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ITV delivers strong operational
performance in an uncertain
economic environment
ITV plc Annual Report and Accounts
for the year ended 31 December 2017
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.
Governance
Presents a clear view
of ITV’s governance.
2017 Highlights
ITV at a Glance
Chairman’s Statement
Investor Proposition
Market Review
Chief Executive’s Report
Our Strategy and Business Model
Corporate Responsibility
Operating and Performance Review
Alternative Performance Measures
Key Performance Indicators
Finance Review
Risks and Uncertainties
Chairman’s Governance Statement
Board of Directors
Management Board
Corporate Governance
Audit and Risk Committee Report
Remuneration Report
Directors’ Report
Financial Statements
ITV’s audited financial
statements for the year
ended 31 December 2017.
Financial Statements
Independent Auditor’s Report
Primary Statements
ITV plc Company Financial
Statements
Additional Information
Glossary
2
4
6
8
10
14
18
20
22
34
36
40
50
60
62
64
66
72
82
98
107
108
114
179
194
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.
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.
Contents page: Liar
Front cover: The Voice UK
Contents
Chairman’s
Statement
See page 6
Finance
Review
See page 40
Business
model
See
page
18
Chief Executive’s
Report
See page 14
Our performance
in 2017
See page 22
Key financial highlights
How we
manage risk
See page 50
Key
f e n c e – business divisions, G
e
f d
e s o
r
o
Management
and Divisional
Boards
u
p
f
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t
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s
,
Read more content within
this report
ce: Three lin
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Read more content online
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The Board
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Operational
Risk Steering
Group
Audit
and Risk
Committee
Group external revenue1
Non-NAR revenue2
Adjusted EBITA3
£3,132m (+2%)
(2016: £3,064m)
£2,066m (+11%)
(2016: £1,855m)
£842m (-5%)
(2016: £885m)
Adjusted EPS
16.0p (-6%)
(2016: 17.0p)
Statutory EPS
10.2p (-9%)
(2016: 11.2p)
Dividend per share p (ordinary)
7.8p (+8%)
(2016: 7.2p)
Notes
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 pages 34 and 35. 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’). Statutory EBITA
is £810 million (2016: £857 million) and statutory profit before tax is £500 million (2016: £553 million).
1
Strategic ReportGovernanceFinancial StatementsAdditional information
Strategic Report
2017
2017
Highlights
Highlights
62
ITV formats
sold in 2017
66%
of ITV original
commissions
supplied by
ITV Studios
new commissions
239
& 240
recommissions
ITV delivered another strong performance
in 2017 as we continued to strengthen,
rebalance and grow the business.
I’m A Celebrity...
Get Me Out Of Here!
The 17th series
averaged 10 million
viewers and a 38%
share. It was the
most watched series
for 16–34s on any
channel in 2017, with
2.5 million viewers
and a 54% share.
Cold Feet returned for a second series, averaging 5.1 million viewers
and a 21% share. It has been recommissioned for a third series.
Broadchurch was
the most watched
drama in 2017. It
averaged 10.7 million
viewers and a 36%
share, over a million
more viewers than the
previous two series.
The Chase goes from strength to strength with an average
3.2 million viewers and a 25% share in 2017. The format was sold
to four countries in 2017.
Good Morning Britain achieved a 19% share of viewing in
2017, which was its highest ever share since it launched in 2010.
2
ITV plc Annual Report and Accounts 2017
2017 Highlights
American Dad, Family Guy and
The Cleveland Show continue to perform
well on ITV2, attracting a combined average
share of 11% of 16–34s in 2017.
Love Island averaged 2.5 million viewers, with a 34%
share of 16–34s and 43% of 16–24s. It had the biggest
16-24 audience of all digital channels in 2017.
21.7%
share of viewing for
the ITV Family,
up from 21.3%
in 2016
+17%
increase in ITV2’s 16–34s
share of commercial
impacts
Coronation Street remains the most watched
soap in the UK. It averaged 7.6 million viewers in
2017 and a 35% share, which was up one share
point year-on-year.
The Voice launched on ITV in 2017 and
averaged 5.6 million viewers and a 24% share,
with a 29% share for 16–34s. The Voice format
has been sold to 65 counties.
+34%
increase in
long-form
video requests
In 2017 99% of all
commercial audiences over
5 million were on ITV
3
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
ITV at
a glance
Broadcast &
Online
ITV Studios
ITV, as an integrated producer broadcaster,
creates, owns and distributes high-quality
content on multiple platforms globally.
We operate the largest
commercial family of channels
in the UK and deliver our content
through linear television
broadcasting as well as on
demand via the ITV Hub and
across other platforms globally.
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,
with a share of broadcast (SOB) of
47.6% in 2017. We sell all of our key
demographics across 13 regional licences.
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.
47.6%
largest share
of the UK TV advertising market
21.7%
share of viewing
for the ITV Family in 2017
21m
registered users
of the ITV Hub
8,400+ hrs
of original content produced
and delivered in 2017
50+ labels
in 11 different countries supplying
over 200 channels
62 ITV formats
sold in 2017
4
ITV plc Annual Report and Accounts 2017
ITV total revenue
(inc. internal revenue)
ITV adjusted EBITA
Broadcast & Online £2,075m
ITV Studios £1,582m
Broadcast & Online £599m
ITV Studios £243m
The family of channels attracted a
total share of viewing (SOV) of 21.7%
in 2017, 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.
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 29
platforms including ITV’s website (itv.com),
pay providers such as Virgin and Sky and
through direct content deals with services
such as Amazon, Apple and Netflix.
Our free-to-air digital channels provide
more targeted demographics for
advertisers, such as 16–34s, ABC1s,
Men and Housewives with Children, and
consist of ITV2 and ITV3, the two largest
digital channels in the UK, ITV4, CITV
and ITVBe. We also have high definition
versions of our digital channels available
on pay platforms.
ITV at a glance
ITV has the ITV Hub+ which is a
Subscription Video on Demand (SVOD)
service where subscribers have access
to advertising free content and the
ability to download catch up content.
We have partnered with the BBC to
launch a new SVOD service, ‘BritBox’,
in the US and Canada. The streaming
service allows subscribers to access
the best of British television.
We also own a best of British SVOD
service, Cirkus, in the Nordics and
Germany, and an online service, ITV
Choice, an entertainment channel
for emerging markets available in
100 countries.
ITV Studios UK
ITV America
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 entertainment for
ITV’s own channels, as well as for other UK broadcasters such
as the BBC, Channel 4, Channel 5 and Sky.
ITV America is the largest independent producer of unscripted
content in the US. We are also growing 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
Global Entertainment
ITV Studios also operates in the Netherlands (through
Talpa Media), Germany, France, Italy, Australia and the Nordics.
Talpa produces and distributes entertainment formats while
the other businesses produce scripted and unscripted 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, ITV’s distribution business, owns the
rights to ITV programmes and formats and acquires third-party
content, distributing this to other broadcasters and platforms
internationally. Within this business, we also finance productions
for ITV and third parties to acquire global distribution rights.
5
Strategic ReportGovernanceFinancial StatementsAdditional information
Strategic Report
Chairman’s
Statement
We’re reporting on a challenging year,
but one in which ITV has made
significant progress.
ITV delivered a strong operating
performance with great on-screen and
online viewing. Against this, net advertising
revenue (NAR) reacted to political and
economic uncertainty, contracting by just
under 5% (though, as we report, this trend
improved towards the end of the period).
Our rebalanced company saw continued
growth in non-NAR revenues – from
sponsorship, from digital and from
production, both at home and abroad.
We thank our former Chief Executive,
Adam Crozier, along with the executive
team for these important advances.
And I’m very grateful to Ian Griffiths,
who added the role of Chief Operating
Officer to Group Finance Director.
ITV’s mass commercial audience is at
the heart of our offer to viewers and
advertisers. We own the only such mass
audience in the UK. We’ve now grown our
share of television viewing for two years
in a row. And our broadcast schedule
offers the most trusted medium of brand
advertising: where an ‘impact’ is watching
an entire, full screen, advertisement with
the sound up; where no impacts are fake;
where a brand is guaranteed adjacency
to trusted content; and where there’s
no ad-blocking. Meanwhile, ITV Studios
now produces for over 200 channels in
11 countries around the world.
This underlines the enduring strengths on
which we’ll build our new revenue streams
in the future. So with our strong balance
sheet we’re able to deliver good returns
to shareholders while also investing in
that future. In line with our dividend policy
and reflecting the Board’s confidence
in the business and the outlook for 2018,
the Board is proposing a final dividend
of 5.28p, which equates to a full year
dividend of 7.8p, up 8%.
Sir Peter Bazalgette
Chairman
6
ITV plc Annual Report and Accounts 2017
Chairman’s Statement
Dividend
Dividend per share p (ordinary)
7.8p
p
8
7
.
2
7
.
0
6
.
.
7
4
5
3
.
6
2
.
6
1
.
10
11
12
13
14
15
16
17
8%
YoY
+7.8p
increase
on 2010
As we work hard on ITV’s next chapter of
growth, we are thinking about our digital
competitors. And we see just as many
opportunities to seize as threats to ward off.
Netflix and Amazon may compete with us for
viewers, but they also buy our programmes
and co-produce major new series.
Talking of that future, we were delighted
to welcome Carolyn McCall as our new
Chief Executive at the beginning of 2018.
Investors will be familiar with her background
in media, her experience of direct to
consumer relationships and use of consumer
data, her ability to design and implement
astute strategy and her understanding of
what it is to run an international company.
In short, she’s someone with a track
record of delivering value to shareholders.
As she explains, she’s already started her
strategy refresh.
Today, there’s quite rightly a growing
emphasis on company culture and social
purpose. These are qualities ITV, as a Public
Service Broadcaster, has always kept front
of mind – hand in hand with entertainment.
But now they’re in even sharper focus. As a
producer of trusted, sourced national news,
regional news and current affairs in an age
of fake news, we take our contribution to
a functioning democracy very seriously.
Our award-winning daytime shows, thriving
soaps and major dramas are a vital part of
Britain’s national conversation, exploring
topical social issues that define our culture.
And as a major employer of creative talent
in Manchester, Leeds and London, our role
in the nation’s growing creative economy
is very important to us.
I’d like to thank my Board colleagues for
their valuable support and input during 2017.
We welcome Margaret Ewing as our vastly
experienced new Chair of the Audit and Risk
Committee. And we shortly bid farewell
to Andy Haste and John Ormerod, each of
them having committed ten fruitful years
to the Company. We have a clear plan to
continue to improve the diversity of the
Board. At the time of writing, our gender
balance is now 40% female and 60% male.
And we intend in the medium term also
to widen our ethnic diversity beyond our
current one BAME member.
Finally, on behalf of the Board, I want to
thank all ITV colleagues for their excellent
contribution in 2017. With that quality of
commitment, we’ll prosper in the future.
Sir Peter Bazalgette
Chairman
Joanna Lumley’s India was a three-part
documentary broadcast on ITV in 2017.
7
Strategic ReportGovernanceFinancial StatementsAdditional information
Strategic Report
Investor
Proposition
ITV continues to make significant progress
in growing and strengthening the business
creatively, commercially and financially.
A strong
platform
for delivery
Strong market
position
As an integrated producer broadcaster, ITV is in a unique position
to create and own world-class content, broadcast it on one of the
biggest marketing platforms in the UK and distribute it globally
through its international network.
ITV is an increasingly global and diversified organisation, with
significant non-advertising revenue streams reducing its
dependency on UK advertising.
ITV has delivered a strong operational and financial performance
over many years and is in a good position to continue to do this,
underpinned by its strategic assets and competitive advantage.
ITV is currently undertaking a strategic refresh to ensure it has a clear
strategy and priorities which reflect what ITV needs to be in three,
five and ten years’ time.
The Broadcast & Online business is 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 building our digital business
through our direct to consumer SVOD services BritBox, Cirkus
and the ITV Hub+.
ITV Studios, our international content business, is now a global player
of scale, creating, owning and managing rights and we will continue
to grow in key creative markets, driving value from the strong
demand for quality content.
99%
54%
of all commercial audiences
over 5 million were on ITV
of total ITV Studios revenue was
from outside the UK in 2017
8
ITV plc Annual Report and Accounts 2017
Investor Proposition
Highly cash
generative
We are a highly cash generative business and our disciplined
approach to cash, costs and capital gives us a strong balance sheet
and enables us to continue to invest across the business.
Investment
opportunities
In line with our strategic refresh and key priorities, we will explore
investment opportunities to develop and grow the business
and enhance shareholder value while 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.
8%
growth in the ordinary dividend
year-on-year
Clockwise from top left: Tokio Myers, winner
of Britain’s Got Talent in 2017; England versus
Slovakia in the World Cup Qualifiers; new ITV
Studios drama, Bancroft.
9
Strategic ReportGovernanceFinancial StatementsAdditional information
Strategic Report
Market
Review
Key market
trends
The market environment in which we operate
is rapidly changing and becoming increasingly
competitive. Consolidation of media and
telecoms companies, the increasing influence
of technology and the evolution in the way
viewers consume media, what they watch,
when they watch it and how they watch it,
bring both challenges and opportunities.
Over recent years, there has been a significant change in the availability and delivery
of content with a substantial increase in the number of ways to watch television, with
viewers able to choose a variety of platforms, both free and pay to watch live, catch up
and box set content. This has led to the rapid growth of online viewing. However, linear
television viewing remains resilient and is still the most popular way to consume content
for all demographics.
The proliferation of channels, platforms and new entrants has caused a significant
increase in the global demand for content, with spend growing on high-quality programming.
We estimate that the global content market is growing at around 5% per annum, with
some genres such as drama rising 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 telecoms 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 online advertising driven platforms such as Google and Facebook creating a new
market for short form and digital content.
Global 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 is 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, which are investing
heavily in creating high-quality original scripted content, has significantly increased
competition in the market.
Suburra is the first original Italian Netflix crime
drama produced by Cattleya, which was acquired
by ITV Studios in 2017.
10
ITV plc Annual Report and Accounts 2017
Good Witch is a scripted format produced by
ITV America for the Hallmark channel in the US.
It will go into its fourth season in 2018.
Hell’s Kitchen has been a huge international
success with 38 format sales worldwide over the
last ten years.
Market Review
This increased competition, coupled with the fact that viewers are now expecting higher
quality content, has driven up the cost of production. Deficit financing and co-productions
or partnerships have 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. This deficit is covered through
global sales, our windowing strategy of making content available in different territories,
on different broadcast platforms and at different times, either exclusively or non-exclusively
along with sales to OTT platforms. As a distributor as well as a producer, ITV is in a strong
position to deficit finance its own productions and therefore produce high-quality content
and retain the rights to it as well as acquiring rights for third-party productions.
Leveraging our network relationships and international distribution network, we have
expanded our global scripted business and developed a strong portfolio of international and
returning drama. We are taking advantage of the increased demand from OTT platforms
and other viewing windows around the world, with our UK and US studios having a number
of original commissions confirmed or in the pipeline for international distribution in 2018
and beyond. Confirmed commissions for international rights outside of the UK include
Harlots (S2) for Hulu, Vanity Fair and War of the Worlds for Amazon and Robozuna for
Netflix. In the UK, these programmes will be broadcast on either ITV or the BBC. The OTT
deals for international distribution will make Netflix the biggest customer for our Global
Entertainment business in 2018.
ITV America has developed several scripted programmes over the last few years and has
a healthy pipeline of content in development. Our 2017 scripted deliveries included Good
Witch, Sun Records, Somewhere Between and a pilot of Snowpiercer. 2018 deliveries and
beyond are expected to include a fourth series of Good Witch and a ten-part series of
Snowpiercer.
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 acquisition of World Productions in 2017. Our 2017 scripted
deliveries in the UK included Victoria, Cold Feet, Poldark, Unforgotten, The Loch and Fearless.
Scripted deliveries in 2018 include Vanity Fair, Next of Kin, Trauma, The City And The City,
Poldark (S4), Unforgotten (S3) and The Bodyguard, all of which have international appeal.
In Europe, we have seen a resurgence in demand for local scripted content because acquired
US content is not performing as well as it has historically on broadcast channels. There is
now also global demand for high-quality, foreign language scripted content. As such, we
have strengthened our position in this area through our acquisitions of Tetra Media Studio
in France and Cattleya in Italy along with our investment in Apple Tree Productions, a Danish
scripted production company. These acquisitions produce long-running, critically acclaimed
foreign-language dramas for free-to-air, pay and OTT platforms locally and internationally.
Titles include Profilage for TF1, Gomorrah for Sky Italia and Suburra for Netflix and Rai.
While not growing as quickly as scripted content, demand for unscripted content remains
strong as networks continue to require lower cost, high volume popular series. The UK
remains the dominant producer of unique unscripted formats.
Along with the established entertainment and factual entertainment genres, unscripted
reality programming, where we have focused our US acquisitions, has grown quickly with
formats such as Real Housewives, Four Weddings, The First 48 and Alone. OTT platforms
have also started to supplement their catalogue with unscripted titles, which provides
a lower cost alternative to expensive scripted titles. In 2018, we will have multiple
original unscripted commissions in production or development including; Queer Eye
for the Straight Guy, and Girl Incarcerated with Netflix and several shows in development
with Facebook.
ITV is now a genuine global player in unscripted 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.
11
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Market Review
continued
Linear Television viewing
SOV by broadcaster
ITV Family
BBC Family
Channel 4 Family
Five Family
Sky Family
Other
Source: BARB
21.7%
31.4%
10.5%
6.5%
8.0%
21.9%
Non-linear viewing
Long-form content viewing
Live (including simulcast)
75%
Timeshifted (PVR)
up to 28 days
VOD: Broadcaster
catch up
VOD: Other
13%
4%
8%
Source: 2017 BARB/Thinkbox data
Broadcast television and digital
Changes in viewing habits
The multiple ways in which viewers are now able to watch content has impacted viewing
habits globally and we have seen a significant increase in OTT viewing as a result. This varies
by demographic with younger viewers spending proportionately more time consuming
video content on non-TV devices (such as smartphones, games consoles and tablets)
compared with older demographics who spend more time on linear television.
Digital viewing, while currently only a small proportion of total viewing, is growing fast,
particularly via OTT 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 services, BritBox in the US and Canada, and Cirkus in the
Nordics and Germany, to enable us to compete in this market.
Linear television viewing
In the UK, linear television viewing still remains the most popular form of media
entertainment. UK average linear television viewing in 2017 was 203 minutes per day,
down from 212 minutes in 2016. The decline is partly driven by the absence of a major
sporting event in 2017 and is similar to 2013 (a no sporting year), which also saw a nine
minute decline in average viewing year-on-year. The average for 16–34s was 123 minutes
per day which declined by 11% (2016: 138 minutes). The corresponding decline for 16–34s
across the ITV family of channels was 5% and as such ITV saw share growth for this
demographic year-on-year (Source: BARB). Younger viewers are more skewed to watching
content outside of the seven-day BARB measurement window and often on non-TV devices
and as such this viewing is not currently captured by BARB (further detail below). While it is
clear that younger viewers do watch less linear television than other demographics, if the
right content is delivered, they will watch it either via linear television or online. Love Island
on ITV2 was an example of this in 2017, with an average of 1.4 million 16–34s viewers across
the series and 0.9 million 16–34s catch up requests online per day.
ITV competes for linear viewers with the BBC and commercial broadcasters including
Channel 4, Sky and Channel 5. ITV and BBC1 continue to be the only channels consistently
able to deliver mass audiences as well as targeted demographics, and in 2017, ITV again
delivered 99% of all commercial audiences over five million viewers and 96% over
three million.
In 2017, the ITV family of channels increased their SOV to 21.7% (2016: 21.3%) and is second
only to the BBC’s Family of channels at 31.4% which lost share during the year (2016: 31.9%)
due to the move of key entertainment shows from BBC1 to commercial broadcasters.
Digital viewing
Digital viewing includes catch up viewing of broadcaster content via the television set or
other devices, such as tablets and mobiles and video on demand (VOD) delivery of other
long-form content such as box sets and movies via services such as Sky, Netflix and Amazon.
While digital viewing has grown fast, it still accounts for a small proportion of total viewing
time. In the UK, we estimate 75% of all viewing of legal long-form content is live (excluding
online simulcast viewing) (2016: 79%), with a further 13% timeshifted via a Personal Video
Recorder (PVR) and watched within 28 days of the original broadcast date (2016: 12%).
Of the estimated 12% of content viewed on demand (2016: 9%), 4% is catch up viewing of
broadcaster content via the television set or to other devices such as tablets and mobiles
(2016: 4%). The remaining 8% of content is other VOD viewing, where viewing of box sets
via services such as Sky, Netflix and Amazon are replacing viewing of DVDs (2016: 5%).
This is growing quickly, driven by accessibility of these services on smartphones, tablets
and connected televisions, which allows viewers to watch content whenever and wherever
they want.
12
ITV plc Annual Report and Accounts 2017
Pay television
The platform
mix in the UK
is roughly 50%
free-to-air
and 50% linear
pay TV
Advertising revenue
Television’s share of the
advertising market
Television
Press
Radio
Cinema
Outdoor
Internet
25.5%
13.1%
3.3%
1.4%
5.5%
51.2%
Source: Advertising Association January 2018
Market Review
There is currently no industry measure for online viewing in the UK. BARB is developing a
joint-industry, audited measure of online viewing across all devices used to watch content,
which will include viewing across PCs, tablets and smartphones. Initial findings from this
project are expected to be published during 2018.
Pay television
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 TalkTalk. The platform mix between free-to-air and linear pay television has remained
constant for a number of years at around 50:50. The market dynamics of the pay market
are changing as established pay television providers such as Sky and Virgin face increasing
competition from BT and OTT providers Netflix and Amazon.
Increasingly homes are supplementing their free and pay 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 TalkTalk 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, which is unchanged from 2016.
ITV earns revenue from various third parties, including Sky and Virgin, through the licensing
of channels and content, including our HD digital channels (ITV2 HD, ITV3 HD and ITV4 HD)
and catch up VOD.
ITV has also launched BritBox, a SVOD service in the US and Canada, which is a joint venture
with the BBC. The service offers a significant amount of content from both broadcasters
and gives ITV access to the fast-growing SVOD market in the US.
Advertising revenue
As an integrated producer broadcaster, ITV generates revenues from advertising through
linear television, sponsorship and online, and competes with commercial broadcasters and
other advertising media for its advertising revenues. Cash from these revenue streams is
then used to fund the creation of content in the UK and internationally.
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 25.5% share
in 2017 (2016: 27.5%). The decrease year-on-year can be attributed to the ongoing political
and economic uncertainty in the UK with advertisers reducing spend on television as they
try to manage margins. Historically, we have seen that television advertising loses share
in an economic downturn, however it recovers quickly when the cycle reverses. Internet
advertising (search, classified and display) has grown its share to 51.2% in 2017 (2016: 46.6%),
making the UK one of the most developed markets for online advertising. Internet advertising
has benefited in the current climate from the way it is sold when compared with television.
Online advertising is normally sold as annual volume deals rather than share deals for
television, which enables advertisers to reduce their television spend quickly. Print
advertising continues to decline at 13.1% in 2017 (2016: 15.6%).
While online advertising has grown rapidly, there are concerns about what some online
advertising delivers, especially when compared with television, that online has no trusted
measurement system, the adverts may not be seen by a human in full or at all and the
content around the advertising may not be appropriate for that brand. The ITV Hub
delivers the key demographics and a high-quality, trusted and measured environment
for online advertisers.
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 47.6% in 2017, up from
47.4% in 2016. This increase is because of ITV’s unique ability to deliver mass audiences
across multiple regions and in key demographics.
13
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Chief Executive’s Report
I was very pleased to join ITV in January
as Chief Executive. It is still early days,
but I have already visited many parts of
the business and met many very talented
ITV people. I have visited our offices in
London, Manchester and Leeds, a number
of our newsrooms, production companies
as well as two cornerstones of our schedule,
Coronation Street and Emmerdale. I have
been struck by the pride and passion ITV
people have for what they do and the
critical role ITV plays in society and the
media ecology.
ITV’s operational performance was strong
in 2017 in what clearly was a challenging
year with continued economic and political
uncertainty impacting the demand for
television advertising. Share of viewing
was up for the second year running –
a first ever for ITV; there was a significant
increase in online viewing, up over 30%
and with good revenue growth; and the
Studios business also delivered good
revenue growth both in total, and
excluding acquisitions.
14
ITV plc Annual Report and Accounts 2017
Carolyn McCall
Chief Executive
Chief Executive’s Report
Six Nations Rugby Championships was
successfully broadcast on ITV main channel
for the second year in 2018.
The Board is proposing a full year dividend
of 7.8p, up 8% which reflects confidence in
the business and the outlook for 2018. This
is in line with ITV’s ordinary dividend policy.
The business remains highly cash generative
but given that there is now a more normal
ordinary dividend, five consecutive special
dividends, leverage around 1x and a strategic
refresh underway, the Board has decided
not to pay a special dividend for 2017.
ITV is in good shape but we recognise that
the media landscape continues to change
rapidly, with more content to watch and
more ways to watch it. The economics
are also changing. We are operating in
an increasingly competitive market –
traditional broadcasters are no longer our
only competitors for viewers, for advertising
and for quality content. These relatively
‘new’ competitors are also customers.
We have kicked off a strategy refresh to
address all of these areas and we have
identified three major areas in this refresh –
content, advertising and direct to consumer.
We will have a clear strategy, together with
well-defined priorities, to establish what ITV
needs to be in three and five years’ time and
what we need to do to face the challenges
and exploit the opportunities ahead.
ITV has a strong consumer proposition
and fantastic content which drives mass
audiences and key demographics which are
so valuable to advertisers. It also has the
potential to do more targeted advertising.
Live television remains the preferred way
of watching content, even for younger
audiences. And it gives immediate scale,
reach and fame for advertisers that just
cannot be achieved anywhere else. It also
provides a safe, trusted and transparent
environment in which to advertise and
generates the highest return on investment
of any media. Recent research by Ebiquity,
found that for every pound spent, TV
generates over £4 of profit compared to
just over £2 for online video and less than
£1 for online display.
While online advertising continues to grow,
advertisers are challenging its effectiveness
and what it actually delivers – we are now
starting to see many more questions being
asked about unacceptable content,
measurability and trust in online media.
Trauma was a three-part drama broadcast on
ITV main channel in February 2018 and produced
by Tall Story Pictures, part of ITV Studios UK.
15
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Chief Executive’s Report continued
Netflix and Amazon are important buyers
of our content – this year, Netflix will
become the biggest customer of Global
Entertainment, our distribution business.
And the focus isn’t just on drama, they also
want unscripted content in the US.
And ITV Studios is an international
production business of scale, with total
revenues of over £1.5bn – 54% of which
was generated outside the UK – and is
active in 11 countries with a library of over
45,000 hours. We have strong relationships
through our global production and
distribution network and sell content
to over 200 channels globally.
The ITV Hub delivers a high quality, trusted
and measured environment for advertisers.
It also allows us to build direct to consumer
relationships around our great content and
programme brands – something we are
just at the start of – but already we have
75% of all 16 to 34 year olds registered.
And through voting and competitions within
our programmes, we had over 100 million
interactions last year.
Creating and owning quality content is
a real advantage. The integrated producer
broadcaster model is also a benefit – we have
a great opportunity to make content famous
on our channels in the UK before selling it
round the world. Not only does our success
on-screen and online depend on having
fantastic content, but the global demand
for high quality programming remains strong
as broadcasters and platform owners look
for brand defining content.
Emmerdale performed strongly in 2017, with
an average of 6.5 million viewers and a 33% share,
this was its highest share in four years.
16
ITV plc Annual Report and Accounts 2017
Dancing on Ice returned to ITV in January 2018
after a four-year break for its tenth series. It has
been recommissioned for an 11th series.
An Hour to Catch a Killer Trevor McDonald
presented this one-off documentary as part of
ITV’s Crime and Punishment season broadcast
on the main channel in 2017.
Chief Executive’s Report
We have had a great start to 2018.
Viewing has been very strong with a
schedule including the return of Dancing
On Ice, The Voice, Vera, Endeavour, Trauma,
Six Nations rugby, record viewing for our
key daytime shows and the sixth episode
of Coronation Street. Our family share of
viewing, so far, is up 7% and total viewing
volumes are actually up too by 3% with
online viewing up 22%. And we have a great
schedule to come for the rest of the year
including the FIFA World Cup in June,
Vanity Fair, Clean Break, White Dragon,
Britain’s Got Talent and Little Big Shots.
ITV Studios’ has a great pipeline of new
and returning shows including Unforgotten,
Vanity Fair, Survival of the Fittest and I’m
A Celebrity…Get Me Out Of Here! for ITV,
Poldark, Bodyguard and Shetland for BBC,
Living the Dream for Sky and internationally
Love Island, The Voice, The Chase, Big Star’s
Little Star, Snowpiercer and Good Witch.
We have already secured over 60% of our
expected revenue for 2018, about £100
million more than this time last year and
expect to deliver good organic revenue
growth in ITV Studios over the full year.
While the economic outlook remains
uncertain, we expect ITV Family NAR to
be positive in the first half with Q1 up 1% –
a continuation of the improvement we saw
towards the end of 2017. In 2018 we expect
online to show double digit revenue growth.
We have kicked off our strategic refresh
and when we report to you at the interims
we will be able to give you an update and
some of the key headlines. In the meantime,
we remain very focused on the business.
There is a lot to do and the energy and
commitment of ITV people both creatively
and commercially will help us deliver all
of this.
We have a solid foundation to build on and
a strong balance sheet and healthy cash
flows gives ITV the flexibility to make the
right strategic decisions for the long term
future of ITV in an increasingly competitive
environment whilst still delivering
sustainable returns to shareholders.
Carolyn McCall
Chief Executive
17
Strategic ReportGovernanceFinancial StatementsAdditional information
Strategic Report
Our Strategy
and Business
Model
We are focused on being an owner, producer,
distributor and broadcaster of content.
We are currently undertaking a strategic
refresh to ensure that ITV has a clear
strategy and well-defined priorities to
establish what ITV needs to be in three
and five years’ time.
Our strategy has
been to diversify and
grow the business,
reducing our reliance
on UK advertising:
Broadcast & Online
Building our free-to-air,
online and pay business
ITV Studios
Growing an international
content and distribution
business
Our sources of
competitive advantage
Delivering unrivalled commercial
audiences
The scale of our channels and the significant
investment we make in quality content give
ITV unique scale and reach across the key
demographics on our main channel and more
targeted audiences on our family of channels
and the ITV Hub.
>60%
Our channels reach over
60% of the UK population
each week
World-class content
At the core of ITV is our focus on creativity and
content, whether selling our 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.
45,000+
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, trusted
brand and culture
Our talented
commercial and
creative people
18
ITV plc Annual Report and Accounts 2017
Our strategy and business model
Our diversified
revenue streams
Creating
value for…
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 ability to deliver both mass audiences and more
targeted demographics to advertisers, this 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
We earn pay revenues from platforms in the UK primarily by licensing
our HD channels and our online VOD services. In March 2017, we
launched a joint venture with the BBC, BritBox US, a SVOD service
offering the best of British television. The service launched in Canada
in February 2018. We also monetise our consumer interaction with
our biggest shows through competitions and voting. Going forward
we need to ensure we are paid the appropriate value for our content
on all platforms.
Original production
We produce original content commissions for broadcasters and platform
owners internationally from our production bases in the UK, the US,
the Netherlands, Germany, France, Italy, Australia and the Nordics.
Distribution revenues
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 spot television advertising
Advertisers
Through delivering unique
scale and breadth of demographics
and new innovative ways of engaging
with consumers around quality
programme brands
Audiences
Through a varied, high-quality
programming schedule, which they
can watch and engage with on a variety
of platforms
Broadcasters
and platform owners
Through delivering quality programming
that they can then monetise through
their own business models
Shareholders
Through a track record of creating
shareholder value and delivering
significant shareholder returns
Our people
Through investing in and developing
our talent and creating a culture that
nurtures them to become both commercial
and creative
19
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Corporate
Responsibility
Building a responsible business that
benefits all stakeholders.
Diversity at ITV
Gender split – at 31 December 20171
Board of Directors2
6
66.7%
Senior management3
89
57.1%
All employees
3,024
47.3%
3
33.3%
67
42.9%
3,366
52.7%
ITV will be publishing its first gender
pay gap report in line with new reporting
requirements. The report will be
published separately and available online.
We want to continue to build a successful, creative, commercial and global
organisation. We believe that conducting our business in a responsible way
has a fundamental role in achieving this goal.
As the largest commercial broadcaster in the UK and a growing international business,
we reach millions of people on a daily basis through our programmes and channels.
We are woven into the fabric of society, both mirroring and shaping popular culture.
As well as complying with our legislative and regulatory requirements, we believe in
using the power of our content to make a difference in society for our viewers, our people
and our communities. To help shape our corporate responsibility (CR) strategy, we engage
with our stakeholders to identify the issues most important to them and our business.
Our approach
Our 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. These three pillars are underpinned by core responsible business practices
such as good governance, business ethics, data protection, responsibility of content and
performance management.
Priority
Leveraging
our reach
Leveraging
our people
Responsible business
day-to-day
How we work
with others
1. Employee gender split is based on total headcount
at 31 December 2017.
People
2. With the arrival of Carolyn McCall in January 2018,
the Board of Directors gender split is now 60% male,
40% female.
3. 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.
Planet
Inclusive
programming
To ensure our
programmes
portray the
diversity of modern
society by the
people on-screen
and the editorial
content.
Greener
programming
To ensure our
programmes
communicate
responsible
environmental
messaging through
the editorial
content, directly
or indirectly.
Inclusive
workforce
To ensure our
workforce reflects
the diverse
make-up of
modern society.
Greener
workforce
To build the
awareness and
capacity of our
workforce to
have a positive
impact on the
environment.
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.
Greener footprint
To minimise
our direct
environmental
footprint of energy,
water and waste
in our operations.
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 partners
To work with
our value chain
to encourage
environmentally
responsible
standards and
behaviours.
Partnerships Empowering
charities and
causes
To use our mass
audience reach
and influence to
raise awareness
or donations
for national and
international
causes.
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.
Responsible business
To embed responsible business practices at the heart of everything we do, including good
governance, business ethics and stakeholder engagement, and to strive for continual improvements.
20
ITV plc Annual Report and Accounts 2017
Corporate responsibility
People
We strive to ensure diversity in our
on-screen programming and in our
workforce, ensuring that we’re relevant
and accessible to all. Our people are the
driving force of ITV. We run our business
in a way that nurtures an engaged
and inclusive workforce. This means
attracting people from all backgrounds
to work at and with ITV, enabling
everyone to be their best at work.
Planet
Our aim is to increase awareness of
environmental sustainability through
our programmes while minimising the
environmental impact of our operations.
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.
Partnerships
We believe partnerships mean
collaborating with others to make
a positive contribution to society.
Every week, our programmes reach over
60% of the UK population. As a producer
broadcaster, our biggest impact is
the influence our content has on the
thoughts and actions of our viewers.
We recognise the opportunity this
presents to reflect modern society, shape
conversations and encourage action on
the things that matter. Our on-screen
social cause strategy is focused on health
and wellbeing, to inspire, engage and
empower people to make a difference
to their own and other people’s health.
ITV’s Employee Network Groups
Active networks like ITV Ambassadors,
ITV Pride and The Women’s Network help
connect colleagues and help identify
ways to make ITV an even more inclusive
place to work. In 2017 we launched two
new networks; ITV Balance for working
parents, grandparents and carers, and ITV
Embrace, the Black, Asian and Minority
Ethnic network.
Low emission vehicles
Improving the environmental impact of
our operations is an important focus at
ITV. In 2017, our ITV Daytime team, who
look after Good Morning Britain, Lorraine,
This Morning and Loose Women, bought
a range of Plug-in Hybrid Electric vehicles
to replace older diesel models. These
vehicles each drive about 40,000 miles
a year to broadcast footage from outside
the studio. Not only do the new vehicles
save fuel and money, they are technically
more advanced, and so transmit better
quality footage.
1 million minutes
In the UK more than one million older
people are chronically lonely, and
Christmas is one of the loneliest times.
That’s why, in December 2017, Good
Morning Britain repeated it’s award-
winning campaign, 1 Million Minutes,
asking viewers to pledge just 30 minutes
of their time to support an older person.
Partnering with a number of charities,
the campaign was promoted on-air in
the UK and abroad, including Austria,
Australia, Canada and South Africa.
The response from viewers was amazing,
with over 22.7 million minutes pledged
during the month of the campaign, which
makes a real difference to so many lives.
Further information
More information on our responsibility
initiatives can be found online.
itvplc.com/responsibility
21
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Operating and
Performance Review
ITV has delivered a good performance
in 2017 as we continue to rebalance
and strengthen the business creatively
and commercially.
Victoria averaged 6.4 million
viewers and a 25% share for its second
series. It has been recommissioned
for a third series in the UK and has
been sold to over 150 countries.
22
ITV plc Annual Report and Accounts 2017
Key highlights
NAR revenue
£1,591m
(2016: £1,672m)
Total non-NAR revenue
£2,066m
(2016: £1,855m)
Group external revenue
£3,132m
(2016: £3,064m)
Adjusted EBITA
£842m
(2016: £885m)
Adjusted EPS
16.0p
(2016: 17.0p)
Statutory EPS
10.2p
(2016: 11.2p)
Net debt
£912m
(2016: £637m)
Dividend per share (ordinary)
7.8p
(2016: 7.2p)
Operating and Performance Review
Statutory profit before tax declined by
10% to £500 million (2016: £553 million)
and statutory EPS declined by 9% to
10.2p primarily due to the decline in earnings
and higher amortisation and impairment
of acquired assets, which is explained in
more detail in the Finance Review.
We have a strong balance sheet and
the business continues to be highly cash
generative. Our profit to cash conversion
remains high at 91% and we ended the
year with net debt of £912 million (2016:
£637 million) after the effect of acquisitions
and investments of £95 million, dividend
payments of £494 million and pension
contributions of £80 million.
The Board has proposed an ordinary
dividend of 7.8p, an increase of 8%,
reflecting our confidence in the underlying
strength of the business and the outlook
for 2018. This is in line with the Board’s
commitment to a long-term sustainable
dividend policy and for ordinary dividends to
grow broadly in line with earnings, targeting
dividend cover of around 2x adjusted
earnings per share over the medium term.
We remain focused on being a creator,
owner, distributor and broadcaster of
content and in 2017 we continued to deliver
on our strategy to diversify the business and
grow new revenue streams, further reducing
our reliance on UK spot advertising and
making ITV a stronger and more resilient
business. We continue to build our free-to-
air, online and pay businesses through
Broadcast & Online and are further growing
our international content and distribution
business, ITV Studios. We are currently
undertaking a strategic refresh to ensure
we have a clear strategy and well-defined
priorities which reflect what ITV needs to
be in three and five years’ time.
23
ITV has delivered a strong operational
performance in a challenging year
with ongoing economic and political
uncertainty in the UK. ITV took action
early to reduce overhead costs but the
uncertainty has undoubtedly had an
impact on the demand for television
advertising and therefore as expected
ITV’s financial performance.
We set ourselves challenging objectives to
grow our on-screen and online viewing and
deliver good growth in non-NAR. And ITV
has delivered on these as we have continued
to rebalance and strengthen the business
creatively and commercially. On-screen, our
share of viewing was up for the second year,
up 2%, the ITV Hub continues to deliver
strong viewing, up 39%, Online, Pay &
Interactive revenue grew 7% and total
ITV Studios revenue grew 13% including
currency benefit. We have a strong creative
pipeline of high-quality programmes,
particularly drama and entertainment,
and we continue to perform well across
the key genres that return and travel.
We measure performance through a
range of metrics, particularly through our
alternative performance measures and KPIs
as well as our statutory results, all of which
are set out later in the report.
External revenue was up 2% to £3,132 million
(2016: £3,064 million), with 11% growth in
non-NAR more than offsetting the decline
in NAR, a clear indication that our strategy
of rebalancing the business is working. 56%
of total revenues came from sources other
than spot television advertising (non-NAR).
Adjusted EBITA declined 5% to £842 million
(2016: £885 million) and adjusted EPS
declined 6% to 16.0p (2016: 17.0p) impacted
by a 5% decline in NAR and the ongoing
investment across the business and the
fact that the prior year includes the full
£37 million revenue and profit benefit of the
four year licence deal for The Voice of China.
We did however benefit from the delivery
of £29 million of overhead cost savings and
£25 million lower schedule costs. Broadcast
& Online adjusted EBITA declined 7% and
ITV Studios adjusted EBITA was flat.
The Voice Kids launched in the UK in 2017.
It has been recommissioned for a second series.
The format has been sold to 35 countries.
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Operating and Performance Review continued
Broadcast & Online
The media environment in which we
operate is constantly changing. Our Broadcast
& Online business is robust and evolving
to take advantage of the significant
opportunities for growth.
ITV through its free-to-air channels offers
unique audience scale and reach as well
as the key demographics demanded by
advertisers. The ITV Hub, the digital home
for all our channels and content, is growing
rapidly, driven by viewers’ appetite for catch
up and VOD and the quality of our content.
We continue to explore and trial new ways,
both free and pay, to distribute content to
broadcasters and platform owners as well
as directly to consumers.
Financial performance
Broadcast & Online total revenue was
down 3% in the year at £2,075 million (2016:
£2,132 million). We delivered 7% growth in
Online, Pay & Interactive, driven by double-
digit growth in online advertising, but this
was offset by the 5% decline in NAR. Including
sponsorship, VOD and self-promotion,
ITV total advertising was down 3%.
Advertising categories such as Retail, Finance
and Food continued to see declines due
to the uncertain economic outlook, along
with the weaker pound causing inflationary
pressures, leading advertisers to reduce
spend in order to maintain margins. Within
Retail, spending has been mixed: the high
street was weak while supermarkets
increased their spend and some of the
FMCGs returned to spend in the second half
of 2017. Entertainment & Leisure was down,
impacted by tough comparatives from the
European Football Championship in 2016.
Cars and Telecommunications increased
their spend around product launches and
digital brands continue to spend heavily
on television to build brand awareness.
Total costs were down as the cost savings
and lower schedule costs offset the increased
investment on the ITV Hub, ITV Hub+ and ITV
Box Office (our pay-per-view channel used
to show boxing matches).
Overall Broadcast & Online adjusted EBITA
declined 7% to £599 million (2016: £642
million) which has led to a one percentage
point reduction in the adjusted EBITA margin
to 29% (2016: 30%).
Viewing
On-screen we performed strongly with
viewing up for the second consecutive year.
We increased our spend on entertainment
but sports costs were lower as a result of
there being no major sports tournament
in 2017.
ITV Family SOV grew 2% with a strong
performance across the schedule. This level
of growth is the second biggest in ITV’s
recent history and never before has ITV
delivered two years of consecutive growth.
Daytime shows including Good Morning
Britain, This Morning and The Chase grew
their audiences and Coronation Street
and Emmerdale continue to perform well
and are now the UK’s two largest soaps.
We launched the sixth weekly episode
of Coronation Street in September, which
has further strengthened its performance.
We successfully aired a range of new dramas
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
2017
£m
1,591
248
70
166
484
2,075
(1,025)
(451)
599
29%
2016
£m
1,672
231
67
162
460
2,132
(1,050)
(440)
642
30%
Change
£m
(81)
17
3
4
24
(57)
25
(11)
(43)
Change
%
(5)
7
4
2
5
(3)
(2)
3
(7)
24
ITV plc Annual Report and Accounts 2017
Good Karma Hospital was the third most
watched drama on ITV in 2017, averaging
6.9 million viewers and a 26% share. It has been
recommissioned for a second series in 2018.
