs were incurred as a result of a Group-wide commitment to reduce the
overhead cost base by £25 million. This cost was primarily comprised of redundancy.
C – Curtailment cost
In 2016, following a member consultation, the Group decided to close the ITV Pension Scheme to future benefit accrual,
resulting in a one off non-cash curtailment cost of £19 million (see note 3.7 for further detail).
D – Gain on sale of non-current assets
In 2015 a £5 million gain on sale of non-current assets arose primarily as a result of the sale of a freehold property and
related assets in Manchester.
E – Gain on sale and impairment of subsidiaries and investments
The gain of £1 million in 2015 relates to a historical disposal.
125
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 2: Results for the Year continued
2.3
Taxation
Keeping
it simple
This section sets out the Group’s 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 for
the period and the movements in deferred tax assets and liabilities.
Accounting policies
The tax charge for the period is recognised in the income statement, the statement of comprehensive income and
directly in equity, according to the accounting treatment of the related transactions. The tax charge comprises both
current and deferred tax. The calculation of the Group’s tax charge involves a degree of estimation and judgement in
respect of certain items whose tax treatment cannot be fully determined until a resolution has been reached by the
relevant tax authority.
Current tax
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 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 current tax and deferred tax provisions in the period in which
such determination is made.
Deferred tax
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. Deferred tax is calculated using tax rates that are enacted or substantively enacted
at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that sufficient taxable profit will be available
to utilise the temporary difference. Recognition of deferred tax assets, therefore, involves judgement regarding the
timing and level of future taxable income.
Deferred tax assets and liabilities are disclosed net to the extent that they relate to taxes levied by the same authority
and the Group has the right of set-off.
126
Notes to the Financial Statements
Section 2: Results for the Year continued
2.3
Taxation
Keeping
it simple
This section sets out the Group’s 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 for
the period and the movements in deferred tax assets and liabilities.
Accounting policies
The tax charge for the period is recognised in the income statement, the statement of comprehensive income and
directly in equity, according to the accounting treatment of the related transactions. The tax charge comprises both
current and deferred tax. The calculation of the Group’s tax charge involves a degree of estimation and judgement in
respect of certain items whose tax treatment cannot be fully determined until a resolution has been reached by the
Current tax is the expected tax payable or receivable on the taxable income or loss for the year and any adjustment
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 current tax and deferred tax provisions in the period in which
relevant tax authority.
Current tax
in respect of previous years.
such determination is made.
Deferred tax
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;
combination; and
• the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business
• 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. Deferred tax is calculated using tax rates that are enacted or substantively enacted
at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that sufficient taxable profit will be available
to utilise the temporary difference. Recognition of deferred tax assets, therefore, involves judgement regarding the
timing and level of future taxable income.
and the Group has the right of set-off.
Deferred tax assets and liabilities are disclosed net to the extent that they relate to taxes levied by the same authority
ITV plc Annual Report and Accounts 2016
Taxation – Income statement
The total taxation charge in the income statement is analysed as follows:
Current tax:
Current tax charge on profit before exceptional items
Current tax (charge)/credit on exceptional items
Adjustments to prior periods
Deferred tax:
Origination and reversal of temporary differences
Deferred tax (charge)/credit on exceptional items
Impact of change in the statutory tax rate
Adjustments to prior periods
Total taxation charge in the income statement
2016
£m
(134)
11
(123)
10
(113)
18
4
1
23
(10)
13
(100)
2015
£m
(125)
6
(119)
9
(110)
(20)
2
(2)
(20)
(9)
(29)
(139)
In order to understand how, in the income statement, a tax charge of £100 million (2015: £139 million) arises on a profit
before tax of £553 million (2015: £641 million), the taxation charge that would arise at the standard rate of UK
corporation tax is reconciled to the actual tax charge as follows:
Profit before tax
Notional taxation charge at UK corporation tax rate of 20% (2015: 20.25%) on
profit before tax
Non-taxable income/non-deductible expenses
Other taxes
Current year losses not recognised
Impact of overseas tax rates
Impact of changes in tax rates
Production tax credits
Total taxation charge in the income statement
2016
£m
553
(111)
(25)
(1)
(2)
10
1
28
(100)
2015
£m
641
(130)
(23)
–
–
(7)
(2)
23
(139)
Non-deductible expenses are expenses that are not expected to be allowable for tax purposes. Similarly non-taxable
income is income that is not expected to be taxable.
Adjustments to 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. This year there is no net impact of prior year adjustments
in the total tax charge. The current tax charge includes a £10 million credit relating to prior years, and the deferred tax
credit includes an equal and opposite £10 million charge.
The impact of overseas tax rates reflects the fact that some of our profits are earned in territories other than the UK,
and taxed at rates different to the UK corporation tax rate. This year losses arising in higher taxed jurisdictions, which
we recognise through deferred tax, give rise to a reconciling benefit.
The UK corporation tax rate has been enacted to fall to 19% from 1 April 2017 and 17% from 1 April 2020 (this
supersedes the originally enacted reduction to 18%). The carrying value of UK temporary differences at the balance
sheet date has been adjusted accordingly. This has given rise to a charge of £5 million (2015: £1 million) of which
£1 million is recognised as a credit in the income statement and £6 million as a charge in other comprehensive income.
The Production tax credits included within the reconciliation above are UK High-End Television (HETV) tax credits and
Children’s Television tax credits, which are part of a group of incentives provided to support the creative industries. The
ability to access these tax credits is fundamental when assessing the viability of investment decisions in the production
of high-end drama and children’s programmes. Under IFRS these production tax credits are reported within the total
taxation charge in the income statement, however ITV considers them to be a contribution to production costs, and
therefore working capital in nature, and excludes them from its adjusted tax charge, including them instead within
Adjusted EBITA.
127
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 2: Results for the Year continued
The effective tax rate is 18.1% (2015: 21.7%), and is the tax charge on the face of the income statement expressed
as a percentage of the profit before tax. In the years ended 31 December 2016 and 31 December 2015, the effective
tax rate is comparable to the standard rate of UK corporation tax (20% in 2016 and 20.25% in 2015). As explained
in the Financial and Performance Review, the Group uses an adjusted tax rate to show how tax impacts total adjusted
earnings in a way that is more aligned with the Group’s cash tax position.
This year the current year movement on origination and reversal of temporary differences (excluding exceptional items) is a
credit of £18 million, compared with a charge of £20 million in 2015. The main reasons for this change are the recognition of
tax losses in our overseas businesses, and the unwinding of deferred tax liabilities as intangible assets are amortised.
Taxation – Other comprehensive income and equity
As analysed in the table below, a deferred tax credit of £40 million on actuarial movements on pensions has been
recognised in other comprehensive income. A deferred tax charge of £6 million has been recognised in equity in respect
of share based payments.
A current tax credit of £2 million has also been recognised in equity in relation to share based payments.
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:
Intangible assets
Programme rights
Pension scheme deficits
Tax losses
Share-based compensation
Other temporary differences
At
1 January
2016
£m
Reclassification
£m
Recognised in
the income
statement
£m
Recognised in
OCI and equity
£m
Business
acquisitions
£m
Foreign
Exchange
£m
At
31 December
2016
£m
(101)
1
1
4
11
5
(79)
14
–
1
–
(5)
(10)
–
15
–
(8)
23
(4)
(13)
13
–
–
40
–
(6)
–
34
(10)
–
–
–
–
–
(10)
(12)
–
–
3
–
(2)
(11)
(94)
1
34
30
(4)
(20)
(53)
Property, plant and equipment
Intangible assets
Programme rights
Pension scheme deficits
Tax losses
Share-based compensation
Other temporary differences
At
1 January
2015
£m
Recognised in
the income
statement
£m
Recognised in
OCI and equity
£m
Business
acquisitions
£m
At
31 December
2015
£m
(1)
(15)
1
36
7
14
1
43
1
(10)
–
(16)
(3)
(1)
–
(29)
–
–
–
(19)
–
(2)
–
(21)
–
(76)
–
–
–
–
4
(72)
–
(101)
1
1
4
11
5
(79)
At 31 December 2016, total deferred tax assets are £65 million (2015: £22 million) and total deferred tax liabilities
are £118 million (2015: £101 million). After netting off balances within countries, there is a deferred tax liability of
£70 million and a deferred tax asset of £17 million (2015: net deferred tax liability of £79 million) recognised in the
Consolidated Statement of Financial Position.
The deferred tax balances relate to:
• property, plant and equipment temporary differences arising on assets qualifying for tax depreciation
• temporary differences on intangible assets, including those arising on business combinations
• programme rights – temporary differences on intercompany profits on stock
• pension scheme deficit temporary differences on the IAS 19 pension deficit
• temporary differences arising from the timing of the use of tax losses
• share-based compensation temporary differences on share schemes and
• other temporary differences on provisions and other items
128
Notes to the Financial Statements
Section 2: Results for the Year continued
ITV plc Annual Report and Accounts 2016
The effective tax rate is 18.1% (2015: 21.7%), and is the tax charge on the face of the income statement expressed
as a percentage of the profit before tax. In the years ended 31 December 2016 and 31 December 2015, the effective
tax rate is comparable to the standard rate of UK corporation tax (20% in 2016 and 20.25% in 2015). As explained
in the Financial and Performance Review, the Group uses an adjusted tax rate to show how tax impacts total adjusted
earnings in a way that is more aligned with the Group’s cash tax position.
This year the current year movement on origination and reversal of temporary differences (excluding exceptional items) is a
credit of £18 million, compared with a charge of £20 million in 2015. The main reasons for this change are the recognition of
tax losses in our overseas businesses, and the unwinding of deferred tax liabilities as intangible assets are amortised.
Taxation – Other comprehensive income and equity
As analysed in the table below, a deferred tax credit of £40 million on actuarial movements on pensions has been
recognised in other comprehensive income. A deferred tax charge of £6 million has been recognised in equity in respect
of share based payments.
A current tax credit of £2 million has also been recognised in equity in relation to share based payments.
The table below outlines the deferred tax assets/(liabilities) that are recognised in the statement of financial position,
Taxation – Statement of financial position
together with their movements in the year:
At
1 January
Recognised in
2016
Reclassification
statement
OCI and equity
acquisitions
Exchange
the income
Recognised in
Business
Foreign
31 December
Intangible assets
Programme rights
Pension scheme deficits
Tax losses
Share-based compensation
Other temporary differences
£m
(101)
1
1
4
11
5
(79)
£m
14
–
1
–
(5)
(10)
–
£m
15
–
(8)
23
(4)
(13)
13
£m
–
–
40
–
(6)
–
34
£m
1
(10)
–
(16)
(3)
(1)
–
(29)
£m
(10)
–
–
–
–
–
(10)
£m
–
–
–
(19)
–
(2)
–
(21)
£m
(12)
–
–
3
–
(2)
(11)
£m
–
(76)
–
–
–
–
4
At
2016
£m
(94)
1
34
30
(4)
(20)
(53)
At
2015
£m
(101)
–
1
1
4
11
5
(72)
(79)
At
Recognised in
1 January
2015
£m
the income
statement
Recognised in
Business
31 December
OCI and equity
acquisitions
(1)
(15)
1
36
7
14
1
43
Property, plant and equipment
Intangible assets
Programme rights
Pension scheme deficits
Tax losses
Share-based compensation
Other temporary differences
At 31 December 2016, total deferred tax assets are £65 million (2015: £22 million) and total deferred tax liabilities
are £118 million (2015: £101 million). After netting off balances within countries, there is a deferred tax liability of
£70 million and a deferred tax asset of £17 million (2015: net deferred tax liability of £79 million) recognised in the
Consolidated Statement of Financial Position.
The deferred tax balances relate to:
• property, plant and equipment temporary differences arising on assets qualifying for tax depreciation
• temporary differences on intangible assets, including those arising on business combinations
• programme rights – temporary differences on intercompany profits on stock
• pension scheme deficit temporary differences on the IAS 19 pension deficit
• temporary differences arising from the timing of the use of tax losses
• share-based compensation temporary differences on share schemes and
• other temporary differences on provisions and other items
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 £93 million to the Group’s defined benefit pension
scheme. The adjustment in other comprehensive income to the deferred tax balance primarily relates to the actuarial
loss recognised in the period.
A deferred tax asset of £377 million (2015: £399 million) in respect of capital losses of £2,215 million (2015: £2,215 million)
has not been recognised due to uncertainties as to 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 of £19 million (2015: £15 million)
in respect of overseas losses that time expire between 2017 and 2027 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.
In 2016 we present EPS for the continuing business and the discontinued operation,
UTV Ireland Limited (see note 2.5 for further details).
Basic EPS is calculated on the Group profit for the year attributable to equity
shareholders of £448 million (2015: £495 million) divided by 4,010 million (2015:
4,006 million) being the weighted average number of shares in issue during the year.
Diluted EPS reflects any commitments made by the Group to issue shares in the
future and so it includes the impact of share options.
Adjusted EPS is presented in order to 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 reflects the impact of operating and non-operating
exceptional items on Basic EPS. Other items excluded from Adjusted EPS include
amortisation and impairment of intangible assets acquired through business
combinations; net financing cost adjustments and the tax adjustments relating to
these items. Each of these adjustments are explained in detail in the section below.
The calculation of Basic EPS and Adjusted EPS, together with the diluted impact on each, is set out below:
Earnings per share
Profit for the year attributable to equity shareholders of ITV plc
Less: Loss for the year from discontinued operations
Profit for the year attributable to equity shareholders of ITV plc
from continuing operations
Weighted average number of ordinary shares in issue – million
Earnings per ordinary share and from continuing operations
Loss per ordinary share from discontinued operations
Diluted earnings per share
Profit for the year attributable to equity shareholders of ITV plc
from continuing operations
Weighted average number of ordinary shares in issue – million
Dilution due to share options
Total weighted average number of ordinary shares in issue – million
Diluted earnings per ordinary share and from continuing operations
Diluted loss per ordinary share from discontinued operations
2016
£m
448
(1)
449
4,010
11.2p
–
2015
£m
495
–
495
4,006
12.4p
–
2016
£m
2015
£m
449
4,010
19
4,029
11.1p
–
495
4,006
29
4,035
12.3p
–
129
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 2: Results for the Year continued
Adjusted earnings per share
Profit for the year attributable to equity shareholders of ITV plc
Exceptional items (net of tax)
Less: Loss after tax for the period from discontinued operations
Profit for the year before exceptional items
from continuing operations
Amortisation and impairment of acquired intangible assets
Adjustments to net financing costs
Adjusted profit from continuing operations
Total weighted average number of ordinary shares in issue – million
Adjusted earnings per ordinary share and from continuing operations
Adjusted loss per ordinary share from discontinued operations
Diluted adjusted earnings per share
Adjusted profit from continuing operations
Weighted average number of ordinary shares in issue – million
Dilution due to share options
Total weighted average number of ordinary shares in issue – million
Diluted adjusted earnings per ordinary share and from continuing operations
Diluted adjusted loss per ordinary share from discontinued operations
Details of the adjustments to earnings are as follows:
Ref.
A
B
C
2016
£m
448
149
(1)
598
66
19
683
4,010
17.0p
–
2016
£m
683
4,010
19
4,029
17.0p
–
2015
£m
495
95
–
590
54
15
659
4,006
16.5p
–
2015
£m
659
4,006
29
4,035
16.3p
–
A. Exceptional items (net of tax) £149 million (2015: £95 million)
Calculated as total exceptional items of £164 million (2015: £103 million) net of related tax credit of £15 million
(2015: £8 million). See note 2.2 for the detailed composition of exceptional items of £164 million.
B. Amortisation and impairment of acquired intangible assets of £66 million (2015: £54 million)
Calculated as total amortisation and impairment of £89 million (2015: £67 million), less amortisation of software
licences and development of £12 million (2015: £9 million), net of related tax credit of £20 million (2015: £13 million).
This is then adjusted to recognise a £9 million cash tax benefit arising from goodwill on US acquisitions, which for
tax purposes is amortised over a 15-year period (2015: £9 million).
C. Adjustments to net financing costs £19 million (2015: £15 million)
Net financing costs are adjusted for mark-to-market movements on derivative instruments, foreign exchange
and imputed pension interest charges of £25 million (2015: £18 million) net of related tax credit of £6 million
(2015: £3 million).
130
Notes to the Financial Statements
Section 2: Results for the Year continued
ITV plc Annual Report and Accounts 2016
Adjusted earnings per share
Profit for the year attributable to equity shareholders of ITV plc
Exceptional items (net of tax)
Less: Loss after tax for the period from discontinued operations
Profit for the year before exceptional items
from continuing operations
Amortisation and impairment of acquired intangible assets
Adjustments to net financing costs
Adjusted profit from continuing operations
Total weighted average number of ordinary shares in issue – million
Adjusted earnings per ordinary share and from continuing operations
Adjusted loss per ordinary share from discontinued operations
Diluted adjusted earnings per share
Adjusted profit from continuing operations
Weighted average number of ordinary shares in issue – million
Dilution due to share options
Total weighted average number of ordinary shares in issue – million
Diluted adjusted earnings per ordinary share and from continuing operations
Diluted adjusted loss per ordinary share from discontinued operations
Details of the adjustments to earnings are as follows:
Ref.
A
B
C
2016
£m
448
149
(1)
598
66
19
683
4,010
17.0p
–
2016
£m
683
4,010
19
4,029
17.0p
–
2015
£m
495
95
–
590
54
15
659
4,006
16.5p
–
2015
£m
659
4,006
29
4,035
16.3p
–
A. Exceptional items (net of tax) £149 million (2015: £95 million)
Calculated as total exceptional items of £164 million (2015: £103 million) net of related tax credit of £15 million
(2015: £8 million). See note 2.2 for the detailed composition of exceptional items of £164 million.
B. Amortisation and impairment of acquired intangible assets of £66 million (2015: £54 million)
Calculated as total amortisation and impairment of £89 million (2015: £67 million), less amortisation of software
licences and development of £12 million (2015: £9 million), net of related tax credit of £20 million (2015: £13 million).
This is then adjusted to recognise a £9 million cash tax benefit arising from goodwill on US acquisitions, which for
tax purposes is amortised over a 15-year period (2015: £9 million).
C. Adjustments to net financing costs £19 million (2015: £15 million)
Net financing costs are adjusted for mark-to-market movements on derivative instruments, foreign exchange
and imputed pension interest charges of £25 million (2015: £18 million) net of related tax credit of £6 million
(2015: £3 million).
2.5
Discontinued
operations
Keeping
it simple
A discontinued operation is a distinct component of the business that has been or is
in the process of being disposed. Accounting standards dictate that the loss from
discontinued operations is recognised outside of the Group’s operating results.
Management agreed to sell UTV Ireland Limited to Virgin Media on 11 July 2016
for €10 million. The sale completed on 30 November 2016 and the assets and
liabilities classified as a disposal group held-for-sale have been disposed of. See
section 3.4 for further details.
Results of discontinued operations
Revenue
Expenses
Operating loss
Taxation
Loss after tax
Gain on sale of discontinued operations
Tax on gain on sale of discontinued operations
Loss for the period
Earnings per share
Basic loss per share
Diluted loss per share
Cash flows from (used in) discontinued operations
Net cash used in operating activities
Net cash from investing activities
Net cash flow for the period
2016
£m
2015
£m
11
(17)
(6)
–
(6)
5
–
(1)
–
–
2016
£m
(6)
10
4
–
–
–
–
–
–
–
–
–
–
2015
£m
–
–
–
131
Financial Statements
Financial Statements
Notes to the Financial Statements
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. On the following pages
there are notes covering working capital, non-current assets and liabilities,
acquisitions and disposals, provisions and pensions.
Liabilities relating to the Group’s financing activities are addressed in section 4.
Deferred tax assets and liabilities are shown in note 2.3.
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 production costs, 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 ratio, 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%. For those subsidiaries acquired during the year, working capital
at the date of acquisition is excluded from the profit to cash calculation so that only
subsequent working capital movements in the period owned by ITV are reflected in
this metric.
In the following section you will find further information regarding working capital
management and analysis of the elements of working capital.
3.1.1 Programme rights, other inventory and commitments
Accounting policies
Rights are recognised when the Group controls the respective rights and the risks and rewards associated with them.
Programme rights and production costs not yet utilised 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.
Broadcast programme rights
Acquired programme rights (which include films), and sports rights, are purchased for the primary purpose of broadcasting
on the ITV Family channels, including VOD and SVOD platforms. These are recognised within current assets as payments
are made or when the rights are ready for broadcast. The Group generally expenses these rights through operating costs
over a number of transmissions reflecting the pattern and value in which the right is consumed.
Commissions, which primarily comprise programmes purchased based on editorial specification and over which
the Group has some control, are recognised in current assets as payments are made and are generally expensed
to operating costs in full on first transmission. Where a commission is repeated on any platform, incremental costs
associated with the broadcast are included in operating costs.
In assessing net realisable value for acquired and commissioned 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.
The Broadcast programme rights and other inventory at the year end are shown in the table below:
Acquired programme rights
Commissions
Sports rights
132
2016
£m
157
69
27
253
2015
£m
111
61
30
202
Notes to the Financial Statements
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. On the following pages
there are notes covering working capital, non-current assets and liabilities,
acquisitions and disposals, provisions and pensions.
Liabilities relating to the Group’s financing activities are addressed in section 4.
Deferred tax assets and liabilities are shown in note 2.3.
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 production costs, 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 ratio, 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%. For those subsidiaries acquired during the year, working capital
at the date of acquisition is excluded from the profit to cash calculation so that only
subsequent working capital movements in the period owned by ITV are reflected in
this metric.
In the following section you will find further information regarding working capital
management and analysis of the elements of working capital.
3.1.1 Programme rights, other inventory and commitments
Accounting policies
Rights are recognised when the Group controls the respective rights and the risks and rewards associated with them.
Programme rights and production costs not yet utilised 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.
Broadcast programme rights
Acquired programme rights (which include films), and sports rights, are purchased for the primary purpose of broadcasting
on the ITV Family channels, including VOD and SVOD platforms. These are recognised within current assets as payments
are made or when the rights are ready for broadcast. The Group generally expenses these rights through operating costs
over a number of transmissions reflecting the pattern and value in which the right is consumed.
Commissions, which primarily comprise programmes purchased based on editorial specification and over which
the Group has some control, are recognised in current assets as payments are made and are generally expensed
to operating costs in full on first transmission. Where a commission is repeated on any platform, incremental costs
associated with the broadcast are included in operating costs.
In assessing net realisable value for acquired and commissioned 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.
The Broadcast programme rights and other inventory at the year end are shown in the table below:
Acquired programme rights
Commissions
Sports rights
2016
£m
157
69
27
253
2015
£m
111
61
30
202
ITV plc Annual Report and Accounts 2016
Broadcast 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
2016
£m
454
789
112
1,355
2015
£m
451
633
141
1,225
Studios production costs
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. They are recognised within
current assets at the production cost incurred, and are expensed in operating costs on delivery of episodes.
Also included here are dramas that that are typically more expensive to produce. The production cost of a drama is
partly funded by the commissioning network licence fee and tax credits, if available. The remaining deficit is funded
by the Group and is recovered by future distribution sales. Once the production is complete the deficit is classified
as a Distribution Right.
The Studios programme rights and other inventory at the year end are shown in the table below:
Production costs
2016
£m
153
2015
£m
171
3.1.2 Distribution rights
Accounting policies
Distribution rights are programme rights the Group buys from producers to derive future revenue, 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 period not exceeding five years, reflecting the value and pattern in which the right is consumed. 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.
The net book value of distribution rights at the year end are as follows:
Distribution rights
2016
£m
31
2015
£m
29
The movement during the year comprises new rights acquired of £40 million (2015: £43 million) and amounts charged
to the income statement of £38 million (2015: £27 million).
133
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
3.1.3 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. During the year £35 million of trade
receivable invoices were sold under a receivables purchase agreement (see note 4.2 for more details). Trade and other
receivables can be analysed as follows:
Due within one year:
Trade receivables
Other receivables
Prepaid employment linked consideration (see note 3.4)
Prepayments and accrued income
Due after more than one year:
Trade receivables
Prepaid employment linked consideration (see note 3.4)
Accrued income and other receivables
Total trade and other receivables
2016
£m
315
39
21
151
526
12
–
27
565
2015
£m
328
37
55
111
531
8
18
7
564
Prepaid employment linked consideration totalling £21 million (2015: £55 million) relates to the acquisition of Talpa
Media in 2015 (see note 3.4 for details). This represents the portion of the initial consideration of €150 million that
is recoverable from the seller in the event he leaves within the initial two years following acquisition. This amount
is amortised over the two years to 31 March 2017 and recognised as exceptional expense (see note 2.2).
£327 million (2015: £336 million) of total trade receivables that are not impaired are aged as follows:
Current
Up to 30 days overdue
Between 30 and 90 days overdue
Over 90 days overdue
2016
£m
299
19
6
3
327
2015
£m
308
17
8
3
336
The balance above is stated net of a provision of £4 million (2015: £5 million) for impairment of trade receivables. Of the
provision total, £3 million relates to balances overdue by more than 90 days (2015: £4 million) and £1 million relates to
current balances (2015: £1 million).
