Final Results

ITV PLC 07 March 2007 ITV plc results for year ended 31 December 2006 Strengthening ITV1 the key to success 2006 Financial highlights â€¢ Solid revenue performance despite soft advertising market and lower ITV1 revenues â€¢ Total revenue of Â£2,181m (2005: Â£2,196m), adjusted for disposals Â£2,173m (2005: Â£2,159m) â€¢ Revenue outside ITV1 NAR up 23% at Â£900m almost balancing reduction in ITV1 NAR â€¢ Digital Channels NAR exceeds Â£150m target a year early â€¢ Operating EBITA Â£375m* (2005: Â£460m*) â€¢ Adjusted EPS 6.4p* (2005: 8.0p*) â€¢ Disposals Â£0.5 billion since merger â€¢ Full Year dividend 3.15p â€¢ Pension fund deficit reduced by Â£247m to Â£285m (after Â£207m deficit funding). â€¢ Non-core asset disposals delivered Â£189m cash in 2006 * Before exceptional items, amortisation and tax adjustments Operating highlights Strengthening ITV1 and growing digital revenues â€¢ Digital channels growing strongly with revenue up 41% at Â£157m, partly offsetting ITV1 NAR down 12% at Â£1,281m â€¢ ITV1 is the only UK commercial channel regularly attracting big audiences - 442 shows broadcast with more than 8m viewers in 2006 â€¢ Over the first eight weeks of 2007, ITV1 adult SOCI is down 5.4% on the same period in 2006 and the ITV family is down 3.0% â€¢ Accelerated commissioning of new programmes with focus on longer running, more contemporary, drama and new entertainment formats Expanding our content business â€¢ Producer/broadcaster model is key - ensuring ownership of intellectual property to leverage/exploit beyond ITV1 â€¢ Produced Oscar winning film The Queen with Helen Mirren â€¢ ITV Content external sales up 18% at Â£282m in 2006: â€¢ UK production revenue outside ITV up 12% â€¢ International production up 16% â€¢ Distribution and exploitation up 24% â€¢ Focus on high value genres â€¢ Increase content for multichannels and made-for-broadband content â€¢ Building MPEG digital 'content store' for programmes - target 20,000 hours by end 2007 Growing consumer revenues â€¢ Consumer revenues growing strongly - up 129% to Â£142m â€¢ Developing online initiatives: â€¢ New ITV broadband service will build mass audiences using high-quality 'click and watch' content â€¢ Roll out for ITV Local regional broadband operations with London and Central going live today. â€¢ Friends Reunited, set for further growth in 2007 with 5 new censuses to be integrated and new mobile, texting and video facilities built into the sites â€¢ Freeview growth helping drive 56% increase in SDN revenue. Freeview set to overtake Sky in 2007 as the most popular digital platform Commenting on the results Michael Grade, Executive Chairman, ITV said: 'Our overall strategy is right, but we need to improve our allocation of resources in order to accelerate the rate of improvement across all our businesses. ITV is a hugely popular brand with the UK's largest family of commercial channels, driven by quality programmes from the biggest and most successful commercial production business in the UK. This in turn enables us to extend our value chain with online distribution. These unique strengths in brand, content and distribution are cause for considerable optimism in our ability to deliver real value for our viewers, advertisers and shareholders.' Ends. For further enquiries please contact: ITV plc Tel: 020 7843 8000 Press enquiries Brigitte Trafford Group Communications Director Jim Godfrey Director of Corporate Affairs Analysts' enquiries James Tibbitts Company Secretary Georgina Blackburn Head of Investor Relations Citigate Dewe Rogerson Tel: 020 7638 9571 Jonathan Clare Simon Rigby George Cazenove Website: www.itv.com, investor information: www.itvplc.com An analysts presentation will be held at 09:30hrs on 7th March 2007 at the City Presentation Centre, 4 Chiswell Street, London EC1Y 4UP Message from the Executive Chairman Michael Grade On Monday, 8 January, 2007 I returned to work for ITV. From the moment I was approached by the Board last year, I had no doubt that I would accept this most stimulating and challenging position in British broadcasting. ITV has not had an easy time in recent history, operating in the highly competitive and technology driven media sector. It faced a challenging advertising market and speculation over both its leadership and its ownership. My brief is to restore the fortunes of the Group and thus return the business to growth. Having been in post for two months it is too soon to conclude definitive plans for the business, but generally I have developed more positive impressions than negative ones, and the latter are mostly within our control to remedy. On the positive side: - There are talented and dedicated people across all areas of the Company; - ITV Productions is a superb business of real scale with the ability to deliver outstanding content, from the Oscar winning film 'The Queen' starring Dame Helen Mirren, to Coronation Street and Emmerdale, to Dancing on Ice; - ITV remains a much-loved brand and ITV1 is still the UK's most popular television channel in peak-time with the England v Sweden game during the football World Cup achieving the highest audience (18.5 million) on any channel in 2006; - Our strong regional presence is a greater asset than is recognised and the growth in regional advertising has been particularly buoyant against a depressed national TV advertising market. We need to find ways to sustain and even enhance this valuable public service. It is part of what binds ITV to its audiences throughout the UK and distinguishes us from our competitors. - Our digital channels are the most successful free to air commercial family of digital channels in the UK, each with distinctive branding and programming. We must ensure that they have the investment they need to grow their leading market position as we approach digital switchover; - The Consumer businesses represent an area of proven growth which we will seek to accelerate; and - The Board's strategy which I inherit is essentially sound. The businesses that have been recently acquired and developed are all natural extensions of the core operations. On the negative side: - Whilst the strategy is sound, we are playing catch up in many areas, no doubt due to the efforts required to 'bed in' the successful Carlton/Granada merger. We have a valuable multichannel offering and exciting web opportunities - but still a long way to grow; - There is a lack of innovation in our programming, partly resulting from a fear of ratings failure and the punitive consequences that follow under the Contract Rights Renewal (CRR) remedy; - The Company has developed a tendency towards bureaucracy. The cure for this lies with the example set by the leadership team within the businesses. I will improve delegation, and place emphasis on the need to make the ITV values a reality in our actions; - We need to continue strengthening the relationship between our commissioning teams and both internal and external producers. This is critical to ensure that the commissioning pipeline is filled with the high-quality programmes that deliver the audiences which in turn our commissioning team need to fulfil our advertisers' and viewers' aspirations; and - Our regulatory environment needs to reflect the reality of our 21st century structure and the developing market in which we operate these days. ITV may have consolidated, but it is a long way from the advertising monopoly of yesteryear. The regulatory burden has yet fully to reflect this. My task, after the recent distractions - together with ITV's senior management team - is to build a sense of confidence in our people and the wider creative community to ensure that together we deliver more consistently for our viewers, our customers and our shareholders. My immediate priorities are developing the strength of our programming and new media businesses, and working to reduce overly onerous regulatory constraints. Raising our creative sights On the programming side we must raise our creative ambition. We must be more innovative and take more risks. We must be more relevant and we must be ahead of audience tastes. In particular we must regain our pre-eminence in drama series on ITV1 at 9.00 pm. I am definitely encouraged by what I have heard and seen so far from the new commissioning team headed by Simon Shaps. They have already started to cull some of the older programmes which were past their sell by date, and we are introducing a range of new programmes in 2007. I am now working with them on the plans that are being formulated for 2008 and beyond. Content creation is at the core of our future High quality, home produced, popular content attracts the mass audiences which only ITV can offer advertisers, thus generating value. Content creation is today, and will remain, at the heart of ITV. I am committed to the continuing development of ITV Productions. It is already one of Europe's most successful commercial production companies supplying programmes in many different genres both for ITV and other UK broadcasters. Our licensing, distribution and international production businesses which are also important to our content development strategy, are growing and moving into new markets and territories, providing important additional revenue streams. The value chain for content is getting longer and more lucrative thanks to the digital present - and future. New media platforms Increasingly our viewers are demonstrating a desire to move beyond a simple passive viewing experience and expect to interact with, and participate in, our programming. People are also accessing our content from a much wider range of media platforms. Our Consumer team has responded, developing ways of enabling viewers to do this. Technology creates new opportunities for content consumption, and we must ensure that we exploit the opportunities that this brings, delivering new services that viewers can access whenever, wherever, and however they want. The launch of our new broadband proposition this Spring will significantly enhance our online offering. I will be promoting the acceleration of our new media businesses. With our high-quality content and services for viewers, I believe that 2007 will be the year that ITV comes of age as a deliverer of online entertainment with real commercial opportunities. Appropriate regulation for the digital age ITV is subject to a high degree of regulation, some of it the legacy of an age