Operating and Performance Review
Diana, Our Mother: Her Life & Legacy was
ITV’s highest rated factual in over 14 years. It had
9.4 million viewers and a 36% share.
Unforgotten returned to ITV for its second
series. It is produced by Mainstreet Pictures, part
of ITV Studios UK. It averaged 6.1 million viewers
and has been recommissioned for a third series
in 2018.
Long-form video requests were up 34%
and online viewing consumption, which
measures how long viewers are spending
online, was up 39%. The ITV Hub has now
been the fastest-growing public service
broadcaster online service for the last three
years driven by the good user experience
and great content and now has 21 million
registered users.
The ITV Hub helps ITV reach valuable younger
audiences – 75% of the UK’s 16–24 year olds
are registered together with 65% of the UK’s
16–34 year olds. Younger viewers increasingly
use the ITV Hub for simulcast viewing, as
well as catch up, with programmes such as
Love Island delivering record viewing with
1.3 million simulcast requests for the final.
We are using the insight we gain from our
registered users to develop more targeted
advertising solutions and to increasingly drive
viewing through personalisation. In the year,
we launched personalised ITV Hub home
pages for our audiences and have introduced
data-driven recommendations and mobile
notifications to registered users.
25
including Liar, Good Karma Hospital,
Fearless, Bancroft and Little Boy Blue and
new entertainment shows, The Voice, The
Voice Kids, The Keith and Paddy Picture
Show and Five Gold Rings, as well as new
sitcom Bad Move. We continued to drive
significant audiences with our returning
brands such as Broadchurch – which was
the most watched drama in the year – Vera,
Unforgotten, Victoria, Cold Feet, Ant & Dec’s
Saturday Night Takeaway, I’m A Celebrity…
Get Me Out Of Here! and Britain’s Got Talent.
Our news programming continues to
perform well with highlights including our
General Election coverage, as does our
sporting schedule with the Six Nations
Rugby Championships and the launch of
horse racing on ITV. Some of our schedule
did not perform as well as we had hoped,
for example The Nightly Show, Fearless and
Bigheads, so will not return in 2018.
We continue to target the hard to reach
demographics demanded by advertisers –
particularly young and male audiences –
through our digital channels and online,
and have seen a significant increase in
our target demographics on ITV2 and ITV4.
Our 16–34s share of commercial impacts
(SOCI) on ITV2 was up 17% helped by the
phenomenal success of Love Island as well
as Celebrity Juice, Family Guy and American
Dad. Male SOCI on ITV4 was up 12% helped
by ITV’s horse racing coverage, The French
Open and the Isle of Man TT Races. ITV3’s
viewing performance improved in the year
due to the strong performance of dramas
such as Midsomer Murders, Lewis and
Endeavour. ABC1 adults SOCI on ITV3 was
up 1% making it the most popular digital
channel for this demographic.
ITV Hub
The ITV Hub, which is now available on
29 platforms, continues to grow rapidly,
driven by viewing on mobile and connected
televisions. The ITV Hub is now pre-installed
on around 90% of all connected televisions
sold in the UK and launched on Apple TV,
Apple’s new TV app and Microsoft XBox
in 2018.
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Operating and Performance Review continued
ITV commercial audiences
0
0
1
6
9
9
5 9
9
8
3 9
9
9
9
5
9
9
9
6
9
2017
96%
99%
13
14
15
16
17
Over 3 million
Over 5 million
Horse Racing moved to ITV from Channel 4
in 2017 with races broadcast across ITV main
channel and ITV4 during the year.
Strong advertising proposition
While political and economic uncertainty
has led advertisers to reduce their current
spend, television remains one of the
most efficient and effective mediums for
advertisers to achieve mass simultaneous
reach. As viewing and advertising becomes
more fragmented, the scale of advertising
that television, and particularly ITV, delivers
becomes increasingly valuable.
ITV’s unique ability to deliver mass
audiences, as well as more targeted
demographics across the family of channels,
has enabled us to again increase our share
of the television advertising market (SOB) to
47.6% from 47.4%. ITV delivered 99% of all
commercial audiences over five million and
96% of all commercial 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 aims to maximise further the value of
its airtime and drive new revenue streams
through sponsorship, interactivity and
branded extensions. 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.
As a result, ITV’s ‘Other commercial income’
increased by 2%, with new sponsorship
around ITV horse racing and The Voice,
offset by a reduction in third-party airtime
sales commission and revenue primarily
from UTV following ITV’s acquisition in
February 2016 and successful integration
of the business.
Digital advertising is growing rapidly and
we have seen double-digit growth in our
VOD advertising revenues on the ITV Hub,
which delivers more targeted demographics
and a high-quality, trusted and measured
environment for online advertisers.
In 2017, ITV announced a trial for addressable
advertising with Sorenson on connected
Smart televisions. We have also launched
a trial of a self-service portal so that any
business, however small, can easily access
advertising on ITV.
Remain responsive to a changing
media environment
Linear television viewing remains resilient
despite significant changes in the availability
and delivery of content. On average viewers
watched 203 minutes of television a day in
2017. This is lower than 212 minutes in 2016
and partly is due to there being no major
sports tournament in 2017. The majority
of viewing remains live at over 75% as
television continues to have the power
to bring audiences together. VOD viewing
continues to grow rapidly while PVR (recorded)
viewing has remained relatively constant
over the last few years at around 13%.
Younger viewers are watching less linear
television than they used to, but through
delivering great content such as The Voice,
Britain’s Got Talent, Saturday Night Takeaway
and Love Island, television reaches around
90% of young people each week and
remains their dominant choice of media.
Developing ITV’s digital
broadcast assets
We are further developing our social media
assets across our international portfolio of
programmes as live television continues to
demonstrate a growing relevance as viewers
increasingly connect and engage through
social media. We now have over 160 YouTube
branded channels and had around 20 owned
and operated programme apps across the
year which, together with our quality content,
is driving significant growth in viewer
engagement. Our programmes generated
over 100 million interactions in 2017.
26
ITV plc Annual Report and Accounts 2017
Operating and Performance Review
We are continuing to develop the ITV Hub+,
our ad-free subscription version of the ITV
Hub, which while relatively small, tripled
its subscribers in the year. We have extended
the service across all platforms so subscribers
can now watch on mobile, PC and connected
televisions and launched it on Amazon.
Over the last few years we have also
established a number of smaller pay
propositions. We own a majority stake
in Cirkus, a best of British SVOD service
in the Nordics and Germany. We also have
a general entertainment channel, ITV
Choice, for emerging markets available
in over 100 countries.
We are trialling ITV Box Office, a direct
to consumer pay per view offering which
currently focuses on boxing and we have
a number of live events based around our
key brands, which build relationships directly
with our viewers. For example, we have
the Emmerdale Studios Experience, which
showcases the process of creating an
episode of the soap, and This Morning Live,
a shopping and lifestyle festival.
ITV also continues to license its channels
and content across multiple platforms,
including our HD digital channels and
catch-up VOD on Sky and Virgin Media set
top boxes and all our live channels and catch
up VOD across their connected platforms.
We announced that ITV Encore will close
as an exclusive Sky channel in 2018 which
allows ITV to distribute box sets more widely
across multiple platforms. The closure
of Encore will impact ITV’s pay revenues
in 2018.
SDN
SDN generates revenue by licensing capacity
to broadcast channels, radio stations and
data providers on digital terrestrial
television or Freeview. It holds a licence
with capacity for 16 broadcast channels,
including ITV services and third-party
channels. SDN external revenue grew
4% driven by the full year impact of the
16th stream, which was launched in 2016.
27
Saturday Night Takeaway returned for
its 14th series in 2017 and averaged 7.9 million
viewers and a 37% share across the series returns
for a 15th series in 2018.
Building our pay offering in the UK
and internationally
As a creator, owner and distributor of sought
after content, ITV is well positioned to take
advantage of the opportunities that arise
from the changes we are seeing in digital
media and consumer behaviour. We must
ensure that however our content is viewed
and on whatever platform it is viewed on,
we are paid the appropriate value for it.
As we look to build our pay offerings, we are
developing SVOD services to target direct
to consumer pay revenues. In March 2017,
we launched our US joint venture with the
BBC, BritBox, (with AMC Networks taking
a minority share), an ad-free SVOD service
offering the most comprehensive collection
of British content in the US. A version of the
service also launched in Canada in February
2018 and we now have over 250,000
subscribers in total. In 2018, we will explore
opportunities for BritBox on other platforms,
include original commissions, and look to
roll it out further internationally.
Our pay
offerings
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Operating and Performance Review continued
ITV Studios
Growing an international content business
has been central to ITV’s strategy as
an integrated producer broadcaster.
As ITV creates and owns more content,
our channels in the UK provide a platform
to showcase our programmes before
distributing them across multiple platforms
in the UK and internationally.
Growing demand for content
The strong global demand for content from
broadcasters and platform owners provides
significant opportunity for ITV Studios.
We estimate that the global content
market is growing at around 5% per annum,
with some genres, such as drama, growing
more rapidly. To capitalise on this growth,
we continue to develop, own and manage
rights in genres that return and travel
internationally, namely drama, entertainment
and factual entertainment, and we have
built a healthy pipeline of new and
returning programmes.
Financial performance
ITV Studios is now a global producer
of scale and total revenues grew 13%
to £1,582 million (2016: £1,395 million)
including currency benefit, with growth
across the business as we continue to
build our capability in key creative markets.
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
* Includes the benefit of production tax credits.
Twelve months to 31 December
Sales from ITV Studios to Broadcast & Online
External revenue
Total Studios revenue
Total organic revenue, which excludes
our current year acquisitions and foreign
exchange, was up 7% and acquisitions
continue to deliver with a 13% return
on investment in 2017.
Reflecting our growth in key production
markets in Europe and the US, 54% of ITV
total revenue was generated outside the
UK (2016: 50%). ITV is the number one
commercial producer in the UK and a leading
producer in Europe and the US. As our
Studios business grows internationally,
foreign currency movements have an
increasing impact on our results.
2017
£m
692
313
390
187
1,582
(1,339)
243
15%
2017
£m
523
1,059
1,582
2016
£m
626
235
355
179
1,395
(1,152)
243
17%
2016
£m
463
932
1,395
Change
£m
66
78
35
8
187
(187)
–
Change
£m
60
127
187
Change
%
11
33
10
4
13
16
–
Change
%
13
14
13
In 2017, the foreign currency benefit was
£43 million on revenue and £7 million on
adjusted EBITA.
Adjusted EBITA was flat year-on year at
£243 million. There was good underlying
profit growth but adjusted EBITA was
impacted by our ongoing investment in
US drama and the fact that the prior year
includes the full £37 million benefit of the
four year licence deal for The Voice of China.
Adjusted EBITA margin declined by two
percentage points to 15%, impacted by
revenue mix on new and returning shows.
Profilage is a French
crime drama produced
by Tetra Media Studio,
which was acquired by
ITV Studios in 2017.
Profilage is in its eighth
season and is
broadcast on TF1.
28
ITV plc Annual Report and Accounts 2017
Operating and Performance Review
Big Star’s Little Star is a UK primetime
entertainment format produced by ITV Studios.
The format has been sold to 14 countries.
Key new and returning
scripted programmes
29
Building scale in key creative markets
ITV Studios has three production divisions
– Studios UK, ITV America and Studios Rest
of World (RoW). Across these divisions, ITV
produced over 8,400 hours of programming,
compared to 7,800 in 2016 and secured 240
recommissions and 239 new commissions
in the year.
The US and the UK are the dominant
creative markets, with the US the largest
exporter of scripted content and the UK the
world leader in exported formats. Over the
last few years we have built scale in these
key markets, both organically and through
acquisitions, and we now have a significant
portfolio of successful series and formats
that travel.
The UK performed well with total revenue
up 11% at £692 million (2016: £626 million).
We continue to grow our sales to ITV, which
were up 13% with deliveries including The
Voice, The Voice Kids, Love Island, Next of
Kin, Bancroft, Fearless, Unforgotten, Little
Boy Blue and an extra episode of Coronation
Street. We have again grown ITV Studios
UK share of original content on ITV main
channel from 63% to 66%. Our off-ITV
revenues grew 10% with deliveries including
The City And The City, Shetland, Moorside
and Motherland for BBC, Back for Channel 4,
Blind Date for Channel 5 and Living the
Dream for Sky. We strengthened our UK
drama business with the acquisition in April
of a majority stake in World Productions,
the producer of Line of Duty, and our
entertainment business with an investment
in start-up Koska in October.
ITV America total revenue grew 33% to
£313 million (2016: £235 million) including
foreign exchange. We delivered five drama
commissions – the third series of the
Good Witch for Hallmark which has been
commissioned for a fourth series, Sun Records
for CMT, Somewhere Between for ABC and
two pilots for TNT, Highland and Snowpiecer,
which has been commissioned for a ten-part
series. We have also delivered a high volume
of programmes from our entertainment
portfolio including two series of Hell’s
Kitchen, Pawn Stars, Alone, Forged in Fire
and First 48 and new commissions including
Sideserf, World Hip Hop Star and Big Star’s
Little Star.
Studios RoW has production bases in
Australia, Germany, France, the Netherlands,
the Nordics and Italy where we produce
original content as well as local versions of
ITV Studios UK and Talpa formats. Revenue
grew 10% to £390 million (2016: £355 million)
including foreign exchange, driven particularly
by good growth in Australia, France and
the Nordics. Across the territories, our
entertainment and format deliveries
included The Voice in Australia and
Germany, The Chase in Australia and
Germany, and Love Island in Germany.
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Operating and Performance Review continued
Talpa continues to develop its formats
including The Voice Senior, A Year To
Remember, I Love My Country, A Whole
New Beginning and Around The World With
80 Year Olds. Our international scale now
enables ITV to make The Voice and these
other formats in all our international
production territories and therefore earn the
production revenue as well as the format fee.
Some of our content will not be
recommissioned in 2018 as they have
not performed as expected, for example
The Loch and Sun Records.
We are making real progress in building
a European scripted business. In February
2017, ITV acquired a majority stake in Tetra
Media Studio, a French scripted production
company, and in October ITV acquired
a majority stake in Cattleya, the Italian
scripted production company behind
Gomorrah and Suburra. We also took a stake
in a Danish scripted producer Apple Tree
Productions in December. These, along with
our existing European drama businesses,
will enable us to benefit from the increasing
demand for locally produced content with
global appeal.
Marriage Boot Camp is a US reality
entertainment format produced by ThinkFactory
Media which is part of ITV America, and is now in
its 11th season.
Poldark is produced by Mammoth Screen
(part of ITV Studios UK) for the BBC. It has been
recommissioned for a fourth season in 2018 and
has been sold to over 150 countries.
We have further strengthened our
international business with a number
of other small investments. In April,
we acquired a 45% stake in Blumhouse
Television, established by Jason Blum,
the renowned film and television producer,
which finances and produces original
scripted and unscripted ‘dark’ genre
programming for global audiences including
The Jinx and Cold Case Files. In May we
entered into a joint venture with the US
talent agent and production company,
Circle of Confusion, and in June we acquired
Elk Production, a Swedish entertainment
production company.
Investing in content with
international appeal
We have continued to expand our portfolio
of successful formats and series that return
and can be distributed internationally.
With the acquisition of Talpa Media in 2015,
we have significantly strengthened our
global capability in entertainment formats.
Across the business, we have grown a solid
portfolio of high volume and high margin
formats that travel internationally and that
we produce locally. For example, during 2017
we produced The Voice in five countries
and The Voice Kids and Four Weddings in
four countries.
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 investing
in our global scripted business, particularly
in the US, to build on the success of our
UK drama business. We are strengthening
our development and creative capabilities
internally and have invested in a number
of development relationships. In 2017,
we increased our investment in drama
across the business, investing £243 million
(2016: £160 million).
We finance our large-scale scripted projects
through our strong underlying cash flows
or through co-productions and partnerships
with broadcasters and OTT platforms.
The production costs are 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.
30
ITV plc Annual Report and Accounts 2017
Operating and Performance Review
5 Gold Rings is a new entertainment format
co-produced by Talpa Media and Possessed (part
of ITV Studios UK). It was broadcast in the UK in
2017 and will return for a second series in 2018.
The format was sold to four countries in 2017.
We balance our financial exposure through
building a portfolio of programmes across
genres and across their content life cycle,
with successful international dramas
offsetting the risk that we will not recover
the full deficit on every show.
We are seeing increasing demand from OTT
platforms for original long-form content
and secondary rights. As well as distributing
library content to OTT platforms through
Global Entertainment, we are also
producing and jointly commissioning
a number of scripted and unscripted
programmes with OTT platforms including
Vanity Fair with Amazon, Robozuna, and
Queer Eye for the Straight Guy for Netflix,
Harlots for Hulu and we are in development
with a number of shows for Facebook.
Expanding our global
distribution business
Global Entertainment, the distribution
arm within ITV Studios, delivered revenue
growth of 4% to £187 million (2016: £179
million) as we continue to drive value from
our investment in creating and owning the
rights to quality content with international
appeal. As well as funding and creating new
content from ITV Studios, we also invest in
third-party producers and their content
from all over the world. Global
Entertainment’s pipeline of new projects is
strengthening with projects such as Vanity
Fair, The City And The City and World On Fire
expected for 2018.
Our content continues to sell well
internationally to broadcasters and OTT
platforms and in particular, our scripted
programmes with titles including Victoria,
Poldark, Vera, Good Witch, The Murdoch
Mysteries, Schitts Creek, The Loch, Fearless
and Harlots. Over 15 of our scripted
programmes have been sold to more than
100 countries Our entertainment and
factual entertainment formats are highly
demanded and include programmes such
as The Voice, Love Island, The Chase, Big
Star’s Little Star, This Time Next Year, Five
Gold Rings, Come Dine With Me and Four
Weddings. In 2017, we sold 62 different
formats internationally, 17 of which are
being produced by ourselves or other
producers in three or more countries
including Love Island, Keeping the Nation
Alive and Hell’s Kitchen. We currently have
over 250 programme supply agreements
in place with online platforms including
Netflix, Amazon and Hulu.
Love Island is a UK reality entertainment
format, the third series of which was broadcast
on ITV2 in 2017. The format has been sold to six
countries including Australia and Germany.
31
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Operating and Performance Review continued
Productivity
Pictured: Behind the scenes
on Coronation Street
We consistently seek to drive
productivity across the Group by
investing in our people, new broadcast
and production technology as well as
up to date office facilities.
By investing in these areas, we aim to
transmit our content and advertisements
more efficiently, increase our production
output and the rights we own and
improve our viewer experience.
People
During the year, we continued to invest in our people, rolling out a new conversation
based performance management process and continuing to provide general and
more specific training for staff across the business.
We use employee engagement scores as a key measure. We will undertake our next
engagement survey in 2018. Our 2016 survey showed that ITV continues to have high
levels of engagement (90%), (see the KPIs section on pages 36 to 39 for details on how
this is measured). We always seek to recruit and promote internally where possible with
34% of vacancies in 2017 filled from within ITV.
Broadcast and content technology
One of the key initiatives in our Broadcast business is to improve our processes around
our content supply chain, which includes how we store our content and how our content
is managed and ultimately played out via our transmission centres. We have sought to
reduce the time taken from live transmission to content being available for catch up on
the ITV Hub. We are in the process of upgrading our advertising sales system and during
the year we began investigating how robotic process automation may benefit ITV in
the future.
Production facilities
September 2017 saw the launch of a sixth weekly episode of Coronation Street, which
required a significant step up in productivity and investment in expanding the production
site with new streets, as well as new equipment, sound stages and a state of the art
production control room. We refresh our regional news production facilities on a
continuous rotation basis and this year we built new facilities for our UTV licence in
Northern Ireland. During 2018, we are relocating our Daytime studios to a new state
of the art facility as part of our London property move.
We also seek to use established and emerging technology to drive productivity, where it
makes commercial sense to do so. In our Studios business, we have recently implemented
a new process and technology for script editing and management. We commenced
roll-out of a bespoke artist payment system, which has reduced duplication across the
business and uses less paper. Our regional news teams are taking advantage of new
production technologies and increasingly use mobile kits that enable reporters to shoot
more efficiently and transmit high-quality live reports.
32
ITV plc Annual Report and Accounts 2017
Operating and Performance Review
Pictured: Broadchurch
33
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Alternative Performance Measures
The Annual Report includes both statutory and adjusted measures, the latter of which, in management’s view, reflect the
underlying performance of the business and provide 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 business segments 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 and impairment of assets and net financing costs, are made to remove their effect from adjusted profit before
tax and EPS. The tax effects of all these adjustments are reflected in the 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 and Italy 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. Our cash measures including profit to cash conversion and free cash flow are
also adjusted for the impact of production tax credits. Further detail on this is included below.
Exceptional
items
These include acquisition-related costs, reorganisation and restructuring costs, property costs and non-routine legal
costs. 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, though they may
cross several accounting periods. 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 to lock in and incentivise 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 part of our statutory results. However, we exclude all consideration of this type from adjusted EBITA,
adjusted profit after tax and adjusted EPS as, in our view, these items are part of the capital transaction and do not form
part of the Group’s core operations. The Finance Review explains this further. Acquisition-related costs, including legal
and advisory fees on completed deals or significant deals that do not complete, are also treated as an expense (under
accounting rules) and therefore on a statutory basis form part of our reported results. In our view, these items also form
part of the capital transaction and are excluded from our adjusted measures.
Restructuring and reorganisation costs
These arise from Group-wide initiatives to reduce the ongoing cost base and improve efficiency in the business.
We consider each project individually to determine whether its size and nature warrant separate disclosure. Where there
has been a material change in the organisational structure of a business area or a material Group-wide initiative, these
costs are highlighted and are excluded from our adjusted measures.
Property costs
In 2018, ITV will relocate to various properties on a temporary basis while its headquarters are redeveloped. The fit-out
costs will be capitalised but the incremental one-off property project costs, including move costs, rental payments for
these properties and accelerated depreciation for assets made redundant due to the move, will be ring-fenced as they
relate to a one-off property project and are therefore excluded from our adjusted measures. As a ring-fenced cost,
rental payments will continue to be excluded from our adjusted measures until we move back, which is expected in 2023.
Amortisation
and
impairment
Net financing
costs
Amortisation and impairment of assets acquired through business combinations and investments are 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 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 and are not yet realised balances.
A full reconciliation between our adjusted and statutory results is provided on the following page.
34
ITV plc Annual Report and Accounts 2017
Alternative Performance Measures
Reconciliation between statutory and adjusted results
Twelve months to
31 December – on a continuing basis
EBITA1
Exceptional items (operating)2
Amortisation and impairment3
Operating profit
Net financing costs4
Share of losses on JVs and Associates
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)
Diluted EPS (p)
2017
Adjustments
£m
32
153
97
282
17
–
1
300
(67)
233
–
–
233
–
2017
Statutory
£m
810
(153)
(102)
555
(50)
(4)
(1)
500
(87)
413
(4)
–
409
4,006
10.2p
10.2p
2017
Adjusted
£m
842
–
(5)
837
(33)
(4)
–
800
(154)
646
(4)
–
642
4,006
16.0p
16.0p
2016
Adjustments
£m
28
164
77
269
25
–
–
294
(60)
234
–
1
235
–
2016
Statutory
£m
857
(164)
(89)
604
(51)
–
–
553
(100)
453
(4)
(1)
448
4,010
11.2p
11.1p
2016
Adjusted
£m
885
–
(12)
873
(26)
–
–
847
(160)
687
(4)
–
683
4,010
17.0p
17.0p
1. £32 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 and property costs and an insured trade receivable
provision in relation to The Voice of China. Further detail is included on page 42.
3. £97 million adjustment relates to amortisation and impairment of assets acquired through business combinations and investments. We include only amortisation on purchased
intangibles such as software within adjusted PBT.
4. £17 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. A full reconciliation is included on page 43.
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 to the content.
A reconciliation between external revenue and total revenue is
provided below.
Twelve months to 31 December
External revenue (Reported)
Internal supply
Total revenue (Adjusted)
2017
£m
3,132
525
3,657
2016
£m
3,064
463
3,527
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
2017
£m
(912)
(292)
(83)
(143)
(1,430)
1.6x
1.0x
2016
£m
(637)
(328)
(328)
(344)
(1,637)
1.8x
0.7x
*
2017 excludes transponder costs, which are now treated as service contracts.
See page 128 for further detail. The comparator has not been re-presented.
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, 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.
Profit to cash conversion
This is our measure of our effectiveness of cash generation used for
working capital management. It is calculated as our adjusted cash
flow as a proportion of adjusted EBITA. Adjusted cash flow, which
reflects the cash generation of our underlying business, is calculated
on our statutory cash generated from operations before exceptional
items, net of capex on property, plant and equipment (excluding
capex relating to the redevelopment of our London headquarters)
and intangible assets, and including the cash impact of high end
production tax credits.
Free cash flow
This is our measure of free cash flow after we have met our financial
obligations. It takes our adjusted cash flow (see above) and removes
the impact of net interest, adjusted cash tax (which is total tax
paid adjusted to exclude the receipt of production tax credits) and
pension funding. A full reconciliation is included on pages 45 and 46.
35
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Key
Performance
Indicators
We have defined our KPIs to align
our performance and accountability
to our business segments and strategy.
l Adjusted EBITA
a
i
c
n
a
n
i
F
Adjusted EPS
Definition
This is the key profitability measure used across the whole business. Adjusted earnings
before interest, tax and amortisation (EBITA) is calculated by adding back exceptional items
and high end production tax credits. It 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.
Further detail on this measure is included within the Alternative Performance Measures
section, page 34.
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 after
adding back exceptional items and high end production tax credits. Further adjustments
include amortisation and impairment of assets, net financing costs and the tax effects
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.
Further detail on this measure is included within the Alternative Performance Measures
section, page 34.
Performance
In 2017, adjusted EBITA decreased by £43 million or 5%, predominantly due to a £81 million
or 5% decline in NAR. This was partially offset by growth from high margin Online, Pay &
Interactive, £25 million lower programming budget due to the absence of a major sports
tournament, delivery of £29 million of overhead savings, and foreign exchange benefit.
5
6
8
5
8
8
2
4
8
0
3
7
0
2
6
Group adjusted EBITA margin decreased by two percentage points to 27% driven by the
decline in NAR and revenue mix within ITV Studios.
Performance
Adjusted EPS decreased by 6% from 17.0p to 16.0p. This is higher than the corresponding
decrease in adjusted EBITA of 5% due to higher adjusted financing costs in the year of
£33 million (2016: £26 million).
Profit
to cash conversion
Definition
Profit to cash conversion represents the proportion of adjusted EBITA converted into a
measure of adjusted cash flow, after capex on property, plant and machinery (excluding capex
relating to the redevelopment of our London headquarters). Further detail on this measure
is included within the Alternative Performance Measures section, page 34.
This measures the effectiveness of our working capital management and capital
expenditure control.
Performance
Profit to cash remains high at 91% (2016: 97%). In the year we saw an increase in working
capital. This was due to the payment schedule for sports rights for future years and the
timing difference between the production and the final delivery and payment of scripted
and entertainment titles such as Snowpiercer, Good Witch, Vanity Fair, Poldark, Dancing on Ice
and Survival of the Fittest.
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 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.
Performance
Non-NAR revenue increased by 11% in 2017 as we continue to rebalance the business
away from a reliance on NAR. We delivered strong growth in ITV Studios total revenue
and double-digit growth in Online. Non-NAR revenues were 56% of total revenue which
has increased from 53% in 2016.
engagement
l Employee
a
i
c
n
a
n
fi
-
n
o
N
Definition
Continuing to develop a creative, commercial and global organisation requires high-quality
employees who are engaged in and motivated by the work that they do.
Performance
There was no employee engagement survey in 2017. Employee engagement for the last
survey performed in 2016 was 90% with an 80% participation rate.
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.
A full employee engagement survey is expected in 2018.
36
ITV plc Annual Report and Accounts 2017
13
14
15
16
17
2017
£842m
0
.
7
1
5
.
6
1
0
.
6
1
8
.
3
1
2
.
1
1
13
14
15
16
17
2017
16.0p
7
9
1
9
1
9
1
9
7
9
13
14
15
16
17
2017
91%
6
6
0
,
2
5
5
8
,
1
4
6
6
,
1
7
2
3
,
1
1
1
2
,
1
13
14
15
16
17
2017
£2,066m
13
14
15
16
2016
90%
Key Performance Indicators
Broadcast & Online – building
our free-to-air, online and
pay business
ITV Studios – growing an
international content and
distribution business
l Adjusted EBITA
a
Definition
This is the key profitability measure used across the whole business. Adjusted earnings
before interest, tax and amortisation (EBITA) is calculated by adding back exceptional items
and high end production tax credits. It reflects the underlying performance of the business
and provides a more meaningful comparison of how the business is managed and measured
Performance
In 2017, adjusted EBITA decreased by £43 million or 5%, predominantly due to a £81 million
or 5% decline in NAR. This was partially offset by growth from high margin Online, Pay &
Interactive, £25 million lower programming budget due to the absence of a major sports
tournament, delivery of £29 million of overhead savings, and foreign exchange benefit.
5
6
8
5
8
8
2
4
8
0
3
7
0
2
6
on a day-to-day basis.
section, page 34.
Adjusted EPS
Definition
Profit
to cash conversion
section, page 34.
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 after
adding back exceptional items and high end production tax credits. Further adjustments
include amortisation and impairment of assets, net financing costs and the tax effects
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.
Further detail on this measure is included within the Alternative Performance Measures
Profit to cash conversion represents the proportion of adjusted EBITA converted into a
measure of adjusted cash flow, after capex on property, plant and machinery (excluding capex
relating to the redevelopment of our London headquarters). Further detail on this measure
is included within the Alternative Performance Measures section, page 34.
This measures the effectiveness of our working capital management and capital
expenditure control.
Further detail on this measure is included within the Alternative Performance Measures
Group adjusted EBITA margin decreased by two percentage points to 27% driven by the
decline in NAR and revenue mix within ITV Studios.
Performance
Adjusted EPS decreased by 6% from 17.0p to 16.0p. This is higher than the corresponding
decrease in adjusted EBITA of 5% due to higher adjusted financing costs in the year of
£33 million (2016: £26 million).
Performance
Profit to cash remains high at 91% (2016: 97%). In the year we saw an increase in working
capital. This was due to the payment schedule for sports rights for future years and the
timing difference between the production and the final delivery and payment of scripted
and entertainment titles such as Snowpiercer, Good Witch, Vanity Fair, Poldark, Dancing on Ice
and Survival of the Fittest.
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 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.
Performance
Non-NAR revenue increased by 11% in 2017 as we continue to rebalance the business
away from a reliance on NAR. We delivered strong growth in ITV Studios total revenue
and double-digit growth in Online. Non-NAR revenues were 56% of total revenue which
has increased from 53% in 2016.
13
14
15
16
17
2017
£842m
.
0
7
1
.
5
6
1
.
0
6
1
.
8
3
1
.
2
1
1
13
14
15
16
17
2017
16.0p
7
9
1
9
1
9
7
9
1
9
13
14
15
16
17
2017
91%
6
6
0
2
,
5
5
8
1
,
4
6
6
1
,
7
2
3
1
,
1
1
2
1
,
13
14
15
16
17
2017
£2,066m
l Employee
a
engagement
Definition
Continuing to develop a creative, commercial and global organisation requires high-quality
employees who are engaged in and motivated by the work that they do.
Performance
There was no employee engagement survey in 2017. Employee engagement for the last
survey performed in 2016 was 90% with an 80% participation rate.
1
9
0
9
9
8
0
9
Employee engagement measures pride in the work we do, pride in working for ITV and also
A full employee engagement survey is expected in 2018.
what we say about our programmes and services.
i
c
n
a
n
i
F
i
c
n
a
n
fi
-
n
o
N
13
14
15
16
2016
90%
37
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Key Performance Indicators continued
e ITV Family
n
i
share of
l
n
O
viewing
&
t
s
a
c
d
a
o
r
B
ITV Family share of
commercial impacts
Definition
Keeping our free-to-air proposition strong and our audiences healthy is vital for the Broadcast
& Online business, and ITV Family SOV helps measure 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.
Performance
ITV Family SOV grew 2% in 2017 to 21.7%. Within this, the ITV main channel was up 1% with
strong performances from daytime, the soaps, drama and entertainment. The digital channels
were up 3% in the year mainly across ITV2 and ITV4. ITV2 viewing amongst 16–34s continues
to grow, with 16–34s SOV up 18% in the year. It remains the most popular digital channel in
the UK based on SOV and is the largest digital channel for 16–34s.
1
.
3
2
0
.
2
2
2
.
1
2
3
.
1
2
7
.
1
2
Definition
To maintain our position as a leading commercial broadcaster, we need to have strong ITV
Family 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. 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 also continues to deliver mass audiences and in 2017 delivered 99% of all commercial
audiences over five million and 96% over three million, which is unchanged from 2016.
Performance
ITV Family SOCI was broadly flat year-on-year, with ITV main channel flat and the digital
channels up 1%. ITV2 is now more targeted towards younger viewers with SOCI amongst
16–34s up 17% in the year. ITV4 is more targeted towards male viewers with Men SOCI
up 12% in the year. ITV3 is targeted to ABC1 adults with SOCI up 1% in the year for this
demographic. The move of The Great British Bake Off from BBC1 to C4 affected ITV
main channel’s SOCI performance in the year.
ITV Family share
of broadcast
Definition
ITV’s share of UK television spot advertising revenue is known as its share of broadcast (SOB).
Performance
Our SOB has always been based on our estimate of the pure spot advertising market, excluding
sponsorship, VOD and all broadcasters’ self-promotion revenues on their own channels, which
this year has seen a significant increase and therefore further distorts the external spot 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.
Total long-form
video requests
Definition
We remain focused on growing our audience share from our free-to-air broadcast
and increasingly from our VOD business as well.
We again gained share in 2017 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. This was helped by ITV’s coverage of the horse racing, which targets the male
demographic and is highly demanded by advertisers. Our SOB increased to 47.6% in the year.
4
.
5
4
9
.
5
4
1
.
6
4
4
.
7
4
6
.
7
4
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.
Definition
As we grow our international content business, 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.
i
s Number of new
o
d
u
t
S
V
T
commissions for
ITV Studios
I
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.
* ITV main channel only.
The proportion of the total spend on original commissions on ITV transmitted in the year,
delivered by ITV Studios, demonstrates this and our current aim is to increase ITV Studios supply
of programmes to ITV.
38
ITV plc Annual Report and Accounts 2017
2017
21.7%
13
14
15
16
17
3
.
8
3
2
.
6
3
9
.
4
3
4
.
4
3
5
.
4
3
13
14
15
16
17
2017
34.5%
13
14
15
16
17
2017
47.6%
8
2
8
6
2
7
7
7
5
13
14
15
16
17
2017
1,426m
6
2
4
,
1
6
6
0
,
1
9
3
2
8
2
2
6
6
1
9
4
1
1
2
1
2017
239
13
14
15
16
17
9
5
0
6
0
6
6
6
3
6
13
14
15
16
17
2017
66%
Performance
Long-form video requests were up 34% in 2017 to 1,426 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 39% in 2017.
Performance
There was strong growth in the number of new commissions for ITV Studios in 2017, up 5%
to 239. Eighty three of these new commissions came from the UK business, with the remaining
156 coming from our international businesses. In addition, there were 240 recommissions in
the year (2016: 188) with 106 from ITV Studios UK and 134 from the 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 and travel, namely drama,
entertainment and factual entertainment.
Performance
The percentage of ITV output from ITV Studios increased to 66% in 2017 driven by new
entertainment programmes in the year such as The Voice, The Voice Kids and Cannonball
as well as an extra episode of Coronation Street during 2017. Many of the ITV Studios
programmes broadcast in 2017 have now been distributed around the world including
Victoria, Cold Feet, The Chase, The Voice and I’m A Celebrity… Get Me Out Of Here!
e ITV Family
n
share of
viewing
i
l
n
O
&
t
s
a
c
d
a
o
r
B
ITV Family share of
commercial impacts
Definition
To maintain our position as a leading commercial broadcaster, we need to have strong ITV
Family 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. 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 (SOB).
Our SOB has always been based on our estimate of the pure spot advertising market, excluding
sponsorship, VOD and all broadcasters’ self-promotion revenues on their own channels, which
this year has seen a significant increase and therefore further distorts the external spot 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.
Total long-form
video requests
Definition
We remain focused on growing our audience share from our free-to-air broadcast
and increasingly from our VOD business as well.
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 Number of new
o
commissions for
ITV Studios
i
d
u
t
S
V
T
I
Definition
and internationally.
As we grow our international content business, 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
Percentage of
ITV* output from
ITV Studios
Definition
around 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
* ITV main channel only.
of programmes to ITV.
The proportion of the total spend on original commissions on ITV transmitted in the year,
delivered by ITV Studios, demonstrates this and our current aim is to increase ITV Studios supply
Definition
Keeping our free-to-air proposition strong and our audiences healthy is vital for the Broadcast
& Online business, and ITV Family SOV helps measure 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.
Performance
ITV Family SOV grew 2% in 2017 to 21.7%. Within this, the ITV main channel was up 1% with
strong performances from daytime, the soaps, drama and entertainment. The digital channels
were up 3% in the year mainly across ITV2 and ITV4. ITV2 viewing amongst 16–34s continues
to grow, with 16–34s SOV up 18% in the year. It remains the most popular digital channel in
the UK based on SOV and is the largest digital channel for 16–34s.
.
1
3
2
.
0
2
2
.
2
1
2
.
3
1
2
.
7
1
2
Key Performance Indicators
Broadcast & Online
ITV Studios
ITV also continues to deliver mass audiences and in 2017 delivered 99% of all commercial
audiences over five million and 96% over three million, which is unchanged from 2016.
Performance
ITV Family SOCI was broadly flat year-on-year, with ITV main channel flat and the digital
channels up 1%. ITV2 is now more targeted towards younger viewers with SOCI amongst
16–34s up 17% in the year. ITV4 is more targeted towards male viewers with Men SOCI
up 12% in the year. ITV3 is targeted to ABC1 adults with SOCI up 1% in the year for this
demographic. The move of The Great British Bake Off from BBC1 to C4 affected ITV
main channel’s SOCI performance in the year.
2017
21.7%
13
14
15
16
17
.
3
8
3
.
2
6
3
.
9
4
3
.
4
4
3
.
5
4
3
13
14
15
16
17
2017
34.5%
Performance
We again gained share in 2017 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. This was helped by ITV’s coverage of the horse racing, which targets the male
demographic and is highly demanded by advertisers. Our SOB increased to 47.6% in the year.
.
4
5
4
.
9
5
4
.
1
6
4
.
4
7
4
.
6
7
4
Performance
Long-form video requests were up 34% in 2017 to 1,426 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 39% in 2017.
Performance
There was strong growth in the number of new commissions for ITV Studios in 2017, up 5%
to 239. Eighty three of these new commissions came from the UK business, with the remaining
156 coming from our international businesses. In addition, there were 240 recommissions in
the year (2016: 188) with 106 from ITV Studios UK and 134 from the 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 and travel, namely drama,
entertainment and factual entertainment.
Performance
The percentage of ITV output from ITV Studios increased to 66% in 2017 driven by new
entertainment programmes in the year such as The Voice, The Voice Kids and Cannonball
as well as an extra episode of Coronation Street during 2017. Many of the ITV Studios
programmes broadcast in 2017 have now been distributed around the world including
Victoria, Cold Feet, The Chase, The Voice and I’m A Celebrity… Get Me Out Of Here!
13
14
15
16
17
2017
47.6%
6
2
4
1
,
6
6
0
1
,
8
2
8
6
2
7
7
7
5
13
14
15
16
17
2017
1,426m
9
3
2
8
2
2
6
6
1
9
4
1
1
2
1
13
14
15
16
17
9
5
0
6
0
6
6
6
3
6
2017
239
13
14
15
16
17
2017
66%
39
Strategic ReportGovernanceFinancial StatementsAdditional information
Strategic Report
Finance
Review
ITV’s strong operational performance
in a challenging year reflects
the continued benefit of rebalancing
the business.
Ian Griffiths
Chief Operating Officer
and Group Finance Director
40
ITV plc Annual Report and Accounts 2017
ITV delivered a strong operational performance in a challenging
year with ongoing economic and political uncertainty in the UK.
ITV took action early to reduce overhead costs but the continued
uncertainty has undoubtedly had an impact on the demand
for television advertising and therefore as expected, on ITV’s
financial performance.
We set ourselves challenging objectives to grow our on-screen
and online viewing and deliver good growth in non-NAR, and we
have delivered on these. On-screen, our share of viewing grew
for the second consecutive year, up 2%, online viewing was up 39%,
Online, Pay & Interactive revenues grew 7% and ITV Studios total
revenues grew 13%, including currency. In total, ITV delivered 2%
external revenue growth to £3,132 million, with the 11% increase
in non-NAR to £2,066 million more than offsetting the 5% decline
in spot advertising revenue.
2016
£m
Change
£m
Change
%
Twelve months to 31 December –
on a continuing basis
NAR
Total non-NAR
Total revenue
Internal supply
Group external revenue
2017
£m
1,591
2,066
3,657
(525)
3,132
1,672
1,855
3,527
(463)
3,064
Group adjusted EBITA
Group adjusted EBITA margin
842
27%
885
29%
(81)
211
130
(62)
68
(43)
Adjusted EPS
Statutory EPS
Dividend per share
Net debt as at 31 December
16.0p
10.2p
7.8p
(912)
17.0p
11.2p
7.2p
(637)
(1.0)p
(1.0)p
0.6p
(275)
Adjusted EBITA declined 5% to £842 million, with the £81 million
decline in NAR partly offset by £29 million overhead savings,
£25 million lower programme budget due to no major sports
tournament, growth from high margin Online, Pay & Interactive
and foreign exchange benefit. ITV Studios showed good underlying
profit growth but the comparator included £37 million benefit
of the four year licence deal for The Voice of China which was
recognised in full in accordance with accounting standards.
ITV Studios adjusted EBITA was flat at £243 million. Group adjusted
EBITA was also impacted by £15 million of investment including
in the ITV Hub, ITV Box Office and ITV Studios creative capability,
particularly in America.
(5)
11
4
13
2
(5)
(6)
(9)
8
Finance Review
Adjusted EBITA tracker
885
22
29
25
8
(81)
6
(37)
(15)
842
£m
900
850
800
750
700
2016
NAR
Network
Schedule
Online,
Pay &
Interactive
ITV
Studios
Underlying
The Voice
of China
FX &
Other
Cost
Savings
Invest-
ments
2017
Adjusted financing costs were higher year-on-year due to the bond
issue. We made a number of investments in associates, including
Blumhouse Television and Circle of Confusion and our joint venture
BritBox US, and our adjusted tax rate was the same year-on-year.
The net of these movements and the decline in NAR resulted in
a 6% decline in adjusted EPS to 16.0p. Statutory EPS was down 9%
to 10.2p due to the decline in EBITA and higher amortisation and
impairment, which is explained over the following pages.
Our key strengths include our high margins and healthy cash flows,
which, together with our ongoing focus on costs, places us in a good
position to continue to invest in growing an even stronger and more
resilient business going forward, while delivering sustainable returns
to our shareholders.
This Finance Review focuses on the more technical aspects of our
financial results while the operating and financial performance has
been discussed within the Operating and Performance Review on
pages 22 to 32.
Our Alternative Performance Measures, which are detailed on pages
34 and 35 explain the adjustments we make to our statutory results
and focus on the key measures that we report on internally and use
as KPIs across the business.