Movements in the Group’s provision for impairment of trade receivables can be shown as follows:
At 1 January
Charged during the year
Unused amounts reversed
At 31 December
2016
£m
5
3
(4)
4
2015
£m
7
3
(5)
5
134
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
ITV plc Annual Report and Accounts 2016
3.1.3 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. During the year £35 million of trade
receivable invoices were sold under a receivables purchase agreement (see note 4.2 for more details). Trade and other
receivables can be analysed as follows:
Due within one year:
Trade receivables
Other receivables
Prepaid employment linked consideration (see note 3.4)
Prepayments and accrued income
Due after more than one year:
Trade receivables
Prepaid employment linked consideration (see note 3.4)
Accrued income and other receivables
Total trade and other receivables
Prepaid employment linked consideration totalling £21 million (2015: £55 million) relates to the acquisition of Talpa
Media in 2015 (see note 3.4 for details). This represents the portion of the initial consideration of €150 million that
is recoverable from the seller in the event he leaves within the initial two years following acquisition. This amount
is amortised over the two years to 31 March 2017 and recognised as exceptional expense (see note 2.2).
£327 million (2015: £336 million) of total trade receivables that are not impaired are aged as follows:
The balance above is stated net of a provision of £4 million (2015: £5 million) for impairment of trade receivables. Of the
provision total, £3 million relates to balances overdue by more than 90 days (2015: £4 million) and £1 million relates to
current balances (2015: £1 million).
Movements in the Group’s provision for impairment of trade receivables can be shown as follows:
Current
Up to 30 days overdue
Between 30 and 90 days overdue
Over 90 days overdue
At 1 January
Charged during the year
Unused amounts reversed
At 31 December
2016
£m
315
39
21
151
526
12
–
27
565
2016
£m
299
19
6
3
327
2015
£m
328
37
55
111
531
8
18
7
564
2015
£m
308
17
8
3
336
2016
£m
5
3
(4)
4
2015
£m
7
3
(5)
5
3.1.4 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 current and
non-current trade payables is considered to approximate fair value. Trade and other payables due within one year
can be analysed as follows:
Trade payables
VAT and social security
Other payables
Accruals
Deferred income
2016
£m
71
61
291
332
205
960
2015
£m
65
71
177
289
184
786
Other payables include £105 million (2015: £3 million) of acquisition related liabilities due in 2017, of which £72 million is
employment linked contingent consideration and £33 million is payable to sellers under put options agreed on acquisition.
3.1.5 Trade and other payables due after more than one year
Trade and other payables due after more than one year can be analysed as follows:
Trade payables
Other payables
2016
£m
57
63
120
2015
£m
48
89
137
Trade payables primarily relate to film creditors for which payment is due after more than one year. Other payables include
the non-current portion of acquisition related liabilities of £53 million (2015: £82 million), of which £38 million is employment
linked contingent consideration and £15 million is payable to sellers under put options agreed on acquisition.
3.1.6 Working capital management
Cash and working capital management continues to be a key focus. During the year the cash outflow from working
capital was £28 million (2015: outflow of £59 million) derived as follows:
(Increase)/decrease in programme rights and other inventory and distribution rights
(Increase) in receivables
Increase/(decrease) in payables
Working capital outflow
2016
£m
(35)
(56)
63
(28)
2015
£m
4
(21)
(42)
(59)
The working capital outflow for the year excludes the impact of balances acquired on the acquisition of subsidiaries
during the year (see note 3.4).
135
Financial Statements
Financial Statements
Notes to the Financial Statements
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.
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 (see note 2.1 for further details of operating lease commitments).
Depreciation
Depreciation is provided to write off the cost of property, plant and equipment less estimated residual value, on a
straight-line basis over their estimated useful lives. The annual depreciation charge is sensitive to the estimated useful
life of each asset and the expected residual value at the end of its life. The major categories of property, plant and
equipment are depreciated as follows:
Asset class
Freehold land
Freehold buildings
Leasehold improvements
Vehicles, equipment and fittings *
Depreciation policy
not depreciated
up to 60 years
shorter of residual lease term or estimated useful life
3 to 20 years
* Equipment includes studio production and technology assets.
136
Notes to the Financial Statements
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.
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 (see note 2.1 for further details of operating lease commitments).
Depreciation
Depreciation is provided to write off the cost of property, plant and equipment less estimated residual value, on a
straight-line basis over their estimated useful lives. The annual depreciation charge is sensitive to the estimated useful
life of each asset and the expected residual value at the end of its life. The major categories of property, plant and
equipment are depreciated as follows:
Asset class
Freehold land
Freehold buildings
Leasehold improvements
Vehicles, equipment and fittings *
* Equipment includes studio production and technology assets.
Depreciation policy
not depreciated
up to 60 years
3 to 20 years
shorter of residual lease term or estimated useful life
ITV plc Annual Report and Accounts 2016
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.
Property, plant and equipment
Property, plant and equipment can be analysed as follows:
Cost
At 1 January 2015
Additions
Disposals and retirements
At 31 December 2015
Additions
Foreign exchange
Reclassifications
Disposals and retirements
At 31 December 2016
Depreciation
At 1 January 2015
Charge for the year
Disposals and retirements
At 31 December 2015
Charge for the year
Foreign exchange
Reclassifications
Disposals and retirements
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
Freehold land
and buildings
Improvements to leasehold
land and buildings
Vehicles, equipment
and fittings
Long
£m
Short
£m
Owned
£m
Finance
leases
£m
67
–
(1)
66
–
–
–
–
66
13
2
(1)
14
2
–
–
–
16
50
52
17
1
–
18
2
–
–
–
20
15
–
–
15
1
–
–
–
16
4
3
237
37
(10)
264
28
6
3
(29)
272
150
24
(9)
165
27
3
1
(29)
167
105
99
16
–
–
16
–
–
(3)
(13)
–
14
–
–
14
–
–
(1)
(13)
–
–
2
£m
120
–
(31)
89
3
–
–
–
92
17
1
(12)
6
1
–
–
–
7
85
83
Total
£m
457
38
(42)
453
33
6
–
(42)
450
209
27
(22)
214
31
3
–
(42)
206
244
239
Additions in the year includes £4 million (2015: £6 million) relating to assets owned by subsidiaries acquired during
the year.
Included within property, plant and equipment are assets in the course of construction of £19 million (2015: £16 million).
In 2016, the Group retired £42 million of assets from use with a net book value of £nil. In 2015, the Group disposed of
the Quay Street site and related assets in Manchester for £23 million, representing a gain on sale of £5 million.
In 2013 the Group acquired the freehold for the London Television Centre for £58 million, although the Directors’ view
is that fair value of the property would be significantly higher than the carrying value.
Capital commitments
There are £4 million of capital commitments at 31 December 2016 (2015: £2 million).
137
Financial Statements
Financial Statements
Notes to the Financial Statements
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
revenue and profits.
These assets include formats and 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, including goodwill, 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. Goodwill is stated at its recoverable amount being cost less any accumulated impairment losses
and is allocated to the business to which it relates.
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 part of the business not yet owned (non-controlling interests)), less the fair value of the identifiable
assets acquired and liabilities assumed, all measured at the acquisition date. Any contingent consideration expected to
be transferred in the future 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 initially recognised in equity at fair value, which is established based on the value of the put
option. 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 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.
138
Notes to the Financial Statements
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
revenue and profits.
These assets include formats and 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, including goodwill, 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. Goodwill is stated at its recoverable amount being cost less any accumulated impairment losses
and is allocated to the business to which it relates.
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 part of the business not yet owned (non-controlling interests)), less the fair value of the identifiable
assets acquired and liabilities assumed, all measured at the acquisition date. Any contingent consideration expected to
be transferred in the future 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 initially recognised in equity at fair value, which is established based on the value of the put
option. 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 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.
ITV plc Annual Report and Accounts 2016
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.
Other intangible assets
Intangible assets other than goodwill are those that are distinct and can be sold separately or which arise from legal rights.
Within ITV there are two types of other intangible assets: those assets directly purchased by the Group for day-to-day
operational purposes (such as software licences and development) and intangible assets identified as part of an
acquisition of a business.
Intangible assets acquired directly by the Group are stated at cost less accumulated amortisation. Those separately
identified intangible assets acquired as part of an acquisition or business combination are shown at fair value at the
date of acquisition less accumulated amortisation.
The main intangible assets the Group has valued are formats, brands, licences, contractual arrangements, customer
contracts and relationships and libraries.
Each class of intangible assets’ valuation method on initial recognition, amortisation method and estimated useful life
is set out in the table below:
Class of intangible
asset
Amortisation method Estimated useful life Valuation method
Brands
Straight-line
8 to 14 years
Formats
Customer
contracts
Customer
relationships
Contractual
arrangements
Straight-line
Straight-line or
reducing balance
as appropriate
Straight-line
Straight-line
Licences
Straight-line
Libraries and
other
Software licences
and development
Sum of digits or
straight line as
appropriate
Straight-line
up to 8 years
up to 6 years
5 to 10 years
up to 10 years
depending on
the contract
terms
11 to 29 years
depending on
term of licence
up to 20 years
Applying a royalty rate to the expected future revenue over
the life of the brand.
Expected future cash flows from those assets 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.
PSB licences are valued as a start-up business with only the
license in place.
Initially at cost and subsequently at cost less accumulated
amortisation.
1 to 5 years
Initially at cost and subsequently at cost less accumulated
amortisation.
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, 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.
139
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
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. Total assets (which include goodwill) 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.
In testing for impairment, estimates are used in deriving cash flows and the discount rates. 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 associated with long-term forecasting. 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 cannot be 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.
140
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
ITV plc Annual Report and Accounts 2016
Amortisation
each year end.
Impairment
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
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. Total assets (which include goodwill) 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.
In testing for impairment, estimates are used in deriving cash flows and the discount rates. 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 associated with long-term forecasting. 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 cannot be 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.
Intangible assets
Intangible assets can be analysed as follows:
Goodwill
£m
Formats
and brands
£m
Customer
contracts and
relationships
£m
Contractual
arrangements
£m
Licences
£m
Libraries
and other
£m
Software
licences and
development
Cost
At 1 January 2015
Additions
Foreign exchange
At 31 December 2015
Additions
Foreign exchange
At 31 December 2016
Amortisation and
impairment
At 1 January 2015
Charge for the year
Foreign exchange
At 31 December 2015
Charge for the year
Foreign exchange
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
3,627
102
15
3,744
44
47
3,835
2,654
–
–
2,654
–
–
2,654
1,181
1,090
201
273
7
481
3
51
535
177
27
1
205
44
5
254
281
276
385
23
3
411
–
9
420
347
17
1
365
16
6
387
33
46
10
–
–
10
–
1
11
5
2
–
7
2
1
10
1
3
121
–
–
121
55
–
176
90
4
–
94
6
–
100
76
27
97
1
1
99
–
4
103
57
8
–
65
9
2
76
27
34
89
15
–
104
13
–
117
71
9
–
80
12
–
92
25
24
Total
£m
4,530
414
26
4,970
115
112
5,197
3,401
67
2
3,470
89
14
3,573
1,624
1,500
All intangible asset additions in the year, excluding software, are due to the acquisition of UTV Limited, as detailed in
note 3.4 (2015: four companies acquired).
Goodwill impairment tests
The carrying amount of Goodwill for each CGU is represented as follows:
Broadcast & Online
SDN
ITV Studios
2016
£m
386
76
719
1,181
2015
£m
342
76
672
1,090
There has been no impairment charge for any CGU during the year (2015: £nil).
When assessing impairment, the recoverable amount of each CGU is based on value in use calculations. These calculations
require the use of estimates, specifically: pre-tax cash flow projections; long-term growth rates; and a pre-tax market
discount rate.
Cash flow projections are based on the Group’s current five-year plan. Beyond the five-year plan these projections are
extrapolated using an estimated long-term growth rate of 2% (2015: 2%). The growth rate used is consistent with the
long-term average growth rates for both the industry and the countries in which they are located 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.
141
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
Broadcast & Online
The goodwill in this CGU arose as a result of the acquisition of broadcasting businesses since 1999, the largest of
which was the merger of Carlton and Granada in 2004 to form ITV plc, which was treated as an acquisition of Carlton
for accounting purposes. Broadcast & Online goodwill also includes the goodwill arising on acquisition of UTV Limited
in February 2016.
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. No impairment was identified. Also as part of the impairment review, a sensitivity of up to -10% was applied
to 2017 and -3% to 2018 with no subsequent recovery, again with no impairment identified. The Directors believe that
currently no reasonably possible change in these assumptions would reduce the headroom in this CGU to zero.
An impairment charge of £2,309 million was recognised in the Broadcast & Online CGU in 2008, as a result of the
downturn in the short-term outlook for the advertising market. The advertising market has substantially improved
since then however the impairment cannot be reversed. The impairment review set out above results in significant
headroom in excess of the 2008 impairment amount.
A pre-tax market discount rate of 10.4% (2015: 9.7%) has been used in discounting the projected cash flows.
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.
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; 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 was identified.
As part of the impairment review, sensitivity was applied to the main assumptions with no impairment identified
(2017: -10% growth, 2018: 0% growth). The Directors believe that currently no reasonably possible change in the
income and availability assumptions would reduce the headroom in this CGU to zero.
A pre-tax market discount rate of 11.7% (2015: 11.5%) has been used in discounting the projected cash flows.
ITV Studios
The goodwill for ITV Studios has arisen as a result of the acquisition of production businesses since 1999. Significant
balances were created from the acquisition by Granada of United News and Media’s production businesses in 2000 and
the merger of Granada and Carlton in 2004 to form ITV plc. ITV Studios goodwill also includes all of the goodwill arising
from recent acquisitions since 2012, with the largest acquisitions being Leftfield in 2014, followed by Talpa and Twofour
Group in 2015.
The key assumptions on which the forecast cash flows for the whole CGU were based include revenue (including
international revenue and the ITV Studios share of ITV output, growth in commissions and hours produced),
margins 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. No impairment was identified.
As part of the impairment review sensitivity was applied to the main assumptions with no impairment identified
(2017: -10% growth, 2018: 0% growth). The Directors believe that currently no reasonably possible change in the
income and availability assumptions would reduce the headroom in this CGU to zero.
A pre-tax market discount rate of 11.6% (2015: 10.1%) has been used in discounting the projected cash flows.
There have been no changes to the ITV Studios CGU in the year and the Directors consider that a single ITV Studios CGU
continues to remain appropriate.
142
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
The goodwill in this CGU arose as a result of the acquisition of broadcasting businesses since 1999, the largest of
which was the merger of Carlton and Granada in 2004 to form ITV plc, which was treated as an acquisition of Carlton
for accounting purposes. Broadcast & Online goodwill also includes the goodwill arising on acquisition of UTV Limited
3.4
Acquisitions
Keeping
it simple
ITV plc Annual Report and Accounts 2016
The following section outlines what the Group has acquired in the year.
Most of the deals are structured so that a large part of the payment made to the
sellers (‘consideration’) is determined based on future performance. This is done
so that the Group can both align incentives for growth, while reducing risk so that
total consideration reflects actual performance, not expected.
IFRS accounting standards require some of this consideration to be included in
the purchase price used in determining goodwill (‘contingent consideration’).
Examples of contingent consideration include top-up payments and recoupable
performance adjustments. Any remaining consideration is required to be recognised
as a liability or expense outside of acquisition accounting (put option liabilities and
employment-linked contingent payments known as ‘earnout’ payments).
The Group considers the income statement impact of all consideration to be capital
in nature and therefore excludes it from adjusted profit. Therefore, for each
acquisition below, the distinction between the types of consideration has been
explained in detail.
Acquisitions
During the period, the Group completed the acquisition of UTV Limited, which has been included in the results of the
Broadcast & Online operating segment. The business fits with the strategy of strengthening the Group’s free-to-air
business and enables it to run a more efficient network. The following section provides a summary of the acquisition.
UTV Limited
On 29 February 2016 the Group acquired a 100% controlling interest in UTV Limited which, together with its 100%
subsidiary UTV Ireland Limited, owned the television assets of UTV Media plc. UTV is the market leading commercial
broadcaster in Northern Ireland, broadcasting ITV content alongside high-quality local programming. The strategic
rationale for the acquisition was to purchase the Northern Irish Channel 3 license.
UTV Limited launched a new dedicated channel for the Republic of Ireland in 2015 via its subsidiary UTV Ireland Limited.
Management concluded that the best prospect of delivering a strong and sustainable Irish broadcaster was to bring
UTV Ireland under common ownership with TV3. ITV therefore sold the company to Virgin Media, owner of TV3 on
30 November 2016, for consideration of €10million. Further details are included in note 2.5.
Key terms:
The Group purchased the businesses for a cash consideration of £100 million.
UTV Limited acquisition accounting:
Intangibles, being the value placed on brands and licences of £58 million were identified and goodwill was valued at
£44 million. Goodwill represents the value placed on the opportunity to diversify and grow the business by the Group.
The goodwill arising on acquisition is not expected to be deductible for tax purposes. Other fair value adjustments have
been made to the opening balance sheet, though none of them are individually significant.
Acquisitions in 2015
In 2015 the Group made four acquisitions, all of which are included in the results of the ITV Studios operating segment.
Talpa Media B.V.
On 30 April 2015 the Group acquired a 100% controlling interest in Talpa Media B.V. and its subsidiaries.
Key terms:
Cash consideration of £362 million (€500 million) was paid at acquisition and the maximum total consideration for
100% of the business, including the initial payment, was £796 million (€1,100 million, undiscounted). All future payments
are performance based.
The deal structure allows for a further £434 million (€600 million) payable after two, five and eight years, on the
achievement of stretching performance targets for the business in the years following acquisition. For these amounts
to be payable in the future, the deal requires the seller to remain with the business during the earnout period. Further,
if the seller leaves within the first two years following acquisition, €150 million of the initial consideration would be
refunded to ITV. While accounting standards determine that these payments are treated as an expense, even the
€150 million refundable, the Group considers these payments as capital in nature, and therefore expenses in relation
to these payments are excluded from adjusted profits as exceptional items.
143
Broadcast & Online
in February 2016.
discount rate.
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
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. No impairment was identified. Also as part of the impairment review, a sensitivity of up to -10% was applied
to 2017 and -3% to 2018 with no subsequent recovery, again with no impairment identified. The Directors believe that
currently no reasonably possible change in these assumptions would reduce the headroom in this CGU to zero.
An impairment charge of £2,309 million was recognised in the Broadcast & Online CGU in 2008, as a result of the
downturn in the short-term outlook for the advertising market. The advertising market has substantially improved
since then however the impairment cannot be reversed. The impairment review set out above results in significant
headroom in excess of the 2008 impairment amount.
A pre-tax market discount rate of 10.4% (2015: 9.7%) has been used in discounting the projected cash flows.
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.
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; 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 was identified.
As part of the impairment review, sensitivity was applied to the main assumptions with no impairment identified
(2017: -10% growth, 2018: 0% growth). The Directors believe that currently no reasonably possible change in the
income and availability assumptions would reduce the headroom in this CGU to zero.
A pre-tax market discount rate of 11.7% (2015: 11.5%) has been used in discounting the projected cash flows.
The goodwill for ITV Studios has arisen as a result of the acquisition of production businesses since 1999. Significant
balances were created from the acquisition by Granada of United News and Media’s production businesses in 2000 and
the merger of Granada and Carlton in 2004 to form ITV plc. ITV Studios goodwill also includes all of the goodwill arising
from recent acquisitions since 2012, with the largest acquisitions being Leftfield in 2014, followed by Talpa and Twofour
ITV Studios
Group in 2015.
The key assumptions on which the forecast cash flows for the whole CGU were based include revenue (including
international revenue and the ITV Studios share of ITV output, growth in commissions and hours produced),
margins 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. No impairment was identified.
As part of the impairment review sensitivity was applied to the main assumptions with no impairment identified
(2017: -10% growth, 2018: 0% growth). The Directors believe that currently no reasonably possible change in the
income and availability assumptions would reduce the headroom in this CGU to zero.
A pre-tax market discount rate of 11.6% (2015: 10.1%) has been used in discounting the projected cash flows.
There have been no changes to the ITV Studios CGU in the year and the Directors consider that a single ITV Studios CGU
continues to remain appropriate.
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
Talpa Media B.V. acquisition accounting:
Intangibles, being the value placed on formats, brands, customer contracts, non-compete arrangements and libraries,
of £276 million (€382 million) were identified and goodwill was valued at £41 million (€57 million). Goodwill represents
the value placed on the opportunity to diversify and grow the content and formats produced by the Group. The goodwill
arising on acquisition is not expected to be deductible for tax purposes. Other fair value adjustments have been made
to the opening balance sheet, though none of them are individually significant.
Twofour Group
On 24 June 2015 the Group acquired Boom Supervisory Limited, the holding company of Twofour Group.
Key terms:
The Group purchased 100% of the Twofour Group for a cash consideration of £55 million. Subsequently the sellers
subscribed to 25% of the share capital of the acquiring company. Put and call options have been granted over this
25% in Twofour Group; these options both being exercisable over the next three to five years. The transaction has
been accounted for on an anticipated acquisition basis and a non-controlling interest has not been recognised. The
maximum total consideration, including the initial payment, is £280 million (undiscounted). These payments are
dependent on future performance of the business and linked to ongoing employment, therefore accounted for
as expense. The Group considers these payments as capital in nature, and therefore expenses in relation to these
payments are excluded from adjusted profits as exceptional items.
Twofour Group acquisition accounting:
Intangibles, being the value placed on formats, brands, customer contracts, non-compete arrangements and libraries,
of £18 million were identified and goodwill was valued at £50 million. Goodwill represents the value placed on the
opportunity to diversify and grow the content and formats produced by the Group. The goodwill arising on acquisition
is not expected to be deductible for tax purposes. Other fair value adjustments have been made to the opening balance
sheet, though none of them are individually significant.
Other 2015 acquisitions
The Group made initial payments totalling £15 million for two smaller acquisitions, Cats on the Roof Media Ltd and
Mammoth Screen Ltd, with a view that these acquisitions will strengthen and complement ITV’s existing position as
a producer for major television networks in the UK. The maximum additional consideration that the Group could pay is
£66 million (undiscounted). Goodwill totalling £11 million arising on these acquisitions is not expected to be deductible
for tax purposes.
144
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
ITV plc Annual Report and Accounts 2016
Talpa Media B.V. acquisition accounting:
Intangibles, being the value placed on formats, brands, customer contracts, non-compete arrangements and libraries,
of £276 million (€382 million) were identified and goodwill was valued at £41 million (€57 million). Goodwill represents
the value placed on the opportunity to diversify and grow the content and formats produced by the Group. The goodwill
arising on acquisition is not expected to be deductible for tax purposes. Other fair value adjustments have been made
to the opening balance sheet, though none of them are individually significant.
On 24 June 2015 the Group acquired Boom Supervisory Limited, the holding company of Twofour Group.
Twofour Group
Key terms:
The Group purchased 100% of the Twofour Group for a cash consideration of £55 million. Subsequently the sellers
subscribed to 25% of the share capital of the acquiring company. Put and call options have been granted over this
25% in Twofour Group; these options both being exercisable over the next three to five years. The transaction has
been accounted for on an anticipated acquisition basis and a non-controlling interest has not been recognised. The
maximum total consideration, including the initial payment, is £280 million (undiscounted). These payments are
dependent on future performance of the business and linked to ongoing employment, therefore accounted for
as expense. The Group considers these payments as capital in nature, and therefore expenses in relation to these
payments are excluded from adjusted profits as exceptional items.
Twofour Group acquisition accounting:
Intangibles, being the value placed on formats, brands, customer contracts, non-compete arrangements and libraries,
of £18 million were identified and goodwill was valued at £50 million. Goodwill represents the value placed on the
opportunity to diversify and grow the content and formats produced by the Group. The goodwill arising on acquisition
is not expected to be deductible for tax purposes. Other fair value adjustments have been made to the opening balance
sheet, though none of them are individually significant.
Other 2015 acquisitions
The Group made initial payments totalling £15 million for two smaller acquisitions, Cats on the Roof Media Ltd and
Mammoth Screen Ltd, with a view that these acquisitions will strengthen and complement ITV’s existing position as
a producer for major television networks in the UK. The maximum additional consideration that the Group could pay is
£66 million (undiscounted). Goodwill totalling £11 million arising on these acquisitions is not expected to be deductible
for tax purposes.
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)
Less: consideration classified as prepaid employment linked consideration (Note B)
Total consideration
Fair value of net assets acquired:
Property, plant and equipment
Intangible assets
Deferred tax liabilities
Trade and other receivables
Trade and other payables
Net assets held for sale
Fair value of net assets
Goodwill
Contributions to the Group’s performance:
From date of acquisition
Revenue
EBITA before exceptionals (Note C)
Proforma – January to December
Revenue
EBITA before exceptionals (Note C)
2016
UTV
97
–
97
4
58
(11)
5
(7)
4
53
2015
Total
406
(109)
297
6
297
(71)
101
(138)
–
195
44
102
27
8
33
9
185
29
306
49
Note A: Consideration for all acquisitions is net of cash acquired and estimated debt and working capital settlements. Cash acquired
during the year is £3 million (2015: £33 million).