of analogue broadcasting and an oligopolistic commercial broadcasting structure. This regulatory burden is not entirely compatible with the increase in competition driven by digital technology and new media, and by the public's appetite to access new distribution platforms as they appear. One of our priorities is to seek some alternative to the Contracts Rights Renewal remedy (CRR). The CRR undertakings were given in 2003 as a pre-condition to the merger of Carlton and Granada to create ITV, and the effect is to link ITV1's advertising share (Share of Broadcast) directly to its commercial viewing share measured by Share of Commercial Impacts (SOCI). It has become apparent that this not only prevents ITV from receiving fair value for the mass audiences it delivers, and which are so sought after by advertisers, but it is also damaging to the overall UK television advertising market. A number of well respected figures in media and advertising now accept that CRR needs urgent review, and we are lobbying hard for that process to begin. We continue to look for operating efficiencies across the business. We announced in June 2006 an operational review with plans to save Â£40 million over three years. We are on track to deliver these efficiency savings. Conclusion During 2006, ITV was the subject of much bid speculation, with potential offerors being forced on two occasions to make public statements about their intentions. In neither case was a formal offer tabled, and in both cases the Board carefully considered firstly the limited information provided by the potential offerors, and secondly detailed internal and external valuation work. On both occasions the Board concluded that it was in all ITV shareholders' interests that such proposals should be rejected. On 17 November 2006, British Sky Broadcasting (BSkyB) acquired a 17.9% holding in ITV at a price of 135 pence per share. At the present time, BSkyB's holding is subject to regulatory reviews by Ofcom, the OFT and the DTI in relation to both competition and broader public interest issues; Ofcom is also separately reviewing 'change of control' under the Broadcasting Act. ITV has made submissions in response to the authorities, at their request, and has noted the concern that BSkyB (as a competitor) may be able, with the size of its holding and given historic voting patterns, to block a shareholder resolution requiring a 75% majority and that this may not be in the interest of ITV's shareholders as a whole. The authorities will consider whether there should be any form of restriction on BSkyB in respect of their holding in the Company. The Board will continue to act in the interests of all shareholders. In reviewing the level of the final dividend to propose at the forthcoming AGM your Board has considered a number of factors. The UK television advertising market deteriorated over the late Summer and Autumn of 2006, resulting in a near 5% fall for the calendar year. It was in part as a result of this that the Board of ITV plc decided to halt the share buy-back programme at Â£251 million. Market estimates for 2007 were that the UK television advertising market would be either flat or decline a little further, with the first half of 2007 likely to be more adversely affected as a result of comparative 2006 monthly revenue patterns. Over the first quarter of 2007 we believe that the UK television market will be approximately 0.5% higher than 2006, and ITV's total advertising revenue will be down by approximately 4.5% as the effect of CRR and SOCI decline on ITV1 reduce the channel's share of advertising. Whilst we expect this decline to slow and stabilise as multichannel digital television fully replaces analogue, it is probable that ITV1 revenues will decline in 2007, and may not be wholly made up by the growing advertising revenue from our successful digital channels. Having regard to this, your Board has decided to propose that the final dividend for the year ended 31 December 2006 should be held at the same rate as for 2005 of 1.8 pence, to be paid on 2 July 2007 to shareholders on the register on 20 April 2007. My Board colleagues and I would formally like to record our thanks to Sir Peter Burt and Charles Allen for their contributions to ITV. The creation of 'one ITV' from 11 separate regional ITV companies owes much to Charles' vision and determination. Under Sir Peter's steady stewardship through an unsettling period, Charles directed the integration of Granada and Carlton ahead of schedule and produced greater synergies than originally forecast. I would like to thank all of my new colleagues within ITV for their warm welcome, and to express my belief that together we can lift our game and create new and valuable content for our viewers and uniquely effective airtime for our advertisers. Michael Grade Executive Chairman Operating review Introduction 2006 was a year of significant change for both the sector and the Company. Our traditional core business, ITV1, continued to be affected by a number of negative factors and we continued to develop new businesses and revenue streams. 2006 has seen ITV continue to adapt to the demands of the digital world. Our programming consistently delivers mass audiences on ITV1 and we have launched more new channels to add to our successful family of digital channels. Our online presence will achieve a significant step forward with the launch of our new itv.com broadband portal in the Spring of this year. The Board of ITV have made significant changes to the leadership of the Company in recent months. In November the Board announced the appointment of Michael Grade as its new Executive Chairman. He took up his position on 8 January 2007 and assumed the responsibilities of the Chairman, Sir Peter Burt, who resigned on the same day, and the executive responsibilities of the former Chief Executive, Charles Allen, who left the company on 4 January 2007. Although the appointment of an Executive Chairman is not consistent with the provisions of the Combined Code, the Board considered the circumstances within which it was made justifiable in terms of restoring strategic leadership to the Company. The appointment has been warmly welcomed by ITV's leading investors, the broadcasting industry, media commentators, the advertising community and other key stakeholders. In 2007 John Cresswell, ITV Finance Director, was also appointed to the role of Chief Operating Officer. He takes on all operating responsibility and the executive team report directly to him. Operating review Broadcasting In 2006 we put in place the strategies we believe will deliver long-term sustainable growth in our broadcasting business. These include: - a new commissioning team and continued investment of approximately Â£1 billion per annum in our programme schedule; - investing in new programming and channel brands; - optimising schedule efficiency; and - working to modernise our regulation including CRR and our Public Service Broadcasting (PSB) obligations. We maintain tight control on costs and are one of the most efficient broadcasters in the UK as measured by the relationship between programme spend and audience share. Highly efficient UK broadcaster UK channels programme efficency (2005) Share of total Total programme audience spend share Efficiency (%) (%) ratio Five 4.0 6.6 1.65 ITV1 17.3 21.3 1.23 BBC1 19.2 23.1 1.20 BBC2 8.0 9.5 1.19 C4 10.4 9.8 0.94 Source: 1 Ofcom Communications Market 2 BARB, Ofcom Communications Market, BBC Annual Report 2005 In 2006, ITV remained the leading free to air commercial broadcaster in the UK, and ITV1 was the most popular channel in peak time between 7.00pm and 10.30pm in the evening. In our programming, we broadcast a mixed portfolio of genres including high budget entertainment and drama, major sporting events, popular factual programming and agenda setting news and current affairs. Whilst long-running popular shows such as Coronation Street, Emmerdale and The Bill have seen some overall audience decline during 2006, we are working hard to revitalise them. ITV had significant rating successes in 2006 with newer programmes such as Dancing on Ice, Wild At Heart, Soapstar Superstar and Lewis. In 2006, ITV produced more new programmes with an audience in excess of 5 million viewers than all other UK broadcasters combined including the BBC. In 2006, ITV News opened a bureau in Beijing to expand its coverage from one of the world's largest economies and, in October, China correspondent John Ray marked the opening with a week of special reports from the region. In March 2006, ITV News launched the highly acclaimed Three Degrees from Disaster series, assessing the evidence of climate change around the world. This has been followed up in January 2007 with Mark Austin providing the first ever live coverage from Antarctica for ITV News, with film of the melting glacial ice cap. ITV News also managed to secure exclusively the only phone video footage of the police raids in Forest Gate on 2 June. In the week that marked the anniversary of the 7/7 London bombings, ITV News set the news agenda after undertaking the biggest ever survey of British Muslims. Digital channels We increased our investment in our digital channels by Â£14 million to Â£75 million in 2006, with a further Â£25 million projected for 2007 to increase our audience reach, and we launched a number of new channels. Because of the strength of ITV's family of digital channels, we were able to keep high-value audiences within the ITV family through cross-promotion, complementary scheduling and strong distinctive branding for each of our channels. We increased audience reach using the ITV Family of channels to target valuable, but distinct, demographics at different times of day. For example, our younger audiences were attracted to programmes on ITV2 or ITV4, when ITV1 was showing programming with more appeal to older viewers. The success of this approach in 2006 was that ITV2, ITV3 and ITV4 produced 29% of all year on year multichannel adult impact volume growth and 50% of all year on year multichannel advertising revenue growth. Overall advertising revenue from our digital channels grew by 41% to Â£157 million in 2006, exceeding our target of Â£150 million p.a. a full year ahead of plan. Delivering for our advertisers In 2006, ITV1 broadcast all the programmes on any commercial channel achieving over 8.2 million viewers (2005 - all programmes