41
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Finance Review
continued
Exceptional items
Net financing costs
Twelve months to 31 December
Operating exceptional items:
Acquisition-related expenses
Restructuring and property-related costs
Insured trade receivable provision
Pension curtailment
Total operating exceptional items
Non-operating exceptional items
Total exceptional items
2017
£m
(96)
(30)
(27)
–
(153)
(1)
(154)
2016
£m
(131)
(14)
–
(19)
(164)
–
(164)
Total exceptional items in the year were £154 million (2016:
£164 million). Operating exceptional items principally relate to
acquisition-related expenses, which are mainly performance based
employment-linked consideration. Restructuring and property-
related costs of £30 million include £24 million of incremental
one-off property project costs associated with our planned London
property move in 2018, primarily related to temporary rent and
accelerated depreciation on fixtures and fittings. We will continue
to incur exceptional rental costs over the next four or five years
until we return to our headquarters at The London Television
Centre. Further details can be found later in the section.
Restructuring and property-related costs also include £6 million
of redundancy costs in relation to the closure of the London
Studios business.
The insured trade receivable provision of £27 million relates to
the unpaid portion of revenue from the four year licence deal for
The Voice of China with Talent Television and Film Co. Ltd (Talent),
the revenue for which was fully recognised in 2016 in accordance
with accounting standards as ITV had no further obligations under
the terms of the agreement. Following a breach of the agreement
by Talent as they had not fulfilled their payment obligations, we
have taken back the licence for The Voice of China. ITV is pursuing
Talent vigorously for the £30 million still due under the agreement.
Further, ITV has credit insurance in place and a claim has been
submitted. ITV will continue to pursue the amounts due and
believes there will ultimately be no material impact. Whilst ITV is
confident that it will recover the amount due, accounting standards
set very specific requirements for the recognition of contingent
assets, which is how the recovery of the amount due will be
accounted for. As discussions with the insurers and the claim
against Talent are in progress, at this early stage of pursuing
recovery ITV is not able to demonstrate sufficient certainty for
accounting purposes, to be able to recognise a cash receivable at
the year end. Accordingly, ITV has made a provision amounting to
£27 million (£30 million net of £3 million insurance excess) against
the Talent receivable recorded in our accounts in the year ended
31 December 2017. The cash received in future will also be treated
as an exceptional item.
The cash cost of exceptionals in 2017 was £126 million.
The pension curtailment in 2016 related to the closure of the
defined benefit pension sections of the ITV pension scheme to
future benefit accrual.
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
2017
£m
2016
£m
(30)
(2)
(1)
(33)
–
(9)
(8)
(50)
(22)
(3)
(1)
(26)
(3)
(5)
(17)
(51)
Adjusted financing costs increased to £33 million (2016: £26 million)
primarily due to the full year impact of the new €500 million
Eurobond issued in December 2016.
Net financing costs were £50 million in 2017 which was broadly flat
year-on-year (2016: £51 million). The increase in adjusted financing
costs was offset by lower unrealised foreign exchange and other
net financial losses. These costs largely relate to the movement in
the value of put and call options for unowned equity on acquisitions
we have made when it is not dependent on the seller remaining
within the business. The put and call options normally run for three
to five years. The value in the put and call option will fluctuate with
currency and the expected performance of the business.
JVs and associates
The share of losses from JVs and associates has increased to
£4 million (2016: nil) and is in relation to losses arising on our
investments in BritBox US (a US based SVOD service launched as a
joint venture with the BBC in the US in 2017) along with Blumhouse
Television and Circle of Confusion, both of which are scripted talent
investments within ITV Studios.
Profit before tax
Adjusted profit before tax, after amortisation and impairment
of assets and financing costs, was down 6% at £800 million (2016:
£847 million). Statutory profit before tax decreased by 10% to
£500 million (2016: £553 million), due to the decline in EBITA
as explained earlier, along with higher costs associated with
amortisation and impairment of acquired assets in the year.
Profit before tax (PBT)
Twelve months to 31 December – on a continuing basis
Profit before tax
Production tax credits
Exceptional items
Amortisation and impairment*
Adjustments to net financing costs
Adjusted profit before tax
2017
£m
500
32
154
97
17
800
2016
£m
553
28
164
77
25
847
*
In respect of assets arising from business combinations and investments.
42
ITV plc Annual Report and Accounts 2017
Finance Review
Tax
Adjusted tax charge
The total adjusted tax charge for 2017 was £154 million (2016:
£160 million), corresponding to an effective tax rate on adjusted
profit before tax (PBT) of 19% (2016: 19%), which is broadly in line
with the standard UK corporation tax rate of 19.25% (2016: 20%).
We expect this effective tax rate to be sustainable over 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.
Cash tax
Cash tax paid in the year was £95 million (2016: £90 million), the
majority of which was paid in the UK. The 2017 cash tax figure is
net of £23 million of production tax credits received in the year
(2016: £36 million). The cash tax paid is higher than the full year tax
charge for 2017 of £87 million largely due to the timing of receipt of
production tax credits in the UK and Italy and the tax treatment of
allowable pension contributions. 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
Production tax credits
Charge for exceptional items
Charge in respect of amortisation and
impairment*
Charge in respect of adjustments to net
financing costs
Adjusted tax charge
Effective tax rate on adjusted profits
2017
£m
(87)
(32)
(12)
(19)
(4)
(154)
19%
2016
£m
(100)
(28)
(15)
(11)
(6)
(160)
19%
*
In respect of intangible assets arising from business combinations and investments.
Also reflects the cash tax benefit of tax deductions for US goodwill.
Implications of US tax reforms
As a result of the recent enactment of the Tax Cuts and Jobs Act
in the US, ITV has recognised a non-cash tax charge of £9 million,
resulting from the revaluation of our US deferred tax assets to
reflect the reduction in the US federal corporate tax rate to 21%
from 1 January 2018.
We are working through the new legislative provisions in order
to assess the full impact on our tax profile going forward, however
we do not expect them to have a material impact on the Group’s
effective tax rate.
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
2017
£m
(87)
(17)
2
(102)
12
(11)
(9)
15
(95)
2016
£m
(100)
(13)
(10)
(123)
5
5
7
16
(90)
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/investors/governance/policies
We have four key strategic tax objectives :
1.
Engage with tax authorities in an open and transparent
way in order to minimise uncertainty
Proactively partner with the business to provide clear, timely,
relevant and business focused advice across all aspects of tax
Take an appropriate and balanced approach when considering
how to structure tax sensitive transactions
2.
3.
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. Further details of the Committee can be found on page
66. 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 of the Finance Act 2016.
43
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Finance Review
continued
EPS – adjusted and statutory
Overall, adjusted profit after tax was down 6% at £646 million
(2016: £687 million). After non-controlling interests of £4 million
(2016: £4 million), adjusted basic earnings per share was 16.0p
(2016: 17.0p), down 6%, which is marginally higher than the decrease
in adjusted EBITA of 5% due to an increase in adjusted financing
costs to £33 million (2016: £26 million) and our investment in
associates in the year. The weighted average number of shares
declined marginally to 4,006 million (2016: 4,010 million) because
ITV bought shares during the year on behalf of the Employee
Benefit Trust and, in line with accounting standards, shares held by
the Trust are not included in the total share count. Diluted adjusted
EPS in 2017 was 16.0p (2016: 17.0p) reflecting a weighted average
diluted number of shares of 4,017 million (2016: 4,029 million).
The weighted average diluted number of shares was down year-
on-year because of a decrease in the number of shares expected
to vest in ITV’s long term incentive plans in the future.
Statutory EPS declined by 9% to 10.2p (2016: 11.2p) due to the
decline in statutory EBITA as explained earlier, along with higher
costs associated with amortisation and impairment of acquired
assets in the year.
A full reconciliation between statutory and adjusted EPS is
included within the Alternative Performance Measures section.
Dividend per share
The Board has declared a final dividend of 5.28p, an increase of 10%
(2016: 4.8p). This equates to a full year dividend of 7.8p (an increase
of 8% year-on-year), which gives a cover of 2.1x and reflects our
confidence in the underlying strength of the business and the
outlook for 2018.
This is in line with the Board’s commitment to a long-term
sustainable dividend policy and for ordinary dividends to grow
broadly in line with earnings, targeting dividend cover of around
2x adjusted earnings per share over the medium term. ITV plc had
£1.6 billion of distributable reserves at 31 December 2017 available
immediately to support the dividend policy.
Given that there is now a more normal ordinary dividend, five
consecutive special dividends, leverage of 1x net debt to adjusted
EBITDA and the strategic refresh under way, the Board has decided
not to pay a special dividend in respect of 2017.
Dividend per share p (ordinary)
p
8
7
.
2
7
.
0
6
.
.
7
4
5
3
.
6
2
.
6
1
.
11
10
12
13
14
15
16
17
8%
YoY
2017
7.8p
Acquisitions
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 renew and strengthen our creative
talent and build our reputation as a leading European producer
and distributor and a leading unscripted independent production
company in the US.
During the year, we have strengthened our UK business with the
acquisition in April of a majority stake in World Productions, the
drama production company behind the critically acclaimed and
multi-award-winning Line of Duty. In October, we acquired a 25%
stake in Koska Limited, a UK factual-entertainment production
start-up, founded by Nick Emmerson, co-creator of Supernanny.
We are also making real progress in building a European scripted
business. In February, we acquired a majority stake in Tetra Media
Studios, the French television production group behind leading
dramas including crime series Profilage, now in its seventh series,
and Les Hommes de l’Ombre, the critically acclaimed political
thriller. In October, we acquired a majority stake in Cattleya, the
leading Italian independent producer behind international hit
TV dramas Gomorrah, Suburra and Romanzo Criminale, and in
December we acquired a 25% stake in Apple Tree Productions,
a Danish scripted production company headed up by the award-
winning producers of The Killing and The Bridge.
We have further strengthened our international business with
a number of other small investments and acquisitions. In April,
we acquired a 45% stake in Blumhouse Television, established by
Jason Blum, the renowned film and television producer, which
finances and produces original scripted and unscripted ‘dark’ genre
programming for global audiences, including The Jinx and Cold Case
Files. In May, we acquired a 49% stake in Circle of Confusion, a
premier talent management and production company in the US,
to launch Circle of Confusion Television Studios. The new television
studio label will source, develop and produce premium scripted
programming. Additionally, in June we acquired a majority stake
in Elk Production, one of the leading independent production
companies in Sweden. The company produces original formats
such as the award-winning reality TV series Parneviks, along with
acquired formats including Ninja Warrior and Dessertmästarna.
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. We have a corporate cost of capital (WACC),
which we flex when assessing investment opportunities reflecting
the size, risk profile, geography and type of investment. We also use
our WACC to assess the performance of our investments and in the
year we had a 13% return on capital employed from our acquisitions,
well in excess of our WACC. 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.
44
ITV plc Annual Report and Accounts 2017
Finance Review
Acquisitions – 2012 to 2017 (undiscounted)
Company
Geography
Initial
consideration
£m
Genre
Additional
consideration
paid in 2017
£m
Expected
future
payments*
£m
Total
expected
consideration**
£m
Expected
payment
period
Total
maximum
consideration**
£m
2017
Various
Total for 2017
Total for 2012–2016
Total
Various
Content
Various Content & Broadcast TV
81
81
860
941
–
–
91
91
44
44
248
292
125 2020–2024
125
1,199
1,324
2018–2021
418
418
1,923
2,341
Undiscounted and adjusted for foreign exchange. All future payments are performance related.
*
** Undiscounted and adjusted for foreign exchange, including the initial cash consideration and excluding working capital adjustments.
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 payment made to date, 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. To date, we have paid €600 million
to John de Mol including €100 million for the first tranche of the
earnout which was paid out in full in May 2017. Under the deal
structure, because all future payments are directly related to John
de Mol remaining with the business, these payments are treated as
employment costs and therefore are part of our statutory 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 and do not form part of the core
operations. 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.
Expected future payments of £292 million have decreased by
£36 million since 31 December 2016, which is the net of the
additional future payments relating to our 2017 acquisitions, the
€100 million payment made to John de Mol for the first tranche of
his earnout and foreign exchange on future payments denominated
in foreign currency. At 31 December 2017, £161 million of expected
future payments had been recorded on the balance sheet.
In 2018, around £78 million will be payable on our acquisitions,
primarily to those based in the US.
Cash generation
Profit to cash conversion
Twelve months to 31 December
Adjusted EBITA
Working capital movement
Adjustment for high end production
tax credits
Depreciation
Share-based compensation and pension
service costs
Acquisition of property, plant and
equipment and intangible assets
Adjustment for capex relating to
redevelopment of London headquarters
Adjusted cash flow
Profit to cash ratio
2017
£m
842
(58)
(9)
30
13
(71)
16
763
91%
2016
£m
885
(28)
8
31
10
(44)
–
862
97%
Note: Except where disclosed, management views the acquisition of operating property,
plant and equipment and intangibles as business as usual capex, necessary to the ongoing
investment in the business.
45
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Finance Review
continued
One of ITV’s key strengths is its healthy cash flows 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. Remaining
focused on cash and costs means we are in a good position to
continue to invest across the business and deliver sustainable
returns to our shareholders.
In the year, we generated £763 million (2016: £862 million) of
operational cash from £842 million (2016: £885 million) of adjusted
EBITA, which equates to a strong profit to cash ratio of 91% after
capex (2016: 97%). In the year, we saw an increase in working capital.
This was due to the payment schedule for sports rights for future
years, and the timing difference between the production and the
final delivery and payment of scripted and entertainment titles
such as Snowpiercer, Good Witch, Vanity Fair, Poldark, Dancing on Ice
and Survival of the Fittest.
To facilitate our working capital management, we have 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 31 December, £90 million of receivables were
sold under the purchase agreement (2016: £35 million).
Free cash flow
Twelve months to 31 December
Adjusted cash flow
Net interest paid
Adjusted cash tax*
Pension funding
Free cash flow
2017
£m
763
(38)
(118)
(80)
527
2016
£m
862
(20)
(126)
(80)
636
*Adjusted cash tax of £118 million is total cash tax paid of £95 million excluding receipt of
production tax credits, which are included within adjusted cash flow from operations, as
these production tax credits relate directly to the production of programmes.
While our free cash flow after payments for interest, cash tax and
pension funding remained healthy in the period, it was down 17%
to £527 million (2016: £636 million). This was primarily due to the
year-on-year decline in adjusted EBITA along with the increase in
working capital, as explained earlier.
Overall, after dividends (ordinary and special), acquisitions and
acquisition-related costs, pension and tax payments, we ended
the year with net debt of £912 million, compared with net debt
of £1,074 million at 30 June 2017 and net debt of £637 million at
31 December 2016. Our net cash generation was weighted towards
the second half of 2017 due to the payment in the first half of
the special dividend, the Talpa earnout and content acquisitions.
Net debt tracker
527
(637)
£m
0
(450)
(900)
(1,350)
(1,800)
(494)
(126)
(95)
(36)
(20)
(16)
(15)
(912)
Dec 16
Net debt
Free
Cash
flow
Dividends
Excep-
tional
items
Acquisi-
tions,
and
invest-
ments
Purchase
of shares
for EBT
Foreign
exchange
retrans-
lation
of debt
London
property
capex
Other
Dec 17
Net Debt
Funding and liquidity
Debt structure and liquidity
Our balance sheet strength, together with our healthy free cash
flow, enables us to continue to invest in opportunities to grow
the business and to make sustainable returns to our shareholders.
We have a number of facilities in place to preserve our financial
flexibility. We have a £630 million Revolving Credit Facility (RCF)
in place until 2022 (with the option to extend to 2023). We also have
a bilateral financing facility of £300 million, which is free of financial
covenants and matures in 2021. This provides us with sufficient
liquidity to meet the requirements of the business in the short to
medium term. The RCF has the usual financial covenants for this
type of financing. Of the total £930 million of facilities in place,
£60 million was drawn down at 31 December 2017. Our policy is
to maintain at least £250 million of available liquidity at any point.
In January 2017, we repaid the £161 million Eurobond as it matured.
Net debt
At 31 December
Gross cash
Gross debt
Net debt
2017
£m
(126)
1,038
912
2016
£m
(561)
1,198
637
46
ITV plc Annual Report and Accounts 2017
Financing – gross debt
We are financed using debt instruments and facilities with a range
of maturities. Borrowings at 31 December 2017 were repayable
as follows:
Amount repayable as at 31 December 2017
£630 million Revolving Credit Facility*
€600 million Eurobond
€500 million Eurobond**
Other loans
Total debt repayable on maturity**
Option to extend to 2023.
*
** Net of £20 million cross-currency swaps.
Maturity
£m
2022
60
529 Sep 2022
424 Dec 2023
Various
25
1,038
At 31 December 2017, £570 million of the £630 million RCF
was undrawn.
Capital allocation and leverage
Our objective is to run an efficient balance sheet. We have always
believed that maintaining leverage below 1.5x net debt to adjusted
EBITDA (2017 Adjusted EBITDA was £872 million) will optimise
our cost of capital and maintain our investment grade credit.
At 31 December 2017, reported net debt to adjusted EBITDA was
1.0x (2016: 0.7x). Our priority has been to invest to drive organic
growth and we have made acquisitions where we have found the
right opportunities. We balanced this investment with attractive
returns to shareholders. Our investment decisions are based upon
value creation and returns analysis. Our returns analysis looks at
the 360 degree value creation and the long-term future value
of our investments in Broadcast and Studios.
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 net pension deficit, net of gilts held as security against a
proportion of those liabilities, and the undiscounted operating
lease commitments, which mainly relate to property. This adjusted
leverage measure better reflects how the credit rating agencies
look at our balance sheet. This is important to monitor as our
investment grade rating is a key criteria when considering our
overall capital allocation. At 31 December 2017, adjusted net debt
was £1,430 million (31 December 2016: £1,637 million) and adjusted
net debt to adjusted EBITDA was 1.6x (31 December 2016: 1.8x).
A reconciliation of net debt to adjusted net debt is provided in
the Alternative Performance Measures section on page 35.
Credit ratings
We are rated investment grade by two ratings agencies: BBB-
(stable 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.
Finance Review
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 known or forecast transaction where there is an underlying
cash exposure for the full tenor of that exposure, to a maximum of
five years forward, where the portion hedged depends 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 which oversees
governance and approval of tax and treasury related policies
and procedures within the business. During 2017, we reviewed
our foreign exchange risk management policies and made
some amendments. There were no significant changes to
the previous policy.
Foreign exchange sensitivity
The following table highlights ITV’s sensitivity, on a full year basis,
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
±40-50
Adjusted
EBITA
£m
±6-8
±4-5
47
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Finance Review
continued
Pensions
The net pension deficit for the defined benefit schemes at
31 December 2017 was £83 million (31 December 2016: £328
million). The year-on-year reduction in the deficit reflects gains
from asset values in the year, more accurate data on scheme
members based on the preliminary results of 1 January 2017
actuarial valuation and our deficit funding contributions of £80
million. The net pension deficit includes £38 million of gilts, which
are held by the Group as security for future unfunded pension
payments of four former Granada executives, the liabilities of
which are included in our pension obligations. A full reconciliation
is included within note 3.7.
Actuarial valuation
The last actuarial valuation was undertaken in 2014. On the basis
agreed with the Trustee, the combined deficits as at 1 January 2014
amounted to £540 million and are estimated to be at a broadly
similar level today.
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 during H1 2018.
Net pension deficit tracker
(328)
145
53
20
6
(59)
(83)
80
£m
0
(100)
(200)
(300)
(400)
Dec 16
Deficit
funding
Change
in assets
Update
in scheme
membership
data
Change in
inflation
assump-
tions
Change
in bond
yields
Other
Dec 17
Deficit funding contributions
The Group continues to make deficit funding contributions in line
with the most recent actuarial valuation in order to eliminate the
deficits in each section. The acccounting deficit does not drive
the deficit funding contribution.
The total deficit funding contribution for 2017 was £80 million,
which is consistent with the contributions payable in 2016. We do
not expect a material change in the deficit funding contribution
for 2018. Further details are included within note 3.7.
48
ITV plc Annual Report and Accounts 2017
New accounting standards
IFRS 9 Financial Instruments, is effective from 1 January 2018. From
our assessment, there is no material impact on the Group’s results.
IFRS 15 Revenue from Contracts with Customers, is effective from
1 January 2018. An assessment of the impact on all of the Group’s
material revenue streams has been completed. The new standard
requires the Group to reclassify various costs attributable to
revenue in the income statement. For the year ending 2017, there
will be no material impact on the Group’s revenue and no impact on
the Group’s profit or the Group’s adjusted EBITA as detailed below:
Revenue line
NAR
Other commercial income
Online, Pay & Interactive
Total Broadcast revenue
Operating costs
Adjusted EBITA
Impact in 2017
£m
(11)
(1)
10
(2)
(2)
–
IFRS 16 Leases, is effective from 1 January 2019. The detailed
assessment of the impact on the Group’s performance is ongoing.
During the early impact assessment, the Group has reviewed
the current accounting for the existing key service agreements,
including satellite, transponder and playout agreements and
concluded that those do not meet definition of a lease and
therefore should be classified as service agreements under the
regulations of IFRS 16 and current accounting standards. Outside
of the transmission infrastructure agreements, the adoption is likely
to have a material impact on the presentation of the Group’s assets
and liabilities, mainly due to property leases.
See pages 122 and 123 for further detail on these new accounting
standards.
Finance Review
2018 full year planning assumptions
Profit and Loss impact:
• Total schedule costs are expected to be £1,055 million to
£1,060 million, an increase of around £30 million and weighted
to H1 due to the Football World Cup
• Total investments of around £15-£20 million in on-going
new property, online and initial data investments
• Adjusted interest is expected to be around £35 million,
which is broadly unchanged from 2017
• The adjusted effective tax rate is 19%, which is unchanged
and expected to be sustainable over the medium term
• The translation impact of foreign exchange, assuming rates
remain at current levels, could have a £35 million negative
impact on revenue and £5 million negative impact on profit
• Exceptional items are expected to be around £85 million,
mainly due to acquisition accounting and the London Property
redevelopment project.
Cash impact
• Total capex is expected to be around £100 million, comprising
of £60 million of regular capex to support the business and
£40 million relating to the redevelopment of our London site
• The cash cost of exceptionals will be around £85 million,
largely relating to accrued earnouts
• Profit to cash is expected to be around 85%, reflecting our
continued strong cash generation and investment in Studios
working capital
• Total pension deficit funding is expected to be £80 million,
unchanged subject to agreeing the triennial valuation
Ian Griffiths
Chief Operating Officer and Group Finance Director
London property
In 2017, the Board made the decision to redevelop our headquarters
at The London Television Centre for which we own the freehold.
This requires relocating staff and studios for four to five years to
alternative accommodation before moving back into a new freehold
building. Therefore, ITV has taken rented office and studios space
in the interim while the new headquarters are constructed.
During the course of the project, ITV will ring-fence all incremental
costs in relation to the redevelopment. Move costs, dual rates and
rent will be treated as exceptional costs in the P&L as they relate
to the one-off property project that runs over several years
but we will no longer incur them once we return to The London
Television Centre. Capital items will be capitalised as investment
capex. Investment capex is excluded from capex for our adjusted
cash measurements.
In 2017, ITV incurred £24 million of costs in relation to accelerated
depreciation for assets made redundant as a result of the move,
move costs, dual rates and rent. These were exceptionalised as
explained above. ITV also incurred £16 million of costs for the fit
out of the interim offices and studios and in relation to planning
for the redevelopment of The London Television Centre which
were capitalised.
In 2018, ITV will incur move costs, dual running costs, dual rates and
rent which will be exceptionalised as explained above. ITV will incur
around £40 million of cash costs for further fit-out of the interim
offices and studios space and further costs associated with the
redevelopment of The London Television Centre, which will be
capitalised. Depreciation associated with the fit-out of the interim
offices and studios space will not be exceptionalised.
In February 2018, Lambeth Council planning committee passed a
resolution to grant planning permission for the new headquarters.
The application now goes forward to the Greater London Authority
for endorsement. Once all approvals have been granted, we expect
to commence demolition of the current building in 2018. All build
costs will be capitalised until we move back, which is expected in
2023, with the most significant investment capex to be incurred in
2021 and 2022.
Following the step up in London property operating costs in 2018,
we do not expect future costs to be materially different from 2018
when we move back in 2023.
49
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Risks and
Uncertainties
As a producer and broadcaster, ITV’s business
carries a number of risks, which we manage
through our risk management framework.
Our continuing success is dependent on how
well we understand and manage our risks.
Risk management framework
The 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.
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.
Our ongoing process for risk identification, review and
management is set out below and is consistent with last year.
Board
Risk appetite and culture
d e f e n ce – business divisio
n
s,
G
f
s o
e
nce: T hre e li n
ura
s
s
A
d
n
a
n
o
i
t
a
r
e
p
Management
and Divisional
Boards
The Board
r
o
u
p
f
u
n
c
t
i
o
n
s
,
I
n
t
e
r
n
a
l
A
u
d
i
t
O
Operational
Risk Steering
Group
Audit
and Risk
Committee
50
ITV plc Annual Report and Accounts 2017
Management and Divisional Boards
Have 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
• We are continuing to develop our three lines of defence
model to better manage our risks. We are moving 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. The Leading Risk training programme
in place for ITV Studios production management continues
to be developed
Risks and Uncertainties
• Sets strategic objectives
• Identifies and evaluates principal risks and uncertainties
• 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
The Board is responsible for setting the level of risk the Company is willing to take in line with our strategy. There are clear approval
frameworks in place and we continue to develop our approach to ensure that the business understands the Board’s risk appetite and
the tolerance levels and track the key risk indicators to help manage each risk.
Throughout the year, we have continued to focus on and strengthen our risk culture. We have an open communication culture where
information is shared and issues are escalated as appropriate.
Operational Risk Steering Group
Has responsibility for:
• Considering and setting actions for improving controls and
mitigations for pan ITV risks and for ongoing monitoring
of those actions
• Reviewing incident reports and other statistics
• 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 66.
The Chairman of the Audit and Risk Committee attends
meetings of the Operational Risk Steering Group periodically.
Audit and Risk Committee
Has responsibility for:
• Overseeing and advising the Board on risk exposures
and future mitigation strategy
• Reviewing internal controls and their effectiveness.
• Reviewing the effectiveness of the risk management
framework
• Conducting in-depth reviews of high-risk business
areas or processes
• Setting the internal audit plan to ensure key risks
are covered in respect of providing assurance
• 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 72.
1 Business divisions
• The business divisions own the
2 Group functions
• Including Group Finance, Legal,
3 Internal audit
• Internal Audit provides objective assurance
management of their risks
and are responsible for:
– Identifying and reporting local risks
– Maintaining risk registers and business
continuity plans where appropriate
– Reviewing and implementing
mitigating actions and controls
Human Resources, Group Secretariat,
Technology, Procurement, Health &
Safety, Tax & Treasury and Insurance
• Support the business divisions
in managing risks.
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 reviews the auditable elements of
the principal and operational risks and this
review informs the areas and topics that
Internal Audit focuses on.
51
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Risks and Uncertainties continued
Principal risks
For each principal risk, mitigating actions have been identified and the risk has been mapped to its relevant business segment and,
where possible, assigned key risk indicators. Risk direction has also been given to each risk which is after mitigation. 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.
The Management and Divisional Boards have reviewed ITV’s principal risks and uncertainties and these potential risks are
predominantly unchanged.
Potential Risk
Key Drivers
Mitigating Factors and Risk Direction
Link to
business
Risk
direction
T
h
e
M
a
r
k
e
t
There is a major decline
in advertising revenue
due to economic
uncertainty and ITV
does not build sufficient
non-NAR revenue
streams to mitigate
the financial impact
of this decline.
A faster than expected
shift to VOD or other
new technologies,
such as internet enabled
televisions or online
only services, causes a
sustained loss of viewing
and advertising revenue.
• The current economic
environment is uncertain,
which may impact demand for
advertising
•
ITV has made significant progress in
rebalancing the business and 56% of our
total revenue comes from sources other
than television spot advertising
• Growing non-NAR in areas such as ITV
Studios and Online, Pay & Interactive,
remains a key priority of the business
• The Company has adequate financial
liquidity and balance sheet flexibility
to continue to invest as ITV maintains
its focus on cash and costs
• Television is now available on
many different devices and
platforms, which is changing
the way people are consuming
television and viewers are now
spending more time watching
content online
• This structural shift is
impacting the advertising
market in the UK as digital
advertising continues to
grow strongly
• While growing rapidly, online
viewing remains a small
percentage of total viewing
at around 12% (2016: 9%,
source: BARB/Thinkbox data)
and television advertising
represents 25.5% of total
advertising in the UK, which
is slightly down on 2016
(2016: 27.5%)
•
• The business continues to develop the
ITV Hub VOD 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 annually
ITV is focused on ensuring that television
provides a trusted and safe environment for
advertisers and delivers the highest return
on investment of any advertising media.
ITV has launched its SVOD proposition,
Britbox, in the US and Canada
•
•
•
• Cirkus, our SVOD proposition, has been
rolled out further and is now in the Nordics
and Germany
This risk has increased since last year
as online viewing is growing particularly
amongst younger viewers.
52
ITV plc Annual Report and Accounts 2017
Risks and Uncertainties
Broadcast & Online – building our
free-to-air, online and pay business
ITV Studios – growing an international
content and distribution business
Risk direction (after mitigation) since 2016
Increased risk
Risk stayed the same
Reduced risk
Potential Risk
Key Drivers
Mitigating Factors and Risk Direction
Link to
business
Risk
direction
T
a
l
e
n
t
a
n
d
P
e
o
p
l
e
A significant event
removes a number of
the key management
team from the business
on a long-term or
permanent basis.
ITV fails to evolve its
organisational structure
and culture and therefore
fails to attract, develop
and retain key creative,
commercial and
management talent.
•
In the ordinary course of
business activities, there will be
times when the Management
Board is in one location or
travel together as a group
• There is a business resilience plan in place,
which includes succession plans or nominated
replacements for all key positions within
the Company
• Employing the best creative,
• Employee engagement is critical and we
commercial and management
talent is key to our success
• Failing to create the right
culture to attract and retain
this talent increases this risk
O
p
e
r
a
t
i
o
n
a
l
There is significant loss
of programme rights or
ITV fails to identify and
obtain the optimal rights
packages.
• There is increased competition
for high-quality programme
rights as broadcasters and
platform owners demand
brand defining content
• The significant budgets of the
new platforms, such as Netflix
and Amazon, have changed the
market for on-screen and
off-screen talent, which has
impacted the cost of content
continue to monitor it through our employee
surveys, which take place every two years
(90% engagement in 2016 employee survey)
ITV constantly reassesses the business
to create a fit-for-purpose organisation
ITV is focused on working across the business
to embed and strengthen the culture of
‘One ITV’ way of working
ITV invests in training and development
programmes
•
•
•
• Succession plans are in place for all key
positions within the Company
•
ITV is focused on both protecting and
exploiting existing rights and ensuring
that future rights generated accrue to ITV
• As an integrated producer broadcaster,
ITV produces a significant proportion of the
broadcast schedule. In 2017, this increased
to 66% of the main channel’s original
commissions
ITV invests in creating and owning quality
content through ITV Studios
ITV maintains good relationships with
independent producers to ensure it has
opportunities to acquire quality content
ITV has a detailed model to evaluate the value
of third-party rights to ensure it only buys
rights that make economic sense
•
•
•
This risk and opportunity has increased since
last year as OTT platforms are increasing
their programme spend. This presents an
opportunity for ITV Studios to supply
content to them.
ITV fails to create, own
and protect the rights to
a sufficient number of hit
programmes/formats
across its international
portfolio of content
companies.
• Our ability to create and
•
•
own hit programmes depends
on the quality of our content
business
ITV is the largest UK commercial
producer and a leading
independent non-scripted
producer in the US and Europe
•
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 producing scripted content
ITV is focused on hiring and retaining
the right key creative talent
53
Strategic ReportGovernanceFinancial StatementsAdditional information
Strategic Report
Risks and Uncertainties continued
Potential Risk
Key Drivers
Mitigating Factors and Risk Direction
Link to
business
Risk
direction
O
p
e
r
a
t
i
o
n
a
l
T
e
c
h
n
o
l
o
g
y
ITV does not react quickly
enough to changes in the
broader market and fails
to properly resource,
financially, creatively
and operationally, the
new growth businesses,
in particular online
and international content.
A major incident results
in ITV being unable to
continue with scheduled
broadcasting for a
sustained period of time.
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 new non-advertising
revenue or rapid
international growth.
•
In a fast-changing media
environment, there is an
increased risk that sub-optimal
investment decisions are made
•
ITV’s broadcast technology
chain is complex because it
operates in multiple regions
and links to many platforms
• Risk can therefore materialise
within ITV or with third parties
responsible for servicing the
broadcast supply chain
• With the move out of
Southbank, ITV will be using
third-party managed studio
facilities for some of its
daytime shows
• Our system requirements
change as we continue to
rebalance the business, grow
new revenue streams and
become increasingly
international
•
Investment opportunities and decisions are
made by the relevant board based on their
strategic fit and return on investment profile
• Talent management plans have been
developed and reviewed to ensure adequate
succession planning across ITV
ITV continues to embed and strengthen
the culture of ‘One ITV’ way of working
• Lessons from recent investments are
•
captured through post-acquisition reviews
• A risk register of broadcast operations,
including key outsourced functions,
is in place and reviewed on a regular basis
• There are business continuity and disaster
recovery plans in place in high risk areas
to help deliver a rapid and flexible response
• Major incident scenario testing takes place
•
•
bi-annually
ITV has ongoing modernisation projects
to ensure transmission and distribution
technologies are fit-for-purpose
ITV continues to proactively manage its
broadcast chain partners and suppliers to
ensure the risk of incidents and regulatory
breaches is minimised
• 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 55.
54
ITV plc Annual Report and Accounts 2017
Risks and Uncertainties
Broadcast & Online – building our
free-to-air, online and pay business
ITV Studios – growing an international
content and distribution business
Risk direction (after mitigation) since 2016
Increased risk
Risk stayed the same
Reduced risk
Potential Risk
Key Drivers
Mitigating Factors and Risk Direction
Link to
business
Risk
direction
T
e
c
h
n
o
l
o
g
y
Impact of cyber attack
on ITV
There is a sustained cyber
attack causing prolonged
system denial or major
reputational damage,
for example:
• The ability to broadcast
our channels
• The availability of
ITV Hub
• ITV loses a significant
volume of personal
or sensitive data
• Corporate systems are
compromised
• Cyber security is an increasing
risk as our business develops
new revenue streams and
direct to consumer
propositions
• With increasingly sophisticated
technology and proliferation of
cyber hacking tools, along with
increased amounts of company
data, the risk of a cyber attack
has increased across the world
• There are a growing volume
of software and hardware
vulnerabilities being identified
by technology providers in
their own products
• Further, we are higher risk
as a result of being a media
company and operating in
a public environment
• By establishing further internal cyber
controls across our devices, apps, networks
and servers, we have improved our ability to
monitor, detect and respond to cyber threats
• We continue to educate our colleagues in
order to improve our ability to spot, avoid
and report cyber attacks
• We have worked with specialist security
organisations to implement 24x7 monitoring
of our network traffic and during the year
they conducted cyber simulation and
phishing exercises
• We have enhanced our process for the risk
assessment of third-party security as our
cyber risk extends to our supply chain
• There are disaster recovery and incident
management plans in place for high-risk
areas of the business
This risk has increased since last year as our
technology becomes more sophisticated.
An event with public
interest causes significant
reputational and brand
damage.
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 on
a production.
• WIth our Broadcasting
and Studios businesses, the
Company operates in a public
environment and is exposed
to the risk of a high-profile
incident, for example through
our association with the
actions of our talent
• As ITV Studios expands, there
is a continued increase in the
number of production hours,
and an increased potential
to produce certain types of
programming that have higher
inherent risks
•
•
•
ITV has a crisis management policy and
process in place and is increasing emphasis
on its development and application
ITV proactively manages its broadcast chain
partners and suppliers to ensure the risk
of incidents and regulatory breaches
is minimised
ITV has a central health and safety team
and health and safety policies and procedures
in place, with appropriate training for
employees where required
• We have developed our safety management
approach to align with our studios label
model to ensure ownership of risk in the
appropriate business areas. To reflect this,
we are developing our training programme
initially through Leading Risk (see case study
on page 79)
• We are continually reviewing our processes
and overall approach to production safety
(see case study on page 78) and have built
a comprehensive online resource to provide
easily accessible production focused health
and safety advice and support
• We are developing our reporting tools to
provide increased oversight of risks across
the Studios division
This risk has increased since last year as
ITV undertakes more complex productions.
55
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Risks and Uncertainties continued
Potential Risk
Key Drivers
Mitigating Factors and Risk Direction
Link to
business
Risk
direction
There is a significant
or unexpected change
in UK regulation or
legislation.
R
e
g
u
l
a
t
i
o
n
•
ITV could be affected if
there is a change in UK media
regulation or legislation; for
example, if there is a change
in advertising restrictions
in key categories
•
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
The political and
economic uncertainty
arising from the UK’s
referendum vote to
leave the EU could
result in continued macro
uncertainty. This may
impact the overall health
of the UK television
advertising market, with
corporate and consumer
confidence both
weakening since the
outcome.
Further, there is
considerable uncertainty
regarding the likely terms
of the post Brexit trading
arrangement between
the UK and the EU, which
is expected to continue
for the foreseeable
future.
While the potential changes and
the impact of any such changes
will remain unknown for a while,
ITV could, for example, be
affected by:
The likelihood or extent of any impact is
currently unknown, however, we continue
to work closely with industry bodies and
discuss key issues with key UK Government
departments
We will closely monitor negotiations with
the EU, as well as emerging non-EU worldwide
trade deals, and will evaluate any potential
areas of risk
• Changes to EU broadcasting
legislation and/or rules around
EU market access, for example
if the UK does not retain
classification of UK content
as European. This could
potentially reduce the scale
of the market opportunity
for UK content in the EU
• Restrictions to the free
movement of our staff
impacting our operating model
and ability to attract and retain
the best talent
• New non-EU worldwide trade
deals that could, for example,
see pressure to weaken
requirements for UK
broadcasters to purchase
original content made in the
UK/EU or for the UK to broaden
exceptions from intellectual
property protection. This could
potentially reduce the scale of
the market opportunity for our
content in the UK.
• Changes in taxation, free
movement of capital and
transfer pricing regulation
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ITV plc Annual Report and Accounts 2017
Risks and Uncertainties
Broadcast & Online – building our
free-to-air, online and pay business
ITV Studios – growing an international
content and distribution business
Risk direction (after mitigation) since 2016
Increased risk
Risk stayed the same
Reduced risk
Potential Risk
Key Drivers
Mitigating Factors and Risk Direction
Link to
business
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 repeat of the
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
•
• 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 £300 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
There is a major collapse
in investment values or
a material change in
liabilities leading to an
impact on the pension
scheme deficit.
• As a result of macroeconomic
changes, there can be material
movements in the Group’s
defined benefit pension
scheme
• For example, the Bank of
England’s monetary policy may
impact 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
57
Strategic ReportGovernanceFinancial StatementsAdditional information Strategic Report
Viability Statement
What is the process ITV follows?
At an annual strategy meeting the Board assesses ITV’s prospects and risks. Amongst
other topics, the Board reviews the five year financial plan, which is based on our strategic
priorities. Pages 18 to 19 of the Annual Report provide detail of ITV’s prospects in the
Strategy and Business Model section.
What is the assessment period for viability?
In its assessment of viability, the Board reviewed the planning horizon and is of the
view that a three year period to 31 December 2020 continues to be most appropriate.
The factors the Board considered in adopting this timeframe were as follows:
• Visibility over ITV’s broadcast advertising business is relatively short term, as advertising
remains cyclical and closely linked to the UK economic growth impacted by Brexit and
the uncertain UK macroeconomic climate
• The commissioning process and life cycle of programming gives the 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
•
ITV’s business model does not necessitate investment in large capital projects that
would require a longer-term horizon assessment or returns
Assessment of viability
When considering the longer term viability of ITV, the Board reviewed each of ITV’s
principal risks and, taking into account current operational and financial performance,
has in particular analysed the impact of:
Scenario modelled
Link to principal risks (pages 52 to 57)
Scenario 1:
The Broadcast division experiencing a significant
and sharp downturn, similar to the 2008/09
financial crisis, with advertising revenues
declining for two years followed by a year of
flat revenue. This scenario could be regarded as
cautious as recessions in the advertising market
have historically not exceeded a two-year period
and showed growth following that period.
Scenario 2:
A number of key programme brands within the
Studios division 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.
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.
ITV fails to create and own a sufficient
number of hit programmes/formats across its
international portfolio of content companies.
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ITV plc Annual Report and Accounts 2017
Risks and Uncertainties
In line with prior years, the Board has considered a scenario involving changes in pension
funding obligations. However, while the final actuarial valuation as at 1 January 2017
has not been agreed, the Board does not anticipate any material changes in funding
obligations in the three year period under assessment. The Board will continue to
monitor the risk, as the next valuation as at 1 January 2020 could have an impact on
the periods assessed in future viability statements.
Further, the impact of the London Property project on the Group’s viability was
considered. Due to the medium-term nature of the project, it is not currently
anticipated to have a significant impact on liquidity in the period reviewed in this
statement. The Board will continue to monitor the impact of the project as it progresses.
The viability 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 are secured for more than three years and there are no major
bond repayments due in this period); and the Group maintains the stated dividend policy.
The scenarios used are hypothetical but are considered appropriate to model risks
that could impact the viability of the Group. In addition, there are options at the disposal
of the Board to maintain liquidity and continue operations in the event of any of the
scenarios arising, such as reducing M&A activity and non-essential capital expenditure
as well as reviewing the Group’s dividend policy.
Viability statement
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 2020. 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:
Ian Griffiths
Chief Operating Officer and Group Finance Director
28 February 2018
59
Strategic ReportGovernanceFinancial StatementsAdditional information Governance
Chairman’s Governance Statement
In the Governance section
This section of the Annual Report contains
a statement from our 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.
I am pleased to present our Corporate Governance Report for 2017. We believe that
corporate governance is essential to our success and as such the Board is committed to
upholding the highest standards of governance and works closely with the executive team
in order to do so. We are engaged in considering the proposals for the revised UK Corporate
Governance Code (the “Code”) and will seek to ensure compliance with that Code in due
course. This year has seen an increase in Board membership, which builds on our already
diverse Board and brings additional experience, ensuring there is an appropriate balance
of skills and knowledge. This current Board consists of a strong team with a wide range
of experience across various industries and territories.
Information on what we focused on in the year can be found on page 67.
Board experience
Sector experience
Media
40% Finance
60%
Advertising &
Marketing 30% Retail
40%
International experience
Board composition
Following the departure of Adam Crozier, we announced in July of last year the
appointment of Dame Carolyn McCall as Chief Executive. I am very pleased to welcome
Carolyn, who with her track record in media, experience of international operations, clear
strategic acumen and strong record of delivering value to shareholders will help to continue
to build on the success of ITV. The decision to appoint Carolyn was taken after a rigorous
selection process. More detail can be found on page 68.
The Board is mindful of the need to refresh its membership at appropriate intervals and
after more than nine years on the board Andy Haste and John Ormerod will step down
following the AGM in May. The Board agreed last year that Margaret Ewing would be the
best candidate to succeed John as Chair of the Audit and Risk Committee. Salman Amin
was also appointed during the year and has been a great addition to the Board. More details
on our approach to Board diversity can be found on page 69.
Directors’ other commitments are kept under review 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 68. All Directors are required by the Company’s Articles
of Association to be elected by shareholders at the first AGM following their appointment
by the Board. Subsequently, all Directors are subject to annual re-election by shareholders
as recommended by the Code.