Note B: In 2015 total consideration was net of employment linked consideration of £109 million (€150 million). IFRS requires the
employment linked consideration to be treated as remuneration. See note 3.1.4 for further detail of this prepayment.
Note C: UTV profit for the ten months from date of acquisition is £8 million and £9 million for January to December 2016, both excluding
the effect of discontinued operations. This represents UTV's contribution to Group profits. On a consolidated basis the acquisition
resulted in a reduction in ITV Non-NAR revenues previously earned from UTV, which on a Group basis is offset by the reduction in
UTV's costs.
145
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
3.5
Investments
Keeping
it simple
The Group holds non-controlling interests in a number of different entities.
Accounting for these investments, and the Group’s share of any profits and losses,
depends on the level of control or influence the Group is granted via its interest.
The three principal types of non-consolidated investments are: joint arrangements
(joint ventures or joint operations), associates and available for sale investments.
A joint venture is an investment where the Group has joint control, with one or more
third parties. An associate is an entity over which the Group has significant influence
(i.e. power to participate in the investee’s financial and operating decisions). Any
other investment is an available for sale investment.
Accounting policies
For joint ventures and associates the Group applies equity accounting. Under this method, it recognises the investment
in the entity at cost and subsequently adjusts this for its share of profits or losses, which are recognised in the income
statement within non-operating items and included in adjusted profit. Where the Group has invested in associates by
acquiring preference shares or convertible debt instruments, the share of profit recognised is usually £nil as no equity
interest exists. Available for sale investments are held at fair value unless the investment is a start-up business, in which
case it is valued at cost and assessed for impairment.
The carrying amount of each category of our investments is represented as follows:
Joint ventures
Associates
Available for sale investments
2016
£m
4
60
12
76
2015
£m
1
18
11
30
The increase in the year is due to investment in New Form, a digital producer-broadcaster, and increased investment
in ITV Tomorrow Studios, a scripted studio launched in 2014. Further smaller investments have been made in line with
Group’s strategy to grow the international content business.
Please refer to page 184 for the list of principal investments held at 31 December 2016.
146
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
ITV plc Annual Report and Accounts 2016
3.5
Investments
Keeping
it simple
The Group holds non-controlling interests in a number of different entities.
Accounting for these investments, and the Group’s share of any profits and losses,
depends on the level of control or influence the Group is granted via its interest.
The three principal types of non-consolidated investments are: joint arrangements
(joint ventures or joint operations), associates and available for sale investments.
A joint venture is an investment where the Group has joint control, with one or more
third parties. An associate is an entity over which the Group has significant influence
(i.e. power to participate in the investee’s financial and operating decisions). Any
other investment is an available for sale investment.
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
For joint ventures and associates the Group applies equity accounting. Under this method, it recognises the investment
in the entity at cost and subsequently adjusts this for its share of profits or losses, which are recognised in the income
statement within non-operating items and included in adjusted profit. Where the Group has invested in associates by
acquiring preference shares or convertible debt instruments, the share of profit recognised is usually £nil as no equity
interest exists. Available for sale investments are held at fair value unless the investment is a start-up business, in which
case it is valued at cost and assessed for impairment.
The carrying amount of each category of our investments is represented as follows:
Joint ventures
Associates
Available for sale investments
2016
£m
4
60
12
76
2015
£m
1
18
11
30
The increase in the year is due to investment in New Form, a digital producer-broadcaster, and increased investment
in ITV Tomorrow Studios, a scripted studio launched in 2014. Further smaller investments have been made in line with
Group’s strategy to grow the international content business.
Please refer to page 184 for the list of principal investments held at 31 December 2016.
Accounting policies
A provision is recognised in the statement of financial position when the Group has a present legal or constructive
obligation arising from past events, it is probable cash will be paid to settle it and the amount can be estimated
reliably. Provisions are determined by discounting the expected future cash flows by a rate that reflects current
market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is
recognised as a financing cost in the income statement. The value of the provision is determined based on assumptions
and estimates in relation to the amount and timing of actual cash flows which are dependent on future events.
Provisions
The movements in provisions during the year are as follows:
At 1 January 2016
Additions
Utilised
Released
At 31 December 2016
Contract
provisions
£m
Property
provisions
£m
Legal and Other
provisions
£m
6
–
(6)
–
–
2
1
–
(1)
2
25
–
(4)
–
21
Total
£m
33
1
(10)
(1)
23
Provisions of £19 million are classified as current liabilities (2015: £28 million). Unwind of the discount is £nil in 2016
and 2015.
Contract provisions comprised onerous commitments on transmission infrastructure that were expected to be utilised
over the remaining contract period and onerous technology services contracts which would not be utilised.
Legal and Other provisions totalling £21 million (2015: £25 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 Group companies, which would require the Group to put in place
financial support for the Boxclever Scheme. The Group is challenging this in the Upper Tribunal. The 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. The reduction in provisions during the year was due to settlement of
various other legal matters.
147
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
3.7
Pensions
Keeping
it simple
In this note we explain the accounting policies governing the Group’s pension
scheme, followed by analysis of the components of the net defined benefit pension
deficit, including assumptions made, and where the related movements have been
recognised in the financial statements. In addition, we have placed text boxes to
explain some of the technical terms used in the disclosure.
What are the Group’s pension schemes?
There are two types of pension schemes. A ‘Defined Contribution’ scheme that
is open to ITV employees, and a number of ‘Defined Benefit’ schemes that have been
closed to new members since 2006 and will close to future accrual in 2017. In 2016
on acquisition of UTV Limited the Group took over the UTV Defined Benefit Scheme.
What is a Defined Contribution scheme?
The ‘Defined Contribution’ scheme is where the Group makes fixed payments into
a separate fund on behalf of those employees that have elected to participate
in saving for their retirement. ITV has no further obligation to the participating
employee and the risks and rewards associated with this type of scheme are
assumed by the members rather than the Group. It is the members’ responsibility
to make investment decisions relating to their retirement benefits.
What is a Defined Benefit scheme?
In a ‘Defined Benefit’ scheme, members receive cash payments during retirement,
the value of which is dependent on factors such as salary and length of service.
The Group makes contributions to the 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 consolidated statement of financial position.
It is the responsibility of the Trustee to manage and invest the assets of the Scheme
and its funding position. The Trustee, appointed according to the terms of the
Scheme’s documentation, is required to act in the best interest of the members
and is responsible for managing and investing the assets of the scheme and its
funding position.
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 scheme.
Schemes can be funded, where regular cash contributions are made by the employer
into a fund which is invested, or unfunded, where no regular money or assets are
required to be put aside to cover future payments.
Accounting policies
Defined contribution scheme
Obligations under the Group’s defined contribution schemes are recognised as an operating cost in the income
statement as incurred. For 2016, total contributions expensed were £16 million (2015: £16 million).
Defined benefit scheme
The Group’s obligation in respect of the Defined Benefit Scheme (the ‘Scheme’) is calculated by estimating the amount
of future retirement benefit that eligible employees (‘members’) have earned in return for their services. That benefit
payable in the future is discounted to today’s value and then the fair value of scheme assets is deducted to measure
the defined benefit pension deficit.
The liabilities of the Scheme 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 of members in the future up to retirement.
148
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
3.7
Pensions
Keeping
it simple
In this note we explain the accounting policies governing the Group’s pension
scheme, followed by analysis of the components of the net defined benefit pension
deficit, including assumptions made, and where the related movements have been
recognised in the financial statements. In addition, we have placed text boxes to
explain some of the technical terms used in the disclosure.
What are the Group’s pension schemes?
There are two types of pension schemes. A ‘Defined Contribution’ scheme that
is open to ITV employees, and a number of ‘Defined Benefit’ schemes that have been
closed to new members since 2006 and will close to future accrual in 2017. In 2016
on acquisition of UTV Limited the Group took over the UTV Defined Benefit Scheme.
What is a Defined Contribution scheme?
The ‘Defined Contribution’ scheme is where the Group makes fixed payments into
a separate fund on behalf of those employees that have elected to participate
in saving for their retirement. ITV has no further obligation to the participating
employee and the risks and rewards associated with this type of scheme are
assumed by the members rather than the Group. It is the members’ responsibility
to make investment decisions relating to their retirement benefits.
What is a Defined Benefit scheme?
In a ‘Defined Benefit’ scheme, members receive cash payments during retirement,
the value of which is dependent on factors such as salary and length of service.
The Group makes contributions to the 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 consolidated statement of financial position.
It is the responsibility of the Trustee to manage and invest the assets of the Scheme
and its funding position. The Trustee, appointed according to the terms of the
Scheme’s documentation, is required to act in the best interest of the members
and is responsible for managing and investing the assets of the scheme and its
funding position.
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 scheme.
Schemes can be funded, where regular cash contributions are made by the employer
into a fund which is invested, or unfunded, where no regular money or assets are
required to be put aside to cover future payments.
Accounting policies
Defined contribution scheme
Defined benefit scheme
Obligations under the Group’s defined contribution schemes are recognised as an operating cost in the income
statement as incurred. For 2016, total contributions expensed were £16 million (2015: £16 million).
The Group’s obligation in respect of the Defined Benefit Scheme (the ‘Scheme’) is calculated by estimating the amount
of future retirement benefit that eligible employees (‘members’) have earned in return for their services. That benefit
payable in the future is discounted to today’s value and then the fair value of scheme assets is deducted to measure
the defined benefit pension deficit.
The liabilities of the Scheme 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 of members in the future up to retirement.
ITV plc Annual Report and Accounts 2016
These calculations are complex and are performed by a qualified actuary. There are many judgements and estimates
necessary to calculate the Group’s estimated liabilities, the main assumptions are set out later in this section.
Movements in assumptions during the year are called ‘actuarial gains and losses’ and these are recognised in
the period in which they arise through the statement of comprehensive income.
The latest triennial valuation of the Scheme was undertaken as at 1 January 2014 by an independent actuary appointed
by the Trustee of the Scheme and agreed in early 2016. The next triennial valuation will be as at 1 January 2017 and is
expected to be agreed in late 2017 or early 2018. This will drive subsequent contribution rates.
An unfunded scheme in relation to four former Granada executives is accounted for under IAS 19 and the Group is
responsible for meeting the pension obligations as they fall due. The unfunded scheme has additional security
compared to the ITV main scheme, in the form of a charge over gilts held by the Group. The current Directors of ITV plc
recognise the legacy pension obligations should be honoured, but believe the additional security for the scheme is
inappropriate compared to the security provided to the members of the ITV Pension Scheme. Following the Group’s
unsuccessful attempt to remove the charge, the £39 million securitised gilts have been classified as other pension
assets, rather than cash/cash equivalents, to more fairly reflect the Group’s net pension deficit.
In December 2016, following a member consultation, the Group decided to close the ITV Pension Scheme to future
benefit accrual with effect from 28 February 2017. Members’ benefits are no longer subject to a capped pensionable
salary, the benefits will be linked to statutory revaluation until retirement. This decision gave rise to a one off, non-cash
£19 million curtailment charge recognised in the year.
On 29 February 2016 the Group acquired 100% of the assets and liabilities of UTV Limited, including responsibility for
a defined benefit pension scheme. At acquisition the UTV Scheme had neither surplus nor deficit on an IAS 19 basis, and
had a surplus of £1 million as of 31 December 2016. Due to the size of the surplus the Directors present the results and
position of the UTV Scheme together with the existing ITV Schemes. The next triennial valuation will be as at 30 June
2017 and is expected to be agreed in 2018.
Unless otherwise stated, references to ‘the Schemes’ within this note refer to the ITV Pension Scheme, the unfunded
scheme and the UTV Scheme combined.
The defined benefit pension deficit
Net pension deficit of £328 million at 31 December 2016 (2015: £176 million) is stated after including the unfunded
scheme security asset of £39 million (2015: £nil).
The totals recognised in the current and previous years are:
Total defined benefit scheme obligations
Total defined benefit scheme assets
Defined benefit pension deficit (IAS 19)
Other pension asset
Net pension deficit
2016
£m
(4,200)
3,833
(367)
39
(328)
2015
£m
(3,446)
3,270
(176)
–
(176)
The remaining sections provide further detail of the value of the Scheme’s assets and liabilities, how these are
accounted for and the impact on the income statement.
149
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
Defined benefit scheme obligations
Keeping
it simple
What cause movements in the defined benefit pension obligations?
The areas that impact the defined benefit obligation (the pension scheme liabilities)
position at the year end are as follows:
• Current service cost – the cost to the Group of the future benefits earned
by members that relates to the members’ service in the current year. This is
charged to operating costs in the income statement.
• Past service cost – is a change in present value of the benefits built up by the
members in the prior periods; can be positive or negative resulting from changes
to the existing plan as a result of an agreement between ITV and employees or as
a result of significant reduction by ITV in the number of employees covered by the
plan (curtailment).
• Interest cost – the pension obligations payable in the future are discounted to the
present value at year end. A discount factor is used to determine the current value
today of the future cost. The interest cost is the unwinding of one year’s movement
in the present value of the obligation. It is broadly determined by multiplying the
discount rate at the beginning of the period by the updated present value of the
obligation during the period. The discount rate is a key assumption explained later
in this section. This interest cost is recognised through net financing costs in the
income statement (see note 4.4).
• Actuarial gains or losses – there are broadly two causes of actuarial movements.
‘Experience’ adjustments, which arise when comparing assumptions made when
estimating the liabilities and what has actually occurred, and adjustments resulting
from changes in actuarial assumptions e.g. movements in corporate bond yields.
Key assumptions are explained in detail later in this section. Actuarial gains or losses
are recognised through other comprehensive income.
• Benefits paid – any cash benefits paid out by the Scheme will reduce the obligation.
• One-off events – for example the acquisition of UTV Limited set out above.
The movement in the present value of the Group’s defined benefit obligation is analysed below:
Defined benefit obligation at 1 January
Current service cost
Curtailment charge
Interest cost
Actuarial loss/(gain)
UTV acquisition
Benefits paid
Defined benefit obligation at 31 December
2016
£m
3,446
7
19
131
664
98
(165)
4,200
2015
£m
3,687
8
–
126
(217)
–
(158)
3,446
Of the above total defined benefit obligation at 31 December 2016, £51 million relates to unfunded schemes
(2015: £46 million), including the scheme in relation to the four former Granada executives.
150
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
ITV plc Annual Report and Accounts 2016
Defined benefit scheme obligations
Assumptions used to estimate the Scheme obligations
Keeping
it simple
What cause movements in the defined benefit pension obligations?
The areas that impact the defined benefit obligation (the pension scheme liabilities)
position at the year end are as follows:
• Current service cost – the cost to the Group of the future benefits earned
by members that relates to the members’ service in the current year. This is
charged to operating costs in the income statement.
• Past service cost – is a change in present value of the benefits built up by the
members in the prior periods; can be positive or negative resulting from changes
to the existing plan as a result of an agreement between ITV and employees or as
a result of significant reduction by ITV in the number of employees covered by the
plan (curtailment).
• Interest cost – the pension obligations payable in the future are discounted to the
present value at year end. A discount factor is used to determine the current value
today of the future cost. The interest cost is the unwinding of one year’s movement
in the present value of the obligation. It is broadly determined by multiplying the
discount rate at the beginning of the period by the updated present value of the
obligation during the period. The discount rate is a key assumption explained later
in this section. This interest cost is recognised through net financing costs in the
income statement (see note 4.4).
• Actuarial gains or losses – there are broadly two causes of actuarial movements.
‘Experience’ adjustments, which arise when comparing assumptions made when
estimating the liabilities and what has actually occurred, and adjustments resulting
from changes in actuarial assumptions e.g. movements in corporate bond yields.
Key assumptions are explained in detail later in this section. Actuarial gains or losses
are recognised through other comprehensive income.
• Benefits paid – any cash benefits paid out by the Scheme will reduce the obligation.
• One-off events – for example the acquisition of UTV Limited set out above.
The movement in the present value of the Group’s defined benefit obligation is analysed below:
Defined benefit obligation at 1 January
Current service cost
Curtailment charge
Interest cost
Actuarial loss/(gain)
UTV acquisition
Benefits paid
Defined benefit obligation at 31 December
2016
£m
3,446
7
19
131
664
98
(165)
4,200
2015
£m
3,687
8
–
126
(217)
–
(158)
3,446
Keeping
it simple
What are the main assumptions used to estimate the Scheme obligations?
The main assumptions are:
• future salary levels
• future pensionable salary levels
• an estimate of increases in pension payments
• the life expectancy of members
• the effect of inflation on all these factors
• the discount rate used to estimate the present day fair value of these obligations
How do we determine the appropriate assumptions?
The Group takes independent actuarial advice relating to the appropriateness of the
assumptions used.
IFRS requires that we estimate a discount rate by reference to high-quality
fixed income investments in the UK that match the estimated term of the
pension obligations.
The inflation assumption has been set by looking at the difference between the
yields on fixed and index-linked Government bonds. The inflation assumption is
used as a basis for the remaining financial assumptions, except where caps have
been implemented.
The discount rate has therefore been obtained using the yields available on AA rated
corporate bonds which match projected cash flows. The Group’s estimate of the
weighted average term of the liabilities is 17 years (2015: 15 years).
The principal assumptions used in the Scheme’s valuations at the year end were:
Discount rate for:
Past service liabilities
Future service liabilities
Inflation assumption for:
Past service liabilities
Future service liabilities
Rate of pensionable salary increases
ITV Pension Schemes
UTV Pension Scheme
Rate of increase in pension payment (LPI1 5% pension increases)
Rate of increase to deferred pensions (CPI)
1. Limited Price Index.
2016
2015
2.60%
2.70%
3.25%
3.20%
N/A
3.75%
3.15%
2.25%
3.80%
4.00%
3.00%
3.10%
0.90%
N/A
2.90%
2.00%
Of the above total defined benefit obligation at 31 December 2016, £51 million relates to unfunded schemes
(2015: £46 million), including the scheme in relation to the four former Granada executives.
The table below reflects published mortality investigation data in conjunction with the results of investigations into the
mortality experience of Scheme members. The assumed life expectations on retirement are:
Retiring today at age
Males
Females
Retiring in 20 years at age
Males
Females
2016
60
27.1
29.3
60
28.8
31.0
2016
65
22.4
24.5
65
23.9
26.1
2015
60
28.0
30.6
60
30.0
32.6
2015
65
23.2
25.7
65
25.0
27.6
During 2016 a review of the longevity of the Scheme pensioners was conducted and revealed lower life expectancy
than previously assumed. The net pension deficit is sensitive to changes in assumptions. Those are disclosed further
in this section.
151
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
Total defined benefit scheme assets
Keeping
it simple
The Scheme holds assets across a number of different classes which are managed
by the Trustee, who consults with the Group on changes to its investment policy.
What are the pension Scheme assets?
At 31 December 2016 the Scheme’s assets were invested in a diversified portfolio
that consisted primarily of equity and debt securities. The tables below set out the
major categories of assets.
Financial instruments are in place in order to provide protection against changes
in market factors (interest rates and inflation) which could act to increase the defined
benefit pension deficit. These financial instruments are classified as Scheme assets.
One such instrument is the longevity swap which the Scheme transacted in 2011
to obtain protection against the effect of increases in the life expectation of the
majority of pensioner members at that date. Under the swap, the Trustee agreed
to make pre-determined payments in return for payments to meet the specified
pension obligations as they fall due, irrespective of how long the members and
their dependants live. The difference in the present values of these two streams
of payments is reflected in the Scheme assets. The swap had a nil valuation at
inception and, using market-based assumptions, is subsequently adjusted for
changes in the market life expectancy and market discount rates, in line with
its fair value.
How do we measure the pension Scheme assets?
Defined benefit scheme assets are measured at their fair value and can change due
to the following:
• Interest income on scheme assets – this is determined by multiplying the
fair value of the Scheme assets by the discount rate, both taken as of the beginning
of the year. This is recognised through net financing costs in the income statement.
• Return on assets arise from differences between the actual return and interest income
on Scheme assets and are recognised through other comprehensive income.
• Employer’s contributions are paid into the Scheme to be managed and invested.
• Benefits and administrative expenses paid out by the Schemes will lower the
fair value of the Scheme’s assets.
The movement in the fair value of the defined benefit scheme’s assets is analysed below:
Fair value of Scheme assets at 1 January
Interest income on Scheme assets
Return/(loss) on assets, excluding interest income
Employer contributions
UTV acquisition
Benefits paid
Administrative expenses paid
Fair value of Scheme assets at 31 December
2016
£m
3,270
126
416
93
98
(165)
(5)
3,833
2015
£m
3,341
116
(126)
102
–
(158)
(5)
3,270
The actual return on the Scheme’s assets, being the sum of the interest income on Scheme assets and return on
Scheme assets, for the year ended 31 December 2016 was an increase of £542 million (2015: decrease of £10 million).
152
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
ITV plc Annual Report and Accounts 2016
Total defined benefit scheme assets
Keeping
it simple
The Scheme holds assets across a number of different classes which are managed
by the Trustee, who consults with the Group on changes to its investment policy.
What are the pension Scheme assets?
At 31 December 2016 the Scheme’s assets were invested in a diversified portfolio
that consisted primarily of equity and debt securities. The tables below set out the
major categories of assets.
Financial instruments are in place in order to provide protection against changes
in market factors (interest rates and inflation) which could act to increase the defined
benefit pension deficit. These financial instruments are classified as Scheme assets.
One such instrument is the longevity swap which the Scheme transacted in 2011
to obtain protection against the effect of increases in the life expectation of the
majority of pensioner members at that date. Under the swap, the Trustee agreed
to make pre-determined payments in return for payments to meet the specified
pension obligations as they fall due, irrespective of how long the members and
their dependants live. The difference in the present values of these two streams
of payments is reflected in the Scheme assets. The swap had a nil valuation at
inception and, using market-based assumptions, is subsequently adjusted for
changes in the market life expectancy and market discount rates, in line with
its fair value.
to the following:
How do we measure the pension Scheme assets?
Defined benefit scheme assets are measured at their fair value and can change due
• Interest income on scheme assets – this is determined by multiplying the
fair value of the Scheme assets by the discount rate, both taken as of the beginning
of the year. This is recognised through net financing costs in the income statement.
• Return on assets arise from differences between the actual return and interest income
on Scheme assets and are recognised through other comprehensive income.
• Employer’s contributions are paid into the Scheme to be managed and invested.
• Benefits and administrative expenses paid out by the Schemes will lower the
fair value of the Scheme’s assets.
The movement in the fair value of the defined benefit scheme’s assets is analysed below:
Fair value of Scheme assets at 1 January
Interest income on Scheme assets
Return/(loss) on assets, excluding interest income
Employer contributions
UTV acquisition
Benefits paid
Administrative expenses paid
Fair value of Scheme assets at 31 December
2016
£m
3,270
126
416
93
98
(165)
(5)
3,833
2015
£m
3,341
116
(126)
102
–
(158)
(5)
3,270
The actual return on the Scheme’s assets, being the sum of the interest income on Scheme assets and return on
Scheme assets, for the year ended 31 December 2016 was an increase of £542 million (2015: decrease of £10 million).
How are the Scheme’s assets invested?
At 31 December 2016 the Scheme’s assets were invested in a diversified portfolio that consisted primarily of equity
and debt securities. The Trustee is responsible for deciding the investment strategy for the scheme’s assets, although
changes in investment policies require consultation with the Group. The assets are invested in different classes to
hedge against unfavourable movements in the funding obligation. When selecting the mix of assets to hold, and
considering their related risks and returns, the Trustee will weigh up the variability of returns against the target
long-term rate of return on the overall portfolio.
The fair value of the Scheme’s assets are shown in the following table by major category:
Liability hedging assets
Fixed interest gilts
Index-linked interest gilts
Interest rate and inflation hedging derivatives (swaps and repos)
Market value
2016
£m
Market value
2015
£m
678
1,135
270
2,083
54%
532
914
59
1,505
46%
Other bonds
784
20%
733
22%
Return seeking investments
Quoted equities
Infrastructure
Property
Hedge funds/alternatives
Other investments
Cash and cash equivalents
Insurance policies
Longevity swap fair value
Total Scheme assets
633
95
62
222
1,012
183
42
(271)
(46)
3,833
27%
(1%)
100%
653
68
54
196
971
86
40
(65)
61
3,270
30%
2%
100%
Included in the above are overseas assets of £1,304 million (2015: £1,198 million), comprised of quoted equities
of £565 million (2015: £564 million) and bonds of £739 million (2015: £634 million).
The Trustee entered a longevity swap in 2011 which provides cash flow certainty by hedging the risk of increasing life
expectancy over the next 70 years for 11,700 of current pensioners covering £1.7bn of the pension obligation. The fair
value of the longevity swap equals the discounted value of the projected net cash flows resulting from the contract
and has changed substantially over the year due to two key factors:
• A review of the longevity of pensioners covered by the swap which revealed lower life expectancy than previously
expected. This reduced the asset value by £127 million.
• A reduction in the yields used to value the swap as falling yields adversely impact the fair value. This reduced the
asset value by £79 million.
153
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
Defined pension deficit sensitivities
Keeping
it simple
Which assumptions have the biggest impact on the Scheme?
