Final Results
ITV plc
Results for year ended 31 December 2008
Focusing on the core business, cost savings and cash management
Financial summary
|
12 months to 31 December (£m) |
2008 |
2007 |
Change % |
|
Group revenue |
2,029 |
2,082 |
(3) |
|
Adjusted operating EBITA* |
211 |
311 |
(32) |
|
(Loss)/Profit before tax |
|
|
|
|
Reported after impairment |
(2,732) |
188 |
- |
|
Adjusted** |
167 |
281 |
(41) |
|
EPS (pence per share) |
|
|
|
|
Reported after impairment |
(65.9) |
3.5 |
- |
|
Adjusted** |
2.7 |
5.0 |
(46) |
|
Full year dividend (pence per share) |
0.675 |
3.15 |
(79) |
*before exceptional items, amortisation and impairment of intangible assets
**before exceptional items, amortisation, impairment of intangible assets, amortised cost adjustment, and in addition for
Adjusted EPS, before tax adjustments
Michael Grade, Executive Chairman, ITV plc, said:
'Current conditions in the advertising market are the most challenging I have experienced in over 30 years in UK broadcasting. This is reflected both in our financial results for 2008 and the tough actions we are announcing today.
'Our priorities have to be aligned to the changed economic context. The Board therefore recognises that the 2012 revenue targets set in 2007 are no longer appropriate and we are focusing on our core business as a producer-broadcaster, on reducing our costs and on cash generation. Our audience share target remains unchanged.
'We are now implementing the plan needed to enable ITV to get through this difficult period and emerge as a leaner and fitter business. We will deliver annual cost savings in 2011 of £245m against the 2008 outturn. Of this, £155m of annual savings will be delivered in 2009, rising by £20m to £175m in 2010. These savings will come from all our businesses, including our programming costs.
'The Board is recommending the suspension of the final dividend. This is not a decision taken lightly. The Board's judgement is that it represents the prudent course in present conditions.
'We have secured £360m of covenant-free financing and additional debt over the last year, including a new £50m loan. We will seek to dispose of Friends Reunited and are considering options for SDN. Earlier this month, we repaid the maturing £250m bond from our cash resources. Our next bond repayment is in October 2011. The Board will continue to evaluate all options to improve the strength of the balance sheet.
'Even in these difficult times, we should not lose sight of the progress the business has made. We are continuing to deliver our advertisers mass audiences night after night and are holding our share of audience and of television advertising. We have delivered revenue growth in Global Content and a huge increase in video views online.
'We welcome the progress we are starting to see with respect to regulation. The review of CRR is well underway and, having approved our 2009 plans, Ofcom has proposed further restructuring of regional news for 2011. In both areas, we believe urgent decisions are called for. ITV, like all broadcasters, is responding to the Government's request for radical ideas on the future of PSB.
'Visibility on future revenues is limited and trading in 2009 remains uncertain. However we expect to continue to outperform the market, increasing our share of television advertising revenues for the full year once again.'
As well as NAR decline, the reduction in operating EBITA reflects the impact of higher schedule costs, including an increase in digital channel investment, and higher online losses.
Current trading
ITV estimates that total ITV NAR for the first quarter of 2009 will be around 17% down year-on-year, in line with the total market. Trading in March is impacted by the timing of Easter, compared to 2008. For April, ITV estimates that ITV NAR will outperform the total market, which is forecast to be down around 20%.
Strategic outlook
ITV's strategic targets, set in September 2007, assumed growth in UK television advertising of 1.5-2% per annum. There has since been an unprecedented deterioration in the global economic outlook and the UK television advertising market.
The Board recognises that the 2012 revenue targets for Global Content and Online are no longer appropriate. The Board is clear that ITV must focus on three things: maintaining the strength of its core business as an integrated producer-broadcaster, reducing its costs, and tightly managing its cash position. ITV is retaining the target for its channels to maintain a share of commercial impacts of at least 38.5% to 2012.
Disposals and business closures
Online, ITV is focused on delivering ITV content via itv.com and VOD. Consistent with this strategy, ITV Local will close as a stand alone business. ITV will seek to dispose of Friends Reunited and Scoot. Separately, ITV is considering options for its digital terrestrial multiplex business, SDN.
Balance sheet and pension
Net debt stood at £730m at the year end (2007: £668m). Since the year-end, ITV has fully drawn on an existing £125m bilateral facility running to 2013 and, earlier this month, repaid the maturing £250m bond. In February 2009, ITV secured a further 10-year loan of £50m which is not subject to financial covenants and which may be extended by the lender to a total of £200m. ITV's next bond repayment of £335m is scheduled for October 2011.
On an IAS 19 basis and including a significant mortality adjustment, ITV's pension deficit was estimated at £178m (2007: £112m) at the year end. In line with the agreed five year funding plan, ITV will provide £30m deficit funding in 2009. ITV will also begin consultation with the Trustees and staff over possible changes to the Defined Benefit sections of the pension scheme.
Goodwill impairment
An impairment loss of £1.6bn against Broadcasting goodwill was recognised at the half year. With the continuing deterioration in market forecasts and weakness in online advertising, a further £1.095bn impairment loss, principally against Broadcasting and Online, has been recognised for the full year. A non-cash impairment charge of £2.695bn is included in operating costs in the income statement.
Exceptional items
Operating exceptional items in the year totalled £97m. These include £40m reorganisation and restructuring costs associated with previously announced cost reduction programmes, including regional news changes for 2009. Reflecting the substantial deterioration in television advertising market forecasts, a charge of £50m is also included in respect of onerous contracts for sports rights.
NOTES TO EDITORS
1. The full ITV plc Report and Accounts 2008 is available at http://www.itvplc.com
2.
|
Key performance indicators for 12 months to 31 December 2008 |
|||
|
|
2008 |
2007 |
% |
|
ITV1 adult impacts (billion) |
236 |
237 |
(1) |
|
ITV family adult SOCI (%) |
41.0 |
41.7 |
(2) |
|
Content revenues, including internal, (£m) |
622 |
564 |
10 |
|
itv.com unique users - av. monthly (million) |
6.5 |
5.0 |
30 |
3. Share of viewing data is for the year to 31 December 2008, compared to equivalent period in 2007, based on BARB / Infosys data for individuals viewing. ITV Family includes: ITV1, ITV2, ITV3, ITV4, CITV, GMTV1, GMTV2, Men&Motors and associated “+1” channels. ITV Family share of viewing in 2008 was 23.2% (2007: 23.2%).
6. This announcement contains certain statements that are or may be forward-looking with respect to the financial condition, results or operations and business of ITV. By their nature forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These factors include, but are not limited to (i) adverse changes to the current outlook for the UK television advertising market, (ii) adverse changes in tax laws and regulations, (iii) the risks associated with the introduction of new products and services, (iv) pricing, product and programme initiatives of competitors, including increased competition for programmes, (v) changes in technology or consumer demand, (vi) the termination or delay of key contracts, (vii) fluctuations in exchange rates and (viii) volatility in financial markets.
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ITV plc
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Lizzie Morgan
Executive Chairman's statement
Current conditions in television advertising are the most challenging I have experienced in over 30 years in UK broadcasting. Our priorities have changed to reflect that.
Michael Grade
Executive Chairman
Our financial results for 2008 reflect the impact of the economic slowdown over the second half of the year. Market conditions have deteriorated further in 2009. Indeed, it is no exaggeration to say that current conditions in the television advertising market are the most challenging I have experienced in over 30 years in UK broadcasting.
The Board remains confident in the long-term course for the business set by our content-led strategy. However, our immediate priorities need to adapt to reflect the very different economic circumstances in which we are operating. The Board's focus is on ensuring the Company is adequately funded to navigate through the downturn. The ITV senior management team is focused on our core business, on costs and on cash generation.
Since this downturn began, the Board and management have sought to anticipate and address the challenges it poses for ITV as early as possible. Given our reliance on advertiser funding, we cannot fully mitigate the impact of the recession on the business. But I am confident that the determined and concerted action we are taking will best position the Company beyond the current cyclical downturn, however deep and extended it may turn out to be.
Results
Revenues in 2008 were £2.0 billion, down 3% on the previous year, with strong growth in our Global Content business offsetting a reduction in television advertising revenues. Adjusted operating earnings before interest, tax, impairments and amortisation were down 32% to £211 million, reflecting the gearing of our profits to the UK television advertising market.
Earnings were impacted by an impairment charge of £2.7 billion. As is explained in detail in the notes to the accounts, this non-cash charge reflects advertising market decline and the uncertain outlook for 2009 and beyond. Operating exceptional items were £97 million, including a provision for onerous contracts of £50 million, reflecting the impact of the television advertising downturn on the value of our sports commitments. Adjusted for exceptional items and amortisation, earnings per share were down 46% at 2.7 pence. Given our high operational gearing, any reduction in revenues has a significant impact on profits and, even in the best of times, our advertising revenue visibility is limited.
During 2008, via additional financing and a new bond issue, we secured over £300 million of additional covenant-free funding. In February 2009 we secured a further £50 million of ten-year covenant-free financing (potentially rising to £200 million). The Company repaid a £250 million bond on 2 March 2009 and our next scheduled bond repayment is not until October 2011. The Board will continue to evaluate all options to improve the strength of the balance sheet.
Dividend
At the half year, the Board reduced the interim dividend to 0.675 pence per share. Given the current economic context and the deterioration in prospects for advertising, the Board proposes that no final dividend should be paid. This is not a decision that has been taken lightly. As is detailed below, we have explored all avenues for maximising cash generation and we are taking comprehensive action, including with respect to our staff numbers, our cost base and our assets.
Cost review
Against this backdrop, it is imperative that every penny of our shareholders' investment is deployed to deliver maximum return. To this end, during the year, we undertook a comprehensive review of our costs and investment right across the Company. That review is now complete. As a result, we will reduce costs by £155 million in 2009, rising to £245 million in 2011, compared to 2008. Cost savings will come from a new efficiency programme, regional news savings and from more efficiency in our network programme investment.
Ensuring our cost base is as efficient as possible is essential. In 2008, we completed a three-year programme reducing costs across the business by £41 million per annum. In 2009, we will deliver £40 million in savings in our regional services. We have now identified a further £50 million in non-programming savings that will be delivered in 2009, rising to £70 million in 2010. ITV will become a leaner, fitter and simpler business.
In 2008 we invested more than 50% of our total revenues in programming, with the majority of this investment focused on ITV's unique selling point, original UK production. Calibrating our investment in network programming at the right level is critical to maintaining our market-leading position. We are determined to improve the efficiency of our programming spend to deliver an increased return on our investment. In 2009, our network programme investment will be reduced by £65 million year-on-year, with a focus on existing programming stock to limit our cash spend. Beyond the 2010 World Cup year, with a reduced level of committed programming, we will deliver a further reduction in schedule costs of £70 million.
We will still be investing around £1 billion in programming in 2009, more than our two nearest commercial competitors combined. Our audience share target will not change: we are seeking to maintain a share of commercial impacts across our channels of at least 38.5% through to 2012. The schedule for 2009 is a strong one, including Britain's Got Talent, Coronation Street, I'm A Celebrity, The X Factor, Law & Order: UK, Dancing On Ice, Emmerdale, Wild at Heart, live Champions' League, FA Cup and England football matches and many more returning series and new programmes. To date in 2009, we are delivering 5% more commercial impacts year on year across our channels with our share running above 40%.
Progress in 2008
In a difficult market, there were significant developments in each of our main business segments during the year. As well as holding their audience once again, ITV channels held their share of UK television advertising revenues for the first time in over 25 years. Our Global Content business delivered strong revenue growth outside ITV in the UK and internationally. Online, our average unique users were up by 30% and itv.com secured 86 million video views.
We also made significant progress on a number of important strategic initiatives. We successfully launched Freesat with the BBC, which included a high definition ITV service. We have partnered with the BBC and BT to develop a new standard for delivering itv.com and other online video services to the television. We secured deals to provide ITV programmes to a number of open and closed Video on Demand (VoD) platforms.
Regulation
We have long argued that ITV labours under an over-burdensome regulatory regime. In essence, ITV is paying substantially more for its licence - in cash and programming kind - than is economically justified. With the onset of recession, there is some evidence that Government and regulator accept this and there have been some significant positive developments.
The Office of Fair Trading is expected to make its final recommendation to the Competition Commission on possible reform of Contract Rights Renewal in the spring. Our expectation is that this process should complete ahead of the next trading round for 2010 contracts. Ofcom's second public service broadcasting review has confirmed approval for modernising ITV's regional services, with Government considering proposals for further reform beyond 2010.
In January 2009, the Competition Commission blocked Project Kangaroo, the proposed online archive service which ITV, BBC Worldwide and Channel 4 had jointly developed. We were disappointed that we could not launch a service which promised considerable benefits to online users and increased competition with the substantial established online players in this new market. However, we do not want there to be any further delay in exploiting the ITV archive online via itv.com and we will not be appealing the decision.
As UK households have migrated to digital, there has been a massive influx into the market of digital advertising impacts. Add to this the continuing regulatory restrictions governing the commercial television market and the result has been significant deflation in airtime pricing, which the economic downturn has exacerbated. Uncorrected, the risk is that high levels of investment in UK originated content may become unsustainable in the commercial sector.
The financial disparity between the three free-to-air commercial public service broadcasters - ITV1, Channel 4 and five - versus the publicly-funded BBC and the dominant subscription player, Sky, is increasingly stark - and the political and regulatory debate around the future provision of public service broadcasting needs to move on urgently to practical solutions.
Targets
The weakening of the television advertising market makes the case for building our business beyond Broadcasting even more compelling. Our content-led strategy remains right for ITV.
However, we must align our objectives to the market conditions in which we are now operating. Across ITV we are focusing on our core assets and capabilities, on costs and on cash. In Global Content and Online in particular this shift in emphasis has implications in terms of our strategic targets.
In Global Content, we entered into a number of small-scale production acquisitions, investments and partnerships during 2008. However, we have not judged it prudent to pursue the further substantial production acquisitions we envisaged in our 2007 strategic plan. The outlook for organic revenue and profit growth has also become more challenging, as the commissioning budgets of ITV and other advertising-funded broadcasting customers worldwide come under pressure.
Online, given the rapid progress itv.com has made, we are confident that by focusing on delivery of ITV content online we can become a market leader in long-form broadband video. We are therefore targeting our online investment and resources on delivering ITV programmes via itv.com and VoD. Friends Reunited remains a highly profitable and successful online business, but our new strategic focus on streamed video does not play to its strengths and we will look to dispose of the business when the time and the price are right. ITV Local will be closed as a stand-alone business and we will seek to dispose of the associated Scoot business.
Despite the challenging market, we will continue to seek growth in our Global Content and core Online revenues. However, the revenue targets previously set for 2012, which assumed modest, but positive growth in UK television advertising, are no longer appropriate. We will maximise value for our shareholders by focusing on our cost saving programme and cash generation as we await an economic upturn.
The Board
We have further strengthened the Board and the management team during the year, with Andy Haste joining as a non-executive director in August and Ian Griffiths joining the Company as Group Finance Director in September. Sir Brian Pitman retired from the Board in May 2008, having served as a director of ITV plc from its creation, including a period as Chairman. I would like to record my thanks to Sir Brian for his contribution to the Company.
Summary
These are tough times for the UK economy and for ITV. We are tackling the dual challenge of the transition to digital and a substantial deterioration in the economic outlook. This means reshaping the Company, taking costs out and, in the process, reducing staff numbers significantly. However painful that process is, it is essential for ITV's long-term health. I would like to thank all those affected for their efforts on behalf of the Company.
Inevitably in a tough market, the focus is on the road immediately ahead and ensuring that the Company is strong enough to endure the short-term challenges it faces. However, we are not losing sight of the prize of returning ITV to long-term growth. We need to continue with the good progress we have been making in our core broadcasting business, delivering a high quality schedule attractive to UK audiences and advertisers. We need to strengthen further our position in content and online. I am confident we will then be well positioned to take full advantage of the economic upturn when it comes.
Michael Grade
Executive Chairman
Market context
With the transition to digital and the economic downturn, the competitive pressures are intense. However, the opportunity for content-led growth remains.
As the UK's leading commercial producer broadcaster, ITV competes across a range of markets. In a fiercely competitive commercial broadcasting market ITV delivers around 40% of all UK commercial impacts - individual viewings of 30 second commercials. ITV is the largest commercial production company in the UK, producing over half of ITV1's original programming, but earning around half its production revenues outside ITV. Online, itv.com provides viewers with another channel to view ITV content and advertisers another means of reaching consumers.
Over the last decade, the transition to digital has meant all established media, including television, have been under constant pressure. In the second half of 2008, the digital transition was eclipsed as the dominant trend by the sharp global economic slowdown. Investment in advertising is particularly sensitive to declines in corporate profitability and sentiment. No media sector - including content production and online - is insulated from the impact of the downturn.
Amidst these significant economic and technological changes, there have been some positive themes. Individual levels of television viewing have remained robust. Indeed, a number of 'event TV' programmes have grown their audience year-on-year. Consumers' appetite for the shared experience of compelling broadcast content remains undiminished. Beyond the digital transition and the current economic downturn, our view remains that the path to recovery will be content-led.
Broadcasting
Television viewing has remained relatively stable over the past 15 years with the average adult watching almost four hours of television a day. In 2008, average adult viewing levels actually increased by around 3% or seven minutes per day. The average home now owns 2.4 television sets and there are around 500 television channels available to consumers in the UK. There are three main public service broadcasters - the BBC, ITV and Channel 4 - but the vast majority of channels are fully commercial.
By the end of the year, around 90% of UK homes had access to digital television on at least one set. The remaining 10% of UK homes will switch to digital over the next four years. The full digital switchover process started in the ITV Border region in November 2008 and moves on to Westcountry and Granada in 2009.
Digital terrestrial television (DTT) continues to be the UK's most popular multichannel platform with around 40% of primary television sets now DTT enabled. 12 million Freeview DTT devices were sold during the year. Over 70% of all UK sets now have digital access, including the majority of all second sets. On the back of this success, Freeview capacity remains a sought-after commodity for broadcasters.
Sky's digital satellite service is the UK's second most popular platform with around 35% of primary sets. Cable accounts for around 13% of primary sets and subscription-free digital satellite (including Freesat) for 2%. Freesat was launched in May 2008 and taken up by 200,000 UK homes by the end of the year. Freesat increases the availability of free-to-air digital television, via digital satellite, with 140 television and radio channels, including high definition (HD) services from the BBC and ITV.
The transition to digital has continued to erode the audience shares of the five main terrestrial channels - BBC1, BBC2, ITV1, Channel 4 and five - all of which experienced audience share reductions in 2008. However this has been mitigated by continuing growth in audiences on their affiliated digital channels and the main free-to-air broadcasters maintain a significant share of UK viewing. In 2008, the main free-to-air broadcasters' channel families accounted for 74.4% of total UK viewing (2007: 74.8%).
Despite overall levels of viewing remaining stable, a rising proportion of UK viewing is of commercial channels as the BBC loses share. Within commercial television, more viewing is taking place on digital channels, which are permitted to carry an average of nine minutes of advertising per hour (compared to seven minutes for ITV1, Channel 4 and five). As a result, the volume of commercial impacts continues to increase. In 2008, the total volume of impacts rose by 6% (2007: 5%).
Overall UK advertising declined by around 2% in 2008 to £12.4 billion. However, excluding online, where strong growth continued, advertising on traditional media declined by 7%. Despite a flat first half, total UK television advertising was down 5% across the full year to £3.3 billion. Nonetheless, television remains the largest source of display advertising revenues, accounting for around 40% of the total UK display advertising market (excluding classified).
With spending on total television advertising down, but commercial impacts up, the price of television advertising declined significantly during the year. As well as macro-economic weakness, this deflationary trend has been linked to the impact of the digital transition and Contract Rights Renewal.
Global Content
The UK production market remains intensely competitive with a large number of independent producers, such as Endemol and Shine, competing with a handful of integrated producer broadcasters, notably ITV and the BBC, and other production companies not classified as independents, such as Fremantle. With consolidation in the sector continuing, there is an increasing divide between the larger production companies - including the BBC, ITV, Endemol, Fremantle and All3Media - often diversified across a number of genres, and a large number of smaller production companies, which may specialise in a single genre.
On the commissioning side, the BBC, ITV, Channel 4 and five between them account for around 90% of original commissions by UK channels. The BBC and ITV both produce a large proportion of their original programming in-house. Channel 4 is prevented by statute from producing programming.
2008 was a challenging year for the UK market. The three largest commissioners of original programming are under varying degrees of pressure. The BBC has the very significant benefit of a guaranteed income, albeit that the current settlement provides for only sub-inflation licence fee growth over the period to 2012. In response to commercial pressures, Channel 4 cut its programming budget by £25 million, or around 4% in 2008, and has warned over similar scale cuts to come in 2009. Across its channels ITV increased its programming budget in 2008, but is reducing it's spend in 2009. With films, acquired series, sport and news committed under long-term contracts, original programme commissions come under particular pressure when reductions are made to programme budgets.
Notwithstanding pressures in the UK, international demand for programming from UK and European producers remained strong in 2008. A large number of the best performing programmes on US network television are produced by non-US producers, such as ITV, Fremantle and Endemol. International producers are increasingly seeking to roll out successful formats across multiple territories to maximise revenues and defray costs. However, the economic downturn will impact demand for original production from international broadcasters. With their own advertising revenues falling, commissioners can be expected to put downward pressure on producers' prices and margins. In some cases, acquired programming may become a more attractive alternative to original commissions. This in turn may create opportunities for international distribution companies.
Online
UK online advertising revenues increased by 18% to £2.8 billion in 2008, according to Advertising Association data. The majority of online revenues come from 'search' advertising (such as Google and other search engines) where revenues increased by 20% to a total of £1.6 billion. Online display advertising increased by 12% to £579 million and online classified advertising by 20% to £595 million. Online now accounts for 23% of all advertising spend in the UK, up from 19% in 2007.
Whilst online advertising revenues continued to increase over 2008, supply of online display advertising inventory - in particular 'white space' banner advertising - has grown very rapidly, putting downward pressure on prices.
The proportion of homes accessing the internet via a broadband connection continues to grow. Over 90% of internet users in the UK now use broadband and 60% of UK households now have a broadband connection. With more homes enjoying faster broadband connections - with 50Mb services available in some areas - demand for online video has grown. A year after its full launch, the BBC was recording around 1 million video views via its iPlayer service every day. BARB data showed a 77% year-on-year increase in the number of people watching television content online. There is evidence that online advertising revenues are gravitating to such high-quality services, rather than user-generated content. In the US, the Hulu online video service has been forecast to be on course to match YouTube's advertising revenues in 2009, despite the latter's considerably larger reach.
Virgin, BT and Sky have all now established VoD services available to their subscribers. Such services include content provided by established broadcasters, such as the BBC, ITV and Channel 4. An emerging trend is the convergence of online video services with VoD, with the BBC iPlayer and the ITV Player services now available to Virgin subscribers via the television.
The social networking market continued to expand during the year. Facebook reached over 200 million monthly unique users and 80 billion monthly page views globally, the majority outside the US. Other major social networking sites include Bebo, MySpace, LinkedIn and Friends Reunited.
John Cresswell
Chief Operating Officer
Operating review
In 2008 we made operating progress across Broadcasting, Global Content and Online. However, no part of our business is immune from the impact of the economic downturn.
We made operational progress across all of our key business segments during the year. However no part of our business is immune from deteriorating market conditions and we have had to adapt our priorities accordingly. We remain confident that ITV's strategy as an integrated producer-broadcaster will deliver long-term growth, driven by our ability to build strong programme brands. However, given the economic backdrop, our immediate focus is on the performance of our core business, tight control of costs and cash generation.
Across our key business segments - Broadcasting, Global Content and Online - we made some significant changes in structure and personnel during the year. We are confident we have in place the right team with the right strategy to lead the business through the uncertain times that we are in.
Broadcasting continues to be the primary driver of the Company's revenue delivering over 80% of total external revenues in 2008. The Broadcast segment incorporates all our advertising funded television channels. Peter Fincham joined us during 2008 and is Director of Television, Channels and Online, responsible for commissioning and scheduling across all the ITV channels. Rupert Howell, Managing Director, ITV Brand and Commercial, is responsible for sales and marketing across all our channels. Broadcasting also incorporates our wholly-owned digital terrestrial multiplex SDN.
Our Global Content segment is led by Managing Director Lee Bartlett who was appointed during the year. Our distribution and merchandising arms have been integrated as ITV Global Entertainment and our production operations in the UK have been re-branded as ITV Studios.
Online our core asset is itv.com. Towards the end of the year we editorially integrated ITV's online and interactive assets with the broadcast channels that increasingly provide them with their content and cross-promotion.
At the start of the year, ITV's 'other' segment included the cinema advertising business, Carlton Screen Advertising. The major operations of this business were disposed of during the year, consistent with ITV's programme of non-core disposals.
Key operational developments in our major segments are set out in the following sections.
Given the economic context, we have pressed for more urgent regulatory reform to lighten further ITV's regulatory burden and deliver more flexibility. Further detail of the progress we have made is also provided below.
Running the business as efficiently as possible has become an even greater priority and we have set out challenging cost savings targets. Further detail on our cost savings programmes, together with an update on market conditions in 2009, is provided under the Forward Look section.
Broadcast
Our Broadcast revenues were down 5%, reflecting a 4% reduction in television advertising revenues and a reduction in revenue from programme-related premium rate telephony. Operating EBITA was down 43% to £140 million, reflecting the gearing of segmental profits to television advertising and a small increase in programme costs.
On screen the turnaround in performance in ITV's channels, which began in 2007, continued. Having maintained audience share across the family of ITV channels for the first time since the early 1990s in 2007, ITV once again delivered a stable audience share performance. ITV family audience share was held at 23.2%.
Furthermore, although the advertising market was weak, ITV started to translate on screen performance improvements into revenue share gains. Indeed, for the first time since the early 1980s, ITV held its share of the television advertising market year on year. ITV's share of the market across 2008 was 43.8% (2007: 43.6%). ITV1 advertising fell by 8% to £1,127 million, but advertising on ITV's digital channels increased by 16% to £242 million. Sponsorship revenues were £58 million (2007: £56 million).
ITV channels delivered 4% more commercial impacts in 2008 than the previous year. However, with the total volume of impacts across the market growing slightly ahead of this, ITV family share of commercial impacts was slightly down at 41.0% (2007: 41.7%). ITV's long-term objective remains to maintain a share of commercial impacts across its channels of at least 38.5% through to 2012.
ITV1
ITV1 remains the UK's largest commercial channel. In 2008, ITV1 achieved an audience share of 17.2% (2007: 17.9%), more than twice the share of ITV1's nearest commercial rival, Channel 4. Across peak viewing hours, ITV1 remains the UK's most popular channel with a share of 23.9% (2007: 25.3%), slightly ahead of BBC1 with 23.4%.
ITV1 delivered 1% fewer commercial impacts in 2008 than the previous year across all adults. For upmarket ABC1 viewers, ITV1 impacts increased year-on-year by 1%. Whilst impacts for younger 16-34 year old viewers fell by 1% for ITV1, both Channel 4 and five suffered greater losses.
The volume of impacts ITV1 delivers determines the price paid by advertisers for their inventory. However, under the Contract Rights Renewal mechanism, ITV1's share of commercial impact decline is a crucial determinant of the channel's revenue performance the following year.
In line with this, ITV1 advertising revenues in 2008 benefited from the channel's relatively low share of commercial impact decline in 2007 (down 3%). In part this reflected the exceptional impact in 2007 of a reduction in children's programming during weekday afternoons, the launch of Britain's Got Talent and the Rugby World Cup.
In 2008 ITV1's share of commercial impacts fell to 30.0% from 32.0% in 2007. This reflects continuing growth in impacts across the market, which were up 6% year on year. This resulted from increased digital penetration and the shift of viewing to commercial digital channels, including ITV's own.
ITV1 relaunched its evening schedule in January 2008. Under the new schedule, the weekends have been more focused on entertainment, with drama concentrated on weekday evenings. There has been a fresh emphasis on comedy, with successes including Benidorm and Harry Hill's TV Burp. Whilst there have been some successes, including The Fixer, Wired and Place of Execution, midweek drama at 9.00 pm did not perform as consistently as had been hoped during 2008. News At 10 returned to the ITV1 schedule as part of the new schedule changes. Whilst performing strongly from an editorial perspective, its ratings reflect an inconsistent viewing inheritance from the preceding programmes and the established audience for the BBC1 alternative.
ITV1's main entertainment programmes delivered very strong performances in 2008. ITV1 broadcasts the four biggest entertainment shows on commercial television: The X Factor, Britain's Got Talent, Dancing on Ice and I'm a Celebrity. The X Factor and I'm A Celebrity both enjoyed substantial year on year audience growth. Following its debut in 2007, Britain's Got Talent returned as an extended series and the 2008 final secured 13.9 million viewers and a 56% share (2007: 48%).