The Board
is mindful of the
need to refresh
its membership
at appropriate
intervals.”
60
ITV plc Annual Report and Accounts 2017
Chairman’s Governance Statement
Culture
Q What is ITV’s culture?
A ITV believes in an open and
collaborative culture across all areas
of the business. At its core, ITV puts
trust and an open and honest working
environment for all as its most
important values.
Q How does the Board engage with
the corporate culture?
A The Board places a high importance
on the value of corporate culture
within ITV and the role it provides in
the development and retention of
employees as well as ITV’s external
reputation. As mentioned, openness
and communication are key at ITV and
as such it is imperative that the Board
is visible throughout the organisation.
The Board participates in site visits to
our different locations and is in regular
communication with senior executives
and other employees.
Q How is the corporate culture
embedded across the organisation?
A We seek to instill the ‘One ITV’
way of working our global network of
Ambassadors to enhance communication
and information sharing across all levels
of the business. The Board considers
and acts upon feedback from employee
engagement surveys. We also aim for
our senior executives and our Board
members to be as visible as possible and
use open plan office space to encourage
openness and collaboration. Our London
property strategy is a big step to achieve
a more coherent and joined-up business.
Q What is next for ITV?
A We believe that an effective and well
embedded corporate culture helps
create a successful business. We will
continue to focus on building a strong
corporate culture and will keep this
under consideration as part of our
strategy refresh.
Board induction and evaluation
We believe that a comprehensive induction programme is important for all of our new
Board members as well as a programme of continuing evaluation for the Board to assess
its effectiveness. Full details of our evaluation and induction processes in the year are
set out on page 69.
Stakeholder engagement
Our stakeholders are very important to us and we remain committed to maintaining
regular open dialogue and effective communication with them. We believe that continued
engagement is highly beneficial to all parties as it helps to build a greater understanding
of their views, opinions and concerns. Further information on how we engage with our
stakeholders can be found on page 71.
Compliance with the UK Corporate Governance Code
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 2017 the Company has complied with the
provisions of the Code but notes the following:
• Provision B.7.1 – Independence
John Ormerod has served on the Board for more than nine years. The Board believes he
remains independent and as explained last year, the Board agreed that he should remain
as a Director until a successor as Chair of the Audit and Risk Committee could be found.
Margaret Ewing was appointed in October 2017 to fill this position.
• Provision A.2.1 – Separation of Chairman and CEO
Following Adam Crozier’s departure, the Board agreed that I would step up as
Executive Chairman from July 2017 until a new Chief Executive joined the business.
Dame Carolyn McCall was appointed to the Board in January 2018 to fill this position.
The Board notes that this was not compliant with 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
Looking ahead
It has been a year of change for ITV and we enter 2018 with a new Chief Executive who
the Board strongly believes will put ITV in the best position to face the challenges of
a competitive and rapidly changing industry.
Sir Peter Bazalgette
Chairman
28 February 2018
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Strategic ReportGovernanceFinancial StatementsAdditional information Governance
Board of Directors
1 Ian Griffiths
Chief Operating Officer and
Group Finance Director
G
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.
2 Carolyn McCall
Chief Executive
G
Appointed: January 2018
Key areas of prior experience:
Strategy and change management,
media, retail and airline industries.
Current external appointments:
Non-executive Director, Burberry
Group plc and Department of
Business, Energy and Industrial
Strategy. Director, Corporate Board
of Royal Academy of Arts.
Previous experience: Chief
Executive of easyJet plc, Guardian
Media Group plc, Guardian News and
Media plc; Non-executive Director
of Lloyds TSB Limited, Tesco plc,
New Look plc; Director of French
Chamber of Commerce; Chair,
Opportunity Now; President,
Women in Advertising and
Communications London.
Committee membership
G General Purpose
A Audit and Risk
N Nomination
R Remuneration
3 Sir Peter Bazalgette
Chairman
N R
Appointed: June 2013
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,
the Royal Television Society;
Chairman, 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.
4 Margaret Ewing
Non-executive Director
N A
Appointed: October 2017
Key areas of prior experience:
Financial accounting, corporate
finance, mergers and integration,
strategic and corporate planning.
Current external appointments:
Non-executive Director and member
of the Audit and Risk Committee of
ConvaTec Group plc; Trustee, the
Board of Great Ormond Street
Hospital Children’s Charity; External
member of the Audit Committee,
The Lawn Tennis Association.
Previous experience: Executive
member of the Board, Executive
Committee member, Managing
Partner, Vice Chairman and Partner
of Deloitte LLP. External member of
the Audit and Risk Committee John
Lewis Partnership. Non-executive
Director, Standard Chartered plc;
Member of the Financial Reporting
Review Panel; Chairman of the Audit
Committee, Confederation of British
Industry; Non-executive Director and
Chair of the Audit Committee,
Whitbread plc; Group Chief Financial
Officer, BAA plc; Group Finance
Director, Trinity Mirror.
Full biographies can be found on our website:
www.itvplc.com/about board-of-directors
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ITV plc Annual Report and Accounts 2017
5 John Ormerod
Non-executive Director, Chairman
of the Audit and Risk Committee
N A R
Appointed: January 2008
Key areas of prior experience:
Finance, developing strategy
and growth.
Current external appointments:
Non-executive Director,
Constellium NV, Gemalto NV.
Previous experience: Non-executive
Chairman, First Names Group
Limited, Tribal Group plc, Merlin
Claims Service Holdings Limited;
Senior Independent Director, Misys
plc; Trustee, The Design Museum,
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, 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, Deloitte & Touche; Regional
Managing Partner, Arthur Andersen.
6 Salman Amin
Non-executive Director
N
Appointed: January 2017
Key areas of prior experience:
General management, marketing,
advertising and media planning.
Current external appointments:
None.
Previous experience: Chief
Operating Officer, Global Commercial
Division and Chief Operating Officer,
North America of 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.
7 Andy Haste
Senior Independent Director
N A
Appointed: August 2008
Key areas of prior experience:
International and emerging
markets, change management,
restructuring and business
turnaround.
Current external appointments:
Chairman, Wonga Group Limited;
Senior Independent Deputy Chairman
of the Council of Lloyd’s.
Previous experience: Group Chief
Executive, RSA Insurance Group plc;
Chief Executive, AXA Sun Life plc;
Director, AXA UK plc (life and
pensions); President and Chief
Executive Officer of GE Capital
Global Consumer Finance UK,
Western Europe and Eastern Europe;
President, the US Consumer Credit
Business and Senior Vice President
and Head of the US Consumer
Loan Products Division of National
Westminster Bank.
8 Mary Harris
Non-executive Director,
Chair of the Remuneration
Committee
N A R
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 and Chair
of the Remuneration Committee,
Reckitt Benckiser Group PLC; Member
of the supervisory board of Unibail
Rodamco SE.
Previous experience: Non-executive
Director, J. Sainsbury plc; Member of
the supervisory board, TNT Express
NV, TNT NV, Scotch and Soda NV
and Irdeto BV; Partner, McKinsey &
Company, Amsterdam; various
positions worldwide with McKinsey
& Company, Maxwell Entertainment
Group, Pepsi Cola Beverages and
Goldman Sachs & Co.
Board of Directors
9 Anna Manz
Non-executive Director
N A R
Appointed: February 2016
Key areas of prior experience:
Strategy and finance and
financial planning.
Current external appointments:
Chief Financial Officer,
Johnson Matthey plc.
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.
10 Roger Faxon
Non-executive Director
N R
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, Mirriad Advertising Ltd;
Non-executive Director, Pandora
Media Inc; Director, The John Hopkins
University.
Previous experience: Director, EMI
Group Global Limited and EMI Group
plc; Chief Executive Officer of EMI
Group Limited; Chairman and CEO
of EMI Music Publishing; Director,
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.
1
2
3
4
5
6
7
8
9
10
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Strategic ReportGovernanceFinancial StatementsAdditional information Governance
Management Board
1 Julian Bellamy
Managing Director, ITV Studios
Appointed: February 2016
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.
2 David Osborn
Group HR Director
Appointed: October 2014
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 while working in
a variety of businesses including
EMI Music, Vodafone, Visa Europe
and Marks & Spencer.
3 Carolyn McCall
Chief Executive
Appointed: January 2018
Experience: Full biography
on page 62.
4 Kevin Lygo
Director of Television
Appointed: August 2010
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.
5 Rufus Radcliffe
Group Marketing and
Research Director
Appointed: April 2017
Experience: Rufus joined ITV in
August 2011 and was promoted
to the Management Board in 2017.
He also sits on the Freeview Board
and is a Fellow of the Marketing
Society. Before joining ITV, Rufus
spent 10 years at Channel 4, and
prior to that held various positions
at McCann Erickson and JWT.
6 Ian Griffiths
Chief Operating Officer and
Group Finance Director
Appointed: September 2008
Experience: Full biography
on page 62.
7 Kelly Williams
Managing Director, Commercial
Appointed: December 2014
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.
8 Julian Ashworth
Director of Strategy and
Direct to Consumer
Appointed: February 2018
Experience: Julian recently joined
ITV to lead the strategy review and
development of the ITV Direct to
Consumer business. Before joining
ITV, Julian was Global Director of
Policy Strategy at BT and prior to that
held various strategy, and business
development and commercial roles
at RELX plc, Centrica plc and Bain
& Company. He has also served as
a member of the UK Government’s
Digital Economy Council, a board
member of TECHUK, the British
Screen Advisory Council, the Royal
Taskforce against cyberbullying
and a member of the UK Council
for Child Internet Safety.
9 Andrew Garard
Group Legal Director and
Company Secretary
Appointed: November 2007
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,
is responsible for content
management and the ITV archive,
Group Secretariat 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 Group Legal. Prior to that, he
was Global Head of Legal and Deputy
General Counsel for Reuters Group
plc in the UK, and before that
General Counsel, Asia.
Full biographies can be found on our website:
www.itvplc.com/about/board-of-directors
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ITV plc Annual Report and Accounts 2017
Management Board
1
2
3
4
5
6
7
8
9
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Strategic ReportGovernanceFinancial StatementsAdditional information Governance
Corporate Governance
Our Governance structure
Board
Audit and Risk Committee
See the Audit and Risk Committee Report
on page 72.
Disclosure Committee
COO & CFO and other senior managers
Meets to ensure compliance with the
continuing obligations under the Disclosure
Guidance and Transparency Rules (DTRs).
Remuneration Committee
See the Remuneration Report on page 82.
General Purpose Committee
Executive Directors
Meets as required to conduct business
within clearly defined limits set by the Board.
Tax and Treasury Committee
COO & CFO 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.
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.
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, approve and implement 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. Meets to consider
and approve operational
matters, and assesses and
manages risk in relation
to the Studios 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 Broadcast business.
Operational Risk
Steering Group
Manages and considers a
number of existing and emerging
operational risks and ensures
that the business addresses the
controls and mitigations
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.
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.
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 20.
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ITV plc Annual Report and Accounts 2017
Corporate Governance
Board and Committee meetings
The number of meetings held during the year and attendance of Directors is set out in the table on page 68. 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
• Progress against strategy
• Business plan and performance against plan
• Risk management framework, key risk areas and risk appetite
• Other reporting and items for approval
Senior executives 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)
Individual Non-executive Directors meeting with members of senior managers management
Key matters discussed in 2017 and focus for 2018:
Operational matters
• Plans for redevelopment of
London site
• Cost savings
• Mergers and acquisitions
• Budget
Other important matters
• Britbox US launch
• Succession planning
• Integrated producer broadcaster
• Acquisition integration
• Gender pay gap reporting
• Drama development
Developments
• The ITV Hub and ITV Hub+
• Targeted advertising
• Airtime sales modernisation
• International production
ITV brand
• Changing viewers’ perception
of ITV
• Marketing for lighter viewers
• 16–34 year old viewing
Risk
• Cyber security
• Data protection and GDPR
• Technology resilience
• Daytime studio migration
Areas of focus for 2018
• Strategic refresh
• Consumer data
• Future of advertising
• Impact of the EU referendum vote
• SVOD
67
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Corporate Governance continued
Board and Committee membership and attendance
Board and Committee membership and attendance at scheduled meetings in 2017 are set out below.
Status
Peter Bazalgette
Chairman
Salman Amin
Adam Crozier
Independent
Executive
Margaret Ewing
Independent
Roger Faxon
Independent
Ian Griffiths
Mary Harris
Andy Haste
Anna Manz
John Ormerod
Executive
Independent
Independent SID
Independent
Independent
Notes
1
2
3,6
4
5
6
7
5
8
Date of
appointment
to the Board
Date
elected by
shareholders Board
Nomination
Committee
Remuneration
Committee
Audit and Risk
Committee
Attendance at meetings
1 June 2013
14 May 2014
9 January 2017
10 May 2017
26 April 2010
7 May 2010
31 October 2017
10 May 2018
31 October 2012
15 May 2013
9 September 2008
14 May 2009
28 July 2014
14 May 2015
11 August 2008
14 May 2009
1 February 2016
12 May 2016
18 January 2008
15 May 2008
9/9
9/9
3/9
2/9
9/9
9/9
9/9
9/9
9/9
8/9
1/1
1/1
–
1/1
1/1
–
1/1
1/1
1/1
1/1
6/6
–
–
–
4/6
–
6/6
2/6
4/6
6/6
–
–
–
1/6
–
–
6/6
6/6
6/6
6/6
1. Peter Bazalgette was appointed as Executive Chairman with effect from 1 July 2017 until 8 January 2018.
2. Salman Amin was appointed to the Board and Nomination Committee on 9 January 2017.
3. Adam Crozier stepped down as Chief Executive on 3 May 2017.
4. Margaret Ewing was appointed to the Board, Audit and Risk Committee and Nomination Committee with effect from 31 October 2017.
5. Roger Faxon and Anna Manz were appointed to the Remuneration Committee with effect from 1 May 2017.
6. Executive Directors have rolling service contracts that provide for 12 months’ notice by either party.
7. Andy Haste stepped down as a member of the Remuneration Committee with effect from 10 May 2017.
8. John Ormerod was unable to attend the Board meeting in September due to a prior commitment.
Succession planning and diversity
Succession planning
The Board recognises that effective succession planning is key to the Company’s ability to achieve its strategic objectives and is also
integral to maintaining an effective Board. The Board has in place a framework which it reviews regularly to ensure that:
• The Board is refreshed appropriately in order to encourage new ideas
• There is a diverse Board with a wide range of skills and experience
• Board tenure is appropriate and Board members remain independent
During the year the Board has undergone some changes as set out below:
Chief Executive: In May 2017 we announced that Adam Crozier would leave ITV in June 2017. Following this, we commenced
the recruitment process for a successor. As part of its succession planning process, the Board had already discussed the key skills,
experience and other requirements of the role. They established a small committee comprised of Peter Bazalgette, Andy Haste,
Roger Faxon and Mary Harris to manage the process. The Board engaged Spencer Stuart to assist and provided them with a clear brief.
Throughout the process, the Committee met regularly and gave careful consideration to the candidates proposed. Face to face interviews
were held and after much debate a strong shortlist was agreed who were asked to meet with all members of the Board. The Board
unanimously agreed that Carolyn McCall should be asked to join ITV as Chief Executive, which we announced in July 2017. Carolyn joined
the business on 8 January 2018 and in the interim period the Board agreed that Sir Peter Bazalgette should take the role of Executive
Chairman and Ian Griffiths was promoted to COO & CFO.
Non-executive Directors: During the year, we welcomed two new Non-executive Directors: Salman Amin with effect from 9 January 2017
and Margaret Ewing with effect from 31 October 2017. Details of the recruitment process for Salman Amin are set out in the Annual Report
and Accounts for 2016. When considering the recruitment of Margaret Ewing, the Board was mindful of the need to ensure succession
planning for the Chairman of the Audit and Risk Committee as John Ormerod, the current Chairman of that Committee, is stepping down
from the Board in May 2018, and wanted to ensure an appropriate handover period. The Board engaged Zygos to assist with the
recruitment of Margaret Ewing following a similar process as that set out above for the Chief Executive.
Both John Ormerod and Andy Haste will step down from the Board following the AGM in May 2018 and the Board is considering the current
diversity of the Board with a view to considering further appointments if appropriate.
Committees: The Board also reviewed Committee membership and during 2017 Mary Harris succeeded Andy Haste as Chair of the
Remuneration Committee. In addition, Anna Manz and Roger Faxon joined the Remuneration Committee.
68
ITV plc Annual Report and Accounts 2017
Corporate Governance
Board tenure
(as at date of publication)
0–2 years
2–5 years
5–9 years
More than
9 years
3
3
3
1
Board gender diversity
(as at date of publication)
40%
60%
All Directors
• Operational overview
• Financial review
• Strategic overview
• Director’s duties and responsibilities
• Governance structure
• Review of previous minutes and
meeting papers
• Other key documents including
strategy and budget
• Meetings with other Board members
Diversity
It is our policy to retain a talented and diverse but relatively small board bringing a balance of
in-depth commercial and creative experience. The Board does not have a separate diversity
policy but instead relies on the ITV Equal Opportunities policy. ITV encourages diversity
throughout the business and recognises a range of characteristics. More information on this
can be found on pages 20 and 99. We believe that the ITV Board is a diverse group in terms of
experience, age, gender and educational and professional background. We consider diversity
as part of our succession planning process but recognise it is important to ensure that the
most appropriate person is chosen for the relevant position.
Induction, training and development
All Directors who join ITV receive a comprehensive induction. It is intended to provide
the Director with an overview of the industry and important key themes for the Company.
It is also used to familiarise each Director with the different areas of the business and
employees within the Company. During the year, Margaret Ewing and Salman Amin were
appointed as Non-executive Directors and Carolyn McCall as Chief Executive. Margaret
joined as a successor to the Audit and Risk Committee Chair and as such her induction
was tailored accordingly. More details can be found below.
During a Directors’ period of appointment, they are continually updated on the Group’s
different business areas and the competitive and regulatory environment in which they
operate. This is done through:
• Updates and papers which cover changes affecting the Group and the market in which
it operates and meetings with senior executives across the Group and key advisers;
• Regular updates on changes to the legal and governance requirements of the Group
and in relation to their own position as Directors
• Presentations given at Board and Committee meetings on business matters and technical
update sessions from external advisors where appropriate
Executive Directors may accept external appointments as Non-executive Directors of other
companies and retain any fees paid to them. Further details of external positions held by
Directors can be found on page 96.
General Board Induction
Executive
• Visits to key sites
• Build relationship with Chairman
Non-executive
• Meetings with shareholders
(as appropriate)
and Management Board members including
the Senior Leadership Team
• Meetings with internal and external
advisers (as appropriate)
• Meetings with senior executives
• Meetings with shareholders
Customised Executive Director induction
Customised Non-executive Director induction
Carolyn McCall
• Visits to main hub sites, studios sets and regional news teams.
• Meetings with shareholders
• Meetings with Management Board members and divisional
board members
• Site visit to the new London office
Margaret Ewing
• Health and safety
• Tax and Treasury Committee and Operational Risk Steering Group
• Data Protection and GDPR’s impact on ITV
• Visit to the shared service centre
• London property strategy update
69
Strategic ReportGovernanceFinancial StatementsAdditional information Governance
Corporate Governance continued
Terms of engagement for the
Non-executive Directors and job
descriptions for the Chairman, Chief
Executive and Senior Independent
Director are available on our website.
www.itvplc.com/investors/
governance
Board evaluation
External
The Board undertakes an external evaluation every three years to review its effectiveness.
The last external Board evaluation took place in 2016.
Internal
The work of the Board and its committees is reviewed annually. The evaluation takes the
form of a detailed questionnaire and interviews with the Board and Committee members
eliciting feedback on a wide range of topics. In addition, input is sought from the Executive
Directors, other relevant senior executives and external advisers. Results are then passed
to the relevant Committee Chairman and a report of actions is submitted to the Board and
Committees and actioned as appropriate. The table below indicates the important themes
that were identified for the Board from the exercise for 2017. Committee actions are set out
on pages 73 and 85.
Actions for 2018
Composition
• Ensure there is a broad range of experience and perspective on the Board,
in particular recent media, technology and digital experience
• Consider the successor for the Senior Independent Director when Andy Haste steps
down from the Board.
Effectiveness
• Review meeting structure to enhance productivity and efficiency and allow for greater
in depth discussions
Stakeholder engagement
• Engage more regularly on wider stakeholder engagement
• Spend more time understanding and visiting UK and international acquisitions
Board visit
During 2017 a Board meeting was held
in Manchester which included a visit to
the Coronation Street set and a lunch
with employees.
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ITV plc Annual Report and Accounts 2017
Corporate Governance
Investor profile
The percentage of issued capital by type
of holder is as follows:
Institutional shareholders
Private shareholders
Other
97.26%
2.72%
0.02%
Stakeholder engagement
The Board has a responsibility to create value for all its stakeholders and we believe it is vital
to engage and listen to their views. As one of the biggest national broadcasters in the UK,
ITV has a wide range of stakeholders and more on how we engage with some of these
different groups is detailed below:
Investors: The Board attaches a high priority to effective communication with investors
and has regular open dialogue with them. During the year meetings were routinely held with
institutional investors to keep them updated on the Company’s performance against our
strategy. The Board is kept informed of any feedback from these meetings. Further details can
be found in our ‘investor calendar’ below. Our AGM provides a forum for private shareholders
to raise questions with the Board directly should they wish. They have ample opportunity to
ask questions during the meeting and before and after the event. The Chairman and Senior
Independent Director are always available to all shareholders.
Employees: Engagement with employees is facilitated in a number of ways. We have
engagement surveys and Carolyn McCall has introduced weekly podcasts to keep employees
up to date with what she has been doing and to communicate important issues for ITV in an
effective and engaging way. In addition, a separate email has been set up for employees to
ask Carolyn any questions they may have. Further details of what else we do around employee
engagement can be found on page 100, including information on our annual roadshows.
Viewers: ITV reaches a vast audience across the UK and the Board recognises the important
role it plays for viewers. Viewers are able to tell us their thoughts directly via email or
telephone with contact details provided on our website. They are also able to use our regulator
Ofcom, to raise any concerns they may have. The Board has delegated the review of such issues
to the Broadcast Board where a compliance report is received monthly detailing viewer or
regulator concerns. Our dedicated viewer services team was awarded the Best Customer
Services in Telecoms & Media for the seventh year running in 2017 and is on hand to resolve
any technical issues or other questions our viewers may have. We now also provide bespoke
support for all of our live Daytime shows, ITV Box Office events, and the ITV Hub to enhance
our viewer experience.
Our investor calendar
March
• Full year results
published and roadshow
in London
• Citi Annual Media
conference in London
May
• Q1 Trading Update
published
• JP Morgan conference
• Roadshow in the US
July
• Interim results
published and
roadshow in London
September
• Interim results
roadshow in London
• Barclays conference
in London
• European roadshows
in Frankfurt and Milan
November
• Q3 Trading Update
published
• Morgan Stanley
TMT conference
in Barcelona
• US roadshow
April
• Full year results
roadshow in London
and US
June
• Bank of America Merrill
Lynch conference in
London
August
• Interim results roadshow
October
• US roadshow
in London
71
Strategic ReportGovernanceFinancial StatementsAdditional information Governance
Audit and Risk Committee Report
In this report
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.
Dear Shareholder,
On the following pages we set out the Audit and Risk Committee’s report for 2017,
which provides an overview of the areas considered by the Committee during the year.
As expected, 2017 was more challenging than recent years for ITV. Economic uncertainty in
particular associated with Brexit has resulted in lower UK advertising revenues and profits.
However, the Committee has continued to ensure that judgements remain balanced.
During the year, ITV’s 2016 Annual Report and Accounts were included as part of a sample
within the FRC thematic review of reporting on Alternative Performance Measures (APMs),
with the object of improving the quality of disclosures and identifying good practices.
As a result of the review, our definitions of APMs on page 34 have been clarified to aid
shareholders’ understanding.
Our risk management process continues to develop. We have included some case studies
on page 78 and 79 to highlight some initiatives that we have developed to consider the
approach of our leadership teams in relation to risk on production and development of
our three lines of defence model for the approach to health and safety in production.
During the year, we were delighted to welcome Margaret Ewing as a Non-executive Director
and successor to me as Chair of the Audit and Risk Committee. I will be stepping down as
a Director of the Company following the AGM in May 2018. Margaret brings very broad
experience to the Committee, having been a senior partner at Deloitte, Group Finance
Director of listed companies and is an experienced Non-executive Director.
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.
As mentioned in previous years, we seek to respond to shareholders’ expectations in our
reporting. We reiterate that we welcome feedback from shareholders.
John Ormerod
Chairman, Audit and Risk Committee
28 February 2018
We have
engaged with the
HSE, our insurers
and unions on a
new approach
to health and safety
risk on production,
which ensures local
ownership of risks.”
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ITV plc Annual Report and Accounts 2017
Audit and Risk Committee Report
Who is on the Committee
The Committee is composed entirely
of independent Non-executive Directors.
Full details of attendance at Committee
meetings can be found on the table on
page 68.
Our role
Following each meeting, the Committee
communicates its main discussion points
and findings to the Board.
The current members are:
• John Ormerod (Chairman)
• Margaret Ewing (appointed 31 October 2017)
• Mary Harris
• Andy Haste
• Anna Manz
The Committee members have between them a wide range of business and financial experience.
The Committee considers that John Ormerod, Anna Manz and Margaret Ewing have recent and
relevant financial experience for the purposes of the Code. Detailed biographies can be found on
page 62 and 63.
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 advise the Board
on specific strategic risk exposures and mitigations
• 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 remuneration performance
objectives, and
• Review the quality and effectiveness of the external audit and the procedures and controls
designed to ensure auditor independence.
Meetings
February
• Year end financial
reporting issues and
judgements
• Fair, balanced and
understandable review
of the Annual Report
and Accounts
• Viability Statement
verification
• KPMG audit conclusions
and findings
• APMs and exceptional
items
May
• Half year financial
reporting issues and
judgements
• Compliance checklist
• Draft Annual Report
• External audit strategy
• Internal audit
and Accounts
• Audit opinion
independence and
evaluation
July
• Half year report
• KPMG review conclusions
November
• Year end planning
• Full year financial
and findings
September
• Emerging and business
specific risk reviews
reporting issues and
judgements
• Distributable reserves
planning
• KPMG interim controls
review findings
• Review effectiveness
of internal audit and the
following year’s internal
audit plan
At each meeting the Committee receives a report from the Head of Internal Audit on the progress of the work and internal audit findings.
In addition to the September ‘risk focused’ meeting, the Committee also considers specific risk topics at meetings throughout the year.
In addition to Committee members the Chairman of the Board, Chief Executive, COO & CFO, Director of Group Finance, 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 partner and Head of Internal Audit without executives present.
Annual review
The Committee’s terms of reference
can be accessed on our website.
www.itvplc.com/investors/
governance
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,
COO & CFO, Director of Group Finance, members of the external and internal audit teams 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 the year
will include revisiting the internal audit model after the strategic refresh, and reviewing how the
Committee engages with the risk functions to ensure they continue to meet the needs of the
business. The Committee will continue to review its membership to ensure the skills and experience
align with the business as it develops.
73
Strategic ReportGovernanceFinancial StatementsAdditional information Governance
Audit and Risk Committee Report continued
Our focus in 2017
In planning its own agenda, and reviewing the audit plans of the internal and external auditors, the Committee takes account of significant
issues and risks, both operational and financial, likely to have an impact on the Company’s financial statements and/or the Company’s
execution and delivery of its strategy. The Committee also addresses specific queries referred to it by the Board or Remuneration Committee.
During 2017, there were no topics where there was significant disagreement between management, the 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.
External
audit
• 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
• Auditor management reports
• Audit report
Risk
• Principal risks and uncertainties
and risk mitigations
• Effectiveness of the risk
management process
• Cyber security (page 77)
• Business continuity
•
• Technology modernisation (page 77)
• Health and safety
• Regulatory and programme
Information security and GDPR
compliance
• Bonus and share plan outcomes
Further information on our risk
management framework can be found
on pages 50 to 57
Financial
disclosure
and
judgements
Internal
control
• Financial results announcements
• Annual Report and Accounts
• Accounting judgements and estimates
• Developments in financial reporting
• Fair, balanced and understandable
• Viability Statement (page 58)
• Going concern (page 120)
• Goodwill impairment (note 3.3,
page 143)
• Tax (note 2.3, page 131)
• Deal debt (see page 75)
• Pension accounting (note 3.7, page 153)
• Deficit financing (see below)
• Revenue recognition (IFRS 15) (page 75)
• Appropriateness of Alternative
Performance Measures (page 78)
• Litigation provisions (page 76)
•
•
•
Internal Audit independence
and effectiveness
Internal Audit plan
Internal Audit report findings
and outcomes
• Effectiveness of internal controls
• Post-acquisition reviews
• Monitoring acquisition earnouts
Insurance programme
and related accounting
• Whistleblowing process
• Material litigation
•
• Fraud controls
• Anti-bribery controls
• Technology controls
• Tax policy and controls
• Treasury policy and reports
• Tax and Treasury Committee review
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ITV plc Annual Report and Accounts 2017
Audit and Risk Committee Report
Most of the topics mentioned above are relevant to all businesses. However, matters specific to ITV include:
• Deal debt: this is where management estimates the over and under delivery of advertising value to agencies. The Committee
reviews management’s approach and method of determining the provisions required for net 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.
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, as set out below. The Committee carefully reviewed these transactions to ensure that the judgements
applied by management were reasonable and any complex accounting guidance followed correctly. During 2018, the Committee will
also undertake post-acquisition reviews of significant investments in subsidiaries and associates over the past five years.
Area of focus
Financial reporting and judgement
Action taken by management
Revenue
recognition
The following points were noted:
• A review of key documentation
between the insurers, ITV or the
customer had been performed
by management
• Management had sought legal
counsel and opinion
As a result of the above actions,
management considered it
appropriate that:
• The outstanding receivables
are fully impaired
• While management consider
the credit insurance policy
remains effective, under IFRS
no asset should be recognised
at present
• Due to the timing difference
between the impairment of
the receivables in 2017 and
the potential recognition of
the credit insurance policy
recovery in a later period, this
should be highlighted within
the financial statements
as an exceptional item.
Talpa signed a four year deal
to license The Voice of China
in January 2016 and credit
insurance was arranged.
The format revenue for all
four years was recognised in
full in 2016 in line with our policy
and accounting standards.
In 2017, Talpa took back the
licence for The Voice of China
due to a breach of agreement
by the customer resulting from
non-payment of outstanding
invoices. ITV is pursuing talent
for the amounts due and has
submitted a claim under its credit
insurance policy for the amounts
due from the customer.
While management is confident
in the Group’s position that the
credit insurance policy remains
effective, IFRS only permits
an asset relating to the credit
insurance to be recognised
when the receipt of monies
is virtually certain.
The judgement focused on:
• Whether the £30 million of
unpaid receivables held on the
balance sheet are recoverable
• Whether an asset should be
recognised for the credit
insurance
Also see note 2.1 on page 124.
Action taken by the Committee
and outcome
The Committee assessed
management’s proposed
accounting treatment for the
outstanding receivables and
credit insurance, considered
management’s report on the
accounting treatment, had direct
conversations with the legal
advisers and agreed with the
assessment that:
• The receivables should be
fully provided against
• No asset should be recognised
in relation to the credit
insurance in 2017
• The disclosure, as proposed,
is appropriate
KPMG also presented their view
on the matter to the Committee,
noting consistent conclusions
on the appropriate accounting
treatment and disclosure.
75
Strategic ReportGovernanceFinancial StatementsAdditional information Governance
Audit and Risk Committee Report continued
Action taken by the Committee
and outcome
The Committee assessed
management’s proposed
treatment for the incremental
costs, discussed the proposed
presentation with management,
and agreed that:
• The new London office project
is a significant one-off and
not in the normal course
of business
It will require separate
disclosure of the accounting
implications within the
financial statements and
in the Finance Review
•
The Committee also agreed
with management that all other
costs that were expected to
be incurred regardless of the
property decision, such as
depreciation on studios or office
fit costs or service charges, will
continue to be recognised as an
operating expense within the
underlying results.
The Committee’s actions included:
• A review of the nature of
the dispute and developments
to date
• Discussions with ITV’s general
counsel and US legal advisers,
and
• A review of management’s
proposed accounting treatment,
including provisions held
The Committee agreed with
management’s proposed
accounting and presentation.
Area of focus
Financial reporting and judgement
Action taken by management
London
properties
Management proposed that
incremental costs incurred across
the project over the medium
term, both capital and income
statement related, should be
ring-fenced and removed from
the underlying results i.e. any
one-off, dual running or dual
temporary rent costs and capital
expenditure on planning/new
build of HQ.
The Group has announced
its intention to redevelop
its South Bank site and build a
new London office.
The teams currently located
in the South Bank site will be
relocated to various sites on
a temporary basis while the
South Bank site is redeveloped.
Over the course of the project
incremental costs, both capital
and income statement related,
will be incurred.
The judgement focused on
the presentation of these
incremental costs, as exceptional,
which arise solely as a result of
the project, within the Annual
Report and Accounts.
Accounting for
Gurney litigation
In 2016, due to evidence of
alleged breaches of contract
and other fraudulent issues, the
Group, having taken legal advice,
initiated legal proceedings
against the minority owners,
who continue to hold a 38.5%
membership interest in Gurney
Productions LLC (Gurney).
These minority owners dispute
the allegations and have counter-
claimed for damages of at
least $150 million. The action
is ongoing.
Financial reporting and
judgement involved:
• The accounting for the
ongoing operations of Gurney
• The measurement of liabilities
held for settlement of a
counter-claim, if any, and
for the cost of ongoing
legal proceedings
Based on the current status of
the business, and taking into
account the legal proceedings,
management proposed that
for accounting purposes:
• Gurney should be treated as
if it had been wound down with
no further results recognised
in the accounts, a provision
recognised against the
goodwill and against assets
within Gurney
• An acquisition-related
liability should continue to
be maintained for potential
ongoing contractual
obligations
• No provision should be held
for the counter-claim against
ITV as the Directors believe
this counter-claim is completely
without merit, and
• A provision for legal costs,
accounted as an exceptional
cost, should be held for ongoing
legal proceedings
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ITV plc Annual Report and Accounts 2017
Audit and Risk Committee Report
Other matters
In addition to financial reporting matters, the following topics were reviewed:
Area of focus
Issue
Action taken by Committee
Outcome
Cyber security
and simulation
exercise
Cyber security is an increasing
risk as our business develops
new revenue streams and direct
to consumer propositions.
Completed and planned
mitigations were reviewed
and assessed.
The Committee noted the
progress that had been made
and will continue to monitor
and review mitigations.
The Committee undertook a
detailed review of the cyber
security risks and strategy,
including ongoing actions taken
by management around:
• Embedding IT controls
• Educating our colleagues
• Detection and response
• Ownership across organisation
and third parties
The Committee also reviewed
findings from a cyber incident
and phishing exercise conducted
during the year.
Technology
modernisation
Legacy business systems continue
to be modernised to reduce a
number of key business risks.
The Committee reviewed the
programme of work to modernise
legacy business systems, including:
•
Implementation of a cloud-
based financial and payroll
system in the US
• Development of a bespoke
artiste payment system in
the UK
• Progress in the replacement
of our airtime sales system
Completed and planned
mitigations were reviewed
and assessed and the Committee
will continue to keep this
under review.
Tax
Employment
status –
ITV Studios
production
The Criminal Finances Act 2017
introduced new Corporate
Offences of Failure to Prevent
the Facilitation of Tax Evasion.
The Committee monitored the
actions taken by management to
implement reasonable prevention
procedures in line with published
HMRC guidance.
Prevention procedures were
reviewed and assessed and the
Committee considered these to
be adequate. The Committee will
continue to receive updates.
The Committee received regular
updates from management in
order to assess whether ITV is
following best practice in how
it engages people, and adapting
to change where appropriate.
The Committee noted the
progress and will continue
to monitor and review this area.
The issue of employment and
worker status in the modern
economy has come under
increasing scrutiny, particularly
in the UK where employment
and tax law and practice are
developing as a result.
Employment status can be
especially complex in television
production, where freelancers
are often used both behind and
in front of camera.
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Audit and Risk Committee Report continued
Area of focus
Issue
Action taken by Committee
Outcome
Alternative
Performance
Measures
The Committee discussed the FRC
review points with management
and agreed with management’s
recommendation to provide:
The FRC welcomed the planned
changes and these have been
reflected in the Annual Report
and Accounts; refer to page 34.
• Further explanations of
exceptional restructuring and
reorganisation costs in future
Annual Reports and Accounts,
and to cease referring to these
costs as non-recurring
• Disclosure noting that the
acquisition-related costs are
not considered to be part of
the core operations of the
business and hence require
highlighting in the accounts,
rather than referring to them
as being non-recurring or
one-off in nature
During 2017, ITV’s 2016 Annual
Report and Accounts were
selected within a sample of
companies for the Financial
Reporting Council’s (FRC)
thematic review of reporting
relating to Alternative
Performance Measures.
The FRC has asked that we point
out that its review only covered
the specific disclosures relating to
the thematic review and provided
no assurance that the report and
accounts were correct in all
material respects.
Matters discussed with the FRC
focused on:
• Why restructuring and
reorganisation costs were
determined to be non-recurring
• How the company determined
that acquisition-related
expenses should be treated as
operational exceptional costs
Treasury policy
Anti-bribery and
corruption
In 2016, after reviewing the
annual Treasury report, the
Committee had requested further
analysis not just on what foreign
exchange (FX) exposures were
being hedged, but also on what
was being left unhedged.
This analysis was prepared and
discussed at the Tax and Treasury
Committee. A recommendation
for some amendments to the
treasury policy on FX risk
managed was reviewed by the
Committee as part of the 2017
annual treasury report.
Following an internal audit review
on the implementation of our
anti-bribery and corruption
policies, actions to strengthen
implementation of the Group’s
programme were recommended
by Internal Audit.
The Committee reviewed the
result of the internal audit, the
recommendations and
management’s response.
The Committee agreed with the
proposal to amend the treasury
policy on FX risk management
and recommended that the Board
approve the revised policy.
The Committee agreed to keep
the agreed actions under review.
Management has put in place
a cross-business steering group
to help ensure that the agreed
actions, such as risk assessments
and enhanced local language
guidance and training, are
implemented consistently
across the business.
Case study: new approach to health and safety – Emmerdale project
We have been working on a project with Emmerdale trialling a refreshed approach to considering the effectiveness of health and
safety on production. The project was in three stages – Discovery, Collaborative Analysis and Improvement – and required all aspects
of the production team to focus on the day-to-day constraints and opportunities that they face identifying risks and potential
mitigations. A team, nominated from the production, is in place, supported by the health and safety team, to deliver improvements.
We have engaged with the HSE, our insurers and unions on this new approach, which supports risk management in a more efficient
and effective way while ensuring local ownership of risks and accountability for the implementation of solutions.
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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. Further information on our risk management processes and details of our principal risks is included in the Strategic Report
on pages 50 to 57.
Following on from earlier reviews by the Committee on health and safety processes in the business, we have developed some innovative
programmes to develop our approach to risk, moving 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. Further information is set out in the case studies
below and on page 78.
In 2017, the Committee reviewed the management of pension risks in ITV’s defined benefit schemes, focusing on how management
and pension trustees were managing risks relating to longevity, interest rates, inflation rates and investment strategy.
The Committee also reviewed the General Data Protection Regulation readiness plan for the business. This included detail of the
governance model and the results of a detailed personal data audit. The Committee reviewed the workstream activities and plans
and will keep this under review in 2018.
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.
As part of our internal control process, the Group’s strategy is reviewed and approved by the Board. The Group performs an annual
strategy review and a rolling five year financial planning exercise, which are reviewed and approved by the Board. 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 to the Board,
along with an update of the Group’s performance against strategic KPIs and cash. Actual results are compared with budget and forecasts,
and key trends and variances are explained and analysed.
Leading Risk
During the year, we introduced a Leading Risk programme to support our leadership
team in ITV Studios to consider risk effectively within its business area. The programme
was developed with a focus on behaviour rather than process controls and to help build
a consistent language around risk. We partnered with the London School of Economics
(LSE) on a research project based on this programme, which will provide us with
a better understanding of risk decision- making to help us enhance a positive risk
management culture.
The programme uses case studies to provide effective group conversations about how
risk management works in reality, the impact of risks that are realised, the impact of
leadership behaviours on risk management and the importance of culture and voice to
actively manage risk. Building on this, the programme seeks to provide an understanding
of risk drivers and risks that are accepted in the pursuit of goals. Output includes a risk
appetite model that reflects the views of the leadership team, which can be articulated
throughout the business.
To date, nearly 200 of our leaders in the UK and US have gone through the programme
with further roll-out during 2018 internationally.
Dr Soane, LSE, explains:
“ Risk is clearly a significant consideration for ITV. We are examining how risk managers
think and feel about risk. We are also assessing risk managers’ views on how their teams
make decisions about risk, and on the organisational climate. For example, do people
feel empowered and enabled to speak up if they see something they’re worried about?
Do teams that have a strong shared understanding about decision processes.”
Risk is clearly
a significant
consideration
for ITV. We are
examining how
risk managers think
and feel about risk.”
200of our leaders in the UK and
US have gone through the
programme with further roll-
out during 2018 internationally.
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Audit and Risk Committee Report continued
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, reviews of balance sheet checklists certified
by local management, ‘deep dive’ sessions with relevant management on the management of certain key risks and controls and through
a suite of automated analytics that 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 which reports 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. 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
Prior to the start of the year, the Committee considered and approved the internal audit plan, which included audits across the Group
as well as assurance over live projects. During the year, the Committee reviewed findings from these internal audit reports, the actions
taken to implement the recommendations made in the reports and the status of progress against previously agreed actions. All internal
audit reports are available to the Committee.
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.
KPMG were appointed as auditor
of ITV plc in December 2003 prior
to the Company becoming the
parent company of the ITV Group
on 2 February 2004. In 2012 we
undertook a competitive tender
and, applying the BIS guidance
on the EU Audit rules. The next
mandatory tender would be for
the 2023 financial year and the
next mandatory rotation would
be for the 2024 financial year.
The Committee continues to
monitor audit quality to ensure
a robust and effective audit.
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
• Policies in relation to non
audit work
As a result of these strict
guidelines the Committee
believes that non-audit services
do not have a direct or material
effect on the audited financial
statements. A copy of our Auditor
Independence policy is available
on our website at www.itvplc.com.
Fees paid to KPMG for 2017 are
set out in note 2.1 on page 128.
We monitor relationships with
other audit firms to ensure we
have sufficient choice for any
future appointment.
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
2017. The resolution was passed
and KPMG was reappointed.
The Committee has
recommended the reappointment
of KPMG at the AGM on
10 May 2018.
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External audit effectiveness and quality
The Committee follows the review programme below to satisfy itself of external audit effectiveness and quality.
February
• Audit scope and materiality
• Independence and objectivity
• Confirmation of work performed
and other significant risks
• Reappointment
May
• Audit plan and strategy
• Engagement
July
• Fees and independence
• Audit Quality Review focus areas
November
• Auditor Independence policy
(reviewed every two years)
• Audit fees – final approval
Audit quality is reviewed throughout the year and the Committee continues to use the Financial Reporting Council’s (FRC) Audit Quality
Practice Aid to structure its review of audit quality. When making its assessment of audit quality, the factors the Committee focused
on included:
External audit
quality reports
Auditor
interaction with
management
Auditor’s own
view of
effectiveness
The audit strategy for the year addressed thematic concerns that the FRC had highlighted.