It is important to note that comparatively small changes in the assumptions used may
have a significant effect on the consolidated income statement and statement of
financial position. This ‘sensitivity’ to change is analysed below to demonstrate how
small changes in assumptions can have a large impact on the estimation of the
defined benefit pension deficit.
The Trustee manages the investment, mortality and inflation risks to ensure the pension
obligations are met as they fall due. The investment strategy is aimed at the valuation
obligation rather than IAS19 defined pension deficit value. As such the effectiveness of the
risk hedging strategies on a valuation basis will not be the same as on an accounting basis.
Those hedging strategies have significant impact on the movement in the net pension
deficit as assumptions change, offsetting the impacts on the obligation disclosed below.
In practice, changes in one assumption may be accompanied by offsetting changes in
another assumption (although this is not always the case). Changes in the
assumptions may occur at the same time as changes in the market value of Scheme
assets, which may or may not offset the changes in assumptions.
Changes in assumptions have a different level of impact as the value of the net
pension deficit fluctuates, because the relationship between them is not linear.
The analysis below considers the impact of a single change in principal assumptions on the defined benefit obligation
while keeping the other assumptions unchanged and does not take into account any risk hedging strategies:
Assumption
Change in assumption
Impact on defined benefit obligation
Discount rate
Rate of inflation (Retail Price Index)
Rate of inflation (Consumer Price Index)
Life expectations
Increase by 0.1%
Decrease by 0.1%
Increase by 0.1%
Decrease by 0.1%
Increase by 0.1%
Decrease by 0.1%
Increase by one year
Decrease by £65 million
Increase by £75 million
Increase by £15 million
Decrease by £15 million
Increase by £10 million
Decrease by £10 million
Increase by £130 million
The sensitivity analysis has been determined by extrapolating the impact on the defined benefit obligation
at the year end with changes in key assumptions that might reasonably occur.
While the Scheme’s risk hedging strategy is aimed at a valuation basis, the Directors estimate that on an accounting
basis it would significantly reduce the above impact on the defined benefit obligation.
In particular, an increase in assumption of life expectations by one year would benefit from an estimated increase of
the value of the longevity swap by £100 million, reducing the net impact on the defined pension deficit to £30 million.
Further, the ITV Pension Scheme invests in UK Government bonds and interest rate and inflation swap contracts
and therefore movements in the defined benefit obligation are typically offset, to an extent, by asset movements.
This occurred during 2016 when both corporate and UK government bond yields fell significantly and the market
expectation of future inflation rose. However, as corporate bond yields fell further than UK Government Bond yields,
the impact on the defined benefit obligation exceeded the impact on the assets.
154
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
ITV plc Annual Report and Accounts 2016
Defined pension deficit sensitivities
Keeping
it simple
Which assumptions have the biggest impact on the Scheme?
It is important to note that comparatively small changes in the assumptions used may
have a significant effect on the consolidated income statement and statement of
financial position. This ‘sensitivity’ to change is analysed below to demonstrate how
small changes in assumptions can have a large impact on the estimation of the
defined benefit pension deficit.
The Trustee manages the investment, mortality and inflation risks to ensure the pension
obligations are met as they fall due. The investment strategy is aimed at the valuation
obligation rather than IAS19 defined pension deficit value. As such the effectiveness of the
risk hedging strategies on a valuation basis will not be the same as on an accounting basis.
Those hedging strategies have significant impact on the movement in the net pension
deficit as assumptions change, offsetting the impacts on the obligation disclosed below.
In practice, changes in one assumption may be accompanied by offsetting changes in
another assumption (although this is not always the case). Changes in the
assumptions may occur at the same time as changes in the market value of Scheme
assets, which may or may not offset the changes in assumptions.
Changes in assumptions have a different level of impact as the value of the net
pension deficit fluctuates, because the relationship between them is not linear.
The analysis below considers the impact of a single change in principal assumptions on the defined benefit obligation
while keeping the other assumptions unchanged and does not take into account any risk hedging strategies:
Assumption
Discount rate
Change in assumption
Increase by 0.1%
Decrease by 0.1%
Increase by 0.1%
Increase by 0.1%
Rate of inflation (Retail Price Index)
Decrease by 0.1%
Rate of inflation (Consumer Price Index)
Decrease by 0.1%
Life expectations
Increase by one year
Impact on defined benefit obligation
Decrease by £65 million
Increase by £75 million
Increase by £15 million
Decrease by £15 million
Increase by £10 million
Decrease by £10 million
Increase by £130 million
The sensitivity analysis has been determined by extrapolating the impact on the defined benefit obligation
at the year end with changes in key assumptions that might reasonably occur.
While the Scheme’s risk hedging strategy is aimed at a valuation basis, the Directors estimate that on an accounting
basis it would significantly reduce the above impact on the defined benefit obligation.
In particular, an increase in assumption of life expectations by one year would benefit from an estimated increase of
the value of the longevity swap by £100 million, reducing the net impact on the defined pension deficit to £30 million.
Further, the ITV Pension Scheme invests in UK Government bonds and interest rate and inflation swap contracts
and therefore movements in the defined benefit obligation are typically offset, to an extent, by asset movements.
This occurred during 2016 when both corporate and UK government bond yields fell significantly and the market
expectation of future inflation rose. However, as corporate bond yields fell further than UK Government Bond yields,
the impact on the defined benefit obligation exceeded the impact on the assets.
Keeping
it simple
What was the impact of movements on the Scheme’s assets and liabilities?
The sections above describe how the Scheme obligations and assets are comprised
and measured. The following section sets out the impact of various movements and
expenses on the Scheme on the Group’s financial statements.
Amounts recognised through the income statement
Amounts recognised through the income statement are as follows:
2016
£m
2015
£m
Amount charged to operating costs:
Current service cost
Scheme administration expenses
Amount charged to net financing costs:
Net interest on defined benefit obligation
Amount charged to exceptional costs:
Curtailment cost
Total charged in the consolidated income statement
Amounts recognised through the consolidated statement of comprehensive income
The amounts recognised through the consolidated statement of comprehensive income/(cost) are:
(7)
(5)
(12)
(5)
(19)
(36)
Remeasurement gains / (losses):
(Loss)/Return on scheme assets excluding interest income
Actuarial gains / (losses) on liabilities arising from change in:
– inflation experience
– financial assumptions
– mortality assumptions
Total recognised in the consolidated statement of comprehensive income
2016
£m
416
31
(868)
173
(664)
(248)
(8)
(5)
(13)
(10)
–
(23)
2015
£m
(126)
48
169
–
217
91
The £664 million actuarial loss on the Scheme’s liabilities was principally due to a decrease in bond yields over the year,
which has resulted in an increase in the liabilities. The £416 million gain on the Scheme’s assets primarily results from
increases in the market values of gilts and swaps, which has led to assets outperforming expectations.
155
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
Addressing the defined benefit pension deficit
Keeping
it simple
The Group works closely with the Trustee to agree appropriate levels of funding
for the Scheme. This involves agreeing a Schedule of Contributions at each triennial
valuation, which specifies the contribution rates for the employer and scheme members
and the date these contributions are due. A recovery plan setting out the steps that will
be taken to address a funding shortfall is also agreed.
In the event that the Group’s defined benefit scheme is in a net liability position, the
Directors must take steps to manage the size of the deficit. Apart from the funding
agreements mentioned above, this could involve pledging additional assets to the
Scheme, as was the case in the SDN and London Television Centre (‘LTVC’) pension
funding partnerships (explained below).
The levels of ongoing contributions to the Scheme are based on the current service costs (as assessed by the Scheme
Trustee) and the expected future cash flows of the Scheme. Normal employer contributions in 2017 for current service
(including administration expenses) are expected to be in the region of £6 million (2016: £12 million) and deficit funding
contributions in 2017 are expected to be £66 million (2016: £66 million), assuming current contribution rates continue
as agreed with the Trustee. The reduction in normal employer contributions for current service is as a result of the
closure of the ITV Pension Scheme to future benefit accrual.
The Group has two asset-backed pension funding agreements with the Trustee and makes annual payments of
£11 million for 12 years from 2011 and £2.5 million, increasing by 5% per annum until 2038. In 2017 a payment of
£14 million is expected as a result of those agreements.
IFRIC 14 clarifies how the asset ceiling should be applied, and in particular, how local minimum funding rules work. The
Group has determined that it has an unconditional right to a refund of surplus assets if the Schemes are run off until
the last member dies, on which basis IFRIC 14 does not cause any change in the balance sheet disclosures before tax.
156
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs
ITV plc Annual Report and Accounts 2016
Addressing the defined benefit pension deficit
Keeping
it simple
The Group works closely with the Trustee to agree appropriate levels of funding
for the Scheme. This involves agreeing a Schedule of Contributions at each triennial
valuation, which specifies the contribution rates for the employer and scheme members
and the date these contributions are due. A recovery plan setting out the steps that will
be taken to address a funding shortfall is also agreed.
In the event that the Group’s defined benefit scheme is in a net liability position, the
Directors must take steps to manage the size of the deficit. Apart from the funding
agreements mentioned above, this could involve pledging additional assets to the
Scheme, as was the case in the SDN and London Television Centre (‘LTVC’) pension
funding partnerships (explained below).
The levels of ongoing contributions to the Scheme are based on the current service costs (as assessed by the Scheme
Trustee) and the expected future cash flows of the Scheme. Normal employer contributions in 2017 for current service
(including administration expenses) are expected to be in the region of £6 million (2016: £12 million) and deficit funding
contributions in 2017 are expected to be £66 million (2016: £66 million), assuming current contribution rates continue
as agreed with the Trustee. The reduction in normal employer contributions for current service is as a result of the
closure of the ITV Pension Scheme to future benefit accrual.
The Group has two asset-backed pension funding agreements with the Trustee and makes annual payments of
£11 million for 12 years from 2011 and £2.5 million, increasing by 5% per annum until 2038. In 2017 a payment of
£14 million is expected as a result of those agreements.
IFRIC 14 clarifies how the asset ceiling should be applied, and in particular, how local minimum funding rules work. The
Group has determined that it has an unconditional right to a refund of surplus assets if the Schemes are run off until
the last member dies, on which basis IFRIC 14 does not cause any change in the balance sheet disclosures before tax.
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. Maintaining capital discipline and balance sheet efficiency
remains important to the Group, as seen through the issuance of a new
Eurobond during the year. Any potential courses of action will take into account
the Group’s liquidity needs, flexibility to invest in the business, pension deficit
initiatives and impact on credit ratings.
The 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 invest in
opportunities to grow the business and enhance shareholder value.
A Tax and Treasury committee acting under delegated authority from the
Board, approves certain financial transactions and monitors compliance with
the Group’s tax and treasury policies.
4.1
Net debt
Keeping
it simple
Net cash / (debt) is the Group’s key measure used to evaluate total cash resources net
of the current outstanding debt.
Adjusted net debt is also monitored by the Group and more closely reflects how
credit agencies see the Group’s gearing. To arrive at the adjusted net debt amount,
we add our total undiscounted expected contingent payments on acquisitions, our
net pension deficit and our undiscounted operating lease commitments. A full
analysis and discussion of adjusted net debt is included in the Financial and
Performance Review.
The tables below analyse movements in the components of net cash during the year:
Cash
Cash equivalents
Total cash and cash equivalents
Loans and facilities due within one year
Finance leases due within one year
Loans and facilities due after one year
Finance leases due after one year
Total debt
Currency component of swaps held against euro
denominated bonds
Net cash/(debt)
1 January
2016
£m
Net cash flow
and
acquisitions
£m
Reclassifications
£m
Currency and
non-cash
movements
£m
31 December
2016
£m
238
56
294
(5)
(6)
(598)
(4)
(613)
–
(319)
304
(6)
298
5
6
(525)
–
(514)
–
(216)
–
(39)
(39)
–
–
–
–
–
–
(39)
7
1
8
(161)
(4)
88
4
(73)
2
(63)
549
12
561
(161)
(4)
(1,035)
–
(1,200)
2
(637)
157
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs continued
Cash
Cash equivalents
Total cash and cash equivalents
Loans and facilities due within one year
Finance leases due within one year
Loans and facilities due after one year
Finance leases due after one year
Total debt
Net cash/(debt)
1 January
2015
£m
Net cash flow
and
acquisitions
£m
Currency and
non-cash
movements
£m
31 December
2015
£m
234
63
297
(78)
(7)
(161)
(10)
(256)
3
(6)
(3)
73
7
(433)
–
(353)
41
(356)
1
(1)
–
–
(6)
(4)
6
(4)
(4)
238
56
294
(5)
(6)
(598)
(4)
(613)
(319)
Cash and cash equivalents
Included within cash equivalents is £4 million (2015: £10 million), the use of which is restricted to meeting finance lease
commitments under programme sale and leasebacks (see note 4.2). During 2016 gilts of £39 million (2015: £39 million)
were reclassified to other pension assets. This was as a result of the outcome of legal action attempting to remove the
charging deed executed on these gilts in respect of the unfunded pension commitments of four former Granada
executives. Refer to note 3.7 for further details.
Loans and facilities due within one year
At various periods during the year the Group drew down on the Revolving Credit Facility (‘RCF’) to meet short-term
funding requirements. All short-term drawings were repaid by the end of the year (2015: no outstanding short-term
funding). The maximum draw down of the RCF during the year was £500 million in May. The maximum draw down
on the RCF during 2015 was £362 million.
The Group also had an unsecured £161 million Eurobond which matured in January 2017 and had a coupon of 6.125%.
Loans and loan notes due after one year
The Group has two bilateral loan facilities maturing in March 2017; both loans can be extended until 2018 at ITV’s
option. The two facilities are a £100 million bilateral loan that is fully drawn down as of 31 December 2016, and
a £150 million bilateral loan with an unconditional right to set off with cash on deposit with the counterparty.
The £150 million arrangement is in a net £nil position.
In December 2016 the Group issued a seven-year €500 million Eurobond at a fixed coupon of 2.0% which will mature in
December 2023. The bond has been swapped back to sterling using a cross currency interest swap. The resulting fixed
rate payable is c. 3.5%. The proceeds of the bond were for general corporate purposes including the repayment of the
£161 million sterling bond which matured in January 2017 and settling the acquisition related liabilities due in 2017.
In September 2015 the Group issued a seven-year €600 million Eurobond at a fixed coupon of 2.125% which will mature
in September 2022. The bond refinanced the 12-month bridge loan facility of €500 million used for the purchase of
Talpa Media in April 2015.
158
Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs continued
ITV plc Annual Report and Accounts 2016
Cash
Cash equivalents
Total cash and cash equivalents
Loans and facilities due within one year
Finance leases due within one year
Loans and facilities due after one year
Finance leases due after one year
Total debt
Net cash/(debt)
Cash and cash equivalents
1 January
Net cash flow
acquisitions
Currency and
non-cash
movements
£m
31 December
2015
£m
234
63
297
(78)
(7)
(161)
(10)
(256)
and
£m
3
(6)
(3)
73
7
(433)
–
(353)
41
(356)
2015
£m
238
56
294
(5)
(6)
(598)
(4)
(613)
(319)
1
(1)
–
–
(6)
(4)
6
(4)
(4)
Included within cash equivalents is £4 million (2015: £10 million), the use of which is restricted to meeting finance lease
commitments under programme sale and leasebacks (see note 4.2). During 2016 gilts of £39 million (2015: £39 million)
were reclassified to other pension assets. This was as a result of the outcome of legal action attempting to remove the
charging deed executed on these gilts in respect of the unfunded pension commitments of four former Granada
executives. Refer to note 3.7 for further details.
Loans and facilities due within one year
At various periods during the year the Group drew down on the Revolving Credit Facility (‘RCF’) to meet short-term
funding requirements. All short-term drawings were repaid by the end of the year (2015: no outstanding short-term
funding). The maximum draw down of the RCF during the year was £500 million in May. The maximum draw down
on the RCF during 2015 was £362 million.
The Group also had an unsecured £161 million Eurobond which matured in January 2017 and had a coupon of 6.125%.
Loans and loan notes due after one year
The Group has two bilateral loan facilities maturing in March 2017; both loans can be extended until 2018 at ITV’s
option. The two facilities are a £100 million bilateral loan that is fully drawn down as of 31 December 2016, and
a £150 million bilateral loan with an unconditional right to set off with cash on deposit with the counterparty.
The £150 million arrangement is in a net £nil position.
In December 2016 the Group issued a seven-year €500 million Eurobond at a fixed coupon of 2.0% which will mature in
December 2023. The bond has been swapped back to sterling using a cross currency interest swap. The resulting fixed
rate payable is c. 3.5%. The proceeds of the bond were for general corporate purposes including the repayment of the
£161 million sterling bond which matured in January 2017 and settling the acquisition related liabilities due in 2017.
In September 2015 the Group issued a seven-year €600 million Eurobond at a fixed coupon of 2.125% which will mature
in September 2022. The bond refinanced the 12-month bridge loan facility of €500 million used for the purchase of
Talpa Media in April 2015.
4.2
Borrowings
and finance
leases
Keeping
it simple
The Group borrows money from financial institutions in the form of bonds, bank
facilities and other financial instruments. The interest payable on these instruments
is shown in the net financing costs note in note 4.4.
There are Board-approved policies in place to manage the Group’s financial risks.
Macroeconomic market risks, which impact currency transactions and interest rates,
are discussed in note 4.3. Credit and liquidity risks are discussed below.
• Credit risk: the risk of financial loss to the Group if a customer or counterparty fails
to meet its contractual obligations and
• Liquidity risk: the risk that the Group will not be able to meet its financial
obligations as they fall due
The Group is required to disclose the fair value of its debt instruments. The fair value
is the amount the Group would pay a third party to transfer the liability. It 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 instruments valued under level 2 in note 4.5.
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 rate basis.
Finance leases
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.
Managing credit and liquidity risk
Credit risk
The Group’s maximum exposure to credit risk is represented by the carrying amount of derivative financial assets
(see note 4.3), trade receivables (see note 3.1.3), and cash and cash equivalents (note 4.1).
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 and
is also taken out for other significant receivables. In December 2016 the Group signed a new £100 million non-recourse
receivables purchase agreement to replace the £75 million invoice discount facility. In December 2016 £35 million
invoices were sold under the agreement (2015: £nil). The receivables in relation to those were derecognised and the
Group collected cash on behalf of the counterparty.
Cash
The Group operates investment guidelines with respect to surplus cash that emphasise 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 Board.
159
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs continued
Borrowings
ITV is rated as investment grade by Moody’s and S&P. 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.
Liquidity risk
The Group’s financing policy is to fund itself for the medium to long-term by using debt instruments with a range
of maturities and to ensure access to appropriate short-term borrowing facilities with a minimum of £250 million
of undrawn facilities available at all times.
Long-term funding comes from the UK and European Capital markets, while any short to medium-term debt
requirements are provided through bank credit facilities totalling £930 million (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 any possible future impact
on credit ratings and headroom and takes into account the accessibility of cash and cash equivalents.
The Group has £630 million available funds through a Revolving Credit Facility (‘RCF’) with a group of relationship banks.
This £630 million facility was amended and extended in December 2016, matures in 2021 and is committed with
leverage and interest cover financial covenants. In addition, the Group has £300 million of financial covenant free
financing which runs to 2021. Both of these facilities were undrawn at 31 December 2016 (2015: no drawings).
Fair value versus book value
The tables below provide fair value information for the Group’s borrowings:
Book value
Fair value
Loans due within one year
Other short-term loans
£161 million Eurobond
Loans due in more than one year
Bilateral loan facility
€600 million Eurobond
€500 million Eurobond
Maturity
Various
Jan 2017
Jun 2018
Sept 2022
Dec 2023
2016
£m
–
161
100
508
427
1,196
Finance leases
The following table analyses when finance lease liabilities are due for payment:
In one year or less
In more than one year but not
more than five years
Minimum
lease
payments
£m
4
–
4
Interest
£m
2016
Principal
£m
–
–
–
4
–
4
2015
£m
5
161
–
437
–
603
Minimum
lease
payments
£m
6
4
10
2016
£m
–
162
100
529
431
1,222
2015
£m
5
168
–
445
–
618
Interest
£m
2015
Principal
£m
–
–
–
6
4
10
Finance leases principally comprise programmes under sale and leaseback arrangements. The net book value of
tangible assets held under finance leases at 31 December 2016 was £nil (2015: £1 million).
160
Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs continued
ITV plc Annual Report and Accounts 2016
Borrowings
Liquidity risk
ITV is rated as investment grade by Moody’s and S&P. 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 Group’s financing policy is to fund itself for the medium to long-term by using debt instruments with a range
of maturities and to ensure access to appropriate short-term borrowing facilities with a minimum of £250 million
of undrawn facilities available at all times.
Long-term funding comes from the UK and European Capital markets, while any short to medium-term debt
requirements are provided through bank credit facilities totalling £930 million (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 any possible future impact
on credit ratings and headroom and takes into account the accessibility of cash and cash equivalents.
The Group has £630 million available funds through a Revolving Credit Facility (‘RCF’) with a group of relationship banks.
This £630 million facility was amended and extended in December 2016, matures in 2021 and is committed with
leverage and interest cover financial covenants. In addition, the Group has £300 million of financial covenant free
financing which runs to 2021. Both of these facilities were undrawn at 31 December 2016 (2015: no drawings).
Fair value versus book value
The tables below provide fair value information for the Group’s borrowings:
Book value
Fair value
Loans due within one year
Other short-term loans
£161 million Eurobond
Loans due in more than one year
Bilateral loan facility
€600 million Eurobond
€500 million Eurobond
Maturity
Various
Jan 2017
Jun 2018
Sept 2022
Dec 2023
2016
£m
–
161
100
508
427
1,196
£m
4
–
4
2015
£m
5
161
437
–
–
603
£m
6
4
10
2016
£m
–
162
100
529
431
1,222
Interest
£m
–
–
–
2015
£m
5
168
445
–
–
618
2015
Principal
£m
6
4
10
Finance leases
The following table analyses when finance lease liabilities are due for payment:
In one year or less
In more than one year but not
more than five years
2016
Principal
Minimum
lease
payments
Minimum
lease
payments
£m
4
–
4
Interest
£m
–
–
–
Finance leases principally comprise programmes under sale and leaseback arrangements. The net book value of
tangible assets held under finance leases at 31 December 2016 was £nil (2015: £1 million).
Keeping
it simple
4.3
Managing
market risks:
derivative
financial
instruments
What is a derivative?
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 exposure in an underlying variable.
The Group is exposed to certain market risks. In accordance with Board approved
policies, which are set out in this note, the Group manages these risks by using
derivative financial instruments to hedge the underlying exposures.
Why do we need them?
The key market risks facing the Group are:
• Currency risk arising from:
i. translation risk, that is, the risk in the period of adverse currency fluctuations in
the translation of foreign currency profits, assets and liabilities (‘balance sheet
risk’) and non-functional currency monetary assets and liabilities (‘income
statement risk’); and
ii. transaction risk, that is, the risk that currency fluctuations will have a negative
effect on the value of the Group’s non-functional currency trading cash flows.
A non-functional currency transaction is a transaction in any currency other than
the reporting currency of the subsidiary.
• Interest rate risk to the Group arises from significant changes in interest rates on
borrowings issued at or swapped to floating rates.
How do we use them?
The Group mainly employs four types of derivative financial instruments when
managing its currency and interest rate risk:
• Foreign exchange swap contracts are derivative instruments used to hedge income
statement translation risk arising from short term intercompany loans
denominated in a foreign currency;
• Forward foreign exchange contracts are derivative instruments used to hedge
transaction risk so they enable the sale or purchase of foreign currency at a known
fixed rate on an agreed future date ;
• Interest rate swaps are derivative instruments that exchange a fixed rate of
interest for a floating rate, or vice versa, or one type of floating rate for another,
and are used to manage interest rate risk; and
• Cross-currency interest rate swaps are derivative instruments used to exchange the
principal and interest coupons in a debt instrument from one currency to another.
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
Derivative financial instruments are initially recognised at fair value and are subsequently remeasured at fair value with
the movement recorded in the income statement, except where derivatives qualify for cash flow hedge accounting.
In this case, the effective portion of a cash flow hedge is recognised in other comprehensive income and presented
in the hedging reserve within equity. The cumulative gain or loss is later reclassified to the income statement in the
same period as the relevant hedged transaction is realised. Derivatives with positive fair values are recorded as assets
and negative fair values as liabilities.
161
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs continued
Determining Fair Value
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 our current creditworthiness, as well as that of our swap counterparties.
Third-party valuations are used to fair value the Group’s interest rate derivatives. The valuation techniques use inputs
such as interest rate yield curves and currency prices/yields, volatilities of underlying instruments and correlations
between inputs.
How do we manage our currency and interest rate risk?
Currency risk
As the Group expands its international operations, the performance of the business becomes increasingly sensitive
to movements in foreign exchange rates, primarily with respect to the US dollar and the euro.
The Group’s foreign exchange policy is to use forward foreign exchange contracts to hedge material non-functional
currency denominated costs or revenue at the time of commitment for up to five years forward. The Group also
hedges a proportion of highly probable non-functional currency denominated costs or revenue on a rolling 18-month
basis (see ‘Keeping it simple box’ for explanation of non-functional currency transactions).