ITV's big soaps continued to attract large audiences with Coronation Street and Emmerdale averaging 9.5 million and 6.9 million viewers respectively (2007: 10.1 million and 7.5 million respectively). Coronation Street ranks as the top performing soap on any channel with its best episode of the year pulling in 13.0 million viewers (2007: 13.1 million).
2008 was another excellent year for premium live sport on ITV. The UEFA Champions' League Final between Manchester United and Chelsea attracted an audience of 10.1 million and a share of 43%, the best performing sports programme on any channel in the year. Despite the lack of a home team in the tournament, coverage of Euro 2008 attracted large audiences. In March ITV contracted to show Champions' League games for four further seasons from autumn 2009. With the start of the new FA contract in late 2008, ITV is now the home of live free-to-air football with Champions' League, FA Cup and selected England games.
The long-term health of ITV1 depends on our ability to launch successful new shows. In 2008, ITV1 introduced a number of successful and innovative new shows, including Headcases, One Man and His Dogs, and The Fixer. However as audiences fragment, breaking big shows in their first series is becoming more challenging. ITV1 launched 18 new shows in 2008 which secured audiences in excess of five million viewers (2007: 23 new shows). Into 2009, a number of significant commissions made during 2008 are being screened, including Demons, Whitechapel, Unforgiven, Above Suspicion and Law & Order: UK.
Despite increasing digital competition, we have ensured that, across all genres, ITV1 remains the place advertisers go to for consistent delivery of mass audiences. ITV1 played five of the top ten programmes on any channel in 2008 (four in 2007). The 475 biggest audiences on commercial television in 2008 were all delivered by ITV shows (2007: 290). 99% of commercial programmes attracting more than five million viewers were shown on ITV1, rising to 100% of audiences over ten million viewers.
ITV digital channels
ITV's digital channels had another strong year in 2008, with a total share of viewing across the channels of 4.8%, up 20%. ITV2, ITV3 and ITV4 are all top ten digital channels based on adult share of commercial impacts, with ITV2 and ITV3 occupying the top two slots. The combined share of commercial impacts delivered by ITV's digital channels was 8.8% (2007: 7.3%).
ITV2 increased its impacts by 19% across the year. As well as being the UK's biggest digital channel in terms of adult share of commercial impacts, ITV2 is the second biggest for 16-34 year old viewers. With a 16-34's share of impacts of 5.8%, ITV2 is closing the gap on five, which delivered a 6.6% share, in line with our stated aim for ITV2 to overtake five in this demographic.
Ratings successes on ITV2 included Britain's Got More Talent, Xtra Factor, Katie and Peter: The Next Chapter and Ghosthunting with... The UK launch of Bionic Woman pulled in 3.0 million viewers making it the channel's best performing programme ever.
In share of viewing terms, ITV3 was the UK's third largest digital channel in 2008 with a share of 1.6% in multichannel homes. ITV3's schedule is targeted at an older audience, with a heavy focus on drama. The channel delivered 35% more impacts across the year. High performing programmes include Midsomer Murders, Lewis, Agatha Christie's Poirot and Inspector Wexford.
Boosted by an extension in its hours of transmission, ITV4 impacts increased by over 60% and the channel's share of commercial impacts increased by over 50%. ITV4 continues to target male viewers with a schedule featuring a wide range of sport. Highlights included ITV4's largest ever audience of 1.8 million viewers for the Champions' League live coverage of Manchester United v Aalborg. ITV's children's channel, Citv, held its audience in 2008 and grew its revenues by over 50%. Men & Motors, the smallest ITV digital channel, is not available in DTT homes and suffered some audience and revenue decline during 2008.
Brand
A significant project during the year focused on ITV's brand architecture, establishing the new brand values and positionings for the most important brands in the ITV portfolio.
The purpose of any brand is to influence consumers' decision-making. In the case of ITV1, a strong brand will help motivate viewers to watch ITV1 rather than any other channel. The health of the brand is tracked over time through regular measurement of viewers' association between the channel, competitor brands and key drivers of television viewing. This measure of brand health has been adopted by ITV as its main marketing KPI.
Based on the work undertaken in 2008, ITV1 runs second to BBC1 in terms of brand health, but is well ahead of its key commercial competitors, Channel 4 and five. Over the last quarter, ITV1 achieved a brand health score of 34% compared to 40% for BBC1, 24% for Channel Four and 15% for five. As one of ITV's key performance indicators, this measure will be closely tracked going forward, with our ambition being to maintain - and strengthen - our position.
SDN and platforms
The digital terrestrial multiplex operator, SDN, which is wholly-owned by ITV, delivered a strong performance in 2008. SDN earns revenues by leasing out capacity on the DTT platform to channel providers on long-term contracts. SDN holds that capacity under a licence from Ofcom which runs to 2010 and can be renewed to 2022. No licence fee is payable until the end of 2014 at the earliest.
With no major new contracts due to come into effect in the year, revenues were down 8% on 2007 at £33 million. However, a contract for a new channel was agreed from early 2009 and a tenth video stream will be available from 2009, which should have a positive impact on future revenues. Other channels carried on the SDN multiplex include QVC, five and Citv. In early 2009, ITV confirmed that it is considering future options for SDN.
In early 2008 ITV and the BBC, launched Freesat, a service providing free-to-air access to digital satellite, including HD services from the BBC and ITV. ITV launched its first HD offering in June prior to Euro 2008. ITV HD is a free red-button service available exclusively to Freesat customers, and offers selected sporting events, movies and dramas.
Global Content
Global Content revenues grew by 10% in 2008 to £622 million (2007: £564 million). Internal ITV commissions were down slightly at £316 million (2007: £320 million) and revenues from other UK broadcasters, international production and international distribution grew strongly to reach £306 million (2007: £244 million).
Operating EBITA before exceptional items for the year was flat at £90 million (2007: £90 million). Profits remained flat, despite the revenue increase as a number of positive one-offs from 2007 (such as The Queen) did not recur, a number of well-established ITV-produced programmes were not re-commissioned and a higher proportion of revenues was accounted for by new, lower margin, international commissions. Offsetting this, profits benefited from a new deal for Coronation Street and Emmerdale, more closely reflecting their value to the ITV1 schedule. There were also a number of provision releases which will not recur in future years.
ITV Studios remains the largest single provider of original ITV programming securing around 50% of ITV1 commissions over the year. Six of the top ten programmes shown on ITV1 in the year were made by ITV Studios (2007: six out of ten). These programmes included core series such as Coronation Street, Emmerdale, Dancing on Ice, I'm a Celebrity and Lewis. New programmes in 2008 included Headcases, Who Dares Sings and We Are Most Amused.
Into 2009 there are a number of new shows produced in-house in the ITV1 schedule, including Billy Connolly: Journey to the Edge of the World and the return of The Krypton Factor. Following the success of One Man and His Dogs in 2008, a new Martin Clunes fronted series, Islands of Britain, has been commissioned for 2009. Producer 12 Yard, acquired by ITV in December 2007, secured its first commission for ITV with game-show The Colour of Money.
Britannia High was an innovative first 360 degree ITV Studios commission from ITV1, which was broadcast in the autumn. Whilst the musical drama did not deliver anticipated audience levels, its development included all areas of Global Content - including ITV Studios and ITV Global Entertainment - together with Broadcasting and Online working closely to seek to devise a programme with maximum revenue potential in the UK and beyond. Inevitably not all such ideas will work, but ITV is confident that such continuing collaboration will deliver more positive results over time.
Beyond internal commissions for ITV, ITV Studios continued to produce a number of successful shows for other UK broadcasters. For the BBC, ITV produced University Challenge and Eggheads. Channel 4 re-commissioned Countdown for a further two years.
2008 was a very successful year for our international production business with revenues growing by over 50%. Granada USA productions included Hell's Kitchen for Fox and The Chopping Block for NBC. In Germany, we delivered programmes to RTL, Vox and Pro7 including local versions of I'm A Celebrity and Come Dine With Me. International distribution and merchandising revenues were up 8% at £123 million (2007: £114 million).
Given the economic outlook, ITV did not make any further substantial production acquisitions during 2008, but has made a number of smaller 'seed-corn' investments in the UK and internationally. ITV took a 25% equity stake in a new UK independent production company, Crackit Productions and, in early 2009, took a 25% stake in another UK independent producer, Carbon Media. Internationally, ITV acquired Scandinavian independent producer, Silverback. ITV also took a minority stake in Electric Farm Entertainment LLC in the US and a 51% stake in German producer Imago TV. In line with our stated ambition to fund new ways of working with the independent sector, in 2009 we have announced co-production deals with Shine and 19 Entertainment.
Via Global Content, ITV has a growing ability to roll out successful formats across multiple international territories. For example, Come Dine With Me was developed by ITV Studios for Channel 4 in the UK. The programme started as a daytime show and became so successful that Channel 4 has moved it to peak and ITV Studios developed a celebrity version. Granada Germany produces the local version - Das Perfekte Dinner- for VOX in Germany. ITV Global Entertainment has sold the format in France, Spain, Hungary, Croatia and the Netherlands. Shortly after its acquisition in 2008, Silverback was commissioned to produce a version in Sweden.
ITV Studios received 61 awards in 2008 (2007: 117 awards), including three Golden Globe awards, a BAFTA Television Award, an RTS Programme Award and British Soap Awards.
Online
ITV continued to develop its online services in 2008, attracting significantly increased traffic. However the weakening of the advertising market over the course of 2008 and the delay, and ultimate blocking, of the launch of the Kangaroo joint venture meant that revenue growth was limited and losses increased to £20 million (2007: losses of £12 million). However as online audiences build, it is clear that online is becoming a vital part of ITV's distribution mix and an important investment for the future.
itv.com continues to grow and attracted increasing numbers of users following its relaunch in 2007. Monthly unique users averaged 6.5 million, a 30% increase from 2007. In November 2008, unique users reached a record 9.4 million and itv.com was ranked by Comscore as the UK's 5th most popular entertainment site.
Video views increased rapidly across the year with 86 million video views served in total. Towards the end of the year, itv.com's catch-up and archive service was relaunched as ITV Player including improved functionality. Online video advertising continues to command a significantly higher cost per thousand than other online advertising.
In November 2007 ITV announced Kangaroo, a three-way joint venture with BBC Worldwide and Channel 4 to launch an online video archive service. The joint venture was referred to the Competition Commission during 2008 which delayed, and ultimately blocked, the launch of the proposed service. The Competition Commission blocked the joint venture in February 2009 which means it cannot be launched. ITV will now focus its online archive delivery on the successful itv.com site.
ITV announced agreements to allow BT Vision and (in early 2009) Virgin Media's combined 3.5 million subscribers access to hundreds of hours of ITV content via their televisions on an on-demand basis. A partnership with iTunes saw over 260 hours of ITV programming becoming available for paid-for download, with more to follow.
Friends Reunited delivered around half of ITV's online revenues in 2008. The Friends Reunited reunions site was relaunched on an advertising funded model in May 2008 and unique users rose significantly to reach a record level of 6.4 million users in July. Genes Reunited remained the UK's number one family history site with over 9 million members, up 19% in the year. Friends Reunited Dating is now a top five UK dating site with 1 million members, up 30% in the year. The Dating and Genes Reunited sister sites both remain subscription funded.
As anticipated, Friends Reunited revenues were impacted by the loss of subscription revenues from the reunions site. In addition, growth in online advertising - in particular for 'white-space' inventory - started to ease in the second half of 2008.
With the Company's focus on delivering ITV programming online, ITV has confirmed that Friends Reunited will be sold when the time is right. ITV has also confirmed that the ITV Local broadband service, which provides local news content, will close as a standalone business.
We remain confident in the prospects for long-term online revenue growth, in particular with respect to online video advertising, where we are continuing to improve our offer to advertisers. As with ITV's existing digital channels, there is an opportunity to leverage ITV's investment in content and cross-promotional power to drive traffic and revenues to online and on demand services.
Regulation
As the economic outlook has weakened, ITV has successfully made the case for accelerated action across a number of areas where ITV remains subject to a degree of regulation disproportionate in the digital age.
Ofcom brought forward its second review of public service broadcasting, which ran throughout 2008 and concluded in early 2009. The review confirmed Ofcom approval of ITV's proposals for modernising its regional services in 2009. The review further concluded that ITV's regional services are unsustainable without a new funding solution beyond 2010 and proposes means of supporting regional services, including via partnerships with and potential licence fee funding from the BBC. The Digital Britain inquiry led by the Communications Minister, Lord Carter, is considering those elements of reform of public service broadcasting which require decisions by the Government.
The OFT started a review of the Contract Rights Renewal remedy applying to ITV1 in 2008. In early 2009, the OFT consulted on possible relaxation of CRR and has said that any recommendations to the Competition Commission would be made in the spring. This timetable should allow for any changes to CRR to come into effect in time for the deal round in autumn 2009 and contracts for 2010.
The Government has consulted on the introduction of product placement, following relaxation of the European rules under the new Audio Visual Media Services Directive. ITV has continued to work closely with advertisers on innovative means of supporting programmes whilst marketing their products to ITV viewers. Dog Rescue, supported by Pedigree, was the first fully advertiser-funded programme to be developed and produced by ITV. The potential introduction of product placement on UK television for the first time offers further opportunities.
Forward Look
ITV's focus in 2009 will be on our core business as an integrated producer-broadcaster, on reducing our costs, and on managing and generating cash. In particular, we will deliver a year on year reduction in costs of £155 million. Those savings will come from a new efficiency initiative and across regional and network programmes.
Prior to the current economic downturn, ITV was already focused on delivering significant cost savings. With the advertising market weakening, in August 2008, ITV set out details of further cost savings of £35 million over 2009/10. During the second half of 2008, as the economic outlook deteriorated further, ITV embarked on a further detailed review of its structure, activities, assets and staffing levels, which has identified scope for further significant savings over 2009-10. As a result of this process, ITV now intends to deliver annual savings of £50 million over 2009, rising to £70 million in 2010 from right across the business (including the previous £35 million target). The cost of change associated with these savings is estimated to be £40 million.
This cost reduction programme will involve a significant number of job losses and a rationalisation of non-core activities, either by closure or additional disposals. These savings are in addition to the £40 million reduction in regional costs which ITV is separately on track to achieve in 2009. Including the regional changes, ITV expects its headcount to reduce by over 1,000 positions compared to the level at the start of 2008.
Broadcasting
In Broadcasting, ITV will reduce its investment in network programming by £65 million in 2009, with a focus on existing programme stock to limit cash spend. With ITV's commercial competitors also under pressure, ITV is confident that there should be no negative impact on its channels' competitive performance. Indeed, over the first seven weeks of 2009, the ITV family has delivered 5% more impacts year on year with a share of commercial impacts of 40.6% (2008: 41.4%). This reflects the performance of ITV1 in particular, with a strong schedule including Dancing On Ice, Harry Hill's TV Burp, Whitechapel and Above Suspicion. Over the same period, ITV1's volume of commercial impacts is up by 1% and its share of commercial impacts stands at 29.3%, down from 31.2% in the same period in 2008.
Significant savings are necessary in our Broadcasting business because advertising market conditions remain highly uncertain. For the first quarter of 2009, ITV's total television advertising revenues are expected to be around 17% down, with ITV1 down 20% and the total market down 17%. There are some significant seasonal factors, but nonetheless this represents a further deterioration compared to the second half of 2008. Whilst forward visibility remains limited, across its channels, ITV expects to perform in line with the total market over the full year.
Global Content
Our Global Content business faces a tough market in 2009. Reductions in ITV's network programme spend will significantly impact ITV Studios, which depends on ITV commissions for half its total revenues. ITV Studios' main external customers in the UK are facing similar pressures to ITV. In Global Entertainment, depressed consumer spending could also be expected to weigh on consumer-facing revenues (for example, from DVDs and merchandising). Whilst the outlook in 2009 is also tough for international production, the US and German production businesses enjoy positive momentum from their strong performance in 2008.
Online
Online, ITV will focus on delivering video content via itv.com and VoD, with the ITV Local service to be scaled back and Friends Reunited to be sold when the time is right. With Kangaroo also not going ahead, ITV's online segment will become more tightly focused around itv.com and there is the opportunity to simplify structure and reduce costs. itv.com's performance in early 2009 justifies our confidence in the service as the heart of ITV's online offering, with unique users and video views both growing strongly year-on-year.
In summary, 2009 will be a challenging year but we have a clear action plan to see us through the downturn.
John Cresswell
Chief Operating Officer
Risks and uncertainties
The combination of harsh economic conditions and our determination to identify new market opportunities and revenue streams makes our work on risk a major priority for ITV.
We consider the following to be the most significant risk factors relating to the Company's operations. The risks listed do not necessarily comprise all those associated with ITV, and are not set out in any order of priority. Additional risks and uncertainties not presently known to ITV, or that ITV currently deem immaterial, may also have an adverse effect on its business.
Risks are identified, considered and monitored through an Enterprise-wide Risk Management ('ERM') programme and these risk factors were identified as most significant from the 2008 ERM programme.
General
|
Risk description |
Impact |
Mitigation |
|
Failure to implement the strategic plan including efficiency saving initiatives |
Loss of market share Operating EBITA Cash flow |
Regular review of progress against plans Revise plans to take account of changing circumstances |
|
Treasury risks: Maturing debt facilities are difficult to refinance Volatility and value of issued debt and financial instruments |
Availability of finance Increased cost and more restrictive covenants Loss on instruments |
Maintain adequate liquidity in cash and undrawn facilities Review all funding options in light of current sub-investment grade credit rating Monitor the financial markets and counterparty risk Monitor instruments and review hedging efficiency |
|
Pension scheme funding gap |
Additional funding requirement |
Established working protocol with trustees Working with trustees to reduce risk Regularly review funding policy and legislative changes Investment Committee review investment policy and set asset allocation, investment benchmarks and hedging positions Formal valuations for funding purposes, and regular accounting valuations and updates |
|
Failure to adapt strategy to shifts in market competitive dynamic or technological developments |
Loss of market share |
Regular review of the market, competitors and technology Monitoring of KPI performance |
|
Failure of key suppliers or customers to meet contractual commitments or for ITV to achieve procurement efficiencies |
Loss of services Operating EBITA Cash flow |
Monitoring key suppliers and contractual step-in rights Monitoring credit exposure and customer credit rating Credit insurance arrangements, subject to availability and pricing at renewal Promote internal procurement efficiencies |
|
Failure to attract and retain key people |
Business performance affected Staff engagement |
Appropriate terms for key employees Staff surveys and communication programmes |
Global Content
|
Risk description |
Impact |
Mitigation |
|
Failure to deliver or acquire creative and commercial successes resulting in reduced 360° exploitation and lower primary and secondary sales |
Loss of Global Content revenue |
Strengthen programme development process Continue to refresh ITV talent pool Establish international format group Develop incentives rewarding 360° exploitation Continue to build new relationships with independent and overseas producers Programme pilot development for ITV1 and ITV2 Ringfenced development fund |
Broadcasting
|
Risk description |
Impact |
Mitigation |
|
Reduced television advertising demand/ pricing due to market forces, economic conditions or continued regulatory restrictions |
Loss of ITV plc NAR Operating EBITA Cash flow |
Maintain quality of content to attract advertisers Development of digital channels and online distribution offering alternative advertising opportunities Dialogue with regulators and government over policy and regulation |
|
Poor content performance or programme perception leading to reduction in audience and brand damage |
Lower audience commitment to ITV Loss of volume and share of impacts Brand health |
Focus on commissioning team talent Targeted investment in programme schedule Research on-screen performance and brand perception Development of digital channels and online distribution Increased research to match programming to audience aspiration |
|
Inflexibility of airtime sales due to continuing CRR remedy or other regulatory restriction |
Loss of ITV1 NAR |
Regulatory review of CRR Growth of non-ITV1 revenue streams |
|
Failure to deliver value for money and effective spend from Network Programme Budget |
Operating EBITA Loss of volume and share of impacts |
Annual budget approval Return on investment analysis applied to all programming 360° commissioning Review terms of trade to cover all distribution channels and maximise acquired rights |
|
Failure to meet compliance requirements for programming or airtime trading |
Lower audience commitment to ITV Brand health |
Dedicated and separate compliance teams in both Commercial and Channels areas Legal input on all contract drafting Reporting to Ofcom on airtime sales |
|
Digital switchover results in increased satellite and cable penetration at expense of digital terrestrial distribution with consequent lower viewing share for ITV channels |
Loss of volume and share of impacts Loss of ITV plc NAR |
Promote DTT through Freeview and other marketing initiatives Promote Freesat where DTT cover is inadequate Develop appropriate ITV HD offering |
Online
|
Risk description |
Impact |
Mitigation |
|
Failure to deliver profitable online propositions |
Loss of Online revenue |
Online content distribution managed alongside broadcast channels Focus on providing online element for all new programme production Development of online advertising sales function Technology action plan to provide clear strategic framework for internet-based initiatives Consideration of competition issues involved in content distribution |
Key Performance Indicators
ITV's Key Performance Indicators (KPIs) are the core measures used by the Company to assess its own performance and allow shareholders and other ITV stakeholders to judge how the business is doing.
Financial KPIs
ITV's financial KPIs provide details of the financial performance of the Company across its major areas of activity. Further detail on our performance is set out in the Operating and Financial reviews.
Revenues
Total ITV revenues declined by 3%, as strong growth in Global Content revenues offset a decline in ITV's television net advertising revenues (NAR). ITV plc NAR declined by 4%, outperforming the market as a whole, which declined by 5%. Growth in Global Content was driven by strong growth in international production in particular. Online, growth in itv.com revenues was offset by revenue decline at Friends Reunited, where the core site moved to an advertising funded model.
|
|
2008 |
2007 |
|
Total ITV revenues |
2,029 |
2,082 |
|
ITV plc NAR |
1,425 |
1,489 |
|
Global Content revenue (including internal revenue) |
622 |
564 |
|
Online revenue |
36 |
33 |
Profits
Operating EBITA remains ITV's key profit indicator, reflecting operating profit before amortisation and operating exceptional items. Adjusted earnings per share relates the profit for the year attributable to equity shareholders, before exceptional items, amortisation and impairment of intangible assets, interest and prior period tax adjustments, to the Company's share capital and thereby demonstrates underlying value creation per share.
The decline in operating EBITA and adjusted EPS reflect the gearing of ITV's profits to television advertising, which fell significantly in 2008.
|
|
2008 |
2007 |
|
Operating EBITA before exceptional items |
211 |
311 |
|
|
2008 |
2007 |
|
Adjusted basic EPS |
2.7 |
5.0 |
Non-financial KPIs
ITV seeks to be recognised as the UK's favourite source of free entertainment and a company where the best people want to work. These objectives are reflected in ITV's non-financial KPIs.
Audiences
ITV is aiming to secure a share of commercial impacts across its channels of at least 38.5% to 2012. The performance in 2008 leaves ITV on course to meet this target. The ITV1 adult impact volume KPI reflects the imperative of ITV1 retaining scale as the UK's largest commercial channel. In 2008, despite increased competition, ITV1 held its impacts broadly flat.
ITV has replaced its previous 'commitment' indicator with a more meaningful measure of brand health, based on regular measurement of viewers' association between ITV1 and drivers of television viewing. Data for the final quarter has been used for 2008. For future years, full year figures will be used, allowing a comparison over time.
The online traffic KPI is based on itv.com unique users (UUs). In 2008, itv.com increased its average monthly unique users substantially.
|
|
2008 |
2007 |
|
ITV family SOCI (%) |
41.0 |
41.7 |
|
ITV1 adult impact volume (billion) |
235.9 |
237.2 |
|
ITV1 brand health |
34% |
n/a |
|
itv.com monthly average UUs (million) |
6.5 |
5.0 |
Staff engagement
A staff engagement indicator is based on the proportion of respondents to the annual survey of all ITV staff agreeing that they have pride in their work, are proud to work for ITV and speak highly about ITV's services. The 2008 survey showed an increase in staff engagement year on year.
|
|
2008 |
2007 |
|
Staff engagement (%) |
68 |
63 |
ITV is reviewing whether the current KPIs remain appropriate given the greater emphasis on its core business, on costs and on cash set out elsewhere in this report. An update will be provided in the next Annual Report.
Financial review
Statutory results for the year ended 31 December 2008
Total revenue for the year ended 31 December 2008 was 3% lower at £2,029 million (2007: £2,082 million). There was an operating loss for the year of £2,647 million (2007: profit of £192 million) as a result of the impairment of goodwill, with EBITA before amortisation and exceptional items down 32% at £211 million (2007: £311 million).
Revenue and profit by reportable segment are as follows:
|
|
2008 |
2007 |
Change |
|
Broadcasting revenue |
1,647 |
1,738 |
(91) |
|
Broadcasting EBITA* |
140 |
244 |
(104) |
|
Global Content revenue |
306 |
244 |
62 |
|
Global Content EBITA* |
90 |
90 |
- |
|
Online revenue |
36 |
33 |
3 |
|
Online EBITA* |
(20) |
(12) |
(8) |
|
Other revenue |
40 |
67 |
(27) |
|
Other EBITA* |
1 |
(11) |
12 |
|
Total revenue |
2,029 |
2,082 |
(53) |
|
Total EBITA* |
211 |
311 |
(100) |
|
*Before exceptional items |
|
|
|
Broadcasting
Broadcasting revenues
Broadcasting revenues comprise NAR, sponsorship income, interactive revenues (PRS and Red Button), SDN and other revenues.
|
|
2008 |
2007 |
Change |
|
ITV1 |
1,127 |
1,224 |
(97) |
|
Multichannel NAR |
242 |
209 |
33 |
|
GMTV |
56 |
56 |
- |
|
ITV plc NAR |
1,425 |
1,489 |
(64) |
Total ITV plc NAR decreased by 4.3% during the year to £1,425 million (2007: £1,489 million).
ITV1's NAR in the year was £1,127 million (2007: £1,224 million), £97 million lower than 2007.
ITV1 advertising is largely contracted via calendar year deals, under which an agency or advertiser commits a share of their total television advertising expenditure for the year ahead. Under the Contract Rights Renewal remedy, the agency or advertiser can reduce their share commitment to ITV1 in proportion to the reduction in ITV1's share of commercial impacts ('SOCI') over the previous year. ITV1's SOCI has declined consistently over recent years, as rising digital penetration has led to increased volumes of commercial impacts across the market. ITV1's adult SOCI decline in 2007 of 3.3% represented a significant improvement on recent years and, as a result, ITV1's NAR performance in 2008 ran closer to the overall market than the recent average.
However the television advertising market overall was down 4.8% in 2008, compared to an increase of 3.1% in 2007. Following a fairly stable first half with the market declining by 0.6%, over the second half of the year, market revenues declined by 8.8%.
Despite this weak market context, ITV's digital channels - ITV2, ITV3, ITV4, Citv and Men & Motors increased their advertising revenues by £33 million to £242 million (2007: £209 million). This strong revenue performance reflects continued growth in the SOCI delivered by these channels, which across 2008 stood at 8.8% (2007: 7.3%).
Whilst the increase in digital channel NAR was not sufficient to offset the decline in ITV1 NAR, overall ITV outperformed the total market. ITV NAR was down 4.3%, ahead of the total market decline of 4.8%. As a result, ITV held its share of the television advertising market for the first time since the early 1980s.
Sponsorship income was £58 million (2007: £56 million). Whilst closely related to advertising, sponsorship revenue tends to be committed under longer term contracts which can mitigate the impact of advertising market movements in the short-term.
SDN revenues were £33 million (2007: £36 million). Whilst no significant new contracts came into effect during 2008, a contract for a new channel was agreed from early 2009 and there are plans to accommodate a tenth video stream during 2009.
Other broadcasting revenues of £131 million (2007: £157 million) include airtime sales on behalf of third-parties, sales of ITV programming by the ITV Network Centre to Channel 3 licences not owned by ITV and revenues from premium rate telephony services ('PRS') and interactive transactions associated with ITV and GMTV programming. Revenues were lower than in the prior year largely because of a reduction of PRS revenues.
Broadcasting schedule costs
Total ITV schedule costs increased by £38 million in 2008 to £1,125 million (2007: £1,087 million). This breaks down as follows:
|
|
2008 |
2007 |
Change |
|
ITV1 |
867 |
837 |
30 |
|
Regional news and non-news |
112 |
114 |
(2) |
|
Total ITV1 costs |
979 |
951 |
28 |
|
ITV2, ITV3, ITV4, Citv, M&M |
112 |
101 |
11 |
|
GMTV |
34 |
35 |
(1) |
|
Total schedule costs |
1,125 |
1,087 |
38 |
ITV1 schedule costs increased because of an increase in stock writedowns and a new contract for Coronation Street and Emmerdale more closely reflecting their value to the channel. The planned increase in investment in the digital channels returned significant audience share gains.