over 7.5 million). With this scale, ITV helped advertisers achieve their brand building objectives of high impact delivery and viewer engagement. In 2006, ITV created a new Integrated Planning team to build stronger relationships with strategic planning advertising agencies. They work alongside the airtime Trading team, who focus on ITV's portfolio of programming and digital channels and negotiate directly with media buying agencies. The two teams work closely with our advertisers to offer them bespoke multimedia solutions for both mass audiences with ITV1, and targeted audiences across our digital channels and new media platforms such as mobile and online. We are also unique in our competitive environment in having regional and local advertising sales capabilities, and our ability to offer regional and sub-regional advertising solutions has driven regional advertising revenue growth by 14% in 2006. SOCI performance in 2006 A number of factors have contributed to the decline in ITV SOCI during 2006. For ITV1 the decline in adult SOCI was 10% to 33.1%. Under the CRR mechanism our advertisers would be able to reduce the share of their total UK TV advertising committed to ITV1 by a proportionate 10% in 2007 whilst retaining their previous discount and pricing structure. This loss will be partially offset through the continued investment and growth in our digital channels' revenue and through some outperformance against CRR on ITV1, where for instance regional advertising has been performing strongly. Content ITV Productions is one of Europe's largest and most successful commercial producers, creating more than 3,000 hours of original programming each year. ITV Channels 2006 all time adult impact share and volume in all homes Share of Volume of impacts commercial (billion) impacts (%) Channel 2006 2005 2006 2005 ITV1 33.1 37.0 234.8 258.2 ITV2 3.0 2.8 21.5 19.3 ITV3 2.3 1.6 16.7 11.3 ITV4 0.7 0.1 5.0 0.6 M&M 0.4 0.4 2.6 2.6 Citv 0.1 - 0.8 - ITV News - 0.1 - 1.1 GMTV 2.5 2.6 17.3 17.8 GMTV2 0.1 - 0.4 0.3 Total 42.2 44.6 299.1 311.2 (Source: BARB) ITV Productions has dominated ITV1's list of top ten most popular programmes in terms of viewing share in 2006 with eight of the top ten programmes (2005: six of the top ten). Five of the top ten shows on all UK television were made by ITV Productions (2005: four of the top ten). ITV Productions made seven of the top ten dramas on all UK television (2005: five of the top ten). Moving forward, as part of ITV's strategy for growth, ITV Productions is focusing on high-value genres, such as high-end contemporary drama and factual entertainment, and exiting low-growth and low-margin businesses. It is almost impossible for all programmes to be instant successes, and ITV Productions during 2006 did make a number of programmes that did not deliver the expected audiences. Whilst acknowledging that there will continue to be some programmes, including well made and presented programmes, that do not achieve the ratings expected of them, we are working hard to improve the hit rate for both new and returning shows and recognise that we must not be risk averse. As a producer-broadcaster ITV generates a significant amount of content in-house. There are clear synergies involved in combining our broadcasting and production operations. For broadcasting, the advantages are that we can secure development and innovation in-house, keep programme inflation costs to a minimum, and gain access to rights and key talent. For our production team the advantages include; a high volume of production attracting and supporting key talent both in front of and behind the camera, the ability to develop formats for ITV that can then be produced for and sold to broadcasters in other countries, and increasingly the opportunities in digital and new media to exploit the rights that are created when programmes are commissioned. We continued to grow our production for other broadcasters, in the UK, with hits like The Street for BBC. Worldwide Internationally, our ITV Worldwide production businesses increased their turnover by 16% in 2006. Growth at Granada America, Granada Germany and Granada Australia was fuelled by a strong year for returning formats such as Nanny 911 and Hell's Kitchen with Gordon Ramsay in America, Das Perfekte Dinner (Come Dine With Me) in Germany, and Dancing on Ice and Dancing with the Stars (Strictly Come Dancing) in both Australia and Germany. In 2006 Granada America produced programmes for major cable television and US networks including Hit Me Baby One More Time (NBC), Gameshow Marathon (CBS) and Nanny 911 (Fox). Granada International increased its sales by 31% in 2006 to TV broadcasters, home entertainment partners and new media platforms in more than 200 countries worldwide. Particular successes included TV movies, and format sales including Dancing On Ice to 12 territories including Russia, Belgium and Holland. Granada Ventures increased revenue in 2006 by 13%, particularly from DVD sales. Key programming included box sets for Cracker and Agatha Christie's Poirot, the launch of Pocoyo on DVD, and a range of interactive DVD games launched at Christmas. Two of these interactive games featured in the Top 10 releases in the UK, with Little Britain the fourth best selling title in the UK active charts. Consumer Throughout 2006, ITV continued to develop its presence and pursue growth opportunities in new markets and on new platforms. ITV's expanding Consumer team raised our business-to-consumer capability through a range of innovative market offerings, and 'new pay' revenue opportunities. In 2006 ITV Consumer made a number of senior appointments to help drive this growth forward in the coming months. The performance of its separate businesses are set out below. Platforms Our platforms business focuses on exploiting and managing ITV's interests in broadcasting platforms. Our Freeview multiplex SDN - one of the six multiplexes carrying digital channels on Freeview - will deliver increasing revenues as the digital terrestrial platform grows in popularity and our contracts with channel operators come up for review from 2008 onwards. Broadband Our online presence has three key components. In 2006 we started the planning and preparation for itv.com to be re-launched with improved functionality, content and design. In Spring 2007, we will re-launch the new itv.com, having committed more than Â£20 million to the development of a fully interactive broadband platform and content digitisation. The site will enable viewers to watch all of ITV's channels live, catch up on any programme from the last 30 days, and access ITV's extensive archive. Revenues will initially be delivered through advertising, and the ITV brand and cross-promotional capability will be used to drive traffic to the site. Alternative revenue models such as subscription and pay per view will be trialled in due course, building on the success of the on-demand Champions League service launched in September 2006. Our wholly-owned community website, Friends Reunited, is the second key part of our online strategy and builds on user-generated content. Friends Reunited has grown under ITV's ownership with EBITA of Â£8.8 million in 2006 up 52% on 2005. Integration of Friends Reunited moved apace during the year, with work undertaken to maintain its leading market positions in schools reunion and genealogy, improve the consumer proposition, and increase functionality through the upload of user-generated content. Advertising sales for the sites are now handled in-house at ITV, and Friends Reunited provides dating and jobs services for itv.com and ITV Local. Friends Reunited also provides itv.com with the infrastructure and traffic to leverage a host of significant, related commercial opportunities, including targeted advertising, the provision of enriched online content, and interactive services, to drive further growth. These are some of the ways that Friends Reunited and our other operations can leverage off each other's core competencies. ITV Local is the third business in our online portfolio. Following a successful trial in the Meridian area, we have identified a strong consumer demand for local information, news and services that are accessible online. ITV Local blends two key ITV strengths, our regional news brands, and our relationships with advertisers. In 2006, ITV acquired business directory specialist Enable Media (currently operating as Scoot) which gave us an immediate and significant foothold into the online business directory listings sector, a market which is estimated to be worth approximately Â£150 million, and is projected to grow by 20% in 2007 and strongly thereafter. Intended as a richer video-led, more interactive, version of a local paper, ITV Local is now adding London and Central regions to its service, with other regions to follow throughout the year. Transactional In 2006 we launched ITV Play, our participation TV brand. This has proved popular with both viewers and those who participate. In 2006 we have given away nearly Â£12 million to over 26,000 winners. ITV Play has a well-used and well-publicised free route through which comes one in five entries. The vast majority of viewers enjoy ITV Play without phoning in - three quarters of viewers typically watch the show on ITV1 during the night without participating. Viewers generally play in moderation. When they do play, 77% of entrants play fewer than five times a day and typically play once every five weeks. We await the result of the current enquiry into participation TV formats and we are ensuring that our own systems are robust and our programmes are compliant. ITV Play Viewer Care Participation TV is a new sector, and we will continue to work with all relevant regulatory bodies to ensure that standards of viewer care across the industry are appropriate. Examples of measures ITV Play has in place include: - Reminder phone alerts every 10 calls - On-screen information about all available entry routes, referred to regularly by the presenters - An in-house viewer care team - Caller activity monitoring with pro-active calls to high-volume players - Daily limit on all entry routes - Entry limited to over 18s - A code of conduct in place with our production company suppliers Mobile 2006 saw some strategic developments for ITV's mobile presence. We re-launched our entertainment portal, which offers news, entertainment, TV