The Group ensures that its net exposure to foreign currency denominated cash balances is kept to a minimal level by
using foreign currency swaps to exchange balances back into sterling or by buying or selling foreign currencies at spot
rates when necessary.
The Group also utilises foreign exchange swaps and cross-currency interest rate swaps both to manage foreign
currency cash flow timing differences and to hedge foreign currency denominated monetary items.
The Group’s net investments in overseas subsidiaries may be hedged where the currency exposure is considered to be
material. In 2015 the Group designated a portion of its euro borrowings into a net investment hedge against its euro
denominated assets following the acquisition of Talpa Media.
The following table highlights the Group’s sensitivity to translation risk resulting from a 10% strengthening/weakening
in sterling against the US dollar and euro, assuming all other variables are held constant:
US dollar
Euro
2016 – post-
tax profit
2016 – equity
2015 – post-
tax profit
2015 – equity
£3 million £32 million
£10 million £11 million
£10 million
£8 million
£63 million
£41 million
The Group’s sensitivity to translation risk for revenue and adjusted EBITA is disclosed in the Financial and Performance
Review on page 44. The key difference between the foreign currency sensitivity for adjusted EBITA and profit after tax
is the impact on the US dollar and euro denominated exceptional costs, including acquisition related costs, acquired
intangible amortisation and net financing cost.
Interest rate risk
The Group’s interest rate policy is to allow fixed rate gross debt to vary between 20% and 100% of total gross debt to
accommodate floating rate borrowings under the revolving credit facility.
At 31 December 2016 the Group’s fixed rate debt represented 92% of total gross debt (2015: 99%). Consequently a
1% movement in interest rates on floating rate debt would impact the 2016 post-tax profit for the year by £2 million
(2015: £nil).
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.
162
Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs continued
ITV plc Annual Report and Accounts 2016
Determining Fair Value
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 our current creditworthiness, as well as that of our swap counterparties.
Third-party valuations are used to fair value the Group’s interest rate derivatives. The valuation techniques use inputs
such as interest rate yield curves and currency prices/yields, volatilities of underlying instruments and correlations
between inputs.
Currency risk
How do we manage our currency and interest rate risk?
As the Group expands its international operations, the performance of the business becomes increasingly sensitive
to movements in foreign exchange rates, primarily with respect to the US dollar and the euro.
The Group’s foreign exchange policy is to use forward foreign exchange contracts to hedge material non-functional
currency denominated costs or revenue at the time of commitment for up to five years forward. The Group also
hedges a proportion of highly probable non-functional currency denominated costs or revenue on a rolling 18-month
basis (see ‘Keeping it simple box’ for explanation of non-functional currency transactions).
The Group ensures that its net exposure to foreign currency denominated cash balances is kept to a minimal level by
using foreign currency swaps to exchange balances back into sterling or by buying or selling foreign currencies at spot
rates when necessary.
The Group also utilises foreign exchange swaps and cross-currency interest rate swaps both to manage foreign
currency cash flow timing differences and to hedge foreign currency denominated monetary items.
The Group’s net investments in overseas subsidiaries may be hedged where the currency exposure is considered to be
material. In 2015 the Group designated a portion of its euro borrowings into a net investment hedge against its euro
denominated assets following the acquisition of Talpa Media.
The following table highlights the Group’s sensitivity to translation risk resulting from a 10% strengthening/weakening
in sterling against the US dollar and euro, assuming all other variables are held constant:
US dollar
Euro
2016 – post-
2015 – post-
tax profit
2016 – equity
tax profit
2015 – equity
£3 million £32 million
£10 million
£63 million
£10 million £11 million
£8 million
£41 million
The Group’s sensitivity to translation risk for revenue and adjusted EBITA is disclosed in the Financial and Performance
Review on page 44. The key difference between the foreign currency sensitivity for adjusted EBITA and profit after tax
is the impact on the US dollar and euro denominated exceptional costs, including acquisition related costs, acquired
intangible amortisation and net financing cost.
Interest rate risk
The Group’s interest rate policy is to allow fixed rate gross debt to vary between 20% and 100% of total gross debt to
accommodate floating rate borrowings under the revolving credit facility.
At 31 December 2016 the Group’s fixed rate debt represented 92% of total gross debt (2015: 99%). Consequently a
1% movement in interest rates on floating rate debt would impact the 2016 post-tax profit for the year by £2 million
(2015: £nil).
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.
What is the value of our 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.
At 31 December 2016
Current
Foreign exchange forward contracts and swaps – cash flow hedges
Foreign exchange forward contracts and swaps – fair value through profit or loss
Non-current
Cross currency interest swaps – cash flow hedges
Foreign exchange forward contracts and swaps – cash flow hedges
At 31 December 2015
Current
Foreign exchange forward contracts and swaps – cash flow hedges
Foreign exchange forward contracts and swaps – fair value through profit or loss
Non-current
Interest rate swaps – fair value through profit or loss
Assets
£m
Liabilities
£m
6
2
–
1
9
(1)
(2)
(6)
(3)
(12)
Assets
£m
Liabilities
£m
–
1
8
9
(4)
(1)
(6)
(11)
Cash flow hedges
The Group applies hedge accounting for certain foreign currency firm commitments and highly probably cash flows
where the underlying cash flows are payable within the next two to seven years. In order to fix the sterling cash
outflows associated with the commitments and interest payments – which are mainly denominated in AUD or euros –
the Group has taken out forward foreign exchange contracts and cross currency interest swaps for the same foreign
currency amount and maturity date as the expected foreign currency outflow.
The amount recognised in other comprehensive income during the period all relates to the effective portion of the revaluation
loss associated with these contracts. There was less than £1 million (2015: £1 million) ineffectiveness taken to the income
statement and £5 million cumulative gain (2015: £6 million loss) recycled to the income statement in the year.
On issuing the 2023 Eurobond, the Group entered into a portfolio of cross-currency interest rate swaps, which swapped the
euro principal and fixed rate coupons into sterling. As a result the Group makes sterling interest payments at a fixed rate.
Net investment hedges
The Group uses euro denominated debt to partially hedge against the change in the sterling value of its euro
denominated net assets due to movements in foreign exchange rates. The fair value of debt in a net investment
hedge was £168 million (2015: £141 million). A foreign exchange loss of £21 million (2015: £2 million) relating to the net
investment hedges has been netted off within exchange differences on translation of foreign operations as presented
on the consolidated statement of comprehensive income.
Interest rate swaps
On issuing the 2017 Eurobond, the Group entered into a portfolio of fixed to floating interest rate swaps and then
subsequently overlaid a portfolio of floating to fixed interest rate swaps with the result that interest was 100% fixed
on these borrowings. The timing of entering into these swaps locked in an interest benefit for the Group, resulting in a
net mark-to-market gain on the portfolio.
163
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs continued
Undiscounted financial liabilities
Keeping
it simple
The Group is required to disclose the expected timings of cash outflows for each of its
financial liabilities (including derivatives). 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 2016
Non-derivative financial liabilities
Borrowings
Trade and other payables
Other payables – non-current
Other payables – commitments on
acquisitions
Derivative financial instruments
Foreign exchange forward contracts and
swaps – cash flow hedges
Inflow
Outflow
Cross currency swaps – cash flow hedges
Inflow
Outflow
Foreign exchange forward contracts and
swaps – fair value through profit or loss
Inflow
Outflow
Interest rate swaps – fair value through profit
or loss
Inflow
Outflow
At 31 December 2015
Non-derivative financial liabilities
Borrowings
Trade and other payables
Other payables – non-current
Other payables – commitments on acquisitions
Derivative financial instruments
Cash flow hedges
Inflow
Outflow
Foreign exchange forward contracts and
swaps
Inflow
Outflow
Interest rate swaps
Inflow
Outflow
Carrying
value
£m
Total
contractual
cash flows
£m
Less than
1 year
£m
Between
1 and 2 years
£m
Between
2 and 5 years
£m
Over
5 years
£m
(1,196)
(912)
(11)
(1,338)
(912)
(11)
(194)
(855)
–
(119)
(48)
(6)
(58)
(8)
(4)
(967)
(1)
(1)
(158)
(328) *
(122)
(56)
(150)
7
(4)
–
(6)
213
(210)
497
(542)
127
(123)
10
(17)
263
(263)
263
(263)
258
(258)
86
(87)
10
(17)
5
(5)
–
–
30
(51)
–
–
–
–
–
447
(457)
–
–
–
–
(2,280)
13
(6)
(2,624)
13
(6)
(1,167)
–
–
(237)
–
–
(241)
–
–
(979)
Carrying
value
£m
Total
contractual
cash flows
£m
Less than
1 year
£m
Between
1 and 2 years
£m
Between
2 and 5 years
£m
Over
5 years
£m
(613)
(834)
(4)
(85)
(703)
(834)
(4)
(303) *
66
(70)
66
(70)
147
(147)
8
(6)
(1,538)
147
(147)
22
(12)
(1,838)
(30)
(786)
–
(12)
49
(53)
144
(144)
9
(6)
(829)
(184)
(34)
(1)
(108)
17
(17)
3
(3)
13
(6)
(320)
(28)
(14)
(2)
(183)
(461)
–
(1)
–
–
–
–
–
–
–
–
–
–
–
(227)
–
–
(462)
* Expected future payments depending on performance of acquisitions, the total maximum consideration is discussed in the Financial
164
and Performance Review.
Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs continued
ITV plc Annual Report and Accounts 2016
Undiscounted financial liabilities
Keeping
it simple
The Group is required to disclose the expected timings of cash outflows for each of its
financial liabilities (including derivatives). 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.
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 liabilities.
In reporting ‘adjusted profit’, the Group adjusts net financing costs to exclude
unrealised mark-to-market movements on interest rate and foreign exchange
derivatives, gains/losses on bond buybacks, net pension interest, interest and fair
value movements in acquisition-related liabilities and other financing costs.
Our rationale for adjustments made to financing costs is set out in the Financial and
Performance Review.
Total
Carrying
contractual
Less than
Between
Between
value
£m
cash flows
£m
1 year
1 and 2 years
2 and 5 years
£m
£m
£m
Over
5 years
£m
(1,196)
(912)
(11)
(1,338)
(912)
(11)
(194)
(855)
–
(119)
(48)
(6)
(58)
(8)
(4)
(158)
(328) *
(122)
(56)
(150)
At 31 December 2016
Non-derivative financial liabilities
Borrowings
Trade and other payables
Other payables – non-current
Other payables – commitments on
acquisitions
Derivative financial instruments
Foreign exchange forward contracts and
swaps – cash flow hedges
Cross currency swaps – cash flow hedges
Foreign exchange forward contracts and
swaps – fair value through profit or loss
Inflow
Outflow
Inflow
Outflow
Inflow
Outflow
or loss
Inflow
Outflow
Interest rate swaps – fair value through profit
7
(4)
–
(6)
213
(210)
497
(542)
127
(123)
10
(17)
263
(263)
263
(263)
258
(258)
–
–
13
(6)
13
(6)
(2,280)
(2,624)
(1,167)
(237)
(241)
(979)
Carrying
value
£m
Total
contractual
cash flows
£m
Less than
Between
Between
1 year
1 and 2 years
2 and 5 years
£m
£m
£m
Over
5 years
£m
(184)
(34)
(1)
(108)
(28)
(14)
(2)
(183)
(461)
–
(1)
–
At 31 December 2015
Non-derivative financial liabilities
Borrowings
Trade and other payables
Other payables – non-current
Other payables – commitments on acquisitions
Derivative financial instruments
Cash flow hedges
Foreign exchange forward contracts and
Inflow
Outflow
swaps
Inflow
Outflow
Inflow
Outflow
Interest rate swaps
(613)
(834)
(4)
(85)
66
(70)
147
(147)
8
(6)
(703)
(834)
(4)
(303) *
66
(70)
147
(147)
22
(12)
(30)
(786)
–
(12)
49
(53)
144
(144)
9
(6)
* Expected future payments depending on performance of acquisitions, the total maximum consideration is discussed in the Financial
and Performance Review.
(1,538)
(1,838)
(829)
(320)
(227)
(462)
(967)
(1)
(1)
–
447
(457)
–
–
–
–
–
–
–
–
–
–
–
–
86
(87)
10
(17)
5
(5)
–
–
17
(17)
3
(3)
13
(6)
–
–
30
(51)
–
–
–
–
–
–
–
–
–
–
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, unwinding of the discount on 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:
2016
£m
2015
£m
Financing income:
Interest income
Change in fair value of instruments classified at fair value through profit or loss
Financing costs:
Interest expense on financial liabilities measured at amortised cost
Net pension interest (see note 3.7)
Change in fair value of instruments classified at fair value through profit or loss
Foreign exchange loss
Other finance expense
Net financing costs
2
–
2
(25)
(5)
(1)
(8)
(14)
(53)
(51)
Interest on financial liabilities relates to the interest incurred on the Group’s borrowings in the year.
Other finance expense includes the amortisation of facility commitment and upfront fees as well as movements
in the estimated value of acquisition-related contingent liabilities, which contributed to most of the 2016 expense.
This is where estimates of the future performance against stretch targets is reassessed, resulting in adjustments
to the related put option liabilities.
3
3
6
(17)
(10)
–
(2)
(8)
(37)
(31)
165
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs continued
4.5
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). The different valuation methods are called
‘hierarchies’ and are described below.
Level 1
Fair values are measured using quoted prices (unadjusted) in active markets for
identical assets or liabilities.
Level 2
Fair values are 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 are measured using inputs for the asset or liability that are not based on
observable market data.
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
Other pension assets – gilts (see note 3.7)
Available for sale investments (see note 3.5)
Financial assets at fair value through profit or loss
Foreign exchange forward contracts and swaps
Financial liabilities at fair value through reserves
Cash flow hedges
Liabilities measured at fair value
Financial liabilities at fair value through profit or loss
Contingent consideration
Foreign exchange forward contracts and swaps
Financial liabilities at fair value through reserves
Cash flow hedges
Fair value
31 December
2016
£m
Level 1
31 December
2016
£m
Level 2
31 December
2016
£m
Level 3
31 December
2016
£m
39
12
2
7
60
39
–
–
–
39
–
–
2
7
9
–
12
–
–
12
Fair value
31 December
2016
£m
Level 1
31 December
2016
£m
Level 2
31 December
2016
£m
Level 3
31 December
2016
£m
(1)
(3)
(9)
(13)
–
–
–
–
–
(3)
(9)
(12)
(1)
–
–
(1)
166
ITV plc Annual Report and Accounts 2016
Assets measured at fair value
Available for sale financial instruments
Available for sale gilts (see note 4.1)
Available for sale investments (see note 3.5)
Financial assets at fair value through profit or loss
Foreign exchange forward contracts and swaps
Interest rate swaps
Liabilities measured at fair value
Financial liabilities at fair value through profit or loss
Contingent consideration
Foreign exchange forward contracts and swaps
Interest rate swaps
Financial liabilities at fair value through reserves
Cash flow hedges
Fair value
31 December
2015
£m
Level 1
31 December
2015
£m
Level 2
31 December
2015
£m
Level 3
31 December
2015
£m
38
11
1
8
58
38
–
–
–
38
–
–
1
8
9
–
11
–
–
11
Fair value
31 December
2015
£m
Level 1
31 December
2015
£m
Level 2
31 December
2015
£m
Level 3
31 December
2015
£m
(3)
(1)
(6)
(4)
(14)
–
–
–
–
–
–
(1)
(6)
(4)
(11)
(3)
–
–
–
(3)
The tables below set out the financial instruments included on the ITV statement of financial position at ‘fair value’.
Refer to note 4.3 for how we value interest rate swaps and forward foreign currency contracts. The available for sale
investments are valued at cost and assessed for impairment.
Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs continued
4.5
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). The different valuation methods are called
‘hierarchies’ and are described below.
Fair values are measured using quoted prices (unadjusted) in active markets for
identical assets or liabilities.
Level 1
Level 2
Fair values are 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
observable market data.
Fair values are measured using inputs for the asset or liability that are not based on
Assets measured at fair value
Available for sale financial instruments
Other pension assets – gilts (see note 3.7)
Available for sale investments (see note 3.5)
Financial assets at fair value through profit or loss
Foreign exchange forward contracts and swaps
Financial liabilities at fair value through reserves
Cash flow hedges
Liabilities measured at fair value
Financial liabilities at fair value through profit or loss
Contingent consideration
Foreign exchange forward contracts and swaps
Financial liabilities at fair value through reserves
Cash flow hedges
Fair value
Level 1
Level 2
Level 3
31 December
31 December
31 December
31 December
2016
£m
2016
£m
2016
£m
2016
£m
39
12
2
7
60
(1)
(3)
(9)
(13)
39
–
–
–
39
–
–
–
–
–
–
2
7
9
–
(3)
(9)
(12)
–
12
–
–
12
(1)
–
–
(1)
Fair value
Level 1
Level 2
Level 3
31 December
31 December
31 December
31 December
2016
£m
2016
£m
2016
£m
2016
£m
167
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs continued
4.6
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 2016 are presented in the consolidated statement of
changes in equity.
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.
4.6.1 Share capital and share premium
The Group’s share capital at 31 December 2016 of £403 million (2015: £403 million) and share premium of £174 million
(2015: £174 million) is the same as that of ITV plc. Details of this are given in the ITV plc Company financial statements
section of this Annual Report.
4.6.2 Merger and other reserves
Merger and other reserves at 31 December 2016 include the following reserves:
Merger reserves
Capital reserves
Capital redemption reserves
Revaluation reserves
Put option liabilities arising on acquisition of subsidiaries
Total
4.6.3 Translation reserve
The translation reserve comprises:
2016
£m
98
112
36
2
(27)
221
2015
£m
98
112
36
2
(27)
221
• all foreign exchange differences arising on the translation of the accounts of, and investments in, foreign operations;
and
• the gains or losses on the portion of cash flow hedges that have been deemed effective (see note 4.3).
4.6.4 Available for sale reserve
The available for sale reserve comprises all movements arising on the revaluation of gilts accounted for as available
for sale financial instruments (see note 3.7).
4.6.5 Retained earnings
The retained earnings reserve comprises profit for the year attributable to owners of the Company of £448 million
(2015: £495 million) and other items recognised directly through equity as presented in the consolidated statement
of changes in equity. Other items include the credit for the Group’s share-based compensation schemes and the charge
for the purchase of ITV shares via the ITV Employees’ Benefit Trust, which are described in note 4.7.
The distributable reserves of ITV plc are disclosed in note viii to the ITV plc Company Financial Statements.
The Directors of ITV plc propose a final dividend of 7.2p per share and a special dividend of 5p per share.
See details on distributable reserves on page 182.
168
Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs continued
4.6
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 2016 are presented in the consolidated statement of
changes in equity.
Accounting policies
Available for sale reserve
Dividends
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 are recognised through equity on the earlier of their approval by the Company’s shareholders or their payment.
4.6.1 Share capital and share premium
The Group’s share capital at 31 December 2016 of £403 million (2015: £403 million) and share premium of £174 million
(2015: £174 million) is the same as that of ITV plc. Details of this are given in the ITV plc Company financial statements
section of this Annual Report.
4.6.2 Merger and other reserves
Merger and other reserves at 31 December 2016 include the following reserves:
2016
£m
98
112
36
2
(27)
221
2015
£m
98
112
36
2
(27)
221
Put option liabilities arising on acquisition of subsidiaries
Merger reserves
Capital reserves
Capital redemption reserves
Revaluation reserves
4.6.3 Translation reserve
The translation reserve comprises:
Total
and
4.6.4 Available for sale reserve
for sale financial instruments (see note 3.7).
4.6.5 Retained earnings
• all foreign exchange differences arising on the translation of the accounts of, and investments in, foreign operations;
• the gains or losses on the portion of cash flow hedges that have been deemed effective (see note 4.3).
The available for sale reserve comprises all movements arising on the revaluation of gilts accounted for as available
The retained earnings reserve comprises profit for the year attributable to owners of the Company of £448 million
(2015: £495 million) and other items recognised directly through equity as presented in the consolidated statement
of changes in equity. Other items include the credit for the Group’s share-based compensation schemes and the charge
for the purchase of ITV shares via the ITV Employees’ Benefit Trust, which are described in note 4.7.
The distributable reserves of ITV plc are disclosed in note viii to the ITV plc Company Financial Statements.
The Directors of ITV plc propose a final dividend of 7.2p per share and a special dividend of 5p per share.
See details on distributable reserves on page 182.
ITV plc Annual Report and Accounts 2016
4.6.6 Non-controlling interests
The movement for the year comprises:
• the share of profits attributable to non-controlling interests of £4 million (2015: £7million); and
• the distributions made to non-controlling interests of £4 million (2015: £5 million).
4.7
Share-based
compensation
Keeping
it simple
The Group utilises share award schemes as part of its employee remuneration
packages, and therefore operates a number of share-based compensation schemes,
namely the Deferred Share Award (DSA), Performance Share Plan (PSP), Long Term
Incentive Plan (LTIP) and Save As You Earn (SAYE) schemes.
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 based on the price or value of the Group’s shares then this
will also fall under a share-based transaction.
A description of each type of share-based payment arrangement that existed at any
time during the period are set out in the Annual Remuneration Report.
Accounting policies
For each of the Group’s 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, for the Save As
You Earn scheme (SAYE), a Black–Scholes model, taking into account the terms and conditions of the individual scheme.
Vesting conditions are limited to service conditions and performance conditions. 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. The estimate is then used to determine the option fair value, discounted
to present value. The Group revises its estimates of the number of options that are expected to vest, including an
estimate of forfeitures at each reporting date. The impact of the revision to original estimates, if any, are recognised
in the income statement, with a corresponding adjustment to equity.
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 DSA. During the year all exercises were satisfied by
using shares purchased in the market and held in the ITV Employees’ Benefit Trust.
Share-based compensation charges totalled £10 million in 2016 (2015: £14 million).
169
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs continued
Share options outstanding
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
2016
Weighted
average
exercise price
(pence)
Number
of options
(’000)
40,167
7,351
8,002
(255)
(12,293)
(6,439)
36,533
83
55.63
–
167.62
151.17
28.81
109.25
67.86
–
2015
Weighted
average
exercise price
(pence)
32.97
–
198.94
143.65
16.65
18.77
55.63
53.17
Number
of options
(’000)
51,933
6,744
4,615
(30)
(19,477)
(3,618)
40,167
610
The average share price during 2016 was 209.91 pence (2015: 254.24 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
150.00 – 199.99
200.00 – 249.99
Weighted
average
exercise price
(pence)
Number
of options
(’000)
–
–
67.71
–
102.59
–
131.44
167.37
206.83
21,531
–
505
–
185
–
193
13,251
891
2016
Weighted
average
remaining
contractual
life
(years)
Weighted
average
exercise price
(pence)
1.89
–
0.91
–
1.92
–
2.16
1.87
1.41
–
–
67.24
73.58
102.59
–
131.44
172.58
206.83
2015
Weighted
average
remaining
contractual life
(years)
1.79
–
0.98
0.92
1.14
–
1.52
2.22
2.52
Number
of options
(’000)
25,910
–
991
301
1,672
–
1,175
8,089
2,054
Assumptions
DSA, LTIP and PSP options are valued directly by reference to the share price at date of grant.
The options for the SAYE scheme, an HMRC approved SAYE scheme, are valued using the Black–Scholes model, using
the assumptions below:
Scheme name
Date of grant
Share price
at grant
(pence)
Exercise price
(pence)
Expected
volatility
%
Expected life
(years)
Gross dividend
yield
%
Risk-free
rate
%
Fair value
(pence)
3 Year
5 Year
3 Year
5 Year
3 Year
5 Year
3 Year
5 Year
2 April 2015
2 April 2015
16 Sept 2015
16 Sept 2015
29 March 2016
29 March 2016
16 Sept 2016
16 Sept 2016
251.00
251.00
249.60
249.60
243.30
243.30
195.40
195.40
192.52
192.52
206.83
206.83
187.79
187.79
157.46
157.46
26.00
32.00
25.00
30.00
25.00
29.00
30.00
31.00
3.25
5.25
3.25
5.25
3.25
5.25
3.25
5.25
2.27
2.27
2.28
2.28
3.00
3.00
3.00
3.00
0.74
1.14
0.97
1.38
0.41
0.73
0.41
0.73
65.85
80.81
55.71
72.02
56.64
65.94
46.97
52.15
170
Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs continued
Notes to the Financial Statements
Section 5: Other Notes
ITV plc Annual Report and Accounts 2016
2015
Weighted
average
(pence)
32.97
–
198.94
143.65
16.65
18.77
55.63
53.17
2015
Weighted
average
remaining
(years)
1.79
–
0.98
0.92
1.14
–
1.52
2.22
2.52
Share options outstanding
weighted average exercise price:
The table below summarises the movements in the number of share options outstanding for the Group and their
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
of options
exercise price
of options
exercise price
2016
Weighted
average
(pence)
55.63
–
167.62
151.17
28.81
109.25
67.86
–
Number
(’000)
40,167
7,351
8,002
(255)
(12,293)
(6,439)
36,533
83
Number
(’000)
51,933
6,744
4,615
(30)
(19,477)
(3,618)
40,167
610
The average share price during 2016 was 209.91 pence (2015: 254.24 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)
exercise price
of options
life
exercise price
of options
contractual life
2016
Weighted
average
remaining
Number
contractual
(’000)
21,531
(years)
1.89
Weighted
average
(pence)
–
–
–
–
67.71
102.59
131.44
167.37
206.83
505
185
–
–
–
193
13,251
891
Weighted
average
(pence)
–
–
–
67.24
73.58
102.59
131.44
172.58
206.83
Number
(’000)
25,910
–
991
301
1,672
–
1,175
8,089
2,054
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
150.00 – 199.99
200.00 – 249.99
Assumptions
DSA, LTIP and PSP options are valued directly by reference to the share price at date of grant.