Licence fees
Licence fees comprise a fixed annual sum (the cash bid) and a variable element representing a percentage of the Group's ITV1 and GMTV NAR and sponsorship income (PQR Levy). The PQR Levy is reduced by the percentage of homes which receive ITV1 in digital format and will continue to fall as digital penetration increases. The digital licence rebate for 2008 is calculated on a weighted average digital penetration of 85% (2007: 78%).
|
|
2008 |
2007 |
Change |
|
Cash bid payment |
4 |
4 |
- |
|
PQR Levy |
169 |
180 |
(11) |
|
Digital rebate |
(143) |
(140) |
(3) |
|
Total |
30 |
44 |
(14) |
Broadcasting EBITA
The Broadcasting segment EBITA before exceptional items for 2008 fell by £104 million to £140 million (2007: £244 million). This was primarily due to the decline in ITV NAR and the increase in schedule costs.
Global Content
Global Content revenues
|
Global Content revenues |
2008 |
2007 |
Change |
|
UK production |
68 |
48 |
20 |
|
Resources |
17 |
19 |
(2) |
|
International production |
98 |
63 |
35 |
|
Distribution and exploitation |
123 |
114 |
9 |
|
Total external revenue |
306 |
244 |
62 |
|
Original supply to ITV |
316 |
320 |
(4) |
|
Total revenue (including ITV supply) |
622 |
564 |
58 |
Included in international production are revenues from Silverback, acquired in May 2008 and Imago acquired in September 2008. These revenues total £4 million. Included in UK production are incremental revenues of £13 million representing the full year impact of 12 Yard Productions.
Global Content revenue includes original productions for the UK and international markets, the distribution and exploitation of internally generated and acquired rights, and studios and facilities revenue.
Programming made by ITV Studios for ITV channels is not included in reported ITV plc consolidated revenue as it represents an internal programming cost of sale. In 2008 this internal programming amounted to £316 million of ITV network programme spend (2007: £320 million). The reduction was caused by the loss of a number of established ITV commissions, including Parkinson and Soapstar Superstar, as the ITV1 schedule was relaunched.
In 2008, total external sales were £306 million (2007: £244 million). International production delivered the majority of revenue growth with sales reaching £98 million (2007: £63 million), with particularly strong growth in the USA and Germany. Original production for other UK broadcasters increased to £68 million (2007: £48 million) and distribution and exploitation sales reached £123 million (2007: £114 million).
Global Content EBITA
Global Content EBITA was unchanged in 2008 at £90 million (2007: £90 million). The increased proportion of revenues accounted for by new international production has the effect of diluting overall segment margins. In addition, across internal and external production and distribution, margins are coming under increasing pressure as Global Content's broadcaster customers seek to manage the impact of the advertising downturn. Profits for 2008 include £13 million EBITA increase arising from the new Coronation Street and Emmerdale contract, together with some non-recurring provision releases.
Online
Online revenues continued to grow in 2008 and totalled £36 million for the year (2007: £33 million). This is made up of the following revenue streams:
|
Online revenues |
2008 |
2007 |
Change |
|
itv.com and other* |
18 |
11 |
7 |
|
Friends Reunited |
18 |
22 |
(4) |
|
Total Online revenues |
36 |
33 |
3 |
|
* Includes itvlocal.com, ITV Mobile and other revenues. |
|||
Revenues from itv.com and other increased by 64% in the year, largely as a result of increased itv.com advertising revenues. Itv.com video advertising grew very rapidly to reach nearly 50% of total revenue. Sponsorship also grew strongly, offsetting a year-on-year decline in display advertising revenues. The fall of 18% in revenues from Friends Reunited was due to the reunions site moving from a subscription-based model to full advertiser funding.
Online EBITA decreased to a loss of £20 million (2007: loss of £12 million), due to Friends Reunited profits reducing, additional itv.com investment and costs associated with Kangaroo, the planned online archive service with BBC Worldwide and Channel 4, which did not obtain regulatory approval.
Other
Outside the main segments, other revenues for 2008 comprised Carlton Screen Advertising (CSA) revenues of £40 million (2007: £67 million). During the year, ITV disposed of the majority of the CSA business and assets. Other EBITA for 2008 was £1 million (2007: loss of £11 million).
Operating exceptional items
|
|
2008 |
2007 |
|
Reorganisation and integration costs |
(40) |
(8) |
|
PRS |
(6) |
(18) |
|
Onerous contract provision |
(50) |
(9) |
|
Kangaroo |
(1) |
- |
|
Total operating exceptional items |
(97) |
(35) |
Operating exceptional costs in the year total £97 million. These include £40 million of reorganisation and restructuring costs, of which £22 million is associated with previously announced efficiency savings programmes and £18 million relates to the restructuring of regional news (including associated write-off of fixed assets). Ofcom fines in relation to PRS confirmed in early 2008 were £6 million. A charge of £50 million is included in respect of onerous contracts for sports rights. Since the relevant deals for FA Cup, England and UEFA Champions League games were agreed, there has been a significant deterioration in the outlook for UK television advertising.
Amortisation and impairment of intangible assets
Total intangible assets at 31 December 2008 are £1,140 million (2007: £3,873 million), being principally goodwill and acquired and internally developed intangible assets. Goodwill balances are not amortised but are instead subject to annual impairment testing. Other intangible assets are amortised over their useful lives.
A total impairment charge has been recognised in 2008 of £2,638 million and relates to the Broadcasting, GMTV and Online businesses. An impairment charge of £2,309 million and £21 million arose in the Broadcasting and GMTV businesses respectively as a result of the short-term downturn in the outlook for the growth in the total TV advertising market. An impairment charge of £308 million arose in the Online business as a result of the downturn in the short-term outlook for the advertising market and the reduction in demand for white-space advertising online.
A further reduction in goodwill of £57 million has been made as required by IAS12 following the recognition of a deferred tax asset not recognised at the time of the Carlton/Granada merger. An impairment charge of £28 million arose in 2007 in relation to CSA.
The total amortisation charge for the year on acquired and internally developed intangible assets is £66 million (2007: £56 million).
The assumptions used for impairment testing are set out in greater detail in note 13 of the Notes to the Accounts. These assumptions are consistent with those applied in the going concern analysis detailed below.
Net financing costs
|
Financing income |
2008 |
2007 |
|
Interest income on bank deposits |
23 |
30 |
|
Expected return on defined benefit pension plan scheme assets |
162 |
152 |
|
Change in fair value of financial liabilities designated at fair value through profit or loss |
123 |
14 |
|
Other interest receivable |
8 |
4 |
|
|
316 |
200 |
|
Financing costs |
2008 |
2007 |
|
Interest expense on financial liabilities measured at amortised cost |
(110) |
(54) |
|
Foreign exchange loss |
(116) |
(42) |
|
Interest on defined benefit pension plan obligations |
(146) |
(134) |
|
Other interest payable |
(4) |
(3) |
|
|
(376) |
(233) |
|
Net financing costs |
(60) |
(33) |
Net financing costs have increased on the previous year. The foreign exchange loss principally relates to the €500 million bond, which is economically hedged by cross currency interest rate swaps. The gain on these and other swaps is included in the change in fair value of financial liabilities within financing income and which, as the table shows, offsets the loss on the bond.
As set out below, ITV uses interest rate swaps and options to achieve its desired mix between fixed and floating rate debt and, during 2008, moved closer to having 50% of its debt on floating rates. ITV therefore benefited significantly from reductions in interest rates towards the end of 2008 and this effect was reflected in the change in fair value of swaps.
Interest expense on financial liabilities has increased as a result of the £110 million bond issued in July 2008 and includes £16 million of closure costs on a financial instrument integral to a £125 million finance facility contracted during 2008.
As a result of ITV's credit rating with Standard & Poor's being lowered to BB+ in August 2008 the €500 million bond and the 2017 £250 million bond were subject to coupon step-ups. This has resulted in the recalculation of the amortised cost carrying value of the bonds as required by IAS39. The carrying value of the €500 million bond has increased by £12 million, and the 2017 £250 million bond, by £18 million. This has resulted in an increase in the amortised costs of the bonds and an interest expense of £30 million (2007: £nil) during the current year. The increase in the amortised cost of the bonds will unwind in future years resulting in a credit to interest expense.
In 2008 imputed interest on the pension deficit - the expected return on defined benefit scheme assets less the interest on defined benefit pension plan obligations - resulted in a net interest credit of £16 million. Based on the level of the deficit at the end of 2008 and prevailing market rates, a net charge of around £15 million is expected to arise in 2009.
Results of joint ventures and associates
The total value of joint ventures and associates at 31 December 2008 are £66 million. Losses of joint ventures recognised in the income statement in the year are £15 million, after the benefit of £3 million in respect of a loan previously written off and now repaid (2007: profit of £2 million, which was allocated to assets held for sale). The losses in 2008 largely related to Kangaroo, Screenvision US, Screenvision Europe and Freesat.
Impairment of properties
An impairment of £17 million has been recognised in relation to the Group's Manchester and Bedford properties in the light of the downturn in the UK property market. Although still intended for sale, the Manchester properties have been transferred from assets held for sale to fixed assets. This is in view of the fact that disposal may not be possible in the next 12 months, given current market conditions.
Impairment and gain on sale of subsidiaries and investments (net)
There is a £6 million net gain on sale and impairment of subsidiaries and investments for the year (2007: gain of £17 million). During the year the Group sold its remaining interest in the non-core businesses of Arsenal Broadband Limited and Liverpool FC.tv Limited, resulting in gains of £12 million and £13 million respectively. These and other smaller gains were offset by £9 million of closure costs relating to CSA, £3 million impairment in Screenvision Europe prior to reclassification of this joint venture to assets held for sale, £4 million for Kangaroo following the decision by the Competition Commission to block the venture and a £7 million impairment of financial assets available for sale in the year in relation to the Group's shareholding in stv group plc.
Tax
The total tax credit of £178 million arises as a result of the resolution of prior periods' tax liabilities, including the recognition through goodwill of deferred tax assets on losses which previously the Company was not able to recognise. The underlying rate of tax on underlying profits is 32% as shown below:
|
|
2008 |
|
Underlying profit |
|
|
- Loss before tax as reported |
(2,732) |
|
- Exceptional items (net) |
108 |
|
- Amortisation and impairment of goodwill and intangible assets |
2,761 |
|
- IAS 39 amortised cost adjustment |
30 |
|
- Share of losses of joint ventures and associates |
15 |
|
|
182 |
|
Underlying tax charge |
|
|
- Tax credit as reported |
(178) |
|
- Net credit for exceptional and other items |
23 |
|
- Credit in respect of amortisation |
19 |
|
- Credit in respect of IAS 39 amortised cost adjustment |
9 |
|
- Credit in respect of prior period items |
186 |
|
|
59 |
|
Underlying rate of tax |
32% |
No net cash tax is expected to be payable in 2009.
Earnings per share
Basic loss per share is 65.9 pence (2007: earnings of 3.5 pence). Adjusted earnings per share before exceptional items, amortisation and tax adjustments are 2.7 pence (2007: 5.0 pence).
Dividend
The Board is not proposing the payment of a final dividend. The total dividend for the year is therefore 0.675 pence per share.
The Board's decision with respect to the final dividend has not been taken lightly. The Board's judgement is that it represents the prudent course in the present conditions.
Cash flow and net debt
The principal movements in net debt in the year are shown in the table below:
|
|
£m |
£m |
|
Net debt at 31 December 2007 |
|
(668) |
|
Cash generated from operations |
150 |
|
|
Net interest paid |
(63) |
|
|
Taxation net receipts |
43 |
|
|
Equity dividends paid |
(123) |
|
|
Expenditure on property plant and equipment and intangible assets |
(53) |
|
|
Acquisition of subsidiaries (net of cash) |
(6) |
|
|
Loans to and from associates and joint ventures |
(6) |
|
|
Proceeds from assets held for sale |
35 |
|
|
|
|
(23) |
|
Defined benefit pension deficit funding |
|
(39) |
|
Net debt at 31 December 2008 |
|
(730) |
Cash generated from operations was £150 million (2007: £286 million), reflecting a £100 million decrease in operating profit before exceptional items and amortisation, and a working capital outflow of £67 million (2007: £44 million), due to increased payments for sports rights, commissions and acquired film stock.
Net cash interest paid on the Group's net debt position was £63 million. Net tax receipts of £43 million reflect taxation repayments for prior periods more than offsetting payments made for the current period. Equity dividends of £123 million comprise the 2007 interim and final dividends of £52 million and £70 million respectively, and £1 million of the DRIP element of the 2008 interim dividend. Expenditure on plant, property, equipment and intangible assets totalled £53 million. During the year the Group acquired 100% of Silverback AB for £5 million and 51% of Imago for £2 million (with net cash acquired of £1 million). Loans granted to joint ventures and associates were £26 million. Loans were repaid from joint ventures and associates of £20 million.
During the year the Group disposed of its interests in Arsenal Broadband Limited and Liverpool FC.tv Limited and sold its Ashby property for a total cash consideration of £35 million.
During the year ITV redeemed loan notes totalling £25 million and in November 2008 sold a held to maturity investment of £100 million. In July 2008, ITV strengthened its liquidity position with the issue of a £110 million bond repayable in March 2013.
Liquidity risk and going concern
The Group's financial risk factors are set out in note 23 to the financial statements.
During the year the Group lost its investment grade rating and as at 2 March 2009 is rated Ba1 (negative outlook) by Moody's investors Services and BB+ (negative outlook) by Standard & Poor's. The loss of investment grade triggered coupon step ups in ITV's €500 million 2011 and £250 million 2017 bonds. The cash cost of the step ups is £8 million in a full year and will continue unless and until ITV returns to investment grade with both rating agencies. The accounting implications of the coupon step ups under IAS 39 are set out in note 8 of the financial statements.
ITV is financed using debt instruments with a range of maturities. ITV's borrowings (net of currency hedges) are repayable as follows:
|
Amount repayable |
£m |
Maturity |
|
£250 million Eurobond |
250 |
March 2009 |
|
€500 million Eurobond (net of cross currency swaps) |
335 |
October 2011 |
|
£110 million Eurobond |
110 |
March 2013 |
|
£325 million Eurobond |
325 |
October 2015 |
|
£250 million Eurobond |
250 |
January 2017 |
|
Finance leases |
79 |
Various |
|
Other loans and loan notes |
2 |
Various |
|
Total repayable |
1,351 |
|
At the balance sheet date ITV had £516 million of cash and cash equivalents (net of £100 million of cash equivalents whose use is restricted to funding finance lease commitments and unfunded pension promises). Cash and cash equivalents include around £70 million held principally in overseas and part owned subsidiaries, which is therefore not readily accessible.
At the balance sheet date ITV had £200 million of undrawn, covenant free, bilateral bank facilities negotiated in 2008 which mature in May 2013 and an undrawn £450 million syndicated bank facility, which is subject to financial covenants. These are defined in the facility agreement (Net Debt: EBITDA < 3.75 times and Net Debt: Net Interest > 3.0 times) and tested on a 12 month basis at the end of June and December each year.
In February 2009 ITV increased its liquidity by £50 million under a new 10 year loan which is not subject to financial covenants. The lender has the right to loan ITV up to a further £150 million at any time in the 10 year period. The interest cost under the loan is fixed at 8.85% for the first 3 years and thereafter is at a variable rate with the cost of funds being a function of the size of further drawing and the cumulative performance of an interest rate algorithm. The cost of financing is capped with a worst case IRR of 18% at £50 million falling to 12% at £200 million.
On 2 March 2009 the Group fully drew down on a £125 million facility, which forms part of the total £200 million undrawn bilateral bank facilities, and expects to draw down the balance of £75 million during the course of 2009. The £450 million bank facility is currently available as ITV remained inside the financial covenants at the year end. However ITV recognises that if earnings continue to decline across 2009 and 2010, the facility may no longer remain available. The going concern analysis has been conducted on the prudent basis that currently undrawn facilities and loans are not available to be drawn down.
On 2 March 2009 the Group repaid the maturing £250 million Eurobond from its cash resources. The current economic environment is very uncertain. Credit markets are anticipated to remain tight, particularly for sub-investment grade borrowers. The Group will continue to take action to improve liquidity and extend maturities. It is exploring a range of options aimed at strengthening its balance sheet.
The Group currently generates in the region of 80% of its revenue from the advertising markets which tend to track the economic cycle. The TV advertising market has been very volatile in recent months and expectations in the short term have deteriorated. In forming its assumptions about the TV advertising market, the Group has used a combination of long term trends, industry forecasts and in-house estimates which place greater emphasis on recent experience. These are broadly in the range of -10% to -16% for 2009 and +2% to -4% for 2010, with the most recent being towards the bottom end of these ranges.
Advertising is a discretionary spend and the economic environment remains challenging. If the actual outturn is significantly adverse to these assumptions, then the Group's short term liquidity will come under some pressure. However, the going concern analysis demonstrates that the Group should be able to weather reasonably possible further deterioration in the advertising market, and has identified a number of mitigating actions it could take if required.
After making enquiries the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the consolidated and parent Company financial statements.
The section above forms part of the audited accounts. See section 1.1 - Basis of preparation in Accounting policies.
Treasury operations and policies
A central department in London manages the Group's treasury operations, following policies and procedures laid down by the Board. The most significant treasury exposures faced by ITV are raising finance, managing interest rate and currency positions and investing surplus cash in high quality assets. Treasury policies have been approved by the Board for managing each of these exposures including levels of authority on the type and use of financial instruments. Transactions are only undertaken if they relate to underlying exposures. The treasury department reports regularly to the Audit Committee and treasury operations are subject to periodic independent reviews and internal audit. ITV has established and retains strong relationships with a number of banks to ensure a balanced spread of risk and to facilitate future funding requirements.
Set out below are ITV's principal treasury policies:
Financing: ITV's financing policy is to fund itself long term using debt instruments with a range of maturities. It is substantially funded from the UK and European capital markets and has both bank facilities from the UK syndicated debt market and bilateral arrangements;
Interest rate management: the Group's interest rate policy is to have between 50% and 70% of its total net indebtedness at fixed rates over the medium term in order to provide a balance between certainty of cost and benefit from low floating rates. As interest rates have fallen, ITV has moved closer to having 50% of total net debt at fixed rates and the appropriate ratio is regularly reviewed. ITV uses interest rate swaps and options in order to achieve the desired mix between fixed and floating rates;
Currency management: the Group's foreign exchange policy is to hedge foreign currency denominated costs at the time of commitment and to hedge a proportion of foreign currency denominated revenues on a rolling 12-month basis. The policies significantly reduce the Group's earnings and balance sheet exposures to changes in exchange rates;
Investment in cash: ITV operates strict investment guidelines with respect to surplus cash and the emphasis is on preservation of capital. Counterparty limits for cash deposits are largely based upon long-term ratings published by the major credit rating agencies and perceived state support. In view of developments in the financial sector, ITV has reviewed all counterparties and revised limits accordingly. However the banking environment remains uncertain. Consequently, deposits longer than one month require the approval of the Management Committee of the Board.
Improving working capital management is a key priority for 2009. This will include managing cash commitments more tightly, reducing overdue receivables, reviewing capital expenditure policies and establishing a more effective procurement process.
Pensions
The Group's pension schemes are run independently by the schemes' trustees. All pension scheme assets are administered separately by the trustees using a number of external fund managers and custodians. Defined contribution scheme arrangements are offered to all new joiners and a choice of investment styles is available to them. Defined benefit schemes are funded on a long-term basis with advice from the scheme actuaries. Actuarial valuations of the assets and liabilities of the defined benefit schemes (upon which funding is based) are carried out by the trustees at least every three years. The main defined benefit scheme is divided into three sections: A, B and C.
1. Actuarial valuations
Actuarial valuations of sections B and C of the main defined benefit scheme were carried out as at 1 January 2007 and, on the bases adopted by the trustees, both were in surplus with a combined surplus of £23 million or 5% of the liabilities in those sections.
An actuarial valuation of section A of the main defined benefit scheme was carried out as at 1 January 2008 and, on the bases adopted by the trustees, that section was in deficit in an amount of £190 million or 9% of the liabilities in that section.
2. Deficit funding
A deficit reduction payment of £30 million was paid into section A of the main defined benefit scheme shortly after 1 January 2008, reducing that deficit to £160 million.
No deficit funding payments are currently being paid into either section B or C of the main defined benefit pension scheme and, as the actuarial valuation referred to above resulted in surpluses, there are no recovery plans in place for those sections. The deficit identified in the actuarial valuation as at 1 January 2008 of section A of the main defined benefit pension scheme, as referred to above, is being addressed by a recovery plan agreed with the trustees, under which the Company will pay £30 million in each of the five calendar years beginning with 2009.
3. IAS 19
The Group's defined contribution schemes gave rise to an operating charge in 2008 of £4 million (2007: £3 million).
IAS 19 accounting for the Group's defined benefit schemes values the annual cost and the assets and liabilities of the schemes on disclosed bases, and includes these values in the consolidated income statement and consolidated balance sheet. In 2008 the IAS 19 operating charge for defined benefit schemes was £10 million (2007: £15 million). As indicated above, the excess of the expected return on scheme assets, less the interest cost on liabilities, gave rise to a net financing credit in 2008 of £16 million (2007: £18 million). The aggregate IAS 19 deficit on defined benefit schemes at 31 December 2008 was £178 million (2007: £112 million). The increase in the deficit resulted from a series of factors, including a decision to strengthen the mortality assumptions as described below, and lower values for equity and interest-bearing investments, partly offset by an increase in the discount rate applied to liabilities and a reduction in the expected rate of inflation. An actuarial loss of £124 million has been recognised directly to reserves in the consolidated statement of recognised income and expense (2007: gain of £111 million).
4. Mortality assumptions
During 2008 the scheme actuary updated an analysis of the mortality experience of the main defined benefit pension scheme. Reflecting that analysis the Group has strengthened its mortality assumption for the 31 December 2008 IAS 19 valuation and restated it by reference to PA92 year of birth tables with medium cohort improvements with a 1% per annum underpin and a one year age rating (i.e. tables are adjusted so that a member is assumed to be one year older than actual age). The actuary has confirmed that the effect of this change in mortality assumption has been to add £88 million to the defined benefit scheme liabilities. Using the IAS 19 valuation factors, the forecast life expectancy for a 65 year-old member is:
|
|
31 December 2008 valuation |
31 December 2007 valuation |
||
|
|
Men |
Women |
Men |
Women |
|
Retiring today |
86.6 |
89.8 |
84.8 |
87.8 |
|
Retiring in 20 years |
88.4 |
91.7 |
85.8 |
88.7 |
5. Trustees' investment strategy
The trustees continue to review the investment strategy for the main defined benefit pension scheme. The asset allocation has changed during 2008 and holdings of equities have been reduced and holdings of interest-bearing investments have been increased. At 31 December 2008, the assets of the defined benefit pension schemes were invested broadly as to 35% in equities and 65% in bonds and other interest-bearing investments. The trustees also use derivative instruments to hedge partial exposures to movements in interest rates, inflation and foreign exchange rates.
International Financial Reporting Standards
The Group has adopted International Financial Reporting Standards as adopted by the EU. The parent company financial statements continue to be reported under UK GAAP. They have been included in this report after the results of the consolidated group.
Ian Griffiths
Group Finance Director
Directors' report
The directors present their report together with the audited consolidated and parent company financial statements for the year ended 31 December 2008. The comparative period is for the year ended 31 December 2007.
Business review and results for the year
Under section 417(1) of the Companies Act 2006, the Company is required to produce a fair review of the business, including a description of the principal risks and uncertainties facing the Company. This is set out in the Business review together with a description of the principal activities. The Business review is incorporated in this report by reference.
Loss for the year after tax was £2,554 million (2007: £138 million profit).
Corporate Governance
Under Disclosure and Transparency Rule 7.2, the Company is required to include a Corporate Governance statement in its Directors' report. All relevant information on the corporate governance practices of the Company are set out in the Corporate Governance section.
Principal transactions and post balance sheet events
Disposals
On 5 March 2008 the Company announced that it had completed the sale of its 50% share in Liverpool FC.tv Limited to The Liverpool Football and Athletic Grounds Limited for a consideration of £16 million, plus repayment of approximately £3 million of debt previously written off.
On 7 April 2008 the Company announced that it had completed the sale of its 50% share in Arsenal Broadband Limited to KSE UK, Inc. for a total net cash consideration of £22 million of which £8 million was received in 2007.
On 10 July 2008 the Company announced that it had completed the sale of certain assets of Carlton Screen Advertising Limited to Digital Cinema Media Limited for a total cash consideration of £0.5 million.
All disposals carried out in the year are part of the Group's disposal programme of non-core assets that has been ongoing since the merger in 2004.
Acquisitions
On 13 May 2008 the Company acquired the Swedish-based independent production company and programme formats business, Silverback AB, for a cash consideration of £5 million, and further consideration of up to £9 million payable based on profit performance and retention of key employees over the three year period to 2011.
On 1 August 2008 the Company acquired a 10% equity stake in Electric Farm Entertainment LLC, a leading US digital studio company, for an initial payment of $2 million, with an option to acquire a controlling shareholding at the end of 2008. The option period has been extended to 15 March 2009.
On 29 September 2008 the Company acquired a 51% stake in Imago TV Film-und Fernsehproduktion GmbH, a Berlin based TV production business, for an upfront payment of €2 million, and a further cash payment of €4 million payable dependent on profit performance and retention of key employees up to 2010. The Company retains an option to acquire the remaining 49% of the business dependent on profit performance up to 2011.
In addition to the above the Company acquired 25% of the equity in independent production company Crackit Productions Limited on 15 May 2008.
Other
On 2 July 2008 the Company announced the issue of a £110 million bond with a maturity date of 20 March 2013, pursuant to its £1.5 billion Euro Medium Term Note Programme.
Post balance sheet events are described in note 34 of these financial statements.
Dividends
The Board has proposed that no final dividend should be paid for the year ended 31 December 2008. Further information can be found in the Executive Chairman's statement.
The total dividends paid and proposed for the year ended 31 December 2008 are therefore as follows:
|
|
2008 |
2007 |
|
Interim dividend |
0.675p |
1.35p |
|
Final dividend |
- |
1.80p |
|
Total |
0.675p |
3.15p |
Substantial shareholdings
As at 4 March 2009 the Company had received notifications from the following companies and institutions of the voting interests of themselves and their clients in 3% or more of the issued ordinary share capital (carrying rights to vote in all circumstances) of the Company (numbers of shares and percentage interests are as at the notification dates).
|
|
Shares |
% |
|
Sky Holdings Ltd (a subsidiary of British Sky Broadcasting Group plc) |
696,046,825 |
17.90 |
|
Brandes Investment Partners, L.P. |
321,967,023 |
8.24 |
|
AXA S.A |
170,580,317 |
4.39 |
|
Legal and General Investment Management Ltd |
155,146,097 |
3.98 |
|
Governance for Owners LLP |
116,767,766 |
3.00 |
|
Silchester International Investments Limited |
116,683,131 |
3.00 |
Share capital
At the date of this report there were 3,889,129,751 ordinary shares of 10 pence each in issue, all of which are fully paid up and quoted on the London Stock Exchange.
Further details of the movements in the authorised and issued share capital of the Company during the year are set out in note 29. The rights attaching to the Company's ordinary shares, as well as the powers of the Company's directors, are set out in the Company's Articles of Association, copies of which can be obtained from the Company's website www.itvplc.com or by writing to the Company Secretary.
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 Listing Rules of the Financial Services Authority, certain employees are required to seek approval of the Company to deal in its shares. The Company is not aware of any agreements between shareholders that may result in restrictions on the transfers of securities and/or voting rights. No person holds securities in the Company carrying special rights with regard to control of the Company. Unless expressly specified to the contrary in the Articles of Association of the Company, the Company's Articles of Association may be amended by special resolution of the Company's shareholders. All of the Company's share plans contain provisions relating to a change of control. Outstanding awards and options would normally vest and become exercisable on a change of control, subject to the satisfaction of any performance conditions. Certain of the Group's bonds/borrowing facilities have change of control clauses whereby the issuer can require ITV to repay/redeem bonds in the event of a change of control. The Company is not aware of any other significant agreements to which it is party that take effect, alter or terminate upon a change of control of the Company.
The directors have the authority to purchase up to 388.9 million of its ordinary shares. The authority remains valid until the 2009 Annual General Meeting, or 14 August 2009 if earlier. A resolution will be put to shareholders to renew the authority at the 2009 Annual General Meeting.
The Company has a discretionary trust funded by loans to acquire shares for the potential benefit of employees of the Group. Details of shares held by the trust at 31 December 2008 are set out in note 29 to the accounts. During the year shares have been released from the trust in respect of share award schemes for employees. The trust waives the right to dividends payable on those shares held by the trust that are not subject to any share plan operated by the Company where participants are the beneficial but not registered owners of shares.