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.
Enquired with regards to:
• Audit methodology and its effective application to ITV
• Robustness of challenges and findings on areas that 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
In its assessment of audit quality, the Committee also 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.
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Remuneration Report
In this report
The purpose of this report is to set out for
shareholders the principles and policy we
apply to remuneration for our Executive
Directors and to update you on how we
have applied these for the financial year
ended 31 December 2017. The report also
aims to demonstrate how our Remuneration
Policy aligns to our strategy, supports the
retention of the Executive Directors and
rewards them for strong performance.
Committee governance
page 85
Remuneration Policy
summary
Remuneration Policy
application 2017
Remuneration Policy
application 2018
Other disclosures
page 86
page 87
page 91
page 92
Dear Shareholder,
I am writing to update you on the work of the Committee during the year. Included within
the Remuneration Report is our Annual Report on Remuneration, which will be subject
to an advisory vote at our Annual General Meeting (AGM) on 10 May 2018.
From the Committee’s perspective, 2017 was an extremely busy year. As you are aware,
after seven years, Adam Crozier stepped down from the Board. In this context, it was
a priority for the Board and our shareholders that ITV continued to perform strongly
over the period of transition and that Carolyn McCall, our new Chief Executive, inherited
a business with positive momentum.
As described earlier in the Annual Report, the business has continued to make significant
progress despite external challenges. This has been achieved under the leadership of
Ian Griffiths, in his expanded role as COO & CFO, and Peter Bazalgette, who stepped into
the role of Executive Chairman.
The Committee made a number of key decisions during the year, which were made in
close consultation with both the Nomination Committee and the wider Board as a whole.
By the end of the year, we are pleased to report that ITV had not only robustly navigated
a challenging trading environment, but we now also have in place a highly talented and
experienced executive team for the future.
The changes described above inevitably required the Committee to consider a number
of ‘one-off’ matters outside of the normal course of business. During the year, we have
consulted extensively with our major shareholders and kept all our shareholders informed
regarding key decisions, all of which were fully disclosed to the market at the time.
Further information on the work of the Committee can also be found on page 85.
This included consideration of the remuneration framework for the wider employee group
when considering remuneration for the Executive Directors and other senior executives
and gender pay gap reporting. In addition, the Committee has reviewed the malus and
clawback provisions in the rules of the bonus and share award plans to ensure they
remain appropriate.
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ITV plc Annual Report and Accounts 2017
The business
has continued to
make significant
progress despite
external challenges.
This has been
achieved under
the leadership of
Ian Griffiths and
Peter Bazalgette.”
Remuneration Report
2017 performance
At the start of 2017, we expected a challenging year ahead for advertising with continued
economic and political uncertainty impacting business confidence. Our internal forecast
of a c.5% contraction in the advertising market over the year, which set the context for the
2017 target setting, has subsequently proved to be accurate. Despite these challenges,
ITV has continued to perform strongly. Real progress has been made against operational
KPIs and tight control maintained over costs and cash.
The 2017 adjusted EBITA target was set at £785 million versus the 2016 adjusted EBITA
outcome of £885 million. This lower, but still stretching, 2017 target reflected the decline
in the external advertising environment mentioned above. In addition, it should be noted
that the 2016 profit out-turn benefited from a format sale in a new geography, which
would not repeat in 2017. Given these downward pressures, the 2017 actual target being
£100 million below the 2016 out-turn was considered by the Board and the Committee
to be stretching at the time the target was set.
However, strong performance against a number of metrics ensured that adjusted EBITA
for 2017 was £842 million which represented a significant outperformance of expectations
at the start of the year. Linear viewing is up for the second year and continues to deliver
the mass audiences and key demographics advertisers demand. Video on Demand (VOD)
viewing is up nearly 40% with The ITV Hub now having over 21 million registered users,
with good growth in online advertising. ITV Studios delivered good organic revenue growth
and we have a strong pipeline of programmes for 2018.
Overall, and as discussed in the Strategic Report, ITV continues to make significant progress
growing, strengthening and rebalancing the business.
Performance-related pay
Performance measures for our Annual Bonus Awards (Bonus) and Long-Term Incentive Plan
(LTIP) are closely aligned to our KPIs. These are drawn from our strategy and cover all parts
of the business.
Stretching bonus targets were set for 2017, taking into account the challenging external
backdrop and the non-recurring item in 2016 described above. The Committee has
considered 2017 performance, and the subsequent remuneration outcomes, in this context.
The Committee noted that the adjusted EBITA, cost savings and cash conversion targets
set at the start of the year were all exceeded. Management has delivered exceptional
performance in a very difficult trading environment. In addition, the operational
performance of the business and performance against personal targets have been strong.
Over the past few years, we have included a cost-saving target in our Bonus awards to
ensure that management continues to focus on streamlining the business. Once again,
this target has been exceeded with a further £29 million of savings being delivered.
The Bonus payout level for 2017 is around 97% of maximum. The 2017 all-employee bonus
will be paid out in full, reflecting the outstanding contribution of ITV employees in a critical
year of transition. Further information and details of the Bonus targets for 2017 are set out
on page 88.
The performance period for awards made under the LTIP in 2015 ended on 31 December
2017. Based on performance over the last three years, a vesting outcome of 63% was
achieved. Full vesting was not achieved mainly due to outcomes relative to the stretching
EPS and share of viewing (SOV) targets originally set. In line with our phased approach to
the introduction of holding periods, 50% of the vested amount will become exercisable
in March 2020. Details are set out on page 89.
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continued
Strategic alignment of
remuneration with KPIs
for 2017 (pages 36 to 39)
LTIP
Strategic
targets
Performance
weighting
50%
20%
10%
10%
10%
Cumulative adjusted EPS
Financial KPI
Family SOV
Strategic KPI
Online, pay & interactive
growth
International production
revenue
Total non-NAR growth
Financial KPI
Annual Bonus
As Adam Crozier was only in post as Chief Executive for six months of the year (see below),
his total remuneration for 2017 is significantly lower than last year. Ian Griffiths’ reported
total remuneration for 2017 is £2.720 million, as detailed on page 87. However, this 2017
total remuneration includes the interim arrangements pertaining to his expanded role for
part of the year (see below), all of which were fully disclosed at the time of announcement
in May 2017. When considered on a more like-for-like basis, Ian’s total remuneration for 2017
is similar to last year’s.
The Committee considers the total pay for the Executive Directors to be a fair reflection
of both ITV’s performance and their respective contribution over the period.
Board changes
On 30 June 2017, Adam Crozier stepped down as Chief Executive and on departure his
remuneration arrangements were determined in accordance with his contractual terms
and the limits set out in the Remuneration Policy approved by shareholders at the 2017
AGM. All variable incentives continue to be performance based and prorated for time
served. In light of Adam’s departure, Ian Griffiths took on an expanded role in addition
to his previous responsibilities, until a new Chief Executive was appointed and had joined.
The Board agreed an interim package to reflect this expanded role.
Full details of the payments made in respect of these changes were disclosed at the time
of announcement in May 2017, and are also set out in the Annual Report on Remuneration.
Carolyn McCall joined ITV as Chief Executive on 8 January 2018. Her remuneration
arrangements and buy-out arrangements are consistent with the terms of the
Remuneration Policy approved by shareholders at the AGM in May 2017. Carolyn’s total
remuneration opportunity is broadly in line with that of the previous Chief Executive
and includes a cash allowance for income on retirement of 15% (25% for previous Chief
Executive). Details of Carolyn’s package were published at the time of announcement
in July 2017, and are replicated on page 92.
Remuneration Policy implementation in 2018
The policy approved by shareholders in 2017 will continue to apply in 2018. Details of
how the Committee proposes to implement the policy in 2018 are set out on page 91.
Following Carolyn’s appointment, the Company has commenced a strategic refresh which
will set the priorities for the business over the medium to long term. Following consultation
with major shareholders, the Committee has decided to defer the setting of performance
metrics and targets for the 2018 LTIP awards until this refresh has been completed to
ensure that the metrics and targets are fully aligned with the strategic plan.
Strategic
targets
Performance
weighting
Once the metrics and targets have been agreed, the Committee expects to publish details
on the Company’s website and in the 2018 Remuneration Report. While the metrics and
targets are yet to be determined, the Committee would expect to engage with major
shareholders regarding any material changes to the current approach.
Adjusted ITV plc EBITA
Financial KPI
Individual targets
(see page 89)
Profit to cash conversion
Financial KPI
Cost savings
60%
25%
10%
5%
Shareholder views
Over the course of the past year, we consulted with major shareholders on a number of
matters and we will seek to maintain this dialogue in future years. We would like to take the
opportunity to thank the investors and proxy voting agencies who took part in this process.
In this Remuneration Report, we have sought to adopt a transparent approach and we
would welcome feedback from our shareholders regarding the key decisions made.
Mary Harris
Chair, Remuneration Committee
28 February 2018
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ITV plc Annual Report and Accounts 2017
Remuneration Report
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 the table on
page 68
• Mary Harris (Chair)
• Sir Peter Bazalgette
• Roger Faxon
• Anna Manz
• John Ormerod
Our role
The main role of the Committee is to:
Following each meeting, the Committee
communicates its main discussion points
and findings to the Board. Regular
discussion topics are set out below.
• 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 as appropriate
• Approve the implementation of remuneration arrangements 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 100
• 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
• Determine the award levels for the Senior Executive Group based on performance against
annual bonus targets and long-term incentive conditions
Meetings in 2017
January
• Financial performance
February
• Bonus targets agreed
update
• Indicative bonus
outcomes and
payout levels
• Indicative LTIP
performance and
vesting levels
for current year
• LTIP awards and
targets agreed
for current year
• Remuneration Report
• Compliance with
Remuneration Policy
• Pay review outcomes
and changes to
Senior Executive Group
• Compliance with
shareholding
guidelines
• Remuneration Report
• Advisor independence
May
• Market update
• Financial
September
• Reward framework
and current trends
October
• Bonus payout
forecasts
performance update
• Consideration of
remuneration in the
wider employee group
• Consider operation
of current incentives
November
• Bonus framework
and targets
• Terms of reference
review
• Review of
remuneration
consultants
• Gender pay gap
• Annual pay review
In addition to Committee members, the Chief Executive, COO & CFO, Group HR Director, Director of Pensions and Reward and independent
adviser Deloitte 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, COO & CFO, Group HR Director and Deloitte, the independent adviser to the
Committee.
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 a review of the
terms of reference in light of the new UK Corporate Governance Code and the strategy refresh.
The Committee’s terms of reference can be accessed on our website.
www.itvplc.com/investors/governance
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Remuneration Report
continued
Remuneration Policy
The Company’s Remuneration Policy was approved by shareholders at the AGM on 10 May 2017 for a three year period. This Policy
will continue to apply for 2018.
The Policy aims 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 Policy balances these factors, while taking into account prevailing best practice
and fair outcomes for investors.
A significant proportion of the 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.
A summary of the Policy is below. The full Policy can be found on our website:
www.itvplc.com/investors/governance
Key features
How we implement policy
Link to strategy
Base salary
and provision
for an income
in retirement
Reflect skills, responsibility
and experience.
Competitive post-retirement
benefits or cash allowance.
Annual Bonus –
cash and Deferred
Share Award
Targets and measures set
annually based on business
plans at the start of each
year with payout determined
following the year end based
on performance against
objectives.
Not more than two-thirds
delivered in cash with the
balance deferred into shares
under the DSA, normally for
a period of three years.
Supports recruitment and
retention of Executive Directors
of the calibre required to deliver
the strategy.
To incentivise achievement of key
financial measures and objectives
to deliver the business strategy.
Compulsory deferral element
provides alignment with
shareholder experience and
supports retention of executives.
Reviewed annually with
consideration given to personal
and company performance;
pay levels in relevant market;
the wider employee pay review.
2018 salaries:
Carolyn McCall – £900,000
Ian Griffiths – £642,213
2018 cash allowance for
income in retirement:
Carolyn McCall – 15% (25%
for previous Chief Executive)
Ian Griffiths – 25%
Majority of the opportunity
based on corporate and financial
measures, the remainder on
performance against individual
and/or strategic objectives.
Up to 20% of the maximum
opportunity will be received
for threshold performance.
Maximum opportunity will not
exceed 200% of salary.
Current ongoing maximum:
Carolyn McCall – 180% of salary
Ian Griffiths – 165% of salary
LTIP
Performance measures closely
linked to financial and strategic
priorities.
The maximum award that may
be granted in any financial year
is 350%.
Performance period is not less
than three years, with awards
to be held for an additional two
year holding period after the
end of the performance period.
Subject to malus and clawback.
2018 grant levels:
Carolyn McCall – 265% of salary
Ian Griffiths – 225% of salary
To incentivise delivery of
performance aligned to the
business strategy over the
longer term and the creation
of shareholder value.
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ITV plc Annual Report and Accounts 2017
Annual Report on Remuneration
Annual Report on Remuneration
The sections of the Annual Report on Remuneration that have been audited by KPMG are pages 87 to 90, page 92 to 93
(limited to Non-executive Directors and payments to past directors for loss of office sections) and pages 94 to 95.
Remuneration Policy application in 2017
The following section provides details of how the current Remuneration Policy was implemented in 2017.
Executive Directors
The table below sets out in a single figure the total remuneration for both Executive Directors for the financial year.
Salary
Taxable benefits
Pension
Bonus (cash and shares)
Share awards 2, 3
Interim arrangements 4
Total
Adam Crozier 1
Ian Griffiths
2017
£000
470
10
118
829
623
–
2016
£000
941
19
235
677
1,760
–
2017
£000
608
15
152
979
507
459
2016
£000
575
14
144
380
1,076
–
2,050
3,632
2,720
2,188
Less interim arrangements 4
–
–
(459)
–
Total: excluding interim arrangements
2,050
3,632
2,261
2,188
1. Adam Crozier stepped down from the Board on 30 June 2017 and the amounts shown have been prorated for time served.
2. The amount shown for 2017 is the indicative value of the 2015 LTIP awards that were subject to performance conditions measured to 31 December 2017.
3. In the 2016 Annual Remuneration Report, the amount shown was the indicative vesting value of the 2014 LTIP awards that were subject to performance conditions measured
to 31 December 2016. The figures shown in the table above for 2016 represent the subsequent value received on the vesting date of 30 May 2017 using the share price on
that date (199.4 pence).
4. The 2017 remuneration for Ian Griffiths includes a temporary salary supplement that consisted of £133k salary, £33k pension and £293k bonus.
5. 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 but including
gains on exercise of options and amounts receivable under LTIPs, plus the total emolument figures for Non-executive Directors shown on page 90.
6. Details of remuneration arrangements for Sir Peter Bazalgette are set out on page 90.
Further information in relation to each of the elements of remuneration for 2017 set out in the table above is detailed below.
An explanation for 2016 is set out in detail in our 2016 Annual Report and Accounts, which can be found on our website.
www.itvplc.com/investors
Salary
Executive Directors did not receive a salary increase from 1 January 2017 as part of the normal salary review process.
Adam Crozier’s annual salary for the year was £941,000. During the year, Ian Griffiths was appointed to an expanded role as COO & CFO.
In order to reflect the increased operational responsibilities associated with the new role, his salary was increased by £50,000 to
£625,025 per annum with effect from 3 May 2017.
Following Adam Crozier’s decision to step down from the Board, Ian Griffiths was asked to lead the executive team on an interim
basis and take on additional responsibilities until a new Chief Executive joined the business. To reflect these additional responsibilities,
he received a temporary salary supplement of £200,000 per annum. In order to facilitate a suitable transition, this supplement will
remain payable until 7 April 2018. Full disclosure of the above changes to salary were set out on the Company’s website on 3 May 2017.
Peter Bazalgette took the role of Executive Chairman from 30 June 2017 to 8 January 2018. He received no additional remuneration
for this.
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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 usually 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.
Payments and deferrals in respect of the financial year are set out below.
The maximum bonus opportunity of 180% of salary for Adam Crozier was prorated for the period he was employed up to 30 June 2017.
The maximum bonus opportunity for Ian Griffiths was increased from 165% to 180% for the period he was in receipt of a temporary
salary supplement.
Adam Crozier
Ian Griffiths
% of maximum
bonus opportunity
earned
Value delivered
in shares under
the DSA
97.92%
97.50%
£276,404
£423,958
Value paid
in cash
£552,808
£847,916
Total value
£829,212
£1,271,874
Of the total bonus shown for Ian Griffiths, £978,521 relates to his ongoing bonus arrangements while £293,353 relates to the interim arrangements implemented on Adam Crozier’s
departure from the Board. The percentage of maximum bonus opportunity earned for 2016 was 40% for both Adam Crozier and Ian Griffiths.
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
currency movements. The corporate and financial targets used for 2017, together with performance against those targets and the
resulting level of payout are set out below.
Performance measure
Adjusted ITV plc EBITA
Profit to cash conversion
Cost savings
Strategic targets
Weighting
Threshold
Target
Maximum
Performance
achieved
Payout level
(% of maximum)
Performance required
60%
10%
5%
£745m
£785m
£825m
£842m
81%
£23m
85%
£25m
89%
£27m
91%
£29m
100%
100%
100%
Up to 20% is payable for threshold and up to 60% for target performance.
At the start of 2017, we expected a challenging year ahead for advertising with continued economic and political uncertainty impacting
business confidence. Our internal forecast of a c.5% contraction in the advertising market over the year, which set the context for the 2017
target setting, has subsequently proved to be accurate. Despite these challenges, ITV has continued to perform strongly. Real progress
has been made against operational KPIs and tight control maintained over costs and cash.
The 2017 adjusted EBITA target was set at £785 million versus the 2016 adjusted EBITA outcome of £885 million. This lower, but still
stretching, 2017 target reflected the decline in the external advertising environment mentioned above. In addition, it should be noted that
the 2016 profit out-turn benefited from a format sale in a new geography, which would not repeat in 2017. Given these downward pressures,
the 2017 actual target being £100 million below the 2016 out-turn was considered by the Board and the Committee to be stretching at the
time the target was set.
However, strong performance against a number of metrics ensured that actual adjusted EBITA for 2017 was £842 million which represented
a significant outperformance of expectations at the start of the year. Linear viewing is up for the second year and continues to deliver the
mass audiences and key demographics advertisers demand. Video on Demand (VOD) viewing is up nearly 40% with The ITV Hub now having
over 21 million registered users, with good growth in online advertising. ITV Studios delivered good organic revenue growth and we have
a strong pipeline of programmes for 2018.
The remainder of the bonus (25%) was based upon the Committee’s assessment of the contribution each Executive Director made to the
overall strategy through the delivery of specific targets. The Committee applies suitable judgement when assessing performance in this
regard. Both Executive Directors had a number of common objectives aligned to our strategic priorities and delivered well against these
objectives. The factors taken into account are summarised overleaf.
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Annual Report on Remuneration
Individual performance factors
Adam Crozier
Ian Griffiths
• Leadership and support of development of a creative, collaborative culture
• Facilitating a strong pipeline of programmes for 2018
• Overseeing conditions leading to the rebalancing of revenue streams
• Consistent and sustained strong performance in these areas
• Effective leadership of M&A activity
• Supporting the leadership team to deliver international creative performance
• Development of the London property development plans
• Supporting the Executive Chairman in delivery of key strategic priorities and embracing
an expanded executive portfolio following Adam’s departure from the Board
Payout level
(% of maximum)
91.67%
(prorated)
90%
Share awards
We are required to show share awards in the single figure table on page 87 according to the year in which the performance period for each
performance condition ended. The awards made in 2015 under the LTIP were subject to performance conditions measured to 31 December
2017. 63% of the total awards met performance conditions on 31 December 2017 and the indicative value of these awards is set out below.
Adam Crozier1
Ian Griffiths2
Number of
shares
awarded
804,436
491,722
Value at
award date
£
2,065,500
1,262,250
Number of
shares
due to lapse
424,244
181,937
Number of
shares
due to vest
Value at
31 December 2017
£
380,192
309,785
£622,754
£507,428
1.
For Adam Crozier, the number of shares that vest has been prorated for time served from the date of award to the vesting date in line with the rules of the LTIP. 50% of the shares
that vest will become exercisable on 27 March 2018 and 50% will become exercisable after a two year holding period on 27 March 2020.
2. For Ian Griffiths, 50% of the shares that vest will become exercisable following a one year holding period on 27 March 2019, and the remaining 50% will become exercisable after
a two year holding period on 27 March 2020.
3. For the purpose of the single figure table, the share price used to value the shares at 31 December 2017 was the average share price for the final quarter of 2017 (163.8 pence).
4. The share price used to calculate the number of shares under award was 256.7 pence (the average of the share price on each of 24, 25 and 26 March 2015).
When considering performance outcomes, the Committee looks beyond formulaic results to ensure the outcomes align with overall
business performance. For these awards, the formulae were applied without adjustment. Dividends accrue on vested shares during the
holding period.
Details of the performance achieved for the 2015 LTIP awards are below. A gateway condition of minimum cumulative adjusted EPS
(45.7 pence) was met before any portion of the award could vest.
Performance measure
Strategic targets
Weighting
Threshold
Maximum
Performance
achieved
Payout level
(% of maximum)
Cumulative adjusted EPS
Family SOV
Total non-NAR growth
International Production Revenue
Online, Pay & Interactive Revenue
50%
20%
10%
10%
10%
Vesting is on a straight-line basis between the threshold and maximum values shown in the table above.
5% growth pa
10% growth pa
5% growth pa
15% growth pa
5% growth pa
18% growth pa
45.7p
22.0%
22.44%
52.2p
49.5p
66.77%
21.73%
15.90%
28.71%
17.47%
0%
100%
100%
96.36%
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Pension
The Executive Directors were not part of an ITV pension scheme but received a cash allowance in lieu of pension with a value of 25%
of base salary. The cash allowance does not form part of the base salary for the purpose of determining incentives.
Chairman and Non-executive Directors
The table below sets out in a single figure the total remuneration for Non-executive Directors for the financial year.
Peter Bazalgette (Chairman)
Salman Amin
Margaret Ewing
Roger Faxon
Mary Harris
Andy Haste
Anna Manz
Archie Norman
John Ormerod
Notes
2
3
4
5
6
7
8
Fees
Taxable benefits1
Total
2017
£000
450
64
12
69
86
103
74
–
90
948
2016
£000
312
–
–
65
74
115
63
184
90
903
2017
£000
2016
£000
2017
£000
2016
£000
2
4
–
9
4
–
–
–
–
19
2
–
–
8
8
1
1
–
2
22
452
68
12
78
90
103
74
–
90
967
314
–
–
73
82
115
63
184
92
923
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. Salman Amin was appointed to the Board on 9 January 2017.
3. Margaret Ewing was appointed to the Board and the Audit and Risk Committee on 31 October 2017.
4. Roger Faxon was appointed to the Remuneration Committee on 1 May 2017.
5. Mary Harris succeeded Andy Haste as Chair of the Remuneration Committee on 10 May 2017.
6. Andy Haste retired from the Remuneration Committee on 10 May 2017.
7. Anna Manz was appointed to the Remuneration Committee on 1 May 2017.
8. Archie Norman retired from the Board on 12 May 2016.
LTIP awards made in 2017
On 11 May 2017, an award was made under the LTIP to Ian Griffiths in the form of nil-cost options, subject to performance over the period
to 31 December 2019.
% salary awarded
Number of options
Value at award date
Performance
period ends
Holding period
Vesting date
Release date
225
705,730
£1,406,306
31 December 2019
2 years
11 May 2020
11 May 2022
The Committee sets targets for the LTIP taking into account external forecasts, internal budgets, business priorities, risks and uncertainties.
Targets are set to be appropriately stretching in this context, with maximum performance set at a level that is considered to be the delivery
of exceptional performance. The award made in 2017 is subject to performance measures and targets as set out below. The award will be
subject to an initial cumulative adjusted EPS performance gateway equal to that required for threshold performance (56.3 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 targets
Weightings
50%
20%
10%
10%
10%
Threshold
(20% vesting)
Maximum
(100% vesting)
56.3p
20.2%
64.2p
21.6%
5% growth pa
10% growth pa
5% growth pa
15% growth pa
5% growth pa
18% growth pa
Vesting between threshold and maximum is on a straight-line basis.
Family SOV has an additional vesting step 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.
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Annual Report on Remuneration
Remuneration Policy in 2018
The following section provides details of how the Remuneration Policy will be implemented in 2018.
Salary
Salaries are paid in line with the Remuneration Policy. On 1 January 2018, Ian Griffiths received an increase of 2.75% in line with the wider
employee group.
Carolyn McCall
Ian Griffiths
Taxable benefits and pension
These are provided in line with the Remuneration Policy.
2018 Salary
£900,000
£642,213
Both Carolyn McCall and Ian Griffiths receive private medical cover, car-related benefits, and a cash allowance in lieu of participation
in any ITV pension scheme.
Bonus (cash and shares)
The targets for the annual bonus are generally set at the start of the financial year. The targets are based on assumed market conditions
and take into account both the budget for the year as well as longer-term strategic priorities.
Awards made to Executive Directors through the bonus will be paid two-thirds in cash and one-third deferred into shares under the DSA.
The performance metrics and weightings for 2018 bonuses will be similar to previous years. The Board considers the actual targets for
2018 to be commercially sensitive at this time and we envisage including equivalent disclosures to those included for the 2017 bonus in
next year’s report. The Committee may adjust bonus targets or outcomes to reflect significant one-off events (e.g. major transactions),
foreign exchange movements or material changes to assumed plan conditions to ensure that the plan continues to reward performance
fairly. The Committee may amend the bonus pay-out should any formulaic assessment of performance not reflect the overall business
performance of the year.
Share awards
The performance measures for LTIP awards are reviewed annually to ensure that they remain aligned with the Company’s strategic
priorities over the course of the three year performance period.
For 2018, Carolyn McCall will be granted an award over 265% of salary and Ian Griffiths an award over 225% of salary.
Following Carolyn’s appointment as Chief Executive in January 2018, the Company is currently in the process of completing a strategic
refresh. The Committee has decided to defer the setting of performance measures for the 2018 awards until the strategic refresh has been
completed. This is to ensure that the targets are fully aligned with the future strategic plan. Major shareholders were consulted regarding
this approach and the feedback was supportive.
Once the targets for the 2018 awards have been set, the Committee expects to disclose these to shareholders on the Company’s website and
in the Remuneration Report for 2018. The Committee will engage appropriately with major shareholders regarding any material changes.
Malus and Clawback
Malus and clawback 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. Clawback allows
for repayment of bonuses previously paid and/or shares previously received following vesting. Malus/clawback 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 would be applied may be considered from time to time but currently include
material misstatement of results, gross misconduct or fraud. The Committee has carried out a review of these arrangements and is happy
that there is no need to instigate either malus or clawback for any vested or outstanding awards at this time.
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Non-executive Directors
There was no increase to Non-executive Director fees from 1 January 2018, which are as set out below.
Chairman
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 2018
£
1 January 2017
£
% Change
450,000
65,064
450,000
65,064
25,000
20,000
5,371
20,000
5,371
25,000
20,000
5,371
20,000
5,371
–
–
–
–
–
–
–
Sir Peter Bazalgette acted as Executive Chairman from June 2017, with no additional fees paid, and resumed his non-executive role from 8 January 2018. In addition to his fee,
Peter will receive private medical insurance and this will be disclosed in full in 2018.
Details of Committee memberships can be found on pages 62 and 63.
Carolyn McCall – buyout arrangements
In line with the Remuneration Policy, it was agreed that ITV would buy out certain bonus and share awards that Carolyn forfeited by
leaving her previous employer, easyJet plc, and joining ITV. Details of forfeited arrangements are set out in the easyJet plc Annual Report
and Accounts for 2016/17.
In determining the buyout, the Committee has taken into account relevant factors including performance conditions attaching to
the forfeited awards, the likelihood of the awards vesting and the form and timing of the awards. The awards will be bought out on
a comparable basis where possible, particularly where the performance period has completed. Part of the buyout will be dependent
on the extent to which legacy incentives at her previous employer vest in due course.
All elements of the buyout package are subject to continued employment. If Carolyn gives notice to leave the Company within 12 months
of commencing employment, all awards paid or that vested during this period will be repayable by her.
The buyout arrangements comprise the following:
• Annual bonus – easyJet bonus award forfeited in respect of 2016/17 will be replaced with an award of equivalent value.
This will include a cash payment of £607,287 and a deferred share award equivalent to £303,643, which will vest after three years.
• Legacy deferred bonus shares – shares relating to easyJet bonuses paid in prior years, and not subject to additional performance
conditions, will be replaced with equivalent awards over ITV shares that will vest over the same time horizon as awards forfeited.
• Long-term incentives – various long-term incentive awards that were forfeited on joining ITV will be replaced with equivalent ITV share
awards. The value of the buyout in respect of the 2014 and 2015 awards will be based on the final vesting outcome for the corresponding
easyJet awards. To the extent that the 2015 award lapses, no buyout will be made. In respect of the 2016 award, a replacement award
will be granted in due course, subject to ITV performance criteria. Consistent with the approach taken in respect of the 2018 ITV LTIP award,
the exact performance criteria will be determined following the completion of the strategic refresh. In all cases, the awards will vest and
be released over the same time horizons as awards forfeited, which includes the continued application of relevant holding periods.
The share elements of the buyout will be formally granted during the course of 2018. Full details regarding the buyouts denominated
in shares will be set out in the relevant stock exchange announcement at the time of grant, and shareholders will also be provided with
additional detail in next year’s Remuneration Report.
Other Disclosures
Payments to past Directors or for loss of office
Adam Crozier stepped down as Chief Executive on 30 June 2017. His 12 month notice period commenced on 3 May 2017, the date his
decision was advised to the Board. As announced on the Company’s website on 3 May 2017, on cessation of employment and in line with
his contractual arrangements he received a payment in lieu of his remaining notice period and in respect of accrued but untaken holiday
totalling £1,052,866. He continues to receive private healthcare, a fuel card and life cover until 2 May 2018 when his notice period ends.
In addition Adam Crozier received an allowance for legal advice and outplacement services with a cap of £50,000.
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Annual Report on Remuneration
The Committee agreed to treat share awards as follows:
DSA – for bonus already earned, all outstanding awards were released in full on 30 June 2017.
•
• LTIP – any unvested nil-cost options vest on their normal vesting dates, are subject to the same performance conditions as other
participants and were prorated to 30 June 2017. In respect of the 2014 award (which had already vested) the first tranche was exercised
on 30 May 2017 and the second tranche on 30 June 2017. In respect of the 2015 award, the award vests in March 2018 with the first tranche
exercisable in March 2018 and the second tranche in March 2020. In respect of the 2016 award, this will vest in March 2019 and become
exercisable in March 2021.
In line with contractual arrangements, a bonus payment will be made in March 2018 for the six months served as a director in 2017.
One-third of this will be payable in shares in the normal way but the Committee has agreed that these will not be subject to a deferral
period. The value of these shares is included in the single figure table on page 87 with further details on page 88.
Chief Executive remuneration
The table below provides a summary of the total remuneration received by the Chief Executive over the last nine years, including details
of the annual bonus payout and long-term incentive award vesting level in each year.
2017
2017
2016
2015
2014
2013
2012
2011
2010
2010
2009
Peter Bazalgette (for the six month period served) – Executive Chairman
Adam Crozier (for the six month period served)
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) – interim Chief Executive
Michael Grade – Executive Chairman
Total
remuneration
£000
Bonus %
of maximum
Long-term
incentive award
vesting %
of maximum
225
2,050
3,632
3,881
4,842
8,399
2,915
2,158
1,350
661
2,583
–
97.9
40
96
94
93
91
88
95
83
94
–
63
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.
Comparison of Chief Executive to wider employees
The table below provides details of the percentage change in the base salary, benefits and bonus of the Chief Executive between
31 December 2016 and 31 December 2017 compared with the average percentage change for other employees.
Chief Executive
All employees
Notes
1, 2
3, 4
% change in
base salary
% change in
benefits
% change in
bonus payments
–
4.58
5.11
7.84
144.79
31.99
1. As Adam Crozier stepped down as Chief Executive during the year, the values received by him up to 30 June 2017 have been annualised to enable a comparison.
2. Benefits include the cost of medical insurance and car-related benefits.
3. As the majority of employees are based in the UK, overseas employees have not been included.
4. 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.
The Committee is mindful of pay practices across the Group and during the course of the year regular updates are provided regarding
remuneration trends for the wider employee population. The Committee considers pay in the wider group from a number of perspectives.
Overall, the Committee is keen to ensure pay practices across the Senior Executive Group are fair, reflect the nature of the role and
align with performance.
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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 Crozier1
Ian Griffiths2
% of salary
required under
shareholding
guidelines
% of salary
held at
31 December
2017
400
200
439
366
1.
The value of shares held by Adam Crozier is based on his holding at 30 June 2017 when he stepped down from the Board. The share price used to value the shares on 30 June 2017
was 181.4 pence.
2. The value of shares held by Ian Griffiths is based on his holding at 29 December 2017 using a share price of 163.8 pence.
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 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 (unless for some reason they are unable to retain their fees). The current position against the guidelines
for each Non-executive Director is set out in the table below.
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 2017.
Salman Amin1
Peter Bazalgette 3,4
Margaret Ewing 2
Roger Faxon
Ian Griffiths
Mary Harris 3,4
Andy Haste 3,4
Anna Manz
John Ormerod
Interests in shares
Shareholding guidelines
2 January
2018
31 December
2017
31 December
2016
% of salary/base
fees required under
the shareholding
guidelines
% of salary/base
fees held at
31 December
2017
–
249,095
6,700
28,910
1,254,554
19,883
141,032
32,993
175,510
–
236,070
6,700
28,910
1,254,554
17,870
139,200
32,993
175,510
–
197,108
–
21,910
1,254,554
12,028
125,446
31,588
168,407
100
100
100
100
200
100
100
100
100
–
91
17
73
366
50
355
83
442
1. Salman Amin was appointed to the Board on 9 January 2017.
2. Margaret Ewing was appointed to the Board and Audit and Risk Committee on 31 October 2017.
3. Shares were acquired on 2 January 2018 under a trading plan using 25% of their fees, after statutory deductions, for the quarter to 31 December 2017.
4. The value of shares has been calculated using the share price on 29 December 2017 of 163.8 pence.
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ITV plc Annual Report and Accounts 2017
Annual Report on Remuneration
Outstanding interests under share schemes
The following tables provide details of Directors’ interests in outstanding share awards.
At
1 January
2017
Awarded
in year
Vested
in year
Exercised
in year
Lapsed
in year
At
31 December
2017
Share price
used for
award
(pence)
Share price
at date of
vesting
(pence)
Date
of release/
exercise
in year
Notes
1
2, 5
Adam Crozier
DSA
28 March 2017
29 March 2016
27 March 2015
28 March 2014
LTIP
29 March 2016
27 March 2015
30 May 2014
Ian Griffiths
DSA
28 March 2017
29 March 2016
27 March 2015
28 March 2014
LTIP
11 May 2017
29 March 2016
27 March 2015
30 May 2014
–
219,406
197,741
240,534
107,949
–
–
–
107,949
219,406
197,741
240,534
107,949
219,406
197,741
240,534
–
–
–
–
–
–
–
–
878,481
3
804,636
4 1,103,543
–
–
–
–
–
441,418
441,417
–
–
441,418
441,417
512,447
201,159
110,354
110,354
366,034
603,477
–
–
1
2, 5
–
121,628
112,186
122,269
60,472
–
–
–
5
3
4
–
536,850
491,722
674,387
705,730
–
–
–
–
–
–
122,269
–
–
–
539,510
–
–
–
122,269
–
–
–
269,755
–
–
–
–
60,472
121,628
112,186
–
–
–
–
134,877
705,730
536,850
491,722
269,755
209.2
241.0
256.7
194.5
241.0
256.7
183.5
183.5
209.2
241.0
256.7
194.5
199.3
241.0
256.7
183.5
30 June 2017
181.40
30 June 2017
181.40
181.40
30 June 2017
209.88 28 March 2017
199.40
180.55
30 May 2017
3 July 2017
209.88 28 March 2017
199.40
30 May 2017
1. There are no performance conditions attaching to the DSA.
2. DSA awards made in 2017 for 2016 performance are included in the single figure table on page 87.
3. LTIP performance conditions were met in 2017 (63%). For Ian Griffiths, 50% will become exercisable on 27 March 2019, the remainder on 27 March 2020. For Adam Crozier,
the Committee has exercised its discretion so that 50% will become exercisable on 27 March 2018 and the remainder on 27 March 2020. The indicative values at 31 December 2017
are included in the single figure table on page 87.
4. LTIP performance conditions were met in 2016 (80%) and the value is included in the single figure table on page 87. 50% became exercisable on 30 May 2017 with the remainder
on 30 May 2018. For Adam Crozier the Committee exercised its discretion so that the remainder subject to the one year holding period became exercisable on 3 July 2017.
5. The face value of awards granted in the financial year to Ian Griffiths under the LTIP was £1,406,306. Adam Crozier did not receive an award. The face values of awards granted
in the financial year under the DSA were £225,828 and £126,506 to Adam Crozier and Ian Griffiths respectively.
6. 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
Strategic
targets
Weighting
Threshold
vesting
Threshold
Maximum
Threshold
Maximum
Threshold
Maximum
2015
2016
2017
50%
20%
10%
10%
10%
20%
20%
20%
20%
20%
45.7p
45.7p
22%
5%
5%
52.2p
22.44%
10%
15%
54.6p
54.6p
20.2%
5%
5%
56.3p
56.3p
20.2%
5%
5%
62.4p
21.6%
10%
15%
64.2p
21.6%
10%
15%
18%
5%
Cumulative adjusted
EPS years 2015 to 2017
18%
5%
Cumulative adjusted
EPS years 2016 to 2018
18%
5%
Cumulative adjusted
EPS years 2017 to 2019
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 between threshold and maximum.
95
Strategic ReportGovernanceFinancial StatementsAdditional information
Governance
Remuneration Report
continued
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
Company
Whitbread plc
DS Smith plc
2017
£000
15
56
Fees shown for Adam Crozier are those paid up until 30 June 2017 when he stepped down from the Board of ITV plc.
Service contracts
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.
Carolyn McCall
Ian Griffiths
Date of appointment
8 January 2018
9 September 2008
Nature of
contract
Rolling
Rolling
Notice period
from Company
Notice period
from Director
Compensation for
early termination
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 then 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 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 2018. Details of unexpired terms are set out in the table
on page 68.
The Directors’ service contracts and letters of appointment are available for inspection at the Company’s registered office.
Committee membership and advisers
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 85.
The Committee obtains advice from various sources in order to ensure it makes informed decisions. The Executive Directors are invited
to attend Committee meetings as appropriate. No individual is involved in decisions relating to their own remuneration.
The Group HR Director is the main internal adviser and provides updates on remuneration, employee relations and human resource issues.
FIT Remuneration Consultants acted as the independent adviser on remuneration policy and the external remuneration environment
up until September 2017. Total fees for advice provided to the Committee during the year amounted to £55,598 (exclusive of VAT and
expenses). Deloitte LLP took over as adviser from September 2017. Total fees for advice provided to the Committee during the year
amounts to £125,450 (exclusive of VAT and expenses).
The Committee has formally reviewed the work undertaken by both FIT and Deloitte and is satisfied that the advice they have received
has been objective and independent. Both FIT and Deloitte are members of the Remuneration Consultants Group and abide by its
Code of Conduct.
96
ITV plc Annual Report and Accounts 2017
Annual Report on Remuneration
Spend on pay
The table below shows pay for all employees compared with other key financial indicators.
Employee pay
Ordinary dividend
Special dividend
Employee headcount
2017
£m
449
294
200
6,055
2016
£m
419
261
402
6,121
%
Change
7.2
12.6
(50.0)
(1.1)
Employee pay is the total remuneration paid to all employees across ITV on a full-time equivalent basis. More detail is set out on page 127.
Employee headcount is the monthly average number of employees across ITV on a full-time equivalent basis. More detail is set out on page 127.
There were no share buy-backs during either year.
Historic performance
The graph below shows the TSR performance of the Company against the FTSE 100 index over the nine year period to 31 December 2017.
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
31/12/2008
31/12/2009
31/12/2010
31/12/2011
31/12/2012
31/12/2013
31/12/2014
31/12/2015
31/12/2016
31/12/2017
ITV
FTSE 100
Shareholder voting
At the AGM held on 10 May 2017, votes cast by proxy and at the meeting in respect of the Executive Directors’ remuneration were
as follows:
Resolution
Number of
shares
Voting for
%
Number of
shares
Voting
against
%
Total votes
cast
Votes
withheld
Annual Report on Remuneration
2,827,532,129
94.72
157,593,427
5.28 2,987,579,168
2,453,612
The Remuneration Policy was approved at the AGM for a three year period. Votes cast by proxy and at the meeting were as follows:
Resolution
Number of
shares
Voting for
%
Number of
shares
Voting
against
%
Total votes
cast
Votes
withheld
Remuneration Policy
2,945,550,900
98.75
37,188,567
1.25 2,987,579,168
4,839,701
97
Strategic ReportGovernanceFinancial StatementsAdditional information
Governance
Directors’ Report
The Directors present their Annual Report and the audited consolidated and parent company financial statements for the year ended
31 December 2017, which they approved on 28 February 2018. The Directors’ Report 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. It 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 on 10 May 2018.
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 68. Biographies for Directors currently in office
can be found on pages 62 and 63 and on our website.
www.itvplc.com/about/board-of-directors
Directors are appointed for an initial three year period and annually thereafter. In accordance with the UK Corporate Governance Code,
each Director, other than those due to step down post the meeting, will retire and submit themselves for election or re-election at the
AGM on 10 May 2018.
Detail on compensation for loss of office can be found in the Remuneration Report on page 92.
Conflicts of interest: The Board has delegated the authorisation of any 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 that 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
98
ITV plc Annual Report and Accounts 2017
Directors’ Report
Dividends
The Board has proposed a final dividend for the year ended 31 December 2017. Details of this and other dividends paid for the year are
as follows:
Interim dividend
Final dividend
Total ordinary dividend
Special dividend
Total dividend payment
2017
2.52p
5.28p
7.80p
–
7.80p
2016
2.4p
4.8p
7.2p
5.0p
12.2p
The final dividend for 2017 will be paid on 24 May 2018 to shareholders on the register on 13 April 2018. The ex-dividend date is
12 April 2018.
Employees
Disability: ITV has been certified a Disability Confident Employer by the Department for Work and Pensions. The Company 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 works with a variety of diversity
partners across its apprentice, early careers and permanent and fixed-term contract recruitment (including Creative Access, Mencap,
Remploy, Scope and Vercida). 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 and colleagues with a disability have the same career opportunities for growth and progression.
ITV’s commitment around the disability agenda extends beyond it legal obligations and partners with a variety of internal and external
specialists to drive best practice.
Further information can be found on our Corporate Responsibility website.
www.itvplc.com/responsibility
Diversity: ITV’s 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. Working in partnership with the production community, we aim for our programmes to portray accurately the diverse makeup of
modern society by the people on-screen and the editorial content. The Company has a number of policies to support an inclusive workforce
and culture, for example the Code of Conduct, Equal Opportunities Policy, Flexible Working Policy and Transitioning at Work Policy. We also
have four network groups: ITV Pride (for LGBT+ employees), The Women’s Network, ITV Balance (for working parents, grandparents and
carers), and ITV Embrace (for BAME employees), which are open to all. ITV is also a founding member of the Social Mobility Business
Partnership to promote social mobility in business, especially in the legal and accountancy professions.