The options for the SAYE scheme, an HMRC approved SAYE scheme, are valued using the Black–Scholes model, using
the assumptions below:
Scheme name
Date of grant
Share price
at grant
(pence)
Exercise price
(pence)
Expected
volatility
%
Expected life
(years)
Gross dividend
Risk-free
3 Year
5 Year
3 Year
5 Year
3 Year
5 Year
3 Year
5 Year
2 April 2015
2 April 2015
16 Sept 2015
16 Sept 2015
29 March 2016
29 March 2016
16 Sept 2016
16 Sept 2016
251.00
251.00
249.60
249.60
243.30
243.30
195.40
195.40
192.52
192.52
206.83
206.83
187.79
187.79
157.46
157.46
26.00
32.00
25.00
30.00
25.00
29.00
30.00
31.00
yield
%
2.27
2.27
2.28
2.28
3.00
3.00
3.00
3.00
rate
%
0.74
1.14
0.97
1.38
0.41
0.73
0.41
0.73
Fair value
(pence)
65.85
80.81
55.71
72.02
56.64
65.94
46.97
52.15
0.91
–
–
–
1.92
2.16
1.87
1.41
3.25
5.25
3.25
5.25
3.25
5.25
3.25
5.25
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 and primarily consist of the
EBT’s purchases of shares in ITV plc, which are accounted for as a reduction to retained earnings.
The table below shows the number of ITV plc shares held in the EBT at 31 December 2016 and the purchases/(releases)
from the EBT made in the year to satisfy awards under the Group’s share schemes:
Scheme
DSA releases
PSP releases
SAYE releases
Shares purchased
Shares held at
1 January 2016
31 December 2016
Number of shares
(released)/purchased
16,949,851
(2,889,078)
(6,200,608)
(3,003,419)
9,553,378
14,410,124
Nominal value
£
1,694,985
1,438,557
The total number of shares held by the EBT at 31 December 2016 represents 0.36% (2015: 0.42%) of ITV’s issued share
capital. The market value of own shares held at 31 December 2016 is £30 million (2015: £47 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 DSA. 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.
5.1
Related
party
transactions
Keeping
it simple
The related parties identified by the Directors include joint ventures, associated
undertakings, fixed asset 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 Group’s transactions with
those related parties during the year and any associated year end trading balances.
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
2016
£m
8
10
26
70
2015
£m
9
13
24
65
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.
171
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 5: Other Notes continued
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 to joint ventures
Amounts owed to associated undertakings
2016
£m
–
57
–
–
2015
£m
3
66
2
5
Balances owed by associated undertakings largely relate to loan notes and production funding advanced to Tomorrow
ITV Studios for US scripted investment.
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
2016
£m
8
2
10
2015
£m
9
6
15
5.2
Contingent
liabilities
Keeping
it simple
A contingent liability is a liability that is not sufficiently certain to qualify for
recognition as a provision where uncertainty may exist regarding the outcome of
future events.
There are contingent liabilities in respect of certain litigation and guarantees, broadcasting issues, and in respect of
warranties given in connection with certain disposals of businesses. None of these items are expected to have a
material effect on the Group’s results or financial position.
5.3
Subsequent
events
Keeping
it simple
Where the Group receives information in the period between 31 December 2016
and the date of this report about conditions related to certain events that existed at
31 December 2016, 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 at 31 December 2016. If non-adjusting
events 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.
Eurobond repayment
On 5 January 2017 the £161 Eurobond matured and the Group repaid the capital amount. The related interest rate swap
contracts were settled at the same time. The repayment was financed using the €500 million Eurobond issued
in December 2016.
Exercise of Gurney Productions LLC call option
On 6 February 2017, the Group exercised the call option to acquire the remaining 38.5% membership interest of Gurney
Productions LLC.
The Group has initiated legal proceedings against the sellers for alleged breaches of contracts and their fiduciary duties,
as well as self-dealing and fraudulent concealment. The sellers dispute the allegations, the exercise and the value of the
call option, and they have counter-claimed for unspecified damages of at least $100 million, which the Directors believe
is completely without merit.
172
Notes to the Financial Statements
Section 5: Other Notes continued
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 to joint ventures
Amounts owed to associated undertakings
Balances owed by associated undertakings largely relate to loan notes and production funding advanced to Tomorrow
ITV Studios for US scripted investment.
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
2016
£m
–
57
–
–
2016
£m
8
2
10
2015
£m
3
66
2
5
2015
£m
9
6
15
5.2
Contingent
liabilities
Keeping
it simple
A contingent liability is a liability that is not sufficiently certain to qualify for
recognition as a provision where uncertainty may exist regarding the outcome of
future events.
There are contingent liabilities in respect of certain litigation and guarantees, broadcasting issues, and in respect of
warranties given in connection with certain disposals of businesses. None of these items are expected to have a
material effect on the Group’s results or financial position.
5.3
Subsequent
events
Keeping
it simple
Where the Group receives information in the period between 31 December 2016
and the date of this report about conditions related to certain events that existed at
31 December 2016, 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 at 31 December 2016. If non-adjusting
events 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 5 January 2017 the £161 Eurobond matured and the Group repaid the capital amount. The related interest rate swap
contracts were settled at the same time. The repayment was financed using the €500 million Eurobond issued
Exercise of Gurney Productions LLC call option
On 6 February 2017, the Group exercised the call option to acquire the remaining 38.5% membership interest of Gurney
Eurobond repayment
in December 2016.
Productions LLC.
The Group has initiated legal proceedings against the sellers for alleged breaches of contracts and their fiduciary duties,
as well as self-dealing and fraudulent concealment. The sellers dispute the allegations, the exercise and the value of the
call option, and they have counter-claimed for unspecified damages of at least $100 million, which the Directors believe
is completely without merit.
ITV plc Annual Report and Accounts 2016
London Property Strategy
On 21 February 2017, the Directors announced the outcome of an extensive review of the Group’s London property
requirements. The Group intends to seek planning permission to redevelop its South Bank site and build a new London home.
The teams currently located in the South Bank site will be relocated to various sites in London during the
redevelopment period.
As a result of the review of the Group’s London property needs, the Directors are proposing to close The London
Studios (TLS) business and use studio capacity in the external market to meet our future business needs. The Group has
begun a period of consultation with the employees affected by this closure.
Acquisition of Tetra Media Studios SAS
On 28 February 2017, the Group announced the acquisition of 65.05% of the capital of the French production business
Tetra Media Studios SAS. The transaction is on a cash free / debt free basis, with put/call options to acquire the
remaining interest depending on future performance of the business. The acquisition was financed through the Group’s
existing cash and debt facilities.
173
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 5: Other Notes continued
5.4
Subsidiaries
exempt
from audit
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.
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. This exemption is taken in accordance with Companies Act s479A.
Company Number Company Name
Company Number Company Name
10058419
10404493
10528766
1891539
5078683
301188
3984490
3210452
2625225
2852812
290076
3106798
733063
10384774
1127149
4206900
4207680
4206871
8723446
10058180
4206935
3916436
4206897
10031818
9498177
9499012
5518785
10528827
10031005
9646520
4201477
4206913
Back Productions Limited
Big Talk Bliss Limited
Big Talk Diana Limited
Broad Street Films Limited
Carbon Media Limited
Carlton Film Distributors Limited
Carlton Food Network Limited
Carlton Screen Advertising (Holdings)
Limited
Carltonco Forty Investments
Cosgrove Hall Films Limited
Granada Group Limited
Granada Media Limited
Granada Television Overseas Limited
ITV Bancroft Limited
ITV Breathless Limited
ITV Cradle Limited
ITV Home Fires Limited
ITV Jericho Limited
ITV Lewis Limited
ITV Loch Ness Limited
ITV Moorside Limited
ITV News Channel Limited
ITV Spirit Limited
ITV T&B Limited
ITV Top Class Limited
ITV Tut Limited
Juice Music UK Limited
Mammoth Screen (END5) Limited
Mammoth Screen (Pol3) Limited
Mammoth Screen (QV) Limited
Morning TV Limited
SOM (ITV) Limited
10171346
10496857
10528592
2285229
4159249
1692483
3307790
3053908
3210363
3209058
3962410
5344772
6914987
4206924
4209918
4159210
4206912
4206927
10031419
8534385
4033106
8554937
10528702
9499040
8586211
10384819
10058008
10528851
10491117
10528763
10043079
BGSS Limited
Big Talk Cold Feet Limited
Big Talk Living the Dream Limited
Campania Limited
Carlton Content Holdings Limited
Carlton Finance Limited
Carltonco 103
Carlton Programmes Development
Limited
Carltonco Ninety-Six
DTV Limited
Granada Limited
Granada Screen (2005) Limited
ITV (HC) Limited
ITV Beowulf Limited
ITV Cilla Limited
ITV Holdings Limited
ITV J&H Limited
ITV JR Limited
ITV Little Boy Blue Limited
ITV Lucan Limited
ITV Mr Selfridge Limited
ITV Shetland Limited
ITV Studios Newco 1 Limited
ITV Tennison Limited
ITV Thunderbirds Limited
ITV Trauma Limited
ITV Wagstaffe Limited
Mammoth Screen (City) Limited
Mammoth Screen (NOK) Limited
Mammoth Screen (Pol4) Limited
Mammoth Screen (WFTP) Limited
174
Notes to the Financial Statements
Section 5: Other Notes continued
ITV plc Company Financial Statements
ITV plc Annual Report and Accounts 2016
5.4
Subsidiaries
exempt
from audit
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.
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. This exemption is taken in accordance with Companies Act s479A.
Company Number Company Name
Company Number Company Name
Carlton Screen Advertising (Holdings)
Carlton Programmes Development
Granada Television Overseas Limited
10384774
ITV Bancroft Limited
10058419
10404493
10528766
1891539
5078683
301188
3984490
3210452
2625225
2852812
290076
3106798
733063
1127149
4206900
4207680
4206871
8723446
4206935
3916436
4206897
10031818
9498177
9499012
5518785
10528827
10031005
9646520
4201477
4206913
Back Productions Limited
Big Talk Bliss Limited
Big Talk Diana Limited
Broad Street Films Limited
Carbon Media Limited
Carlton Film Distributors Limited
Carlton Food Network Limited
Limited
Carltonco Forty Investments
Cosgrove Hall Films Limited
Granada Group Limited
Granada Media Limited
ITV Breathless Limited
ITV Cradle Limited
ITV Home Fires Limited
ITV Jericho Limited
ITV Lewis Limited
ITV Moorside Limited
ITV News Channel Limited
ITV Spirit Limited
ITV T&B Limited
ITV Top Class Limited
ITV Tut Limited
Juice Music UK Limited
Mammoth Screen (END5) Limited
Mammoth Screen (Pol3) Limited
Mammoth Screen (QV) Limited
Morning TV Limited
SOM (ITV) Limited
10058180
ITV Loch Ness Limited
10171346
10496857
10528592
2285229
4159249
1692483
3307790
3053908
3210363
3209058
3962410
5344772
6914987
4206924
4209918
4159210
4206912
4206927
10031419
8534385
4033106
8554937
10528702
9499040
8586211
10384819
10058008
10528851
10491117
10528763
10043079
BGSS Limited
Big Talk Cold Feet Limited
Big Talk Living the Dream Limited
Campania Limited
Carlton Content Holdings Limited
Carlton Finance Limited
Carltonco 103
Granada Screen (2005) Limited
Limited
Carltonco Ninety-Six
DTV Limited
Granada Limited
ITV (HC) Limited
ITV Beowulf Limited
ITV Cilla Limited
ITV Holdings Limited
ITV J&H Limited
ITV JR Limited
ITV Little Boy Blue Limited
ITV Lucan Limited
ITV Mr Selfridge Limited
ITV Shetland Limited
ITV Studios Newco 1 Limited
ITV Tennison Limited
ITV Thunderbirds Limited
ITV Trauma Limited
ITV Wagstaffe Limited
Mammoth Screen (City) Limited
Mammoth Screen (NOK) Limited
Mammoth Screen (Pol4) Limited
Mammoth Screen (WFTP) Limited
Company Balance Sheet
As at 31 December
Non-current assets
Investments in subsidiary undertakings
Derivative financial instruments
Deferred tax asset
Current assets
Amounts owed by subsidiary undertakings
Derivative financial instruments
Other receivables
Cash and cash equivalents
Current liabilities
Borrowings
Amounts owed to subsidiary undertakings
Accruals and deferred income
Derivative financial instruments
Net current assets/(liabilities)
Total assets less current liabilities
Non-current liabilities
Borrowings
Derivative financial instruments
Net assets
Capital and reserves
Share capital
Share premium
Other reserves
Retained earnings
Total equity
2015
£m
3,864
6
16
126
4,012
–
(3,760)
(21)
(6)
(3,787)
(598)
(6)
(604)
Note
2016
£m
4,066
10
19
438
4,533
(161)
(2,856)
(22)
(10)
(3,049)
(1,035)
(9)
(1,044)
iii
vi
vi
v
vi
v
vi
vii
viii
viii
viii
2016
£m
1,861
4
2
1,867
1,484
3,351
2,307
403
174
28
1,702
2,307
The accounts were approved by the Board of Directors on 1 March 2017 and were signed on its behalf by:
Ian Griffiths
Director
2015
£m
1,861
9
2
1,872
225
2,097
1,493
403
174
36
880
1,493
175
Financial Statements
Financial Statements
ITV plc Company Financial Statements continued
Company Statement of Changes in Equity
Balance at 1 January 2016
Total comprehensive income for the year
Profit
Net loss on cash flow hedges
Total comprehensive income for the year
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Equity dividends
Movements due to share based compensation
Total contributions by and distributions to owners
Total transactions with owners
Balance at 31 December 2016
Balance at 1 January 2015
Total comprehensive income for the year
Profit
Total comprehensive income for the year
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Equity dividends
Movements due to share based compensation
Total contributions by and distributions to owners
Total transactions with owners
Balance at 31 December 2015
Note
vii/viii
Note
vii/viii
Share
Capital
£m
403
–
–
–
–
–
–
–
403
Share
Capital
£m
403
–
–
–
–
–
–
403
Share
Premium
£m
174
Other
Reserves
£m
36
–
–
–
–
–
–
–
174
–
(8)
(8)
–
–
–
–
28
Share
Premium
£m
174
Other
Reserves
£m
36
–
–
–
–
–
–
174
–
–
–
–
–
–
36
Retained
Earnings
£m
880
1,475
–
1,475
(663)
10
(653)
(653)
1,702
Retained
Earnings
£m
654
671
671
(459)
14
(445)
(445)
880
Total
£m
1,493
1,475
(8)
1,467
(663)
10
(653)
(653)
2,307
Total
£m
1,267
671
671
(459)
14
(445)
(445)
1,493
176
ITV plc Company Financial Statements continued
Notes to the ITV plc Company Financial Statements
ITV plc Annual Report and Accounts 2016
Company Statement of Changes in Equity
Note
Share
Capital
£m
403
Share
Premium
£m
174
Balance at 1 January 2016
Total comprehensive income for the year
Profit
Net loss on cash flow hedges
Total comprehensive income for the year
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Equity dividends
Movements due to share based compensation
Total contributions by and distributions to owners
Total transactions with owners
Balance at 31 December 2016
Balance at 1 January 2015
Total comprehensive income for the year
Profit
Total comprehensive income for the year
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Equity dividends
Movements due to share based compensation
Total contributions by and distributions to owners
Total transactions with owners
Balance at 31 December 2015
Other
Reserves
£m
36
–
(8)
(8)
–
–
–
–
–
–
–
–
–
–
Retained
Earnings
£m
880
1,475
–
1,475
(663)
10
(653)
(653)
Retained
Earnings
£m
654
671
671
(459)
14
(445)
(445)
880
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£m
1,493
1,475
(8)
1,467
(663)
10
(653)
(653)
Total
£m
1,267
671
671
(459)
14
(445)
(445)
1,493
–
–
–
–
–
–
–
–
–
–
–
–
–
vii/viii
403
174
28
1,702
2,307
Note
Share
Capital
£m
403
Share
Premium
£m
174
Other
Reserves
£m
36
vii/viii
403
174
36
Note i
Accounting
policies
In this
section
This section sets out the notes to the ITV plc Company only financial statements.
Those statements form the basis of the dividend decisions made by the Directors,
as explained in detail in note viii below.
These financial statements were prepared in accordance with Financial Reporting
Standard 101 Reduced Disclosure Framework.
Basis of preparation
The Company is a qualifying entity as it is a member of the ITV plc Group where ITV plc, the ultimate parent prepares
publicly available consolidated financial statements.
Exemptions Applied
The Company is taking advantage of the following disclosure exemptions under FRS101.
• Presentation of a Statement of Cash Flows
• Disclosure of key management personnel compensation
• Disclosure of related party transactions between wholly-owned subsidiaries and parents within a group
• Disclosures required under IFRS 2 Share Based Payments in respect of group settled share based payments
• Disclosures required by IFRS 7 Financial Instrument: Disclosure
• Certain disclosures required under IFRS 13 Fair Value Measurement
• Disclosure of information in relation to new standards not yet applied
As permitted by section 408 (3) of the Companies Act 2006, a separate income statement dealing with the results
of the parent company has not been presented.
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.
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.
177
Financial Statements
Financial Statements
Notes to the ITV plc Company Financial Statements
continued
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, except where derivatives qualify
for cash flow hedge accounting. In this case, the effective portion of cash flow hedge is recognised in retained profits
within equity. The cumulative gain or loss is later reclassified to the profit and loss account in the same period as the
relevant hedged transaction is realised. 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.
Deferred tax
The tax charge for the period is recognised in the income statement or directly in equity according to the accounting
treatment of the related transaction.
Deferred tax arises due to certain temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and those for taxation purposes. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount of assets and liabilities. A deferred tax asset is
recognised only to the extent that it is probable that sufficient taxable profit will be available to utilise the temporary
difference. Recognition of deferred tax assets, therefore involves judgement regarding timing and level of future
taxable income.
Share-based compensation
The Company utilises share award schemes as part of its employee remuneration packages, and therefore operates
a number of share-based compensation schemes, namely the Deferred Share Award (DSA), Performance Share Plan
(PSP), Long Term Incentive Plan (LTIP) and Save As You Earn (SAYE) schemes.
A transaction will be classed as share-based compensation where the Company receives services from employees and
pays for these in shares or similar equity instruments. If the Company incurs a liability based on the price or value of the
shares then this will also fall under a share-based transaction. The Company recognises the retained earnings impact of
the share-based compensation for the Group as awards are settled in ITV plc shares. The cost of providing those awards
is recharged to subsidiaries that receive the service from employees.
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, for the Save As You Earn scheme (SAYE), a Black–Scholes model,
taking into account the terms and conditions of the individual scheme.
Vesting conditions are limited to service conditions and performance conditions. For performance-based schemes, the
relevant performance measures are projected to the end of the performance period in order to determine the number
of options expected to vest. The estimate is then used to determine the option fair value, discounted to present value.
The Company revises its estimates of the number of options that are expected to vest, including an estimate of
forfeitures at each reporting date. The impact of the revision to original estimates, if any, are recognised in the income
statement, with a corresponding adjustment to equity.
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 DSA. During the year all exercises were satisfied by
using shares purchased in the market and held in the ITV Employees’ Benefit Trust.
Dividends
Dividends are recognised through equity on the earlier of their approval by the Company’s shareholders or their payment.
178
Notes to the ITV plc Company Financial Statements
continued
ITV plc Annual Report and Accounts 2016
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, except where derivatives qualify
for cash flow hedge accounting. In this case, the effective portion of cash flow hedge is recognised in retained profits
within equity. The cumulative gain or loss is later reclassified to the profit and loss account in the same period as the
relevant hedged transaction is realised. 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.
Deferred tax
treatment of the related transaction.
The tax charge for the period is recognised in the income statement or directly in equity according to the accounting
Deferred tax arises due to certain temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and those for taxation purposes. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount of assets and liabilities. A deferred tax asset is
recognised only to the extent that it is probable that sufficient taxable profit will be available to utilise the temporary
difference. Recognition of deferred tax assets, therefore involves judgement regarding timing and level of future
taxable income.
Share-based compensation
The Company utilises share award schemes as part of its employee remuneration packages, and therefore operates
a number of share-based compensation schemes, namely the Deferred Share Award (DSA), Performance Share Plan
(PSP), Long Term Incentive Plan (LTIP) and Save As You Earn (SAYE) schemes.
A transaction will be classed as share-based compensation where the Company receives services from employees and
pays for these in shares or similar equity instruments. If the Company incurs a liability based on the price or value of the
shares then this will also fall under a share-based transaction. The Company recognises the retained earnings impact of
the share-based compensation for the Group as awards are settled in ITV plc shares. The cost of providing those awards
is recharged to subsidiaries that receive the service from employees.
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, for the Save As You Earn scheme (SAYE), a Black–Scholes model,
taking into account the terms and conditions of the individual scheme.
Vesting conditions are limited to service conditions and performance conditions. For performance-based schemes, the
relevant performance measures are projected to the end of the performance period in order to determine the number
of options expected to vest. The estimate is then used to determine the option fair value, discounted to present value.
The Company revises its estimates of the number of options that are expected to vest, including an estimate of
forfeitures at each reporting date. The impact of the revision to original estimates, if any, are recognised in the income
statement, with a corresponding adjustment to equity.
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 DSA. During the year all exercises were satisfied by
using shares purchased in the market and held in the ITV Employees’ Benefit Trust.
Dividends
Dividends are recognised through equity on the earlier of their approval by the Company’s shareholders or their payment.
Two (2015: 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.
Share based payments
The weighted average share price of share options exercised during the year was 55.33p (2015: 16.65p). The options
outstanding at the year end have an exercise price in the range of nil to 206.83p (2015: nil to 206.83p) and a weighted
average contractual life of one year (2015: one year) for all the Schemes in place for the Group.
The principal subsidiary undertakings are listed on page 184. The carrying value at 31 December 2016 was £1,861 million
(2015: £1,861 million).
In 2015, the Company increased investment in subsidiaries by £156 million.
The Company operates an intra-group cash pool policy with certain 100% owned UK subsidiaries. The pool applies
to bank accounts where there is an unconditional right of set off and involves the daily closing cash position for
participating subsidiaries whether positive or negative, being cleared to £nil via daily bank transfers to/from 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.
Note ii
Employees
and share
based
payments
Note iii
Investments
in subsidiary
undertakings
Note iv
Amounts
owed
(to)/from
subsidiary
undertakings
Note v
Borrowings
Keeping
it simple
The Directors manage the Group’s capital structure as disclosed in Section 4
to the consolidated financial statements. Borrowings, cash and derivative
financial instruments are mainly held by ITV plc and disclosed in these
Company financial statements.
Loans and facilities due within one year
At various periods during the year the Group drew down on the Revolving Credit Facility (‘RCF’) to meet short-term
funding requirements. All short-term drawings were repaid by the end of the year (2015: no outstanding short-term
funding). The maximum draw down of the RCF during the year was £500 million in May.
The Group also had an unsecured £161 million Eurobond which matured in January 2017 and had a coupon of 6.125%.
179
Financial Statements
Financial Statements
Notes to the ITV plc Company Financial Statements
continued
Loans and loan notes due after one year
The Group has two bilateral loan facilities maturing in March 2017; both loans can be extended until 2018 at ITV’s
option. The two facilities are a £100 million bilateral loan that is fully drawn down as of 31 December 2016, and
a £150 million bilateral loan with an unconditional right to set off with cash on deposit with the counterparty.
The £150 million arrangement is in a net £nil position.
In December 2016 the Group issued a seven-year €500 million Eurobond at a fixed coupon of 2.0% which will mature
in December 2023. The bond has been swapped back to sterling using a cross currency interest swap. The resulting
fixed rate payable is c. 3.5%. The proceeds of the bond were for general corporate purposes including the repayment
of the £161 million sterling bond which matured in January 2017.
In September 2015 the Group issued a seven-year €600 million Eurobond at a fixed coupon of 2.125% which will mature
in September 2022. The bond refinanced the 12-month bridge loan facility of €500 million used for the purchase of
Talpa Media in April 2015.
Note vi
Managing
market risks:
derivative
financial
instruments
What is the value of our derivative financial instruments?