Directors
The following were directors of the Company during the year:
|
|
Appointed |
Resigned |
|
Michael Grade |
|
|
|
Sir George Russell |
|
|
|
Dawn Airey |
28 February 2008 |
29 April 2008 |
|
Mike Clasper |
|
|
|
John Cresswell |
|
|
|
Sir James Crosby |
|
|
|
Ian Griffiths |
9 September 2008 |
|
|
Andy Haste |
11 August 2008 |
|
|
Rupert Howell |
28 February 2008 |
|
|
John McGrath |
|
17 January 2008 |
|
Heather Killen |
|
|
|
John Ormerod |
18 January 2008 |
|
|
Sir Brian Pitman |
|
15 May 2008 |
|
Baroness Usha Prashar |
|
|
|
Agnès Touraine |
|
|
Andy Haste was appointed to the Board on 11 August 2008, and Ian Griffiths was appointed to the Board on 9 September 2008. They will retire from the Board at the Annual General Meeting on 14 May 2009 and, being eligible, will offer themselves for election. Mike Clasper and John Cresswell will retire from the Board and, being eligible, offer themselves for re-election. Andy Haste and Mike Clasper do not have service contracts with the Company.
No director had any interest in any contract with the Company or its subsidiary undertakings except as disclosed in these financial statements.
Directors' interests
Shareholdings in the ordinary share capital of ITV plc beneficially owned by directors and their family interests at 31 December 2008 are set out below.
|
|
31 December 2008 |
31 December 2007 |
|
Michael Grade |
436,407 |
193 |
|
Sir George Russell |
62,090 |
4,332 |
|
Mike Clasper |
18,000 |
18,000 |
|
John Cresswell |
784,660 |
536,066 |
|
Ian Griffiths |
100,000 |
n/a |
|
Andy Haste |
10,000 |
n/a |
|
Rupert Howell |
48,755 |
n/a |
|
Sir James Crosby |
98,058 |
98,058 |
|
Heather Killen |
22,000 |
- |
|
John Ormerod |
50,000 |
n/a |
|
Baroness Usha Prashar |
3,000 |
3,000 |
|
Agnès Touraine |
100,000 |
- |
Between the end of the financial year and 4 March 2009 there were no changes in directors' interests except for the beneficial acquisition by Sir George Russell of 64 ordinary shares under the Dividend Reinvestment Plan.
Pension Scheme Indemnities
Qualifying pension scheme indemnity provisions, as defined in section 235 of the Companies Act 2006, were in force for the financial year ended 31 December 2008 and remain in force for the benefit of each of the directors of ITV Pension Scheme Limited, an associate company of ITV plc. These indemnity provisions cover, to the extent permitted by law, certain losses or liabilities incurred as a director or officer of ITV Pension Scheme Limited.
Employees
The Group's statement on its employees is set out in the Business review.
The Company had 5,232 (2007: 5,634) employees as at 31 December 2008. Ensuring that employees are actively engaged with the Company continues to be an important part of our strategy and our communications process underpins this. Employees are informed about significant business issues and the Group's performance using email, podcasts, the Company's intranet and briefing meetings at each main location. In addition the Company has a framework for consultation and information under which Communication Groups on each site have joint responsibility for maintaining a regular dialogue on all issues concerning employees.
The Company has a diversity policy which aims to ensure equality of opportunity irrespective of gender, marital status, race, origin, nationality, religious belief, disability, age, sexual orientation, or gender reassignment in recruitment, learning, development and promotion. This also covers arrangements for the continued employment of and appropriate training for employees who become disabled whilst working for the Company. The diversity policy includes a range of measures such as training where appropriate, extensive diversity monitoring and the provision of practical support in the form of 78 traineeship opportunities across the Company.
The health and safety of employees, contractors and visitors is considered a priority. There are well established health and safety policies and procedures in place throughout the business and these are supported by an effective training programme. Further information is given in our Corporate responsibility report 2008.
Donations
The Company made contributions to charities and equivalent organisations amounting to £2 million in cash and £5 million in kind (£7 million) (2007: £1 million in cash and £6 million in kind (£7 million)). As a result of the PRS issues encountered in 2007, charitable donations totalling a further £8 million were made in 2008.
It is the Company's policy not to make cash contributions to any political party. However, within the normal activities of the Group's national and regional news gathering operations there are occasions when the Group may provide some hospitality at functions where politicians are present. The Group, as part of its normal industry activities, is also keen to maintain contact with all political parties to ensure that they are aware of the key issues affecting its business. The Companies Act 2006 definition of political expenditure and donations to political organisations is extremely wide and may be construed as covering such areas of the Group's normal activities. Shareholder authority for such expenditure was given at the Annual General Meeting in 2008 and a similar resolution will be proposed at the 2009 Annual General Meeting. During the year the Group made the following payments totalling £7,968 (2007: £9,110): Labour Party £3,920; Conservative Party £685; Liberal Democrat Party £2,086 and Plaid Cymru Party £1,277.
Treasury operations and financial instruments
Note 23 to the accounts gives details of the Group's financial risk management policies and related exposures.
Creditor payment policy
The Company's policy, in relation to all its suppliers, is to settle the terms of payment when agreeing the terms of the transaction, ensure awareness of the terms and to abide by those terms provided that it is satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions. The Company does not follow any code or standard on payment practice. The number of days' purchases outstanding for payment by the Company as at 31 December 2008 was nil days (2007: nil days).
Going concern
Details of the Group's liquidity risk and going concern position are set out in the Financial Review.
After making enquiries the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the consolidated and parent Company financial statements
Properties
Notes 12 and 27 to the accounts give details of the Group's properties as at the balance sheet date.
Audit
The directors who held office at the date of approval of this report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditors are unaware: and each director has taken all steps that he/she ought to have taken as a director in order to make himself/herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information. As recommended by the Audit Committee, a resolution for the re-appointment of KPMG Audit Plc as auditor to the Company will be proposed at the forthcoming Annual General Meeting.
Annual General Meeting
The Annual General Meeting will be held on Thursday 14 May 2009 at 11.00 am in the Whittle Room at the Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE. The Notice of the Annual General Meeting contains an explanation of special business to be considered at the meeting. A copy of the Notice is available on the Company's website at www.itvplc.com.
Responsibility statement
The directors are responsible for preparing the Annual Report and the consolidated and parent company financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare consolidated and parent company financial statements for each financial year. Under that law they are required to prepare the consolidated financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).
The consolidated financial statements are required by law and IFRSs as adopted by the EU to present fairly the financial position and the performance of the Group; the Companies Act 1985 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation.
The parent company financial statements are required by law to give a true and fair view of the state of affairs of the parent company.
In preparing each of the consolidated 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 consolidated financial statements, to state whether they have been prepared in accordance with IFRSs as adopted by the EU;
-
for the parent company financial statements, to state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the parent company financial statements; and
-
to prepare the financial statements on a 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 proper accounting records that 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 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations the directors are also responsible for preparing a Directors' report, Remuneration report, and Corporate Governance statement that comply with that law and those regulations.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The directors confirm that to the best of their knowledge:
the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and
the directors' report includes a fair review of the development and performance of the business and the position of the Company and the group, together with a description of the principal risks and uncertainties that they face.
By order of the Board
James Tibbitts
Company Secretary
4 March 2009
The contents of this announcement, including the responsibility statement above, have been extracted from the annual report and accounts for the year ended 31 December 2008 which can be found at www.itvplc.com and will be despatched to shareholders on 26 March 2009. Accordingly, this announcement and in particular the responsibility statement makes reference to the financial statements of the Company and the group and to the relevant narratives appearing in that report and accounts rather than the contents of this announcement.
Independent auditor's report to the members of ITV plc
We have audited the consolidated and parent company financial statements (the 'financial statements'') of ITV plc for the year ended 31 December 2008 which comprise the consolidated income statement, the consolidated and parent company balance sheets, the consolidated cash flow statement, the consolidated statement of recognised income and expense and the related notes. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Financial review that is described as audited and the information in the Remuneration report that is described as audited.
This report is made solely to the Company's members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the Annual Report and the consolidated financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU, and for preparing the parent company financial statements and the Remuneration report in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice) are set out in the Statement of directors' responsibilities.
Our responsibility is to audit the financial statements and the part of the Remuneration report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985 and, as regards the consolidated financial statements, Article 4 of the IAS Regulation. We also report to you whether in our opinion the information given in the Directors' report is consistent with the financial statements. The information given in the Directors' report includes that specific information presented in the Business review.
In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed.
We review whether the Corporate Governance statement reflects the Company's compliance with the nine provisions of the 2006 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board's statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group's corporate governance procedures or its risk and control procedures.
We read the other information contained in the Annual Report and consider whether it is consistent with the audited financial statements.
We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Remuneration report to be audited. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group's and Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Remuneration report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Remuneration report to be audited.
Opinion
In our opinion:
the consolidated financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU, of the state of the Group's affairs as at 31 December 2008 and of its loss for the year then ended;
the consolidated financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation;
the parent company financial statements give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of the parent company's affairs as at 31 December 2008;
the parent company financial statements and the part of the Remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985; and
the information given in the Directors' report is consistent with the financial statements.
KPMG Audit Plc
Chartered Accountants
Registered Auditor
London
4 March 2009
Consolidated income statement
|
For the year ended 31 December: |
Note |
2008 |
2007 |
|
|
Revenue |
2 |
2,029 |
2,082 |
|
|
Operating costs before amortisation and impairment of intangible assets and exceptional items |
|
(1,818) |
(1,771) |
|
|
Operating costs - exceptional items |
5 |
(97) |
(35) |
|
|
Earnings before interest, tax and amortisation (EBITA) |
|
114 |
276 |
|
|
Amortisation of intangible assets |
13 |
(66) |
(56) |
|
|
Impairment of intangible assets |
13 |
(2,695) |
(28) |
|
|
Total operating costs |
4 |
(4,676) |
(1,890) |
|
|
Operating (loss)/profit |
|
(2,647) |
192 |
|
|
Financing income |
8 |
316 |
200 |
|
|
Financing costs |
8 |
(376) |
(233) |
|
|
Net financing costs |
8 |
(60) |
(33) |
|
|
Share of (losses)/profits of joint ventures and associated undertakings |
14 |
(15) |
2 |
|
|
Investment income |
|
1 |
1 |
|
|
Gain on sale, net of impairment, of properties (exceptional items) |
5 |
(17) |
9 |
|
|
Gain on sale, net of impairment, of subsidiaries and investments (exceptional items) |
5 |
6 |
17 |
|
|
(Loss)/profit before tax |
|
(2,732) |
188 |
|
|
Taxation |
9 |
178 |
(50) |
|
|
(Loss)/profit for the year |
|
(2,554) |
138 |
|
|
Attributable to: |
|
|
|
|
|
|
Equity shareholders of the parent company |
|
(2,556) |
137 |
|
|
Minority interests |
30 |
2 |
1 |
|
(Loss)/profit for the year |
|
(2,554) |
138 |
|
|
Basic (loss)/earnings per share |
11 |
(65.9)p |
3.5p |
|
|
Diluted (loss)/earnings per share |
11 |
(65.8)p |
3.5p |
|
Operating exceptional items during the year mainly comprise reorganisation and restructuring costs, fines associated with premium rate services and provisions in respect of onerous contracts for certain programme rights (see note 5 for details).
Consolidated balance sheet
|
At 31 December: |
Note |
2008 |
2007 |
|
Non-current assets |
|
|
|
|
Property, plant and equipment |
12 |
220 |
211 |
|
Intangible assets |
13 |
1,140 |
3,873 |
|
Investments in joint ventures and associated undertakings |
14 |
66 |
79 |
|
Available for sale financial assets |
15 |
5 |
10 |
|
Held to maturity investments |
22 |
- |
100 |
|
Derivative financial instruments |
25 |
199 |
32 |
|
Distribution rights |
16 |
13 |
7 |
|
|
|
1,643 |
4,312 |
|
Current assets |
|
|
|
|
Assets held for sale |
27 |
3 |
59 |
|
Programme rights and other inventory |
17 |
516 |
440 |
|
Trade and other receivables due within one year |
18 |
444 |
399 |
|
Trade and other receivables due after more than one year |
18 |
10 |
8 |
|
Trade and other receivables |
18 |
454 |
407 |
|
Derivative financial instruments |
25 |
19 |
4 |
|
Cash and cash equivalents |
22 |
616 |
498 |
|
|
|
1,608 |
1,408 |
|
Current liabilities |
|
|
|
|
Borrowings |
24 |
(259) |
(33) |
|
Derivative financial instruments |
25 |
(7) |
(1) |
|
Trade and other payables due within one year |
19 |
(748) |
(677) |
|
Trade and other payables due after more than one year |
20 |
(26) |
(9) |
|
Trade and other payables |
|
(774) |
(686) |
|
Current tax liabilities |
|
(56) |
(206) |
|
Provisions |
26 |
(43) |
(27) |
|
|
|
(1,139) |
(953) |
|
Net current assets |
|
469 |
455 |
|
Non-current liabilities |
|
|
|
|
Borrowings |
24 |
(1,264) |
(1,263) |
|
Derivative financial instruments |
25 |
(25) |
(9) |
|
Defined benefit pension deficit |
6 |
(178) |
(112) |
|
Net deferred tax liability |
9 |
(55) |
(75) |
|
Other payables |
21 |
(15) |
(65) |
|
Provisions |
26 |
(41) |
(4) |
|
|
|
(1,578) |
(1,528) |
|
Net assets |
|
534 |
3,239 |
|
Attributable to equity shareholders of the parent company |
|
|
|
|
Share capital |
29, 30 |
389 |
389 |
|
Share premium |
30 |
120 |
120 |
|
Merger and other reserves |
30 |
273 |
2,702 |
|
Translation reserve |
30 |
24 |
4 |
|
Available for sale reserve |
30 |
6 |
4 |
|
Retained earnings |
30 |
(286) |
14 |
|
Total attributable to equity shareholders of the parent company |
30 |
526 |
3,233 |
|
Minority interest |
30 |
8 |
6 |
|
Total equity |
30 |
534 |
3,239 |
The accounts were approved and authorised for issue by the Board of Directors on 4 March 2009 and were signed on its behalf by:
John Cresswell Ian Griffiths
Consolidated cash flow statement
|
|
|
|
2008 |
|
2007 |
|
|
For the year ended 31 December: |
Note |
£m |
£m |
£m |
£m |
|
|
Cash flows from operating activities |
|
|
|
|
|
|
|
Operating (loss)/profit before exceptional items |
|
(2,550) |
|
227 |
|
|
|
Depreciation of property, plant and equipment |
12 |
36 |
|
35 |
|
|
|
Amortisation and impairment of intangible assets |
13 |
2,761 |
|
84 |
|
|
|
Share based compensation |
7 |
10 |
|
15 |
|
|
|
Increase in programme rights and other inventory, and distribution rights |
16, 17 |
(82) |
|
(36) |
|
|
|
(Increase)/decrease in receivables |
|
(34) |
|
2 |
|
|
|
Increase /(decrease) in payables |
|
49 |
|
(10) |
|
|
|
Movement in working capital |
|
(67) |
|
(44) |
|
|
|
Cash generated from operations before exceptional items |
|
|
190 |
|
317 |
|
|
Cash flow relating to operating exceptional items: |
|
|
|
|
|
|
|
|
Operating loss |
5 |
(97) |
|
(35) |
|
|
|
Increase in payables and provisions* |
|
57 |
|
4 |
|
|
Cash outflow from exceptional items |
|
|
(40) |
|
(31) |
|
|
Cash generated from operations |
|
|
150 |
|
286 |
|
|
Defined benefit pension deficit funding |
|
(39) |
|
(33) |
|
|
|
Interest received |
|
40 |
|
44 |
|
|
|
Interest paid on bank and other loans |
|
(99) |
|
(103) |
|
|
|
Interest paid on finance leases |
24 |
(4) |
|
(3) |
|
|
|
Investment income received |
|
- |
|
1 |
|
|
|
Net taxation received |
|
43 |
|
18 |
|
|
|
|
|
|
(59) |
|
(76) |
|
|
Net cash flow from operating activities |
|
|
91 |
|
210 |
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
Acquisition of subsidiary undertakings, net of cash and cash equivalents acquired and debt repaid on acquisition |
28 |
(6) |
|
(29) |
|
|
|
Proceeds from sale of assets held for sale |
|
35 |
|
94 |
|
|
|
Proceeds from sale of property, plant and equipment |
|
1 |
|
4 |
|
|
|
Acquisition of property, plant and equipment |
|
(32) |
|
(37) |
|
|
|
Acquisition of intangible assets |
13 |
(21) |
|
(22) |
|
|
|
Acquisition of associates and investments |
14, 15 |
(3) |
|
(2) |
|
|
|
Loans granted to associates and joint ventures |
14 |
(26) |
|
(10) |
|
|
|
Loans repaid by associates and joint ventures |
14 |
20 |
|
2 |
|
|
|
Proceeds from sale of subsidiaries |
|
- |
|
5 |
|
|
|
Net cash flow from investing activities |
|
|
(32) |
|
5 |
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
Bank and other loans - amounts repaid |
22 |
(25) |
|
(441) |
|
|
|
Bank and other loans - amounts raised |
22 |
110 |
|
- |
|
|
|
Capital element of finance lease payments |
22 |
(6) |
|
(3) |
|
|
|
Dividends paid to minority interest |
|
- |
|
(2) |
|
|
|
Repayment of loan by employee benefit trust |
|
2 |
|
- |
|
|
|
Purchase of own shares via employee benefit trust |
|
- |
|
(11) |
|
|
|
Sale/(purchase) of held to maturity investments |
22 |
100 |
|
(100) |
|
|
|
Equity dividends paid |
10 |
(123) |
|
(122) |
|
|
|
Net cash inflow/(outflow) from financing activities |
|
|
58 |
|
(679) |
|
|
Net increase/(decrease) in cash and cash equivalents |
|
|
117 |
|
(464) |
|
|
Cash and cash equivalents at 1 January |
|
|
498 |
|
961 |
|
|
Effects of exchange rate changes and fair value movements on cash and cash equivalents |
|
|
1 |
|
1 |
|
|
Cash and cash equivalents at 31 December |
|
|
616 |
|
498 |
|
* Includes £nil (2007: £2 million) relating to expenditure against provisions held in respect of activities which have been previously discontinued.
Consolidated statement of recognised income and expense
|
For the year ended 31 December: |
Note |
2008 |
2007 |
|
|
Exchange differences on translation of foreign operations |
|
16 |
2 |
|
|
Revaluation of available for sale investments |
|
2 |
3 |
|
|
Disposal and impairment transferred from available for sale reserve to income statement |
|
- |
(16) |
|
|
Movements in respect of cash flow hedges |
|
4 |
5 |
|
|
Actuarial (losses)/gains on defined benefit pension schemes |
6 |
(124) |
111 |
|
|
Taxation on items taken directly to equity |
9 |
35 |
(47) |
|
|
Net (expense)/income recognised directly in equity |
|
(67) |
58 |
|
|
(Loss)/profit for the year |
|
(2,554) |
138 |
|
|
Total recognised income and expense for the year |
30 |
(2,621) |
196 |
|
|
Attributable to: |
|
|
|
|
|
|
Equity shareholders of the parent company |
30 |
(2,623) |
195 |
|
|
Minority interests |
30 |
2 |
1 |
|
Total recognised income and expense for the year |
30 |
(2,621) |
196 |
|
Notes to the accounts
1 Accounting policies
1.1) Basis of preparation
The Group accounts consolidate those of ITV plc, ('the Company'), a company domiciled in the United Kingdom and its subsidiaries (together referred to as 'the Group') and the Group's interests in associates and jointly controlled entities.
As required by EU law (IAS Regulation EC 1606/2002) the Group's accounts have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU ('IFRS').
The accounts are principally prepared on the historical cost basis. Areas where other bases are applied are identified in the accounting policies below.
The Company has elected to prepare its parent company financial statements in accordance with UK GAAP.
The disclosures in respect of going concern included in the Financial Review form part of the audited accounts.
The Group early adopted IFRS 8 'Operating segments' in 2007, the effect of which was disclosed in the prior year. The Group has adopted IFRIC 11 'IFRS 2 -Group and treasury share transactions' at 1 January 2008. IFRIC 11 provides guidance on whether share-based transactions involving group entities should be accounted for as equity settled or cash settled transactions, and addresses issues concerning share-based payment arrangements that involve two or more entities within the same group. The Group has also adopted IFRIC 14 'IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction' at 1 January 2008. IFRIC 14 provides additional guidance on assessing the amount that can be recognised as an asset of a defined benefit pension surplus and as a consequence the amount of deferred tax on that surplus. Neither of these interpretations have had a material impact on Group's results at 31 December 2008 or in previous years.
The accounting policies set out below, except as noted above, have been applied consistently in presenting the consolidated financial information.
1.2) Revenue recognition
Revenue is stated exclusive of VAT and consists of sales of goods and services to third parties. Revenue from the sale of goods is recognised when the Group has transferred the significant risks and rewards of ownership and control of the goods sold and the amount of revenue can be measured reliably. Key classes of revenue are recognised on the following bases:
|
Advertising and sponsorship |
on transmission |
|
Programme production |
on delivery |
|
Programme rights |
when contracted and available for exploitation |
|
Participation revenues |
as the service is provided |
Revenue on barter transactions is recognised only when the goods or services being exchanged are of a dissimilar nature.
1.3) Segmental analysis
In accordance with IFRS 8, operating segments are reported in a manner that is consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Management Committee. The Management Committee comprises the executive directors.
1.4) Subsidiaries, associates and joint ventures
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 so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account.
A joint venture is an entity in which the Group holds an interest under a contractual arrangement where the Group and one or more other parties undertake an economic activity that is subject to joint control. The Group accounts for its interests in joint ventures using the equity method.
An associate is an entity, other than a subsidiary or joint venture, over which the Group has significant influence. Significant influence is the power to participate in the financial and operating decisions of an entity but is not control or joint control over those policies. These investments are accounted for using the equity method.
1.5) 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 consumption 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.
1.6) Accounting estimates and judgements
The preparation of financial statements in conformity with IFRSs requires management to exercise judgement in the process of 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. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
The areas involving a higher degree of judgement or complexity, or where the most sensitive estimates and assumptions are significant to affecting the financial statements are set out in accounting policies 1.7 - 1.14 below:
1.7) Intangible assets
Business combinations and goodwill All business combinations that have occurred since 1 January 2004 are accounted for by applying the purchase method. Goodwill represents the difference between the cost of the acquisition and the fair value of the identifiable net assets acquired. Subsequent adjustments to the fair values of net assets acquired are made within 12 months of the acquisition date where original fair values were determined provisionally. These adjustments are accounted for from the date of acquisition.
For business combinations prior to this date, but after 30 September 1998, goodwill is included at its deemed cost, which represents the amount recorded under UK GAAP at that time less amortisation up to 31 December 2003. The classification and accounting treatment of business combinations occurring prior to 1 January 2004, the date of transition to IFRS, has not been reconsidered as permitted under IFRS 1. Goodwill is stated at its recoverable amount being cost less any accumulated impairment losses and is allocated to cash-generating units.
Goodwill arising on acquisitions prior to 30 September 1998 was recognised as a deduction from equity.
Other intangible assets Other intangible assets acquired by the Group are stated at cost less accumulated amortisation except those identifiable intangible assets acquired as part of a business combination which are shown at fair value at the date of acquisition (in accordance with IFRS 3 (Business Combinations)) less accumulated amortisation. Identifiable intangible assets are those which can be sold separately or which arise from legal rights.
In determining the fair value of intangible assets arising on acquisition the directors are required to make judgements regarding the timing and amount of future cash flows applicable to the businesses being acquired, discounted using an appropriate discount rate. Such judgements are based on current budgets and forecasts, extrapolated for an appropriate period taking into account growth rates, expected changes to selling prices, operating costs and the expected useful lives of assets following purchase. Judgements are also made regarding whether and for how long licences will be renewed. The directors estimate the appropriate discount rate using post tax rates that reflect current market assessments of the time value of money and the risks specific to the businesses being acquired.
Amortisation Amortisation is charged to the income statement over the estimated useful lives of intangible assets unless such lives are judged to be indefinite. Goodwill is not amortised but is tested for impairment at each balance sheet date. The estimated useful lives and amortisation methods for each major class of intangible asset are as follows:
|
Film libraries |
Sum of digits |
20 years |
|
Licences |
Straight line |
11 to 17 years |
|
Brands |
Straight line |
up to 11 years |
|
Customer contracts |
Straight line |
up to 6 years |
|
Customer relationships |
Straight line |
5 to 10 years |
|
Software development costs |
Straight line |
1 to 5 years |
From 1 January 2008, the Group changed its estimated useful life for amortising capitalised website development costs, from 3 years to 1 year based on its experience of the pace of change in this area. The change has been applied prospectively from the start of 2008 because it was a change in accounting estimate rather than policy. The effect on the current year is to increase amortisation expense by £3 million with an estimated decrease to the amortisation charge in 2009 of £2 million.
1.8) Impairment of assets
Non-financial assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Non-financial assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised in the income statement for the amount by which the asset's carrying amount exceeds its recoverable amount. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. The value in use is based on the discounted present value of the future cash flows expected to arise from the cash generating unit to which the asset relates. Estimates are used in deriving these cash flows and the discount rate that reflects current market assessments of the risks specific to the asset and the time value of money. The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent with the application of the intangible asset accounting policies affect the amounts reported in the financial statements. In particular, 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 recognised in respect of cash generating units are allocated first to reduce the carrying amount of goodwill allocated to those units, and then to reduce the carrying amount of other assets in the unit on a pro-rata basis.
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. Impairment losses in respect of goodwill are not reversed.
1.9) Programme rights
Where programming, sports rights and film rights are acquired for the primary purpose of broadcasting, these are recognised within current assets.
Assets are recognised when the Group controls, in substance, the respective assets and the risks and rewards associated with them. For acquired programme rights assets are recognised as payments are made and are recognised in full when the acquired programming is available for transmission. Programming produced internally, either for the purpose of broadcasting or to be sold in the normal course of the Group's operating cycle, is recognised within current assets at production cost.
Programme costs and rights, including those acquired under sale and leaseback arrangements, are written off to operating costs in full on first transmission except certain film rights and programming for digital channels which are written off over a number of transmissions. Programme costs and rights not yet written off are included in the balance sheet at the lower of cost and net realisable value. In assessing net realisable value consideration is given to the contracted sales price and estimated costs to complete for programmes in production, and the estimated airtime value of programme stock, sports rights and film rights. In assessing the airtime value of programme stock and film rights consideration is given to whether the number of transmissions purchased can be efficiently played out over the licence period. Any reversals of write downs for programme costs and rights are recognised as a reduction in operating costs.
Outstanding sale and leaseback obligations, which comprise the principal and accrued interest are included within borrowings. The finance element of the agreement is charged to the income statement over the term of the lease on a systematic basis. Sale and leaseback obligations are secured against an equivalent cash balance held within cash and cash equivalents.
1.10) Trade receivables
Trade receivables are recognised initially and subsequently at fair value. 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 according to their original terms.
1.11) Taxation
The tax charge for the period comprises both current and deferred tax and is based on tax rates that are enacted or substantively enacted at the balance sheet date. Taxation is recognised in the income statement except to the extent that it relates to items recognised directly in equity.
Current tax is the expected tax payable on the taxable income for the year and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method on any temporary differences between the carrying amounts 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.
The Group recognises liabilities for anticipated tax issues based on estimates of the additional taxes that are likely to become due which requires judgement. Amounts are accrued based on management's interpretation of specific tax law and the likelihood of settlement. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
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.
1.12) Employee benefits
Defined contribution schemes Obligations under the Group's defined contribution schemes are recognised as an expense in the income statement as incurred.
Defined benefit schemes The Group's obligation in respect of defined benefit pension schemes is calculated separately for each scheme by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value and the fair value of scheme assets is deducted. The discount rate used is the yield at the valuation date on high quality corporate bonds. The Group takes advice from independent actuaries relating to the appropriateness of the assumptions which include life expectancy of members, expected salary and pension increases, inflation and the return on scheme assets. It is important to note, however, that comparatively small changes in the assumptions used may have a significant effect on the income statement and balance sheet. The calculations are performed by a qualified actuary using the projected unit credit method. Actuarial gains and losses are recognised in full in the period in which they arise through the statement of recognised income and expense.
Share-based compensation The Group operates a number of share-based compensation schemes. The fair value of the equity instrument is measured at grant date and spread over the vesting period through the income statement with a corresponding increase in equity. The fair value of the share options and awards is measured using either a Monte Carlo or Black-Scholes model as appropriate taking into account the terms and conditions of the individual scheme. Under these valuation methods, the share price for ITV plc is projected to the end of the performance period as is the Total Shareholder Return for ITV plc and the companies in the comparator group. Based on these projections, the number of awards that will vest and their present value is determined. The valuation of these share-based payments also requires estimates to be made in respect of the number of options that are expected to be exercised. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet date, the Group revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.
1.13) Derivative financial instruments and hedging activities
The Group uses a limited number of derivative financial instruments to hedge its exposure to fluctuations in interest and other foreign exchange rates. The Group does not hold or issue derivative instruments for speculative purposes.
Derivative financial instruments are initially recognised at fair value and are subsequently remeasured at fair value with the movement recorded in the income statement.
The fair value of foreign currency forward contracts is determined by using forward exchange market rates at the balance sheet 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 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 Group's derivatives. The valuation techniques use inputs such as interest rate yield curves and currency prices/yields, volatilities of underlying instruments and correlations between inputs.