Further information can be found on our Corporate Responsibility website.
www.itvplc.com/responsibility
99
Strategic ReportGovernanceFinancial StatementsAdditional information Governance
Directors’ Report
continued
Engagement: It is critical for our ongoing success that we attract, develop, recognise and retain the very best talent across the whole of
ITV. To achieve this we continuously engage with our colleagues to ensure they understand our business priorities, how they help to deliver
business success and the opportunities available for them to thrive and develop. We regularly survey our employees to hear their feedback.
The last survey was completed in 2016, and the overall completion rate was 80%. The overall engagement index is 90%. Throughout 2017
we have been taking action on the results and plan to conduct our next engagement survey in 2018.
This year we launched our first on-air employee roadshow, which was broadcast globally to all our ITV sites. All employees from around
the world were able to watch live interviews with our Chairman and members of the Management Board. Employees from the UK were
also invited to attend in person and were able to ask questions directly. Other employees were able to email their questions separately.
The roadshow received great feedback and we would look to do this again in future years.
To further promote employee engagement, the Company has a network of Ambassadors who are nominated and elected by employees
to represent each part of the business. These Ambassadors share the views of the employees they represent enabling us to understand
ways to make ITV a better place to work. The Ambassadors also keep employees up to date with what is going on across the business.
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 employees earn at least the Living Wage or greater. Where appropriate we
have agreed additional increases. On 1 January 2018, all eligible employees received a pay increase of 2.75% (2017: 1.5% paid to eligible
employees earning less than £100,000).
In addition, a bonus arrangement extends to all our employees, providing a comprehensive incentive framework THAT rewards everybody
when the Company is successful. For 2017 the maximum bonus amount was increased from £1,500 to £1,750. The all-employee bonus
award for 2017 was paid in full at £1,750 (2016: £1,300).
The Company also operates a successful and popular all-employee Save As You Earn scheme that encourages voluntary investment
in ITV shares and a package of voluntary benefits, which provides valuable cost savings for both employees and the Company.
Information about remuneration for the Directors is included in the Remuneration Report on page 82.
Succession planning, training and development: 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
Next generation potential Management Board successors, giving them an opportunity to develop their
management potential and gain a greater understanding of the business.
Developing Future
Leaders Programme
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.
There is also a comprehensive portfolio of development courses and workshops in place for all employees that address common
development needs. International training for last year was limited. The Company ran workshops in Germany and Hong Kong and this
year workshops, on line webinars will be put in place for our international employees. An online training portal called My Academy will
also be launched to the international markets.
Spend and investment on training in 2017 can be categorised as follows: Leaders and Managers development spend was £150,000,
all employees development spend was £230,000 and the high potential development programme spend was £90,000.
The annual turnover for employees for 2017 was 10.46% (UK only). 4.59 % was planned and 5.86% regrettable.
100
ITV plc Annual Report and Accounts 2017
Directors’ Report
Pensions
The Company pensions arrangements are overseen by the Pensions Steering Committee comprised of the COO & CFO (Chairman),
Director of Group Finance, Group HR Director, Director of Treasury and Director of Reward and Pensions. The Committee meets monthly
and is supported by a range of specialist advisers.
The Company operates a number of pension arrangements which provide retirement and death benefits for employees.
ITV Pension Scheme (the “Scheme”): The Scheme comprises three sections: A, B and C. Section A includes a defined contribution (DC)
section. The defined benefit (DB) sections have been closed since 2002 to new members and, following a comprehensive consultation
exercise, were closed to future accrual with effect from 28 February 2017. Contributions to the DC section also ended with effect from
that date.
ITV Pension Scheme Limited (a wholly owned subsidiary of ITV plc) is the corporate trustee and manages the DB and DC assets, which are
held under trust separately from the Company. Members of the trustee board are formally appointed as directors of ITV Pension Scheme
Limited. There are nine directors including the chairman — five appointed by the Company and four nominated by the members. The
current chairman’s tenure came to an end at the end of December and a replacement is currently being recruited. There is also a vacancy
for another Company appointed director. The trustee board has four committees: Investment, Audit and Operations, DC, and Corporate
Affairs. The Corporate Affairs Committee is convened as and when appropriate for dealing with any corporate activities that may arise.
The trustee board and each committee hold regular meetings throughout the year at which key issues and more routine business matters
are dealt with. A budget is agreed each year. The trustee board has a risk register, a conflicts of interest policy and a register of interests
policy, which are reviewed regularly.
It is the responsibility of the trustee to have in place appropriate training for its directors and effective committee structures. The trustee
directors receive regular training throughout the year and also have the support of various professional advisers. The Group pensions
department helps identify training opportunities. Training is delivered both by attendance at external courses and with targeted training
to support specific agenda items at the start of each trustee board meeting. Where appropriate, longer training sessions are organised.
Comprehensive records are kept of all training completed by each trustee director. The trustee board completes regular assessments of
its advisers.
The chairman confirms in an annual statement that the trustee meets its legal duties in relation to the DC section as required under
the Pensions Regulator’s Code of Practice 13.
Full valuations are carried out every three years. The latest completed actuarial valuation of all three sections of the main DB scheme
was carried out as at 1 January 2014. The trustee of the Scheme is undertaking actuarial valuations as at 1 January 2017 and the outcome
is expected before the end of March 2018.
ITV Defined Contribution Plan (the “Plan’): The new trust based Plan was established to accept contributions from 1 March 2017 for
ex-DB members and DC members who transferred from the ITV Pension Scheme. In addition, pure DC assets previously built up in the
ITV Pension Scheme were transferred to the Plan during March 2017.
ITV DC Trustee Limited (a wholly owned subsidiary of ITV plc) is a corporate trustee and manages the DC assets, which are held under trust
separately from the Company. Members of the trustee board are formally appointed as directors of ITV DC Trustee Limited. There are five
directors including the chairman – three appointed by the Company and two nominated by the members. There is currently a selection
exercise taking place for the two member-nominated vacancies. It is the responsibility of the trustee to have in place appropriate training
for its directors.
The governance framework for managing the Plan and developing the board is in line with that in place for the ITV Pension Scheme.
Work is in progress to enable the chair to be in a position to confirm in an annual statement that the trustee meets its legal duties
in relation to the DC section as required under the Pensions Regulator’s Code of Practice 13.
101
Strategic ReportGovernanceFinancial StatementsAdditional information Governance
Directors’ Report
continued
Ulster Television Pension and Assurance Scheme (the “Scheme”): The Scheme provides DB benefits. It closed to new members in 2002
but is still open to future accrual.
Following the UTV acquisition in 2016, responsibility for managing the Scheme has moved to the Group pensions department and it was
decided to strengthen the governance of the Scheme by replacing the existing individual trustee structure with a corporate trustee – UTV
Pension Scheme Limited (a wholly owned subsidiary of ITV plc). The trustee manages the DB assets, which are held under trust separately
from the Company. Members of the trustee board are formally appointed as directors of UTV Pension Scheme Limited. There are five
directors including the chairman — three appointed by the Company (including a professional trustee as chairman) and two nominated
by the members. It is the responsibility of the trustee to have in place appropriate training for its directors.
The governance framework for managing the Scheme and developing the board is being enhanced to be in line with that in place for the
ITV Pension Scheme. Full valuations are carried out every three years. The latest completed actuarial valuation was carried out as at 1 July
2014. The trustee of the Scheme is undertaking an actuarial valuation as at 1 July 2017 and the preliminary results were agreed in principle
at the end of 2017 and the valuation is expected to be finalised before the end of March 2018. The trustee board has adopted the Pensions
Regulator’s integrated risk management framework – taking a holistic approach and looking at how risks around the employer covenant,
funding and investment strategy are all linked and interdependent.
ITV Auto-enrolment Pension Plan (the “Plan”): Since 2013, employers within the Group have been required to enrol all eligible individuals
into a pension scheme automatically. This applies to all eligible individuals who are contracted to work for us, regardless of their contract
type or tax status (i.e. it applies to workers and not simply employees). Eligible individuals are enrolled into the ITV Auto-enrolment Pension
Plan. The plan is currently provided using a master trust arrangement run by NOW:Pensions with an independent board of trustee directors.
This plan is currently under review.
Pension Scheme indemnities: Qualifying pension scheme indemnity provisions, as defined in Section 235 of the Companies Act 2006,
were in force for the financial year ended 31 December 2017 and remain in force for the benefit of each of the directors of ITV Pension
Scheme Limited, ITV DC Trustee Limited and UTV Pension Scheme Limited. These indemnity provisions cover, to the extent permitted
by law, certain losses or liabilities incurred as a director or officer of ITV Pension Scheme Limited, ITV DC Trustee Limited and UTV Pension
Scheme Limited.
Greenhouse gas emissions
ITV 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 2017 is disclosed below for direct (gas, vehicle fuel, fuel oils and
refrigerants consumption) and indirect (electricity consumption) emissions.
Indicator
Total gross CO2e emissions
Scope 1: Direct emissions
Scope 2: Indirect emissions
Total Revenue
Emissions per unit/£m revenue
2017
2016
22,321 (tCO2e)
6,684 (tCO2e)
15,637 (tCO2e)
£3,657m
6.1 (tCO2e)
26,984 (tCO2e)
7,793 (tCO2e)
19,191 (tCO2e)
£3,527m
7.7 (tCO2e)
Source: Mitie Energy analysis of ITV data. The emissions data covers our global operations for which we have operational control. We use the GHG Protocol Corporate Accounting and
Reporting Standard and the latest conversion factors from the Department for Business, Energy & Industrial Strategy to calculate emissions in tonnes of carbon dioxide equivalents.
33% of our data set is based on estimated data. Estimates are calculated from previous consumption trends and published benchmarks.
In 2017, the Company’s greenhouse gas emissions reduced by 17% compared to the previous year. As 90% of our greenhouse gas emissions
are generated within our UK operations, this is where we focus our efforts. We continued to replace ageing infrastructure with more
efficient plant, optimise our building management software systems and replace lighting systems with more efficient LED technology.
The amount of diesel purchased for fleet vehicles also decreased, which was due in part to the purchase of some Plug-in Hybrid Electric
Vehicles for our fleet.
Further information can be found on our Corporate Responsibility website.
www.itvplc.com/responsibility
102
ITV plc Annual Report and Accounts 2017
Directors’ Report
Health and safety
The health and safety of our employees, 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 on production has been identified as a principal risk to the organisation. The Company’s
professional Health and Safety team continues 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.
The key elements of our safety management system are: Process, Compass (our online presence), Education, Expertise, Monitoring
and Assurance.
In 2017, we continued to build our education programme rolling out Leading Risk sessions with the leadership teams in ITV Studios UK
and America, 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. This is the first step in aligning our training programme
to the Studios Label model to ensure ownership of risk in appropriate areas. See page 79 for more information.
We have developed and launched an online resource, Compass, to provide easily accessible production focused health and safety advice
on the most common health and safety risks managed by our productions.
To enable us to review the effectiveness of our processes and overall approach to production safety, we are using new methodology
to engage with the business, building our understanding of the effectiveness of safety management, enabling us to continually improve
and refine our approach.
We will build on this in 2018 across our business 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
2017
2016
Staff
Non Staff
Total
Staff
Non Staff
Total
Lost time accidents reported under RIDDOR*
Specified injuries reported under RIDDOR
1
2
1
7
2
9
4
2
1
2
Performance indicators – international
Serious Injuries sustained at work by employees
or people directly involved in our activities
2017
2016
0
0
0
0
1
0
0
0
1
3
1
0
0
0
1
0
0
0
Australia
France Germany
Talpa
USA
Finland
Norway
Sweden Denmark
* Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013
5
4
Italy
0
n/a
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
103
Strategic ReportGovernanceFinancial StatementsAdditional information Governance
Directors’ Report
continued
Listing rule 9.8.4 disclosures
There are no disclosures to be made other than that the trustee of the Employees’ Benefit Trust (EBT) waived its rights to receive
dividends on shares it holds which do not relate to restricted shares held under the ITV Deferred Share Award Plan.
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 2017 AGM.
However, during 2017 the Group made no payments falling within this definition (2016: 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 166 gives details of the Group’s financial risk management policies and related exposures.
This note is incorporated by reference and 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 120. This note is incorporated by reference and deemed to form
part of this report.
Subsequent events: There are no post balance sheet events to report.
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 2018 or 10 August 2018, 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 on page 174. The Company has an EBT funded by loans to
acquire shares for the potential benefit of employees. Details of shares held by the EBT at 31 December 2017 are set out on page 176.
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.
104
ITV plc Annual Report and Accounts 2017
Directors’ Report
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 28 February 2018, 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 are likely to have changed since notified
to the Company. However, notification of any change is not required until the next applicable threshold is crossed.
The Capital Group Companies Inc.
Liberty Global Incorporated Limited
BlackRock Inc.
Amerprise Financial, Inc and its group
The Goldman Sachs Group
% of interest
in shares
10.05%
–
6.82%
5.08%
0.04%
Nature of
interest
in shares
Indirect
Indirect
Indirect
Indirect
Indirect
% interest
in financial
instruments
–
9.90%
0.05%
0.72%
0.045%
0.82%
20.11%
Nature of
interests
in financial
instruments
–
Loaned shares
Securities lending
Contract for difference
Equities swap
Securities Lending
Swap (cash), Contract
for difference (cash),
over the counter option
(physical or cash)
Total number
of shares
or interests
in shares
404,675,342
398,515,510
306,303,502
206,179,898
843,943,939
The number of shares is based on announcements made by each relevant shareholder using the Company’s issued share capital at that date.
105
Strategic ReportGovernanceFinancial StatementsAdditional information Governance
Directors’ Report
continued
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 62 and 63, confirm that,
to the best of their knowledge:
• the Group accounts, which have been
prepared in accordance with IFRSs
as adopted by the EU, give a true and
fair view of the assets, liabilities, financial
position and profit of the Group; and
• the Directors’ Report includes a fair review
of the development and performance of
the business and the position of the Group,
together with a description of the principal
risks and uncertainties that it faces.
In accordance with Section 418 of the
Companies Act 2006, the Directors confirm
that, so far as they are each aware, there is
no relevant audit information of which the
Company’s auditor is unaware; and each
Director has taken all steps that they
ought to have taken as a Director in order
to make themselves aware of any relevant
audit information and to establish that
the Company’s auditor is aware of
that information.
The Board has conducted a review of
the effectiveness of the Group’s systems
of internal controls for the year ended
31 December 2017. 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.
The Directors are responsible for preparing the Annual Report and the Group
and parent company financial statements in accordance with applicable law and
regulations. Company law requires the Directors to prepare Group and parent
company financial statements for each financial year. Under that law they are
required to prepare the Group financial statements in accordance with IFRSs as
adopted by the EU and applicable law and have elected to prepare the parent company
financial statements in accordance with UK Accounting Standards, 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
• 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 are responsible for such internal control as they determine is necessary
to enable the preparation of the financial statements that are free from material
misstatement, whether due to fraud or error. 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, Annual 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
Chief Operating Officer and Group Finance Director
28 February 2018
ITV plc
Registered Number: 4967001
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ITV plc Annual Report and Accounts 2017
Financial Statements
Financial Statements
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.
Keeping
it simple
Notes to the financial statements provide information required by statute, accounting standards or
Listing Rules to explain a particular feature of the financial statements. The notes that follow are a part
of the financial statements and 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 operations
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 assets and liabilities
5.3 Subsidiaries exempt from audit
ITV plc Company Financial Statements
Notes to the ITV plc Company Financial Statements
108
114
114
115
116
117
119
120
124
124
129
131
134
136
137
137
141
143
148
151
152
153
162
162
164
166
170
171
173
174
176
176
177
178
179
181
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Strategic ReportGovernanceFinancial StatementsAdditional information
Financial Statements
Financial Statements
Independent Auditor’s Report to the
members of ITV plc
1. Our opinion is unmodified
We have audited the financial statements of ITV plc (‘the Company’) for the year ended 31 December 2017, which comprise the consolidated
income statement, consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement
of changes in equity, consolidated statement of cash flows, company balance sheet, company statement of changes in equity, and the related
notes, which include the accounting policies.
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 2017
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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities are
described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion
is consistent with our report to the audit committee.
We were appointed as auditor by the Directors in December 2003 prior to the Company becoming the parent company of the now ITV Group
on 2 February 2004. The period of total uninterrupted engagement for the listed ITV Group is 14 financial years ended 31 December 2017. We
have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including
the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided.
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and
include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had
the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team.
We summarise below the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our
key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters
were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial
statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate
opinion on these matters.
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ITV plc Annual Report and Accounts 2017
Independent Auditor’s Report to the members of ITV plc
Our response
The risk
Net Advertising Revenue (‘NAR’) £1,591 million (2016: £1,672 million) Risk vs 2016: ◄ ►
Refer to page 75 (Audit and Risk Committee report), page 124 (accounting policy) and pages 125 and 126 (financial disclosures)
Subjective estimate
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.
• Control operation: 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; link to
transmission/viewer data; and the system generated calculation
of deal debt for each campaign.
Our procedures included:
In particular, the complexity of 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 differing from the expected level
for the campaign. 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 at
the end of the campaign, these differences are noted for each agency
and then taken into account 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 any deal debt liability
at the period end.
• Assessing estimate: challenging the year end deal debt positions
based on comparison with customers’ correspondence and agreed
terms of business.
• Test of detail: confirming that the transmissions occurred prior
to invoices being raised and revenue recognised by agreeing the
transmissions to the corresponding spots.
• Assessing disclosures: we also assessed the adequacy of the
Group's disclosures in respect of the accounting policies on
revenue recognition.
Our results:
• From the evidence we obtained, we found the resulting amount
of recorded NAR and the estimated level of deal debt position
liabilities to be acceptable (2016: acceptable).
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Financial Statements
Financial Statements
Independent Auditor’s Report to the
members of ITV plc continued
The risk
Other revenue streams (‘Non-NAR revenue’) £2,066 million (2016: £1,855 million) Risk vs 2016: ◄ ►
Refer to page 75 (Audit and Risk Committee report), page 124 (accounting policy) and pages 125 and 126 (financial disclosures)
Complex contract accounting
Non-NAR revenue includes revenue from: programme production
and the sale of programme rights within the Studios segment;
transmission supply arrangements and the Online, Pay & Interactive
division within the Broadcast segment.
Our procedures included:
recognition policies against the relevant accounting standards.
• Test of detail: on a sample basis we assessed revenue contracts
• Assessing principles: we considered the Group’s revenue
Our response
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.
entered into during the year, and 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.
• Assessing disclosures: we also assessed the adequacy of the
Group’s disclosures in respect of the accounting policy on
revenue recognition.
Our findings:
• From the evidence we obtained we found the resulting amount
of recorded Non-NAR to be acceptable (2016: acceptable).
Gross defined benefit pension scheme obligations £3,987 million (2016: £4,200 million) Risk vs 2016: ◄ ►
Refer to page 74 (Audit and Risk Committee report), page 153 (accounting policy) and pages 153 to 161 (financial disclosures)
Subjective valuation
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 Directors take independent
actuarial advice relating to their appropriateness.
Our procedures included:
• Benchmarking assumptions: challenging the key financial
In addition, the Group has a longevity swap, the valuation of which is
complex being dependent mortality and longevity experience.
The valuation of the gross defined benefit obligations and longevity
swap are considered a significant risk given the quantum of the gross
pension obligation, the impact of the longevity swap on the net
obligation position, and that a small change in assumptions can
have a material financial impact on the Group.
assumptions applied in determining the Group’s gross 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.
• Assessing application: assessing methodology applied to the
longevity swap valuation and challenging underlying mortality
assumptions against externally derived data, with the support of
our own actuarial specialists.
• Assessing disclosures: considering the adequacy of the Group’s
disclosures in respect of the sensitivity of the gross defined benefit
obligations to these assumptions.
Our findings:
• The results of our testing were satisfactory and we considered the
valuation of the gross pension obligations and the longevity swap
to be acceptable (2016: acceptable).
Recoverability of parent company’s investment in subsidiaries £2,191 million (2016: £1,861 million) Risk vs 2016: ◄ ►
Refer to page 181 (accounting policy) and pages 183 (financial disclosures)
Low risk, high value
The carrying amount of the parent company’s investments in
subsidiaries represents 34% (2016: 29%) of the parent company’s
total assets. Their recoverability is not at a high risk of significant
misstatement or subject to significant judgement. However, due
to their materiality in the context of the parent company financial
statements, this is considered to be the area that had the greatest
effect on our overall parent company audit.
investments balance (2016: 100%) with the relevant subsidiaries’
draft balance sheet to identify whether their net assets, being
an approximation of their minimum recoverable amount, were
in excess of their carrying amount and assessing whether those
subsidiaries have historically been profit-making.
• Test of detail: comparing the carrying amount of 100% of the
Our procedures included:
Our results:
• We found the Group’s assessment of the recoverability of the
investment in subsidiaries to be acceptable (2016: acceptable).
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ITV plc Annual Report and Accounts 2017
ITV plc Annual Report and Accounts 2017
Independent Auditor’s Report to the members of ITV plc
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 £28 million (2016: £35 million), determined with reference to a benchmark
of normalised Group profit before tax of £568 million (2016: £623 million) which excludes the pre-paid employment-linked remuneration
charge, the exceptional bad debt provision in relation to the contract receivables and the non-recurring element of the property project costs
disclosed in note 2.2, of which materiality represents 5% (2016: 5.5%).
Materiality for the parent company financial statements as a whole was set as £27 million (2016: £34 million) determined with reference to the
benchmark of the Company’s total assets, of which it represents 0.4% (2016: 0.5%).
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £1.4 million (2016: £1.7 million),
in addition to other identified misstatements that warranted reporting on qualitative grounds.
Scoping and coverage
Revenue
Group audited
81%
Specified risk-based
audit procedures
Out of scope
7%
12%
Profit before tax
Group audited
Specified risk-based
audit procedures
Out of scope
94%
1%
5%
Total assets
Group audited
90%
Specified risk-based
audit procedures
Out of scope
2%
8%
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 £20 million (2016: £25 million). Talpa Media B.V. – a significant component of the Group in the
Netherlands – was subject to an audit for Group reporting purposes. The Group audit team instructed the component auditor as to the
significant areas to be covered, including the relevant risks described above and the determination of the information to be reported back.
Specified audit procedures were performed by other component auditors, as instructed by the Group audit team, on two entities in the US
included in our scope based on the relative size of their operations. The Group audit team set the materiality of £5 million (2016: £5 million)
for both the audit of the component and the specified audit procedures. The Group audit team performed procedures on the items excluded
from normalised Group profit before tax.
The Group audit team held several telephone conference meetings with the component audit teams to assess the audit risk and strategy. The
Group audit team also visited the component in the Netherlands. At this visit and in these meetings, the findings reported to the Group audit
team were discussed in more detail, and any further work required by the Group audit team was then performed by the component auditor.
Together, the above audit and these specified audit procedures covered 88% (2016: 90%) of Group revenue, 95% (2016: 89%) of Group profit
before taxation; and 92% (2016: 90%) of total Group assets.
4. We have nothing to report on going concern
We are required to report to you if:
• we have anything material to add or draw attention to in relation to the Directors' statement in note 1 on page 120 to the financial
statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the
Group and Company's use of that basis for a period of at least twelve months from the date of approval of the financial statements; or
• the related statement under the Listing Rules set out on page 106 is materially inconsistent with our audit knowledge.
We have nothing to report in these respects.
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Financial Statements
Independent Auditor’s Report to the
members of ITV plc continued
5. We have nothing to report on the other information in the Annual Report
The Directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion
on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly
stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the
information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work,
we have not identified material misstatements in the other information.
Strategic Report and Directors’ Report
Based solely on our work on the other information:
• we have not identified material misstatements in the Strategic Report and the Directors’ Report;
• in our opinion the information given in those reports for the financial year is consistent with the financial statements; and
• in our opinion those reports have been prepared in accordance with the Companies Act 2006.
Directors’ Remuneration Report
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention to in relation to:
• the Directors’ confirmation within the Viability Statement on pages 58 and 59 that they have carried out a robust assessment of the
principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity;
• the risks and uncertainties on pages 52 to 57 disclosures describing these risks and explaining how they are being managed and mitigated;
and
• the Directors’ explanation in the Viability Statement of how they have assessed the prospects of the Group, over what period they have
done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation
that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including
any related disclosures drawing attention to any necessary qualifications or assumptions.
Under the Listing Rules, we are required to review the Viability Statement. We have nothing to report in this respect.
Corporate governance disclosures
We are required to report to you if:
• we have identified material inconsistencies between the knowledge we acquired during our financial statements 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 section of the Annual Report describing the work of the Audit Committee does not appropriately address matters communicated by
us to the Audit Committee.
We are required to report to you if the Corporate Governance Statement does not properly disclose a departure from the eleven provisions
of the UK Corporate Governance Code specified by the Listing Rules for our review.
We have nothing to report in these respects.
6. We have nothing to report on the other matters on which we are required to report by exception
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.
We have nothing to report in these respects.
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ITV plc Annual Report and Accounts 2017
Independent Auditor’s Report to the members of ITV plc
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 106, the Directors are responsible for: the preparation of the financial statements
including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of
accounting unless they either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative
but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or other irregularities (see below), or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
Irregularities – ability to detect
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from
our sector experience, through discussion with the Directors and other management (as required by auditing standards).
We had regard to laws and regulations in areas that directly affect the financial statements including financial reporting (including related
company legislation) and taxation legislation. We considered the extent of compliance with those laws and regulations as part of our
procedures on the related financial statements items.
In addition, we considered the impact of laws and regulations in the specific areas of broadcasting regulations recognising the nature of the
Group’s activities. With the exception of any known or possible non-compliance, and as required by auditing standards, our work in respect of
these was limited to enquiry of the Directors and other management and inspection of regulatory and legal correspondence. We considered
the effect of any known or possible non-compliance in these areas as part of our procedures on the related financial statements items.
We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout
the audit.
As with any audit, there remained a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls.
8. The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Paul Sawdon (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
28 February 2018
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Financial Statements
Consolidated Income Statement
For the year ended 31 December
Revenue
Operating costs
Operating profit
Presented as:
Earnings before interest, tax and amortisation (EBITA) before exceptional items
Operating exceptional items
Amortisation and impairment
Operating profit
Financing income
Financing costs
Net financing costs
Share of losses of joint ventures and associated undertakings
Loss on sale of non-current assets (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
3.5
2.2
2.3
2.5
4.6.6
2.4
2.4
2.4
2.4
2017
£m
3,132
(2,577)
555
2016
£m
3,064
(2,460)
604
810
(153)
(102)
555
4
(54)
(50)
(4)
(1)
500
(87)
413
–
413
409
4
413
10.2p
10.2p
10.2p
10.2p
857
(164)
(89)
604
2
(53)
(51)
–
–
553
(100)
453
(1)
452
448
4
452
11.2p
11.1p
11.2p
11.1p
114
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ITV plc Annual Report and Accounts 2017
ITV plc Annual Report and Accounts 2017
Consolidated Statement of Comprehensive Income
Primary Statements
For the year ended 31 December
Profit for the year
Other comprehensive income:
Items that are or may be reclassified to profit or loss
(Loss)/gain on revaluation of available-for-sale financial assets
Net loss on cash flow hedges
Exchange (loss)/gain on translation of foreign operations (net of hedging)
Items that will never be reclassified to profit or loss
Remeasurement gains/(losses) on defined benefit pension schemes
Income tax (charge)/credit on items that will never be reclassified
Other comprehensive income/(loss) 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
2017
£m
413
(1)
(3)
(32)
172
(39)
97
510
506
4
510
2016
£m
452
1
(2)
46
(248)
40
(163)
289
285
4
289
115
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Strategic ReportGovernanceFinancial StatementsAdditional information
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
Defined benefit pension surplus
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 (liabilities)/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
Note
3.2
3.3
3.5
4.3
3.1.2
3.7
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
2017
£m
256
1,645
74
10
19
16
38
31
2,089
570
514
27
541
19
6
126
1,262
(76)
(2)
(1,029)
(68)
(1,097)
(86)
(16)
(1,277)
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)
(15)
271
(982)
(1)
(137)
(111)
(106)
(7)
(1,344)
730
403
174
199
41
6
(138)
685
45
730
(1,035)
(9)
(367)
(70)
(63)
(4)
(1,548)
755
403
174
221
79
7
(162)
722
33
755
The accounts were approved by the Board of Directors on 28 February 2018 and were signed on its behalf by:
Ian Griffiths
Chief Operating Officer and Group Finance Director
116
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ITV plc Annual Report and Accounts 2017
Consolidated Statement of Changes in Equity
Primary Statements
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
174
221
79
Retained
earnings
£m
(162)
Non-
controlling
interests
£m
33
Total
£m
722
Total
equity
£m
755
Balance at 1 January 2017
Total comprehensive income/(loss)
for the year
Profit for the year
Other comprehensive income/(loss)
Revaluation of available-for-sale
financial assets
Net loss on cash flow hedges
Exchange differences on translation of
foreign operations (net of hedging)
Remeasurement gain on defined benefit
pension schemes
Income tax charge on other
comprehensive income
Total other comprehensive
(loss)/income
Total comprehensive (loss)/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
Purchase of own shares via employees’
benefit trust
Total transactions with owners
Changes in non-controlling interests (a)
Balance at 31 December 2017
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
403
–
–
–
174
–
–
(22)
199
3.7
2.3
4.7
4.7
3.4
4.6
7
–
(1)
–
–
–
–
409
409
–
–
–
(1)
(3)
(32)
172
172
(39)
(39)
–
–
(3)
(32)
–
–
(35)
(1)
133
97
(35)
(1)
542
506
4
–
–
–
–
–
–
4
413
(1)
(3)
(32)
172
(39)
97
510
–
–
–
–
(3)
41
–
–
–
–
–
6
(494)
(494)
(4)
(498)
12
12
–
12
(36)
(518)
–
(138)
(36)
(518)
(25)
685
–
(4)
12
45
(36)
(522)
(13)
730
(a) Movements reported in merger and other reserves include a put option for the acquisition of non-controlling interests.
117
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Strategic ReportGovernanceFinancial StatementsAdditional information
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
174
221
35
6
275
Non-
controlling
interests
£m
33
Total
£m
1,114
Balance at 1 January 2016
Total comprehensive income/(loss)
for the year
Profit for the year
Other comprehensive income/(loss)
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/(loss)
Total comprehensive income/(loss)
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 transactions with owners
Balance at 31 December 2016
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
403
–
–
174
–
–
221
3.7
2.3
4.7
2.3
4.7
4.6
–
–
(2)
46
–
–
44
44
–
–
–
–
–
79
–
1
–
–
–
–
1
1
–
–
–
–
–
7
Total
equity
£m
1,147
452
1
(2)
46
(248)
40
(163)
289
448
448
–
–
–
1
(2)
46
(248)
(248)
40
40
(208)
(163)
240
285
4
–
–
–
–
–
–
4
(663)
(663)
(4)
(667)
10
(4)
(20)
(677)
(162)
10
(4)
(20)
(677)
722
–
–
–
(4)
33
10
(4)
(20)
(681)
755
118
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ITV plc Annual Report and Accounts 2017
ITV plc Annual Report and Accounts 2017
Consolidated Statement of Cash Flows
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
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
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
Net cash outflow from investing activities
Cash flows from financing activities
Bank and other loans – amounts repaid
Bank and other loans – amounts raised
Capital element of finance lease payments
Equity dividends paid
Dividends paid to minority interest
Purchase of own shares via employees’ benefit trust
Net cash outflow from financing activities
Net (decrease)/increase 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
(153)
(18)
45
(80)
21
(59)
(95)
(35)
(46)
(25)
(19)
(4)
–
(680)
465
(4)
(494)
(4)
(36)
2.1
2.2
2.5
3.4
2.5
4.1
3.7
4.1
Primary Statements
2017
£m
795
(126)
–
669
(213)
456
2016
£m
870
(27)
(6)
837
(190)
647
£m
(164)
71
66
(80)
38
(58)
(90)
(97)
(29)
(15)
(41)
(2)
10
(129)
(174)
(655)
1,177
(6)
(663)
(4)
(20)
(753)
(426)
561
–
(9)
126
(171)
302
294
(39)
4
561
119
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Strategic ReportGovernanceFinancial StatementsAdditional information
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 2017 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’ (‘FRS 101’).
Going concern
At 31 December 2017, the Group was in a financial net debt position with a positive gross cash balance. Even though
the Group is in a net current liability position, its strong balance sheet and continued generation of significant free
cash flows enables the Group to meet its obligations and has enabled further investment.
As a part of the going concern test, the Group reviews 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 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 12 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.
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ITV plc Annual Report and Accounts 2017
Section 1: Basis of Preparation
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 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.
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, for which the effective portion of
any foreign exchange gains or losses is 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 impact of movements in currency for both the forward currency contracts and the assets and liabilities 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.
121
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Strategic ReportGovernanceFinancial StatementsAdditional information
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 estimation, 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)
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 2017:
Accounting Standard
Requirement
Amendments to IAS 7
‘Statement of Cash Flows’
on Disclosure Initiative
Amendments to IAS 12
‘Income Taxes’ on recognition
of deferred tax assets for
unrealised losses
Annual Improvements to
IFRS 2014 – 2016 cycle
The amendments introduce an additional disclosure that will enable users of the
financial statements to evaluate changes in liabilities arising from financing activities.
The amendments clarify how to account for deferred tax assets related to debt
instruments measured at fair value.
Amendments to a number of IFRSs, one of which is effective in 2017; this amendment
clarified the scope of IFRS 12, specifically the disclosure requirements for interests in
subsidiaries, associates or joint ventures that are classified as held-for-sale.
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 2017.
EU endorsed accounting standards effective in future periods
The Directors considered the impact on the Group of other new and revised accounting standards, interpretations
or amendments that are currently endorsed but not yet effective. IFRS 15 and IFRS 9 are both effective for the
period beginning 1 January 2018 and, while the Directors do not expect these standards to have a significant
impact on the Group’s results, they highlight the conclusions from the impact assessment below.
IFRS 16 is effective for the period beginning 1 January 2019. The Directors have detailed the status of the
impact assessment below.
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ITV plc Annual Report and Accounts 2017
Section 1: Basis of Preparation
IFRS 15 ‘Revenue from Contracts with Customers’ is effective 1 January 2018. IFRS 15 requires the Group to identify
distinct promises in contracts with customers that qualify as ‘performance obligations’. The consideration receivable
from customers must then be allocated between the performance obligations identified.
An assessment of the impact on all of the Group’s material revenue streams has been completed. The impact on the
Group’s revenues and results is not material for either the Group or for the individual divisions, Broadcasting & Online
and ITV Studios.
The changes to the current accounting policies on adoption of IFRS 15 require the Group to reclassify various costs
which are now deemed to be attributable to revenue within the income statement. The impact on the results for
the year ending 2017, which is not considered material to the Group, either individually or collectively, will be:
Income statement account
Impact
Reduction of £11 million
NAR revenue
Other commercial income
Reduction of £1 million
Online, pay & interactive revenue Increase of £10 million
Reduction of £2 million
Operating costs
There is no impact on either profit or adjusted EBITA for the year for the Group or for an individual division.
The Directors adopted IFRS 15 on 1 January 2018 on a fully retrospective basis and will present, within the 2018
financial statements, a restatement of the comparative periods.
IFRS 9 ‘Financial Instruments’ is also effective 1 January 2018. IFRS 9 introduces new models for classification
of financial assets and accounting for credit losses. Hedging rules have been amended to allow hedge accounting
to be applied to more risks.
The analysis of the impact focused on the following items:
• Classification and measurement of financial assets and liabilities;
• Trade receivables impairment; and
• Recognition of hedging instruments and on the type of hedging relationships.
No material impacts were identified compared with the existing accounting treatment.
IFRS 16 ‘Leases’ is effective 1 January 2019. 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,
representing future lease payments. Lease costs (such as property rent) will be recognised in the form of depreciation
and interest, rather than as an operating cost.
The detailed assessment of impact on the Group’s performance is ongoing, with the current focus on the completeness
of the lease data. During the early impact assessment, the Group has reviewed the current accounting for existing key
agreements, including satellite, transponder and playout agreements, and concluded that those do not meet lease
definition under the regulations of IFRS 16, and therefore should continue to be classified as service agreements as
presented within these financial statements.
The adoption is likely to have a material impact on the presentation of the Group’s assets and liabilities, mainly
due to property leases. Due to the quantity of leases under review, the Group has not substantially completed the
assessment of lease contracts under the new accounting standard. Therefore, a quantification of the impact on
the Group’s results cannot currently be estimated.
123
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Strategic ReportGovernanceFinancial StatementsAdditional information
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 and 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 adjusted 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 whether the service has been provided and
if so, whether there is a fixed or reasonably determinable price that is reasonably certain to 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 as follows:
Applicable segment
Class of revenue
Recognition criteria
Broadcast & Online
Studios
Advertising (NAR)
Video on Demand (VOD)
Sponsorship
Pay
Participation (Interactive
and Brand Extensions)
Programme production
Programme distribution rights
Format and licences
Digital: archive
on transmission
as audience targets are met
across the period of transmission of the sponsored
programme or series
over the term of the contract or per subscriber
or download
as the service is provided or the 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 licence is transferred
and the customer is able to use and benefit from
the licence or over the licence 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)
124
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ITV plc Annual Report and Accounts 2017
ITV plc Annual Report and Accounts 2017
Section 2: Results for the Year
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
2017
£m
2017
% of total
2016
£m
2016
% of total
1,591
44%
1,672
47%
484
1,307
275
2,066
3,657
56%
100%
460
1,089
306
1,855
3,527
53%
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 2017 and 31 December 2016 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
Broadcast
& Online
2017
£m
2,075
(2)
2,073
ITV Studios*
2017
£m
Consolidated
2017
£m
1,582
(523)
1,059
3,657
(525)
3,132
Adjusted EBITA**
599
243
842
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**
Broadcast
& Online
2016
£m
ITV Studios*
2016
£m
Consolidated
2016
£m
2,143
–
2,143
(11)
2,132
636
(6)
642
1,395
(463)
932
–
932
243
–
243
3,538
(463)
3,075
(11)
3,064
879
(6)
885
* Revenue of £397 million (2016: £320 million) was generated in the US during the year; the US represented £330 million (2016: £346 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.
The Group’s principal operations are in the United Kingdom. Revenue from external customers in the United Kingdom
is £2,272 million (2016: £2,370 million), and revenue from external customers in other countries is £860 million
(2016: £694 million). The Operating and Performance Review provides further detail on ITV’s international revenues.
Intersegment revenue, which is earned on arm’s length terms, is mainly generated from the supply of ITV Studios
programmes to Broadcast & Online for transmission primarily on the ITV network. This revenue stream is a measure
that 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 segmental 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.
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Financial Statements
Financial Statements
Notes to the Financial Statements
Section 2: Results for the Year continued
There is one media buying agency (2016: one) acting on behalf of a number of advertisers that represent the Group’s
major customers. This agency is the only customer that individually represents over 10% of the Group’s revenue.
Revenue of approximately £561 million (2016: £552 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, catch up services
on 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 66% of ITV main channel spend on commissioned programming (2016: 63%). 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.
ITV Studios also operates in six other international locations, being Australia, Germany, France, Italy, 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 Operating 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 and impairment
Net financing costs
Share of losses of joint ventures and associated undertakings
Loss on sale of non-current assets (exceptional items)
Profit before tax from continuing operations
2017
£m
842
(32)
810
(153)
(102)
(50)
(4)
(1)
500
2016
£m
885
(28)
857
(164)
(89)
(51)
–
–
553
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ITV plc Annual Report and Accounts 2017
ITV plc Annual Report and Accounts 2017
Section 2: Results for the Year
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
Loss on sale of non-current assets (exceptional items)
Share of losses of joint ventures and associated undertakings
Net financing costs
Operating exceptional items
Depreciation of property, plant and equipment
Amortisation and impairment
Share-based compensation and pension service costs
Increase in programme rights and other inventory, and distribution rights
Decrease/(increase) in receivables
Increase 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)
2017
£m
500
1
4
50
153
30
102
13
(94)
13
23
(58)
795
2017
£m
358
55
12
24
449
(166)
283
2016
£m
553
–
–
51
164
31
89
10
(35)
(56)
63
(28)
870
2016
£m
336
46
10
27
419
(147)
272
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
2017
2,053
4,002
6,055
2016
2,087
4,034
6,121
The decrease in full-time equivalent employees is primarily driven by redundancies in the organic business as a result
of restructuring offset by the weighted average impact of acquisitions completed in 2017.
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 2017 are set out in the ITV plc Company
financial statements.
Depreciation
Depreciation in the year was £30 million (2016: £31 million), of which £11 million (2016: £13 million) relates to Broadcast
& Online and £19 million (2016: £18 million) to ITV Studios. A further £11 million of accelerated depreciation relating to
assets made redundant as a result of the property project has been recorded as an exceptional item in 2017. See notes
2.2 and 3.3 for further details.
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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:
2017
Within one year
Later than one year and not later than five years
Later than five years
2016
Within one year
Later than one year and not later than five years
Later than five years
Property
£m
Other
£m
28
89
19
136
3
4
–
7
Total
£m
31
93
19
143
Property
£m
Other
£m
19
59
17
95
–
–
–
–
Re-presented*
Total
£m
19
59
17
95
* 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. The Group has assessed the contracts under the new accounting standard IFRS 16, and consequently has reassessed the
transponder assets under the current accounting standard, IAS 17. As a result, the Group has re-presented the transmission supply agreements as service
agreements as opposed to operating leases. The impact of this is to remove the transponder assets from the operating lease disclosures in this note and
disclose them instead as a commitment within note 3.1. There is no impact on the income statement, financial position or cash flow of the Group for this
presentational change.
The Group’s operating leases relate to offices, studio properties and other assets such as cars and office equipment.
Property leases run for terms ranging from five to 20 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 operating lease expenditure recognised during the year was £21 million (2016: £19 million) and total sublease
payments received were £1 million (2016: £1 million).
Audit fees
The Group engages KPMG LLP (KPMG) on assignments additional to its statutory audit duties where its 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
2017
£m
0.6
0.6
0.2
1.4
–
–
–
1.4
2016
£m
0.6
0.6
0.2
1.4
0.2
0.1
0.3
1.7
There were no fees payable in 2017 or 2016 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.
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ITV plc Annual Report and Accounts 2017
Section 2: Results for the Year
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 highlighted on the face of the income statement. See the Operating
and Performance Review on pages 34 to 35 for the detailed explanation of the Group’s use of adjusted
performance measures.
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
Restructuring and property project costs
Insured trade receivable provision
Pension curtailment cost
Total operating exceptional items
Non-operating exceptional items:
Loss on sale of non-current assets
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
2017
£m
(96)
(30)
(27)
–
(153)
(1)
(1)
(154)
12
(142)
2016
£m
(131)
(14)
–
(19)
(164)
–
–
(164)
15
(149)
A – Acquisition-related expenses
Acquisition-related expenses of £96 million includes £86 million (2016: £110 million) relating to performance-based,
employment-linked costs to former owners mainly in relation to Talpa Media. The remaining £10 million (2016: £21
million) is primarily comprised of integration costs and professional fees (mainly financial due diligence and legal costs).
See note 3.4 for further details on acquisitions.
B – Restructuring and property project costs
In 2017, the Directors made the decision to redevelop the Group’s headquarters at The London Television Centre
for which the Group owns the freehold. This requires relocating staff and studios for 4 to 5 years to alternative
accommodation before moving back into a new freehold building. Therefore, the Group has taken rented office
and studios space in the interim while the new headquarters are constructed.
During the course of the construction the Group will ring fence all incremental costs in relation to the redevelopment.