Current
Foreign exchange forward contracts and swaps – cash flow hedges
Foreign exchange forward contracts and swaps – fair value through profit or loss
Non-current
Cross currency interest swaps – cash flow hedges
Foreign exchange forward contracts and swaps – cash flow hedges
Current
Foreign exchange forward contracts and swaps – cash flow hedges
Foreign exchange forward contracts and swaps – fair value through profit or loss
Non-current
Interest Rate Swaps – fair value through profit or loss
Assets
2016
Liabilities
2016
7
3
–
4
14
(7)
(3)
(6)
(3)
(19)
Assets
2015
Liabilities
2015
3
3
9
15
(4)
(2)
(6)
(12)
The Company mainly employs three types of derivative financial instruments when managing its currency and interest
rate risk:
• Foreign exchange swap contracts are derivative instruments used to hedge income statement translation risk
arising from short-term intercompany loans denominated in a foreign currency.
• Forward foreign exchange contracts are derivative instruments used to hedge transaction risk so they enable the
sale or purchase of foreign currency at a known fixed rate on an agreed future date.
• Interest rate swaps are derivative instruments that exchange a fixed rate of interest for a floating rate or vice-versa
or one type of floating interest rate for another and are used to manage interest rate risk.
• Cross-currency interest rate swaps are derivative instruments used to exchange the principal and interest coupons
in a debt instrument from one currency to another.
Cash flow hedges
The Group applies hedge accounting for certain foreign currency firm commitments and highly probably cash flows
where the underlying cash flows are payable within the next two to seven years. In order to fix the sterling cash inflows
and outflows associated with the commitments and interest payments – which are mainly denominated in AUD or
euros – the Group has taken out forward foreign exchange contracts and cross currency interest swaps for the same
foreign currency amount and maturity date as the expected foreign currency outflow.
On issuing the 2023 Eurobond, the Group entered into a portfolio of cross-currency interest rate swaps, which swapped the
euro principal and fixed rate coupons into sterling. In result the Group makes sterling interest payments at a fixed rate.
The amount recognised in other comprehensive income during the period all relates to the effective portion of the
revaluation loss associated with these contracts. There was less than £1 million (2015: £1 million) ineffectiveness taken to
the income statement and £2 million cumulative gain (2015: £6 million loss) recycled to the income statement in the year.
180
Notes to the ITV plc Company Financial Statements
continued
Loans and loan notes due after one year
The Group has two bilateral loan facilities maturing in March 2017; both loans can be extended until 2018 at ITV’s
option. The two facilities are a £100 million bilateral loan that is fully drawn down as of 31 December 2016, and
a £150 million bilateral loan with an unconditional right to set off with cash on deposit with the counterparty.
The £150 million arrangement is in a net £nil position.
In December 2016 the Group issued a seven-year €500 million Eurobond at a fixed coupon of 2.0% which will mature
in December 2023. The bond has been swapped back to sterling using a cross currency interest swap. The resulting
fixed rate payable is c. 3.5%. The proceeds of the bond were for general corporate purposes including the repayment
of the £161 million sterling bond which matured in January 2017.
In September 2015 the Group issued a seven-year €600 million Eurobond at a fixed coupon of 2.125% which will mature
in September 2022. The bond refinanced the 12-month bridge loan facility of €500 million used for the purchase of
Talpa Media in April 2015.
What is the value of our derivative financial instruments?
Note vi
Managing
market risks:
derivative
financial
instruments
Current
Non-current
Foreign exchange forward contracts and swaps – cash flow hedges
Foreign exchange forward contracts and swaps – fair value through profit or loss
Cross currency interest swaps – cash flow hedges
Foreign exchange forward contracts and swaps – cash flow hedges
Assets
2016
Liabilities
2016
7
3
–
4
14
3
3
9
15
(7)
(3)
(6)
(3)
(19)
(4)
(2)
(6)
(12)
Assets
2015
Liabilities
2015
Foreign exchange forward contracts and swaps – cash flow hedges
Foreign exchange forward contracts and swaps – fair value through profit or loss
Interest Rate Swaps – fair value through profit or loss
Current
Non-current
rate risk:
The Company mainly employs three types of derivative financial instruments when managing its currency and interest
• Foreign exchange swap contracts are derivative instruments used to hedge income statement translation risk
arising from short-term intercompany loans denominated in a foreign currency.
• Forward foreign exchange contracts are derivative instruments used to hedge transaction risk so they enable the
sale or purchase of foreign currency at a known fixed rate on an agreed future date.
• Interest rate swaps are derivative instruments that exchange a fixed rate of interest for a floating rate or vice-versa
or one type of floating interest rate for another and are used to manage interest rate risk.
• Cross-currency interest rate swaps are derivative instruments used to exchange the principal and interest coupons
in a debt instrument from one currency to another.
Cash flow hedges
The Group applies hedge accounting for certain foreign currency firm commitments and highly probably cash flows
where the underlying cash flows are payable within the next two to seven years. In order to fix the sterling cash inflows
and outflows associated with the commitments and interest payments – which are mainly denominated in AUD or
euros – the Group has taken out forward foreign exchange contracts and cross currency interest swaps for the same
foreign currency amount and maturity date as the expected foreign currency outflow.
On issuing the 2023 Eurobond, the Group entered into a portfolio of cross-currency interest rate swaps, which swapped the
euro principal and fixed rate coupons into sterling. In result the Group makes sterling interest payments at a fixed rate.
The amount recognised in other comprehensive income during the period all relates to the effective portion of the
revaluation loss associated with these contracts. There was less than £1 million (2015: £1 million) ineffectiveness taken to
the income statement and £2 million cumulative gain (2015: £6 million loss) recycled to the income statement in the year.
ITV plc Annual Report and Accounts 2016
Interest rate swaps
On issuing the 2017 Eurobond, the Company entered into a portfolio of fixed to floating interest rate swaps and then
subsequently overlaid a portfolio of floating to fixed interest rate swaps with the result that interest was 100% fixed
on these borrowings. The timing of entering into these swaps locked in an interest benefit for the Company, resulting
in a net mark-to-market gain on the portfolio.
Undiscounted financial liabilities
The Company is required to disclose the expected timings of cash outflows for each of its derivative financial liabilities.
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.
Carrying
value
£m
Total
Contractual
cash flows
£m
Less than
1 year
£m
Between
1 and 2 years
£m
Between
2 and 5 years
£m
Over 5 years
£m
At 31 December 2016
Non-current and current
Foreign exchange forward contracts
and swaps – cash flow hedges
Inflow
Outflow
Cross currency swaps – cash flow
hedges
Inflow
Outflow
Foreign exchange forward contracts
and swaps – fair value through profit
or loss
Inflow
Outflow
Interest Rate Swaps – fair value
through profit or loss
Inflow
Outflow
At 31 December 2015
Non-current and current
Foreign exchange forward contracts
and swaps – cash flow hedges
Inflow
Outflow
Foreign exchange forward contracts
and swaps – fair value through profit
or loss
Inflow
Outflow
Interest Rate Swaps – fair value
through profit or loss
Inflow
Outflow
11
(10)
–
(6)
393
(392)
497
(542)
237
(237)
156
(155)
10
(17)
412
(412)
412
(412)
402
(402)
–
–
(5)
13
(6)
(37)
13
(6)
–
–
–
30
(51)
–
–
–
–
(21)
–
–
447
(457)
–
–
–
–
(10)
10
(17)
10
(10)
–
–
(6)
Carrying
value
£m
Total
Contractual
cash flows
£m
Less than
1 year
£m
Between
1 and 2 years
£m
Between
2 and 5 years
£m
Over 5 years
£m
3
(4)
3
(2)
9
(6)
3
136
(136)
102
(102)
34
(34)
253
(252)
248
(247)
22
(12)
11
9
(6)
4
5
(5)
13
(6)
7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
181
Financial Statements
Financial Statements
Notes to the ITV plc Company Financial Statements
continued
Note vii
Share capital
Authorised ordinary shares of 10 pence each
Allotted, issued and fully paid ordinary shares of 10 pence each
Total
8,000,000,000
4,025,409,194
Authorised
2016 & 2015
£m
Allotted, issued
and fully paid
2016 & 2015
£m
800
800
403
403
The Company’s ordinary shares give shareholders equal rights to vote, receive dividends and to the repayment
of capital.
Note viii
Equity and
dividends
Keeping
it simple
ITV plc is a non-trading investment holding company and derives its profits from
dividends paid by subsidiary companies.
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 invest in opportunities to grow the
business and enhance shareholder value.
The dividend policy is influenced by a number of the principal risks as identified on
pages 50 to 56 that could have a negative impact on the performance of the Group.
In determining the level of dividend in any year the Directors follow the dividend
policy and also consider a number of other factors that influence the proposed
dividend, including:
• The level of retained distributable reserves in ITV plc the Company,
• Availability of cash resources (as disclosed in note 4.1 to the consolidated financial
statements),
• Future cash commitments and investment plans, in line with Group’s strategic plan.
Equity
The retained earnings reserve includes profit after tax for the year of £1,475 million (2015: £671 million profit)
which includes dividends of £1,500 million from subsidiaries in 2016 (2015: £700 million). Other reserves of £28 million
(2015: £36 million) relate to share-buy backs in prior periods and foreign currency translation net of cashflow hedging.
Dividends
The Directors of the Company propose a final dividend of 7.2p per share and a special dividend of 5p per share.
Distributable reserves
The distributable reserves of ITV plc approximate to the balance of the retained earnings reserve of £1,702 million
as at 31 December 2016.
Note ix
Contingent
liabilities
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.
Under a Group registration, the Company is jointly and severally liable for VAT at 31 December 2016 of £47 million
(31 December 2015: £59 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 Company’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.
182
There are no capital commitments at 31 December 2016 (2015: none).
ITV plc Annual Report and Accounts 2016
Authorised ordinary shares of 10 pence each
Allotted, issued and fully paid ordinary shares of 10 pence each
8,000,000,000
4,025,409,194
The Company’s ordinary shares give shareholders equal rights to vote, receive dividends and to the repayment
Authorised
2016 & 2015
Allotted, issued
and fully paid
2016 & 2015
£m
£m
800
800
403
403
Note x
Capital and
other
commitments
There are no capital commitments at 31 December 2016 (2015: none).
Note xi
Related party
transactions
Keeping
it simple
The related parties identified by the Directors include solely key management,
as ITV plc is a holding company with no commercial activity.
To enable the users of the financial statements to form a view about the effects of
related party relationships on the Company, we disclose the Company’s transactions
with those during the year.
Transactions with key management personnel
Key management consists of ITV plc Executive Directors.
Key management personnel compensation, on an accounting basis, is as follows:
Short-term employee benefits
Share-based compensation
2016
£m
3
2
5
2015
£m
3
3
6
Total emoluments and gains on share options received by key management personnel in the year were:
Emoluments
Gains on exercise of share options
Gains on release of restricted share awards
2016
£m
2015
£m
3
2
2
7
3
3
3
9
Note xii
Subsequent
events
Keeping
it simple
Where the Group receives information in the period between 31 December 2016
and the date of this report about conditions related to certain events that existed at
31 December 2016, 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 at 31 December 2016. If non-adjusting
events 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 5 January 2017 the £161 Eurobond matured and the Group repaid the capital amount. The related interest rate swap
contracts were settled at the same time. The bond was refinanced earlier in December 2016.
183
Notes to the ITV plc Company Financial Statements
continued
Note vii
Share capital
Total
of capital.
Note viii
Equity and
dividends
Keeping
it simple
ITV plc is a non-trading investment holding company and derives its profits from
dividends paid by subsidiary companies.
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 invest in opportunities to grow the
business and enhance shareholder value.
The dividend policy is influenced by a number of the principal risks as identified on
pages 50 to 56 that could have a negative impact on the performance of the Group.
In determining the level of dividend in any year the Directors follow the dividend
policy and also consider a number of other factors that influence the proposed
dividend, including:
statements),
• The level of retained distributable reserves in ITV plc the Company,
• Availability of cash resources (as disclosed in note 4.1 to the consolidated financial
• Future cash commitments and investment plans, in line with Group’s strategic plan.
The retained earnings reserve includes profit after tax for the year of £1,475 million (2015: £671 million profit)
which includes dividends of £1,500 million from subsidiaries in 2016 (2015: £700 million). Other reserves of £28 million
(2015: £36 million) relate to share-buy backs in prior periods and foreign currency translation net of cashflow hedging.
The Directors of the Company propose a final dividend of 7.2p per share and a special dividend of 5p per share.
The distributable reserves of ITV plc approximate to the balance of the retained earnings reserve of £1,702 million
Equity
Dividends
Distributable reserves
as at 31 December 2016.
Note ix
Contingent
liabilities
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.
Under a Group registration, the Company is jointly and severally liable for VAT at 31 December 2016 of £47 million
(31 December 2015: £59 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 Company’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.
There are no capital commitments at 31 December 2016 (2015: none).
Financial Statements
Financial Statements
Subsidiary undertakings and investments
Principal subsidiary undertakings
The principal subsidiary undertakings of the Company at 31 December 2016, all of which are wholly owned (directly or indirectly) and
incorporated and registered where stated.
Company Name
Carlton Communications Limited* (1)(a)(d)
ITV Broadcasting Limited (1)(a)
ITV Consumer Limited (1)(a)
ITV Digital Channels Limited (1)(a)
ITV Global Entertainment Limited (1)(a)
ITV Network Limited (1)(i)
ITV Rights Limited (1)(a)
ITV Services Limited (1)(a)(e)
ITV Studios Limited (1)(a)
ITV2 Limited (1)(a)
SDN Limited (1)(a)
Talpa Media B.V. (93)(a)
ITV Studios, Inc. (70)(j)
Leftfield Entertainment, LLC (63)(h)
Subsidiary undertakings
Company Name
12 Yard (North) Productions Limited (1)(a)
12 Yard Limited (1)(a)
12 Yard Productions (Investments) Limited (1)(a)
12 Yard Productions Limited (1)(a)
A.C.E. (1988) Limited (1)(a)
Action Time Holdings (1)(a)
Anglia Television Group (1)(a)
Anglia Television Limited (1)(a)
Back Productions Limited (7)(a)
BGSS Limited (1)(a)
Big Talk Bliss Limited (1)(a)
Big Talk Cold Feet Limited (1)(a)
Big Talk Investments Limited (1)(a)
Big Talk JL Limited (1)(a)
Big Talk Pictures Limited (1)(a)
Big Talk Productions Limited (1)(a)
Broad Street Films Limited (1)(a)
Campania Limited (1)(a)(f)
Carbon Media Limited (1)(a)
Carlton Active Limited (1)(a)
Carlton Cinema Limited (1)(a)
Carlton Content Holdings Limited (1)(a)
Carlton Entertainment (1)(a)
Carlton Film Distributors Limited (1)(a)
Carlton Films Limited (1)(a)
Carlton Finance Limited(1)(a)
Carlton Food Network Limited (1)(a)
Carlton Productions Limited (1)(a)
Carlton Programmes Development Limited (1)(a)
Carlton Screen Advertising (Holdings) Limited (1)(a)
Carltonco 103 (1)(a)
Carltonco 99 Limited (1)(a)
Carltonco Eighty-One Limited (1)(a)(b)
Carltonco Fifty Limited (1)(a)(k)
Carltonco Forty Investments (1)(a)
Carltonco Forty-Five Limited (1)(a)
Carltonco Ninety-Six (1)(a)(f)
Carltonco Seventeen Limited (1)(a)
Castlefield Properties Limited (1)(a)
184
Country
Principal Business Activity
% Holding
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Holding company
Broadcast of television programmes
Development of platforms, broadband, transactional and mobile services
Operation of digital television channels
Rights ownership and distribution of television programmes and films
Scheduling and commissioning of television programmes
Rights ownership
Provision of services for other companies within the Group
Production of television programmes
Operation of digital television channels
Operation of Freeview Multiplex A
Netherlands
Production of television programmes
USA
USA
Production of television programmes
Production of television programmes
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Country
%
Holding
Company Name
Country
%
Holding
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Cat’s on the Roof Media Limited (1)(a)
Central Television Limited (1)(a)
Channel Television Holdings Limited (1)(a)
Cosgrove Hall Films Limited (1)(a)
Denipurna Limited (1)(a)
DTV Limited (1)(a)
Electronic Rentals Group (1)(a)
EQ Pictures Limited (1)(a)
GIL Limited (1)(a)
Granada AV Solutions Limited (1)(a)
Granada Film (1)(a)
Granada Film Productions Limited (1)(a)
Granada Group Limited (1)(a)
Granada Limited (1)(a)
Granada Media Group Limited (1)(a)
Granada Media Limited (1)(a)(l)
Granada Productions Limited (1)(a)
Granada Properties (1)(a)
Granada Screen (2005) Limited (1)(a)
Granada Television International (1)(a)
Granada Television Limited(1)(a)
Granada Television Overseas Limited (1)(a)
Granada Television Productions Limited (1)(a)
Granada UK Rental and Retail Limited (1)(a)(e)
Interactive Telephony Limited (1)(a)
International Television Enterprises London Limited (1)(a)(d)
ITC Distribution (1)(a)
ITC Entertainment Group Limited (1)(a)
ITC Entertainment Holdings Limited (1)(a)
ITV (HC) Limited* (1)(a)
ITV (Scotland) Limited (30)(a)
ITV Bancroft Limited (1)(a)
ITV Beowulf Limited (1)(a)
ITV Border Limited (1)(a)
ITV Breakfast Broadcasting Limited (1)(a)
ITV Breakfast Limited (1)(a)
ITV Breathless Limited (1)(a)
ITV Central Limited (1)(a)
ITV Channels Limited (1)(a)
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Notes to the ITV plc Company Financial Statementscontinued ITV plc Annual Report and Accounts 2016
Country
%
Holding
Company Name
Country
%
Holding
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Mammoth Screen (Bouquet) Limited (1)(a)
Mammoth Screen (BW) Limited (26)(a)
Mammoth Screen (End) Ltd (1)(a)
Mammoth Screen (End2) Limited (1)(a)
Mammoth Screen (Falcon) Limited (1)(a)
Mammoth Screen (Fearless) Limited (1)(a)
Mammoth Screen (Monroe) Limited (1)(a)
Mammoth Screen (NE) Limited (1)(a)
Mammoth Screen (NI) Limited (35)(a)
Mammoth Screen (NW) Limited (1)(a)
Mammoth Screen (PE) Limited (1)(a)
Mammoth Screen (Pol2) Limited (1)(a)
Mammoth Screen (Pol3) Limited (1)(a)
Mammoth Screen (Poldark) Limited (1)(a)
Mammoth Screen (QV) Limited (1)(a)
Mammoth Screen (RM) Limited (1)(a)
Mammoth Screen (WFTP) Limited (1)(a)
Mammoth Screen (WH) Limited (1)(a)
Mammoth Screen Ltd (1)(a)
Millbank Studios (1)(a)
Morning TV Limited (1)(a)
Moving Picture Company Films Limited (1)(a)
New Providence Productions Limited (1)(a)
Partridge Holdings (1)(a)
Pickwick Packaging Limited (1)(a)
Planet 24 (1)(a)
Pro-Vision Facilities Limited (1)(a)
Sightseers Film Limited (1)(a)
Signpost Limited (1)(a)
SOM (ITV) Limited (1)(a)
So Television Developments Limited (1)(a)
So Television Limited (1)(a)
Talpa Media UK Ltd (1)(a)
Television Music Limited (1)(a)
The CITV Channel Limited (1)(a)
The Garden Productions Limited (1)(a)
The London Studios Limited (1)(a)
Tyne Tees Television Holdings (1)(a)
Tyne Tees Television Limited (1)(a)
United Broadcasting & Entertainment
Limited (1)(a)
United Broadcasting Holdings (1)(a)
UTV Limited (34)(a)
VOD Member (ITVA) Limited (1)(a)
VOD Member (ITVB) Limited (1)(a)
Westcountry Television Limited (1)(a)
Yorkshire Television Limited (1)(a)
Yorkshire-Tyne Tees Television Enterprises Limited (1)(a)
Yorkshire-Tyne Tees Productions Limited (1)(a)
Zebedee Productions Limited (1)(a)
Artist Services Cable Pty Ltd (36)(a)
Artist Services Investments Pty Limited (36)(a)
Artist Services Productions Pty Ltd (36)(a)
Granada Media International (Australia) Pty Ltd (36)(a)
Granada Media Investments (Australia) Pty Ltd (36)(a)
Granada Productions Pty Ltd (36)(a)
ITV Services Pty Ltd (35)(a)
ITV Studios Australia Pty Ltd (35)(a)
Leftfield Australia Pty Ltd (37)(a)
Totally Full Frontal Productions Pty Limited (36)(a)
LTP Productions Inc.(75)(j)
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Canada
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
185
Company Name
ITV Cilla Limited (1)(a)
ITV Cradle Limited (1)(a)
ITV DC Trustee Limited (1)(a)
ITV Digital Holdings Limited (1)(a)
ITV Enterprises Limited (1)(a)
ITV Global Content Limited (1)(a)
ITV Holdings Limited (1)(a)
ITV Home Fires Limited (1)(a)
ITV International Channels (Asia) Limited (1)(a)
ITV Investments Limited* (1)(a)
ITV J&H Limited (1)(a)
ITV Jericho Limited (1)(a)
ITV JR Limited (1)(a)
ITV Lewis Limited (1)(a)
ITV Little Boy Blue Limited (1)(a)
ITV Loch Ness Limited (1)(a)
ITV LTVC (Scotland) Limited (30)(a)
ITV Lucan Limited (1)(a)
ITV Meridian Limited (1)(a)
ITV Moorside Limited (1)(a)
ITV Mr Selfridge Limited (1)(a)
ITV News Channel Limited (1)(a)(k)
ITV NP Limited (1)(a)
ITV Pension Scheme Limited (1)(a)(b)
ITV Play Limited (1)(a)
ITV Productions Limited (1)(a)
ITV Properties (Developments) Limited (1)(a)
ITV Shetland Limited (1)(a)
ITV Spirit Limited (1)(a)
ITV Sport Channel Limited (1)(a)
ITV Studios (Israel) Limited (1)(a)
ITV Studios Newco 1 Limited (1)(a)
ITV Studios Newco 2 Limited (1)(a)
ITV Studios Newco 3 Limited (1)(a)
ITV Studios Newco 4 Limited (1)(a)
ITV Studios Newco 5 Limited (1)(a)
ITV Studios Newco 6 Limited (1)(a)
ITV Supplementary Pension Scheme