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in equity. Any ineffective portion of the hedge is recognised immediately in the income statement.
For financial assets and liabilities designated at fair value through profit or loss the fair value change and interest income/expense are not separated.
1.14) Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation arising from past events, it is probable that an outflow of economic benefits will be required to settle the obligation and that the amount can be measured reliably. Provisions are determined by discounting the expected future cash flows by a rate which reflects current market assessments of the time value of money and the risks specific to the liability based on an appropriate gilt rate. These provisions are estimates for which the amount and timing of actual cash flows are dependent on future events.
1.15) Property, plant and equipment
Owned assets Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Certain items of property, plant and equipment that had been revalued to fair value prior to 1 January 2004, the date of transition to IFRS, are measured on the basis of deemed cost, being the revalued amount less depreciation up to the date of transition.
Leases Finance leases are those which transfer substantially all the risks and rewards of ownership to the lessee. Assets held under such leases are capitalised within property, plant and equipment and depreciation is provided as appropriate. 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 a systematic basis.
All other leases are operating leases, the rentals on which are charged to the income statement on a straight line basis over the lease term.
Depreciation Depreciation is provided to write off the cost of property, plant and equipment less estimated residual value on a straight line basis over their estimated useful lives. The annual depreciation charge is sensitive to the estimated useful life of each asset and the expected residual value at the end of its life. The major categories of property, plant and equipment are depreciated as follows:
|
Freehold land |
not depreciated |
|
Freehold buildings |
up to 60 years |
|
Leasehold properties/improvements |
shorter of residual lease term or 60 years |
|
Vehicles, equipment and fittings |
3 to 20 years |
1.16) Distribution rights
Programme rights acquired primarily for the purposes of distribution are classified within the balance sheet as non-current assets. They are recognised initially at cost and charged through the income statement over either a three or five year period depending on genre. The estimated lives are based on historical experience with similar rights as well as anticipation of future events.
1.17) Available for sale financial assets
Available for sale financial assets comprise gilts and equity securities which do not meet the definition of subsidiaries, joint ventures or associates.
They are stated at fair value, with any resultant gain or loss recognised directly in the available for sale reserve in equity, unless the loss is a permanent impairment when it is recorded in the income statement.
1.18) Foreign currencies
Functional and presentational currency Items included in the financial statements in each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in pounds sterling ('£'), which is the Company's functional and presentational currency.
Foreign currency transactions Transactions in foreign currencies are translated into the functional currency of the respective Group entity 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 the functional currency of the respective Group entity at the rate of exchange ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities measured at historical cost are translated into sterling at the rate of exchange on the date of the transaction.
Financial statements of foreign operations The assets and liabilities of foreign operations are translated into the functional currency of the respective group entity at the rate of exchange ruling at the balance sheet date. The revenues and expenses of foreign operations are translated into the functional currency of the respective group entity at the average rate of exchange ruling during the financial period. Exchange differences arising on translation are recognised directly in the translation reserve in equity.
Net investment in foreign operations Exchange differences arising on the translation of the net investment in foreign operations are taken directly to the translation reserve within equity.
In respect of all foreign operations only those translation differences arising since 1 January 2004, the date of transition to IFRS, are presented as a separate component of equity as permitted under IFRS 1. On disposal of an investment in a foreign operation the associated translation reserve balance is released to the income statement.
1.19) Exceptional items
Exceptional items, as disclosed on the face of the income statement, are items which due to their material and non-recurring nature have been classified separately in order to draw them to the attention of the reader of the accounts and, in management's judgement, to show more accurately the underlying profits of the Group.
1.20) Cash and cash equivalents
Cash and cash equivalents comprises cash balances, call deposits with maturity of less than or equal to three months from the date of acquisition, cash held to meet certain finance lease commitments and gilts over which unfunded pension promises have a charge.
1.21) Trade payables
Trade payables are recognised initially and subsequently at fair value.
1.22) Borrowings
Borrowings are recognised initially at fair value, and in subsequent periods at amortised cost. The difference between cost and redemption value is recorded in the income statement over the period of the liability on an effective interest basis.
Where the Group has identified that any such liabilities result in a mismatch between the accounting liability and the related derivative, the Group has adopted the fair value option provision of IAS 39 (revised) to eliminate this accounting mismatch. Management consider that this fair value treatment is more appropriate than amortised cost as the movements in these financial instruments largely offset each other and, as a result, they are managed on an aggregated basis. The effect of this is that the Group recognises any such financial liabilities at fair value in all periods subsequent to initial recognition, with resultant gains or losses recorded in the income statement.
1.23) Non-current assets held for sale and discontinued operations
Non-current assets or disposal groups are classified as held for sale if their carrying amount will be recovered principally through sale rather than continuing use, they are available for immediate sale and sale is highly probable.
On initial classification as held for sale, non-current assets or disposal groups are measured at the lower of their previous carrying amount and fair value less costs to sell.
No amortisation or depreciation is charged on non-current assets (including those in disposal groups) classified as held for sale. Assets classified as held for sale are disclosed separately on the face of the balance sheet and classified as current assets or liabilities with disposal groups being separated between assets held for sale and liabilities held for sale.
1.24) ITV shares held by Employee Benefit Trust (EBT)
Transactions of the Group-sponsored EBT are included in the Group's accounts. In particular, the EBT's purchases of shares in ITV plc are debited directly to equity.
1.25) Dividends
Dividends are recognised through equity in the period in which they are declared and, if required, approved by the Company's shareholders.
1.26) Investment income
Investment income comprises dividends received from the Group's investments. Dividend income is recognised in the income statement on the date the Group's right to receive payment is established.
1.27) Net financing costs
Net financing costs principally comprise interest payable, foreign exchange gains/losses, finance charges on finance leases, interest receivable on funds invested, gains and losses on hedging instruments that are recognised in the income statement, the difference between cost and redemption value of borrowings and the expected return on pension scheme assets net of the interest cost on liabilities.
1.28) Application of new EU endorsed accounting standards, amendments to existing EU endorsed standards and interpretations
|
New standards, amendments and interpretations endorsed by the EU and effective in 2008 |
||
|
Relevant to the Group's results |
||
|
IFRIC 11 |
IFRS 2 - Group and treasury share transactions |
This interpretation provides guidance on whether share-based transactions involving group entities should be accounted for as equity settled or cash settled transactions, and addresses issues concerning share-based payment arrangements that involve two or more entities within the same group. |
|
IFRIC 14 |
IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction. |
This interpretation applies to all post-employment defined benefits and other long-term employee defined benefits. The interpretation addresses when refunds or reductions in future contributions should be regarded as available in accordance with IAS 19, how a minimum funding requirement might affect the availability of reductions in future contributions and when a minimum funding requirement might give rise to a liability. |
|
These interpretations have had no material effect on the Group's results in 2008 or previous years. |
||
|
Not relevant to the Group's results |
||
|
IFRIC 13 |
Customer loyalty programmes. |
Where a customer loyalty programme operates, IFRIC 13 requires an entity to separate sales revenue into revenue from sale of the goods or services and revenue from sale of the loyalty points, with the latter being deferred until the loyalty points are redeemed. |
|
IAS 39 and IFRS 7 |
Amendment to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures. |
An amendment to the Standards, issued in October 2008, permits an entity to reclassify non-derivative financial assets (other than those designated at fair value through profit or loss by the entity upon initial recognition) out of the fair value through profit or loss category in particular circumstances. |
|
New standards, amendments and interpretations endorsed by the EU but not yet effective |
||
|
Relevant to the Group's results |
||
|
Improvements to IFRS |
The Improvements to IFRS contain 24 amendments that result in accounting changes for presentation, recognition or measurement purposes. The effective dates and transitional requirements are set out on a standard by standard basis. In addition there are 11 terminology or editorial amendments that are expected to have no or only minimal effects on accounting. |
An amendment to IAS 10 'Events after the Reporting Period' states that if dividends are declared (ie the dividends are appropriately authorised and no longer at the discretion of the entity) after the reporting period but before the financial statements are authorised for issue, the dividends are not recognised as a liability at the end of the reporting period because no obligation exists at that time. Such dividends are disclosed in the notes in accordance with IAS 1 Presentation of Financial Statements. This will affect the timing of the recognition of the Group's interim dividend. |
|
IFRS 2 |
Amendment to IFRS 2 Share-Based Payment: Vesting Conditions and Cancellations. |
The definition of vesting conditions in IFRS 2 has been amended to clarify that vesting conditions are limited to service conditions and performance conditions. Conditions other than service or performance conditions are considered non-vesting conditions. |
|
IAS 1 |
Amendments to IAS 1 Presentation |
The Group will be required to present both a statement of comprehensive income and a statement of changes in equity as financial statements. The statement of comprehensive income effectively replaces the current statement of recognised income and expense (SORIE). This represents a change from the current requirement to present only one financial statement: a SORIE or a statement of all changes in equity. |
1.28) Application of new EU endorsed accounting standards, amendments to existing EU endorsed standards and interpretations (continued)
|
Not relevant to the Group's results |
||
|
IAS 23 |
Amendment to IAS 23 Borrowing costs. |
The revision of IAS 23 removes the option of immediately recognising an expense for borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. A qualifying asset is one that takes a substantial period of time to get ready for use or sale. The effect on the Group is not expected to be material. |
|
IFRS 1 and IAS 27 |
Amendments to IFRS 1 and IAS 27 - Cost of an investment in a subsidiary, jointly-controlled entity or associate. |
The amendments require all dividends from a subsidiary, jointly-controlled entity or associate to be recognised as income when the right to receive the dividend is established. A consequential amendment to IAS 36 outlines when the receipt of dividend income is deemed to be an indicator of impairment. |
|
IAS 32 and IAS 1 |
Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements. |
The amendments provide exemptions from the requirement to classify as a liability, financial instruments under which an entity has an unavoidable obligation to deliver cash. |
2 Operating segmental information
The Management Committee considers the business primarily from a product perspective. The reportable segments are therefore Broadcasting, Global Content, Online and Other. All of the segments reported meet the quantitative thresholds required by IFRS 8, which the Group first adopted in 2007.
Management has determined the reportable segments based on the reports reviewed by the Management Committee. The Management Committee comprises the executive directors.
Broadcasting is responsible for commissioning and scheduling programmes on the ITV channels, marketing and programme publicity. It derives its revenue primarily from the sale of advertising airtime and sponsorship. Other sources of revenue are from premium rate services and the digital terrestrial multiplex SDN. The Broadcasting segment also includes the investment in stv group plc (formerly SMG plc).
Global Content derives its revenue primarily from ITV Studios in the UK (a commercial production company), international production centres in America, Germany, Sweden and Australia and the businesses in ITV Global Entertainment ('IGEL'). A proportion of revenue is generated internally via programme sales to the Broadcasting segment. IGEL sells programming and exploits merchandising and licensing worldwide, and is a distributor of DVD entertainment in the UK.
Online derives its revenue from two main areas: broadband and mobile. Broadband includes itvlocal.com, itv.com and Friends Reunited. Mobile manages ITV's mobile portal and arranges distribution of ITV's channels and content on mobile networks.
Other comprises the Group's 100% interest in Carlton Screen Advertising ('CSA'), which sells cinema screen advertising in the UK, and its 50% interest in Screenvision, which operates cinema screen advertising businesses in continental Europe and the United States.
The segment information provided for the reportable segments for the years ended 31 December 2008 and 31 December 2007 is as follows:
|
|
Broadcasting |
Global Content |
Online |
Other |
Consolidated |
|||||
|
|
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
|
Total segment revenue |
1,652 |
1,750 |
622 |
564 |
36 |
33 |
40 |
67 |
2,350 |
2,414 |
|
Intersegment revenue |
(5) |
(12) |
(316) |
(320) |
- |
- |
- |
- |
(321) |
(332) |
|
Revenue from external customers |
1,647 |
1,738 |
306 |
244 |
36 |
33 |
40 |
67 |
2,029 |
2,082 |
|
EBITA before exceptional items |
140 |
244 |
90 |
90 |
(20) |
(12) |
1 |
(11) |
211 |
311 |
|
Share of (loss)/profit from joint ventures and associated undertakings |
- |
(2) |
- |
- |
(4) |
2 |
(11) |
2 |
(15) |
2 |
|
Total segment assets |
1,589 |
3,934 |
645 |
590 |
115 |
419 |
65 |
84 |
2,414 |
5,027 |
|
Total assets include: Investments in associates and joint ventures |
14 |
12 |
1 |
4 |
- |
2 |
51 |
61 |
66 |
79 |
|
Additions to non-current assets (other than financial instruments) |
29 |
46 |
44 |
68 |
8 |
8 |
10 |
1 |
91 |
123 |
|
Total segment liabilities |
(492) |
(389) |
(294) |
(226) |
(27) |
(74) |
(5) |
(18) |
(818) |
(707) |
Sales between segments are carried out at arm's length. The revenue from external parties reported to the Management Committee is measured in a manner consistent with the income statement. Income statement and balance sheet allocations between reportable segments are performed on a consistent basis with the exception of pension costs, which are allocated, and pension assets and liabilities, which are not. This reflects the basis of reporting to the Management Committee.
The Management Committee assesses the performance of the reportable segments based on a measure of EBITA before exceptional items. This measurement basis excludes the effect of non-recurring income and expenditure. Amortisation, investment income and share of profits of joint ventures and associates are also excluded as they are not reflective of the underlying business. Net financing costs are not allocated to segments as this type of activity is driven by the central treasury and taxation functions, which manage the cash and taxation position of the Group.
A reconciliation of EBITA before exceptional items to (loss)/profit before tax is provided as follows:
|
|
2008 |
2007 |
|
EBITA before exceptional items |
211 |
311 |
|
Operating exceptional items |
(97) |
(35) |
|
Amortisation and impairment of intangible assets |
(2,761) |
(84) |
|
Net financing costs |
(60) |
(33) |
|
Share of (losses)/profits of joint ventures and associated undertakings |
(15) |
2 |
|
Investment income |
1 |
1 |
|
Gain on sale, net of impairment, of properties (exceptional items) |
(17) |
9 |
|
Gain on sale, net of impairment, of subsidiaries and investments (exceptional items) |
6 |
17 |
|
(Loss)/profit before tax |
(2,732) |
188 |
The amounts provided to the Management Committee with respect to total assets are measured in a manner consistent with that of the financial statements. These assets are allocated based on the operations of the segment.
Reportable segments' assets are reconciled to total assets as follows:
|
|
2008 |
2007 |
|
Segment assets |
2,414 |
5,027 |
|
Unallocated: |
|
|
|
Held to maturity investments |
- |
100 |
|
Assets held for sale |
3 |
59 |
|
Derivative financial instruments |
218 |
36 |
|
Cash and cash equivalents |
616 |
498 |
|
Total assets per the balance sheet |
3,251 |
5,720 |
The amounts provided to the Management Committee with respect to total liabilities are measured in a manner consistent with that of the financial statements. These liabilities are allocated based on the operations of the segment.
Reportable segments' liabilities are reconciled to total liabilities as follows:
|
|
2008 |
2007 |
|
Segment liabilities |
818 |
707 |
|
Unallocated: |
|
|
|
Interest accruals |
30 |
23 |
|
Derivative financial instruments |
32 |
10 |
|
Borrowings |
1,523 |
1,296 |
|
Current tax liabilities |
56 |
206 |
|
Net deferred tax liability |
55 |
75 |
|
Dividends |
25 |
52 |
|
Defined benefit pension deficit |
178 |
112 |
|
Total liabilities per the balance sheet |
2,717 |
2,481 |
The Group's principal operations are in the United Kingdom. Its revenue from external customers in the United Kingdom is £1,821 million (2007: £1,929 million), and the total revenue from external customers in other countries is £208 million (2007: £153 million).
The total of non-current assets other than financial instruments, deferred tax assets, and employment benefit assets (there are no rights arising under insurance contracts) located in the UK is £1,443 million (2007: £4,279 million), and the total of these non-current assets located in other countries is £1 million (2007: £1 million).
Revenues of approximately £382 million (2007: £382 million), £236 million (2007: £250 million) and £222 million (2007: £258 million) are derived from three external customers. The Group's major customers are all media buying agencies. These revenues are attributable to the Broadcasting, Online and Other segments and are from the only customers which individually represent over 10% of the Group's revenues.
3 Staff costs
|
|
2008 |
2007 |
|
Wages and salaries |
287 |
260 |
|
Social security and other costs |
36 |
31 |
|
Share-based compensation (see note 7) |
10 |
15 |
|
Pension costs |
14 |
18 |
|
Total |
347 |
324 |
Staff costs in the current year have increased by £23 million, including £8 million due to the year on year effect of acquisitions and business expansion and £6 million due to certain staff costs no longer charged directly to programmes.
In addition, staff costs within exceptional items were £26 million (2007: £4 million) principally relating to redundancy payments and reorganisation costs. Total staff costs including exceptional items for the year ended 31 December 2008 are £373 million (2007: £328 million). In addition to the pension operating cost shown above is a net credit to net financing costs of £16 million (2007: credit of £18 million) and a net debit to retained earnings in respect of actuarial losses of £124 million (2007: gains of £111 million).
The weighted average number of employees employed by the Group during the year was:
|
|
2008 |
2007 |
|
Broadcasting |
2,747 |
2,785 |
|
Global Content |
2,338 |
2,444 |
|
Online |
373 |
286 |
|
Other |
139 |
185 |
|
Total |
5,597 |
5,700 |
4 Total operating costs
|
|
2008 |
2007 |
|
Staff costs |
|
|
|
Before exceptional items |
347 |
324 |
|
Exceptional items |
26 |
4 |
|
|
373 |
328 |
|
Depreciation, amortisation and impairment |
|
|
|
Amortisation and impairment |
2,761 |
84 |
|
Depreciation |
36 |
35 |
|
Impairment of assets held for sale |
- |
5 |
|
|
2,797 |
124 |
|
Other operating costs |
|
|
|
Broadcasting schedule costs |
1,125 |
1,087 |
|
Broadcasting transmission costs |
94 |
85 |
|
Broadcasting industry costs |
44 |
37 |
|
Licence fees |
30 |
44 |
|
CSA direct costs |
33 |
63 |
|
Global Content non-staff costs |
217 |
159 |
|
Online non-staff costs |
42 |
35 |
|
Operating lease costs |
19 |
19 |
|
Other operating exceptional items |
71 |
31 |
|
Audit and non-audit fees paid to KPMG Audit Plc (see below) |
2 |
2 |
|
Other |
55 |
106 |
|
|
1,732 |
1,668 |
|
Less: Staff costs and other costs charged to broadcasting schedule costs |
(226) |
(230) |
|
Total operating costs |
4,676 |
1,890 |
Global Content non-staff costs are net of the recharge for programmes supplied to ITV Broadcasting channels (which is eliminated on consolidation as internal turnover).
The Group engages KPMG Audit Plc ('KPMG') on assignments additional to their statutory audit duties where their expertise and experience with the Group are important.
Fees paid to KPMG during the year are set out below:
|
|
2008 |
2007 |
|
|
Fees payable to KPMG for the audit of the Group's annual accounts |
0.9 |
0.8 |
|
|
Fees payable to KPMG and its associates for other services: |
|
|
|
|
|
The audit of the Group's subsidiaries pursuant to legislation |
0.2 |
0.2 |
|
|
Other services supplied pursuant to legislation |
0.1 |
0.1 |
|
|
Other services relating to taxation |
0.5 |
0.4 |
|
|
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 |
0.6 |
0.3 |
|
|
All other services |
- |
0.1 |
|
Total |
2.3 |
1.9 |
|
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.
5 Exceptional items
|
|
|
2007 |
|
|
Operating exceptional items: |
|
|
|
|
|
Reorganisation and restructuring costs |
(40) |
(8) |
|
|
PRS reimbursements and fines |
(6) |
(18) |
|
|
Onerous contract provisions |
(50) |
(9) |
|
|
Kangaroo |
(1) |
- |
|
|
(97) |
(35) |
|
|
Non-operating exceptional items: |
|
|
|
|
|
Gain on sale, net of impairment, of properties |
(17) |
9 |
|
|
Gain on sale, net of impairment, of subsidiaries and investments |
17 |
43 |
|
|
Impairment of available for sale financial assets |
(7) |
(26) |
|
|
Kangaroo |
(4) |
- |
|
|
(11) |
26 |
|
|
Total exceptional items before tax |
(108) |
(9) |
|
2008
In 2008 a charge of £40 million was incurred in respect of reorganisation and restructuring costs. This includes £18 million related to Regional News and £22 million as a result of other efficiency programmes.
On 8 May 2008, Ofcom announced a fine to ITV of £6 million in respect of breaches of the programme code relating to premium rate services on ITV1 and ITV2. At the date of approval of the 2007 accounts, the regulator had not yet confirmed the level of any fine that might have been imposed in this context. Therefore no provision for a fine was able to be included in the 2007 accounts.
Provisions in respect of onerous contracts for sports rights of £50 million were put in place in 2008 as a consequence of the forecast significant decline in the advertising market over the life of those contracts.
An impairment of £14 million was charged on the Manchester properties prior to their reclassification from assets held for sale to fixed assets and an impairment of £3 million has been charged on the remaining property classified in assets held for sale.
During the year, as part of the ongoing process to dispose of non-core businesses and investments, the Group sold its 50% interests in Arsenal Broadband Limited and Liverpool FC.tv Limited, resulting in gains of £12 million and £13 million respectively. These and other smaller gains were partially offset by £9 million of closure costs relating to CSA and a £3 million impairment in the Group's investment in Screenvision Holdings (Europe) Limited both of which are disclosed in the 'other' reporting segment.
An impairment of the holding in stv group plc, which is held in the Broadcasting segment, of £7 million (2007: £26 million) was made following a significant and sustained decline in its share price.
A summary of the 2008 Kangaroo operating and exceptional costs is included in the table below:
|
Kangaroo costs |
Accounting treatment |
2008 |
|
Impairment of intangible fixed assets |
Operating exceptional costs |
1 |
|
Impairment of investment in joint venture |
Non-operating exceptional costs |
4 |
|
Exceptional Kangaroo costs |
|
5 |
|
Kangaroo losses included in Online Segment |
Operating costs |
3 |
|
Total Kangaroo costs in 2008 |
|
8 |
In 2009 ITV expects to incur £1 million of operating costs and £3 million of closure costs, which will be shown as operating exceptional costs, in respect of Kangaroo.
2007
In 2007 a charge of £8 million was incurred in respect of reorganisation and restructuring costs including £4 million in respect of costs associated with the operating review savings which formed part of a larger project.
Provisions in respect of onerous contracts associated with CSA (£9 million) were put in place in 2007.
A net gain of £9 million was recognised from the sale of properties. A gain of £17 million was recognised from the sale of subsidiaries and investments net of impairment of investments. This included the profits on disposal of the stakes in Arsenal Holdings plc and the option over the investment in Arsenal Broadband Limited (£28 million), the investment in Liverpool Football Club and Athletic Grounds plc (£7 million), the stake in Independent Television Facilities Centre Limited (£5 million) and the stake in MUTV Limited (£3 million) and an impairment of the holding in stv group plc, which is held in the Broadcasting segment, (£26 million) following a significant and sustained decline in its share price.
Operating exceptional items included £18 million in respect of reimbursements, fines and other costs associated with issues arising on the use of premium rate interactive services in programming on ITV (£10 million) and GMTV (£8 million).
6 Pension schemes
The Group operates both defined benefit and defined contribution pension schemes.
The pension scheme assets are held in a separate trustee-administered fund to meet long-term pension liabilities to past and present employees. The trustees of the fund are required to act in the best interest of the fund's beneficiaries. The appointment of trustees to the fund is determined by the scheme's trust documentation.
Defined contribution schemes
Total contributions recognised as an expense in relation to defined contribution schemes during 2008 were £4 million (2007: £3 million).
Defined benefit schemes
The Group provides retirement benefits to some of its former and approximately 25% of its current monthly paid employees through defined benefit schemes. The Group's main scheme was formed from a merger of a number of schemes on 31 January 2006. The level of retirement benefit is principally based on basic salary at retirement.
The liabilities of the defined benefit scheme are measured by discounting the best estimate of future cash flows to be paid out by the scheme using the projected unit method. This amount is reflected in the deficit in the balance sheet. The projected unit method is an accrued benefits valuation method in which the scheme liabilities make allowance for projected earnings. The accumulated benefit obligation is an actuarial measure of the present value of benefits for service already rendered but differs from the projected unit method in that it includes an allowance for early leaver statutory revaluation rather than projected earning increases. At the balance sheet date the accumulated benefit obligation was £2,310 million (2007: £2,550 million).
The assets and liabilities of all the Group's defined benefit pension schemes recognised in the balance sheet at 31 December 2008 under IAS 19 (as explained in detail in this note) were £2,161 million (2007: £2,491 million) and £2,339 million (2007: £2,603 million) respectively, resulting in a net deficit in the defined benefit schemes of £178 million (2007: £112 million).
An alternative method of valuation to the projected unit method is a solvency basis, often estimated using the cost of buying out benefits at the balance sheet date with a suitable insurer. This amount represents the amount that would be required to settle the scheme liabilities at the balance sheet date rather than the Group continuing to fund the ongoing liabilities of the scheme. The Group estimates the shortfall in the amount required to settle the scheme's liabilities at the balance sheet date is £1,800 million (2007: £1,100 million).
The statutory funding objective is that the scheme has sufficient and appropriate assets to pay its benefits as they fall due. This is a long-term target. Future contributions will always be set at least at the level required to satisfy the statutory funding objective. The general principles adopted by the trustees are that the assumptions used, taken as a whole, will be sufficiently prudent for pensions and benefits already in payment to continue to be paid, and to reflect the commitments which will arise from members' accrued pension rights.
The Group's main scheme, formed by merger on 31 January 2006, consists of three sections, A, B and C. The first triennial valuation of section A was completed at 1 January 2008 by an independent actuary for the Trustees of the ITV Pension Scheme. The first triennial valuations of sections B and C were completed as at 1 January 2007. The Group will monitor funding levels annually.
The levels of ongoing contributions are based on the current service costs and the expected future cash flows of the defined benefit scheme. Normal employer contributions into the schemes in 2009 for current service are expected to be in the region of £11 million (2007: £11 million) assuming current contribution rates continue as agreed with the scheme trustees. In addition, deficit funding payments of £30 million per annum are expected for the next five years. The Group estimates that the present value of the duration of UK scheme liabilities, on average, fall due over 14 years (2007: 16 years).
The movement in the present value of the defined benefit obligation for these schemes is analysed below:
|
|
2008 |
2007 |
|
Defined benefit obligation at 1 January |
2,603 |
2,657 |
|
Current service cost |
12 |
15 |
|
Curtailment gain |
(2) |
- |
|
Interest cost |
146 |
134 |
|
Net actuarial gain |
(314) |
(96) |
|
Contributions by scheme participants |
6 |
5 |
|
Benefits paid |
(112) |
(112) |
|
Defined benefit obligation at 31 December |
2,339 |
2,603 |
The present value of the defined benefit obligation is analysed between wholly unfunded and funded defined benefit schemes in the table below:
|
|
2008 |
2007 |
|
Defined benefit obligation in respect of funded schemes |
2,309 |
2,567 |
|
Defined benefit obligation in respect of wholly unfunded schemes |
30 |
36 |
|
Total defined benefit obligation |
2,339 |
2,603 |
The movement in the fair value of the defined benefit scheme assets is analysed below:
|
|
2008 |
2007 |
|
Fair value of assets at 1 January |
2,491 |
2,372 |
|
Expected return on assets |
162 |
152 |
|
Net actuarial (loss)/gain |
(438) |
15 |
|
Employer contributions |
52 |
59 |
|
Contributions by scheme participants |
6 |
5 |
|
Benefits paid |
(112) |
(112) |
|
Fair value of assets at 31 December |
2,161 |
2,491 |
The assets and liabilities of the scheme are recognised in the balance sheet and shown within non-current liabilities. The total recognised is:
|
|
2008 |
2007 |
2006 |
2005 |
2004 |
|
Total defined benefit scheme assets |
2,161 |
2,491 |
2,372 |
2,072 |
1,685 |
|
Total defined benefit scheme obligations |
(2,339) |
(2,603) |
(2,657) |
(2,604) |
(2,357) |
|
Net amount recognised within the balance sheet |
(178) |
(112) |
(285) |
(532) |
(672) |
Amounts recognised through the income statement are as follows:
|
|
2008 |
2007 |
|
|
Amount charged to operating costs: |
|
|
|
|
|
Current service cost |
(12) |
(15) |
|
|
Curtailment gain |
2 |
- |
|
|
(10) |
(15) |
|
|
Amount credited/(charged) to net financing costs: |
|
|
|
|
|
Expected return on pension scheme assets |
162 |
152 |
|
|
Interest cost |
(146) |
(134) |
|
|
16 |
18 |
|
|
Total credited in the income statement |
6 |
3 |
|
The amounts recognised through the statement of recognised income and expense are:
|
|
2008 |
2007 |
|
|
Actuarial gains and (losses): |
|
|
|
|
|
Arising on scheme assets |
(438) |
15 |
|
|
Arising on scheme liabilities |
314 |
96 |
|
|
(124) |
111 |
|
The cumulative amount of actuarial gains and losses recognised through the statement of recognised income and expense since 1 January 2004 is an actuarial loss of £72 million (2007: £52 million gain).