Move costs, dual rates and rent will be treated as exceptional costs in the financial statements as they relate to the
one-off property project that runs over several years but the Group will no longer incur them after the return to
The London Television Centre.
In 2017, the Group incurred £24 million of costs being:
• Dual running costs of £7 million while the properties were vacant during refurbishment;
• £11 million of accelerated depreciation relating to assets made redundant as a result of the property project;
• £3 million of dilapidation provisions relating to these new property leases; and
• Other incremental one-off project costs of £3 million.
As a result of the review of the Group’s London property needs, the Directors have decided to close The London Studios
business incurring £6 million of redundancy costs in 2017.
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Financial Statements
Financial Statements
Notes to the Financial Statements
Section 2: Results for the Year continued
In 2016, £14 million of costs were incurred as a result of a one-off project stemming from the Group-wide commitment
to reduce the overhead cost base by £25 million. This cost was primarily comprised of redundancies across the
Broadcasting, ITV Studios and Shared Services divisions as well as professional support to successfully plan and
implement the project.
C – Insured trade receivable provision
The insured trade receivable provision of £27 million relates to the unpaid portion of revenue from the four-year licence
deal for The Voice of China with Talent Television and Film Co. Ltd (Talent), the revenue for which was fully recognised
in 2016 in accordance with accounting standards as the Group had no further obligations under the terms of the
agreement.
Following a breach of the agreement by Talent as they had not fulfilled their payment obligations, the Group have
taken back the licence for The Voice of China. The Group is pursuing Talent vigorously for the £30 million still due under
the agreement.
Further, the Group has credit insurance in place and a claim has been submitted. Whilst the Directors continue to pursue
the amounts due and believe there is ultimately no material financial impact, the Group will need to reflect a provision
against this unpaid amount in its 2017 results. Whilst the Directors are confident in recovering the amount due, the
accounting standards set very specific requirements for the recognition of contingent assets, which is how the recovery
of the amount due will be accounted for. As discussions with the insurers and the claim against Talent are in progress,
at this early stage of pursuing recovery the Group is not able to demonstrate sufficient certainty for accounting purposes
to be able to recognise a cash receivable at the year end. Accordingly, The Group has made a provision amounting to
£27 million (£30 million net of £3 million insurance excess) against the Talent receivable recorded in the accounts in the
year ended 31 December 2017. The cash received in the future will also be treated as an exceptional item.
D – Pension 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.
130
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ITV plc Annual Report and Accounts 2017
Section 2: Results for the Year
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.
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Financial Statements
Financial Statements
Notes to the Financial Statements
Section 2: Results for the Year continued
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 credit on exceptional items
Adjustments to prior periods
Deferred tax:
Origination and reversal of temporary differences
Deferred tax credit on exceptional items
Impact of change in the statutory tax rate
Adjustments to prior periods
Total taxation charge in the income statement
2017
£m
(110)
8
(102)
(2)
(104)
13
4
(6)
11
6
17
(87)
2016
£m
(134)
11
(123)
10
(113)
18
4
1
23
(10)
13
(100)
In order to understand how, in the income statement, a tax charge of £87 million (2016: £100 million) arises on a profit
before tax of £500 million (2016: £553 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 19.25% (2016: 20%) on
profit before tax
Non-taxable income/non-deductible expenses
Prior year adjustments
Other taxes
Previously unrecognised deferred tax asset
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
2017
£m
500
(96)
(35)
4
–
11
(4)
7
(6)
32
(87)
2016
£m
553
(111)
(25)
–
(1)
–
(2)
10
1
28
(100)
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. The current tax charge includes a £2 million charge
relating to prior years, and the deferred tax credit includes a £6 million credit relating to prior years.
Previously unrecognised deferred tax assets are in relation to deferred tax assets arising on consolidation in relation
to intangible assets which are now being brought on to the balance sheet in the current period.
Current year losses not recognised primarily relate to a capital loss arising on the write-down of an investment, as it is
uncertain whether this loss can be utilised in future periods.
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 from 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 fell from 20% to 19% from 1 April 2017 and has been enacted to fall further to 17% from
1 April 2020. These rates were enacted at the previous balance sheet date, and the carrying value of UK temporary
differences were adjusted accordingly. To the extent that temporary differences have unwound in the current year,
this has given rise to a credit of £6 million (2016: charge of £5 million) of which £2 million is recognised as a credit in
the income statement and £4 million as a credit in other comprehensive income. In addition, as a result of the recent
enactment of the Tax Cuts and Jobs Act in the US, the Group has recognised a tax charge of £9 million through the
132
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ITV plc Annual Report and Accounts 2017
ITV plc Annual Report and Accounts 2017
Section 2: Results for the Year
income statement, resulting from the revaluation of our US deferred tax assets to reflect the reduction in the US
federal corporate tax rate to 21% from 1 January 2018. Changes to enacted rates in other countries have given rise
to a further credit of £1 million reported in the income statement. The total impact of changes in tax rates is therefore
a charge of £6 million in the income statement and a credit of £4 million 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, and
also Italian production tax credits. 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.
The effective tax rate is 17.4% (2016: 18.1%), 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 2017 and 31 December 2016, the effective tax
rate is comparable to the standard rate of UK corporation tax of 19.25% in 2017 and 20% in 2016. As explained in the
Finance 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 £13 million, compared with a credit of £18 million in 2016.
Taxation – Other comprehensive income and equity
As analysed in the table below, a deferred tax charge of £39 million on actuarial movements on pensions has been
recognised in other comprehensive income (2016: £40 million credit). A deferred tax charge of £1 million has been
recognised in equity in respect of share-based payments (2016: £6 million).
A current tax credit of £1 million has also been recognised in equity in relation to share-based payments (2016: £2 million).
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:
Tangible assets
Intangible assets
Programme rights
Pension scheme deficits
Tax losses
Share-based compensation
Other temporary differences
At
1 January
2017
£m
Other
movements
£m
Recognised in
the income
statement
£m
Recognised in
OCI and equity
£m
Business
acquisitions
£m
Foreign
exchange
£m
At
31 December
2017
£m
–
(94)
1
34
30
(4)
(20)
(53)
3
–
–
–
–
–
(2)
1
(3)
22
–
(13)
(6)
–
17
17
–
–
–
(39)
–
(1)
–
(40)
–
(6)
–
–
–
–
4
(2)
–
(2)
–
–
(3)
–
2
(3)
–
(80)
1
(18)
21
(5)
1
(80)
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)
At 31 December 2017, total deferred tax assets are £23 million (2016: £65 million) and total deferred tax liabilities
are £103 million (2016: £118 million). After netting off balances within countries, there is a deferred tax liability of
£111 million and a deferred tax asset of £31 million (2016: deferred tax liability of £70 million and deferred tax asset
of £17 million) recognised in the Consolidated Statement of Financial Position.
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Financial Statements
Financial Statements
Notes to the Financial Statements
Section 2: Results for the Year continued
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 reflects the current tax benefit obtained in the current
year following the employer contributions of £80 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 gain
recognised in the period.
A deferred tax asset of £377 million (2016: £377 million) in respect of capital losses of £2,217 million (2016: £2,215
million) has not been recognised due to uncertainties as to whether capital gains will arise in the appropriate form and
relevant territories against which such losses could be utilised. For the same reasons, deferred tax assets of £13 million
(2016: £19 million) in respect of overseas losses that time expire between 2018 and 2026 have not been recognised.
In line with our accounting policy on current tax, provisions are held on the balance sheet within current tax liabilities
in respect of uncertain tax positions where management believe that it is probable that future payments of tax will
be required. At the balance sheet date, these tax provisions were not material for the Group.
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 presented 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 £409 million (2016: £448 million) divided by 4,006 million
(2016: 4,010 million), being the weighted average number of shares in issue
during the year, which excludes EBT shares held in trust (see note 4.7).
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 are
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 is 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:
Basic 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
Basic earnings per ordinary share and from continuing operations
Basic loss per ordinary share from discontinued operations
2017
£m
409
–
409
4,006
10.2p
–
2016
£m
448
(1)
449
4,010
11.2p
–
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Section 2: Results for the Year
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
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
Ref.
A
B
C
2017
£m
2016
£m
409
4,006
11
4,017
10.2p
–
2017
£m
409
142
–
551
78
13
642
4,006
16.0p
–
2017
£m
642
4,006
11
4,017
16.0p
–
449
4,010
19
4,029
11.1p
–
2016
£m
448
149
(1)
598
66
19
683
4,010
17.0p
–
2016
£m
683
4,010
19
4,029
17.0p
–
Details of the adjustments to earnings are as follows:
A. Exceptional items (net of tax) £142 million (2016: £149 million), calculated as total of:
• exceptional items of £154 million (2016: £164 million), see note 2.2 for the detailed composition,
• net of related tax credit of £12 million (2016: £15 million).
B. Amortisation and impairment of acquired intangible assets of £78 million (2016: £66 million), calculated as total of:
• amortisation and impairment of assets acquired through business combinations and investments of £102 million
(2016: £89 million), excluding amortisation of software licences and development of £5 million (2016: £12 million),
• net of related tax credit of £19 million (2016: £11 million).
C. Adjustments to net financing costs £13 million (2016: £19 million). Net financing costs of £50 million
(2016: £51 million) are adjusted for:
• mark-to-market movements on derivative instruments, foreign exchange and imputed pension interest charges
of £33 million (2016: £26 million),
• net of related tax credit of £4 million (2016: £6 million).
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Notes to the Financial Statements
Section 2: Results for the Year continued
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 of. Accounting standards dictate that the loss
from discontinued operations is recognised outside of the Group’s operating results.
The Group’s 2017 results were all derived from continuing operations.
During 2016, management agreed to sell UTV Ireland Limited to Virgin Media 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.
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
2017
£m
2016
£m
–
–
–
–
–
–
–
–
–
–
2017
£m
–
–
–
11
(17)
(6)
–
(6)
5
–
(1)
–
–
2016
£m
(6)
10
4
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Section 3: Operating Assets and Liabilities
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 controlled 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 of 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.
The net realisable value assessment for acquired and commissioned rights 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
2017
£m
179
86
58
323
2016
£m
157
69
27
253
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Financial Statements
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
Broadcast programme and transmission commitments
Transmission commitments are the contracted future payments under 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 have been re-presented as a commitment in 2017 (see operating leases section in note 2.1 for details).
Programming commitments are transactions 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 transactions, which are not reflected in the statement of financial position, are due
for payment as follows:
2017
Within one year
Later than one year and not more than five years
More than five years
2016
Within one year
Later than one year and not more than five years
More than five years
Transmission
£m
Programme
£m
32
132
58
222
455
709
47
1,211
Transmission
£m
Programme
£m
28
129
92
249
454
789
112
1,355
Total
£m
487
841
105
1,433
Re-presented
Total
£m
482
918
204
1,604
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. Inventory is recognised
within current assets at the value of the production cost incurred, and is expensed in operating costs on delivery
of episodes.
Also included here are dramas where production costs are 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
2017
£m
247
2016
£m
153
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 other 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. Judgement is
required when estimating future patterns of consumption. 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 is as follows:
Distribution rights
During the year, £35 million was charged to the income statement (2016: £38 million).
2017
£m
19
2016
£m
31
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Section 3: Operating Assets and Liabilities
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. Trade and other receivables can be
analysed as follows:
Due within one year:
Trade receivables
Other receivables
Prepaid employment-linked consideration
Prepayments and accrued income
Due after more than one year:
Trade receivables
Accrued income and other receivables
Total trade and other receivables
2017
£m
311
51
–
152
514
19
8
27
541
2016
£m
315
39
21
151
526
12
27
39
565
In 2016, prepaid employment-linked consideration of £21 million related to the acquisition of Talpa Media in 2015.
This represented the portion of the initial consideration of €150 million that was recoverable from the seller in the
event he left within the initial two years following acquisition. This amount was amortised over the two years to
31 March 2017 and recognised as exceptional expense (see note 2.2).
£330 million (2016: £327 million) of total trade receivables, stated net of provisions for impairment, are aged as follows.
Current
Up to 30 days overdue
Between 30 and 90 days overdue
Over 90 days overdue
2017
£m
275
28
16
11
330
2016
£m
299
19
6
3
327
Movements in the Group’s provision for impairment of trade receivables and accrued income can be shown as follows:
At 1 January
Charged during the year – insured trade receivable provision (note 2.2)
Charged during the year – other receivables
Unused amounts reversed
At 31 December
2017
£m
4
30
5
(4)
35
2016
£m
5
–
3
(4)
4
Of the provision total, £4 million relates to balances overdue by more than 90 days (2016: £3 million) and less than
£1 million relates to current balances (2016: £1 million). £30 million of the provision relates to the overdue Talent
receivable, which is impairing £14 million of trade receivables and £16 million of accrued income. The provision for
these insured receivables, net of insurance excess, has been recognised as an exceptional expense (see note 2.2).
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Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
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
Acquisition-related liabilities – employment-linked contingent consideration
Acquisition-related liabilities – payable to sellers under put options agreed on acquisition
Accruals
Deferred income
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
Acquisition-related liabilities – employment-linked contingent consideration
Acquisition-related liabilities – payable to sellers under put options agreed on acquisition
2017
£m
63
67
234
34
42
371
218
1,029
2017
£m
68
21
54
31
174
2016
£m
71
61
186
72
33
332
205
960
2016
£m
57
10
38
15
120
Trade payables primarily relate to film creditors for which payment is due after more than one year.
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 £58 million (2016: outflow of £28 million) derived as follows:
Increase in programme rights and other inventory and distribution rights
Decrease/(increase) in receivables
Increase in payables
Working capital outflow
2017
£m
(94)
13
23
(58)
2016
£m
(35)
(56)
63
(28)
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).
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Section 3: Operating Assets and Liabilities
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 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 that 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.
Assets under construction are not depreciated until the point at which the asset comes into use by the Group.
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Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
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:
Freehold land
and buildings
Improvements to leasehold
land and buildings
Vehicles, equipment
and fittings
Total
Cost
At 1 January 2016
Additions
Acquisitions
Foreign exchange
Reclassifications
Disposals and retirements
At 31 December 2016
Additions
Acquisitions
Foreign exchange
Disposals and retirements
At 31 December 2017
Depreciation
At 1 January 2016
Charge for the year
Foreign exchange
Reclassifications
Disposals and retirements
At 31 December 2016
Charge for the year
Foreign exchange
Disposals and retirements
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
Long
£m
Short
£m
Owned
£m
Finance
leases
£m
66
–
–
–
–
–
66
6
–
–
(2)
70
14
2
–
–
–
16
2
–
(2)
16
54
50
18
2
–
–
–
–
20
–
–
–
–
20
15
1
–
–
–
16
–
–
–
16
4
4
264
27
1
6
3
(29)
272
40
4
(3)
(30)
283
165
27
3
1
(29)
167
31
(1)
(28)
169
114
105
16
–
–
–
(3)
(13)
–
–
–
–
–
–
14
–
–
(1)
(13)
–
–
–
–
–
–
–
£m
453
29
4
6
–
(42)
450
46
11
(3)
(32)
472
214
31
3
–
(42)
206
41
(1)
(30)
216
256
244
£m
89
–
3
–
–
–
92
–
7
–
–
99
6
1
–
–
–
7
8
–
–
15
84
85
Included within property, plant and equipment are assets in the course of construction of £41 million (2016: £19 million),
£16 million of which relates to the London property project (refer to note 2.2 for further details).
Included within the depreciation charge for the year of £41 million is £11 million of accelerated depreciation relating
to assets made redundant as a result of the property project. This accelerated depreciation has been recorded as an
exceptional item in 2017. Refer to note 2.2 for further details.
In 2013, the Group acquired the freehold for the London Television Centre for £58 million, although the Directors’
view is that the fair value of the property would be significantly higher than the carrying value.
Capital commitments
There are £15 million of capital commitments at 31 December 2017 (2016: £4 million).
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Section 3: Operating Assets and Liabilities
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 the
‘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
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. The Directors consider these
costs to reflect the cost of acquisition and to form a part of the capital transaction, and highlight them separately as
exceptional items.
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Financial Statements
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
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.
The main intangible assets the Group has valued are formats, brands, licences, contractual arrangements, customer
contracts and relationships and libraries.
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.
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
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
licence 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.
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
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Section 3: Operating Assets and Liabilities
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.
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 (‘CGU’),or group of CGUs, related to the goodwill. Total assets (which include goodwill) are grouped
at the lowest levels for which there are separately identifiable cash flows.
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.
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Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
Intangible assets
Intangible assets can be analysed as follows:
Cost
At 1 January 2016
Additions
Acquisitions
Foreign exchange
At 31 December 2016
Additions
Acquisitions
Foreign exchange
Disposals, retirements
and impairment
At 31 December 2017
Amortisation and
impairment
At 1 January 2016
Charge for the year
Foreign exchange
At 31 December 2016
Charge for the year
Foreign exchange
Disposals, retirements
and impairment
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
Goodwill
£m
Formats
and brands
£m
Customer
contracts and
relationships
£m
Contractual
arrangements
£m
Libraries
and other
£m
Software
licences and
development
£m
Licences
£m
3,744
–
44
47
3,835
–
85
(21)
(10)
3,889
2,654
–
–
2,654
–
–
–
2,654
1,235
1,181
481
–
3
51
535
–
–
9
–
544
205
44
5
254
46
3
–
303
241
281
411
–
–
9
420
–
21
(4)
(1)
436
365
16
6
387
17
(4)
(1)
399
37
33
10
–
–
1
11
–
–
–
–
11
7
2
1
10
1
–
–
11
–
1
121
–
55
–
176
–
–
–
–
176
94
6
–
100
6
–
–
106
70
76
99
–
–
4
103
–
–
(2)
–
101
65
9
2
76
7
(1)
–
82
19
27
104
13
–
–
117
23
–
–
(5)
135
80
12
–
92
5
–
(5)
92
43
25
Total
£m
4,970
13
102
112
5,197
23
106
(18)
(16)
5,292
3,470
89
14
3,573
82
(2)
(6)
3,647
1,645
1,624
Gurney Productions LLC has been treated as if it would have been wound down, with no further results to be recognised
in the accounts. A provision of £13 million has been recognised against onerous contracts and various assets and
liabilities relating to Gurney Productions LLC, which includes £3 million write-off of goodwill. The net effect of these
provisions and the derecognition of non-controlling interest is less than £1 million (see note 4.6.6).
Goodwill impairment tests
The carrying amount of goodwill for each CGU is represented as follows:
Broadcast & Online
SDN
ITV Studios
2017
£m
386
76
773
1,235
2016
£m
386
76
719
1,181
£3 million of goodwill was written off in the ITV Studios CGU in relation to Gurney Productions LLC. There has been no
impairment charge for any CGU during the year (2016: £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 nominal long-term growth rate of 1.5% (2016: 2%). The growth rate used is consistent
with the long-term average growth rates for both the industry and the countries in which the CGUs 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.
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Section 3: Operating Assets and Liabilities
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 performance and
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% of growth
was applied to 2018 and -8% to 2019 with no subsequent recovery, 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 current year impairment review, set out above,
results in significant headroom in excess of the 2008 impairment amount. Even though the advertising market has
substantially improved since then and the impaired assets are still owned and operated by the Group, due to
accounting rules the impairment cannot be reversed.
A pre-tax market discount rate of 9.5% (2016: 10.4%) 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 renewals of 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
(2018: -10% growth, 2019: 0% growth). The Directors believe that currently no reasonably possible change in the
cash flow and availability assumptions would reduce the headroom in this CGU to zero.
A pre-tax market discount rate of 11.4% (2016: 11.7%) 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 the goodwill arising
from recent acquisitions since 2012, with the largest acquisitions being Leftfield in 2014, followed by Talpa 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
(2018: -10% growth, 2019: 0% growth). The Directors believe that currently no reasonably possible change in the
cash flow assumptions would reduce the headroom in this CGU to zero.
A pre-tax market discount rate of 10.8% (2016: 11.6%) has been used in discounting the projected cash flows.
Following the acquisitions made by ITV Studios in 2017, the Directors considered how assets and resources are shared
across the ITV Studios division and the level of integration within the management structure for the purposes of
reporting and strategic decision-making. They concluded that a single ITV Studios CGU continues to remain appropriate.
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Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
3.4
Acquisitions
Keeping
it simple
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 so 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 year, the Group made payments totalling £54 million for five acquisitions.
All acquisitions have been included in the results of the ITV Studios operating segment. The businesses fit with the
strategy of strengthening the Group’s existing position as a producer for major television networks in the UK, Europe,
US and OTT platforms.
Tetra Media Studios SAS
On 28 February 2017, the Group purchased 65.04% of the share capital of Tetra Media Studios SAS, a French television
production group which specialises in drama, including flagship crime series Profilage, now in its seventh series, and
political crime thriller Les Hommes de l’Ombre.
Tomorrow ITV Studios LLC
On 1 April 2017, the Group gained control of Tomorrow ITV Studios LLC due to the conversion of its 75% preference
share capital into 75% ordinary share capital. The company produced Aquarius, a US period crime series, which aired
on NBC, and is producing Snowpiercer, an action sci-fi drama series, expected to be released in the US in 2018.
World Productions Limited
On 30 April 2017, the Group purchased 92% of the share capital of World Productions Limited, a company which
specialises in producing drama series with titles including Line of Duty, an award-winning British police crime drama,
and Born to Kill, a British thriller television mini-series.
Elk Production AB
On 21 June 2017, the Group acquired 96% of the share capital of Elk Production AB. Elk is one of the leading
independent production companies in Sweden. Key titles produced by the company include Ninja Warrior, an obstacle
course competition series, Dessertmästarna, a dessert cooking competition, and award-winning TV series Wahlgrens
and Parneviks.
Cattleya S.r.l.
On 11 October 2017, the Group purchased 51% of the share capital of Cattleya Srl, an Italian scripted production
company behind international hit TV dramas Gomorrah, Romanzo Criminale and Suburra, Netflix’s first Italian original
TV series.
Acquisition accounting:
Put and call options have been granted over the non-controlling interest of all five acquisitions, exercisable over
the next two to seven years. The total maximum consideration for the acquisitions is capped at £418 million
(undiscounted). All future payments are dependent on future performance of the business and linked to ongoing
employment.
Goodwill totalling £85 million arising on these acquisitions is not expected to be deductible for tax purposes and
represents the value placed on the opportunity to grow the content produced by the Group.
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Section 3: Operating Assets and Liabilities
Acquisitions in 2016
In 2016, 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, for cash consideration of £100 million.
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 licence.
Before ITV’s acquisition, 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 €10 million.
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.
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Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
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)
Total consideration
Fair value of previously held preference shares (Note B)
Fair value of net assets acquired:
Property, plant and equipment
Intangible assets
Deferred tax liabilities
Deferred tax assets
Inventory
Trade and other receivables
Trade and other payables
Borrowings
Net assets held for sale
Fair value of net assets
Non-controlling interest measured at fair value (Note C)
Goodwill
Other information
Present value of the expected liability on put options
Present value of the expected earnout payment at acquisition
Contributions to the Group’s performance:
From date of acquisition
Revenue
EBITA before exceptionals
Proforma – January to December
Revenue
EBITA before exceptionals
2017
Total*
2016
Total
35
35
29
11
21
(8)
6
60
49
(100)
(35)
–
4
25
85
23
11
59
–
131
–
97
97
–
4
58
(11)
–
–
5
(7)
–
4
53
–
44
–
–
27
8
33
9
* Provisional values as the acquisition accounting is finalised in the 12 month period following acquisition.
Note A: Consideration for all acquisitions is net of cash acquired and estimated debt and working capital settlements. Cash acquired
during the period is £19 million (2016: £3 million).
Note B: The acquisition of Tomorrow Studios was effected by the right to convert of the Group’s non-controlling preference shares into
a controlling stake of ordinary shares. On change of control, the IFRS accounting standards require the Group to fair value the previously
held preference shares and include within the calculation of goodwill.
Note C: Non-controlling interest arises where the Group acquires less than 100% of the equity interest in a business, but obtains control.
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Section 3: Operating Assets and Liabilities
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 arrangement 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
2017
£m
2
68
4
74
2016
£m
4
60
12
76
The carrying amount of associates has increased in the year due to investments made in Blumhouse and Circle of
Confusion, two independent studios focusing on original premium scripted and unscripted programming. This was
offset by the acquisition of a controlling stake in ITV Tomorrow Studios, in which the Group previously held an
investment (see note 3.4). Further smaller investments have been made in line with Group’s strategy to grow
the international content business.
Please refer to page 188 for the list of principal investments held at 31 December 2017.
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Financial Statements
Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
3.6
Provisions
Keeping
it simple
A provision is recognised by the Group where an obligation exists relating to events
in the past and it is probable that cash will be paid to settle it.
A provision is made where the Group is not certain how much cash will be required
to settle a liability, so an estimate is required. The main estimates relate to the cost
of holding properties that are no longer in use by the Group, the likelihood of settling
legal claims and contracts the Group has entered into that are now unprofitable.
Accounting policies
A provision is recognised in the statement of financial position when the Group has a present legal or constructive
obligation arising from past events, it is probable cash will be paid to settle it and the amount can be estimated
reliably. Provisions are determined by discounting the expected future cash flows by a rate that reflects current
market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount
is recognised as a financing cost in the income statement. The value of the provision is determined based on
assumptions and estimates in relation to the amount and timing of actual cash flows, which are dependent
on future events.
Provisions
The movements in provisions during the year are as follows:
At 1 January 2017
Additions
Utilised
Released
At 31 December 2017
Contract
provisions
£m
Property
provisions
£m
Legal and Other
provisions
£m
–
3
–
–
3
2
3
–
(1)
4
21
–
(5)
–
16
Total
£m
23
6
(5)
(1)
23
Provisions of £16 million are classified as current liabilities (2016: £19 million). Unwind of the discount is £nil in 2017
and 2016.
Contract provisions comprise onerous commitments on playout and related services that are not expected to be
utilised over the remaining contract period.
Property provisions primarily relate to expected dilapidation costs at temporary rental properties.
Legal and Other provisions totalling £16 million (2016: £21 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 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 timing of the Upper
Tribunal’s decision is not yet clear. The Directors, having taken advice, believe that they have a strong case. There
are significant points of legal principle at issue and consequently any potential liability may take a significant period
to resolve. The Directors continue to believe that the provision held is appropriate.
The utilisation of provisions during the year was due to settlement of various other legal matters.
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3.7
Pensions
Keeping
it simple
Section 3: Operating Assets and Liabilities
In this note, we explain the accounting policies governing the Group’s pension
schemes, 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 closed to future accrual in 2017. In 2016,
on acquisition of UTV Limited, the Group took over the UTV Defined Benefit Scheme,
which remains open to future accrual.
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 participating 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. Although the Trustee of the scheme makes available a range of
investment options, 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 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.
The Group has a Pension Steering Committee, which liaises with the Trustee and
has oversight of the management of the pension schemes and underlying risks.
In the event of poor returns, the Group may need 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 but in some cases
security is required.
The accounting defined benefit pension deficit (IAS 19) is different from the actuarial
valuation deficit as they are calculated on the basis of different assumptions, such
as discount rate. The accounting defined benefit pension deficit (IAS 19) figure is
calculated as at the balance sheet date, and the actuarial deficit was calculated for
the last triennial valuation as of 1 January 2014, with the 1 January 2017 valuation
expected to be agreed in early 2018.
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 2017, total contributions expensed were £18 million (2016: £16 million).
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Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
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 during 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 position.
The liabilities of the Scheme are measured by discounting the best estimate of future cash flows to be paid using
the ‘projected unit’ method. 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 ITV Pension 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 during H1 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 with the ITV main scheme, in the form of a charge over gilts held by the Group. Therefore, the £38 million
securitised gilts have been classified as other pension assets to 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 are now linked to statutory revaluation until retirement. This decision gave rise to a one-off,
non-cash £19 million curtailment charge recognised in 2016.
On 29 February 2016, the Group acquired 100% of the assets and liabilities of UTV Limited, including responsibility
for a defined benefit pension scheme. Due to the size of the scheme, within this note the Directors present the results
and position of the UTV Scheme combined with the existing ITV Schemes. The next triennial valuation will be as at
30 June 2017 and is expected to be agreed during H1 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 sponsoring company of the ITV Pension Scheme is ITV Services Limited,
the unfunded scheme is Granada Group Limited and the UTV Scheme is sponsored by UTV Limited.
The defined benefit pension deficit
Net pension deficit of £83 million at 31 December 2017 (2016: £328 million) is stated after including the unfunded
scheme security asset of £38 million (2016: £39 million).
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)
Presented as:
Defined benefit pension surplus *
Defined benefit pension deficit
Defined benefit pension deficit (IAS 19)
Other pension asset
Net pension deficit
2017
£m
(3,987)
3,866
(121)
16
(137)
(121)
38
(83)
2016
£m
(4,200)
3,833
(367)
–
(367)
(367)
39
(328)
* The defined benefit pension surplus relates solely to the UTV Scheme. The defined benefit scheme assets in the UTV Scheme
were £130 million as at 31 December 2017 (2016: £117 million) and the defined benefit scheme obligations were £114 million
(2016: £117 million).
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 financial statements.
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Section 3: Operating Assets and Liabilities
Defined benefit scheme obligations
Keeping
it simple
What causes 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 or
change in mortality. 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 (gain)/loss
UTV acquisition
Benefits paid
Defined benefit obligation at 31 December
2017
£m
4,200
2
–
107
(121)
–
(201)
3,987
2016
£m
3,446
7
19
131
664
98
(165)
4,200
Of the above total defined benefit obligation at 31 December 2017, £58 million relates to unfunded schemes
(2016: £51 million), including the scheme in relation to the four former Granada executives.
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Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
Assumptions used to estimate the Scheme obligations
Keeping
it simple
What are the main assumptions used to estimate the Scheme obligations?
The main assumptions are:
• 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;
• Future salary levels for the UTV Scheme; and
• Future pensionable salary levels for the UTV Scheme.
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 15 years (2016: 17 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
UTV Pension Scheme
Rate of increase in pension payment (LPI1 5% pension increases)
Rate of increase to deferred pensions (CPI)
1. Limited Price Index.
2017
2016
2.50%
2.50%
3.15%
3.15%
3.65%
2.95%
2.15%
2.60%
2.70%
3.25%
3.20%
3.75%
3.15%
2.25%
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
2017
60
27.1
29.2
60
28.7
30.8
2017
65
22.5
24.4
65
23.9
25.9
2016
60
27.1
29.3
60
28.8
31.0
2016
65
22.4
24.5
65
23.9
26.1
The net pension deficit is sensitive to changes in assumptions. Those are disclosed further in this section.
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Section 3: Operating Assets and Liabilities
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 2017, 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 net
pension deficit.
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; and
• 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 on assets, excluding interest income
Employer contributions
UTV acquisition
Benefits paid
Administrative expenses paid
Fair value of Scheme assets at 31 December
2017
£m
3,833
98
51
90
–
(201)
(5)
3,866
2016
£m
3,270
126
416
93
98
(165)
(5)
3,833
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 2017 was £149 million (2016: £542 million).
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Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
How are the Scheme’s assets invested?
At 31 December 2017, 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 is 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)
Other bonds
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
Market value
2017
£m
Market value
2016
£m
633
1,456
279
2,368
678
1,135
270
2,083
61%
54%
865
22%
784
20%
260
88
109
193
650
240
41
(298)
(17)
3,866
17%
–
100%
633
95
62
222
1,012
183
42
(271)
(46)
3,833
27%
(1%)
100%
Included in the above are overseas assets of £978 million (2016: £1,304 million), comprised of quoted equities
of £244 million (2016: £565 million) and bonds of £734 million (2016: £739 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 at inception covering £1.7 billion 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 reduced in value in 2017, mainly due to a decrease in gilts yields over the year.
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Section 3: Operating Assets and Liabilities
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 IAS 19
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
Rate of inflation (Retail Price Index)
Rate of inflation (Consumer Price Index)
Life expectations
Change in assumption
Impact on defined benefit obligation
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 £60 million
Increase by £60 million
Increase by £15 million
Decrease by £25 million
Increase by £10 million
Decrease by £10 million
Increase by £110 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 £10 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.
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Notes to the Financial Statements
Section 3: Operating Assets and Liabilities continued
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:
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:
Remeasurement gains/(losses):
Return on scheme assets excluding interest income
Actuarial gains/(losses) on liabilities arising from change in:
– experience adjustments
– financial assumptions
– demographic assumptions
Total recognised in the consolidated statement of comprehensive income
2017
£m
2016
£m
(2)
(5)
(7)
(9)
–
(16)
2017
£m
51
138
12
(29)
121
172
(7)
(5)
(12)
(5)
(19)
(36)
2016
£m
416
31
(868)
173
(664)
(248)
The £121 million actuarial gain on the Scheme’s liabilities was principally due to an experience gain of £138 million
based on the use of updated membership data underlying the Trustee’s triennial valuation as at 1 January 2017.
The true-up of the membership data has resulted in a decrease in the liabilities. The £51 million gain on the Scheme’s
assets primarily results from increases in the market values of return-seeking investments, which has led to assets
outperforming expectations.
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Section 3: Operating Assets and Liabilities
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, where relevant,
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 pension
funding partnerships.
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 2018 for UTV Scheme
current service and administration expenses are expected to be in the region of £5 million (2017: £6 million) and deficit
funding contributions for the main ITV scheme in 2018 are expected to be £66 million (2017: £66 million), assuming
current contribution rates continue as agreed with the Trustee.
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 2018, a payment of
£14 million is expected as a result of those agreements.
IFRIC 14 clarifies how the asset ceiling rules should be applied if the Schemes are expected to be in surplus, for example
as a result of deficit funding agreements. The Group has determined that it has an unconditional right to a refund of
any surplus assets if the Schemes are run off until the last member dies. On this basis, IFRIC 14 rules do not cause any
change in the pension deficit accounting or disclosures.
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Financial Statements
Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs
In this
section
This section outlines how the Group manages its capital structure and related
financing costs, including its balance sheet liquidity and access to capital markets.
The Directors determine the appropriate capital structure of ITV, specifically how
much is raised from shareholders (equity) and how much is borrowed from financial
institutions (debt) in order to finance the Group’s activities both now and in the future.
Maintaining capital discipline and balance sheet efficiency remains important to the
Group. 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 Operating 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
Total debt
Currency component of swaps held
against euro denominated bonds
Net debt
* Balances as at acquisition date.
1 January
2017
£m
549
12
561
(161)
(4)
(1,035)
(1,200)
2
(637)
Net cash flow
Acquisitions*
£m
(438)
(7)
(445)
115
4
100
219
–
(226)
£m
19
–
19
(26)
–
(9)
(35)
–
(16)
Currency and
non-cash
movements
£m
31 December
2017
£m
(9)
–
(9)
(4)
–
(38)
(42)
18
(33)
121
5
126
(76)
–
(982)
(1,058)
20
(912)
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Section 4: Capital Structure and Financing Costs
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 debt
*
Balances as at acquisition date.
1 January
2016
£m
Net cash flow
£m
Acquisitions*
£m
Reclassifications
£m
Currency and
non-cash
movements
£m
31 December
2016
£m
238
56
294
(5)
(6)
(598)
(4)
(613)
–
(319)
301
(6)
295
5
6
(525)
–
(514)
–
(219)
3
–
3
–
–
–
–
–
–
3
–
(39)
(39)
–
–
–
–
–
–
(39)
7
1
8
(161)
(4)
88
4
(73)
549
12
561
(161)
(4)
(1,035)
–
(1,200)
2
(63)
2
(637)
Cash and cash equivalents
Included within cash equivalents is £nil (2016: £4 million), the use of which is restricted to meeting finance lease
commitments under programme sale and leasebacks (see note 4.2).
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. At 31 December 2017, the Group had drawings of £60 million under the RCF (2016: £nil).
The maximum draw down of the RCF during the year was £390 million (2016: £500 million).
The Group also had an unsecured £161 million Eurobond that matured in January 2017 and had a coupon of 6.125%.
Loans and loan notes due after one year
In 2016, the Group had a £100 million bilateral loan facility, which was repaid in full in June 2017.
The Group has issued the following Eurobonds:
• A seven-year €600 million Eurobond at a fixed coupon of 2.125%, which matures in September 2022; and
• A seven-year €500 million Eurobond at a fixed coupon of 2.0%, which will mature in December 2023. The bond
issued in December 2016 has been swapped back to sterling using a cross-currency interest swap. The resulting
fixed rate payable is c. 3.5%.
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Financial Statements
Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs
continued
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 sourced
in the capital markets. This estimation of fair value is consistent with instruments
valued under level 1 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 (see 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. The
Group also reviews other significant receivables and will seek to take out credit insurance on an individual basis where
appropriate.
In 2016, the Group signed a £100 million non-recourse receivables purchase agreement. As at 31 December 2017,
£10 million was available under the agreement (2016: £65 million).
The receivables in relation to the invoices sold were derecognised and the Group collects cash on behalf of the
counterparty as payments fall due.
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.
Deposits longer than 12 months require the approval of the Board.
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Section 4: Capital Structure and Financing Costs
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 a £630 million Revolving Credit Facility with a group of relationship banks. This facility, which was
amended and extended in December 2016, matures in 2022 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.
Fair value versus book value
The tables below provide fair value information for the Group’s borrowings:
Loans due within one year
£630 million Revolving Credit Facility
Other short-term loans
£161 million Eurobond
Loans due in more than one year
Bilateral loan facility
€600 million Eurobond
€500 million Eurobond
Other long-term loans
Maturity
Various
Various
Jan 2017
Jun 2018
Sept 2022
Dec 2023
Various
Book value
2017
£m
60
16
–
–
529
444
9
1,058
2016
£m
–
–
161
100
508
427
–
1,196
Fair value
2017
£m
60
16
–
–
560
461
9
1,106
2016
£m
–
–
162
100
529
431
–
1,222
Finance leases
At 31 December 2017, the Group had no finance lease liabilities (2016: £4 million due in one year or less).
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Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs
continued
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 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; 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.
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Section 4: Capital Structure and Financing Costs
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 for up to five years forward.
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. 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
2017 – post-
tax profit
2017 – equity
2016 – post-
tax profit
2016 – equity
£1 million £23 million
£3 million £17 million
£3 million
£10 million
£32 million
£11 million
The Group’s sensitivity to translation risk for revenue and adjusted EBITA is disclosed in the Finance Review on page 47.
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 2017, the Group’s fixed rate debt represented 92% of total gross debt (2016: 92%). Consequently,
a 1% movement in interest rates on floating rate debt would impact the 2017 post-tax profit for the year by less than
£1 million (2016: £2 million).
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.
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Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs
continued
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 2017
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 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
Assets
£m
Liabilities
£m
4
2
10
–
16
(1)
(1)
–
(1)
(3)
Assets
£m
Liabilities
£m
6
2
–
1
9
(1)
(2)
(6)
(3)
(12)
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 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 rate 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 (2016: £1 million) ineffectiveness taken
to the income statement and £20 million cumulative gain (2016: £5 million gain) 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 £177 million (2016: £168 million). A foreign exchange loss of £6 million (2016: £21 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.
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Section 4: Capital Structure and Financing Costs
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 2017
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
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
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
(1,058)
(1,021)
(21)
(161)
(1,171)
(1,021)
(21)
(292) *
4
(2)
10
–
206
(204)
557
(513)
(97)
(953)
–
(78)
148
(146)
11
(15)
(21)
(47)
(19)
(19)
58
(58)
11
(15)
(595)
(16)
(1)
(190)
(458)
(5)
(1)
(5)
–
–
–
–
32
(44)
503
(439)
2
(1)
(2,248)
136
(135)
(2,458)
124
(123)
(1,129)
7
(7)
(110)
5
(5)
(814)
–
–
(405)
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)
(158)
(1,338)
(912)
(11)
(328) *
7
(4)
–
(6)
213
(210)
497
(542)
(194)
(855)
–
(122)
127
(123)
10
(17)
263
(263)
263
(263)
258
(258)
(119)
(48)
(6)
(56)
86
(87)
10
(17)
5
(5)
(58)
(8)
(4)
(150)
(967)
(1)
(1)
–
–
–
–
–
30
(51)
447
(457)
–
–
–
–
–
–
(2,280)
13
(6)
(2,624)
13
(6)
(1,167)
–
–
(237)
–
–
(241)
–
–
(979)
* Undiscounted expected future payments depending on performance of acquisitions; the total maximum consideration is discussed in the Finance Review.
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Financial Statements
Financial Statements
Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs
continued
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 buy-backs, 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
Finance Review.
Accounting policies
Net financing costs comprise interest income on funds invested, gains/losses on the disposal of financial instruments,
changes in the fair value of financial instruments, interest expense on borrowings and finance leases, unwinding
of the discount on provisions, 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:
Financing income:
Interest income
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
2017
£m
4
4
(30)
(9)
–
(3)
(12)
(54)
(50)
2016
£m
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 2017 expense.
This is where estimates of the future performance against stretch targets is reassessed, resulting in adjustments
to the related put option liabilities.
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Section 4: Capital Structure and Financing Costs
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 assets at fair value through reserves
Cash flow hedges
Fair value
31 December
2017
£m
Level 1
31 December
2017
£m
Level 2
31 December
2017
£m
Level 3
31 December
2017
£m
38
4
2
14
58
38
–
–
–
38
–
–
2
14
16
–
4
–
–
4
Fair value
31 December
2017
£m
Level 1
31 December
2017
£m
Level 2
31 December
2017
£m
Level 3
31 December
2017
£m
Liabilities measured at fair value
Financial liabilities at fair value through profit or loss
Foreign exchange forward contracts and swaps
Acquisition-related liabilities – payable to sellers under
put options agreed on acquisition
Financial liabilities at fair value through reserves
Cash flow hedges
(1)
(73)
(2)
(76)
–
–
–
–
(1)
–
(2)
(3)
–
(73)
–
(73)
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Financial Statements
Financial Statements
Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs
continued
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 assets 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
Acquisition-related liabilities – payable to sellers under
put options agreed on acquisition
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)
(48)
(9)
(61)
–
–
–
–
–
–
(3)
–
(9)
(12)
(1)
–
(48)
–
(49)
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.
Acquisition-related liabilities are valued based on the forecast performance of each acquisition and where there has
been a change in expectations, the Group adjusts the value of future commitments.
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Section 4: Capital Structure and Financing Costs
4.6
Equity
Keeping
it simple
This section explains material movements recorded in shareholders’ equity, presented
in the Consolidated Statement in Changes in Equity, that are not explained elsewhere
in the financial statements.
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 2017 of £403 million (2016: £403 million) and share premium of £174 million
(2016: £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 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:
2017
£m
98
112
36
2
(49)
199
2016
£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 £409 million
(2016: £448 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. See details
on distributable reserves on page 186.
The Directors of ITV plc propose a final dividend of 5.28p per share, which equates to a full year dividend of 7.8p
per share. In 2017, £494 million of dividend payments were made (2016: £663 million).
4.6.6 Non-controlling interests
Non-controlling interest (NCI) represents the share of non-wholly owned subsidiaries’ net assets that are not directly
attributable to the shareholders of the ITV Group. The movement for the year comprises:
• The share of profits attributable to NCI of £4 million (2016: £4 million);
• The distributions made to NCI of £4 million (2016: £4 million);
• The share of net assets attributable to NCI relating to subsidiaries acquired or disposed of in the year of £25 million
(2016: nil); and
• A £13 million write-down of the NCI held in Gurney Productions LLC, as a result of the treatment of the subsidiary
as if it would have been wound down. See note 3.3 for further information.
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Financial Statements
Notes to the Financial Statements
Section 4: Capital Structure and Financing Costs
continued
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. The share-based
compensation is not pensionable.