listings, weather, ring-tones and wallpapers, and many other services for mobile users. ITV also agreed content partnerships with Virgin Mobile and 3, becoming the first UK terrestrial to stream its channels on 3G phones. Within a month of operation more than 100,000 sessions took place on the 3 mobile TV simulcast service, demonstrating a real demand for ITV's mobile TV services. We will continue to work with mobile network operators as they experiment with new offerings. Summary The Operating Review highlights how the strengths of ITV's operations helped us deliver programmes and services to satisfy our viewing and advertising customers. Many of our successes have been significant peaks of performance in the face of ever more challenging competitive pressures. However, our aim is to achieve more consistency in our on-screen performance. The degree of structural market change, especially the move to digital and channel proliferation, has meant that some areas of performance have declined, as shown by some of our non-financial KPIs. Some of these pressures will reduce, as the move to digital nears completion. The Financial Review that follows explains how these factors have translated into the financial results. FINANCIAL REVIEW Statutory results for the year ended 31 December 2006 Total revenue for the year ended 31 December 2006 was slightly lower at Â£2,181 million (2005 restated: Â£2,196 million) whilst revenue before disposed businesses was slightly up at Â£2,173 million (2005 restated: Â£2,159 million). Operating profit decreased to Â£264 million (2005: Â£329 million) with underlying operating profit before amortisation and exceptional items down 18% at Â£375 million (2005: Â£460 million). Profit before tax, amortisation and exceptional items decreased by 19% to Â£364 million (2005: Â£452 million). Revenue 2006 2005 Â£m Restated Â£m Broadcasting 1,665 1,783 Content 652 672 - less internal (370) (432) 282 240 Consumer 126 61 Other revenues 12 20 Producer/Broadcaster segment 2,085 2,104 Other segment 96 92 Total 2,181 2,196 PRTS restatement (19) Total previously reported 2,177 The table above includes the results of disposed businesses (021 and Granada Learning) of Â£8 million in 2006 and Â£37 million in 2005. These businesses were sold in 2006. Broadcasting Broadcasting sales comprise net advertising revenues, sponsorship income and other revenues. Total ITV NAR decreased by 8% during the year to Â£1,494 million (2005: Â£1,631 million). 2006 2005 Change Â£m Â£m Â£m ITV1 1,281 1,462 (181) ITV2, ITV3, ITV4, ITV News Channel, M&M, Citv 157 111 46 GMTV 56 58 (2) Total NAR 1,494 1,631 (137) ITV1's NAR in the year was Â£1,281 million (2005: Â£1,462 million), Â£181 million lower than 2005, however, this reduction was partially offset by the strong performance of ITV2, ITV3 and ITV4 which, together with Men and Motors and Citv contributed 41% year on year growth of Â£46 million resulting in total NAR of Â£157 million (2005: Â£111 million) across these channels. ITV's NAR is a function of audience share which is measured in terms of commercial impacts, prevailing advertising market conditions and television's share of that market. 2006 was a difficult year for the television advertising market, with a decline of 4.9% compared to growth of 2.6% in 2005. Coupled with the effect of CRR (following the 11% decline in ITV1 SOCI in 2005), this results in ITV1's 2006 NAR being down 12% on 2005. In 2006, ITV's total share of commercial impacts on UK television was 42.2% (2005: 44.6%). The 2007 advertising trading season is now substantially complete, with the majority of agency deals agreed. Our ITV1 negotiations are within the framework of the Contracts Rights Renewal ('CRR') remedy agreed with the Office of Fair Trading as a condition to the merger creating ITV plc. Sponsorship income increased by 29% in 2006 to Â£53 million (2005: Â£41 million) due to price increases as the cost of sponsorship moves closer to airtime value and also the successful sponsorship of new programmes and events such as the 2006 World Cup. Other broadcasting revenues of Â£118 million (2005: Â£111 million) include airtime sales on behalf of third parties, sales of ITV programming by the Network Centre to Channel 3 licences not owned by ITV and interactive transactions from GMTV. Content 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 for ITV channels is not included in Group revenue as it represents an internal programming cost of sale and in 2006 this internal programming amounted to Â£370 million of ITV network programme spend (2005: Â£432 million). In 2006, total external sales of Â£282 million (2005: Â£240 million) included original productions for other broadcasters of Â£139 million (2005: Â£122 million), distribution and exploitation sales of Â£123 million (2005: Â£99 million) and revenue from the hire of studio and technical facilities of Â£20 million (2005: Â£19 million). Consumer Consumer revenues include interactive and online transactions of Â£47 million (2005: Â£44 million), income from the first full year of ITV Play of Â£54 million (2005: Â£1 million) and revenues from our digital terrestrial multiplex SDN of Â£25 million (2005: Â£16 million). Other revenues Other revenues include property rental income and 021 (sold in 2006). Other segment Revenues from outside of the main producer/broadcaster segment include those for Carlton Screen Advertising of Â£72 million (2005: Â£61 million), Friends Reunited of Â£16 million (2005: Â£1 million) and Granada Learning of Â£8 million (2005: Â£30 million). Restatement During the period the Group has reviewed its revenue recognition policy for premium rate telephony services acknowledging the increasing significance of this revenue stream. The Group's policy has consequently been revised to reflect revenue as the amount billed net of operator costs. Previously revenue was shown net of other costs, such as production costs, in addition to operator costs. 2005 revenue and operating costs have therefore been restated, reflecting an increase in both of Â£19 million. The impact of this change in accounting policy in 2006 was that revenue and operating costs are both Â£16 million higher than under the previous accounting policy. 2006 was the first full year of operation of ITV Play which also earns revenues from premium rate telephony services. ITV Play's revenues and operating costs in 2006 would have been Â£34 million lower if the new accounting policy had not been adopted. There is no impact on either profit or balance sheet. Broadcasting schedule costs 2006 2005 Â£m Â£m ITV1 (plc share) 783 776 Regional news and non-news 119 125 902 901 ITV2 36 38 ITV3 14 9 ITV4 18 6 GMTV 36 36 Other channels 7 8 Total schedule costs 1013 998 Cost of programmes sold to minorities 57 53 Total Broadcasting schedule costs 1,070 1,051 The Â£6 million savings in regional programme costs are from increased efficiencies across our regional production centres and the greater use of co-productions. The increased investment in ITV's digital channels has been a key factor in attracting new advertisers and viewers to our channels offering. Licence fees Licence fees comprise both a fixed annual sum (the cash bid) and a variable element representing a percentage of our ITV1 NAR and sponsorship income (PQR Levy). The PQR Levy is reduced by the percentage of homes which receive ITV1 in digital format. The digital licence rebate for 2006 is based on a digital penetration of 70% (2005: 61%). 2006 2005 Change Â£m Â£m Â£m Cash bid payment 4 4 - PQR Levy 175 192 (17) Digital rebate (128) (121) (7) Total 51 75 (24) The payment will continue to fall as digital penetration increases and will reduce to around Â£4 million in constant prices by the time analogue transmissions cease. Exceptional items The operating exceptional items in the year total a net Â£35 million and include costs associated with takeover approaches, the departure of senior management and the Â£40 million efficiency programme. Net financing charge Financing income 2006 2005 Â£m Â£m Expected return on pension scheme assets 144 112 Interest income 23 21 Net gain on remeasurement of interest rate swaps to fair value - 11 167 144 Financing costs 2006 2005 Â£m Â£m Interest cost on pension scheme liabilities (126) (125) Interest expense on debt instruments and finance leases (66) (54) Net loss on remeasurement of interest rate swaps to fair value (1) - (193) (179) Net finance charge (26) (35) The decrease in the net finance charge in 2006 is primarily due to a higher expected return on pension scheme assets as a result of the deficit funding payments. The increase in interest expense on debt instruments and finance leases is due to the bonds issued in October 2005 and 2006. Investment income Investment income of Â£3 million comprises dividend income principally from holdings in SMG and Seven Network in Australia. Gain on sale of property The Â£4 million profit from the sale of properties in the year principally arose from a gain on the sale of the Newcastle site. Gain on sales of fixed asset investments During the period, as part of the ongoing process to dispose of non-core businesses and investments, the Group sold 021 and Granada Learning and its investments in Seven Network and TV3. The disposal of the 021 business for Â£4 million resulted in a nil gain or loss being booked. The sale of Granada Learning took place in April for a potential maximum consideration of Â£53 million. This comprises Â£17.5 million in cash, Â£17.5 million in loan notes (of which Â£28 million was received in 2006) and a further Â£18 million which is contingent on the future performance of the business. The fair value of expected proceeds has been taken as Â£31 million for accounting purposes resulting in a Â£12 million loss on disposal. The interest in Seven Network was sold for total consideration of Â£87 million resulting in a profit of Â£29 million booked through the income statement. The interest in TV3 was sold for a total consideration of Â£70 million resulting in a profit of Â£40 million booked through the income statement. Offsetting these disposal profits is a Â£22 million impairment relating to our interest in SMG which has experienced a significant decline in the share price since July 2006. After the year end ITV announced that it had given an irrevocable undertaking to sell its 9.99% shareholding in The Liverpool Football Club and Athletic Grounds