Included within actuarial gains and losses are experience adjustments as follows:
|
|
2008 |
2007 |
2006 |
2005 |
2004 |
|
Experience adjustments on scheme assets |
(438) |
15 |
32 |
219 |
56 |
|
Experience adjustments on scheme liabilities |
- |
(18) |
(12) |
9 |
(70) |
At 31 December 2008 the scheme assets were invested in a diversified portfolio that consisted primarily of equity and debt securities.
The fair value of the scheme assets are shown below by major category:
|
|
Market |
Market |
|
Market value of assets - equities and property |
704 |
1,284 |
|
Market value of assets - bonds |
1,330 |
1,087 |
|
Market value of assets - other |
127 |
120 |
|
Total scheme assets |
2,161 |
2,491 |
Exposure through the different asset classes is obtained through a combination of executing swaps and investing in physical assets. Some of these bond investments are issued by the UK Government. The risk of default on these is very small compared to the risk of default on corporate bond investments, although some risk may remain. The trustees also hold corporate bonds and other fixed interest securities. There is a more significant risk of default on these which is assessed by various rating agencies. Over 2008, yields have increased significantly relative to gilts and this is partly attributed to an increase in default risk in respect of these bonds.
The trustees also have a substantial holding of equity investments. The investment return related to these is variable and they are generally considered much 'riskier' investments. It is generally accepted that the yield on equity investments will contain a premium ('the equity risk premium') to compensate investors for the additional risk of holding this type of investment. There is significant uncertainty about the likely size of the risk premium.
In respect of overseas equity investments there is an additional risk associated with the exposure to unfavourable currency movements. To reduce this risk, the Scheme aims to hedge broadly 60% of the overseas equity investment against currency movements.
The expected return for each asset class is weighted based on the target asset allocation for 2009 to develop the expected long-term rate of return on assets assumption for the portfolio.
The benchmark for 2009 is to hold broadly 47% equities and 53% bonds. The majority of the equities held by the scheme are in international blue chip entities. The aim is to hold a globally diversified portfolio of equities, with a target of broadly 22% of equities being held in the UK and 78% of equities held overseas. Within the bond portfolio the aim is to hold 58% of the portfolio in government bonds (gilts) and 42% of the portfolio in corporate bonds and other fixed interest securities.
The expected rates of return on plan assets by major category and target allocations for 2009 are set out below:
|
|
Expected long-term rate |
Planned asset allocation |
Expected long-term rate |
Planned asset allocation |
|
Equities and property |
7.5 |
47 |
7.7 |
55 |
|
Bonds |
3.6 - 6.3 |
53 |
4.4 - 5.9 |
45 |
|
Other |
n/a |
- |
n/a |
- |
The expected return on plan assets is based on market expectations at the beginning of the financial period for returns over the life of the related obligation. The expected yield on bond investments with fixed interest rates can be derived exactly from their market value.
The actual return on plan assets in the year ended 31 December 2008 was a decrease of £276 million (2007: increase of £167 million).
The principal assumptions used in the scheme valuations at the balance sheet date were:
|
|
2008 |
2007 |
|
Rate of general increase in salaries |
3.80% |
4.65% |
|
Rate of increase in pension payment (LPI 5% pension increases) |
2.70% |
3.30% |
|
Rate of increase to deferred pensions |
2.80% |
3.40% |
|
Discount rate for scheme liabilities |
6.30% |
5.70% |
|
Inflation assumption |
2.80% |
3.40% |
IAS 19 requires that the discount rate used be determined by reference to market yields at the balance sheet date on high quality fixed income investments. The currency and term of these should be consistent with the currency and estimated term of the post-employment obligations. The discount rate has been based on the yield available on AA rated corporate bonds of a term similar to the liabilities.
The expected rate of inflation is an important building block for salary growth and pension increase assumptions. A rate of inflation is 'implied' by the difference between the yields on fixed and index-linked Government bonds. However, differences in demand for these can distort this implied figure. The Bank of England target inflation rate has also been considered in setting this assumption.
The Group has used PA92 year of birth tables with medium cohort improvements, with a 1% per annum underpin and a one year age rating (i.e. tables are adjusted so that a member is assumed to be one year older than actual age). Using these tables the assumed life expectations on retirement are:
|
|
2008 |
2008 |
2007 |
2007 |
|
Retiring today at age |
60 |
65 |
60 |
65 |
|
Males |
26.5 |
21.6 |
24.4 |
19.8 |
|
Females |
29.8 |
24.8 |
27.4 |
22.8 |
|
|
|
|
|
|
|
Retiring in 20 years at age |
60 |
65 |
60 |
65 |
|
Males |
28.5 |
23.4 |
25.5 |
20.8 |
|
Females |
31.9 |
26.7 |
28.4 |
23.7 |
The tables above reflect published mortality investigation data in conjunction with the results of investigations into the mortality experience of scheme members. These tables differ from those used as at 31 December 2007 which were the PA92 tables with mortality projected to 2020 for pensioners and 2035 for non-pensioners using the standard (non-cohort) improvements. This change resulted in an increase in the assumed life expectations.
The sensitivities regarding the principal assumptions used to measure the scheme's liabilities are set out below. The illustrations consider the single change shown with the other assumptions assumed to be unchanged. In practice, changes in one assumption may be accompanied by offsetting changes in another assumption (although this is not always the case). The Company liability is the difference between the scheme liabilities and the scheme assets. Changes in the assumptions may occur at the same time as changes in the market value of scheme assets. These may or may not offset the change in assumptions. For example, a fall in interest rates will increase the scheme liability, but may also trigger an offsetting increase in the market value so there is no net effect on the Company liability.
|
Assumption |
Change in assumption |
Impact on scheme liabilities |
|
Discount rate |
Increase/decrease by 0.5% |
Decrease/increase by 7% |
|
Rate of inflation |
Increase/decrease by 0.5% |
Increase/decrease by 7% |
|
Rate of salary growth |
Increase/decrease by 0.5% |
Increase/decrease by 1% |
|
Rate of mortality |
Increase by 1 year |
Increase by 2% |
7 Share-based compensation
|
|
|
2008 |
|
2007 |
|
|
Number of options |
Weighted average exercise price |
Number of |
Weighted average exercise price |
|
Outstanding at 1 January |
131,803 |
79.46 |
165,185 |
86.67 |
|
Granted during the year - nil priced |
20,929 |
- |
34,758 |
- |
|
Granted during the year - other |
15,132 |
52.00 |
3,479 |
86.72 |
|
Forfeited during the year |
(15,295) |
52.99 |
(8,087) |
67.13 |
|
Exercised during the year |
(11,351) |
6.63 |
(28,469) |
34.50 |
|
Expired during the year |
(24,764) |
80.94 |
(35,063) |
74.73 |
|
Outstanding at 31 December |
116,454 |
71.88 |
131,803 |
79.46 |
|
Exercisable at 31 December |
42,057 |
151.48 |
51,818 |
147.88 |
The average share price during 2008 was 52.34 pence (2007: 105.73 pence).
|
|
2008 |
2007 |
||||
|
Range of exercise prices (pence) |
Weighted average exercise price |
Number of options |
Weighted average remaining contractual |
Weighted average exercise price |
Number of options |
Weighted average remaining contractual |
|
Nil |
- |
53,272 |
4.20 |
- |
59,206 |
2.69 |
|
50.00-69.99 |
53.80 |
14,106 |
3.54 |
63.37 |
5,784 |
1.82 |
|
70.00-99.99 |
84.95 |
4,546 |
2.68 |
54.59 |
8,434 |
3.79 |
|
100.00-109.99 |
101.96 |
12,032 |
2.04 |
101.94 |
13,808 |
2.90 |
|
110.00-119.99 |
114.55 |
11,957 |
5.73 |
114.62 |
16,218 |
6.69 |
|
120.00-149.99 |
133.63 |
6,367 |
3.97 |
132.37 |
10,713 |
5.31 |
|
200.00-249.99 |
217.78 |
1,201 |
1.98 |
217.78 |
1,357 |
2.98 |
|
250.00-299.99 |
270.25 |
12,882 |
1.54 |
269.13 |
16,192 |
2.36 |
|
300.00-385.99 |
385.31 |
91 |
1.40 |
385.31 |
91 |
2.40 |
Share schemes
Awards made under the Granada Media and Granada Commitment schemes, the Granada Media, Granada and Carlton Executive Share Option schemes, the Carlton Equity Participation Plan, and the Carlton Deferred Annual Bonus Plan have all reached the end of their various performance periods, and have vested or lapsed accordingly. Details of the performance criteria that applied to these awards have been detailed in the notes to previous accounts, and in previous Remuneration reports. The Granada, Carlton and ITV Sharesave schemes are Inland Revenue Approved SAYE schemes. Although some awards remain vested but unexercised under these Plans, they are not considered material for the purposes of disclosure again in this note.
Exercises can be satisfied by market purchase or by new issue shares. No new shares may be issued to satisfy exercises under the terms of the Deferred Share Award Plan. During the year all exercises were satisfied by using shares purchased in the market and held in the ITV Employees' Benefit Trust rather than by issuing new shares.
Assumptions relating to grants of share options during 2008 and 2007:
|
Scheme name |
Date of |
Share price |
Exercise |
Expected |
Expected life |
Gross dividend |
Risk free |
Fair value |
|
Sharesave |
|
|
|
|
|
|
|
|
|
ITV - three year |
05-Apr-07 |
111.10 |
86.60 |
25.00% |
3.25 |
2.84% |
5.25% |
33.00 |
|
ITV - five year |
05-Apr-07 |
111.10 |
86.60 |
25.00% |
5.25 |
2.84% |
5.12% |
36.00 |
|
ITV - three year |
04-Apr-08 |
65.00 |
52.00 |
25.00% |
3.25 |
2.84% |
3.93% |
17.00 |
|
ITV - five year |
04-Apr-08 |
65.00 |
52.00 |
25.00% |
5.25 |
2.84% |
4.09% |
19.00 |
|
Turnaround Plan |
|
|
|
|
|
|
|
|
|
ITV - three year |
13-Sept-07 |
106.40 |
- |
25.00% |
2.25 |
2.96% |
5.04% |
44.00 |
|
ITV - three year with retesting after 5 years |
13-Sept-07 |
106.40 |
- |
25.00% |
2.25 |
2.96% |
5.04% |
59.00 |
|
ITV - five year |
13-Sept-07 |
106.40 |
- |
25.00% |
4.25 |
2.96% |
4.98% |
48.00 |
|
ITV - three year |
03-Oct-07 |
104.00 |
- |
25.00% |
2.25 |
2.96% |
5.04% |
41.00 |
|
ITV - five year |
03-Oct-07 |
104.00 |
- |
25.00% |
4.25 |
2.96% |
4.98% |
45.00 |
|
ITV - three year |
02-Nov-07 |
96.20 |
- |
25.00% |
2.25 |
2.96% |
5.04% |
28.00 |
|
ITV - five year |
02-Nov-07 |
96.20 |
- |
25.00% |
4.25 |
2.96% |
4.98% |
36.00 |
|
ITV - three year |
12-Sep-08 |
49.90 |
- |
25.00% |
2.25 |
2.96% |
5.04% |
14.00 |
|
ITV - five year |
12-Sep-08 |
49.90 |
- |
25.00% |
4.25 |
2.96% |
4.98% |
18.00 |
|
ITV - three year |
02-Oct-08 |
42.30 |
- |
25.00% |
2.25 |
2.96% |
5.04% |
12.00 |
|
ITV - five year |
02-Oct-08 |
42.30 |
- |
25.00% |
4.25 |
2.96% |
4.98% |
16.00 |
The expected volatility is based on the historic volatility of ITV plc, which was formed on the merger of Granada plc and Carlton Communications Plc on 2 February 2004.
The awards made under the Commitment Scheme, Performance Share Plan and Turnaround Plan all have market based performance conditions which are taken into account in the fair value calculation using a Monte Carlo pricing model. The Black-Scholes model is used to value the Sharesave Schemes as these do not have any market performance conditions.
Share-based compensation charges totalled £10 million in 2008 (2007: £15 million).
8 Net financing costs
|
|
2008 |
2007 |
|
|
Financing income: |
|
|
|
|
|
Interest income on bank deposits |
23 |
30 |
|
|
Expected return on defined benefit pension scheme assets |
162 |
152 |
|
|
Change in fair value of financial liabilities designated at fair value through profit or loss |
123 |
14 |
|
|
Other interest receivable |
8 |
4 |
|
|
316 |
200 |
|
|
Financing costs: |
|
|
|
|
|
Interest expense on financial liabilities measured at amortised cost |
(110) |
(54) |
|
|
Foreign exchange loss |
(116) |
(42) |
|
|
Interest on defined benefit pension plan obligations |
(146) |
(134) |
|
|
Other interest expense |
(4) |
(3) |
|
|
(376) |
(233) |
|
|
Net financing costs |
(60) |
(33) |
|
The foreign exchange loss is economically hedged by cross currency interest rate swaps. The gain on these swaps is included in the change in fair value of financial liabilities within financing income. See note 25 for further details.
As a result of ITV's credit rating with Standard & Poor's being lowered to BB+ in August 2008 the 2011 €500 million bond and the 2017 £250 million bond were subject to coupon step ups. This has resulted in the recalculation of the amortised cost carrying value of the bonds as required by IAS 39. The carrying value of the 2011 €500 million bond has increased by £12 million and the 2017 £250 million bond by £18 million. This has resulted in an increase in the amortised cost of the bonds and interest expense of £30 million (2007: £nil) during the current year. The increase in the amortised cost of the bonds will unwind in future years resulting in a credit to interest expense.
9 Taxation
Recognised in the income statement:
|
|
2008 |
2007 |
|
|
Current tax expense: |
|
|
|
|
|
Current tax charge before exceptional items |
(28) |
(58) |
|
|
Current tax credit on exceptional items |
23 |
3 |
|
|
(5) |
(55) |
|
|
|
Adjustment for prior periods |
198 |
25 |
|
|
193 |
(30) |
|
|
Deferred tax: |
|
|
|
|
|
Origination and reversal of temporary differences |
(3) |
(9) |
|
|
Deferred tax credit on exceptional items |
- |
3 |
|
|
Adjustment for prior periods |
(12) |
(14) |
|
|
(15) |
(20) |
|
|
Total taxation credit/(expense) in the income statement |
178 |
(50) |
|
Reconciliation of taxation credit/(expense):
|
|
2008 |
2007 |
|
(Loss)/profit before tax |
(2,732) |
188 |
|
Taxation credit/(expense) at UK corporation tax rate of 28.5% (2007: 30%) |
779 |
(56) |
|
Non-taxable/non-deductible exceptional items |
(8) |
3 |
|
Non-taxable income/non-deductible expenses |
(6) |
(7) |
|
Effect of tax losses utilised |
- |
4 |
|
Over provision in prior periods |
186 |
11 |
|
Impact of tax rate change |
1 |
4 |
|
Impact of goodwill impairment |
(768) |
(6) |
|
Other |
(6) |
(3) |
|
|
178 |
(50) |
In the year ended 31 December 2008 the effective tax rate is lower (2007: lower) than the standard rate of UK corporation tax primarily as a result of adjustments in respect of prior periods due to progress in the agreement with revenue authorities of prior periods' tax liabilities including £57 million which has resulted in an adjustment through goodwill related to the ITV merger in February 2004 as required by IAS 12 (2007: adjustments in respect of prior periods due to progress in the agreement with revenue authorities of prior periods' tax liabilities).
The underlying tax rate on profits, after adjusting for the irregular tax effects caused by issues such as exceptional items, impairments, joint ventures and associates and adjustments in respect of prior periods, is 32% (2007: 31%).
A tax credit totalling £35 million (2007: expense of £47 million) has been recognised directly in equity representing current tax of £nil (2007: credit of £nil) and a deferred tax credit of £35 million (2007: expense of £47 million).
Deferred tax assets/(liabilities) recognised and their movements are:
|
|
At |
Business combinations |
Recognised |
Recognised |
At 31 December |
|
Property, plant and equipment |
(13) |
- |
(2) |
- |
(15) |
|
Intangible assets |
(113) |
- |
18 |
- |
(95) |
|
Programme rights |
3 |
- |
1 |
- |
4 |
|
Pension scheme deficits |
31 |
- |
(17) |
35 |
49 |
|
Pensions funding payments |
11 |
- |
(11) |
- |
- |
|
Interest-bearing loans and borrowings, and derivatives |
(2) |
- |
1 |
- |
(1) |
|
Share-based compensation |
4 |
- |
- |
- |
4 |
|
Unremitted earnings of subsidiaries, associates and joint ventures |
(2) |
- |
(1) |
- |
(3) |
|
Other |
6 |
- |
(4) |
- |
2 |
|
|
(75) |
- |
(15) |
35 |
(55) |
|
|
At |
Business combinations |
Recognised |
Recognised |
At 31 December |
|
Property, plant and equipment |
(4) |
- |
(9) |
- |
(13) |
|
Intangible assets |
(139) |
(1) |
24 |
3 |
(113) |
|
Programme rights |
7 |
- |
(4) |
- |
3 |
|
Pension scheme deficits |
86 |
- |
(21) |
(34) |
31 |
|
Pensions funding payments |
21 |
- |
(10) |
- |
11 |
|
Interest-bearing loans and borrowings, and derivatives |
(4) |
- |
2 |
- |
(2) |
|
Share-based compensation |
26 |
- |
(6) |
(16) |
4 |
|
Unremitted earnings of subsidiaries, associates and joint ventures |
(3) |
- |
1 |
- |
(2) |
|
Other |
3 |
- |
3 |
- |
6 |
|
|
(7) |
(1) |
(20) |
(47) |
(75) |
The amount of the deferred tax liability at 31 December 2008 was reduced by £1 million (2007: £6 million) as a consequence of the re-statement of the liability to the reduced 28% rate at which the liability is expected to reverse. Of this benefit £1 million (2007: £4 million) has been taken through the income statement and £nil (2007: £2 million) through equity in accordance with IAS 12.
At 31 December 2008 total deferred tax assets are £59 million (2007: £55 million) and total deferred tax liabilities are £114 million (2007: £130 million).
Deferred tax assets estimated at £0.6 billion and £0.1 billion (2007: £0.6 billion and £0.1 billion) in respect of capital losses and loan relationship deficits respectively, have not been recognised due to uncertainties as to their amount and whether gain or income will arise in the appropriate form and relevant territory against which such losses could be utilised. For the same reasons, deferred tax assets in respect of overseas losses of £10 million (2007: £10 million) which time expire between 2017 and 2026 have not been recognised.
10 Dividends
Dividends declared and recognised through equity in the year were:
|
|
2008 |
2007 |
|
|
Equity shares: |
|
|
|
|
|
Final 2006 dividend of 1.8 pence per share |
- |
70 |
|
|
Interim 2007 dividend of 1.35 pence per share |
- |
52 |
|
|
Final 2007 dividend of 1.8 pence per share |
70 |
- |
|
|
Interim 2008 dividend of 0.675 pence per share |
26 |
- |
|
|
96 |
122 |
|
£1 million relating to the DRIP element of the 2008 interim dividend was paid before the balance sheet date. No final dividend will be declared for 2008.
11 Earnings per share
|
|
|
2008 |
|
2007 |
|
|
Basic |
Diluted |
Basic |
Diluted |
|
(Loss)/profit for the year attributable to equity shareholders of the parent company |
(2,556) |
(2,556) |
137 |
137 |
|
Exceptional items (including related tax effect of a credit of £23 million, 2007: credit of £6 million) |
85 |
85 |
3 |
3 |
|
(Loss)/profit for the year before exceptional items |
(2,471) |
(2,471) |
140 |
140 |
|
Amortisation and impairment of intangible assets (including related tax credit of £19 million, 2007: £19 million) |
2,742 |
2,742 |
65 |
65 |
|
IAS 39 charge in respect of amortised cost adjustment (including related tax credit of £9 million, 2007: £nil) |
21 |
21 |
- |
- |
|
Prior period tax adjustments |
(186) |
(186) |
(11) |
(11) |
|
Profit for the year before exceptional items, amortisation and impairment of intangible assets, amortised cost adjustment and prior period tax adjustments |
106 |
106 |
194 |
194 |
|
Weighted average number of ordinary shares in issue - million |
3,877 |
3,877 |
3,874 |
3,874 |
|
Dilution impact of share options - million |
- |
9 |
- |
23 |
|
|
3,877 |
3,886 |
3,874 |
3,897 |
|
(Loss)/earnings per ordinary share |
(65.9)p |
(65.8)p |
3.5p |
3.5p |
|
Adjusted earnings per ordinary share |
|
|
|
|
|
Basic (loss)/earnings per ordinary share |
(65.9)p |
(65.8)p |
3.5p |
3.5p |
|
Add: Loss per ordinary share on exceptional items |
2.2p |
2.2p |
0.1p |
0.1p |
|
(Loss)/earnings per ordinary share before exceptional items |
(63.7)p |
(63.6)p |
3.6p |
3.6p |
|
Add: Loss per ordinary share on amortisation and impairment of intangible assets |
70.7p |
70.6p |
1.7p |
1.7p |
|
Add: IAS 39 charge in respect of amortised cost adjustment |
0.5p |
0.5p |
- |
- |
|
Subtract: Profit per ordinary share on prior period tax adjustments |
(4.8)p |
(4.8)p |
(0.3)p |
(0.3)p |
|
Adjusted earnings per ordinary share for the year before exceptional items, amortisation and impairment of intangible assets, amortised cost adjustment and prior period tax adjustments |
2.7p |
2.7p |
5.0p |
5.0p |
An adjusted earnings per share figure has been disclosed because in the view of the directors this gives a fairer reflection of the results of the underlying business.
12 Property, plant and equipment
|
|
Freehold land and buildings |
Improvements to leasehold land |
Vehicles, equipment and fittings |
Total |
||
|
|
£m |
Long |
Short |
Owned |
Leased |
£m |
|
Cost |
|
|
|
|
|
|
|
At 1 January 2007 |
23 |
58 |
15 |
250 |
4 |
350 |
|
Additions |
- |
- |
6 |
31 |
12 |
49 |
|
Reclassification from assets held for sale |
- |
8 |
- |
- |
- |
8 |
|
Disposals and retirements |
- |
- |
- |
(30) |
- |
(30) |
|
At 31 December 2007 |
23 |
66 |
21 |
251 |
16 |
377 |
|
Additions |
- |
- |
- |
21 |
- |
21 |
|
Reclassification from assets held for sale |
27 |
3 |
- |
- |
- |
30 |
|
Disposals and retirements |
(1) |
- |
(1) |
(31) |
(1) |
(34) |
|
At 31 December 2008 |
49 |
69 |
20 |
241 |
15 |
394 |
|
Depreciation |
|
|
|
|
|
|
|
At 1 January 2007 |
- |
7 |
6 |
142 |
2 |
157 |
|
Charge for the year |
- |
2 |
2 |
31 |
- |
35 |
|
Reclassification from assets held for sale |
- |
3 |
- |
- |
- |
3 |
|
Disposals and retirements |
- |
- |
- |
(29) |
- |
(29) |
|
At 31 December 2007 |
- |
12 |
8 |
144 |
2 |
166 |
|
Charge for the year |
1 |
1 |
1 |
30 |
3 |
36 |
|
Disposals and retirements |
(1) |
- |
(1) |
(25) |
(1) |
(28) |
|
At 31 December 2008 |
- |
13 |
8 |
149 |
4 |
174 |
|
Net book value |
|
|
|
|
|
|
|
At 31 December 2008 |
49 |
56 |
12 |
92 |
11 |
220 |
|
At 31 December 2007 |
23 |
54 |
13 |
107 |
14 |
211 |
Included within the book values above is expenditure of £10 million (2007: £11 million) on property, plant and equipment which are in the course of construction. Also included within the book values above is £11 million relating to assets held under finance leases (2007: £14 million). The amount of contractual commitments for the acquisition of property, plant and equipment is disclosed in note 33.
13 Intangible assets
|
|
Goodwill |
Brands |
Customer contracts and relationships |
Licences |
Software development |
Film |
Total |
|
Cost |
|
|
|
|
|
|
|
|
At 1 January 2007 |
3,443 |
199 |
338 |
121 |
4 |
78 |
4,183 |
|
Acquisition of subsidiaries |
35 |
- |
- |
- |
- |
5 |
40 |
|
Internal development |
- |
- |
- |
- |
22 |
- |
22 |
|
At 31 December 2007 |
3,478 |
199 |
338 |
121 |
26 |
83 |
4,245 |
|
Acquisition of subsidiaries |
6 |
- |
- |
- |
- |
1 |
7 |
|
Purchase of brands and internal development |
- |
1 |
- |
- |
20 |
- |
21 |
|
At 31 December 2008 |
3,484 |
200 |
338 |
121 |
46 |
84 |
4,273 |
|
Amortisation and impairment |
|
|
|
|
|
|
|
|
At 1 January 2007 |
20 |
50 |
182 |
20 |
- |
16 |
288 |
|
Charge for the year |
- |
18 |
22 |
9 |
1 |
6 |
56 |
|
Impairment charge |
20 |
- |
8 |
- |
- |
- |
28 |
|
At 31 December 2007 |
40 |
68 |
212 |
29 |
1 |
22 |
372 |
|
Charge for the year |
- |
18 |
22 |
9 |
8 |
9 |
66 |
|
Impairment charge and goodwill reduction |
2,695 |
- |
- |
- |
- |
- |
2,695 |
|
At 31 December 2008 |
2,735 |
86 |
234 |
38 |
9 |
31 |
3,133 |
|
Net book value |
|
|
|
|
|
|
|
|
At 31 December 2008 |
749 |
114 |
104 |
83 |
37 |
53 |
1,140 |
|
At 31 December 2007 |
3,438 |
131 |
126 |
92 |
25 |
61 |
3,873 |
Amortisation of intangible assets is shown within operating costs in the income statement. The components of the £2,695 million impairment charge and goodwill reduction in 2008 are explained below
Impairment tests for cash-generating units containing goodwill
The following units have significant carrying amounts of goodwill:
|
|
2008 |
2007 |
|
Broadcasting |
265 |
2,631 |
|
GMTV |
33 |
54 |
|
SDN |
76 |
76 |
|
Global Content |
307 |
301 |
|
Online |
68 |
376 |
|
|
749 |
3,438 |
The recoverable amount of each CGU is based on value in use calculations. These calculations require the use of estimates and use pre-tax cash flow projections based on the Group's current five-year plan. Cash flows beyond the five-year period are extrapolated using an estimated growth rate of 2%-2.5% depending on the CGU and are appropriate because these are long-term businesses. The growth rates used are consistent with the long-term average growth rates for the industry.
Impairment tests are carried out annually, or when indicators show that assets may be impaired. Current market estimates imply a downturn in the advertising market in 2009 and 2010 which constitutes an impairment indicator for the Broadcasting, GMTV and Online CGUs which are reliant on advertising revenue. The impairment tests carried out as a consequence have resulted in a total impairment charge of £2,695 million for the year (2007: £28 million) being applied against the goodwill in these CGUs.
A pre-tax market discount rate of 11.9% has been used in discounting the projected cash flows for each CGU. The pre-tax market discount rate used in the previous year on the same basis was 10.9%. The discount rate has been revised to reflect the latest market assumptions for the Risk Free-rate and Equity Risk Premium and also to take into account the net cost of debt. Management believe that there is currently no reasonably possible change in discount rate which would reduce the headroom in the SDN or Global Content CGUs to zero.
Broadcasting
The goodwill in this CGU arose as a result of the acquisition of broadcasting businesses since 1999, the largest of which were the acquisition by Granada of United News and Media's broadcast businesses in 2000 and the merger of Carlton and Granada in 2004 to form ITV plc. In 2007, as a result of the early adoption of IFRS 8 Operating Segments, this goodwill was apportioned between the Broadcasting and Online CGUs based on the relative Net Present Value of the cash flows of the two segments. Broadcasting goodwill was reduced in the year by £57 million, as required by IAS12, following the recognition of deferred tax assets not recognised at the time of the Carlton/Granada merger.
An impairment charge of £2,309 million arose in the Broadcasting CGU during the course of 2008, resulting in the carrying value of the goodwill in this CGU being written down to its recoverable amount. The impairment charge arose as a result of the downturn in the short-term outlook for the advertising market, which is an area highly exposed to the general downturn in the economy, the use of cautious medium-term assumptions as a consequence and long-term growth rates in line with the industry average.