Limited (1)(a)
ITV T&B Limited (1)(a)
ITV Tennison Limited (1)(a)
ITV Text Santa Limited (1)(a)
ITV Thunderbirds Limited (1)(a)
ITV Top Class Limited (1)(a)
ITV Trauma Limited (1)(a)
ITV Tut Limited (1)(a)
ITV Ventures Limited (1)(a)
ITV Wagstaffe Limited (1)(a)
ITV Wales & West Group Limited (1)(a)
ITV Wales & West Limited (1)(a)
ITV3 Limited (1)(a)
ITV4 Limited (1)(a)
Juice Music UK Limited (1)(a)
Leftfield (UK) Limited (21)(a)
Link Electronics Limited (1)(a)
London News Network (1)(a)
London Weekend Television Limited (1)(a)
LWT (Holdings) Limited (1)(a)(c)
LWT Productions Limited (1)(a)
Mammoth Screen (AR) Limited (1)(a)
Mammoth Screen (ATTWN) Limited (1)(a)
Financial Statements Financial Statements
Company Name
Granada December Eight Limited (38)(a)
Granada December Nine Limited (38)(a)
ITV Holdings (Cayman) Limited (39)(a)
Talpa Chile SpA (97)(a)
United Productions ApS (42)(a)
ITV Studios Finland Oy (43)(a)
ITV Studios France (Holdings) SAS (98)(a)
ITV Studios France SAS (44)(a)
ITV Studios Germany GmbH (46)(a)
ITV Studios Germany Holdings GmbH (46)(a)
Newtopia GmBH (100)(a)
Talpa Germany Fiction GmbH (99)(a)
Talpa Germany Gmbh & Co KG (47)(a)
Talpa Germany Verwaltungs GmbH (47)(a)
Elecrent Insurance Limited (31)(a)
ITV Global Entertainment (Hong Kong) Limited (49)(a)
Talpa China Limited (48)(a)
Carlton Home Entertainment Ireland Limited (50)(a)
Channel Television Limited (32)(a)
ITV London Properties Limited (33)(a)
ITV Properties (Jersey) Limited (33)(a)
Brandcams International B.V. (52)(a)
Global Music & Talent Agency B.V. (93)(a)
ITV (Europe) Holdings B.V.* (55)(a)
ITV Enterprises B.V. (55)(a)
ITV Finance (Europe) B.V. (55)(a)
MasMedia B.V. (56)(a)
Talpa Content B.V.(57)(a)
Talpa Fictie B.V.(57)(a)
Talpa Germany Holding B.V.(93)(a)
Talpa Global B.V.(53)(a)
Talpa Non-Spot B.V.(57)(a)
Talpa Producties B.V.(57)(a)
Utopia B.V.(57)(a)
Voist Media B.V. (102)(a)
Wardour Street Films B.V. (59)(a)
ITV Studios Norway AS (76)(a)
ITV Studios Nordic AB(77)(a)
Talpa Asia Pte. Ltd. (96)(a)
ITV Studios Germany GmbH, Köln, Zweigniederlassung
Zürich (78)(m)
12 Yard Holdings, Inc. (70)(j)
Anglia Television Inc. (70)(j)
Astrum Productions, LLC (94)(j)
Cardinal Productions of Ohio Inc. (63)(j)
Carlton Media Company Inc. (63)(j)
Electric Farm Entertainment Holdings Inc. (63)(j)
Granada Cracker US Productions (70)(j)
Granada Television International Inc. (63)(j)
Hamdon Entertainment Inc.(63)(j)
ITC Distribution, LLC (63)(j)
ITC Entertainment Group Inc (63)(j)
ITC Films, LLC (63)(j)
ITC Productions, LLC (63)(j)
ITV America Inc.(63)(j)
ITV Believe Holding Inc. (63)(j)
ITV Diga Holding Inc. (63)(j)
186
%
Holding
Company Name
Country
%
Holding
Country
Cayman
Islands
Cayman
Islands
Cayman
Islands
Chile
Denmark
Finland
France
France
Germany
Germany
Germany
Germany
Germany
Germany
Guernsey
Hong Kong
Hong Kong
Ireland
Jersey
Jersey
Jersey
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Netherlands 100
Netherlands 100
Netherlands 100
Netherlands 100
Netherlands 100
Netherlands 100
Netherlands 100
Netherlands 100
Netherlands 100
Netherlands 100
Netherlands 100
Netherlands 100
Netherlands 100
Netherlands 100
Netherlands 100
Norway
Sweden
Singapore
100
100
100
ITV Entertainment Services Inc.(63)(j)
ITV Global Entertainment Inc. (63)(j)
ITV Gritty Holding Inc.(63)(j)
ITV Gurney Holding Inc. (63)(j)
ITV HN Holding Inc. (63)(j)
ITV International Corporation (63)(j)
ITV Leftfield Holding Inc. (63)(j)
ITV New Form Holding Inc. (63)(j)
ITV Popco Holding Inc. (63)(j)
ITV SVOD Holding Inc. (63)(j)
ITV Thinkfactory Holding Inc. (63)(j)
ITV Tomorrow Holding Inc. (63)(j)
ITV US Holdings Inc. (63)(j)
ITV US Productions Inc. (63)(j)
JB Entertainment Holding Company Inc. (63)(j)
Kirkstall Road Enterprises Inc. (63)(j)
Leftfield Pictures of NY Holdings, LLC (63)(j)
Leftfield Pictures of NY, LLC (63)(j)
Leftfield Ventures, LLC (63)(j)
LWT Enterprises Inc. (63)(j)
Over the Pond Productions Inc. (63)(j)
Quay Street Enterprises Inc. (63)(j)
Red Orange Productions, LLC (94)(j)
So Television US Inc. (70)(j)
Talpa Media USA Inc. (94)(j)
Upper Ground Enterprises Inc. (63)(j)
Zinna Productions LLC (94))(j)
Joint ventures and Investments
Company Name
Absolutely Rights Limited (6)(a)
That Mitchell and Webb Company Limited (7)(a)
DTV Services Limited (17)(a)
Route 24 Limited (24)(a)
Monumental Television Limited (79)(a)
Channel Mum Limited (12)(a)
Clearcast Limited (14)(a)
ISAN UK Limited (25)(a)
Cirkus International Limited (13)(a)
Thinkbox TV Limited (23)(a)
Switzerland 100
Cirkus Limited (13)(a)
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Malacara Limited (2)(a)
Harlequin Agency Limited (5)(a)
Pink Rose Bud Limited (2)(a)
Mainstreet Arlington Productions Limited (4)(a)
Mainstreet Pictures Limited (4)(a)
Unforgotten2 Limited (4) (a)
Bait Studio Limited (5)(a)
Cloth Cat Animation Limited (5)(a)
Cloth Cat LBB Limited (5)(a)
Independent Television News Limited (20)(a)
Thud Media Limited (5) (a)
Bone Kickers Limited (1)(a)
Box Clever Technology Limited (8)(a)
British Film-Makers Limited (1)(a)
Digital 3 and 4 Limited (16)(a)
Freesat (UK) Limited (18)(a)
Gameface Productions Limited (1)(a)
Noho Film and Television Limited (28)(a)
Standard Music Limited (29)(a)
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Country
%
Holding
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
20
20
20
24.9
24.92
25
25
25
28
28.58
51
36.75
37.5
37.5
38.25
38.25
38.25
55
41.25
41.25
40
41.25
50
50
50
50
50
50
50
50
Notes to the ITV plc Company Financial Statementscontinued
ITV plc Annual Report and Accounts 2016
Company Name
Country
Television Media Marketing Limited (1)(a)
Possessed Limited (1)(a)
OSF (Wales) Limited (5)(a)
Oxford Scientific Films Limited (5)(a)
Second Act Productions Limited (1)(a)
Age Before Beauty Limited (4)(a)
Aim Films Limited (3)(a)
Boom Cymru TV Ltd (5)(a)
Boom Pictures Limited (1)(a)
Cynhyrchiadau Boomerang Cyf (2)(a)
Double Double Limited (1)(a)
Gorilla TV Group Limited (5)(a)
Gorilla TV Limited (5)(a)
Indus Films Limited (2)(a)
ITV TFG Holdings Limited (1)(a)
Him Productions Limited (4)(a)
TwoFour Group Limited (xx)(x)
TwoFour Broadcast Limited (xx)(x)
Twofour Group Holdings Limited (1)(a)
3sixtymedia Limited (1)(a)
GC Films Pty Limited (36)(a)
Think Factory Productions Canada Ltd (80)(j)
Talpa Nordic ApS (41)(a)
Imago TV Film und Fernsehproduktion GmbH(45)(a)
The Lab Television 2013 Limited Partnership (81)(a)
Talpa Italia Srl (82)(a)
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Australia
Canada
Denmark
Germany
Israel
Italy
%
Holding
50
51
46.27
46.27
74.07
75
75
75
75
75
75
75
75
75
75
75
75
75
75
80
49
65
51
80
50
50
Company Name
Rangers Productions SRL (83)(a)
Identity Mansion B.V. (95)(a)
Pomper & Linders B.V. (101)(a)
Talpa Arabia Holding Ltd (84)(a)
Maximum Media Production FZ-LLC (84)(a)
Talpa Middle East FZ-LLC (84)(a)
Eight Bells Productions, LLC (63)(h)
What’s the Business, LLC (85)(h)
FT Productions, LLC (63)(h)
Shirina, LLC (63)(h)
Crew Ready Everywhere, LLC (63)(h)
Hatfield and McCoy Productions, LLC (63)(h)
Highball Music Group, LLC (63)(h)
LG Films, LLC (63)(h)
Marriage Boot Camp Reality Stars, LLC (63)(h)
MDQuartet, LLC (63)(h)
Signal Post Facilities, LLC (63)(h)
Sound and Stage Studios, LLC (63)(h)
Texas Rangers, LLC (63)(h)
Thinkfactory Media, LLC (87)(h)
Web Legal, LLC (63)(h)
Westside Film Partners, LLC (63)(h)
Loud Television, LLC (63)(h)
Next Steps Productions, LLC (63)(h)
Outpost Entertainment, LLC (63)(h)
Tomorrow ITV Studios, LLC (63)(k)
Memberships, Partnerships and Companies Limited by Guarantee
Country
%
Holding
Mexico
65
Netherlands 25
Netherlands 20
UAE
UAE
UAE
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
90
90
90
60
60
61.5
63.25
65
65
65
65
65
65
65
65
65
65
65
65
75
75
75
25
Country
% Holding
Company Name
Country
% Holding
Company Name
ITV LTVC Scottish Limited Partnership (30)(h)
ITV Scottish Limited Partnership (30)(h)
DTT Multiplex Operators Limited (17)(i)
Digital Production Partnership Limited (1)(i)
Producers Rights Agency Limited (25)(i)
UK
UK
UK
UK
UK
100
100
25
50
50
ITV Netherlands Co-operatief W.A*(55)(h)
Netherlands 100
Chad Alan Productions, LLC (62)(h)
Double Down Films Holdings, LLC (63)(h)
Double Down Films, LLC (63)(h)
Electric Farm Entertainment, LLC (63)(h)
Moving Pictures Services Inc. (63)(h)
Oaklawn Pacific Properties, LLC (66)(h)
Sirens Media, LLC (63)(h)
Sirens Project 1203, LLC (63)(h)
Sirens Project 1223, LLC (63)(h)
Sirens Project 1226, LLC (63)(h)
Sirens Project 1227, LLC (63)(h)
Sirens Project 1301, LLC (63)(h)
Sirens Project 1303, LLC (63)(h)
Sirens Project 1309, LLC (63)(h)
Sirens Project 1316, LLC (63)(h)
Sirens Project 1326, LLC (63)(h)
Sirens Project 1408, LLC(63)(h)
Sirens Project 1410, LLC (63)(h)
Sirens Television Development, LLC (63)(h)
Sunshine Productions Holdings, LLC (63)(h)
Work Shop of NY, LLC (63)(h)
Jaffe/Braunstein Entertainment, LLC (69)(h)
High Noon East, LLC (71)(h)
High Noon Group, LLC (71)(h)
High Noon Productions, LLC (71)(h)
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
60
60
60
High Noon West, LLC (71)(h)
Feeding Time Productions, LLC (89)(h)
Hollywood Camera and Lighting, LLC (90)(h)
Gurney Productions, LLC (70)(h)
RICMA, LLC (65)(h)
Yukon RAFT Productions, LLC (91)(h)
Brat Brigade, LLC (73)(h)
Deep Gotham Post, LLC (73)(h)
DGK 5, LLC (63)(h)
Diga Holdings, LLC (63)(h)
Diga Production Studios, LLC (63)(h)
Diga, LLC (63)(h)
Film Productions Rentals, LLC (70)(h)
Roasters, LLC (63)(h)
Thinkfactory Group, LLC (63)(h)
1016 Productions, LLC (60)(h)
6565 Productions Studios, LLC (60)(h)
6565 Productions Studios 2, LLC (60)(h)
6565 Productions Studios 3, LLC (60)(h)
6565 Productions Studios 4, LLC (60)(h)
All in Post, LLC (60)(h)
Cheese String Studios, LLC (72)(h)
In Reality Productions, LLC (72)(h)
Gritty Productions, LLC (63)(h)
East Olive Productions, LLC (60)(h)
BB Rights, LLC (63)(h)
Britbox, LLC (92)(h)
Twofour America, LLC (70)(h)
Twofour Broadcast Media, LLC (70)(h)
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
60
61.5
61.5
61.5
61.5
61.5
63.25
63.25
63.25
63.25
63.25
63.25
65
65
65
75
75
75
75
75
75
75
75
100
75
50
40.5
75
75
187
Financial Statements Financial Statements
18 Glasshouse Studios, Fryern Court Rd, Fordingbridge, Hampshire, SP6 1NG, UK
Address key
(1) The London Television Centre, Upper Ground, London, SE1 9LT, UK
(2) 218 Penarth Road, Cardiff, CF11 8NN, UK
(3) Twofour Studios, Estover, Plymouth, Devon, PL6 7RG, UK
(4) Kingsbourne House, 229-231 High Holborn, London, WC1V 7DA, UK
(5) Gloworks, Porth Teigr Way, Cardiff, Wales, CF10 4GA, UK
(6)
(7) 26 Nassau Street, London, W1W 7AQ, UK
(8) 5 New Street Square, London, EC4A 3TW, UK
(9) 20 Cathedral Road, Cardiff, CF11 9LJ, UK
(10) 9 Mansfield Street, London, W1M 9FH, UK
(11) 20 Orange Street, 3rd Floor, London, WC2H 7EF, UK
(12) 21 Hatton Gardens (Room 9), London EC1N 9BA, UK
(13) The Met Building, 22 Percy Street, London, W1T 2BU, UK
(14) 4 Roger Street, 2nd Floor, London, WC1X 2JX, UK
(15) c/o Creative Skillset, 1-3 Grosvenor Place, Fifth floor (Suite 5B), London, SW1X 7HJ, UK
(16) 124 Horseferry Road, London, SW1P 2TX, UK
(17) 27 Mortimer Street, London, W1T 3JF, UK
(18) 23-24 Newman Street, London, W1T 1PJ, UK
(19) Unit 8 Acorn Production Centre, R/O 105 Blundell Street, London, N7 9BN, UK
(20) 200 Gray’s Inn Road, London, WC1X 8HF, UK
(21) Clay Barn, Ipsley Court, Berrington Close, Redditch, Worcestershire, B98 0TD, UK
(22) 10 Lower Thames Street, (Third Floor), London, EC3R 6YT, UK
(23) Manning House, 22 Carlisle Place, London, SW1P 1JA, UK
(24) York House, Empire Way, Wembley, Middlesex, HA9 0FQ, UK
(25) Fitzrovia House, (3rd Floor), 153-157 Cleveland Street, London, W1T 6QW, UK
(26) Round Foundry Media Centre, Foundry Street, Leeds, LS11 5QP, UK
(27) c/o Archery Pictures, 3 Archery Close, London, W2 2BE, UK
(28) 59 Charlotte Street, (Third Floor), London, W1T 4PE, UK
(29) Roundhouse, 212 Regent’s Park Road, London, NW1 8AW, UK
(30) Quartermile One, 15 Lauriston Place, Edinburgh, EH3 9EP, Scotland
(31) P.O. Box 308, St. Peter Port House, Union Street, St. Peter Port, GY1 3TA, Guernsey
(32) Le Capelain House, Castle Quay, St. Helier, JE2 3EH, Jersey
(33) Ogier House, The Esplanade, St. Helier, JE4 9WG, Jersey
(34) Ormeau Road, Belfast, BT7 1EB, Northern Ireland
(35) 5 Cromac Avenue, The Gasworks, Belfast, BT7 2JA, Northern Ireland
(36) Building 61, Fox Studios Australia, 38 Driver Avenue, Moore Park NSW 2021, Australia
(37) c/o Addisons, Level 12, 60 Carrington Street, Sydney NSW 2000, Australia
(38) Appleby Corporate Services (Cayman) Limited, Clifton House, 75 Fort Street, P.O.
Box 190 GT, Georgetown, Grand Cayman, KY1-1108, Cayman Islands
(39) c/o Appleby Trust (Cayman) Limited, Clifton House, 75 Fort Street, P.O..Box 1350,
(55) Hoogoorddreef 15, 1101 BA, Amsterdam, Netherlands
(56) Noorderweg 8, 1221 AA, Hilversum, Netherlands
(57) Zevenend 45, 1251 RL, Laren, North Holland, Netherlands
(58) Voorstraat 61, 4797 BE, Willemstad, Netherlands
(59) Herikerbergweg 238, 1101 CM, Amsterdam Zuidoost, Netherlands
(60) 121 West Lexington Drive, Suite 401, Glendale CA 91203, USA
(61) 1633 Bayshore Highway, Suite 320, Burlingame CA 94010, USA
(62) 3867 Plaza Tower, 1st Floor, Baton Rouge, Los Angeles CA 70816, USA
(63) The Corporation Trust Company, Corporate Trust Center, 1209 Orange Street,
Wilmington, Newcastle, DE 19801, USA
(64) Corporation Service Company, 2711 Centreville Road (Suite 400), Wilmington,
Newcastle DE 19808, USA
(65) 8929 South Sepulveda Boulevard, Suite 510, Los Angeles, CA 90045, USA
(66) The Corporation Trust Company, 311 South Division Street,
Carston City NV 89703, USA
(67) 450 North Roxbury Drive, 8th Floor, Beverly Hills CA 90210, USA
(68) United Corporate Services, Inc., 874 Walker Road (Suite C), Dover, Kent, DE 19904, USA
(69) 321 Souther Beverly Drive, Suite M, Beverly Hills, CA 90212, USA
(70) CT Corporation System, 818 West Seventh Street, Suite 930, Los Angeles,
CA 90017, USA
(71) The Hodson Law Firm, 1129, East 17th Avenue, Denver, CO 80014, USA
(72) 24955 Pacific Coast Highway, Suite C302, Malibu, CA 90265, USA
(73) CT Corporation System, 111 Eighth Avenue, 13th Floor, New York, NY 10011, USA
(74) 21 Holborn Viaduct, London, EC1A 2DY, UK
(75) 120 West 3rd Avenue #201, Vancouver, BC VSY 1EG, Canada
(76) Starvhusgaten 2A, Bergen, Norway
(77) Soder Malarstrand 65, 11825, Stockholm, Sweden
(78) Scharenmoosstrasse 105, 8052, Zurich, Switzerland
(79) 9 St. Peters Street, London, N1 8JD, UK
(80) Bucchil Goldstein LLP, 99 Atlantic Avenue, Suite 214, Toronto, M6K 3J8, Canada
(81) 23 Habarzel Street, Tel Aviv, 69710, Israel
(82) Via Enrico, Tazzoli 6, Rome, Italy
(83) Gonzales Carillo, SC Abogados, Montes Urales no 632, Piso 3, Lomas de Chapaltpec,
DF 11000, Mexico
(84) Building 2, Dubai Media City, Dubia, UAE
(85) 3035 South Parker Road, Suite 500, Denver, CO 80014, USA
(86) eResident Agent Inc. 12121 Wilshire Boulevard ~1201, Los Angeles, CA 90025, USA
(87) 1640 South Sepulveda Boulevard, Suite 300, Los Angeles, CA 90025, USA
(88) CT Corporation System, 306 Main Street, Suite 512, Frankfort, KY 40601, USA
(89) CT Corporation System, 5615 Corporate Boulevard, Suite 400B, Baton Rouge, CA
Georgetown, Grand Cayman, KY1-1108, Cayman Islands
70808, Los Angeles, USA
(40) Ugland House, P.O. Box 309, South Church Street, Georgetown, Grand Cayman,
Cayman Islands
(41) Mosedalvej 14, 2500, Valby, Copenhagen, Denmark
(42) Finsensvej 6E, 2000, Frederiksberg, Denmark
(43) Elimaenkatu 9 A, Helsinki, 00510, Finland
(44) 23 Rue Montorgueil, 75001, Paris, France
(45) Keplerstrasse 4-6, 10589, Berlin, Germany
(46) Am Coloneum 6, 50829, Cologne, Germany
(47) Jenfelder Allee 80, 22039, Hamburg, Germany
(48) Room 1902, 19F Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong
(49) Gloucester Tower (8th Floor), The Landmark, 11 Pedder Street, Central, Hong Kong
(50) One Spencer Dock, North Wall Quay, Dublin 1, Ireland
(51) Mayor Street Upper, Dublin, DUBLIN 1, Ireland
(52) Burgemeester Stramanweg 97,c, 1191 EA, Ouderkerk aan de Amstel, Netherlands
(53) Sumatralaan 45, 1217 GP, Hilversum, Netherlands
(54) Heemraadssingel 180, 3021 DL, Rotterdam, Netherlands
(90) 24955 Pacific Coast Highway, Suite C302, Malibu, CA 90265, USA
(91) Incorp Services Inc, 101 E. 9th Avenue, Suite 12-B, Anchorage, AK99501-3651, USA
(92) 1120 Avenue of Americas, 5th Floor, New York, NY10036, USA
(93) Familie de Mollaan 1, 1217 ZB Hilversum, Netherlands
(94) 15000 Ventura Blvd, Suite 202, Sherman Oaks, CA 91403, USA
(95) Westersingel 108, 3015 LD Rotterdam, Netherlands
(96) 198A Telok Ayer Street, Singapore 068637
(97) calle Cerro El Plomo 5855, oficina 1605, comuna de Las Condes,
Region Metropolitana, Chile
(98) 3 rue Taylor, CS 20004, 74010, Paris, France
(99) Gethiner Strasse 5, 10785, Berlin, Germany
(100) August-Bebel Strasse 58, 15711, Konigs Wusterhausen, Germany
(101) Keizersgracht 149a, 1015CL, Amsterdam, Netherlands
(102) Hollandse Kade 34, 1391JM, Abcoude, Netherlands
Interest key
(a) Ordinary
(b) Deferred
(c) Special deferred
(d) Redeemable preference
(e) Cumulative preference
(f) Cumulative redeemable preference
(g) Convertible preference
(h) Membership/Partnership
(i) Guarantee
(j) Common
(k) Preference
(l) Part preference
(m) Branch
* Direct subsidiary
188
Notes to the ITV plc Company Financial Statementscontinued Shareholder Information
ITV plc Annual Report and Accounts 2016
Shareholder profile
Information as at 31 December 2016
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
Holders
Number
5
3,015
51,260
333
54,613
Holders
Number
8,781
7,164
13,605
8,758
6,809
5188
1,863
1,392
221
363
119
223
53
60
14
54,613
%
Shares held
Millions
0.01
5.52
93.87
0.60
100
0
3,887
123
15
4,025
%
0
96.58
3.06
0.36
100
%
Shares held
%
306,634
16.07
1,076,804
13.11
4,421,055
24.91
6,431,692
16.03
9,895,045
12.47
16,306,370
9.5
13,187,431
3.41
28,193,018
2.55
15,752,927
0.41
90,071,530
0.67
88,194,950
0.22
540,614,448
0.41
368,562,661
0.1
1,177,107,879
0.11
0.03 1,665,286,750
100 4,025,409,194
0.01
0.03
0.11
0.16
0.25
0.41
0.33
0.70
0.39
2.24
2.19
13.43
9.16
29.24
41.37
100
Company website
Investor and shareholder-related information, including the current
price of ITV plc shares, can be found on the Company website at:
www.itvplc.com
Financial calendar
Ex-dividend date for the Final and Special dividend
Record date for the Final and Special dividend
Annual General Meeting
Interim Management Statement
Payment date for the Final and Special Dividend
Half year results announcement
27 April 2017
28 April 2017
10 May 2017
10 May 2017
25 May 2017
26 July 2017
Registered office
The London Television Centre
Upper Ground
London
SE1 9LT
020 7157 3000
Company registration number 4967001
Registrars and transfer office
All administrative enquiries relating to shareholdings and requests
to receive corporate documents should be directed to Capita Asset
Services, The Registry, 34 Beckenham Road, Beckenham, BR3 4TU.
They can be contacted by telephone on
0871 664 0300 from the UK (calls cost 12 pence per minute plus network
charges) and
+44 371 664 0300 from outside the UK (calls UK will be charged at the
applicable international rate).
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
Annual General Meeting
The Annual General Meeting will be held on Wednesday 10th May
2017 at 11.00 a.m. 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 and a copy of this is available on the Company website.
www.itvplc.com/investors/shareholder-information/agm
189
Additional Information Additional Information
Glossary
Glossary
Broadcasters’ Audience Research
Board (BARB) – organisation owned by
broadcasters and advertisers providing
data on linear and online television
viewing statistics by 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 the ITV Hub, BBC
iPlayer, All 4 or My5
Channel 3 licences – the 16 regional licences
and one national licence awarded to transmit
Channel 3 across the UK. All are owned by ITV
with the exception of two of the regional
licences which are owned by STV
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
Long-form video requests – video requests
are a measure of the total number of videos
requested across all platforms (such as itv.
com, Virgin and mobile devices) and includes
simulcast. 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
Long-form online viewing (consumption)
– total number of hours of ITV VOD content
viewed on advertiser funded platforms (such
as mobiles, itv.com, connected TVs)
Media sales commission – commission
earned by ITV plc on sales of airtime on
behalf of the non-consolidated licensees
(STV and UTV until acquisition in Feb 2016)
Net Advertising Revenue (NAR) – the
amount of money received by a broadcaster
as payment for television spot advertising
net of any commission paid to agencies
Free-to-Air (FTA) television – viewing
of television through devices not requiring
a subscription 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, ITVBe,
ITV Encore, 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
Linear television – television service
where the viewer has to watch a scheduled
TV program at the particular time it’s
offered, and on the particular channel
it’s presented on
Total Schedule Costs/Total Network
Programme Budget (NPB) – the budget
spent on programming broadcast on the
ITV family of channels, including spend on
regional programming and ITV Breakfast
Non-consolidated licensees – the
two regional channel 3 licences which ITV
does not own. These licences are owned
by STV and revenues received from these
licences for ITV programming content are
referred to as minority revenues
Non-NAR revenue – non-NAR revenue
includes all ITV revenue, both internal and
external, except net advertising revenue
(NAR). This includes inter-segment revenue
from the sale of ITV Studios shows to the
ITV Network
Ofcom – independent regulator and
competition authority for the UK
communications industries
Over-the-top content (OTT) – delivery
of audio, video, and other media over
the Internet, this includes content
from providers such as Netflix, Amazon
and Hulu and also our own on demand
service, the ITV Hub
SDN – multiplex operator owned by ITV
which operates one of the eight national
multiplex licences in the UK on Freeview
Share of Broadcast (SOB) – ITV’s share
of UK television advertising revenue (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
Spot advertising – Linear television
advertising occupying a short break during
or between programmes
Subscription Video on Demand (SVOD) – a
paid for service where a subscriber has access
to wide range of content whenever they
request it
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, BT, TalkTalk, and Arqiva)
to operate and promote a hybrid television
platform combining Freeview channels with
catch up and on demand services
190
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ITV plc
The London Television Centre
Upper Ground
London
SE1 9LT
www.itv.com
Investors:
www.itvplc.com Stock code: ITV