plc, for proceeds of Â£17 million. The profit booked through the income statement is forecast to be Â£7 million in 2007. Tax The effective rate of tax on PBT is 23%. The underlying rate of tax on operating profits is 30% as shown below: Underlying rate of tax Â£m Operating profit before exceptional items, amortisation and share of profits of joint ventures and associates - Profit before tax as reported 288 - Exceptional items (net) - - Amortisation 76 - Share of profits of joint ventures and associates (8) 356 Underlying tax charge - Tax charge as reported 66 - Net charge for exceptional items (2) - Credit in respect of amortisation 17 - Credit in respect of prior period items 36 - Other irregular tax effects (11) 106 Underlying rate of tax 30% Earnings per share Basic earnings per share are 5.5 pence (2005: 5.4 pence). Adjusted earnings per share before exceptional items, amortisation and tax adjustments are 6.4 pence (2005: 8.0 pence). Dividend The Board is proposing a final dividend of 1.8 pence per share which is unchanged on the 2005 final dividend. The total dividend proposed for the period is therefore 3.15 pence which is an increase of 1% over 2005 and is covered 2.03 times by the adjusted earnings per share (before exceptional items,amortisation and tax adjustments) of 6.4 pence. Acquisitions of businesses In November, ITV acquired Enable Media Limited (formerly trading as Scoot) which provides online business directories, for a total cash outflow in 2006 of Â£3 million. Intangible assets Total intangible assets at 31 December 2006 are Â£3,895 million being principally goodwill and acquired intangible assets. Goodwill balances are not amortised but are instead subject to annual impairment testing. An impairment charge of Â£20 million has been recognised in 2006 relating to Carlton Screen Advertising as a result of reduced profitability following structural changes in the cinema advertising market. Other intangible assets are amortised over their useful lives. The total amortisation charge for the year including the Â£20 million impairment is Â£76 million (2005: Â£102 million). Cash flow and net debt The cash generated from operations was Â£342 million (2005: Â£456 million) and was down on the prior period due to a Â£85 million decrease in operating profit before exceptional items and amortisation and a working capital outflow in 2006 of Â£36 million versus a Â£10 million outflow in 2005. In 2005 the working capital benefited by Â£34 million from the exercise of a currency option hedging the Exchangeable Bond which was no longer required. Net cash interest paid on the Group's net debt position was Â£47 million. Taxation paid reflects payments on account during the period. The equity dividends paid comprise the 2005 interim and final dividends of Â£54 million and Â£74 million respectively. Expenditure on property, plant and equipment totalled Â£79 million. During the period the Group brought three properties that were previously held under long-term leases with the intention of subsequently disposing of them. Two of these are shown in the balance sheet as assets held for sale. Cash received from the sale of the investment in Seven Network (Â£87 million) and TV3 (Â£70 million) totalled Â£157 million. Cash received from assets held for sale of Â£40 million included the proceeds from the sale of 021 (Â£4 million), Granada Learning (Â£28 million) and three properties (Â£8 million). As announced in November 2006, the Group has suspended its share buy-back programme at Â£251 million. As described in more detail under pensions, a Â£207 million deficit funding payment into the defined benefit schemes is reflected in cash flows. In October 2006, the Group issued a â‚¬500 million Eurobond with a 2011 maturity and a Â£250 million Eurobond with a 2017 maturity. The interest coupons currently payable on these instruments are 4.75% pa and 6.125% pa respectively. The principal movements in net debt in the year are shown in the table below: Â£m Â£m Net debt at 31 December 2005 (481) Cash generated from operations 342 Net interest paid (47) Taxation paid (50) Equity dividends paid (128) Expenditure on property, plant and equipment (79) Proceeds from sale of investments and assets held for sale 197 Other movements (30) 205 Share buy-back (251) Defined benefit pension deficit funding (207) Net debt at 31 December 2006 (734) 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. The 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 schemes are carried out every three years with the most recent valuation of the main scheme having been conducted by the scheme actuaries at 31 December 2004. Following the scheme merger referred to below, actuarial funding valuations of certain sections of the merged scheme are being prepared as at 1 January 2005. i) Scheme merger At the beginning of 2006 there were six separate defined benefit pension schemes in the Group, a legacy of the company mergers that created ITV. Terms were agreed with the trustees to merge those into a single scheme and that process completed at the end of January 2006, with the merged scheme comprising three separate sections. This will save significantly on the costs of administration and professional advice, and also enable a clearer focus on the issues for a single scheme than was possible with separate schemes. ii) Deficit funding It was announced in September 2005 that ITV plc would make a Â£325 million contribution into the defined benefit pension schemes as part of a plan to address the deficit. The amount had been calculated so that, together with estimated future investment returns on the schemes' assets, it would enable the schemes to move towards being fully funded (on an ongoing basis) over an appropriate period of time. The funding was made in cash with Â£118 million paid in December 2005 and Â£207 million in January and February 2006. iii) IAS 19 IAS 19 accounting for the Group's defined benefit schemes values the annual cost and assets and liabilities of the scheme on disclosed bases and includes those in the Company's consolidated income statement and consolidated balance sheet. In 2006 the IAS 19 operating charge for defined benefit schemes was Â£25 million (2005: Â£24 million). The charge within net financing costs for the net result of the expected return on scheme assets less the interest cost on liabilities was a credit of Â£18 million (2005: Â£13 million). The Group's defined contribution schemes gave rise to an operating charge of Â£2 million (2005: Â£2 million). The IAS 19 deficit at 31 December 2006 was Â£285 million (2005: Â£532 million). A net actuarial gain of Â£29 million has been recognised as a credit to reserves. The reduction in the IAS 19 deficit during 2006 is primarily due to the funding payments made as described above and the Â£29 million of net actuarial gains. The funding of the defined benefit pension schemes is based upon the actuarial funding valuations conducted by the scheme actuaries. iv) Pension tax simplification The new tax regime for pension funds came into effect on 6 April 2006. This change, referred to as 'A' Day, has significant consequences for senior executives for whom tax relief on pension accruals changed from that time. ITV took professional advice and concluded that it should not separately compensate any executives for this change, but should establish alternate pension arrangements for those immediately impacted which leave both the individual and the Group in positions broadly similar to the past. v) Proposed changes to future defined benefit scheme accruals During 2006 ITV concluded that the future cost of defined benefit pension scheme accruals was too great, being approximately 24% of salary as the employer's contribution in the main section of the scheme, and that the wide range of benefit levels across the merged scheme should be standardised. ITV started a consultation with employees proposing possible changes from April 2007. This consultation has involved many presentations and meetings with staff, and consideration of the changes that might be made. Members will be notified of changes prior to implementation. International Financial Reporting Standards ITV plc has adopted EU endorsed IFRS for group reporting. Forward look This Business Review has set out the reasons why we believe that, despite a challenging market environment, ITV has the strengths and strategy to regain and grow market share beyond the ITV1 channel. The media industry changes at an ever swifter pace: - New channels continue to be launched; - Digital switchover is approaching, starting in 2008; - New distribution platforms develop: broadband, mobile, portable devices; and - Interactivity increases and viewers expect their content to be delivered when and where they want it, not simply within a broadcast schedule. These changes offer ITV opportunities for our broadcasting, content and consumer teams. We believe we have the right strategy, and the execution skills, to develop our business within these new areas. In a world of fragmented viewing, the channels that are able to offer a shared viewing experience for viewers and a mass audience to advertisers become ever more valuable. ITV1 remains the most-watched channel in peak-time and is still the most effective way for advertisers to build awareness and brands in a short space of time. We also believe that ITV's regional presence, an intrinsic part of the Company's history and identity, will increasingly be a point of difference and a competitive advantage as other commercial players will be unable to match our 'local' connection with viewers or our regional advertising opportunities. Our estimates for net advertising revenue in the first quarter of 2007 are: - UK television market +0.5% - ITV1 (reflecting CRR effect) -9.2% at Â£291.8 million - ITV plc excluding ITV1 +28.2% at Â£58.8 million - Total ITV plc -4.5% at Â£350.6 million While it is difficult to predict how and where people will choose to watch or consume content in the long-term, as one of Europe's leading commercial production companies we can be confident that we will find more outlets and channels for our content, both in the UK and internationally. We are also growing our consumer businesses which will provide ITV with new and sustainable revenue streams in the future. Our new broadband portal, itv.com, will launch in the Spring of 2007 and we believe will help drive