The main assumptions on which the forecast cash flows were based include the television share of advertising market, share of commercial impacts, programme and other costs. The key assumption in assessing the recoverable amount of Broadcasting goodwill is the size of the TV advertising market. The TV advertising market has been very volatile in recent months and the expectations in the short term have deteriorated. In forming its assumptions about the TV advertising market, the Group has used a combination of long term trends, industry forecasts and in-house estimates which place greater emphasis on recent experience. These are broadly in the range of -10% to -16% for 2009 and +2% to -4% for 2010, with the most recent to the bottom end of these ranges. It is also assumed that ITV elects to renew its broadcasting licences in 2014. If the estimated TV advertising market growth for 2009 used in the value in use calculation for the Broadcasting CGU (included in the 'Broadcasting' segment) had been 1% lower than the estimate used at 31 December 2008 the Group would have recognised a further impairment against goodwill of £132 million.
GMTV
The goodwill in this CGU arose on the acquisition of a 75% shareholding in GMTV Limited in 2004.
An impairment charge of £21 million arose in the GMTV CGU during the course of 2008, resulting in the carrying value of the goodwill in this CGU being written down to its recoverable amount. The impairment charge arose as a result of the downturn in the short-term outlook for the advertising market which is an area highly exposed to the general downturn in the economy.
The main assumptions on which the forecast cash flows are based are as described under the Broadcasting CGU above.
If the estimated TV advertising market growth for 2009 used in the value in use calculation for the GMTV CGU (included in the 'Broadcasting' segment) had been 1% lower than the industry estimate used at 31 December 2008 the Group would have recognised a further impairment against goodwill of £5 million.
SDN
The goodwill in this CGU arose on the acquisition of SDN (the licence operator for DTT Mutliplex A) in 2005 and represented the wider strategic benefits of the acquisition to ITV plc. The strategic benefits were principally the enhanced ability to promote Freeview as a platform, business relationships with the channels which are on Multiplex A and additional capacity available from 2010.
The main assumptions on which the forecast cash flows were based are income to be earned from medium-term contracts and the market price of available multiplex video streams in the period up to and beyond digital switch over. These assumptions have been determined by using a combination of current contract terms, recent market transactions and in-house estimates of video stream availability and pricing. It is also assumed that the Multiplex 'A' licence is renewed to 2022.
Management believe that currently no reasonably possible change in the income and availability assumptions would reduce the headroom in this CGU to zero.
Global Content
The goodwill in this CGU arose as a result of the acquisition of production businesses since 1999, the largest of which were the acquisition by Granada of United News and Media's production businesses in 2000 and the merger of Carlton and Granada in 2004 to form ITV plc.
The key assumptions on which the forecast cash flows were based include revenue (including the share of total network programme budget obtained) and margin growth. These assumptions have been determined by using a combination of extrapolation of historical trends within the business, industry estimates and in-house estimates of growth rates in all markets.
Management believe that currently no reasonably possible change in the revenue and margin assumptions would reduce the headroom in this CGU to zero.
Online
As noted above, in 2007 as a result of the adoption of IFRS 8, broadcasting goodwill was apportioned between the Broadcasting and Online CGUs based on the relative Net Present Value of the cash flows of the two segments. This resulted in £257 million of Online goodwill. The remainder of the Online goodwill arose on the acquisition of Friends Reunited in 2005.
An impairment charge of £308 million arose in the Online CGU during the course of 2008, resulting in the carrying value of the goodwill in this CGU being written down to its recoverable amount. The impairment charge arose as a result of the downturn in the short-term outlook for the advertising market which is an area highly exposed to the general downturn in the economy and the over-supply of white-space advertising on online sites, leading to a significant fall in its value.
The key assumption on which the cash flows were based is the Group's online advertising revenue growth. Online advertising is dependent on a number of factors including Online's share of the total advertising market, as well as page impressions, unique users, average dwell times, video views and advertising rates (CPT) generated by the Group's online sites. However no one factor is key in determining the Group's online advertising revenue. The Group's online revenue growth assumptions have been determined by using a combination of industry forecasts and in-house estimates of growth rates which are based on recent experience. Industry estimates of growth in the online advertising market range from 4% to 17% in 2009 and 9% to 20% in 2010.
If the estimated online revenue growth for 2009 used in the value in use calculation for the Online CGU (included in the 'Online' segment) had been 1% lower than the estimate used at 31 December 2008, the Group would have recognised a further impairment against goodwill of £6 million.
2007
The £28 million impairment charge in 2007 related to the CSA CGU and was a result of structural changes in the cinema advertising market. Of the £28 million, £20 million of the impairment related to goodwill and £8 million to other intangible assets. The majority of the business and assets were sold in 2008.
14 Investments in joint ventures and associated undertakings
|
|
Joint |
Associated undertakings |
Total |
|
At 1 January 2007 |
59 |
7 |
66 |
|
Additions |
4 |
9 |
13 |
|
Repayment of loans |
(1) |
- |
(1) |
|
Exchange movement and other |
1 |
- |
1 |
|
At 31 December 2007 |
63 |
16 |
79 |
|
Additions |
17 |
10 |
27 |
|
Share of attributable losses |
(18) |
- |
(18) |
|
Repayment of loans |
(7) |
(10) |
(17) |
|
Impairment |
(7) |
- |
(7) |
|
Exchange movement and other |
2 |
- |
2 |
|
At 31 December 2008 |
50 |
16 |
66 |
The £17 million of additions to joint ventures during the year includes further loans and investments of £8 million in Screenvision (Holdings) Europe, which subsequently repaid loans and interest of the equivalent amount. Further additions consist of investments of £4 million in Freesat and £5 million in Kangaroo.
The £18 million of losses of joint ventures and £7 million loan repayment above exclude the £3 million in respect of a loan previously written off which has now been repaid. This amount is included as a credit in the share of loss of associates and joint ventures in the income statement.
Of the share of attributable losses of joint ventures, £nil (2007: £2 million) was allocated to assets held for sale (see note 27) in line with their balance sheet classification.
Impairments of the Group's investments in joint ventures of £7 million consist of the impairment down to £nil of the Group's investments in Screenvision (Holdings) Europe (£3 million) prior to its reclassification to assets held for sale and Kangaroo (£4 million) following the Competition Commission's decision to block this joint venture.
Additions in associated undertakings of £10 million include loans of £6 million to ITN, £3 million to Mammoth Screen and an investment of £1 million in Crackit Productions. Loan repayments of £10 million have been received in the year and consist of £4 million from ITN and £6 million from Mammoth Screen.
The aggregated summary financial information in respect of associates in which the Group has an interest is as follows:
|
|
2008 |
2007 |
|
Assets |
66 |
69 |
|
Liabilities |
(63) |
(68) |
|
Revenue |
122 |
117 |
|
Profit |
- |
2 |
The aggregated summary financial information in respect of the Group's share of interests in joint ventures is as follows:
|
|
2008 |
2007 |
|
Non-current assets |
37 |
54 |
|
Current assets |
75 |
45 |
|
Current liabilities |
(37) |
(24) |
|
Non-current liabilities |
(33) |
(28) |
|
Revenue |
84 |
68 |
|
Expense |
(102) |
(68) |
The Group's interests in significant joint ventures and associated undertakings are listed in note ix in the ITV plc company financial statements section of this report.
15 Available for sale financial assets
|
|
2008 |
2007 |
|
At 1 January |
10 |
37 |
|
Additions |
2 |
- |
|
Revaluation to fair value |
- |
(1) |
|
Impairment (see note 5) |
(7) |
(26) |
|
At 31 December |
5 |
10 |
The Group's interests in available for sale investments are listed in note ix in the ITV plc company financial statements section of this report.
Additions of £2 million relate to a purchase of shares of Electric Farm Entertainment LLC representing a 10% stake. The Group has an option to purchase a further 41% of the share capital. This option has been valued and has a fair value of £nil.
16 Distribution rights
|
|
2008 |
2007 |
|
Cost |
|
|
|
At 1 January |
68 |
57 |
|
Additions |
14 |
11 |
|
At 31 December |
82 |
68 |
|
Charged to income statement |
|
|
|
At 1 January |
61 |
46 |
|
Expense for the year |
8 |
15 |
|
At 31 December |
69 |
61 |
|
Net book value |
13 |
7 |
The expense for the year is accounted for within operating costs in the income statement.
17 Programme rights and other inventory
|
|
2008 |
2007 |
|
Commissions |
125 |
116 |
|
Sports rights |
57 |
23 |
|
Acquired films |
237 |
222 |
|
Production |
62 |
55 |
|
Prepayments |
29 |
22 |
|
Other |
6 |
2 |
|
|
516 |
440 |
Net programme rights and other inventory written off in the year was £29 million (2007: £28 million), including £2 million (2007: £nil) for reversals relating to inventory previously written down to net realisable value. In addition to these amounts, there are exceptional costs for onerous contract provisions in respect of onerous sports rights of £50 million (2007: £nil), as disclosed in note 5, of which £5 million (2007: £nil) has been written off against sports rights and £1 million (2007: £nil) has been written off against prepayments above. The remaining £44 million (2007: £nil) has been included in provisions, see note 26.
18 Trade and other receivables
|
|
2008 |
2007 |
|
|
Due within one year: |
|
|
|
|
|
Trade receivables |
336 |
317 |
|
|
Other receivables |
24 |
14 |
|
|
Prepayments and accrued income |
84 |
68 |
|
|
444 |
399 |
|
|
Due after more than one year: |
|
|
|
|
|
Trade receivables |
9 |
7 |
|
|
Prepayments and accrued income |
1 |
1 |
|
|
10 |
8 |
|
|
Total trade and other receivables |
454 |
407 |
|
As at 31 December 2008, trade receivables of £14 million (2007: £9 million) were impaired and provided for. The individually impaired receivables relate mainly to the Broadcasting and Global Content segments due to concerns over their recoverability. Movements on the Group provision for impairment of trade receivables are as follows:
|
|
2008 |
2007 |
|
At 1 January |
9 |
16 |
|
Charged during the year |
9 |
3 |
|
Receivables written off during the year as uncollectible |
(1) |
(3) |
|
Unused amounts reversed |
(3) |
(7) |
|
At 31 December |
14 |
9 |
Trade receivables that are less than three months past due are not usually considered impaired. As at 31 December 2008, trade receivables of £134 million (2007: £86 million) were past due but not impaired. Of this, £52 million (2007: £46 million) relates to non-consolidated licensee customers in the Broadcasting segment where the Group has supplier and customer relationships. Further amounts relating to these same customers of £4 million (2007: £3 million) and £14 million (2007: £8 million) are included in current trade receivables and other receivables respectively. There is also a credit of £42 million (2007: credit of £40 million) included in trade and other payables relating to these customers. The net balance due from non-consolidated licensees is £28 million (2007: £17 million), £22 million of which is due from stv group plc (2007: £14 million) and £6 million is due from UTV (2007: £3 million). The remainder of trade receivables past due but not impaired relates to a number of customers for whom there is no recent history of default. The ageing analysis of trade receivables is as follows:
|
|
2008 |
2007 |
|
Current |
211 |
238 |
|
Up to 30 days overdue |
48 |
32 |
|
Between 30 and 90 days overdue |
21 |
8 |
|
Over 90 days overdue |
65 |
46 |
|
|
345 |
324 |
19 Current liabilities - trade and other payables due within one year
|
|
2008 |
2007 |
|
Trade payables |
175 |
183 |
|
Social security |
13 |
9 |
|
Other payables |
201 |
102 |
|
Accruals and deferred income |
334 |
331 |
|
Dividends |
25 |
52 |
|
|
748 |
677 |
20 Current liabilities - trade and other payables due after more than one year
|
|
2008 |
2007 |
|
Trade payables |
26 |
9 |
21 Non-current liabilities - other payables
|
|
2008 |
2007 |
|
Other payables |
15 |
65 |
22 Analysis of net debt
|
|
1 January |
Net |
Currency and non-cash movements |
31 December |
|
Cash |
381 |
122 |
- |
503 |
|
Cash equivalents |
117 |
(5) |
1 |
113 |
|
Cash and cash equivalents |
498 |
117 |
1 |
616 |
|
Held to maturity investments |
100 |
(100) |
- |
- |
|
Loans and loan notes due within one year |
(27) |
25 |
(250) |
(252) |
|
Finance leases due within one year |
(6) |
6 |
(7) |
(7) |
|
Loans and loan notes due after one year |
(1,184) |
(110) |
102 |
(1,192) |
|
Finance leases due after one year |
(79) |
- |
7 |
(72) |
|
|
(1,296) |
(79) |
(148) |
(1,523) |
|
Swap held against €500 million bond |
30 |
- |
117 |
147 |
|
Amortised cost adjustment (see note 8) |
- |
- |
30 |
30 |
|
Net debt |
(668) |
(62) |
- |
(730) |
|
|
1 January |
Net |
Currency and non-cash movements |
31 December |
|
Cash |
824 |
(444) |
1 |
381 |
|
Cash equivalents |
137 |
(20) |
- |
117 |
|
Cash and cash equivalents |
961 |
(464) |
1 |
498 |
|
Held to maturity investments |
- |
100 |
- |
100 |
|
Loans and loan notes due within one year |
(468) |
441 |
- |
(27) |
|
Finance leases due within one year |
(3) |
3 |
(6) |
(6) |
|
Loans and loan notes due after one year |
(1,152) |
- |
(32) |
(1,184) |
|
Finance leases due after one year |
(72) |
- |
(7) |
(79) |
|
|
(1,695) |
444 |
(45) |
(1,296) |
|
Swap held against €500 million bond |
- |
- |
30 |
30 |
|
Net debt |
(734) |
80 |
(14) |
(668) |
Included within cash equivalents is £67 million (2007: £71 million) the use of which is restricted to meeting finance lease commitments under programme sale and leaseback commitments and gilts of £33 million (2007: £32 million) over which the unfunded pension promises have a charge.
In July 2008 ITV issued a £110 million bond with a maturity of March 2013 and a coupon of 3-month sterling LIBOR plus 2.7%. During 2008 ITV redeemed loan notes totalling £25 million.
In August 2007 ITV purchased a £100 million senior note issued by UBS AG ('UBS') under UBS's Euro Note Programme. This note was redeemed for cash in November 2008. During the year the return earned was 8.2% on a per annum basis.
At the time of issue of the 2011 €500 million bond the Group took out a cross-currency interest rate swap to economically hedge Euro interest rate and foreign exchange exposure. As at 31 December 2008 the currency element of the swap is a £147 million asset (2007: £30 million asset) and this offsets the exchange rate movement of the bond. The interest element of the swap is a £5 million asset (2007: £7 million liability) resulting in an overall net asset total at 31 December 2008 of £152 million (2007: £23 million net asset total).
23 Financial risk factors
The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest risk, and price risk), credit risk and liquidity risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.
Treasury policies have been approved by the Board for managing each of these risks including levels of authority on the type and use of financial instruments. Transactions are only undertaken if they relate to underlying exposures. The treasury department reports regularly to the Audit Committee and treasury operations are subject to periodic independent reviews and internal audit.
Market risk
a) Currency risk
The Group operates internationally and is therefore exposed to currency risk arising from various currency exposures, primarily with respect to the US dollar and the Euro. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.
The Group's foreign exchange policy is to hedge material foreign currency denominated costs at the time of commitment and to hedge a proportion of foreign currency denominated revenues on a rolling 12-month basis.
The Group ensures that its net exposure to foreign denominated cash balances is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.
The Euro denominated interest and principal payments under the €500 million bond have been fully hedged by a cross-currency interest rate swap.
The Group's investments in subsidiaries are not hedged as those currency positions are considered to be long term in nature.
At 31 December 2008, if sterling had weakened/strengthened by 10% against the US dollar with all other variables held constant, post-tax profit for the year would have been £2 million (2007: £2 million) higher/lower. Equity would have been £9 million (2007: £7 million) higher/lower.
At 31 December 2008, if sterling had weakened/strengthened by 10% against the Euro with all other variables held constant, post-tax profit for the year would have been £2 million (2007: £1 million) higher/lower. Equity would have been £5 million (2007: £5 million) higher/lower.
b) Price risk
The Group is exposed to equity securities price risk due to its investment in stv group plc. During 2008 stv group plc performed a 1 for 20 share consolidation. The share price at 31 December 2008 was 78 pence (equivalent to 3.9 pence before the share consolidation) and represents a 76% fall in the year (2007: 75%) versus the 31% decrease (2007: 3% increase) in the FTSE 100. The investment in stv group plc is classified as an available for sale financial asset and so any fair value movement initially goes through equity. However, as the share price experienced a significant decline in the year an impairment charge has been recognised in the income statement. This £7 million charge reflected the decline in the share price in the year as an impairment of £26 million was also recognised in 2007. If the share price had increased/decreased by another 10% at 31 December 2008 the impairment charge would have been £0.2 million lower/higher.
c) Fair value interest risk
The Group's principal interest rate risk arises from long-term borrowings and associated interest rate swaps. Borrowings issued at or swapped to floating rates expose the Group to interest rate risk.
The Group's interest rate policy is to have between 50% and 70% of its total net indebtedness held at fixed rates over the medium term in order to provide a balance between certainty of cost and benefit from lower floating rates. The Group uses interest rate swaps and options in order to achieve the desired mix between fixed and floating rates.
All of the Group's interest rate swaps are designated as fair value through profit or loss so any movement in the fair value goes through the income statement rather than equity.
At 31 December 2008, if interest rates had increased/decreased by 0.1%, post-tax profit for the year would have been £1 million (2007: £1 million) lower/higher.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. It arises principally from the Group's receivables from customers, cash and held to maturity investments. There is also credit risk relating to the Group's own credit rating as this impacts the availability and cost of future finance.
a) Trade and other receivables
The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer. The majority of trade receivables relate to airtime sales contracts with advertising agencies and advertisers. Credit insurance has been taken out against these companies to minimise the impact on the Group in the event of a possible default.
b) Cash and held to maturity investments
The Group operates strict investment guidelines with respect to surplus cash and the emphasis is on preservation of capital. Counterparty limits for cash deposits are largely based upon long-term ratings published by the major credit rating agencies and perceived state support. Counterparty limits were reviewed and reduced during 2008. Deposits longer than one month require the approval of the Management Committee.
c) Borrowings
In August 2008 Standard & Poors lowered ITV's credit rating to BB+. As a consequence the coupons on the €500 million 2011 and £250 million 2017 bonds issued in October 2006 increased by 1.25% with effect from October 2008 and January 2009 respectively. In September 2008 Moody's Investor Service lowered ITV's credit rating to Ba1 and consequently ITV's credit rating is 'sub-investment grade' with both major agencies. The combination of ITV's lower credit rating and the deterioration in credit conditions adversely impacts the availability and costs of future finance.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's financing policy is to fund itself for the long term by using debt instruments with a range of maturities. It is substantially funded from the UK and European capital markets and has bank facilities from the UK syndicated debt market.
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 headroom under financial covenants on bank facilities and takes into account the accessibility of cash and cash equivalents.
At 31 December 2008 the Group has available £650 million (2007: £530 million) of undrawn committed facilities. Of these £450 million are bank facilities, subject to covenants, which expire in June 2011 and £200 million relates to bank facilities which mature in May 2013 and have no financial covenants.
The table below analyses the Group's financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings based on the period remaining until the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cashflows so will not always reconcile with the amounts disclosed on the balance sheet.
|
At 31 December 2008 |
Total contractual |
Less than |
Between |
Between |
Over |
|
|
Non-derivative financial liabilities |
|
|
|
|
|
|
|
Borrowings |
(1,368) |
(263) |
(11) |
(479) |
(615) |
|
|
Trade and other payables |
(774) |
(748) |
(18) |
(7) |
(1) |
|
|
Other non-current payables |
(15) |
- |
(1) |
(14) |
- |
|
|
Derivative financial liabilities |
|
|
|
|
|
|
|
Interest rate swaps |
40 |
9 |
8 |
8 |
15 |
|
|
Forward foreign exchange contracts - cash flow hedges |
|
|
|
|
|
|
|
|
Outflows |
(31) |
(31) |
- |
- |
- |
|
|
Inflows |
40 |
40 |
- |
- |
- |
|
Forward foreign exchange contracts - fair value through profit or loss |
|
|
|
|
|
|
|
|
Outflows |
(80) |
(57) |
(17) |
(6) |
- |
|
|
Inflows |
87 |
60 |
20 |
7 |
- |
|
|
(2,101) |
(990) |
(19) |
(491) |
(601) |
|
|
At 31 December 2007 |
Total contractual cash flows |
Less than |
Between |
Between |
Over |
|
|
Non-derivative financial liabilities |
|
|
|
|
|
|
|
Borrowings |
(1,294) |
(37) |
(261) |
(371) |
(625) |
|
|
Trade and other payables |
(686) |
(677) |
(5) |
(4) |
- |
|
|
Other non-current payables |
(68) |
- |
(56) |
(12) |
- |
|
|
Derivative financial liabilities |
|
|
|
|
|
|
|
Interest rate swaps |
47 |
(9) |
3 |
41 |
12 |
|
|
Forward foreign exchange contracts - cash flow hedges |
|
|
|
|
|
|
|
|
Outflows |
(63) |
(33) |
(30) |
- |
- |
|
|
Inflows |
68 |
36 |
32 |
- |
- |
|
Forward foreign exchange contracts - fair value through profit or loss |
|
|
|
|
|
|
|
|
Outflows |
(54) |
(35) |
(12) |
(7) |
- |
|
|
Inflows |
54 |
35 |
12 |
7 |
- |
|
|
(1,996) |
(720) |
(317) |
(346) |
(613) |
|
Capital management
The capital structure of the Group consists of debt, which includes borrowings disclosed in note 24, cash and cash equivalents and equity attributable to equity holders of the parent company ('equity'). Equity comprises issued capital, reserves and retained earnings disclosed in note 30. The Group's objective when managing capital is to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group is not subject to any externally imposed capital requirements.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, or increase net debt by issuing new debt or drawing down upon facilities or reduce net debt by issuing new shares or selling assets.
24 Analysis of borrowings
a) Ageing
|
|
|
|
2008 |
|
|
2007 |
|
|
Loans and |
Finance |
Total |
Loans and |
Finance |
Total |
|
Current |
|
|
|
|
|
|
|
In one year or less, or on demand |
252 |
7 |
259 |
27 |
6 |
33 |
|
Non-current |
|
|
|
|
|
|
|
In more than one year but not more than two years |
- |
8 |
8 |
249 |
8 |
257 |
|
In more than two years but not more than five years |
603 |
26 |
629 |
365 |
26 |
391 |
|
In more than five years |
589 |
38 |
627 |
570 |
45 |
615 |
|
|
1,192 |
72 |
1,264 |
1,184 |
79 |
1,263 |
|
Total |
1,444 |
79 |
1,523 |
1,211 |
85 |
1,296 |
Loans repayable within one year
Loans repayable within one year as at 31 December 2008 include £1 million (2007: £4 million) of loan notes issued in connection with the purchase of Carlton Communications Limited Preference Shares with a coupon of sterling LIBOR minus 0.5%, and an unsecured £250 million Eurobond which has a coupon of 5.625% and matured on 2 March 2009. This was classified as loans payable after more than one year as at 31 December 2007. Loans repayable within one year as at 31 December 2007 included £21 million of loan notes issued in connection with the purchase of Friends Reunited with a coupon of sterling LIBOR minus 0.525%.
Loans repayable between two and five years
Loans repayable between two and five years as at 31 December 2008 include an unsecured €500 million Eurobond which has a coupon of 6.0% and matures in October 2011. The coupon on this bond stepped up from 4.75% to 6.0% with effect from October 2008 as a result of ITV's credit rating with Standard & Poor's being lowered to BB+ in August 2008. In July 2008 ITV issued an unsecured £110 million Eurobond which has a coupon of three months sterling LIBOR plus 2.7% and matures in March 2013.
Loan repayable after five years
Loans repayable after five years include an unsecured £325 million Eurobond which has a coupon of 5.375% and matures in October 2015 and an unsecured £250 million Eurobond which has a coupon of 6.125% and matures in January 2017. The coupon on this bond stepped up to 7.375% with effect from January 2009 as a result of ITV's credit rating with Standard & Poor's being lowered to BB+ in August 2008.
Finance leases
Finance lease liabilities are payable as follows:
|
|
2008 |
2007 |
||||
|
|
Minimum lease payments |
Interest |
Principal |
Minimum |
Interest |
Principal |
|
In one year or less |
11 |
4 |
7 |
10 |
4 |
6 |
|
In more than one year but not more than five years |
45 |
11 |
34 |
47 |
13 |
34 |
|
In more than five years |
40 |
2 |
38 |
50 |
5 |
45 |
|
|
96 |
17 |
79 |
107 |
22 |
85 |
Finance leases principally comprise the lease of programme titles under sale and leaseback arrangements and an embedded lease relating to the provision of news.
The net book value of assets held under finance leases at 31 December 2008 was £11 million (2007: £14 million).
b) Fair values
Available for sale investments
The fair value of available for sale investments traded in active markets is based on quoted market bid prices at the balance sheet date.
Cash and cash equivalents
The carrying value approximates to fair value because of the short maturity of the instruments.
Derivative financial instruments
Interest rate swaps and options are accounted for at their fair value based upon termination prices.
Forward foreign exchange contracts are accounted for at their fair value using quoted forward exchange rates at the balance sheet date.
Other assets and liabilities
No additional disclosure of fair value has been made as the carrying value is a reasonable approximation of the fair value.
Loans and loan notes
|
|
|
|
Book value |
Fair value |
||
|
|
Maturity |
Basis of measurement |
2008 |
2007 |
2008 |
2007 |
|
£250 million Eurobond |
Mar 09 |
Fair value |
250 |
249 |
250 |
249 |
|
€500 million Eurobond |
Oct 11 |
Amortised cost |
493 |
365 |
391 |
358 |
|
£110 million Eurobond |
Mar 13 |
Amortised cost |
110 |
- |
110 |
- |
|
£325 million Eurobond |
Oct 15 |
Amortised cost |
323 |
322 |
211 |
300 |
|
£250 million Eurobond |
Jan 17 |
Amortised cost |
266 |
248 |
163 |
241 |
|
Other loans |
|
Amortised cost |
2 |
27 |
2 |
27 |
|
|
|
|
1,444 |
1,211 |
1,127 |
1,175 |
Bonds accounted for on an amortised cost basis use the effective interest method.
Bonds accounted for using the fair value approach are valued at fair value based on ask price with the resultant gains or losses recorded in the income statement in accordance with the Group's accounting policy which prevents an accounting mismatch.
The book value of the 2011 €500 million Eurobond has increased in the year principally as a result of currency movements of £117 million which are hedged (see note 22). The book values of the 2011 €500 million Eurobond and the 2017 £250 million Eurobond have increased due to revisions in amortised cost of £12 million and £18 million respectively due to the effect of coupon step ups (see note 8).
c) Financial instruments application
The accounting policies for financial instruments have been applied to the line items with the carrying values below:
|
At 31 December 2008 |
Loan and receivables |
At |
Derivatives used for hedging |
Available |
Total |
|
Balance sheet assets |
|
|
|
|
|
|
Available for sale financial assets |
- |
- |
- |
5 |
5 |
|
Derivative financial instruments |
- |
208 |
10 |
- |
218 |
|
Trade and other receivables |
454 |
- |
- |
- |
454 |
|
Cash and cash equivalents |
583 |
- |
- |
33 |
616 |
|
|
1,037 |
208 |
10 |
38 |
1,293 |
|
At 31 December 2008 |
|
At |
Derivatives used for hedging |
Other £m |
Total |
|
Balance sheet liabilities |
|
|
|
|
|
|
Borrowings |
|
250 |
- |
1,273 |
1,523 |
|
Derivative financial instruments |
|
31 |
1 |
- |
32 |
|
|
|
281 |
1 |
1,273 |
1,555 |
|
At 31 December 2007 |
Loan and receivables |
At |
Derivatives used for hedging |
Available |
Total |
|
Balance sheet assets |
|
|
|
|
|
|
Available for sale financial assets |
- |
- |
- |
10 |
10 |
|
Held to maturity investments |
100 |
- |
- |
- |
100 |
|
Derivative financial instruments |
- |
31 |
5 |
- |
36 |
|
Trade and other receivables |
407 |
- |
- |
- |
407 |
|
Cash and cash equivalents |
466 |
- |
- |
32 |
498 |
|
|
973 |
31 |
5 |
42 |
1,051 |
|
At 31 December 2007 |
At |
Derivatives used for hedging |
Other financial liabilities |
Total |
|
Balance sheet liabilities |
|
|
|
|
|
Borrowings |
249 |
- |
1,047 |
1,296 |
|
Derivative financial instruments |
10 |
- |
- |
10 |
|
|
259 |
- |
1,047 |
1,306 |
25 Financial instruments
The following table shows the fair value of derivative financial instruments analysed by type of contract.
|
|
|
2008 |
|
2007 |
|
|
|
Assets |
Liabilities |
Assets |
Liabilities |
|
|
Current portion: |
|
|
|
|
|
|
|
Interest rate swaps - fair value through profit or loss |
2 |
(2) |
- |
- |
|
|
Forward foreign exchange contracts - cash flow hedges |
10 |
(1) |
3 |
- |
|
|
Forward foreign exchange contracts - fair value through profit or loss |
7 |
(4) |
1 |
(1) |
|
|
19 |
(7) |
4 |
(1) |
|
|
Non-current portion: |
|
|
|
|
|
|
|
Interest rate swaps - fair value through profit or loss |
194 |
(25) |
30 |
(9) |
|
|
Forward foreign exchange contracts - cash flow hedges |
- |
- |
2 |
- |
|
|
Forward foreign exchange contracts - fair value through profit or loss |
5 |
- |
- |
- |
|
|
199 |
(25) |
32 |
(9) |
|
|
|
218 |
(32) |
36 |
(10) |
|
Interest rate swap asset valuations as at 31 December 2008 include £152 million in respect of cross currency interest rate swap hedges against the 2011 €500 million Eurobond. Under these swaps ITV receives cash flows in Euros which match both the original 4.75% coupon and redemption payments under the bonds and pays in sterling 6.22% semi-annually on a notional of £167.3 million and three month sterling LIBOR plus 1.14% on a notional of £167.3 million and at maturity of the bonds it pays £334.6 million. The remaining £44 million asset valuation relates to a number of floating rate swaps including a £125 million swap matched against half of the 2017 £250 million bond. Under this swap ITV receives 6.125% (to match the bond coupon) and pays three month sterling LIBOR plus 0.51% with three month sterling LIBOR capped at 5.25% for rates between 5.25% and 8.0%. ITV also has a £162.5 million swap matched against half of the 2015 £325 million bond. Under this swap ITV receives 5.375% (to match the bond coupon) and pays the higher of six month sterling LIBOR minus 0.2% or six month US$ LIBOR minus 1.0%, set in arrears or in advance. In addition ITV has swaps totalling £162.5 million matched against the other half of the 2015 £325 million bond. Under these swaps ITV receives 5.375% (to match the bond coupon) and pays a weighted average of three month sterling LIBOR plus 1.45%.