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 linked to the price or value of the Group’s shares, 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 is 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 SAYE
scheme, 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, is 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 £12 million in 2017 (2016: £10 million).
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ITV plc Annual Report and Accounts 2017
Section 4: Capital Structure and Financing Costs
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
2017
Weighted
average
exercise price
(pence)
67.86
144.10
–
121.37
44.87
–
69.17
–
Number
of options
(’000)
36,533
7,996
7,911
(5,614)
(9,883)
(788)
36,155
2,808
2016
Weighted
average
exercise price
(pence)
55.63
–
167.62
151.17
28.81
109.25
67.86
–
Number
of options
(’000)
40,167
7,351
8,002
(255)
(12,293)
(6,439)
36,533
83
The average share price during 2017 was 185.15 pence (2016: 209.91 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)
–
–
66.60
–
–
–
138.99
168.21
206.83
20,417
–
34
–
–
–
5,672
9,447
585
2017
Weighted
average
remaining
contractual
life
(years)
Weighted
average
exercise price
(pence)
Number
of options
(’000)
2016
Weighted
average
remaining
contractual life
(years)
1.65
–
–
–
–
–
3.06
1.39
0.39
–
–
67.71
–
102.59
–
131.44
167.37
206.83
21,531
–
505
–
185
–
193
13,251
891
1.89
–
0.91
–
1.92
–
2.16
1.87
1.41
Assumptions
DSA, LTIP and PSP options are valued directly by reference to the share price at date of grant.
The options granted in the year 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
%
3 Year
5 Year
3 Year
5 Year
3 Year
5 Year
3 Year
5 Year
29 March 2016
29 March 2016
16 Sept 2016
16 Sept 2016
29 March 2017
29 March 2017
16 Sept 2017
16 Sept 2017
243.30
243.30
195.40
195.40
218.90
218.90
156.20
156.20
187.79
187.79
157.46
157.46
164.22
164.22
138.99
138.99
25.00
29.00
30.00
31.00
30.02
28.61
29.35
28.55
3.25
5.25
3.25
5.25
3.25
5.25
3.25
5.25
3.00
3.00
3.00
3.00
3.00
3.00
3.00
3.00
0.41
0.73
0.41
0.73
0.58
1.28
0.51
1.12
Fair value
(pence)
56.64
65.94
46.97
52.15
58.50
60.36
30.80
33.88
175
175
Strategic ReportGovernanceFinancial StatementsAdditional information
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 5: Other Notes
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 2017 and the purchases/(releases)
from the EBT made in the year to satisfy awards under the Group’s share schemes:
Scheme
LTIP releases
DSA releases
PSP releases
SAYE releases
Shares purchased
Shares held at
1 January 2017
31 December 2017
Number of shares
(released)/purchased
14,410,124
(1,727,421)
(1,942,485)
(2,399,709)
(2,415,665)
21,064,677
26,989,521
Nominal value
£
1,438,557
2,698,952
The total number of shares held by the EBT at 31 December 2017 represents 0.67% (2016: 0.36%) of ITV’s issued share
capital. The market value of own shares held at 31 December 2017 is £45 million (2016: £30 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 that 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
2017
£m
15
10
28
70
2016
£m
8
10
26
70
The transactions with joint ventures primarily relate to sales and purchases of digital multiplex services with Digital
3&4 Limited and distribution revenue from BritBox LLC.
Sales to associated undertakings include airtime sales to DTV Services Limited. Purchases from associated undertakings
primarily relate to the purchase of news services from ITN Limited.
All transactions with associated undertakings and joint ventures arise in the normal course of business on an arm’s
length basis. None of the balances are secured.
The amounts owed by and to these related parties at the year end were:
Amounts owed by joint ventures
Amounts owed by associated undertakings
Amounts owed to joint ventures
Amounts owed to associated undertakings
2017
£m
6
6
–
4
2016
£m
–
57
–
–
176
176
ITV plc Annual Report and Accounts 2017
ITV plc Annual Report and Accounts 2017
Section 5: Other Notes
Amounts owed by joint ventures primarily relate to trading with BritBox LLC. Balances owed by associated under
takings largely relate to loan notes and trading balances with Monumental TV Limited. Balances owed to associated
undertakings primarily relate to trading with ITN Limited.
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
2017
£m
10
1
11
2016
£m
8
2
10
5.2
Contingent
assets and
liabilities
Keeping
it simple
A contingent asset or liability is a liability that is not sufficiently certain to qualify
for recognition as an asset or provision where uncertainty may exist regarding the
outcome of future events.
Contingent assets
In 2017 Talpa Media took back the licence for The Voice of China due a breach of the agreement by the customer,
Talent, for not fulfilling their payment obligations. The Group is pursuing Talent vigorously for the £30 million still
due under the agreement. Further, the Group has credit insurance in place and a claim has been submitted.
Whilst the Directors are confident of recovering the amount due, accounting standards set very specific requirements
for the recognition of contingent assets, which is how the recovery of the amount due has been accounted for. As
discussions with the insurers and the claim against Talent are still in progress, at this early stage of pursuing recovery
the Group is not able to demonstrate sufficient certainty to be able to recognise a cash receivable at the year end.
See note 2.2 for further details.
Contingent liabilities
The Group has initiated legal proceedings against the minority owners of Gurney Productions LLC for alleged breaches
of contracts and their fiduciary duties, as well as self-dealing and fraudulent concealment. The minority owners dispute
the allegations and they have counter-claimed for damages of at least $150 million. The action is ongoing and, having
taken legal advice, the Directors believe this counter-claim is completely without merit.
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.
177
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Strategic ReportGovernanceFinancial StatementsAdditional information
Financial Statements
Financial Statements
Notes to the Financial Statements
Section 5: Other Notes continued
5.3
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 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
10528952
11109865
11109596
02285229
04159249
01692483
03053908
03307790
03210363
04257248
03209058
00290076
03106798
00733063
10384774
01127149
04206900
10058008
10671435
04207680
04206912
04206927
08723446
10058180
04206935
03799828
08554937
11107990
10031818
08516153
08586211
10384819
11107431
00920028
10528851
11109917
11108327
10062923
09660486
10528763
09646520
11108322
11108320
04201477
06469484
10796122
11109744
11109929
Back Productions Limited
Big Talk Bliss Limited
Big Talk Diana Limited
Big Talk Living the Dream Limited
Big Talk NEWCO 2 Limited
Big Talk NEWCO 4 Limited
Campania Limited
Carlton Content Holdings Limited
Carlton Finance Limited
Carlton Programmes Development Limited
Carltonco 103
Carltonco Ninety-Six
Channel Television Holdings Limited
DTV Limited
Granada Group Limited
Granada Media Limited
Granada Television Overseas Limited
ITV Bancroft Limited
ITV Breathless Limited
ITV Cradle Limited
ITV Dark Heart Limited
ITV HG Limited
ITV Home Fires Limited
ITV J&H Limited
ITV JR Limited
ITV Lewis Limited
ITV Loch Ness Limited
ITV Moorside Limited
ITV Play Limited
ITV Shetland Limited
ITV Studios NEWCO 11
ITV T&B Limited
ITV Text Santa Limited
ITV Thunderbirds Limited
ITV Trauma Limited
ITV Vera Limited
Link Electronics Limited
Mammoth Screen (City) Limited
Mammoth Screen (END6) Limited
Mammoth Screen (DESIRE) Limited
Mammoth Screen (NW) Limited
Mammoth Screen (POL2) Limited
Mammoth Screen (POL4) Limited
Mammoth Screen (QV) Limited
Mammoth Screen (VIC3) Limited
Mammoth Screen (WOF) Limited
Morning TV Limited
VOD Member (ITV A) Limited
WP (BodyGuard) Limited
WP (NEWCO 2) Limited
WP (NEWCO 4) Limited
10171346
10496857
11081338
11109753
11109572
01891539
05078683
00301188
03984490
03210452
02625225
02280048
02852812
00913659
03962410
05344772
06914987
04206924
04209918
10602705
10494684
04159210
04206925
04206871
11107681
10031419
08534385
04033106
01565625
04206897
11108813
09499040
11107934
09498177
09499012
05518785
11108285
10528827
11062257
10491117
10646873
10031005
11108289
10528702
10043079
10973979
04206913
06469482
11109287
11109437
BGSS Limited
Big Talk Cold Feet Limited
Big Talk Guilty Limited
Big Talk NEWCO 1 Limited
Big Talk NEWCO 3 Limited
Broad Street Films Limited
Carbon Media Limited
Carlton Film Distributors Limited
Carlton Food Network Limited
Carlton Screen Advertising (Holdings) Limited
Carltonco Forty Investments
Castlefield Properties Limited
Cosgrove Hall Films Limited
Granada Film Limited
Granada Limited
Granada Screen (2005) Limited
ITV (HC) Limited
ITV Beowulf Limited
ITV Cilla Limited
ITV CS Limited
ITV Enterprises Limited
ITV Holdings Limited
ITV Investments Limited
ITV Jericho Limited
ITV Leila Limited
ITV Little Boy Blue Limited
ITV Lucan Limited
ITV Mr Selfridge Limited
ITV Properties (Developments) Limited
ITV Spirit Limited
ITV Studios NEWCO 12
ITV Tennison Limited
ITV The Bay Limited
ITV Top Class Limited
ITV Tut Limited
Juice Music UK Limited
Mammoth Screen (ABC) Limited
Mammoth Screen (END5) Limited
Mammoth Screen (NC) Limited
Mammoth Screen (NOK) Limited
Mammoth Screen (OBI) Limited
Mammoth Screen (POL3) Limited
Mammoth Screen (POL5) Limited
Mammoth Screen (VF) Limited
Mammoth Screen (WFTP) Limited
Mammoth Screen (WOTW) Limited
SOM (ITV) Limited
VOD Member (ITV B) Limited
WP (NEWCO 1) Limited
WP (NEWCO 3) Limited
178
178
ITV plc Annual Report and Accounts 2017
ITV plc Annual Report and Accounts 2017
ITV plc Company Financial Statements
ITV plc Company Financial Statements
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
Current tax liabilities
Derivative financial instruments
Net current assets
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
Note
2017
£m
4,230
7
5
17
4,259
(60)
(3,237)
(8)
(2)
(7)
(3,314)
(973)
(1)
(974)
iii
vi
iv
vi
v
iv
vi
v
vi
vii
viii
viii
viii
2016
£m
4,066
10
19
438
4,533
(161)
(2,856)
(22)
–
(10)
(3,049)
(1,035)
(9)
(1,044)
2017
£m
2,191
11
1
2,203
945
3,148
2,174
403
174
26
1,571
2,174
The accounts were approved by the Board of Directors on 28 February 2018 and were signed on its behalf by:
Ian Griffiths
Director
2016
£m
1,861
4
2
1,867
1,484
3,351
2,307
403
174
28
1,702
2,307
179
179
Strategic ReportGovernanceFinancial StatementsAdditional information
Financial Statements
Financial Statements
ITV plc Company Financial Statements continued
Company Statement of Changes in Equity
Balance at 1 January 2017
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 transactions with owners
Balance at 31 December 2017
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 transactions with owners
Balance at 31 December 2016
Note
vii/viii
Note
vii/viii
Share
capital
£m
403
–
–
–
–
–
–
403
Share
Capital
£m
403
–
–
–
–
–
–
403
Share
premium
£m
174
Other
reserves
£m
28
–
–
–
–
–
–
174
–
(2)
(2)
–
–
–
26
Share
Premium
£m
174
Other
Reserves
£m
36
–
–
–
–
–
–
174
–
(8)
(8)
–
–
–
28
Retained
earnings
£m
1,702
351
–
351
(494)
12
(482)
1,571
Retained
Earnings
£m
880
1,475
–
1,475
(663)
10
(653)
1,702
Total
£m
2,307
351
(2)
349
(494)
12
(482)
2,174
Total
£m
1,493
1,475
(8)
1,467
(663)
10
(653)
2,307
180
180
ITV plc Annual Report and Accounts 2017
ITV plc Annual Report and Accounts 2017
Notes to the ITV plc Company Financial Statements
Notes to the ITV plc Company Financial Statements
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 FRS 101:
• 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’; and
• 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.
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.
181
181
Strategic ReportGovernanceFinancial StatementsAdditional information
Financial Statements
Financial Statements
Notes to the ITV plc Company Financial Statements
continued
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.
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 Company 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
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, 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 SAYE scheme, 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, is 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. The Trust is accounted for as a
separate entity and therefore is only accounted for in the consolidated financial statements.
Dividends
Dividends are recognised through equity on the earlier of their approval by the Company’s shareholders or their payment.
182
182
ITV plc Annual Report and Accounts 2017
ITV plc Annual Report and Accounts 2017
Notes to the ITV plc Company Financial Statements
Two (2016: two) Directors of ITV plc were employees of the Company during the year, one of whom remains employed
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 44.87p (2016: 55.33p). The options
outstanding at the year end have an exercise price in the range of nil to 206.83p (2016: nil to 206.83p) and a weighted
average contractual life of two years (2016: one year) for all the schemes in place for the Group.
The principal subsidiary undertakings are listed on page 188. The carrying value at 31 December 2017 was £2,191 million
(2016: £1,861 million).
In 2017, the Company increased investment in subsidiaries by £330 million mainly due to subscribing to preference
shares in a newly formed subsidiary in Ireland, North America Studio Investments Designated Activity Company.
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. At 31 December 2017, the Group had drawings of £60 million under the RCF (2016: £nil).
The maximum draw down of the RCF during the year was £390 million (2016: £500 million).
The Group also had an unsecured £161 million Eurobond that matured in January 2017 and had a coupon of 6.125%.
Loans and loan notes due after one year
The Group had a £100 million bilateral loan facility, which was repaid in full in June 2017.
The Group has issued the following Eurobonds:
• A seven-year €600 million Eurobond at a fixed coupon of 2.125%, which matures in September 2022; and
• A seven-year €500 million Eurobond at a fixed coupon of 2.0%, which will mature in December 2023. The bond
issued in December 2016 has been swapped back to sterling using a cross currency interest swap. The resulting
fixed rate payable is c. 3.5%.
183
183
Strategic ReportGovernanceFinancial StatementsAdditional information
Financial Statements
Financial Statements
Notes to the ITV plc Company Financial Statements
continued
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
Cross-currency interest swaps – cash flow hedges
Foreign exchange forward contracts and swaps – cash flow hedges
Assets
2017
£m
Liabilities
2017
£m
5
2
10
1
18
(5)
(2)
–
(1)
(8)
Assets
2016
£m
Liabilities
2016
£m
7
3
–
4
14
(7)
(3)
(6)
(3)
(19)
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; 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.
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.
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 no (2016: less than £1 million) ineffectiveness taken to the
income statement and £17 million cumulative gain (2016: £2 million) recycled to the income statement in the year.
Cross-currency interest rate swaps
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.
184
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ITV plc Annual Report and Accounts 2017
ITV plc Annual Report and Accounts 2017
Notes to the ITV plc Company Financial Statements
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.
At 31 December 2017
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
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
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
6
(6)
10
–
2
(2)
10
206
(204)
557
(513)
119
(118)
47
148
(146)
11
(15)
107
(106)
(1)
58
(58)
11
(15)
7
(7)
(4)
–
–
–
–
32
(44)
503
(439)
5
(5)
(12)
–
–
64
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
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)
–
10
(17)
10
(10)
–
–
(6)
–
–
30
(51)
–
–
–
–
(21)
–
–
447
(457)
–
–
–
–
(10)
185
185
Strategic ReportGovernanceFinancial StatementsAdditional information
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
2017 & 2016
£m
Allotted, issued
and fully paid
2017 & 2016
£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 57 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); and
• 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 £351 million (2016: £1,475 million), which includes
dividends of £426 million from subsidiaries in 2017 (2016: £1,500 million). Other reserves of £26 million (2016: £28 million)
relate to share buy-backs in prior periods and foreign currency translation net of cash flow hedging.
Dividends
The Directors of the Company propose a final dividend of 5.28p per share, which equates to a full year dividend of
7.8p per share.
Distributable reserves
The distributable reserves of ITV plc approximate to the balance of the retained earnings reserve of £1,571 million
(2016: £1,702 million) as at 31 December 2017.
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 2017 of £45 million
(31 December 2016: £47 million). The Company has guaranteed certain finance and operating lease obligations of
subsidiary undertakings.
186
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ITV plc Annual Report and Accounts 2017
ITV plc Annual Report and Accounts 2017
Notes to the ITV plc Company Financial Statements
Note x
Capital and
other
commitments
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 2017 (2016: 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
2017
£m
4
–
4
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
2017
£m
2
1
2
5
2016
£m
3
2
5
2016
£m
3
2
2
7
187
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Strategic ReportGovernanceFinancial StatementsAdditional information
Financial Statements
Notes to the ITV plc Company Financial Statements
continued
Subsidiary undertakings and investments
Principal subsidiary undertakings
The principal subsidiary undertakings of the Company at 28 February 2018, all of which are wholly owned (directly or indirectly)
and incorporated and registered where stated.
Company Name
Country
Principal Business Activity
% Holding
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. (52)(a)
ITV America Inc. (63)(j)
ITV Global Entertainment, Inc. (63)(j)
Southbank Studios Inc. (63)(j)
Subsidiary undertakings
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
USA
Production of television programmes
Rights ownership and distribution of television programmes and films
Production of television programmes
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Company Name
Country
% Holding
Company Name
Country
% Holding
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)
Back Productions Limited (7)(a)
BGSS Limited (1)(a)
Big Talk Bliss Limited (1)(a)
Big Talk Cold Feet Limited (1)(a)
Big Talk Diana Limited (1)(a)
Big Talk Investments Limited (1)(a)
Big Talk JL Limited (1)(a)
Big Talk Living the Dream Limited (1)(a)
Big Talk NEWCO 1 Limited (1)(a)
Big Talk NEWCO 2 Limited (1)(a)
Big Talk NEWCO 3 Limited (1)(a)
Big Talk NEWCO 4 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)
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
188
ITV plc Annual Report and Accounts 2017
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
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)
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 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)
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
List of subsidiaries
Company Name
Country
% Holding
Company Name
Country
% Holding
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)
UK
UK
UK
UK
International Television Enterprises London Limited (1)(a)(d) UK
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)
ITV Cilla Limited (1)(a)
ITV Cradle Limited (1)(a)
ITV CS Limited (1)(a)
ITV Dark Heart 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 HG 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 Leila 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 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 11 Limited (1)(a)
ITV Studios Newco 12 Limited (1)(a)
ITV Supplementary Pension Scheme Limited (1)(a)
ITV T&B 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
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
ITV Tennison Limited (1)(a)
ITV Text Santa Limited (1)(a)
ITV The Bay 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 Wales & West Group Limited (1)(a)
ITV Wales & West Limited (1)(a)
ITV3 Limited (1)(a)
ITV4 Limited (1)(a)
ITV Vera Limited (1)(a)
Juice Music UK 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 (ABC) Limited (1)(a)
Mammoth Screen (AR) Limited (1)(a)
Mammoth Screen (ATTWN) Limited (1)(a)
Mammoth Screen (Bouquet) Limited (1)(a)
Mammoth Screen (BW) Limited (26)(a)
Mammoth Screen (City) Limited (1)(a)
Mammoth Screen (End) Ltd (1)(a)
Mammoth Screen (End2) Limited (1)(a)
Mammoth Screen (End5) Limited (1)(a)
Mammoth Screen (End6) Limited (1)(a)
Mammoth Screen (Falcon) Limited (1)(a)
Mammoth Screen (Fearless) Limited (1)(a)
Mammoth Screen Ltd (1)(a)
Mammoth Screen (Monroe) Limited (1)(a)
Mammoth Screen (NC) Limited (1)(a)
Mammoth Screen (NE) Limited (1)(a)
Mammoth Screen (NEWCO 6) Limited (1)(a)
1 00
Mammoth Screen (NI) Limited (35)(a)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Mammoth Screen (NOK) Limited (1)(a)
Mammoth Screen (NW) Limited (1)(a)
Mammoth Screen (OBI) Limited (1)(a)
Mammoth Screen (PE) Limited (1)(a)
Mammoth Screen (Pol2) Limited (1)(a)
Mammoth Screen (Pol3) Limited (1)(a)
Mammoth Screen (Pol4) Limited (1)(a)
Mammoth Screen (Pol5) Limited (1)(a)
Mammoth Screen (Poldark) Limited (1)(a)
Mammoth Screen (QV) Limited (1)(a)
Mammoth Screen (RM) Limited (1)(a)
Mammoth Screen (VF) Ltd (1)(a)
Mammoth Screen (Vic3) Limited (1)(a)
Mammoth Screen (WFTP) Limited (1)(a)
Mammoth Screen (WH) Limited (1)(a)
Mammoth Screen (WOF) Limited (1)(a)
Mammoth Screen (WOTW) Limited (1)(a)
Millbank Studios (1)(a)
Morning TV Limited (1)(a)
Moving Picture Company Films 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
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
189
Strategic ReportGovernanceFinancial StatementsAdditional information Financial Statements
Notes to the ITV plc Company Financial Statements
continued
Company Name
Country
% Holding
Company Name
Country
% Holding
New Providence Productions Limited (1)(a)
Pickwick Packaging Limited (1)(a)
Sightseers Film 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 (Film) Limited (1)(a)
The Garden Productions Limited (1)(a)
The London Studios Limited (1)(a)
Unforgotten 3 Ltd (4)(a)
UTV Limited (34)(a)
VOD Member (ITVA) Limited (1)(a)
VOD Member (ITVB) Limited (1)(a)
WP (NEWCO 1) Limited (1)(a)
WP (NEWCO 2) Limited (1)(a)
WP (NEWCO 3) Limited (1)(a)
WP (NEWCO 4) Limited (1)(a)
World of Sport Wrestling Limited (1)(a)
World Productions Limited (1)(a)
WP Bodyguard 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 Global Entertainment Pty Limited (36)(a)
ITV Services Pty Ltd (36)(a)
ITV Studios Australia Pty Limited (36)(a)
Totally Full Frontal Productions Pty Limited (36)(a)
Granada December Eight Limited (38)(a)
Granada December Nine Limited (38)(a)
ITV Holdings (Cayman) Limited (39)(a)
Talpa Chile SpA (94)(a)
ITV Studios Denmark Holdings Aps (104)(a)
United Productions ApS (42)(a)
ITV Studios Finland Oy (43)(a)
Beaubourg Audiovisuel (50)(a)
ITV Studios France Holdings SAS (95)(a)
ITV Studios France SAS (95)(a)
Phara Prod International (105)(a)
Tetra Media Studio SAS (105)(a)
ITV Studios Germany GmbH (46)(a)
ITV Studios Germany Holdings GmbH (46)(a)
Talpa Germany Fiction GmbH (96)(a)
Talpa Germany Gmbh & Co KG (47)(a)
Talpa Germany Verwaltungs GmbH (47)(a)
Elecrent Insurance Limited (31)(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
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
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
Cayman Islands 100
Cayman Islands 100
Cayman Islands 100
Chile
Denmark
Denmark
Finland
France
France
France
France
France
Germany
Germany
Germany
Germany
Germany
Guernsey
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
190
ITV plc Annual Report and Accounts 2017
ITV Global Entertainment (Hong Kong) Limited (49)(a)
Hong Kong
Talpa China Limited (48)(a)
Hong Kong
UTV Pension Scheme Limited (100) (a)
Channel Television Limited (32)(a)
ITV London Properties Limited (33)(a)
ITV Properties (Jersey) Limited (33)(a)
Global Music & Talent Agency B.V. (90)(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)
Stitchting ‘Derdengelden’ TV Producties (52)(a)
Talpa Content B.V. (52)(a)
Talpa Fictie B.V. (53)(a)
Talpa Germany Holding B.V. (90)(a)
Talpa Global B.V. (90)(a)
Talpa Non-Spot B.V. (52)(a)
Talpa Producties B.V. (52)(a)
Utopia B.V. (57)(a)
Vorst Media B.V. (99)(a)
Wardour Street Films B.V. (59)(a)
ITV Studios Norway AS (73)(a)
ITV Studios Nordic AB (74)(a)
ITV Studios Scandinavia Holdings AB (74)(a)
Talpa Asia Pte. Ltd. (93)(a)
ITV Studios Germany GmbH, Köln, Zweigniederlassung
Zürich (75)(m)
12 Yard Holdings, Inc. (68)(j)
Anglia Television, Inc. (68)(j)
Astrum Productions, LLC (68)(j)
ITV Blumhouse Holding Inc (63)(j)
Cardinal Productions of Ohio, Inc. (63)(j)
Carlton Media Company, Inc. (63)(j)
Chad Alan Productions, LLC (63)(j)
Critical Productions Inc (63)(j)
Double Down Films, LLC (63)(h)
Electric Farm Entertainment Holdings Inc. (63)(j)
Fourth State Productions Inc (108) (j)
Granada Cracker US Productions (68)(j)
Granada Television International, Inc. (63)(j)
Gritty Productions, LLC (63)(h)
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 Believe Holding, Inc. (63)(j)
ITV Diga Holding, Inc (63)(j)
ITV Entertainment Services 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)
Ireland
Jersey
Jersey
Jersey
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Norway
Sweden
Sweden
Singapore
Switzerland
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
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
List of subsidiaries
Company Name
ITV Southpoint Holding Inc (63)(j)
ITV Studios America Inc. (63)(j)
ITV Studios, Inc. (68)(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)
JB Entertainment Holding Company, Inc. (63)(j)
Kirkstall Road Enterprises, Inc. (63)(j)
Krewed Inc (63)(j)
Leftfield Entertainment, LLC (63)(h)
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)
Moving Pictures Services Inc. (63)(h)
Oaklawn Pacific Properties, LLC (65)(h)
Over the Pond Productions, Inc. (63)(j)
Post 460 Inc (63)(j)
Quay Street Enterprises, Inc. (63)(j)
Red Orange Productions, LLC (68)(j)
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)
So Television US, Inc. (68)(j)
Solowe Productions Inc (63)(j)
Southsquare Productions Inc. (63)(j)
Talpa Media USA, Inc. (68)(j)
Talpa North America Inc. (63)(j)
Trailer Park Productions, Inc (63)(j)
Upper Ground Enterprises, Inc. (63)(j)
Work Shop of NY, LLC (63)(h)
Zinna Productions (68))(j)
Joint ventures and Investments
Company Name
Absolutely Rights Limited (6)(a)
DTV Services Limited (17)(a)
That Mitchell and Webb Company Limited (7)(a)
Route 24 Limited (24)(a)
Monumental Television Limited (76)(a)
Clearcast Limited (14)(a)
Koska Limited (105)(a)
Cirkus International Limited (13)(a)
Thinkbox TV Limited (23)(a)
Country
% Holding
Company Name
Country
% Holding
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
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
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
20
20
20
24.9
24.92
25
25
28
28.58
Malacara Limited (2)(a)
Harlequin Agency Limited (5)(a)
Pink Rose Bud Limited (2)(a)
Mainstreet Pictures Limited (4)(a)
Unforgotten2 Limited (4) (a)
Independent Television News Limited (20)(a)
Cloth Cat Animation Limited (5)(a)
Cloth Cat LBB Limited (5)(a)
Thud Media Limited (5) (a)
OSF (Wales) Limited (5)(a)
Oxford Scientific Films Limited (5)(a)
Box Clever Technology Limited (8)(a)
Bone Kickers Limited (1)(a)
British Film-Makers Limited (1)(a)
Crook Productions 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)
Cirkus Limited (13)(a)
Possessed Limited (1)(a)
Bait Studio 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 Broadcast Limited (3)(a)
Twofour Group Holdings Limited (1)(a)
TwoFour Group Limited (3)(a)
3sixtymedia Limited (1)(a)
GC Films Pty Limited (36)(a)
Think Factory Productions Canada Ltd (77)(j)
LTP Productions Inc. (63)(h)
Apple Tree Productions ApS (101)(a)
Talpa Nordic ApS (41)(a)
15.15 Productions (59)(a)
100% Distribution (105)(a)
Beaubourg Fiction (50)(a)
Beaubourg Audiovisuel (50)(a)
Gedesel (107)(a)
Funny Corp (105)(a)
Macondo Productions Audiovisueles (105)(a)
MD 60 (105)(a)
Tangaro (105)(a)
Tetra Media Fiction (105)(a)
Shoot Again Productions (105)(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
Australia
Canada
Canada
Denmark
Denmark
France
France
France
France
France
France
France
France
France
France
France
Imago TV Film und Fernsehproduktion GmbH (45)(a)
Germany
36.75
37.5
37.5
38.25
38.25
40
41.25
41.25
41.25
46.27
46.27
50
50
50
50
50
50
50
50
50
51
51
55
74.07
75
75
75
75
75
75
75
75
75
75
75
75
75
75
80
49
65
75
25
51
49
50
50
50
50
51
51
60
65
78
95
80
191
Strategic ReportGovernanceFinancial StatementsAdditional information Financial Statements
Notes to the ITV plc Company Financial Statements
continued
% Holding
Company Name
Country
% Holding
50
51
51
50
Film Productions Rentals, LLC (68)(h)
Hatfield and McCoy Productions, LLC (63)(h)
Highball Music Group, LLC (63)(h)
LG Films, LLC (63)(h)
25.5
Marriage Boot Camp Reality Stars, LLC (63)(h)
65
25
20
96
90
90
90
90
10
MDQuartet LLC (63)(h)
Roasters LLC (63)(h)
Signal Post Facilities, LLC (63)(h)
Sound and Stage Studios, LLC (63)(h)
Texas Rangers, LLC (63)(h)
Thinkfactory Group, LLC (63)(h)
Thinkfactory Media, LLC (84)(h)
Web Legal, LLC (63)(h)
Westside Film Partners, LLC (63)(h)
40.5
East Olive Productions LLC (68)(h)
Twofour America, LLC (68)(h)
Loud Television, LLC (63)(h)
Next Steps Productions, LLC (63)(h)
Tomorrow ITV Studios LLC (63)(k)
Outpost Entertainment, LLC (63)(h)
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
65
65
65
65
65
65
65
65
65
65
65
65
65
65
75
75
75
75
75
80
Memberships, Partnerships and Companies Limited
by Guarantee
Company Name
Country
% Holding
ITV LTVC Scottish Limited Partnership (30)(h)
ITV Scottish Limited Partnership (30)(h)
Digital Production Partnership Limited (1)(i)
Producers Rights Agency Limited (25)(i)
DTT Multiplex Operators Limited (17)(i)
Digital UK Limited (17)(i)
UK
UK
UK
UK
UK
UK
100
100
50
50
25
25
ITV Netherlands Co-operatief W.A (55)(h)
Netherlands
100
45
49
49
50
51
60
60
60
60
60
61.5
61.5
61.5
61.5
61.5
61.5
65
65
Company Name
The Lab Television 2013 Limited Partnership (78)(a)
Cattleya Srl (103)(a)
Radio Cattleya Srl (103)(a)
Talpa Italia Srl (79)(a)
Think Cattleya Srl (103)(a)
Rangers Productions SRL (80)(a)
Identity Mansion B.V. (92)(a)
Pomper & Linders B.V. (98)(a)
ITV Studios Sweden AB (74)(a)
Maximum Media Production FZ-LLC (81)(a)
Talpa Arabia Holding Ltd (81)(a)
Talpa Middle East FZ-LLC (81)(a)
Talpa Middle East Lebanon S.A.R.L (81)(a)
Electric Farm Entertainment LLC (63)(h)
Britbox, LLC (89)(h)
Blumhouse TV Holdings LLC (63)(h)
Circle of Confusion Television Studios LLC (63)(h)
South Circle Productions LLC (63)(a)
BB Rights, LLC (63)(h)
Jaffe/Braunstein Entertainment, LLC (67)(h)
Eight Bells Productions, LLC (63)(h)
High Noon East, LLC (69)(h)
High Noon Group, LLC (69)(h)
High Noon Productions, LLC (69)(h)
High Noon West, LLC (69)(h)
Feeding Time Productions, LLC (86)(h)
FT Productions, LLC (63)(h)
Gurney Productions, LLC (68)(h)
Hollywood Camera and Lighting, LLC (68)(h)
RICMA, LLC (68)(h)
Yukon RAFT Productions, LLC (88)(h)
Crew Ready Everywhere, LLC (63)(h)
DGK 5, LLC (63)(h)
Country
Israel
Italy
Italy
Italy
Italy
Mexico
Netherlands
Netherlands
Sweden
UAE
UAE
UAE
UAE
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
192
ITV plc Annual Report and Accounts 2017
List of subsidiaries
1633 Bayshore Highway, Suite 320, Burlingame CA 94010, USA
(61)
(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
Corporation Service Company, 2711 Centreville Road (Suite 400), Wilmington,
Newcastle DE 19808, USA
The Corporation Trust Company, 311 South Division Street,
Carston City NV 89703, USA
United Corporate Services, Inc., 874 Walker Road (Suite C), Dover,
Kent DE 19904, USA
(64)
(65)
(66)
(67) 321 Southern Beverly Drive, Suite M, Beverly Hills, CA 90212, USA
(68)
CT Corporation System, 818 West Seventh Street, Suite 930, Los Angeles,
CA 90017, USA
(69) The Hodson Law Firm, 1129, East 17th Avenue, Denver, CO 80014, USA
CT Corporation System, 111 Eighth Avenue, 13th Floor, New York,
(70)
NY 10011, USA
(71) 21 Holborn Viaduct, London, EC1A 2DY, United Kingdom
(72) 120 West 3rd Avenue #201, Vancouver, BC VSY 1EG, Canada
(73) Starvhusgaten 2A, Bergen, 5014 Norway
(74) Soder Malarstrand 65, 11825, Stockholm, Sweden
(75) Scharenmoosstrasse 105, 8052, Zurich, Switzerland
(76) 9 St. Peters Street, London, N1 8JD, United Kingdom
(77)
Bucchil Goldstein LLP, 662 King Street West, Suite 304, Toronto ON
M5V 1M7, Canada
(78) 23 Habarzel Street, Tel Aviv, 69710, Israel
(79) Via Enrico, Tazzoli 6, Rome, Italy
(80)
Gonzales Carillo, SC Abogados, Montes Urales no 632, Piso 3, Lomas de Chapaltpec,
DF 11000, Mexico
eResident Acent Inc. 12121 Wilshire Boulevard ~1201, Los Angeles, CA 90025, USA
(81) Building 2, Dubai Media City, Dubai, UAE
(82) 3035 South Parker Road, Suite 500, Denver, CO 80014, USA
(83)
(84) 1640 South Sepulveda Boulevard, Suite 300, Los Angeles, CA 90025, USA
(85)
(86)
CT Corporation System, 306 Main Street, Suite 512, Frankfort, KY 40601, USA
CT Corporation System, 3867 Plaza Tower Drive East Baton Rouge Parish,
Baton Rouge, LA 70816, USA
(87) 24955 Pacific Coast Highway, Suite C302, Malibu, CA 90265, USA
(88)
Incorp Services Inc, 101 E. 9th Avenue, Suite 12-B, Anchorage,
AK99501-3651, USA
(89) 1120 Avenue of Americas, 5th Floor, New York, NY10036, USA
(90) Family de Mollaan 1, 1217 ZB Hilversum, Netherlands
(91) 15000 Ventura Blvd, Suite 202, Sherman Oaks, CA 91403, USA
(92) Westersingel 108, 3015 LD Rotterdam, Netherlands
(93) 198A Telok Ayer Street, Singapore 068637, Singapore
(94)
calle Cerro El Plomo 5855, oficina 1605, comuna de Las Condes,
Region Metropolitana, Chile
(95) 38 Quai du Point du Jour 92100 Boulogne-Billancourt, France
(96) Gethiner Strasse 5, 10785, Berlin, Germany
(97) August-Bebel Strasse 58, 15711, Konigs Wusterhausen, Germany
(98) Keizersgracht 149a, 1015CL, Amsterdam, Netherlands
(99) Hollandse Kade 34, 1391JM, Abcoude, Netherlands
(100) Ormeau Road, Belfast, Northern Ireland, BT7 1EB, United Kingdom
(101) Aumento Advokatfirma, Ny Osteragde 3,4, 1101, Kobenhavn, Denmark
(102) 101 avenue Victor Huge, 921010, Bologne-sur-Mer, France
(103) Piazzale Valerio Massimo, 7, 00162, Roma, Italy
(104) DLA Piper Denmark, Radhuspladsen 4, 1550 Kobenhavn V, Denmark
(105) 60 Rue Marcel Dassault, 92100, Boulogne-Billancourt, France
(106) Jessop House, Jessop Avenue, Cheltenham, Gloucestershire GL50 3WG,
United Kingdom
(107) 4 Rue de Commaille, 75007, Paris, France
(108) CT Corporation System, 289 S. Culver Street, Lawrenceville, GA, 30046-4805, USA
Interest key
(a)
(b)
(c)
(d)
(e)
(f)
(g)
Ordinary
Deferred
Special deferred
Redeemable preference
Cumulative preference
Cumulative redeemable preference
Convertible preference
Guarantee
Common
preference
Part preference
(h) Membership/Partnership
(i)
(j)
(k)
(l)
(m) Branch
* Direct subsidiary
193
Address key
(1)
(2)
(3)
(4)
(5) Gloworks, Porth Teigr Way, Cardiff, Wales, CF10 4GA, United Kingdom
(6)
The London Television Centre, Upper Ground, London, SE1 9LT, United Kingdom
218 Penarth Road, Cardiff, CF11 8NN, United Kingdom
Twofour Studios, Estover, Plymouth, Devon, PL6 7RG, United Kingdom
Kingsbourne House, 229–231 High Holborn, London, WC1V 7DA, United Kingdom
18 The Glasshouse Studios, Fryern Court Road, Fordingbridge, Hampshire, SP6 1NG,
United Kingdom
26 Nassau Street, London, W1W 7AQ, United Kingdom
5 New Street Square, London, EC4A 3TW, United Kingdom
20 Cathedral Road, Cardiff, CF11 9LJ, United Kingdom
(7)
(8)
(9)
(10) 9 Mansfield Street, London, W1M 9FH, United Kingdom
(11) 20 Orange Street, 3rd Floor, London, WC2H 7EF, United Kingdom
(12) 21 Hatton Gardens (Room 9), London EC1N 9BA, United Kingdom
(13) The Met Building, 22 Percy Street, London, W1T 2BU, United Kingdom
(14) 4 Roger Street, 2nd Floor, London, WC1X 2JX, United Kingdom
(15)
c/o Creative Skillset, 1-3 Grosvenor Place, Fifth floor (Suite 5B), London, SW1X 7HJ,
United Kingdom
(16) 124 Horseferry Road, London, SW1P 2TX, United Kingdom
(17) 27 Mortimer Street, London, W1T 3JF, United Kingdom
(18) 23-24 Newman Street, London, W1T 1PJ, United Kingdom
(19)
Unit 8 Acorn Production Centre, R/O 105 Blundell Street, London, N7 9BN,
United Kingdom
(20) 200 Gray’s Inn Road, London, WC1X 8HF, United Kingdom
(21)
Clay Barn, Ipsley Court, Berrington Close, Redditch, Worcestershire, B98 0TD,
United Kingdom
10 Lower Thames Street, (Third Floor), London, EC3R 6YT, United Kingdom
(22)
(23) Manning House, 22 Carlisle Place, London, SW1P 1JA, United Kingdom
(24)
(25)
York House, Empire Way, Wembley, Middlesex, HA9 0FQ, United Kingdom
Fitzrovia House, (3rd Floor), 153-157 Cleveland Street, London, W1T 6QW,
United Kingdom
Round Foundry Media Centre, Foundry Street, Leeds, LS11 5QP, United Kingdom
(26)
(27) c/o Archery Pictures, 3 Archery Close, London, W2 2BE, United Kingdom
(28) 59 Charlotte Street, (Third Floor), London, W1T 4PE, United Kingdom
(29)
(30)
Roundhouse, 212 Regent’s Park Road, London, NW1 8AW, United Kingdom
Quartermile One, 15 Lauriston Place, Edinburgh, Scotland, EH3 9EP,
United Kingdom
P.O. Box 308, St. Peter Port House, Union Street, St. Peter Port, GY1 3TA, Guernsey
Le Capelain House, Castle Quay, St. Helier, JE2 3EH, Jersey
(31)
(32)
(33) Ogier House, The Esplanade, St. Helier, JE4 9WG, Jersey
(34) Ormeau Road, Belfast, Northern Ireland, BT7 1EB, United Kingdom
(35)
5 Cromac Avenue, The Gasworks, Belfast, Northern Ireland, BT7 2JA,
United Kingdom
Level 5, Building 61, Fox Studios Australia, 38 Driver Avenue, Moore Park
NSW 2021, Australia
c/o Addisons, Level 12, 60 Carrington Street, Sydney NSW 2000, Australia
Appleby Corporate Services (Cayman) Limited, Clifton House,
75 Fort Street, P.O. Box 190 GT, Georgetown, Grand Cayman, KY1-1108,
Cayman Islands
c/o Appleby Trust (Cayman) Limited, Clifton House, 75 Fort Street,
P.O. Box 1350, Georgetown, Grand Cayman, KY1-1108, Cayman Islands
Ugland House, P.O. Box 309, South Church Street, Georgetown, Grand Cayman,
Cayman Islands
(36)
(37)
(38)
(39)
(40)
(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) Agrippastraße, 87-93, 50676, Köln, Germany
(47) Jenfelder Allee 80, 22039, Hamburg, Germany
(48)
(49)
11/F, Unit B, Winbase Centre, 208 Queen’s Road Central, Sheung Wan, Hong Kong
Rooms 517–520, 5th Floor, Sun Hung Kai Centre, 30 Harbour Road, Wan Chai,
Hong Kong
(50) 5–7 Rue, Saint-Augustin, 75002, Paris, France
(51) Mayor Street Upper, Dublin , DUBLIN 1, Ireland
(52) Familie de Mollaan 1, 1217 ZB, Hilversum, Netherlands
(53) Haarlemmer Houttuinen, 21 1013 GL, Amsterdam, Netherlands
(54) Heemraadssingel 180, 3021 DL, Rotterdam, Netherlands
(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) 10 Rue Maitre Jacques, 92100 Boulogne, Billancourt, France
(60) 121 West Lexington Drive, Suite 401, Glendale CA 91203, USA
Strategic ReportGovernanceFinancial StatementsAdditional information Additional Information
Glossary
Advertiser funded platform – platforms
that include advertising as part of the user
experience e.g. itv.com, iOS, and Android
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 15 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
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.
Linear television – television service
where the viewer has to watch a scheduled
TV programme at the particular time it’s
offered, and on the particular channel
it’s presented on
Long-form video requests – measured
across all platforms, based on data from
comScore Digital Analytix, Crocus, Virgin, BT,
iTunes, Netflix, Amazon Video and Sky and
include simulcast (in November 2017 we
moved from comScore Digital Analytix
to Crocus, an in-house analytics system).
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 ITV VOD content
is viewed on ad funded platforms (such as
on mobile, tablet and PC), based on data
from ComScore Digital Analytix and Crocus
Media sales commission – commission
earned by ITV plc on sales of airtime on
behalf of the non-consolidated licensees
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
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 – 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 – communications regulator in the
UK who regulate the TV, radio and video-
on-demand sectors, fixed-line telecoms
(phones), mobiles and postal services,
plus the airwaves over which wireless
devices operate
Over-the-top (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
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
Simulcast – streaming live TV channels via
a broadcaster’s on demand service, at the
same time as broadcast on linear TV
Spot advertising – linear television
advertising occupying a short break during
or between programmes
Subscription Video on Demand (SVOD) –
a paid for service where subscribers have
access to a 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
194
ITV plc Annual Report and Accounts 2017
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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