the way consumers use broadband to access top quality content. Consolidated income statement 2005 2006 Restated For the year ended 31 December: Note Â£m Â£m Revenue 2,181 2,196 Operating costs before amortisation of intangible assets and exceptional items (1,806) (1,736) Operating costs - exceptional items 1 (35) (29) Earnings before interest, tax and amortisation (EBITA) 340 431 Amortisation and impairment of intangible assets 6 (76) (102) Total operating costs (1,917) (1,867) Operating profit 264 329 Financing income 167 144 Financing costs (193) (179) Net financing costs (26) (35) Share of profits of joint ventures and associated undertakings 7 8 11 Investment income 3 5 Gain on sale of properties 4 11 Gain/(loss) on sale and impairment of subsidiaries and investments (exceptional items) 1 35 (10) Profit before tax 288 311 Taxation 4 (66) (85) Profit for the year 222 226 Attributable to: Equity shareholders of the parent company 219 222 Minority interests 3 4 Profit for the year 222 226 Basic earnings per share 2 5.5p 5.4p Diluted earnings per share 2 5.4p 5.3p Operating exceptional items during the year comprise reorganisation and integration costs and expenditure relating to the two takeover approaches (see note 1 for details). Consolidated balance sheet 2005 2006 Restated At 31 December: Note Â£m Â£m Non-current assets Property, plant and equipment 193 235 Intangible assets 6 3,895 3,947 Investments in joint ventures and associated undertakings 7 66 93 Equity investments 8 37 181 Distribution rights 11 13 Net deferred tax asset 4 - 74 4,202 4,543 Current assets Assets held for sale 132 63 Programme rights and other inventory 400 388 Trade and other receivables due within one year 405 362 Trade and other receivables due after more than one year 7 7 Trade and other receivables 412 369 Cash and cash equivalents 9 961 663 1,905 1,483 Current liabilities Liabilities held for sale - (9) Borrowings 9 (471) (288) Trade and other payables due within one year (706) (734) Trade and other payables due after more than one year (9) (4) Trade and other payables (715) (738) Current tax liabilities (159) (217) Provisions (9) (23) (1,354) (1,275) Net current assets 551 208 Non-current liabilities Borrowings 9 (1,224) (856) Defined benefit pension deficit 5 (285) (532) Net deferred tax liability 4 (7) - Other payables (56) (29) Provisions (18) (29) (1,590) (1,446) Net assets 3,163 3,305 Attributable to equity shareholders of the parent company Share capital 10 401 423 Share premium 10 120 98 Merger and other reserves 10 2,690 2,666 Translation reserve 10 (3) (1) Available for sale reserve 10 17 33 Retained earnings 10 (69) 74 Total attributable to equity shareholders of the parent company 10 3,156 3,293 Minority interest 10 7 12 Total equity 10 3,163 3,305 Consolidated cash flow statement 2006 2005 For the year ended 31 December: Â£m Â£m Â£m Â£m Cash flows from operating activities Operating profit before exceptional items 299 358 Depreciation of property, plant and equipment 32 34 Amortisation and impairment of intangible assets 76 102 Increase in programme rights and other inventory, and distribution rights (10) (30) (Increase)/decrease in receivables (33) 23 Increase/(decrease) in payables 7 (3) Movement in working capital (36) (10) Cash generated from operations before exceptional items 371 484 Cash flow relating to operating exceptional items: Operating loss (35) (29) Increase in payables and provisions* 6 1 Cash outflow from exceptional items (29) (28) Cash generated from operations 342 456 Defined benefit pension deficit funding (207) (118) Interest received 22 20 Interest paid on bank and other loans (66) (42) Interest paid on finance leases (3) (4) Investment income 3 5 Taxation paid (50) (120) (301) (259) Net cash from operating activities 41 197 Cash flows from investing activities Acquisition of subsidiary undertakings, net of cash and cash equivalents acquired and debt repaid on acquisition (3) (208) Proceeds from sale of assets held for sale 40 3 Proceeds from sale of property, plant and equipment - 29 Acquisition of property, plant and equipment (79) (46) Acquisition of intangibles (4) - Acquisition of associates and investments (1) (30) Loans repaid by joint ventures 2 - Proceeds from sale of subsidiaries - 2 Proceeds from sale of investments and associates 157 - Net cash from/(used in) investing activities 112 (250) Cash flows from financing activities Proceeds from issue of ordinary share capital - 50 Purchase of US held shares - (42) Bank and other loans - amounts repaid (13) (88) Bank and other loans - amounts raised 581 322 Capital element of finance lease payments (3) (3) Dividends paid to minority interest (8) - Redemption of preference shares - (8) Share buy-back (251) - Purchase of own shares via employee benefit trust (31) - Equity dividends paid (128) (98) Net cash from financing activities 147 133 Net increase in cash and cash equivalents 300 80 Cash and cash equivalents at 1 January 663 582 Effects of exchange rate changes and fair value movements on cash (2) 1 and cash equivalents Cash and cash equivalents at 31 December 961 663 * Includes Â£6 million (2005: Â£4 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 2006 2005 Â£m Â£m Exchange differences on translation of foreign operations (2) 1 Revaluation of available for sale investments 4 20 Disposal and impairment transferred from available for sale reserve to income statement (20) - Movements in respect of cash flow hedges - (1) Actuarial gains and losses on defined benefit pension schemes 5 29 35 Taxation on items taken directly to equity 4 (4) (8) Net income recognised directly in equity 7 47 Profit for the year 222 226 Total recognised income and expense for the year 229 273 Attributable to: Equity shareholders of the parent company 10 226 269 Minority interests 10 3 4 Total recognised income and expense for the year 10 229 273 Notes to the accounts 1 Exceptional items 2006 2005 Â£m Â£m Operating exceptional items: Reorganisation and integration costs (23) (40) Receipt from liquidators 2 11 Fees in relation to takeover approaches (14) - (35) (29) Non-operating exceptional items: Gain on sale of subsidiaries and investments 57 - Impairment of investments and revaluation of disposal groups held for sale (22) (10) 35 (10) Total exceptional items before tax - (39) In 2006 a charge of Â£23 million, including Â£17 million staff costs, was incurred in respect of reorganisation and restructuring costs including the closure of the Bristol and children's programme production centres, the continuation of the regional news consolidation programme and redundancy and share costs arising from the restructuring of the senior management team. A liquidation settlement of Â£2 million was received from the liquidators of the Shop! Channel. Fees of Â£14 million were incurred in respect of the two takeover approaches received in 2006. A Â£35 million net gain has been recognised from the sale of subsidiaries and the sale and impairment of investments. This includes the profit on disposal of the stakes in Seven Network (Â£29 million) and TV3 (Â£40 million), the loss on sale of the education business (Â£12 million) and an impairment of the holding in SMG, which is held within our producer/broadcaster segment, (Â£22 million) following a significant decline in its share price. 2005 exceptional items included a charge of Â£40 million incurred in respect of reorganisation and integration costs including the consolidation of regional news production centres and technical facilities and redundancy and share costs arising from the restructuring of the senior management team. The largest element of this (Â£25 million) was staff related. Also included in 2005 was an Â£11 million receipt from the liquidators of ONdigital. A Â£10 million loss was recognised in relation to the education business after its classification as a disposal group held for sale. 2 Earnings per share 2006 2005 Basic Diluted Basic Diluted Â£m Â£m Â£m Â£m Profit for the year attributable to equity shareholders of the parent company 219 219 222 222 Exceptional items (including related tax effect of an expense of Â£2 million, 2005: credit of Â£4 million) 2 2 35 35 Profit for the year before exceptional items 221 221 257 257 Amortisation and impairment of intangible assets (including related tax 59 59 71 71 Prior period tax adjustments (36) (36) (7) (7) Other tax adjustments 12 12 4 4 Profit for the year before exceptional items, amortisation and impairment of intangible assets and prior period tax adjustments 256 256 325 325 Weighted average number of ordinary shares in issue - million 4,017 4,017 4,082 4,082 Dilution impact of share options - million - 34 - 46 4,017 4,051 4,082 4,128 Earnings per ordinary share 5.5p 5.4p 5.4p 5.3p Adjusted earnings per ordinary share Basic earnings per ordinary share 5.5p 5.4p 5.4p 5.3p Add: Loss per ordinary share on exceptional items 0.0p 0.0p 0.9p 0.9p Earnings per ordinary share before exceptional items 5.5p 5.4p 6.3p 6.2p Add: Loss per ordinary share on amortisation and impairment of intangible assets 1.5p 1.5p 1.7p 1.7p Subtract: Profit per ordinary share on prior period tax adjustments (0.9)p (0.9)p (0.1)p (0.1)p Add: Loss per ordinary share on other tax adjustments 0.3p 0.3p 0.1p 0.1p Earnings per ordinary share for the year before exceptional items, amortisation and impairment of intangible assets and prior period tax adjustments 6.4p 6.3p 8.0p 7.9p An adjusted earnings per share has been disclosed because in the view of the directors this gives a fairer reflection of the results of the underlying business. 