Interest rate swap liability valuations of £27 million as at 31 December 2008 relate to various fixed rate swaps. ITV has a £162.5 million swap with a maturity of October 2015 under which it receives three month sterling LIBOR and pays 4.35%. The bank has the right to cancel the swap. ITV also has a £125 million swap with a maturity of January 2017 under which it receives three month sterling LIBOR and pays 4.36%. The bank has the right to cancel the swap.
All forward foreign exchange contracts hedge underlying currency exposures. The forward foreign exchange contracts which are designated as cash flow hedges relate to contractual payments for sport and other programme rights and transponder costs.
26 Provisions
|
|
Boxclever |
Property |
Contract provisions |
Restructuring provisions £m |
Other |
Total |
|
At 1 January 2008 |
15 |
1 |
11 |
- |
4 |
31 |
|
Additions in the year |
- |
1 |
50 |
18 |
1 |
70 |
|
Utilised in the year |
- |
- |
(14) |
(2) |
(1) |
(17) |
|
At 31 December 2008 |
15 |
2 |
47 |
16 |
4 |
84 |
Of the provisions £43 million (2007: £27 million) are shown within current liabilities.
The Boxclever provision relate to potential liabilities that may arise as a result of Boxclever having been placed into administration, most of which relates to pension arrangements.
Property provisions are in place in respect of various vacant properties. Utilisation will be over the life of these leases.
Included within Contract provisions of £47 million are £44 million for onerous sports rights commitments and £3 million for closure costs at CSA.
Restructuring provisions of £16 million are in respect of regional news.
27 Assets held for sale
The movements in assets held for sale are summarised in the table below:
|
|
2008 |
|
At 1 January 2008 |
59 |
|
Impairment |
(17) |
|
Transfer to property, plant and equipment |
(30) |
|
Sale of property |
(4) |
|
Sale of joint ventures |
(5) |
|
At 31 December 2008 |
3 |
The Group is actively marketing its interest in Screenvision (Holdings) Europe Limited and as such has classified this joint venture investment as an asset held for sale carried at £nil. The investment being sold is not core to the Group's main activities and is disclosed in the Other segment.
An impairment charge of £17 million has been recognised on properties during the year including £14 million relating to the Manchester properties following consultation with an independent valuer. These properties have been reclassified into property, plant and equipment at a net book value of £30 million reflecting management's decision to cease actively marketing these properties. A further impairment has been recognised on a freehold property still classified as held for sale due to a fall in market rental yields. This property remaining as held for sale is being actively marketed as it is deemed to be surplus to future operating requirements and disposal is anticipated to be completed within one year.
The Group sold its interest in certain properties and joint ventures previously held for sale with a total net book value of £4 million and £5 million respectively during the year.
28 Acquisitions and disposals of businesses
Acquisitions and disposals in 2008
Silverback
On 13 May 2008, the Group acquired 100% of the shares in Silverback AB, a Swedish based independent production company and programme formats business. The fair value of the initial consideration, including costs associated with the acquisition, is £5 million with an additional £3 million being treated as compensation contingent on the retention of key employees and the future performance of the acquired business. This represents the present value of the expected contingent consideration which may be up to £9 million dependent on the satisfaction of those conditional factors. The intangible assets recognised at fair value of £1 million represent formats. A deferred tax liability of less than £1 million was recognised in respect of these intangible assets. Goodwill of £5 million was also recognised representing the benefits of this acquisition to the Global Content segment.
Had the acquisition occurred on 1 January 2008, the estimated revenue for the Group would have been £1 million higher at £2,030 million, the increase in operating profit before amortisation and exceptional items would have been immaterial at less than £1 million.
Imago
On 29 September 2008, the Group acquired 51% of the shares in Imago TV Film und Fernsehproduktion GmbH, a Berlin-based production and original format creation business. The fair value of the initial consideration, including costs associated with the acquisition, is £2 million with an additional £2 million being treated as compensation contingent on the retention of key employees and the future performance of the acquired business. This represents the present value of the expected contingent consideration which may be up to £3 million dependent on the satisfaction of those conditional factors. There were no material intangible assets recognised. Goodwill of £1 million was also recognised representing the benefits of this acquisition to the Global Content segment.
Had the acquisition occurred on 1 January 2008, the estimated revenue for the Group would have been £3 million higher at £2,032 million and operating profit before amortisation and exceptional items £1 million higher at £212 million for the year ended 31 December 2008.
The Group also acquired a one way call option to acquire the remaining 49% of the shares in Imago. The option payment will become exercisable following the audit of Imago's year ended 31 December 2011 financial statements. The Group has valued the option at a fair value of £nil.
The acquired net assets of Silverback and Imago are set out in the table below:
|
|
Book value |
Fair value |
Fair value |
|
Intangible assets |
- |
1 |
1 |
|
Cash and cash equivalents |
1 |
- |
1 |
|
Trade and other receivables |
1 |
- |
1 |
|
Trade and other payables |
(2) |
- |
(2) |
|
Net assets |
- |
1 |
1 |
|
Net assets acquired (after minority interest) |
|
|
1 |
|
Goodwill on acquisition |
|
|
6 |
|
Fair value of consideration |
|
|
7 |
Valuation of acquired intangible assets methodology Valuation of acquired intangible assets has been performed in accordance with industry standard practice. Methods applied are designed to isolate the value of each intangible asset separately from the other assets of the business. The value of brands are assessed by applying a royalty rate to the expected future revenues over the life of the brand. Licences are valued on a start-up basis. Customer relationships and contracts are valued based on expected future cash flows from those existing at the date of acquisition. Contributory charges from other assets are taken as appropriate with post tax cash flows then being discounted back to their present value. Typical discount rates applied in the valuation of intangible assets acquired in the period are 8% - 15%.
Disposals During the period the Group disposed of its interests in Arsenal Broadband Limited and Liverpool FC.tv Limited. The Group's 50% interest in Arsenal Broadband Limited was sold for a total cash consideration of £14 million and resulted in a gain on disposal of £12 million. The Group's 50% interest in Liverpool FC.tv Limited was sold for a total cash consideration of £16 million and resulted in a gain on disposal of £13 million.
Acquisitions and disposals in 2007
12 Yard On 4 December 2007, the Group acquired 100% of the shares in David Young 12 Yard Productions Limited and Hat Trick 12 Yard Productions Limited for a total initial consideration of £27 million and deferred consideration of up to £9 million contingent on the retention of key employees and the future performance of the acquired business.
The fair value of the consideration was £35 million. This took into account the initial consideration, the present value of the expected contingent consideration and other costs associated with the acquisition.
Had the acquisition occurred on 1 January 2007, the estimated revenue for the Group would have been £9 million higher at £2,091 million and operating profit before amortisation and exceptional items £2 million higher at £313 million for the year ended 31 December 2007.
The intangible assets recognised at fair value included the order backlog. A deferred tax liability of £1 million was recognised in respect of these intangible assets. A £1 million corporation tax liability was also recognised reflecting amounts owing at the date of acquisition. The goodwill represented the benefit of the acquisition across the Group when combined with existing Group assets and businesses.
Jaffe Braunstein Entertainment On 4 May 2007, the Group acquired 51% of the shares in Jaffe/Braunstein Entertainment LLC ('JBE'), a US company, for a total consideration of £3 million taking into account the initial consideration plus other costs associated with the acquisition. JBE is a film production company in the scripted genre. The intangible assets recognised at fair value of £1 million included the film library and order backlogs. A deferred tax liability of less than £1 million was recognised in respect of these intangible assets. Goodwill of £3 million was also recognised representing the benefits of this acquisition to the Global Content segment. The amounts recognised at the acquisition date for each class of JBE's assets and liabilities and the amount of profit since the acquisition date have not been separately disclosed as all figures are less than £1 million.
Enable Media Following the acquisition of Enable Media in November 2006, provisional fair values were adjusted and an additional £1 million of goodwill was recognised in 2007.
Disposals
During 2007, as part of the ongoing process to dispose of non-core businesses and investments, the Group sold its 91.5% holding of Independent Television Facilities Centre Limited (ITFC) and disposed of its interests in Arsenal Holdings plc and Liverpool Football Club and Athletic Grounds plc. The interest in ITFC was sold for total consideration of £7 million (£5 million net of cash disposed of £2 million) resulting in a gain of £5 million on disposal. The Group's 9.99% interest in Arsenal Holdings plc, along with an option over the Group's 50% interest in Arsenal Broadband Limited, was sold for a total cash consideration of £50 million and resulted in a gain of £28 million on disposal. The Group's 9.99% interest in Liverpool Football Club and Athletic Grounds plc was sold for a cash consideration of £17 million and resulted in a gain of £7 million on disposal. The Group's 33% share in MUTV Limited was sold for a cash consideration of £3 million and resulted in a gain of £3 million on disposal.
29 Called up share capital
The Group's share capital is the same as that of ITV plc. Details of this are given in note v in the ITV plc company financial statements section.
Employee benefit trust
The Group has investments in its own shares as a result of shares purchased by the ITV Employee Benefit Trust. As at 31 December 2008 the trust held the following shares:
|
|
|
2008 |
|
2007 |
|
|
Number |
Market value |
Number |
Market value |
|
ITV Employee Benefit Trust |
4,144,550 |
2 |
15,647,090 |
13 |
The nominal value of own shares held is £0.4 million (2007: £1.6 million). The shares will be held in trust until such time as they may be transferred to participants of the various Group share schemes. Rights to dividends have been waived by the ITV Employees' Benefit Trust in respect of shares held which do not relate to restricted shares under the Deferred Share Award Plan.
The total number of shares held by the trusts at 31 December 2008 is 4,144,550 (2007: 15,647,090) ordinary shares representing 0.11% (2007: 0.40%) of ITV's issued share capital.
In accordance with the Trust Deed, the Trustees of the ITV Employees' Benefit Trust have the power to exercise all voting rights in relation to any investment (including shares) held within that trust.
During the year the following ordinary shares were released from the above trust to satisfy awards vesting under the Group's share schemes as follows:
|
Shares released from: |
Number of shares released |
Nominal value |
Scheme |
|
ITV Employee Benefit Trust |
7,626,685 |
762,668 |
Deferred Share Award Plan |
|
|
692,825 |
69,283 |
Carlton Sharesave Plan |
|
|
569,788 |
56,979 |
Granada Sharesave Plan |
|
|
2,461,832 |
246,183 |
Granada Commitment Plan |
|
|
151,410 |
15,141 |
ITV Employee Bonus Plan |
|
|
11,502,540 |
1,150,254 |
|
30 Capital and reserves
|
|
Attributable to equity shareholders of the parent company |
|
|
||||||
|
|
Share |
Share |
Merger and |
Translation reserve |
Available for sale reserve |
Retained earnings |
Total |
Minority |
Total |
|
At 1 January 2007 |
401 |
120 |
2,690 |
(3) |
17 |
(69) |
3,156 |
7 |
3,163 |
|
Cancellation of deferred shares |
(12) |
- |
12 |
- |
- |
- |
- |
- |
- |
|
Total recognised income and expense |
- |
- |
- |
7 |
(13) |
201 |
195 |
1 |
196 |
|
Movements due to share-based compensation |
- |
- |
- |
- |
- |
4 |
4 |
- |
4 |
|
Dividends paid to minority interests |
- |
- |
- |
- |
- |
- |
- |
(2) |
(2) |
|
Equity dividends |
- |
- |
- |
- |
- |
(122) |
(122) |
- |
(122) |
|
At 31 December 2007 |
389 |
120 |
2,702 |
4 |
4 |
14 |
3,233 |
6 |
3,239 |
|
Total recognised income and expense |
- |
- |
- |
20 |
2 |
(2,645) |
(2,623) |
2 |
(2,621) |
|
Movements due to share-based compensation |
- |
- |
- |
- |
- |
12 |
12 |
- |
12 |
|
Equity dividends |
- |
- |
- |
- |
- |
(96) |
(96) |
- |
(96) |
|
Transfer from merger reserve |
- |
- |
(2,429) |
- |
- |
2,429 |
- |
- |
- |
|
At 31 December 2008 |
389 |
120 |
273 |
24 |
6 |
(286) |
526 |
8 |
534 |
Merger and other reserves
Merger and other reserves at 31 December 2008 include merger reserves arising on the Granada/Carlton and previous mergers of £119 million (2007: £2,548 million), capital reserves of £112 million (2007: £112 million), capital redemption reserves of £36 million (2007: £36 million) and revaluation reserves of £6 million (2007: £6 million). A transfer of £2,429 million between retained earnings and merger reserve has been made in the year in respect of the impairment of goodwill which arose on the Granada/Carlton and other mergers.
Translation reserve
The translation reserve comprises all foreign exchange differences arising on the translation of the accounts of, and investments in, foreign operations. Included within the movement in the year is £4 million related to cash flow hedges (2007: £5 million).
Available for sale reserve
The available for sale reserve comprises all movements arising on the revaluation and disposal of assets accounted for as available for sale.
31 Contingent liabilities
There are contingent liabilities in respect of certain litigation and guarantees, and in respect of warranties given in connection with certain disposals of businesses.
32 Operating leases
The total future minimum lease payments under non-cancellable operating leases are payable as follows:
|
|
2008 |
2007 |
|
Not later than one year |
16 |
17 |
|
Later than one year and not later than five years |
45 |
53 |
|
Later than five years |
152 |
153 |
|
|
213 |
223 |
The Group leases a number of properties principally comprising offices and studios under operating leases. Leases typically run for a period of 15 years with an option to renew the lease after that date. Lease payments are typically increased every five years to reflect market rentals. None of the leases include contingent rentals.
The total future minimum sublease payments expected to be received under non-cancellable subleases at the balance sheet date is £8 million (2007: £8 million).
The total operating lease expenditure recognised during the year was £19 million (2007: £19 million) and total sublease payments received totalled £4 million (2007: £3 million).
33 Capital and other commitments
There are £1 million of capital commitments at 31 December 2008 (31 December 2007: £1 million). There are also a number of operating commitments in respect of programming entered into in the ordinary course of business.
34 Post balance sheet events
In January 2009 the Group paid £50 million in respect of the final payment of the earn-out relating to the Friends Reunited acquisition in 2005.
In February 2009 ITV increased its liquidity by £50 million under a new ten-year loan which is not subject to financial covenants. The interest cost under the loan is fixed at 8.85% for the first three years and thereafter is at a variable rate, subject to a cap of 15.6%. The lender has the right to loan ITV up to a further £150 million at any time.
On 2 March 2009 the Group repaid the £250 million Eurobond and drew down on a £125 million facility that matures in May 2013.
35 Related party transactions
Transactions with associated undertakings and joint ventures:
|
|
2008 |
2007 |
|
Sales to joint ventures |
- |
2 |
|
Sales to associated undertakings |
2 |
1 |
|
Purchases from joint ventures |
1 |
- |
|
Purchases from associated undertakings |
42 |
40 |
The purchases from associated undertakings relate to purchase of news services from ITN.
|
|
2008 |
2007 |
|
Amounts owed by joint ventures |
27 |
33 |
|
Amounts owed by associated undertakings |
7 |
5 |
|
Amounts owed to associated undertakings |
- |
1 |
|
Amounts owed by pension scheme |
1 |
3 |
Amounts owed by joint ventures relate to loan balances with Screenvision (Holdings) Europe which have been fully provided for at the balance sheet date.
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.
Transactions with key management personnel
Key management consists of ITV's senior executive team. Key management personnel compensation is as follows:
|
|
2008 |
2007 |
|
Short-term employee benefits |
6 |
5 |
|
Post-employment benefits |
- |
1 |
|
Termination benefits |
2 |
2 |
|
Share-based compensation |
5 |
6 |
|
|
13 |
14 |
Amounts paid to the Group's retirement benefit plans are set out in note 6.
ITV plc Company Financial Statements
Company balance sheet
|
At 31 December: |
Note |
2008 |
2008 |
2007 |
2007 |
|
Fixed assets: |
|
|
|
|
|
|
Investments in subsidiary undertakings |
iii |
|
1,699 |
|
1,816 |
|
Held to maturity investments |
|
|
- |
|
100 |
|
Derivative financial instruments |
|
|
194 |
|
30 |
|
|
|
|
1,893 |
|
1,946 |
|
Current assets: |
|
|
|
|
|
|
Amounts owed by subsidiary undertakings |
|
78 |
|
74 |
|
|
Prepayments and accrued income |
|
1 |
|
1 |
|
|
Cash at bank and in hand and short-term deposits |
|
283 |
|
244 |
|
|
|
|
362 |
|
319 |
|
|
Creditors - amounts falling due within one year: |
|
|
|
|
|
|
Borrowings |
iv |
(252) |
|
(25) |
|
|
Amounts owed to subsidiary undertakings |
|
(88) |
|
(28) |
|
|
Accruals and deferred income |
|
(33) |
|
(28) |
|
|
Other creditors |
|
(53) |
|
(53) |
|
|
Dividends |
|
(25) |
|
(52) |
|
|
|
|
(451) |
|
(186) |
|
|
Net current (liabilities) / assets |
|
|
(89) |
|
133 |
|
Total assets less current liabilities |
|
|
1,804 |
|
2,079 |
|
Creditors - amounts falling due after more than one year: |
|
|
|
|
|
|
Borrowings |
iv |
|
(1,192) |
|
(1,186) |
|
Derivative financial instruments |
|
|
(25) |
|
(2) |
|
|
|
|
(1,217) |
|
(1,188) |
|
Net assets |
|
|
587 |
|
891 |
|
Capital and reserves: |
|
|
|
|
|
|
Called up share capital |
v |
|
389 |
|
389 |
|
Share premium |
vi |
|
120 |
|
120 |
|
Other reserves |
vi |
|
36 |
|
36 |
|
Profit and loss account |
vi |
|
42 |
|
346 |
|
Shareholders' funds - equity |
|
|
587 |
|
891 |
The accounts were approved by the Board of Directors on 4 March 2009 and were signed on its behalf by:
John Cresswell Ian Griffiths
Notes to the ITV plc Company Financial Statements
i Accounting policies
Basis of preparation
As permitted by section 230(4) of the Companies Act 1985, a separate profit and loss account, dealing with the results of the parent company, has not been presented.
The Company is exempt from adopting FRS 29, 'Financial Instruments: Disclosures'. Under FRS 29 the Company is exempt from the requirement to provide its own financial instruments disclosures, on the grounds that it is included in publicly available consolidated financial statements which include disclosures that comply with the IFRS equivalent to that standard.
The financial statements have been prepared on a going concern basis notwithstanding net current liabilities of £89 million. The directors believe this to be appropriate based on the availability of funds from other group companies. This should enable the Company to meet its liabilities as they fall due for payment.
Subsidiaries
Subsidiaries are entities that are directly or indirectly controlled by the Company. Control exists where the Company has the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities. The investment in the Company's subsidiaries is recorded at cost, adjusted for the effect of UITF 41 and recharged share scheme costs.
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, and in subsequent periods at amortised cost. The difference between cost and 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 rates and 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 movement recorded in the profit and loss account.
The fair value of interest rate swaps is the estimated amount that the Company would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of swap counterparties.
Dividends
Dividends are recognised in the period in which they are declared and approved by the Company's shareholders.
ii Employees
Four (2007: two) directors of ITV plc were the only employees of the Company during the year.
iii Investments in subsidiary undertakings
The principal subsidiary undertakings are listed in note ix. The movements during 2008 were as follows:
|
|
£m |
|
At 1 January 2008 |
1,816 |
|
Impairment |
(117) |
|
At 31 December 2008 |
1,699 |
iv Borrowings
Loans repayable within one year
Loans repayable within one year as at 31 December 2008 include £1 million (2007: £4 million) of loan notes issued in connection with the purchase of Carlton Communications Limited Preference Shares with a coupon of sterling LIBOR minus 0.5%, and an unsecured £250 million Eurobond which has a coupon of 5.625% and matured on 2 March 2009. This was classified as loans payable after more than one year as at 31 December 2007. Loans repayable within one year as at 31 December 2007 also included £21 million of loan notes issued in connection with the purchase of Friends Reunited with a coupon of sterling LIBOR minus 0.525%.
Loan repayable after more than one year
Loans repayable after more than one year include an unsecured €500 million Eurobond which has a coupon of 6.0% and matures in October 2011. The coupon on this bond stepped up from 4.75% to 6.0% with effect from October 2008 as a result of ITV's credit rating with Standard & Poor's being lowered to BB+ in August 2008. In July 2008 ITV issued an unsecured £110 million Eurobond which has a coupon of 3 months sterling LIBOR plus 2.7% and matures in March 2013. An unsecured £325 million Eurobond has a coupon of 5.375% and matures in October 2015, and an unsecured £250 million Eurobond has a coupon of 6.125% and matures in January 2017. The coupon on this bond stepped up to 7.375% with effect from January 2009 as a result of ITV's credit rating with Standard & Poor's being lowered to BB+ in August 2008 further information relating to these bonds is given in note 24 of the consolidated financial statements.
v Called up share capital
|
|
|
Authorised |
|
Allotted, issued and fully paid |
|
|
2008 |
2007 |
2008 |
2007 |
|
Ordinary shares of 10 pence each |
|
|
|
|
|
Authorised: |
|
|
|
|
|
5,826,377,627 (2007: 5,826,377,627) |
583 |
583 |
|
|
|
Allotted, issued and fully paid: |
|
|
|
|
|
3,889,129,751 (2007: 3,889,129,751) |
|
|
389 |
389 |
|
Total |
583 |
583 |
389 |
389 |
The Company's ordinary shares give the shareholder equal rights to vote, receive dividends and to the repayment of capital. There have been no issued ordinary share capital movements during the period.
vi Reconciliation of movements in shareholders' funds
|
|
Share |
Share |
Other |
Profit and |
|
|
At 1 January 2008 |
389 |
120 |
36 |
346 |
891 |
|
Retained loss for year for equity shareholders |
- |
- |
- |
(314) |
(314) |
|
Share-based compensation |
- |
- |
- |
10 |
10 |
|
At 31 December 2008 |
389 |
120 |
36 |
42 |
587 |
The loss after tax for the year dealt with in the accounts of ITV plc is £218 million (year ended 31 December 2007: profit of £131 million) before dividends declared of £96 million (2007: £122 million).
vii Contingent liabilities
Under a group registration, the Company is jointly and severally liable for VAT at 31 December 2008 of £13 million (31 December 2007: £28 million). The Company has guaranteed certain finance and operating lease obligations of subsidiary undertakings.
There are contingent liabilities in respect of certain litigation and guarantees and in respect of warranties given in connection with certain disposals of businesses and in respect of certain trading and other obligations of certain subsidiaries.
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its Group, the Company considers these to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee.
viii Capital and other commitments
There are no capital commitments at 31 December 2008 (31 December 2007: none).
ix Principal subsidiary undertakings and investments
Principal subsidiary undertakings
The principal subsidiary undertakings of the Company at 31 December 2008, all of which are wholly-owned (directly or indirectly) and incorporated and registered in England and Wales except where stated, are:
|
Name |
Principal activity |
|
ITV Broadcasting Limited |
Broadcast of television programmes |
|
ITV Consumer Limited |
Development of platforms, broadband, transactional and mobile services |
|
ITV Studios Limited (formerly ITV Productions Limited) |
Production of television programmes |
|
ITV Network Limited (1) |
Scheduling and commissioning television programmes |
|
ITV Services Limited |
Provision of services for other companies within the Group |
|
ITV2 Limited |
Operation of digital TV channels |
|
ITV Digital Channels Limited |
Operation of digital TV channels |
|
12 Yard Productions (2) |
Production of television programmes |
|
3sixtymedia Limited (80% owned) |
Supplier of facilities for television productions |
|
Carlton Communications Limited |
Holding company |
|
Friends Reunited Limited |
Operation of community based websites |
|
GMTV Limited (75% owned) |
Production and broadcast of breakfast time television under national Channel 3 licence |
|
Granada Limited |
Holding company |
|
ITV Global Entertainment Limited |
Rights ownership and distribution of television programmes and films |
|
ITV Global Entertainment, Inc (3) |
Distribution of television programmes |
|
Granada Productions Pty Limited (4) |
Production of television programmes |
|
Granada Entertainment USA (5) |
Production of television programmes |
|
Granada Produktion für Film und Fernsehen GmbH (6) |
Production of television programmes |
|
Granada Ventures Limited |
Production and distribution of video and DVD products |
|
Imago TV Film und Fernsehproduktion GmbH |
Production of television programmes |
|
Jaffe/Braunstein Entertainment LLC (51% owned) (3) |
Production of television programmes |
|
SDN Limited |
Operation of Freeview Multiplex A |
|
Silverback AB (7) |
Production and distribution of television programmes |
|
(1) Interest in company limited by guarantee. (2) A partnership. (3) Incorporated and registered in the USA. (4) Incorporated and registered in the Australia. (5) Registered in the USA. (6) Incorporated and registered in Germany. (7) Incorporated and registered in Sweden. |
|
A list of all subsidiary undertakings will be included in the Company's annual return to Companies House.
Principal joint ventures, associated undertakings and investments
The Company indirectly held at 31 December 2008 the following holdings in significant joint ventures, associated undertakings and investments:
|
Name |
Note |
Interest in ordinary |
Interest in ordinary |
Principal activity |
|
The Ambassador Theatre Group Limited |
c |
7.34 |
7.34 |
Operation of theatres and production of theatrical |
|
Freesat (UK) Limited |
b |
50.00 |
50.00 |
Provision of a standard and high definition enabled digital satellite proposition |
|
Independent Television News Limited |
a |
40.00 |
40.00 |
Supply of news services to broadcasters in the UK |
|
Mammoth Screen Limited |
a |
25.00 |
25.00 |
Production of television programmes |
|
Screenvision Holdings (Europe) Limited*** |
b |
50.00 |
50.00 |
European cinema advertising |
|
stv group plc (formerly SMG plc) *† |
c |
7.36 |
5.60 |
Television broadcasting in central and north Scotland |
|
Technicolor Cinema Advertising LLC** |
b |
50.00 |
50.00 |
US cinema advertising |
|
Crackit Productions Limited |
a |
25.00 |
- |
Production of television programmes |
|
Electric Farm Entertainment LLC** |
c |
10.00 |
- |
Digital studio company |
|
* Incorporated and registered in Scotland. ** Incorporated and registered in USA. *** Classified as an Asset Held for Sale in 2008 |
a Associated undertaking b Joint venture. c Available for sale investment. |
|||
|
† The Company did not participate in stv group plc's tender offer during the year and as a result its percentage holding in stv group plc's issued share capital has increased. |
||||
x Post balance sheet events
In January 2009 the Company paid £50 million in respect of the final payment of the earn-out relating to the Friends Reunited acquisition in 2005.
In February 2009 ITV increased its liquidity by £50 million under a new ten-year loan which is not subject to financial covenants. The interest cost under the loan is fixed at 8.85% for the first three years and thereafter is at a variable rate, subject to a cap of 15.6%. The lender has the right to loan ITV up to a further £150 million at any time.
On 2 March 2009 the Group repaid the £250 million Eurobond and drew down on a £125 million facility that matures in May 2013.
This information is provided by RNS
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