3 Dividends Dividends declared and recognised through equity in the year were: 2006 2005 Â£m Â£m Equity shares: Final 2004 dividend of 1.3 pence per share - 53 Interim 2005 dividend of 1.32 pence per share - 54 Final 2005 dividend of 1.8 pence per share 74 - Interim 2006 dividend of 1.35 pence per share 53 - 127 107 A final dividend of 1.8 pence per share, totalling Â£70 million, has been proposed after the balance sheet date in respect of the year ended 31 December 2006 (2005: 1.8 pence per share, totalling Â£74 million). As is required by IAS 10 (Events after the balance sheet date) this amount has not been provided for at the balance sheet date. 4 Taxation Recognised in the income statement: 2006 2005 Â£m Â£m Current tax expense: Current tax before exceptional items (37) (129) Current tax (expense)/credit on exceptional items (2) 4 (39) (125) Adjustment for prior periods 48 9 9 (116) Deferred tax: Origination and reversal of temporary differences (63) 33 Adjustment for prior periods (12) (2) (75) 31 Total taxation expense in the income statement (66) (85) Reconciliation of taxation expense: 2006 2005 Â£m Â£m Profit before tax 288 311 Taxation expense at UK corporation tax rate of 30% (2005: 30%) (86) (93) Non-taxable/non-deductible exceptional items (2) (8) Non-taxable income/non-deductible expenses (7) (5) Effect of tax losses utilised 4 18 Over provision in prior periods 36 7 Other (11) (4) (66) (85) In the year ended 31 December 2006 the effective tax rate on profits is lower (2005: 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 period's tax liabilities (2005: utilisation of tax losses in respect of which deferred tax assets were not previously recognised). 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 30% (2005: 28%). The current tax expense for the year is reduced primarily as a result of the reversal of temporary differences on which deferred tax assets previously were recognised relating to pension scheme deficits and funding payments. A tax expense totalling Â£4 million (2005: expense of Â£8 million) has been recognised directly in equity representing a current tax credit of Â£2 million (2005: credit of Â£2 million) and a deferred tax expense of Â£6 million (2005: expense of Â£10 million). Deferred tax assets and liabilities recognised and their movements are: Recognised At in the At 31 1 January Business income Recognised Business December 2006 combinations statement in equity sales 2006 Â£m Â£m Â£m Â£m Â£m Â£m Property, plant and equipment (3) - (2) - 1 (4) Intangible assets (155) (1) 17 - - (139) Programme rights 5 - 2 - - 7 Pension scheme deficits 160 - (65) (9) - 86 Pensions funding payments 29 - (8) - - 21 Interest-bearing loans and borrowings, and derivatives 3 - (7) - - (4) Share-based payments 32 - (9) 3 - 26 Unremitted earnings of subsidiaries, associates and joint ventures - - (3) - - (3) Other 3 - - - - 3 74 (1) (75) (6) 1 (7) Recognised At in the Transfer At 31 1 January Business income Recognised to held December 2005 combinations statement in equity for sale 2005 Â£m Â£m Â£m Â£m Â£m Â£m Property, plant and equipment (3) - (2) - 2 (3) Intangible assets (151) (35) 31 - - (155) Programme rights 7 - (2) - - 5 Pension scheme deficits 202 - (31) (11) - 160 Pensions funding payments 2 - 27 - - 29 Interest-bearing loans and borrowings, and derivatives (6) - 10 (1) - 3 Share-based payments 8 18 4 2 - 32 Tax losses 5 - (5) - - - Other 4 - (1) - - 3 68 (17) 31 (10) 2 74 At 31 December 2006 total deferred tax assets are Â£143 million (2005: Â£232 million) and total deferred tax liabilities are Â£150 million (2005: Â£158 million). Deferred tax assets estimated at Â£600 million and Â£100 million (2005: Â£600 million and Â£100 million) in respect of capital losses and loan relationship deficits respectively, have not been recognised due to uncertainties as to 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 Â£10 million (2005: Â£10 million) which time expire between 2017 and 2026 have not been recognised. 5 Pension schemes The Group operates a number of 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 2006 were Â£2 million (2005: Â£2 million). Defined benefit schemes The Group provides retirement benefits to some of its former and approximately 31% of current 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 revaluations rather than projected earning increases. At the balance sheet date the accumulated benefit obligation was Â£2,580 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 most recently completed triennial actuarial valuations in respect of the schemes forming the largest section of the Group's main retirement benefits fund was performed by an independent actuary for the trustees of the scheme and was carried out as at 1 January 2005. As part of the merger exercise, the Group paid Â£325 million into the scheme towards the current deficit. The first triennial valuation of the merged scheme is due to be completed as at 1 January 2008 in respect of the largest section and 31 December 2006 in respect of other sections. In the interim the Group will monitor funding levels annually. The levels of contributions are based on the current service costs and the expected future cash flows of the defined benefit scheme. The Group estimates the duration of UK scheme liabilities will on average fall due over 18 years. The movement in the present value of the defined benefit obligation for these schemes is analysed below: 2006 2005 Â£m Â£m Defined benefit obligation at 1 January 2,604 2,357 Current service cost 23 26 Curtailment loss/(gain) 2 (2) Interest cost 126 125 Net actuarial loss 3 184 Contributions by scheme participants 4 5 Benefits paid (105) (91) Defined benefit obligation at 31 December 2,657 2,604 The present value of the defined benefit obligation is analysed between wholly unfunded and funded defined benefit schemes in the table below: 2006 2005 Â£m Â£m Defined benefit obligation in respect of funded schemes 2,619 2,573 Defined benefit obligation in respect of wholly unfunded schemes 38 31 Total defined benefit obligation 2,657 2,604 The movement in the fair value of the defined benefit scheme assets is analysed below: 2006 2005 Â£m Â£m Fair value of assets at 1 January 2,072 1,685 Expected return on assets 144 112 Net actuarial gain 32 219 Employer contributions 225 142 Contributions by scheme participants 4 5 Benefits paid (105) (91) Fair value of assets at 31 December 2,372 2,072 The assets and liabilities of the scheme are recognised in the balance sheet and shown within non-current liabilities. The total recognised is: 2006 2005 2004 Â£m Â£m Â£m Total defined benefit scheme assets 2,372 2,072 1,685 Total defined benefit scheme obligations (2,657) (2,604) (2,357) Net amount recognised within the balance sheet (285) (532) (672) Amounts recognised through the income statement are as follows: 2006 2005 Â£m Â£m Amount (charged)/credited to operating costs: Current service cost (23) (26) Curtailment (loss)/gain (2) 2 (25) (24) Amount credited/(charged) to net financing costs: Expected return on pension scheme assets 144 112 Interest cost (126) (125) 18 (13) Total charge in the income statement (7) (37) The amounts recognised through the statement of recognised income and expense are: 2006 2005 Â£m Â£m Actuarial gains and (losses): Arising on scheme assets 32 219 Arising on scheme liabilities (3) (184) 29 35 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 Â£59 million (2005: Â£88 million). Included within actuarial gains and losses are experience adjustments as follows: 2006 2005 2004 Â£m Â£m Â£m Experience adjustments on scheme assets 32 219 56 Experience adjustments on scheme liabilities (12) 9 (70) At 31 December 2006 the scheme assets were invested in a diversified portfolio that consisted primarily of equity and debt securities. The scheme assets are shown below by major category along with the associated expected rates of return. Expected long Market Expected Market term rate value long term value of return 2006 rate 2005 2006 Â£m of return Â£m % 2005 % Market value of assets - equities and property 7.6 1,436 7.5 1,421 Market value of assets - bonds 4.5 - 5.2 898 4.1 - 5.6 618 Market value of assets - other 5.0 38 4.5 - 4.9 33 Total scheme assets 2,372 2,072 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. Some of these bond investments are issued by the UK Government. The risk of default on these is very small. The trustees also hold bonds issued by public companies. There is a more significant risk of default on these which is assessed by various rating agencies. 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. The expected return for each asset class is weighted based on the asset allocation for 2007 to develop the expected long term rate of return on assets assumption for the portfolio. The fair value of the scheme assets as a percentage of total scheme assets as at 31 December 2006 and 31 December 2005 and target allocations for 2007 are set out below: The benchmark for 2007 is to hold broadly 60% equities and 40% 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 40% of equities being held in UK and 60% of equities held overseas. Within the bond portfolio the aim is to hold 50% of the portfolio in government bonds (gilts) and 50% of the portfolio in corporate bonds. The actual return on plan assets in the year ended 31 December 2006 was Â£176 million (2005: Â£331 million). Planned 2006 2005 2007 (as a percentage of total scheme assets) Equities and property 60% 61% 69% Bonds 40% 38% 30% Other 0% 1% 1% The principal assumptions used in the scheme valuations at the balance sheet date were: 2006 2005 Rate of general increase in salaries 4.25% 4.00% Rate of increase in pension payment (LPI 5% pension increases) 2.90% 2.75% Rate of increase to deferred pensions 3.00% 2.75% Discount rate for scheme liabilities 5.12% 4.90% Inflation assumption 3.00% 2.75% 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 assumption. 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 tables with mortality projected to 2015/2020 for pensioner members and to 2030/2035 for non-pensioner members. Using these tables, the assumed life expectations on retirement at age 60 are: 2006 2005 Retiring today Males 24.4 24.0 Females 27.4 27.0 Retiring in 20 years Males 25.5 25.2 Females 28.4 28.1 The Group reflected this recognition that mortality rates have reduced in its 2004 valuation. The tables above reflect published mortality investigation data in conjunction with the results of investigations into the mortality experience of scheme members. The allowance for future mortality improvement has been increased from that incorporated for 2005 when mortality was projected to 2015 for pensioner members and to 2030 for non-pensioner members. The sensitivities regarding the principal assumptions used to measure the schemes 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 8% 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 3% Normal contributions into the schemes in 2007 are expected to be in the region of Â£20 million assuming current contribution rates continuing as agreed with the scheme trustees. 6 Intangible assets Goodwill Brands Customer Licences Film Total Â£m Â£m contracts and Â£m libraries Â£m relationships and other Â£m Â£m Cost At 1 January 2005 3,296 173 319 48 82 3,918 Additions 174 26 17 73 4 294 Reclassification as assets held for sale (45) - - - (7) (52) Disposals - - - - (1) (1) At 31 December 2005 3,425 199 336 121 78 4,159 Additions 18 - 2 - 4 24 At 31 December 2006 3,443 199 338 121 82 4,183 Amortisation and impairment At 1 January 2005 5 15 86 4 11 121 Charge for the year - 17 72 7 6 102 Reclassification as assets held for sale (5) - - - (5) (10) Disposals - - - - (1) (1) At 31 December 2005 - 32 158 11 11 212 Charge for the year - 18 24 9 5 56 Impairment charge 20 - - - - 20 At 31 December 2006 20 50 182 20 16 288 Net book value At 31 December 2006 3,423 149 156 101 66 3,895 At 31 December 2005 3,425 167 178 110 67 3,947 Amortisation of intangible assets is shown within operating costs in the income statement. The Â£20 million impairment charge in 2006 related to Carlton Screen Advertising cash-generating unit as a result of structural changes in the cinema advertising market. In calculating this impairment, growth rates and discount rates consistent with those below have been used, and calculations have been made on a value in use basis, using cash flow projections over the next four years. Carlton Screen Advertising is part of the Other operations segment. Impairment tests for cash-generating units containing goodwill The following units have significant carrying amounts of goodwill: 2006 2005 Â£m Â£m Broadcasting 2,963 2,963 Multiple units without individually significant goodwill 460 462 3,423 3,425 The recoverable amount of the Broadcasting cash-generating units is based on value in use calculations. Those calculations use cash flow projections based on actual operating results and the five year business plan. Cash flows in perpetuity are extrapolated using a 2.5% growth rate and are appropriate because broadcasting is a long-term business. The growth rate used is consistent with the long-term average growth rate for the industry. A pre-tax discount rate of 12.5% has been used in discounting the projected cash flows. The key assumptions and the approach to determining their value are: Assumption How determined Total advertising market Long term trends, industry forecasts and macro-economic outlook Television share of advertising market Long term trends, industry forecasts and in-house estimates Digital penetration Industry forecasts and government stated objectives ITV1 share of commercial impacts Impact of digital penetration and historic viewing shares by platform 7 Investments in joint ventures and associated undertakings Joint Associated Total ventures undertakings Â£m Â£m Â£m At 1 January 2005 55 28 83 Share of attributable profits 5 6 11 Other - (1) (1) At 31 December 2005 60 33 93 Additions - 1 1 Share of attributable profits 5 3 8 Disposals - (29) (29) Repayment of loans (1) - (1) Reclassification as assets held for sale (3) - (3) Exchange movement and other (2) (1) (3) At 31 December 2006 59 7 66 The aggregated summary financial information in respect of associates in which the Group has an interest is as follows: 2006 2005 Â£m Â£m Assets 54 143 Liabilities (56) (108) Revenue 118 142 Profit 4 13 The aggregated summary financial information in respect of the Group's share of interests in joint ventures is as follows: 2006 2005 Â£m Â£m Non-current assets 54 66 Current assets 43 49 Current liabilities (26) (27) Non-current liabilities (25) (29) Revenue 62 66 Expense (59) (61) 8 Equity investments Â£m At 1 January 2005 153 Additions at fair value 13 Disposals (3) Revaluation to fair value 18 At 31 December 2005 181 Disposals (90) Revaluation to fair value (6) Reclassification as assets held for sale (48) At 31 December 2006 37 9 Analysis of net debt 1 January Net Currency 31 2006 cash flow and and December acquisitions non-cash 2006 Restated Â£m movements Â£m Â£m Â£m Cash 522 303 (1) 824 Cash equivalents 141 (3) (1) 137 Cash and cash equivalents 663 300 (2) 961 Loans and loan notes due within one year (285) 13 (196) (468) Finance leases due within one year (3) 3 (3) (3) Loans and loan notes due after one year (781) (581) 210 (1,152) Finance leases due after one year (75) - 3 (72) (1,144) (565) 14 (1,695) Net debt (481) (265) 12 (734) Included within non-cash movements is the movement of the Â£200 million Eurobond into amounts payable in less than one year based on its payment due date. 1 January Net Currency 31 2005 cash flow and and December Restated acquisitions non-cash 2005 Â£m Â£m movements Restated Â£m Â£m Cash 441 81 - 522 Cash equivalents 141 (1) 1 141 Cash and cash equivalents 582 80 1 663 Loans and loan notes due within one year (252) (22) (11) (285) Finance leases due within one year (3) 3 (3) (3) Loans and loan notes due after one year (568) (234) 21 (781) Finance leases due after one year (78) - 3 (75) Preference shares (8) 8 - - (909) (245) 10 (1,144) Net debt (327) (165) 11 (481) Included within cash equivalents is Â£75 million (2005: Â£78 million) the use of which is restricted to meeting finance lease commitments under programme sale and leaseback commitments and Gilts of Â£31 million (2005: Â£29 million) over which the unfunded pension promises have a charge. The restatements above are due to the reclassification of the unsecured â‚¬356 million Exchangeable Bond as falling due within one year. 10 Capital and reserves Attributable to equity shareholders of the parent company Share Share Merger Translation Available Retained Total Minority Total capital premium and other reserve for sale earnings Â£m interest equity Â£m Â£m reserves Â£m reserve Â£m Â£m Â£m Â£m Â£m At 1 January 2005 422 91 2,666 (2) 13 (85) 3,105 8 3,113 Cancellation of shares (3) (39) - - - - (42) - (42) Shares issued in the year 4 46 - - - - 50 - 50 Total recognised income and expense - - - 1 20 248 269 4 273 Movements due to share-based compensation - - - - - 18 18 - 18 Equity dividends - - - - - (107) (107) - (107) At 31 December 2005 423 98 2,666 (1) 33 74 3,293 12 3,305 Share buy-backs (24) - 24 - - (251) (251) - (251) Shares issued in the year 2 22 - - - - 24 - 24 Cancellation of convertible shares (12) - - - - - (12) - (12) Issue of deferred shares 12 - - - - - 12 - 12 Total recognised income and expense - - - (2) (16) 244 226 3 229 Movements due to share-based compensation - - - - - (9) (9) - (9) Dividends paid to minority interests - - - - - - - (8) (8) Equity dividends - - - - - (127) (127) - (127) At 31 December 2006 401 120 2,690 (3) 17 (69) 3,156 7 3,163 Included within retained earnings is a Â£25 million (2005: Â£26 million) deduction for investments held in ITV plc shares by the Group-sponsored employee benefit trusts. Merger and other reserves Merger and other reserves at 31 December 2006 include merger reserves of Â£2,548 million (2005: Â£2,548 million), capital reserves of Â£112 million (2005: Â£112 million), capital redemption reserves of Â£24 million (2005: Â£nil) and revaluation reserves of Â£6 million (2005: Â£6 million). Translation reserve The translation reserve comprises all foreign exchange differences arising on the translation of the accounts of, and investments in, foreign operations. Available for sale reserve The available for sale reserve comprises all movements arising on the revaluation of assets accounted for as available for sale. 11 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 interest 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 except where other bases are applied under the Group's accounting policies. During the period, the Group has reviewed its revenue recognition policy for premium rate telephony services recognising the increasing significance of this revenue stream. The Group's policy has consequently been revised to reflect revenue as the amount billed net of operator costs. Previously revenue was shown net of other costs, such as production costs, in addition to operator costs. 2005 revenue and operating costs have therefore been restated, reflecting an increase in both of Â£19 million. The impact of this change in accounting policy in 2006 was that revenue and operating costs are both Â£16 million higher than under the previous accounting policy. 2006 was the first full year of operation of ITV Play which also earns revenues from premium rate telephony services. ITV Play's revenue and operating costs in 2006 would have been Â£34 million lower if the new accounting policy had not been adopted. There is no effect on profit or the balance sheet. At 31 December 2005, the Company had outstanding an unsecured â‚¬356 million Exchangeable Bond which matured in January 2007. The Exchangeable Bond was able to be exchanged at any time at the option of investors for shares in Thomson SA at an exchange rate of â‚¬41.2 per share. At 31 December 2005 the Thomson share price was â‚¬17.7, having traded below â‚¬24 since August 2002. Independent market estimates were that the Thomson share price would not recover to the conversion price by January 2007. The Company therefore took the view that the possibility of exchange before January 2007 was remote and classified the Exchangeable Bonds as a loan repayable between one and two years in the December 2005 balance sheet. IAS 1.60(d) states that - 'a liability shall be classified as current when the entity does not have an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date'. Although, as explained above, it is very unlikely that any bondholder would have exercised its option before January 2007, bondholders could technically exercise that right at any time. Therefore the Company did not have an unconditional right to defer settlement. Accordingly the Company has reclassified the liability as current in its 2005 balance sheet (Â£245 million). The financial information set out herein does not constitute the Company's statutory report and accounts for the year ended 31 December 2006. Statutory accounts for 2006 will be delivered to the Registrar of Companies following the Company's annual general meeting. The auditor has reported on those accounts; their report was unqualified and did not contain statements under 237(2) or (3) of the Companies Act 1985. Copies of the 2006 annual report and accounts will be sent to all shareholders and will be available from the registered office of the Company, 200 Gray's Inn Road, London, WC1X 8HF. This information is provided by RNS The company news service from the London Stock Exchange

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